TOP STORIES

• Intel's Total Investment in Israel Tops $5.7 Billion
• Israel Produces 35 Million Bottles of Wine as Thousands Flock to Wine Expo
• US in Talks With Sovereign Wealth Funds Over Code Of Conduct
• Greek Economy Grows 3.6% in Q4 2007
• Israel's Unemployment Lowest Since 1990s
• MIDDLE EAST: What's So Bad About SWFs?

TABLE OF CONTENTS:

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Knesset Abolishes Inflationary Adjustments Law
1.2 Olmert Promises R&D Will Equal 10% of GDP in 5 Years
1.3 Israel Post Sets New Fees on Packages From Overseas
1.4 BoI to Issue Bank Notes on Polymer

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 Intel's Total Investment in Israel Tops $5.7 Billion
2.2 Microsoft Announces Acquisition of YaData
2.3 Outbrain Raises $5 Million
2.4 N-trig Secures VC Investment Round of $28 Million
2.5 Attunity Receives Notice of Delisting from NASDAQ
2.6 Israel Produces 35 Million Bottles of Wine as Thousands Flock to Wine Expo

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 US in Talks With Sovereign Wealth Funds Over Code Of Conduct
3.2 Gulf Wealth Funds Eye Iconic Edinburgh Street
3.3 Mideast Garden Equipment Sales Surge
3.4 Gulf Islamic Banks Assets To Hit $300 Billion
3.5 Industrial Nanotech Begins Project at GASCO Gas Processing Plant in Abu Dhabi
3.6 Powerwave Opens Dubai Sales Office
3.7 Saudi Prince Alwaleed To Invite Bids For Mile-High Tower
3.8 Rowan Obtains Three-Year Drilling Contract Offshore Saudi Arabia
3.9 TransPerfect Opens New Office in Dubai
3.10 DUBAILAND to Host First Six Flags Theme Park Outside Of North America
3.11 Convergys Upgrades Nawras Telecom’s Billing and Customer Care Platform

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4: ISRAEL MACRO-DEVELOPMENTS

4.1 Israel Signs Final Development Agreement for ‘Green’ Resort & Spa Overlooking Sea of Galilee

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Expert Says Mid East Under Threat Of 'Water War'
5.2 Iraq Agrees to $5 Billion Boeing Deal
5.3 Bahrain Inflation Hits 4.6% On Rising Food Prices
5.4 UAE Business Mired In Red Tape
5.5 Dubai Makes Arabic Labeling Compulsory for Food Products
5.6 UAE Calls 'Health Foods' To Account
5.7 Dubai Workers Jailed Over Violent Protest
5.8 Saudi Inflation Breaks Through 7% Barrier
5.9 Saudi Arabia to End Wheat Growing
5.10 Islamic Holy Cities Rail Link Gets Green Light

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6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS:

6.1 Turkish Inflation Jumps In February Due To Rising Food Prices In Snowy Weather
6.2 Turkish Tobacco Goes To BAT
6.3 Turkish Chemicals Industry's Exports Reach Record $10.4 Billion
6.4 Greek Economy Grows 3.6% in Q4 2007
6.5 Greek Budget Deficit Totaled €9.413 Billion In 2007
6.6 Bulgaria May Construct Gas Pipeline to Greece

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7: GENERAL NEWS AND INTEREST

7.1 President Gul Approves Turkey's Lifting Headscarf Ban
7.2 Christofias Elected New President of Cyprus

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Teva Announces Approval of Generic Camptosar
8.2 Orthocrat Teams up With WebOps to Advance Orthopedic Pre-Surgery Planning
8.3 Orthocrat Launches On-Line Service for Storing & Sharing Pre-Operative Data

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 ECI Telecom Enhances Converged Packet Optical Offering for North America
9.2 RADVISION Delivers Video Conferencing Connectivity to Microsoft’s Unified Communications Solution
9.3 Mellanox ConnectX EN 10GigE NIC Delivers Server Utilization Breakthrough
9.4 Nova & Sokudo Integrate NovaScan CD Metrology on RF3 Lithography Track Systems
9.5 Tutor Deploys ECI Telecom's GPON & WDM Solution in Nancy
9.6 Wavion Access Points to Provide Wi-Fi Coverage to the Nigerian National Assembly
9.7 InRob Supplies Critical Components for Mobile Surveillance System
9.8 Voltaire’s Unified Fabric Powers Q-layer Virtual Private Data Center
9.9 ECI Enhances Fiber Access Portfolio with New FTTB Solutions
9.10 Mobile TeleSystems Multimillion Deal to ECtel for Integrated Revenue Management Solution
9.11 Aladdin Chooses Commtouch Email Defense for Aladdin eSafe Content Security Solution

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's State of the Economy Index Rises
10.2 Israel's Unemployment Lowest Since 1990s
10.3 Internet Used by 72.5% of Jews and 52.5% of Arabs in Israel

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11: In Depth

11.1 MIDDLE EAST: What's So Bad About SWFs?
11.2 ISRAEL: Bank of Israel
11.3 KUWAIT: Inflation Intervention
11.4 IRAQ: Oil Draft Law Remains Deadlocked
11.5 UAE: Politics Show Change of Tack
11.6 DUBAI: The Price of Power
11.7 OMAN: Moody's Issues Annual Sovereign Report On Oman
11.8 EGYPT: Energy to the Fore
11.9 SAUDI ARABIA: Land Transport
11.10 PAKISTAN: Election Points To Stability But Concerns Remain
11.11 TURKEY: The Year of Europe

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1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Knesset Abolishes Inflationary Adjustments Law

The Knesset has unanimously passed a proposal by Minister of Finance Bar-On to abolish the Income Tax Law - Inflationary Adjustments, under which companies deduct inflation from their tax payments. The anachronistic law was passed during the era of hyperinflation in the early 1980s, when inflation reached 400% a year. Bar-On observed that cancelling this law reiterates that the Israeli economy has matured and the time has come, after a delay of many years, to get rid of inflationary adjustments and to apply the tax norms of developed countries. By cancelling this law, the government is sending a clear signal to the business sector of its determination not to allow uncontrolled inflation to return. Beginning with the 2008 fiscal year, companies will not calculate tax deductions or additions because of inflation, which will affect depreciation and carry-over losses. (Globes 02.03)

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1.2 Olmert Promises R&D Will Equal 10% of GDP in 5 Years

Prime Minister Olmert promised that Israel's R&D spending would equal 10% of GDP in five years. He made the comment in a speech to a joint Japan-Israel economic conference in Tokyo. He called on Japanese companies to open R&D centers in Israel and offered tax breaks to companies that do so. Olmert said, "Many large companies from all over the world are already doing this." He noted that they would not invest in opening R&D centers in Israel if they didn’t profit from it. "It works for us and it works for them. I don’t believe that Motorola, IBM, Siemens, General Motors, HP, and many others would invest so much in R&D in Israel if they didn’t think that it was good for them." As for tax breaks, Olmert promised, "We give tax breaks, including zero corporate tax and zero tax on the withdrawal of dividends." (Globes 26.02)

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1.3 Israel Post Sets New Fees on Packages From Overseas

New regulations forbid Israel Post Company from releasing parcels received from overseas from customs as part of its postal services at no cost to customers. Henceforth, customers will have to pay a fee beginning at NIS 35 and ranging up to hundreds of shekels to release parcels. Until now, customs clerks released incoming parcels at post offices. The status of the Postal Authority was changed to Israel Post a few months ago, as part of the government's plan to increase competition in the parcel delivery market. As part of this process, it was decided in early February to remove the customs clerks from the post offices; agents authorized by Israel Post will release parcels from customs. The result of this change is that post office customers will have to pay for this service previously provided for free. According to the Customs and VAT Law, a parcel arriving from overseas with a declared value of up to $50 is exempt from customs duty. Customs is levied on any parcel with a declared value greater than $50 based on the goods sent. Until now, customs agents at the post office would determine the value of the goods and the customs duty to be paid. Customers would pay the duty at the post office when they collected the parcel. With the coming into effect of the new regulations, this process is handled by an authorized agent, who pays the customs duty, which is then passed on to the customer with extra fees added on. (Globes 27.02)

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1.4 BoI to Issue Bank Notes on Polymer

In April, the Bank of Israel will for the first time issue NIS 20 banknotes printed on polymer. The Bank of Israel is currently in the process of delivering sample banknotes printed on polymer to banks, importers of the mechanisms for automatic machines and companies that operate those machines. This is being done so that the machines can be calibrated and adjusted to accept the polymer banknotes. The Bank is also advising other organizations that handle cash, such as public transport companies and commercial enterprises, of the introduction of the new polymer banknotes into circulation in the near future. Polymer is a plastic-type of material that has important advantages when used for banknotes, one of which is its high durability, which extends the life of banknotes. In light of the advantages offered by polymer, its use is growing throughout the world, and currently twenty-six countries use it in the production of their banknotes. The quality of NIS 20 paper banknotes in circulation at present is very low, as the notes change hand very frequently. The use of polymer instead of paper will increase their durability and their lifespan in circulation. When the new notes go into circulation, both they and the current paper notes will be legal tender. The design on the polymer notes is the same as that on the paper notes, except for small changes in the security features. The most notable of these is a transparent window in the polymer notes, as shown below, which is easily recognizable by the public. The window has the number “20” embossed on it. (BoI20.2)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 Intel's Total Investment in Israel Tops $5.7 Billion

Globes reported that the Intel Corp. estimates that it has invested in Israel more than $5.75b since launching activity in the country, including $2b in building the new Fab 28 in Kiryat Gat. The company has obtained nearly $1b in Israeli government grants and expects the figure to reach $1.4b when Fab 28 in completed. The company has also purchased $1.1b worth of goods from Israeli vendors. Intel Israel had $1.54b in exports in 2007, 18.4% more than in 2006, making the company one of Israel's largest exporters. 2007 was a stormy year for Intel Israel. The year included an announcement that it would close the ten-year old Fab 8 in Jerusalem, which is being replaced by Fab 28. Intel, STMicroelectronics and Francisco Partners have set up a flash memory joint venture, called Numonyx, which will take over Intel's Fab 18 in Kiryat Gat. Recently, Intel reached an agreement with Israel's Investment Promotion Center and the authorities under which Intel will replace Fab 8's production line with a new one in exchange for a $150m tax break. The site will be renamed International Die Prep Jerusalem (IDPJ), and become a preparation plant where wafers are protected from handling-induced defects before packaging. Fab 8, which mostly produced circuit boards for the car industry, will cease production in March. Some $650m was invested in Fab 8, which generated $4b in exports over its lifespan. (Globes 27.02)

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2.2 Microsoft Announces Acquisition of YaData

On 27 February Microsoft announced an agreement to acquire Israel's YaData. YaData’s technology will enable Microsoft to provide its advertisers with richer targeting capabilities so they can connect with their audience in more efficient and engaging ways, at the same time providing its customers more relevant and focused ads. The YaData team will join Microsoft's Israel R&D center in Herzliya and YaData’s solutions will be deployed through Microsoft’s Advertiser and Publisher Solutions group. YaData's technology will be integrated into Microsoft's Advertiser and Publisher Solutions group and will add advanced behavioral targeting tools and capabilities to Microsoft's online advertising platform. The addition of YaData’s technology will help Microsoft’s efforts to improve advertisers' ROI and to provide more focused and relevant advertising, tailored to specific client needs. YaData (http://www.yadata.com), founded in July 2006, is headquartered in Tel Aviv, Israel and has received funding from Israeli venture capital funds Giza and Ofer Hi-Tech. The company's solutions provide marketing managers with the tools necessary to automatically identify and target specific customer groups. (YaData 27.02)

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2.3 Outbrain Raises $5 Million

Outbrain has raised $5m in its first financing round. Gemini Israel Funds and Lightspeed Ventures led the round, joined an existing investor, GlenRock Israel. Outbrain provides a platform for readers' rating of internet content and blogs on online news sites and RSS feeds. Bloggers download the company's widget to obtain blogs and news sites that are most relevant to them on a personal basis. The widget software supports most leading blog platforms. Netanya, Israel's Outbrain (http://www.outbrain.com) was co-founded in early 2007. (Outbrain)

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2.4 N-trig Secures VC Investment Round of $28 Million

N-trig has completed a fund-raising round of $28m from Canaan Partners, Evergreen Venture Partners and current investors. In addition to the investment round, N-trig has recently secured a credit facility of $5m from Plenus, a leading Venture Lending Fund in Israel. N-trig’s technology is now being deployed by Dell Computer, with its recent launch of its Latitude XT Tablet PC. Other major brands are expected to announce new products, which raises the bar on the next generation of notebook PCs and other mobile devices currently in development. N-trig is the creator of the only pen and touch/multitouch solution for today’s computing world. N-trig provides a true hands-on computing experience, providing leading OEM brands with new product platforms that help innovate, differentiate, and deliver new user experiences. With global headquarters in Kfar Saba, Israel, N-trig (http://www.n-trig.com) is the provider of DuoSense digitizer technology combining pen and zero-pressure touch for mobile computers into a single device. (N-trig20.02)

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2.5 Attunity Receives Notice of Delisting from NASDAQ

Attunity announced that it had received notice from the staff of the NASDAQ Stock Market on February 13, 2008 indicating that Attunity has failed to comply with the minimum $1.00 per share requirement for continued listing as set forth in Nasdaq's Marketplace Rule 4450(a)(5) and that the Company's ordinary shares were delisted from The NASDAQ Capital Market at the opening of business on February 22, 2008. When delisted from the NASDAQ Capital Market, the Company expects that its shares will be traded on the OTC Bulletin Board. The Company is obligated and will continue to file its periodic reports with the U.S. Securities and Exchange Commission, including Annual Reports on Form 20-F and periodic reports on Form 6-K. Headquartered in Boston and Kfar Netter, Israel, Attunity (http://www.attunity.com) is a leading provider of enterprise-class software for application and data integration, and workplace solutions in the Composite Applications market. Building on nearly 20 years of history delivering data integration solutions, Attunity is now one of the leading innovators in the Composite Applications space, delivering workplace-solutions with its flagship product Attunity InFocus. Attunity InFocus is designed to dramatically enhance the effectiveness of business managers at all levels by helping focus their judgment, experience and knowledge on resolving business problems, exceptions and issues that tend to dominate their day. (Attunity20.02)

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2.6 Israel Produces 35 Million Bottles of Wine as Thousands Flock to Wine Expo

The recent IsraWineExpo 2008 (26-28 February) attracted several thousand Israelis and trade representatives from more than a dozen countries. If there was any doubt that Israel is serious about becoming a major wine producer this event was the definitive proof. By and large the wines were kosher, several sporting U.S. certifications, including Tania from Ofra that had the OK Kosher Certification. To prove that Jews are no newcomers to wine, a new book by Amos Addas traced the archeological DNA for wine drinking. The book, 'The Vines and Wines Archeology in Eretz Yisrael,' is in Hebrew but is due to be translated into English. Some of the booths of the larger wineries including Carmel and the wineries of the Golan Region were magnificent as were booths of the smaller wineries. Amongst the other well-known Israel wineries were Barkan, Binyamina, Dalton, Recanati, Segal, Tabor, Tishbi, and Yad Mordechai. Integrated amongst the wines was a magnificent display of Israeli premium cheeses from Jacobs Farms, a family owned business founded in 1936 that claims some of the best goat and sheep cheeses, all with high standard kosher certifications. Several of the gourmet cheeses, including an exceptional blue cheese went well with the quality wines nearby. For Israel's wine industry, the most encouraging part of the show was simply watching thousands of Israelis (a significant number from Tel Aviv) walk around the exhibit hall with their tasting glasses hanging on a lanyard and seriously comparing the quality of the hundreds of wines on display. With Purim and Pesach just weeks away, many made instant purchases, some already gift-packed. ISRAWINEXPO 2008 was organized by the Israel Export & International Cooperation Institute (IEICI), the Israel Trade Fairs and Convention Center, Israeli Wine Magazine and Grape Man - Wine Center. The Ministry of Industry, Trade & Labor, the Ministry of Agriculture and the Israel Wine & Grape Board sponsored the event. (KTW03.03)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 US in Talks With Sovereign Wealth Funds Over Code Of Conduct

US Treasury officials have met executives from two of the world's largest sovereign wealth funds to discuss embracing a set of promises not to use their wealth for political advantage, the Wall Street Journal reported on 26 February. The US delegation met executives from the Abu Dhabi Investment Authority (ADIA) and from the Government Investment Corporation (GIC) of Singapore recently. The talks are part of global negotiations to draft rules to oversee the behavior of such funds without discouraging them from investing in the US at a time of global financial turmoil. Sovereign wealth funds are huge pools of government-controlled investment cash and have recently invested in banks including Citigroup, Merrill Lynch & Company and UBS AG. (AB26.02)

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3.2 Gulf Wealth Funds Eye Iconic Edinburgh Street

Sovereign wealth funds from Qatar, the UAE and Kuwait are in talks about buying up the whole of Princes Street in Edinburgh for $2.66b. The City of Edinburgh Council has approached a number of funds with a view to reducing the number of owners and funding a world-class redevelopment of the iconic shopping street. The council’s economic development leader they were talking to individuals with access to sovereign funds. The funds were not named press reports, however nations with the biggest war-chests include the UAE, Kuwait and Qatar. According to the report, under the present ownership pattern a takeover by sovereign funds could take up to 10 years, as potential buyers would have to track down owners and negotiate a series of complex deals. External investment companies own around 85% of buildings on the street, which has seen its fortunes fade in recent years with properties with unrivalled views of the city languishing as storerooms, the report said. (AB25.02)

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3.3 Mideast Garden Equipment Sales Surge

The GCC states are creating unprecedented demand for landscaping design, garden equipment and outdoor living products, according to a research by Epoc Messe Frankfurt. According to recent statistics, up to five million residential units are under construction in the GCC, including more than 1,400 new high-profile developments collectively valued at more than $680.73b. The building boom will see hundreds of millions of dollars being spent on new housing developments, apartment blocks, hotels, leisure facilities, office developments shopping malls and even islands over the next five years. The housing upsurge will fuel a secondary boom for the garden and landscaping sectors, as these developments will require hundreds of square kilometers of landscaping. Projects such as Dubailand will require vast amounts of landscaping, as will of course the Palm Islands and the World Projects. Add to this new golf courses and park facilities and it is not surprising that it is currently estimated that over $20b is expected to be spent on gardens and landscaping in the next five years. There are forecasts that by 2010, Dubai’s new homes, apartments, hotels and clubs will see as many as 5,000 new swimming pools being built. The number of new houses currently being built will require over five million square meters of lawns to be laid. (TradeArabia 23.02)

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3.4 Gulf Islamic Banks Assets To Hit $300 Billion

The 22 Islamic banks in the Gulf have in excess of $300b of Sharia-compliant assets and are set for double-digit growth over the next ten years, leading global financial services firm Morgan Stanley has said. The company predicted strong growth for the Islamic banking sector driven by a robust outlook for the region and an increasing share of system assets. Most Islamic banks lacked scale, the products were complex and there was no single global regulatory body. However, Morgan Stanley observed, despite these potential setbacks, the underlying growth drivers will more than offset these structural impediments. (AB20.02)

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3.5 Industrial Nanotech Begins Project at GASCO Gas Processing Plant in Abu Dhabi

Naples, Florida's Industrial Nanotech, an emerging global leader in nanotechnology, announced the commencement of an initial application of the company’s patented Nansulate coatings by Abu Dhabi Gas Industries (GASCO), at their Ruwais plant. The application is being overseen by the company’s U.A.E. distributor, the Al Samah Company. The total size of this project has not yet been determined and it will be ongoing. GASCO is currently going through a major expansion and modernization phase with four mega-projects involving capital investment outlay of approximately $6b. These projects, on being completed by early 2008, will make GASCO the largest gas processing plant in the world. Further growth plans are already underway under the Gas Master Plan and Integrated Gas Development Program (GMP & IGD). (Industrial Nanotech 26.02)

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3.6 Powerwave Opens Dubai Sales Office

Santa Ana, California's Powerwave Technologies, a premier source for end-to-end wireless infrastructure solutions around the globe, announced the opening of a new sales office in Dubai, U.A.E., affirming its commitment to serving its growing customer base in the Middle East. The Dubai office will serve regional OEMs and operators by providing sales, technical and customer support. Powerwave is focused on building its presence in the Middle East, which it sees as a key growth market. In November 2007, U.A.E.-based market research firm ProLeads issued a report suggesting that the six oil-rich Gulf Cooperation Council (GCC) countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the U.A.E. – will invest as much as $375b on expansion of telecom and related infrastructure over the next decade. Powerwave has been serving the Middle East region since its 2004 acquisition of LGP Allgon Holding AB, a leading expert in the field of multiband Distributed Antenna Systems (DAS). (Powerwave Technologies04.03)

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3.7 Saudi Prince Alwaleed To Invite Bids For Mile-High Tower

Kingdom Holding Company, controlled by Saudi Prince Alwaleed bin Talal, plans to invite bids before July for contracts to build the world's tallest tower in Saudi Arabia. The Mile High Tower, which could reach 1,600 meters in height, is to be built in the Red Sea port city of Jeddah and may cost up to $10b. Dubai's Emaar Properties, the largest Arab developer by market value, is currently building the Burj Dubai, part of a $20b project in the emirate, which it says will be the world's tallest building. The Mile High tower could be twice as tall as the Burj Dubai. (AB23.02)

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3.8 Rowan Obtains Three-Year Drilling Contract Offshore Saudi Arabia

Houston, Texas' Rowan Companies announced that its Tarzan Class jack-up, Bob Keller, has been awarded a term drilling contract for work offshore Saudi Arabia. The contract provides for a three-year term, over which the Company expects total revenues of approximately $201m and contains an option for a fourth year. The Bob Keller recently concluded work in the Gulf of Mexico and is en route to the Middle East. The rig is expected to commence drilling operations during the second quarter of 2008. Rowan Companies is a major provider of international and domestic contract drilling services. The Company also owns and operates a manufacturing division that produces equipment for the drilling, mining and timber industries. (Rowan21.02)

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3.9 TransPerfect Opens New Office in Dubai

New York's TransPerfect, the world’s largest privately-owned language services company, announced the opening of its newest office in Dubai, UAE. The decision was motivated by the city's growth-oriented business climate and influx of multinational corporations. This new office will enable the company to better serve existing and future clients throughout the Middle East. The feel that since 80 % of the population in Dubai is made up of expatriates., the need for service businesses to support the emirate’s growth is clear. TransPerfect is a family of companies including TransPerfect Translations, Translations.com, and Deal Interactive, as well as specialized Staffing, Deposition Services, Document Management, Transcriptions, and Multicultural Marketing divisions. TransPerfect is the largest privately held language service provider in the world. (TransPerfect26.02)

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3.10 DUBAILAND to Host First Six Flags Theme Park Outside Of North America

Tatweer, a member of Dubai Holding, announced a strategic alliance with US-based Six Flags, the world's largest theme park company, to develop thrill-driven theme parks across the Arab world. The highlight of the strategic alliance will be the development of Six Flags DUBAILAND, a five million square feet multi-billion dirham theme park within the world's largest tourism, leisure and entertainment destination. The first Six Flags project to be developed outside of North America, the theme park comes as part of Tatweer's tactical contribution to Dubai Strategic Plan 2015, which aims to develop the emirate into a leading global hub for tourism and leisure. Featuring its signature line-up of thrill and themed adventure rides and attractions, Six Flags DUBAILAND will boast world renowned entertainment franchises such as the children's musical group Wiggles and professional skateboarder Tony Hawk. The park's unique components will complement Six Flags' award-winning productions and original programming, such as Operation Spygirl, the 'Big E' Entertainment Award recipient at the 2007 IAPAA Trade Show and Convention. Tatweer and Six Flags DUBAILAND also will work together to integrate their expertise to create new concepts across the region, such as Six Flags theme and water parks, branded restaurants, hotels and retail outlets that will holistically offer unique travel and vacation opportunities for tourists, families and visitors worldwide. (Six Flags04.03)

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3.11 Convergys Upgrades Nawras Telecom’s Billing and Customer Care Platform

Cincinnati, Ohio's Convergys Corporation, a global leader in relationship management, has upgraded Nawras’ billing and customer care system to a newer version of the Convergys Infinys solution. Nawras, winner of the CommsMEA 2007 Middle East Mobile Operator of the Year, provides 96% countrywide coverage in Oman, and has over one million customers. The system upgrade from Convergys is providing Nawras with expanded capabilities to launch converged voice and data services to both pre- and post-paid customers. These include next generation services based on IP and bundles of voice, data, and video with cross-product discounts. The upgrade follows Convergys’ product road map for wireless operators and was completed on time and within Nawras’ budget. The Omani Qatari Telecommunications Company SAOC was founded and registered in Oman in December, 2004. It launched its service in March, 2005, as the second mobile operator in Oman operating under the name Nawras. The majority shareholder in the Omani Qatari Telecommunications Company SAOC is Qtel, the leading telecommunications provider in Qatar, where it offers quadruple play services including mobile, fixed, internet and television services. (Convergys27.02)

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4: ISRAEL MACRO-DEVELOPMENTS

4.1 Israel Signs Final Development Agreement for ‘Green’ Resort & Spa Overlooking Sea of Galilee

Israel Resorts & Clubs, a Florida-based resort development company, announced that the Israel Land Authority had executed the final agreement necessary for the Company to proceed to develop a $150m ultra-luxury “Eco-Resort”. The environmentally friendly and culturally sensitive project will be built on historic Mt. Arbel as Israel’s premier resort property. (http://www.israelbythesea.com) The project will exemplify green principles and technologies and be built to LEED specifications. An $8m water treatment plant on Mt. Arbel that will accommodate the needs of the project has already been completed. Mt. Arbel is the Sea of Galilee’s most prominent landmark, with cliffs rising 400 meters and a 2,400-dunam plateau that adjoins the vast Mt. Arbel Nature Reserve. The site boasts 360-degree, panoramic views and will be home to a world class spa that will introduce Kabbalistic healing secrets, a “Chefs of the World” culinary program, an organic farm, a winery, a beach club, a tennis academy, and 18 holes of championship golf on a Scottish links course sculpted by a world renowned golf designer. There will also be social, golf and residence club programs, with cultural, spiritual, sports and touring activities organized for members, a dedicated clubhouse, and large suites and villas featuring private gardens and pools. Cushman & Wakefield Sonnenblick Goldman, LLC, of New York has been engaged to arrange venture and construction financing. Closing of the financing is projected for the second half of 2008, with a grand opening targeted for 2011. (IRC28.02)

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Expert Says Mid East Under Threat Of 'Water War'

The Middle East is facing the threat of a ‘water war’ unless Saudi Arabia, Lebanon, Jordan and Iraq address their huge water wastage problems, the head of utilities at specialist water group Metito said. About half the water produced does not reach the region’s public, resulting in a massive waste of a limited resource. Speaking at a water efficiency forum in Dubai, he warned that water leakages in Saudi Arabia, Iraq, Jordan and Lebanon run at over 50%. Meanwhile, the UAE’s water loss percentage is only 11%, which is below the acceptable limit of 15%, meaning the Gulf nation is one of the lowest ranking countries in terms of regional water loss. Middle East governments were urged to accelerate the installation of efficient water appliances, since the current lack of infrastructure is increasing pressure on the region’s demand for fresh water. The industry warning comes after Dubai's state-owned utility Dewa said it would introduce a new tariff system from March which would raise prices for those who consume the most. The new "sliding scale" tariff system wants to encourage customers who fall into the higher categories of consumption to cut back on use. The new tariff does not apply to UAE nationals. According to Dewa, the city's average individual consumption of 20,000 kilowatt hours a year and 130 gallons of water a day is higher than the US, UK and Singapore. (AB19.02)

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5.2 Iraq Agrees to $5 Billion Boeing Deal

On 19 February, Iraq said it had agreed to buy 40 new aircraft from US plane maker Boeing and six from Canada's Bombardier for state-run Iraqi Airways in a deal worth up to $5b. An earlier government statement had said Iraq would buy the 40 Boeing jets and had agreed an option for 10 more. The Boeing jets are due for delivery in 2015, and the Canadian aircraft are due this year and in 2009. No details on the type of aircraft were immediately available. In December, majority stakes in three Iraqi Airways units are also to be sold this year to private investors to raise $100m. The government will sell stakes of between 60 and 65% in the carrier’s ground handling, maintenance and catering units. Iraq's national carrier grounded its planes in the early 1990s due to UN sanctions and much of the carrier's fleet and assets were destroyed during the 2003 US-led war and in subsequent looting. The airline resumed international flights in 2004 and now operates to Amman, Cairo, Damascus, Beirut and Dubai. It currently owns just two aircraft and leases a limited number of other planes. (AB20.02)

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5.3 Bahrain Inflation Hits 4.6% On Rising Food Prices

Inflation in Bahrain, the smallest Gulf Arab economy, rose 0.6% in January from the previous month as food costs climbed, the government's Central Informatics Organization (CIO) announced. Bahrain's consumer price index was 104.64 points at the end of January compared with 104.07 points in December, the CIO said on its website, without giving a comparative index figure for January 2007. Food, beverage and tobacco costs climbed 2.1% in January from December while housing costs were steady, the data showed. The CIO took over calculation of Bahrain's consumer price index from the Central Bank of Bahrain in 2006. It said in January it was using 2006 as its base year, and that calculations of annual inflation for each month would be done at a base of 100 points until it works out new weights to calculate prices for previous years. That would indicate annual inflation in January of 4.64% compared with 4.07% in December. Bahrain said in January it had allocated $106.2m to help citizens cope with a rise in the price of basic goods. Like most of its neighbors in the world's top oil-exporting region, Bahrain pegs its currency to the dollar, forcing it to track US monetary policy when the Federal Reserve is slashing interest rates to ward of recession. By contrast, Gulf economies are surging on a five-fold rise in oil prices in the last six years. (AB02.03)

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5.4 UAE Business Mired In Red Tape

The UAE is the most difficult of all the GCC countries to do business in, according to a report by the World Bank presented at a workshop in Dubai on 27 February. The Doing Business 2008 report places the Emirates 68th out of 178 countries, below Saudi Arabia (23), Kuwait (40) and Oman (49). The World Bank said Saudi Arabia’s high ranking came after it eliminated the bureaucracy which had previously ranked it as one of the world’s most difficult places to start a business. The UAE’s low ranking is due to the challenges in starting a business, protecting investors, getting credit, and enforcing contracts, the report said. The report found that it took 62 days to start a business in the UAE, with eleven separate procedures required. The minimum capital to start a business is 312.4% of the average income per capita. The study also placed the UAE in the top 10 areas for ease of registering property and paying taxes. Other Middle East countries ranked in the report included Jordan (80), Lebanon (85), Yemen (113), Egypt (126) and Iran (135). Singapore topped the ease of doing business rankings, followed by the US and New Zealand. The World Bank report follows a low UAE position in the 2008 Index of Economic Freedom which was published last month. The UAE government later disputed the index, which ranked the UAE below neighboring countries Bahrain, Oman, Jordan and Kuwait in terms business freedom, investment freedom, property rights and other economic areas. (AB27.02)

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5.5 Dubai Makes Arabic Labeling Compulsory for Food Products

Arabic labeling has been made compulsory for all food products entering UAE ports for local consumption or re-export. Food products that are not labeled in Arabic will be turned back from UAE ports after the end of March. Traders who import food for local consumption or re-export have been told they must comply with new regulations to meet food quality standards of the Emirates Authority for Standardization and Metrology (ESMA). After the three-month notice period such food products will not be allowed entry into the UAE. Up to 40 health inspectors have been stationed at each Dubai port to enforce the legislation. (AB02.03)

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5.6 UAE Calls 'Health Foods' To Account

Health foods in the UAE will soon be regulated as the Ministry of Health addresses the issue of medical claims made by some products. The Health Ministry and General Secretariat of Municipalities (GSM) are to form a joint committee to regulate health foods, including nutritional supplements and energy bars. Under the new system businesses would be required to seek approval before marketing any health food products, in a bid to protect consumer rights and ensure product safety. The head of food control at the Dubai Municipality said this includes power bars and energy bars, which will be tested for safety and if their claims can be substantiated before they can be sold. The committee would be authorized to recall products which fail safety tests, or demand that companies modify certain claims. Pharmaceuticals are currently regulated by the Ministry of Health, while food products come under the authority of the GSM. (AB27.02)

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5.7 Dubai Workers Jailed Over Violent Protest

A Dubai court sentenced 45 Indian construction workers to six months in jail followed by deportation for involvement in violent protests to demand pay increases. Late in 2007, workers closed down roads, assaulted police and overturned vehicles in one of several protests calling for better pay and living conditions. The court found the workers guilty of charges including holding illegal gatherings, vandalism and violating public security. Dubai, where labor unions are banned, has long faced criticism from human rights groups who say it turns a blind eye to cases of the non-payment of wages, lack of medical care and sub-standard housing for workers. Construction workers in the booming Gulf trade hub, which is building the world's tallest tower and manmade islands, have long complained about poor working conditions. The government has revised the labor law to include requirements that employers pay for migrant workers' travel, employment permits, medical tests and healthcare. It has also closed down some workers' camps that do not meet health and safety standards in a crackdown on firms abusing foreign workers. But in March, the New York-based watchdog Human Rights Watch said a UAE draft labor law fell far short of international standards for the rights of workers. Some of the problems begin in the workers' home countries, where many illiterate workers are recruited with false promises of good pay and sign contracts they cannot read. Foreigners, from workers to high-income executives, comprise more than 85% of the UAE's population of about 4.5 million. Many cities in the Gulf region are growing as governments plough oil revenue windfalls into ambitious development and infrastructure projects that rely on guest workers, mainly from the Indian subcontinent. (Reuters24.02)

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5.8 Saudi Inflation Breaks Through 7% Barrier

Saudi inflation hit 7% in January, its highest level in more than a quarter century, as rents and food costs spurred price rises in the world's largest oil exporter for a ninth straight month. Saudi Arabia has been grappling with inflationary pressures as the economy, the largest in the Arab world, booms on a near five-fold rise in oil prices since 2002 and because it pegs its riyal to the weak US dollar, pushing up some import costs. Rents in the kingdom jumped 16.7% year on year in January, data from the Central Department of Statistics showed. Housing costs were the main driver of inflation, at its highest since at least 1981. In addition, demand for office space alone surged 130% in 2007 over the year earlier. The cost of living index was 111.7 points on January 31 compared with 104.4 points a year earlier. Prices in January rose 1.36% from December, the fastest month-on-month increase in at least nine years. Annual inflation hit 6.5% in December. The Saudi government has tried to offset the impact of rising prices on its 25m people through measures including public sector cost of living allowances, welfare payments and subsidies. But like most of its neighbors in the world's biggest oil-exporting region, Saudi Arabia's dollar peg forces it track American monetary policy at a time when the Federal Reserve is cutting interest rates to ward off recession. Food and beverage costs, which are impacted by a rise in global commodity prices and a weaker currency, rose 7.9% in January, the data showed. Saudi Arabia last year imported almost 25% of its goods from Europe and 8.4% from Japan, while another 13.4% came from the US, according to central bank data. The US dollar, to which the riyal has been fixed for 22 years, fell to record lows against the euro and a basket of major currencies in November. As inflation overtakes official borrowing costs in Saudi Arabia, the central bank has struggled to match five Fed rate cuts since September 18 which have taken the US benchmark rate down 225 basis points to 3%. Saudi Arabia has reduced only its reverse repurchase rate, which guides bank deposit rates, in response to the cuts while leaving its benchmark repurchase rate, the lending rate, steady at 5.5%. The central bank also raised reserve requirements twice in two months to force lenders to keep more money in their vaults in a bid to slow down credit growth, another trigger of inflation. (Various23.02)

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5.9 Saudi Arabia to End Wheat Growing

Shortly after the first oil-price run-up of 1973-74, the Saudi rulers decided that they needed to protect themselves against a reverse boycott by the farming superpowers, and so they poured immense resources into a wheat self-sufficiency program. When it began, the government offered farmers an exorbitant $933 per ton, many times higher than the market price. That amount was then reduced to a still-princely $267 per ton. Over the three decades, the program massively depleted both the government's finances and water resources without ever being in any way necessary, for the farming powers never had any intention of blockading the kingdom. Also, the smuggling of wheat into Saudi Arabia became a big business; especially from nearby Egypt, where the government makes wheat available at lower-than-market prices. The changes will take place gradually. Currently, Saudi farmers turn out 2.5m tons a year of durum and soft wheat, which suffices to meet domestic demand. Agriculture and finance ministries announced that government purchases of locally-produced wheat will go down by 12.5% annually each year for eight years, until it weans itself off the high-priced local produce in 2016. (Daniel Pipes09.01)

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5.10 Islamic Holy Cities Rail Link Gets Green Light

Saudi King Abdullah on 20 February approved a high-speed rail link between Islam's holy cities of Mecca and Medina via the commercial hub of Jeddah. The project, first floated years ago to help transport the hundreds of thousands of Muslims who visit the kingdom for the annual hajj pilgrimage, will be financed by Saudi investment funds. The new rail link aims to transport an estimated 10 million umrah and haj pilgrims every year. It includes the construction of approximately 500 km of high-speed electric railway lines between the three cities. Jeddah on the Red Sea is the required port of entry for Muslims performing the year-round umrah, or minor pilgrimage to Mecca and Medina. It is also the port of entry for the main hajj which precedes the annual Feast of the Sacrifice, or Eid al-Adha, and brings together more than two million of the faithful. The trains will travel at up to 300 kilometers (180 miles) per hour, allowing a Mecca-Jeddah journey time of half an hour and Jeddah-Medina in two hours. The network is part of a massive kingdom-wide railway project, which also involves the construction of 950 kilometers of new tracks between Riyadh and Jeddah, and another 115 kilometers of track between Dammam and Jubail. Last April the Saudi government awarded three contracts totaling $1.9b for the construction of railways covering 1,100 miles. (AB21.02)

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6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS:

6.1 Turkish Inflation Jumps In February Due To Rising Food Prices In Snowy Weather

The Turkish Statistics Institute (TurkStat) has announced Turkey's February inflation rates at 1.29% in consumer prices and 2.56% in producer prices as the month's snowy weather boosted food prices. The actual rates exceeded the inflation expectations of the CNBC-e pool, which had predicted a 0.47% rise in consumer prices and a 0.69% rise in producer prices. Year-on-year inflation as of the end of February also increased, hitting 9.1% in consumer prices and 8.15% in producer prices. The Turkish Central Bank's year-end inflation target was 4% for 2008, but Turkey saw half of this inflation rate in just one month. The highest annual increase was 14.75% in the housing index over same month of the previous year. Alcoholic beverages and tobacco prices increased by 14.34%; food and non-alcoholic beverages by 12.93%; and hotel, cafe and restaurant prices jumped by 11.02%. The highest monthly increase in February was in food and non-alcoholic beverage prices, at 5.05%. The consumer price indices rose for miscellaneous goods and services by 1.73%; for hotels, cafes and restaurants by 0.90%; for furnishings and household equipment by 0.86%; for transportation by 0.54%; for housing by 0.39%; for communications by 0.12%; for health by 0.07%; and for alcoholic beverages and tobacco by 0.02%. The indices declined for education by 0.03%, while for clothing and footwear dropped by 6.93% due to discount sales and campaigns. The index remained the same for recreation and culture. The highest price increase was for cucumbers, by 62.69% in February, while the price of green peppers rose by 45.51%. Women's boots saw the largest decline, at 12.14%. (Zaman 04.03)

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6.2 Turkish Tobacco Goes To BAT

British American Tobacco, the producer of Lucky Strike cigarettes, bid $1.72b to win an auction for Turkey's national cigarette producer Tekel, gaining access to the local market where more than half of adult males smoke. If the sale is approved, BAT will reach to a 36% market share in Turkey. BAT beat rivals including Citigroup Venture Capital International, CinVen Ltd., and Dogan Holding. The sale was Turkey's third attempt to off-load Tekel under a $10b International Monetary Fund loan accord that aims to cut the state's role in the economy. It is felt that BAT will hold a great market position in Turkey once the State’s Competition Board approves the process through the consideration of market share of each producer. Emerging market tobacco companies are drawing interest as governments in Western Europe ban smoking in public places and launch anti-smoking health campaigns via harsher regulations. (BGC25.02)

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6.3 Turkish Chemicals Industry's Exports Reach Record $10.4 Billion

Turkish chemicals industry's exports rose by 19.24% in 2007 when compared to the previous year, and reached a record amount of $10.4b. Turkey's chemical industry includes products such as detergents, fertilizers, medical chemicals, paints, polishers, fiber, agricultural chemicals, plastics and natural rubber. The chemicals industry proved in 2007 that it is the engine of the Turkish economy. Total production of the chemicals industry in Turkey reached a value of around $50b in 2007. Exports from the chemicals industry constituted 10% of all Turkish exports in 2007. EU countries received the majority of Turkish chemicals exports in 2007. (TNA26.02)

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6.4 Greek Economy Grows 3.6% in Q4 2007

The Greek economy grew by 3.6% in the fourth quarter of 2007, compared with the same period in 2006, the National Statistical Service (NSS) announced on 4 March. NSS, in a report, attributed the growth to a 2.7% increase in final demand of the economy in the October-December period, while noting that investments fell by 3.5% during the same period. Exports grew by 8.9% in the fourth quarter, compared with the same period in 2006, while imports fell by 0.1%. Spending on final consumption rose 3.1%, contributing 2% to the growth of final demand of the economy. (HRI04.03)

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6.5 Greek Budget Deficit Totaled €9.413 Billion In 2007

Greek regular budget revenues rose by 8.1% last year, matching a goal set by the 2007 budget. A Finance Ministry report said that public sector spending rose by 9.0%, slightly lower from a 9.8% growth rate envisaged in the budget, while primary spending grew by 10.6% and spending on interest rose by 2.1%, compared with growth rates of 11.7% and 1.7%, respectively, set as targets in last year's budget. The budget deficit rose to €9.413b last year, slightly up from a €9.387b target, reflecting higher costs for compensations from last summer's devastating fires, the general elections and repayment of debt to Olympic Airlines. Spending on the Public Investments Program rose by 7.6% to €8.803b in 2007, while the program's revenues grew by 29.1% to €4.872b. (ANA23.02)

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6.6 Bulgaria May Construct Gas Pipeline to Greece

Bulgaria may build an 80 km natural gas pipeline between its southern city of Haskovo and Komotini in northern Greece. The link would be joined to an existing pipeline between Turkey and Greece and carry natural gas from Iran or Azerbaijan to Bulgaria’s southern regions along the Greek border, Bulgaria’s Economy & Energy Minister Dimitrov said in Sofia on 25 February. Bulgaria would negotiate additional gas supplies with Iran and Azerbaijan should the project be implemented, Dimitrov said. The Balkan country signed a contract with Russia’s OAO Gazprom until 2030, as well as an accord for the South Stream pipeline, a link that stretches from Russia to the European Union via the Black Sea. (Bloomberg26.02)

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7: GENERAL NEWS AND INTEREST

7.1 President Gul Approves Turkey's Lifting Headscarf Ban

On 22 February, Turkish President Gul approved the controversial constitutional amendments that will allow the lifting of the headscarf ban at universities. Gul's office issued a written statement saying the constitutional amendments did not contradict the general principles of the law and basic principles of the Republic. Turkey's secularist opposition claims the lifting of the bans would amount to violation of the secularist system which is the foundation of the Turkish Republic. It was understood that constitutional amendments - in Articles 10 (equality) and 42 (right to education) of the Constitution - aimed to strengthen the equality principle and right to education. The first amendment (to article 10 of the Constitution) inserts the statement "...and in benefiting from all public services" in the last sentence of the article 10 of the Constitution "equality before the law." Under this amendment, last sentence of article 10 says "state organs and administrative authorities shall act in compliance with the principle of equality before the law in all their proceedings and in benefiting from all public services." The second amendment (on article 42 of the Constitution on "Right and Duty of Training and Education") adds the paragraph "no one can be deprived of his/her right to higher education for reasons not openly mentioned by laws. The limits of the use of this right will be determined by law." The Law No. 5735 envisages amendments in Articles 10 (equality) and 42 (right to education) of the Constitution.

Meanwhile staunchly secularist Republican People’s Party (CHP) said it was considering taking the amendments to Turkey’s top court to annul it. The CHP officials say that the Constitutional Court would invalidate the amendments arguing that they were in contradiction with the constitutional principle of secularism. (TNA23.02)

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7.2 Christofias Elected New President of Cyprus

Demetris Christofias, House President and General Secretary of left-wing AKEL party, was elected the new President of the Republic of Cyprus. Christofias won the second round of the presidential elections by securing 53.36% of the valid votes. His opponent, Ioannis Kasoulides, received 46.64% of the votes. This is the first time that AKEL party contested the presidency by putting forward its own candidate, the party General Secretary, Demetris Christofias.

Christofias' win makes strategically important Cyprus a rarity among EU nations -- a country led by a president with firmly communist roots. Christofias has close ties with the Turkish Cypriot left wing, relations that have raised hopes for quickly restarting long-stalled negotiations with the breakaway Turkish Cypriot state. Reunification of the Greek Cypriot south and the Turkish Cypriot north would remove one of the obstacles to Turkey's efforts to join the European Union. It would also ease strong objections to Kosovo's new independence among Greek Cypriots who fear it would act as a precedent for north Cyprus. It was the promise of an end to the stalemate over the country's division that produced the surprise exit of hard-line incumbent Tassos Papadopoulos in a first-round vote last week. Christofias and Kasoulides were running neck-and-neck until the last minute. Nearly 516,000 voters -- including 390 Turkish Cypriots living in the south -- were eligible to vote. Turkish Cypriot voters in the northern breakaway state were not. (Various24.02)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Teva Announces Approval of Generic Camptosar

Teva Pharmaceutical Industries announced that the U.S. FDA has granted final approval for the Company’s Abbreviated New Drug Application (ANDA) to market its generic version of Pfizer’s chemotherapy agent, Camptosar (Irinotecan Hydrochloride) Injection, 20 mg/mL. Shipment of this product, available in 40 mg/2 mL and 100 mg/5 mL single dose vials, will begin immediately. Teva Pharmaceutical Industries (http://www.tevapharm.com), headquartered in Israel, is among the top 20 pharmaceutical companies in the world and is the leading generic pharmaceutical company. The company develops, manufactures and markets generic and innovative human pharmaceuticals and active pharmaceutical ingredients. Over 80% of Teva's sales are in North America and Europe. (Teva 28.02)

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8.2 Orthocrat Teams up With WebOps to Advance Orthopedic Pre-Surgery Planning

Orthocrat announced a partnership with WebOps Mobile, an online service that streamlines the supply and service chains of medical device companies. Through the Orthocrat and WebOps software integration, surgeons, technicians and medical device suppliers can use a wireless Bluetooth or PC-connected scanner and a mobile handheld device to securely and accurately embed patient x-rays and data to a surgical case record in WebOps. To prepare for surgery, surgeons can then easily access their cases on WebOps from a PC using the integrated TraumaCad digital templating software. Orthopedic implant distributors can quickly provide the necessary implants and resources to hospital operating rooms by accessing final reports generated by TraumaCad in real-time through the WebOps server using a mobile handheld device. Orhocrat's Traumacad software enables surgeons to accurately measure implant sizes from digital images, making their surgeries more efficient and effective. Traumacad has been installed in over 700 hospitals, research centers and clinics in the U.S., Europe and Israel. Petah Tikva, Israel's Orthocrat (http://www.orthocrat.com) seeks to advance the orthopedic community to a 100% filmless work mode. Orthocrat's flagship software product, Traumacad, enables surgeons to accurately measure implant sizes from digital images, making their surgeries more efficient and effective. (Orthocrat 04.03)

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8.3 Orthocrat Launches On-Line Service for Storing & Sharing Pre-Operative Data

Orthocrat has launched its unique Orthoweb on-line service at the annual meeting of the American Association of Orthopedic Surgeons (AAOS) in San Francisco. Orthoweb allows orthopedic surgeons from private clinics, who often have little or no access to existing hospital PACS (Picture Archiving and Communication Systems), easy access to their patients' files through its highly-secure Internet service that stores pre-operative data and images needed during surgery. Orthoweb will also include an automated system for surgeons to request and book operating rooms by simply e-mailing a patient's file to a hospital, rather than undertaking the time-consuming process of faxing or mailing pre-operative data and images. Orthoweb is an add-on service for surgeons, hospitals and research centers currently using Orthocrat's ground-breaking Traumacad digital software, which provides tools to accurately measure and plan for implants needed in hip, knee and trauma surgeries. Petah Tikva, Israel's Orthocrat (http://www.orthocrat.com) seeks to advance the orthopedic community to a 100% filmless work mode. Orthocrat's flagship software product, Traumacad, enables surgeons to accurately measure implant sizes from digital images, making their surgeries more efficient and effective. (Orthocrat 03.03)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 ECI Telecom Enhances Converged Packet Optical Offering for North America

ECI Telecom announced the expansion of its XDM Multi-Service Provisioning Platform (MSPP) family of products for service providers in North America, with the XDM-300's SONET capabilities. The XDM-300 is a compact packet optical platform, converging Carrier Ethernet, SONET and WDM functionalities for metro access and metro edge applications. The XDM-300 enables optimal transition to 10 Gbps and Carrier Ethernet and MPLS support for residential and business services. The Metro Ethernet Forum (MEF) has certified the XDM product suite for MEF 9 and 14 test specification compliance for Carrier Ethernet. The XDM-300, complementing ECI's ROADM-based installed infrastructure in North America, improves service agility by providing multi-protocol, multi-service packet capabilities, simplifies operations with the LightSoft unified network management system and presents low total cost of ownership in a small footprint. ECI's LightSoft enables end-to-end access to long-haul provisioning with one system. Its multi-layer approach allows carriers to manage all technologies and network segments using a unified and centralized system, resulting in both capex and opex savings. Petah Tikva, Israel's ECI Telecom (http://www.ecitele.com) delivers innovative communications platforms to carriers and service providers worldwide. ECI provides efficient platforms and solutions that enable customers to rapidly deploy cost-effective, revenue-generating services. (ECI20.02)

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9.2 RADVISION Delivers Video Conferencing Connectivity to Microsoft’s Unified Communications Solution

RADVISION announced the availability of a significant enhancement to the SCOPIA Conferencing Platform extending Microsoft Office Communications Server capabilities – the new SCOPIA Microsoft OCS 2007 Connector. RADVISION, a Microsoft Gold Certified Partner, has been a long-established partner with a history of support of Microsoft Real-Time Communications and Unified Communications solutions including Microsoft Live Communications Server 2003 and 2005, Outlook, and Active Directory. With the recent introduction of Microsoft Office Communications Server 2007, RADVISION is extending its support of the Microsoft Unified Communications product line with the new SCOPIA Microsoft OCS 2007 Connector. The new SCOPIA OCS 2007 Connector enhances the Microsoft solution providing the capability for Office Communicator users to participate in conferences with standards-based video conferencing systems and devices. The SCOPIA Connector is a simple-to-use, highly flexible tool allowing OCS 2007 users to join a meeting hosted on the SCOPIA Conferencing Platform. Tel Aviv, Israel's RADVISION (http://www.radvision.com) is the industry’s leading provider of market-proven products and technologies for unified visual communications over IP, 3G and IMS networks. With its complete set of standards-based video networking infrastructure and developer toolkits for voice, video, data and wireless communications, RADVISION is driving the unified communications evolution. (RADVISION26.02)

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9.3 Mellanox ConnectX EN 10GigE NIC Delivers Server Utilization Breakthrough

Mellanox Technologies announced that its ConnectX EN 10GigE NIC adapters facilitate maximum server application processing performance in virtualized data center environments. Recent benchmarks demonstrate Mellanox adapters maintain an excellent 9.6 Gb/s throughput as the number of virtual machines (VMs) in VMware ESX Server 3.5 is scaled up to 16 in multi-core CPU environments. This helps deliver improved server utilization as more VMs can be deployed per physical server and application I/O performance can be maintained or enhanced. ConnectX EN’s leading performance optimizes data center server infrastructure and provides significant dollar and power consumption savings by enabling more VMs per physical server. These adapters target the estimated install base of 3m virtualized servers as of 2007 expected to grow to 15-20m by 2012. ConnectX EN 10GigE NIC adapters offer leading-edge hardware-based I/O virtualization features. These features are compatible with and complement PCI Single Root I/O Virtualization features and AMD-V and Intel-VT features to deliver advanced, secure and granular levels of I/O services to applications running in VMs. Headquartered in Santa Clara, California and Yokneam, Israel, Mellanox Technologies (http://www.mellanox.com) is a leading supplier of semiconductor-based, high-performance, InfiniBand and Ethernet connectivity products that facilitate data transmission between servers, communications infrastructure equipment and storage systems. (Mellanox 25.02)

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9.4 Nova & Sokudo Integrate NovaScan CD Metrology on RF3 Lithography Track Systems

Kyoto, Japan's Sokudo Co. and Nova Measuring Instruments announced that Nova’s optical critical dimension (CD) metrology platform has been qualified on Sokudo’s RF3 coat/develop lithography track systems. The combined solution offers customers the processing flexibility to meet their most challenging process control requirements in volume production. The RF3 coat/develop track platform, which includes the RF3S and RF3T systems, is Sokudo’s most advanced lithography track platform, and has demonstrated high productivity and reliability for advanced manufacturing. Its flexible architecture provides customers with an extendible platform solution for both dry and immersion lithography. Nova’s NovaScan 3090Next Integrated Metrology (IM) with NovaMARS advanced modeling and application development software was qualified on the RF3 platform at the Applied Materials Maydan Technology Center. Sokudo’s RF3S systems with integrated NovaScan CD metrology began shipping to customers in February, 2008.

The NovaScan 3090Next is an advanced metrology platform for Optical CD Control and shape-profiling, implementing polarized normal incidence spectroscopic scatterometry with an extended Deep UV (DUV) and IR spectral range. It provides the high throughput, reliability and tool-to-tool matching required for high volume measurements on the RF3. The NovaMARS delivers an automated solution for advanced structure modeling and application development for the 45nm technology node and beyond – and can be used both for optical CD and for scatterometry overlay applications. Rehovot, Israel's Nova Measuring Instruments (http://www.nova.co.il) develops, produces and markets advanced metrology solutions to the semiconductor process control market. The company is the provider of leading edge stand-alone metrology and the market leader of integrated metrology solutions. (Nova25.02)

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9.5 Tutor Deploys ECI Telecom's GPON & WDM Solution in Nancy

ECI Telecom has been chosen by Tutor, a carrier of carriers in France, to deploy an end-to-end next-generation solution to support the city of Nancy (CUGN – Communaute Urbaine du Grand Nancy) in the roll-out of an advanced fiber to the building (FTTB) network, one of the first in the country. ECI's solutions will provide enterprises located in Nancy and nearby with advanced broadband and telecommunications services. ECI will deploy the XDM-1000 and 2000 WDM solution, the ST-50 for broadband aggregation, and the Hi-FOCuS Multiservice Access Node (MSAN) for Gigabit Passive Optical Network (GPON). Petah Tikva, Israel's ECI Telecom (http://www.ecitele.com) delivers innovative communications platforms to carriers and service providers worldwide. ECI provides efficient platforms and solutions that enable customers to rapidly deploy cost-effective, revenue-generating services. ECI provides scalable broadband access, transport and data networking infrastructure that provides the foundation for the communications of tomorrow, including next-generation voice, IPTV, mobility and other business solutions. (ECI25.02)

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9.6 Wavion Access Points to Provide Wi-Fi Coverage to the Nigerian National Assembly

Wavion and Netlink Technologies, a pioneer in delivering wireless broadband data services in Nigeria, announced the deployment of Wavion’s WS410 spatially adaptive APs to the Nigerian National Assembly complex and Senator’s offices in Abuja. The unique and powerful digital beam forming technology embedded in Wavion’s spatially adaptive APs provides extended range and penetration, minimizes dead spots, requires about one third fewer units than other outdoor APs to cover the same area, and provides a high quality network for all the variety of applications enabled by Wi-Fi. Unlike other APs in the market, Wavion’s spatially adaptive AP is based on six radio transceivers and six antennas, and employs advanced digital beam forming technology. Based on a custom-designed ASIC optimized for the outdoor environment, Wavion’s technology significantly improves the link gain and quality to 802.11 standards-based Wi-Fi clients – such as those found in nearly all recently manufactured notebook computers. Yokneam, Israel's Wavion (http://www.wavionnetworks.com) is transforming the metro and rural Wi-Fi markets with a new category of spatially adaptive access points. The company’s digital beam forming and SDMA technologies are the first and only to resolve the significant performance, penetration and profitability challenges facing large scale metro and rural Wi-Fi deployments. (Wavion26.02)

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9.7 InRob Supplies Critical Components for Mobile Surveillance System

InRob Tech announced an update on the critical components supplied to Elbit Systems, a global defense electronics company, for use in their advanced Video Surveillance System (VSS). The VSS enables wireless transmission of high quality video images from forward surveillance units to a command post several kilometers away. The command system can also receive video feeds from several surveillance units simultaneously on a split screen. All surveillance and command units are fitted with a local digital recording system and independent power packs. InRob supplied several critical components for this system including wireless video transmission, power packs and solar panels to operate the video and tactical computer, and system integration so the VSS can be used for front line military applications. InRob (http://www.inrobtech.com) is an Israeli-based high-tech company specializing in the planning, manufacturing and service support of advanced wireless and remote control systems, operating all types of robots and other vehicles. The Company is Israel's leader in its field, and supports the IDF (Israeli Defense Forces), Israeli police, and other military and civilian companies dealing with security. (InRob25.02)

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9.8 Voltaire’s Unified Fabric Powers Q-layer Virtual Private Data Center

Voltaire has been selected by Q-layer, a leading provider of data center and storage virtualization software, as the fabric platform for Q-layer’s Virtual Private Data Center solution. Q-layer is combining its innovative virtualization management software with VMware ESX and Voltaire’s InfiniBand-based switching platform to deliver unprecedented performance, scalability, and efficiency for service providers. The Q-layer solution enables data center managers to provide their customers with a simple, self-service portal for data center provisioning. Data center managers can also integrate additional virtual appliances into the Q-layer Virtual Private Data Center, to enable simple end-user provisioning of any service provided in the data center. Intergenia, a leading hosting provider in Germany with over 20,000 servers under management, is one of Q-layer's first customers and has selected a Voltaire unified fabric for its Q-layer environment.

Herzliya, Israel's Voltaire (http://www.voltaire.com) designs and develops server and storage switching and software solutions that enable high-performance grid computing within the data center. Voltaire refers to its server and storage switching and software solutions as the Voltaire Grid Backbone. Voltaire’s products leverage InfiniBand technology and include director-class switches, multi-service switches, fixed-port configuration switches, Ethernet and Fibre Channel routers and standards-based driver and management software. (Voltaire 26.02)

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9.9 ECI Enhances Fiber Access Portfolio with New FTTB Solutions

ECI Telecom announced new gigabit passive optical network (GPON) and gigabit Ethernet (GbE) additions to its broadband access product suite, specifically targeting fiber-to-the-building (FTTB) network requirements. Two new optical network units (ONUs) are being announced to address different requirements and include the new G-PoweRAM 48V and the MiniCABTM 8V. Both ONUs allow service providers to meet the demand for higher bandwidth in a cost-effective deployment scenario. ECI's new G-PoweRAM 48V is optimized for large multi-dwelling units (MDUs) in densely populated areas. This ONU, which features GPON connectivity to the building and VDSL2 within the premises, allows service providers to support as many as 48 subscribers on one unit. The G-PoweRAM 48V is based on network-processor technology, supporting advanced multi-play service-enabling intelligence functionality. For areas of smaller residential buildings, ECI's new MiniCAB 8V is a compact device that supports up to eight subscribers and offers service providers the versatility to deploy either a GbE or GPON uplink, along with VDSL2 in the site. Petah Tikva, Israel's ECI Telecom (http://www.ecitele.com) delivers innovative communications platforms to carriers and service providers worldwide. ECI provides efficient platforms and solutions that enable customers to rapidly deploy cost-effective, revenue-generating services. (ECI26.02)

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9.10 Mobile TeleSystems Multimillion Deal to ECtel for Integrated Revenue Management Solution

ECtel announced that Mobile TeleSystems, the largest mobile phone operator in Russia and the CIS region, servicing over 79 million subscribers, selected ECtel's IRM solution for its operations in Ukraine. This first-time order from MTS, valued at several million US dollars, was awarded to ECtel following a competitive tender. ECtel was chosen to deploy both its fraud-management FraudView and revenue-assurance RAP solutions. In addition, ECtel will be deploying SS7 probes as part of the project to provide MTS with greater network monitoring capabilities. ECtel won this tender in cooperation with its long-term channel partner that represents ECtel in the region - ECI Telecom, a global provider of networking infrastructure equipment and supplier of SDH, DWDM and NGN solutions worldwide. Rosh Ha'Ayin, Israel's ECtel (http://www.ectel.com) is a leading global provider of Integrated Revenue Management (IRM) solutions for communications service providers. A pioneering market leader for nearly 20 years, ECtel offers carrier-grade solutions that enable wireline, wireless, converged and next generation operators to fully manage their revenue and cost processes. ECtel serves prominent Tier One operators, and has more than 100 implementations in over 50 countries worldwide. (ECtel 27.02)

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9.11 Aladdin Chooses Commtouch Email Defense for Aladdin eSafe Content Security Solution

Commtouch announced a licensing agreement with Aladdin Knowledge Systems, a leader in digital security, providing solutions for software and Internet security since 1985. The Commtouch Anti-spam and Zero-Hour Virus Outbreak Protection solutions are being integrated into Aladdin eSafe, a proactive content security solution for enterprises that will incorporate Commtouch technology as part of its dual-engine protection offering. The Aladdin eSafe secure Web gateway is deployed in both hardware and software versions. Headquartered in Netanya, Israel, Commtouch Software (http://www.commtouch.com) is dedicated to protecting and preserving the integrity of the world's most important communications tool - email. Commtouch has over 16 years of experience developing messaging software and is a global developer and provider of proprietary anti-spam, Zero-Hour virus protection and Reputation Service solutions. Using core technologies including RPD (Recurrent Pattern Detection), the Commtouch Detection Center analyzes billions of email messages per week to identify new spam and malware outbreaks within minutes of their introduction into the internet. Integrated by scores of OEM partners, Commtouch technology protects thousands of organizations, with hundreds of millions of users in over 100 countries. (Aladdin27.02)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's State of the Economy Index Rises

The Bank of Israel announced in 20 February that the State of the Economy Index rose 0.3% in January 2008. The Bank of Israel also revised downward the indices for November 2007 from 1.1% to 0.7% and for December from 1.2% to 0.4%. It attributed the downward revision to the volatility in the indices of foreign trade in goods and services. The Bank of Israel noted that January's increase in the index indicates continued increase in economic activity, but at a more modest rate than in previous months. It added that the increase was led by the rise in manufacturing production and the index of trade and services revenue, which was offset by foreign trade in goods and services.

A breakdown of the State of the Economy Index's components was as follows: manufacturing production rose by 0.7% in December, after falling by the same amount in November; trade and services revenue rose by 0.5% in December, after rising by 0.9% in November; export of services fell 7.4%, in January by, after rising 13.1% in December, export of goods fell by 2.2% in January, after rising 2.9% in December, and the imports index fell by 2.1% in January, after rising 3.1% in December. The Bank of Israel notes that in calculating the composite index, changes in its components (seasonally adjusted), in both the current month and previous months with a lag, are taken into consideration. The State of the Economy Index rose by 7.3% in 2007 as a whole, completing five years of continuous growth. The index rose by 7.4% in 2006, 6.6% in 2005, 8.4% in 2004, and 2.9% in 2003. The index fell in the 2001-02. (BoI20.02)

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10.2 Israel's Unemployment Lowest Since 1990s

The Central Bureau of Statistics announced that Israel's unemployment fell to a seasonally adjusted 6.7% in Q4/07, compared with 7.2% in the preceding quarter and 7.8% in Q4/06. This is the lowest rate of unemployment in Israel since the early 1990s and the first time it has fallen below the 7% level. Based on seasonally adjusted statistics, the number of unemployed people fell to 195,700, compared with 210,300 in the preceding quarter and a record 248,400 in the corresponding quarter in 2005. The number of unemployed has fallen by 53,000 in two years and by 15,000 per quarter. In the fourth quarter, 98,400 unemployed were women and 97,200 men. The unemployment for 2007 as a whole fell to 7.3%, from 8.4% in 2006. The rate of unemployment among men fell to 6.8% compared with 7.9% in 2006, while the rate of unemployment among women fell to 7.9% in 2007 from 9% in 2006. (CBS27.02)

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10.3 Internet Used by 72.5% of Jews and 52.5% of Arabs in Israel

As many as 20% more Jews than Arabs are exposed to the internet despite use becoming increasingly widespread, according to a new survey. The rate of internet use among the Jewish sector is now 72.5% compared with 52.5% in the Arab sector. The gap stems from the fact that Arabs have less exposure to the internet than Jews at work. This means that nearly half the Arab population does not use the internet. The difference in computer use and surfing habits between Jews and Arabs was also studied in a nationwide poll of 1,400 people conducted in July 2007 by Professor Mesch of the Department of Sociology & Anthropology at the University of Haifa. The study found a consistent gap in Internet access between Jews and Arabs across all age groups, especially in those aged 35 and upwards, although the gap among people with academic-level education was slightly lower. (Globes 21.02)

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11: In Depth

11.1 MIDDLE EAST: What's So Bad About SWFs?

The Economist Intelligence Unit noted that rumors that the Qatar Investment Authority (QIA) may be thinking of buying a stake in Royal Bank of Scotland (RBS) pushed up the share price of the Edinburgh-based bank by 5% on the London Stock Exchange on February 25th, reflecting the intense interest accompanying any move or potential move by Gulf Arab sovereign wealth funds (SWF). QIA had already attracted notice earlier in the month with its acquisition of 1-2% of Credit Suisse, as part of a purported drive to build up a $15bn portfolio of Western bank assets (a deal that was somewhat tarnished by the Swiss bank's subsequent disclosure of a hefty $2.8bn loss arising from trading errors).
If indeed QIA is actively pursuing a stake in RBS, the choice of target should come as no great surprise given the pivotal role that the bank played in financing Qatar's emergence as the largest exporter of liquefied natural gas (LNG) in the world. However, much of the comment about this and similar deals has been laced with suspicion about the buyer's intentions. SWFs are accused of being opaque as regards financial reporting and investment strategy, and of pursuing political as well as commercial ends.

Barroso's Beef

Shortly after the Credit Suisse deal, the European Commission (EC) approved proposals for SWFs to be requested to adopt a voluntary code of conduct requiring certain standards of corporate governance and disclosure. The EC president Jose Manuel Barroso has been open about the political dimension. “We cannot allow non-European funds to be used as an implement of geopolitical strategy,” he said on February 24th. The IMF, for its part, has emphasized the risks to the global economy of increased financial flows through “black boxes”, as the Fund's chief economist, Simon Johnson, has described SWFs.

The irony is that banks in both Europe and the US have not just welcomed but actively solicited investment from the likes of the Kuwait Investment Authority (KIA), which participated to the tune of $5bn in January’s capital-raising exercise by Citgroup and Merrill Lynch, and the Abu Dhabi Investment Authority (ADIA) - the world’s biggest SWF with assets estimated at some $800bn - which injected $7.5bn into Citi in November. In straitened times, politicians too have encouraged such moves by the funds that, buoyed in the Gulf Arab case by record oil revenues, have the ready cash currently so lacking during the Western credit crunch.

Buyer's Market

For the SWFs, meanwhile, the investments represent an opportunity to build holdings in an industry regarded as having good long-term growth potential, at a time when shares are relatively cheap and political concerns necessarily relatively muted. Charles Schumer, an influential New York senator, epitomizes the changed attitude. Mr. Schumer was one of the most vocal critics, on national security grounds, of the takeover by DP World, a firm owned by the Dubai government, of five US ports through the acquisition of UK-based P&O in late 2006. However, he welcomed ADIA’s Citi investment as vital to the maintenance of New York’s role as a global financial center.

Mr. Schumer returned to form during the January round of capital-raising, expressing unease about large swathes of the US financial services industry passing into foreign hands, while President Bush himself promised a full examination of the national security implications of Borse Dubai’s acquisition of a 20% stake in the US’s NASDAQ exchange. This formed part of a complex deal for the Dubai institution to sell-on OMX, the Stockholm-based operator of the Nordic exchange to the Americans, assuming Borse Dubai’s bid for the Swedish firm was successful. The Swedish authorities were themselves suspicious when in August Borse Dubai trumped NASDAQ's May offer for OMX - the finance minister, Mats Odell, admitted as much in a late-February interview - although subsequently their concerns have shifted to the possible “Americanization” of OMX and consequent imposition of onerous post-Enron disclosure rules.

Passive to Active

The obvious question aroused by such international hand-wringing, posed plaintively by the older SWFs, is “Why now?” Kuwait first established a fund to invest surplus oil revenues and thereby diversify the economy in 1953, while ADIA was established two decades later. In addition, both have typically been conservative portfolio investors: the US banking buys were an exception, but even in that case the stakes taken were small and acquired without corresponding executive power. An answer can be found in the burgeoning size of SWFs, stemming in the Gulf from high oil prices and in southern Asia from the sustained export boom, and in the more aggressive strategies of newer players like QIA, a range of Dubai government-affiliated vehicles such as Istithmar and Dubai International Capital (DIC), and Abu Dhabi’s Mubadala Development Company. The latter players have moved from portfolio investment to purchasing strategic stakes in or acquiring outright target companies, and are not prepared to assume the passive role of their forerunners.

However, the gathering storm of objections in the West – sometimes quite blatantly born of suspicion of the Arab world – to investment by Gulf Arab SWFs is prompting both the older and younger funds to rebalance holdings geographically, primarily towards the booming economies of southern Asia. In mid-February, DIC announced plans to plough some $5bn into China, India and Japan over the next three years, while the chief executive officer of Istithmar, David Jackson, said a month earlier that “countries such as China, where we recently opened an office, are very welcoming to sovereign wealth funds, so more are looking to invest there”. Sheikh Hamad bin Jassim al-Thani, Qatar’s prime minister and the CEO of QIA, stated late last year that the fund was aiming to raise Asian investments to 40% of the total, while among the veterans, the KIA's chief, Bader al-Sa’ad, has also spoken frequently about the intention to increase proportionally exposure to Asia.

This does not mean that the SWFs are about to shun investment in their traditional hunting grounds in Europe and the US—as QIA's recent moves demonstrated. Moreover, Gulf investors, both government and private, admit that they will need time to understand the inner workings of the principal Asian markets. However, Western governments and regulatory authorities will need to weigh carefully their concerns about the impact of the SWFs against the risks of forfeiting the benefits that their infusions of capital can bring. (EIU27.02)

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11.2 ISRAEL: Bank of Israel

Inflation Report 2007, July - December

Stanley Fischer, Governor of the Bank of Israel, announced that the Bank of Israel's Inflation Report for the second half of 2007 (the period covered by this Report) is submitted to the government, the Knesset and the public as part of the process of periodic monitoring of the course of inflation and adherence to the inflation target set by the government. The Report was prepared in the Bank of Israel within the framework of the Senior Monetary Forum, headed by the Governor, the forum in which the Governor makes decisions on the interest rate.

The CPI rose in the second half of 2007 at an annual rate of 4.9%, and in the twelve months to end-December 2007 by 3.4%, higher than the upper limit of the price stability target range (of 1 to 3 inflation% a year). The growth in GDP and employment, particularly in the business sector, continued throughout 2007, especially in the second half of the year, and unemployment fell. Many industries participated in the growth, and it was very evident in investments, private consumption, and exports. The current account of the balance of payments showed a significant surplus again in 2007, and foreign direct investment (FDI) in Israeli companies persisted, indicating investors' assessment that Israel's economy will continue to thrive. The financial markets' assessments of the robustness of Israel's economy were reflected in the improved credit rating granted by the Standard and Poor's rating agency, and by the invitation of the OECD to Israel to begin the accession process leading to membership of the organization.

The two main forces that exerted pressure on inflation in Israel in opposite directions in the last few years continued to do so in 2007: on the one hand, sustained rapid growth of economic activity that creates upward pressure on prices, and on the other, the trend of the strengthening of the shekel against the dollar that has persisted since early 2006 and that became even stronger in January 2008, that serves to moderate price rises. In 2007 prices were affected by another significant factor--the sharp increases in world prices of oil, other basic commodities and food. Although the pressure from domestic demand did not have a particularly marked effect on wages, it did enable producers to pass on to consumers the extra costs deriving from the increase in world prices.
Inflation in 2007 was highly volatile, as it has been in the last few years: in the first five months of the year the CPI rose by 0.3%, after falling by a total of 1.8% in the last four months of 2006. In June, July and August 2007 the index went up by a cumulative 2.5%, and in the last four months of 2007 it rose by a total of 0.6%. Most of the volatility of the CPI is still related to fluctuations in the NIS/$ exchange rate and to the very strong transmission mechanism from that exchange rate to consumer prices, a feature of Israel's economy for many years.

In the period reviewed the first indications of a weakening of the close connection between the shekel/dollar exchange rate and housing prices became visible. This was reflected both in a significant decline in the share of new rent contracts that were indexed to the dollar, and in a rise in the dollar price in contracts that were still indexed. It is too early to determine whether this is a passing development specifically related to the dollar's current worldwide weakness, or whether this signifies a genuine change in the public's behavior, that will persevere even if the dollar strengthens in the future.

The high volatility of price rises hinders monetary policy in performing its role of keeping inflation within the target range over a twelve-month period, and inflation deviates from the target quite frequently. Nevertheless, price rises viewed over a relatively long period, two years or more, were mainly within the target range. In addition, the public's inflation expectations, both short-term and long-term, calculated from various sources have stayed well within the target range. It may thus be claimed that an inflation targeting regime supplies an anchor for a low inflation environment, which provides a basis for setting prices in the economy.

Another important development in the period covered by this report was the financial crisis in the advanced economies, which has not yet run its course. The crisis, that started in the subprime mortgage market in the US, spread in a short time to other advanced economies and to several segments of the financial markets. Till now the crisis has had a relatively limited direct effect on Israel's financial entities. It is generally anticipated that the financial crisis will constitute a major cause of a slowdown in economic activity in the US. The longer and more severe that slowdown, the stronger will be its effect on the global economy, including, to a certain extent, economic activity in Israel. Nevertheless, the range of indicators on Israel's economy have not yet pointed to any significant signs of such effects, including forward-looking indicators (such as the Companies Survey, information derived from financial transactions, assessments of active market participants). The composite state-of-the-economy index, for example, rose by more than 8% in 2007, with the rise in the fourth quarter of the year higher than those in the other three.

The resilience of Israel's economy in the face of the crisis hitherto is founded on a number of factors: (a) the business sector is growing, is becoming more efficient, and is profitable; (b) fiscal policy is keeping to a budget that is appropriate to the state of the economy; (c) monetary policy is striving for price stability and supports financial stability, which together provide a favorable business environment. The inflation targeting regime with free capital flows and a free-floating exchange rate enables the private sector to benefit from the many advantages of access to the international financial markets, and affords monetary policy greater flexibility in tailoring the domestic interest rate to the needs of the economy.

That said, the fact that Israel's economy is a small one, very open to trade in goods and services and to strong and fast capital flows means that macroeconomic policy makers do not enjoy the same degree of flexibility in operating policy instruments as do their colleagues in large economies such as the US and the eurozone. Hence the great importance of adhering to the policy rules set by the government, in both the fiscal and monetary spheres, rules that boost and preserve the confidence of the public and of domestic and foreign investors that price and financial stability will be maintained.

Summary

The Consumer Price Index (CPI) rose by 3.4% in 2007, above the upper limit of the price stability target of 1-3% inflation a year. In the first half of the year it rose at an annual rate of 2%, while in the second half (the period reviewed) at an annual rate of 4.9%.

The CPI was affected in 2007 by the steep worldwide rise in energy and food prices, and by the rise in housing prices that occurred despite the appreciation of the shekel, against the background of increased economic activity and the contraction of surplus production capacity. The CPI excluding the energy and food components rose at a rate below the midpoint of the target range. The decline of the value of the dollar during the year (due to domestic factors and world trends) partially offset some of the upward pressures on prices.

Energy and food prices rose faster and faster as the year progressed, and led to an acceleration in price rises in many countries. Thus the consumer price index in the US rose by 4.1%, and in Europe by 3.2%.

Economic growth in Israel continued, with marked increases in private consumption, investments and exports. The number of employees rose by about 4%, with a decline in the unemployment rate to 7.3%, and the average wage rising by 2%. Unit labor costs increased in 2007, reversing the downward trend of the last few years--that had become flatter and flatter. The increase in GDP in 2007 derived from the rise in inputs, not productivity. These points indicate convergence to maximum utilization of the factors of production, and are likely to increase the upward pressure on prices.

During the second half of the year the shekel appreciated against the dollar by about 9.5%, and by about 2% against the basket of currencies weighted according to Israel's foreign trade. There were two distinct trends in the NIS/$ exchange rate in the course of the period reviewed: sharp depreciation, that started in the second half of May, which reversed at the beginning of August to become a trend of rapid appreciation, which continued until the end of the period. Both trends were accompanied by increased volatility of the exchange rate.

The strengthening of the shekel in the second half of the year was the outcome mainly of the weakening of the dollar world wide, which accelerated in August in light of the financial crisis in the advanced economies and its implications on the US economy. This took place against the background of the narrowing negative differential between interest rates in Israel and the US, the sustained improvement in the Israeli economy's fundamentals that contributed to the continued foreign direct investment (FDI) in the economy, and the current account surplus which despite some decline, is nevertheless expected to reach 3% of GDP.

Following the process of interest rate reductions that began in the last quarter of 2006 and continued in the first half of 2007 in light of the low inflation environment, the Bank of Israel raised the interest rate in the third quarter of 2007 by a total of 0.5%age points, to 4%. The reason for the increases was the assessment that the inflation environment was rising, against the backdrop of sharp depreciation of the shekel against the dollar in May-July, the rise in world energy and commodity prices, and the continued rapid expansion of economic activity in Israel.

The interest rate remained unchanged in the last quarter of 2007, the result of assessments regarding the conflicting forces acting on the inflation environment. On the one hand, there were upward pressures on prices, headed by the rise in world prices of energy and commodities and continuing economic growth. Acting in the opposite direction were domestic forces tending to strengthen the shekel, global factors weakening the US dollar, and concern over the effects of the financial crisis on the global economy. In December, when upward pressure on prices became more intense, the Bank of Israel again raised the interest rate by 25 basis points, bringing the rate for January to 4.25%. (BoI22.02)

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11.3 KUWAIT: Inflation Intervention

The government of Kuwait responded on 2 March to record levels of inflation by passing wage increases to nationals and public sector workers, as reported by the Oxford Business Group. Annual inflation rose to 7.3% in October, and the situation is anticipated to have deteriorated further since then.

The measures will see all nationals receiving an allowance of $440 per month, with foreign nationals working in the public sector receiving $184. Foreign nationals working in the private sector are excluded from the package, which was drawn up in coordination with the World Bank.

Inflation has hit consumers particularly hard, with housing costs rising 12.6% and food 6.08%, according to government figures. Local press has reported, however, that prices for some basic foods have risen by as much as 40% in the past few months, hitting the poorest segments of the population, especially expatriate workers, the hardest. The increases come despite Kuwait's move last May to drop its dollar peg and shift to a basket of currencies. Since then, the dinar has appreciated by around 6%, but the persistence of underlying fundamentals - a shortage of housing in particular - has yet to be tackled.

Alongside the salary allowance, the government has also targeted what it sees as opportunistic businesses seeking to cash in on the inflationary cycle, with some saying that supermarkets have been unfairly ratcheting up price tags. A ration card introduced in December has thus far done little to curb costs, leading the state news agency to announce recently that the government would increase subsidies on "basic food stuffs and building materials such as steel and cement".

The governor of Kuwait's Central Bank, Sheikh Salem Abdul-Aziz Al Sabah, spoke out on the problem earlier in the month. During a conference in London he said he was "not satisfied" with current levels of inflation, and proposed extending Islamic financial instruments (sukuk) to help control inflationary pressure. "We need to develop more instruments in order for central banks to intervene in the market for the sake of regulating liquidity," he said.

Kuwait has a long history of soaking up its excess liquidity through external investment; in 1953 it was the first state to develop its own sovereign wealth fund to stabilize the effects of oil exports on the domestic economy. The Kuwait Investment Authority (KIA) is today thought to hold assets of $200 to $250bn, and has significant stakes in German auto manufacturer Daimler and the Industrial and Commercial Bank of China.

Recent months have seen KIA offloading liquidity into American financial services giants Merrill Lynch and Citigroup, with a $5bn capital injection, distributed between the two, in January. The investments are in the form of convertible preferred stocks and securities. KIA managing director Bader Al Sa'ad, speaking at the World Economic Forum in Davos, said the fund was looking for further investment opportunities in the US financial and real estate sectors.

It is difficult to say whether Kuwait's policy of independent monetary action - dropping the dollar peg - has had an effect on inflation. As Al Sabah noted in London, Kuwait's current level, though high, is still at the lower end among the Gulf Cooperation Council (GCC) states. Oman (8.29%), the UAE (11%) and Qatar (13.74%) are all experiencing significantly higher inflation, and only Bahrain is holding fairly steady at 4.07%.

Plans are still on the table to establish a common market in the GCC later this year. But with current inflationary pressures taking their toll throughout the GCC, the situation could lead to one of two opposite results - greater regional cooperation or unilateral moves. Although most GCC economies share the common characteristic of being oil and gas exporters, they nonetheless demonstrate considerable variety. GDP per capita, for example, varies dramatically, from well over $60,000 in Qatar to below $20,000 in Oman, as does the percentage of GDP taken up by oil and gas exports, and the degree of development in other areas of the economy.

In the light of these differences, long-term plans for a GCC single currency are understandably being treated with greater urgency in some parts than others. The prime minister of Qatar, Sheikh Hamad bin Jassim bin Jabr Al Thani, told the London conference he wished to see faster progress in unifying its currencies, to avert unilateral revaluations such as Kuwait's. "The GCC should have a currency with a good weight internationally," he said. (OBG29.02)

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11.4 IRAQ: Oil Draft Law Remains Deadlocked

The Iraqi oil draft remains deadlocked, stalled by the bitter row between Baghdad and the largely autonomous Kurdish region in the north. Stakes are indeed high, with politics continuing to cloud the situation. Who ultimately controls the oil fields and how revenues are shared are issues getting more and more contentious with each passing day.

The Kurdistan regional government (KRG) has signed oil deals with foreign companies, insisting it has the constitutional right to do so. The Oil Ministry in Baghdad is infuriated at this move, not ready to honor these agreements. So the stalemate continues. Baghdad has already announced it would halt oil exports to South Korea’s largest refiner, SK Energy, and Austria’s OMV AG in response to what it says are illegal exploration deals with KRG. Lest we forget: Iraqi energy infrastructure still needs billions of dollars of foreign investment.

According to one estimate, even to provide a jumpstart to the oil industry, Baghdad needs as much as $75 billion. The entire infrastructure is in a dilapidated state and the entire sector is in need of urgent development work. Hence there are people within the energy fraternity who strongly feel that the Iraq’s draft oil law needs to get ratified as urgently as possible.

However, there is no dearth of skeptics. This lack of confidence and mutual trust is making the passage of the oil draft through Parliament contentious. There are indeed a number of “ifs”, “ands” and “buts” to the entire scheme.

Iraq’s proven oil reserves are smaller than those of Saudi Arabia, and Iran and Iraq both have barely explored 30% of their potentials. Experts believe that Iraq’s actual oil reserves could well turn out to be at least double the current proven oil reserves of 115 billion barrels. In fact, in view of the geography, some feel Iraq may host the largest untapped reserves in the world. It could be the next frontier. Achieving 10 million barrels a day production may not be too out of line; some pundits, including Fadhil Chalabi, the former Iraqi oil minister, believe this strongly.

Much of Iraq’s current reserves are reported to be in the south, but there are also fields in the Kurdish north. There are few proven reserves in central and western Iraq, too. In view of the likelihood that Iraq’s reserves may turn out to be exponentially higher than the current estimations and simulations, based on old-style seismic surveys, it is no surprise that Iraq today is a major battleground. International oil firms have been positioning for years to gain access to what could easily be termed as one of the most under-developed and easily accessible oilfields in the world. Now they see it happening just round the corner.

Iraq is fortunate in certain other ways, too. Apart from the proven and probable oil and gas reserves, the cost of oil production in Iraq, at $1 to $2 per barrel, is also very low - among the lowest in the industry. Second, the oil fields are dispersed evenly across the country. Third, Iraq’s location itself is a boon. Unlike, say, the Caspian Sea, Siberia or the Arctic, it is easy to develop oil export routes out of Iraq heading in several directions simultaneously: the Gulf, Saudi Arabia, Kuwait, Jordan, Syria and Turkey. All this means that rapid expansion of Iraq’s oil production and the arrival of substantial amounts of Iraqi oil - exceeding 10 million b/d - in the international market is an attainable objective.

As things stand today, the US-backed government in Baghdad seems to be in a move, despite the absence of the draft. It has opted for ways to open the door to foreign oil firms by offering them a role in servicing existing oil infrastructure and [negotiating] contracts for Iraq’s “super giants.” This is making the critics of the draft still more edgy, somewhat skeptic.

In the idiom[s] of Big Oil, “super giants” are fields with at least five billion barrels of oil in reserve. Iraq’s super giants are Kirkuk (in Kurdistan), Majnoon (bordering Iran, also means "crazy" in Arabic), Rumaila North and South (of Basra), West Qurna (west of Basra) and Zubair (in the southeast) fields, and, possibly, the Nahr Umr and East Baghdad fields. In addition, Iraq is estimated to have 22 “giant” fields, each having more than 1 billion barrels of oil.

Hence the interests of global oil majors in these fields can not be overly emphasized. Over 70 international companies have expressed the desire and submitted documents so as to qualify for and compete for the service contract.

Iraqi Oil Minister Hussain al-Shahristani, often dubbed as the darling of the Western media these days - and indeed with reasons - told Argus Media that these service contracts will “help Iraq fast-track the purchase of necessary equipment and train Iraqi people to install them.” These companies would be favored in a bidding round for longer-term contracts on the Iraqi oil fields set for later this year. Another bidding round is expected to take place next year.

The Times of London reported that ExxonMobil, Chevron, ConocoPhillips and Shell have been targeted by the Iraqi Oil Ministry for awarding the service contracts (known as “technical support agreements” or TSAs). The report said that in exchange for the oil, these four oil companies would direct training of Iraqi workers and equipment to Iraq’s largest oil and gas fields. The Middle East Economic Survey has quoted Shahristani as saying that the service contracts will be signed “within a few weeks.” The general expectation is that the TSAs will be signed during the third round of discussions due in March.

Ben Lando, United Press International’s energy editor summarized the rush to Iraq in the following terms: “Big Oil’s big dreams are close to coming true... According to insiders, Shell, which produced a technical study of Kirkuk in 2005, wants a deal for the field. BP wants one for Rumaila, which it studied last year. Shell and BHP Billiton are angling for the Missan field in the south. ExxonMobil is interested in the southern Zubair field while the Sabha and Luhais fields are being targeted by Dome and Anadarko Petroleum. ConocoPhillips is talking with the [Iraqi] ministry about the West Qurna oil field... Chevron and Total have teamed up in a bid for the Majnoon field.”

Indeed the oil rich plateau Iraq is up for grabs. If it was not driven home in March 2003, then Alan Greenspan also underlined that, too, recently. The leaders of Iraq thus have an ominous responsibility of protecting Iraq, Iraqis and their assets and [ensuring] growth, too. Only time [can] tell to what extent they succeed. This entire oil rich region is keeping a close eye on the next moves of Shahristani and his team. (Arab News29.02)

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11.5 UAE: Politics Show Change of Tack

The cabinet reshuffle recently announced by the UAE prime minister and ruler of Dubai, Sheikh Mohammad bin Rashid al-Maktoum, has entailed the redeployment of the minister charged with pushing through structural economic reforms and the replacement of the minister of labor, one of the most sensitive portfolios in the government. Sheikh Mohammed said that the changes were aimed at bringing greater consistency, improved efficiency and more rapid development to the operations of the government of the seven-member federation. It is as yet unclear whether this will entail a review of the flagship policies of the previous administration, which was appointed in 2004 (and modified slightly two years later) or a drive to implement the existing policy program.

Sheikha Is A Mover

The pivotal figure in economy policy since the 2004 reshuffle has been Sheikha Lubna al-Qasimi, an entrepreneurial businesswoman and member of the ruling family of Sharjah who was put in charge of a merged economy and planning portfolio. She has devoted much of her energy to trying to push through changes to the law governing companies established in the UAE, including an abolition of the 49% ceiling on foreign ownership (this does not apply in the UAE's many free and special zones). However, the new law has still not seen the light of day, despite frequent announcements from the minister that its passage was imminent. It is widely assumed that the delays stem from the concerns of some of the UAE's traditional business groups to preserve their privileges. Sheikha Lubna also faced stiff opposition to her efforts to scrap controversial “agency laws”—a rule that gives UAE firms monopoly rights to import foreign brands. She managed to amend the agency system for some products, notably foodstuffs, but made little headway with others, including vehicles.

Another important piece of unfinished business is the conclusion of a free-trade agreement (FTA) with the US. Sheikha Lubna was closely involved in the first rounds of FTA negotiations, and her new job title of foreign trade minister (also a new portfolio) strongly suggests that this deal and FTAs with other parties will be the principal focus of her work in the future.

Stewardship of the companies law dossier will be handed to the new economy minister, Sultan bin Said al-Mansouri, who has taken on the job of economy minister, with the additional responsibility of industry, which was previously under the control of the Ministry of Finance. Mr. Mansouri was a member of the outgoing cabinet as minister for public sector affairs, a post that has been abolished. The changed role for Sheikh Lubna suggests that the passage of the companies law, at least in the form envisaged by her, may not be pursued with the same vigor as before.

There has also been a potentially significant change at the finance ministry, with the veteran Mohammed Khalfan bin Kharbash, being replaced as minister of state by Obeid Humaid al-Tayer, the chairman of the Dubai Chamber of Commerce and Industry and head of the Tayer Group of companies, whose interests include vehicle imports and the media.

Labor

Along with Sheikha Lubna, the outgoing labor minister, Ali al-Kaabi, had been prominent among the ministers brought into the cabinet in 2004. Mr Kaabi aggressively pursued the policy of emiratization, through expanding the list of occupations subject to quotas for the hiring of nationals. He also sought to improve conditions for foreign construction workers, in the face of harsh criticism from bodies such as the New York-based Human Rights Watch, through updating labor legislation and beefing up the inspection agency responsible for ensuring that contractors abide by the rules covering their treatment of workers. These policies laid Mr Kaabi open to criticism, both on the grounds that quotas were a imposition on business and that the championing of construction workers was aggravating the problem of inflation in project costs. His replacement is Saqr Ghobash, who will be returning from Washington where he has been the UAE's ambassador. Also returning from the US embassy will be Reem al-Hashemi. One of two women appointed as minister of state without portfolio. The other is Mitha al-Shamsi, who was an adviser in the family development council. (EIU26.02)

11.6 DUBAI: The Price of Power

The Oxford Business Group noted that Dubai is moving to cut electricity consumption while at the same time investing heavily to boost output and meet soaring power demands from industry, business and households. Dubai has the dubious distinction of having one of the worst carbon footsteps in the world, with average annual per capita electricity consumption running to 20,000 KW. Combined with water usage of 130 gallons a day per person and the Emirate is repressing its utilities.

However, the Dubai Electricity and Water Authority (DEWA) has just returned the favor. As of March 1, it introduced a new pricing schedule where users will pay according to their level of consumption for both its water and electricity services. While the utility has stressed that around 80% of clients will not be affected by the new rates, based on a sliding scale of consumption, the other 20% could be hit hard in the pocket. Saeed Mohammad Al Tayer, DEWA's chief executive officer, said it was necessary to implement responsible energy consumption strategies. "The community has to be more reasonable in the way resources are used," Al Tayer told local press on February 28.

Under the siding scale of payments for power usage, high-end consumers could end up with electricity bills 65% more expensive this month than in February. According to a report by facilities management firm Farnek Avireal, the new price increases will have a major impact on businesses and the hospitality industry. The higher tariffs will add up $2.7m each year to the current $4m power bill of a five star hotel and $540,000 to the $810,000 presently being paid by the management of an office tower on the Sheikh Zayed Road.

Another step by DEWA to both reduce carbon emissions and increase electricity production was taken in late February, when the authority signed a memorandum of understanding (MoU) with an international consortium to undertake a study into building the world's largest hydrogen-fired power station. Under the proposal, a 2000 MW facility will be built in two stages, the first coming on line in 2011 and the second in the following year. The plan calls for synthetic gas to be produced from coal in the US and shipped to Dubai for use in the station.

The $3bn project will not produce any emissions, in Dubai at least, though it will be more expensive to construct than a conventional power station of similar output. The hydrogen generation model is also somewhat experimental, with only a limited number of power stations using the application, an issue that might make finding financial backing difficult.

Signing the MoU on February 24, Al Tayer said DEWA was trying to diversify its production sources as much as possible to protect the environment and reduce the authority's reliance on gas for power generation. However, Dubai is also sending out a few mixed messages over its commitment to resort to clean energy, having announced plans for building coal fired power stations to help meet electricity demands. In February, Dubai's government announced it was considering constructing plants with a combined output of between 2000 and 4000MW, using coal as the main fuel.

Dubai, along with a number of other places in the region, is actively considering developing nuclear energy, though such a proposal is more long term than the more immediate plans for coal and hydrogen fired power stations. It has also been suggested that DEWA's restructuring of its tariffs had more to do with its poor financial results, losing $63m in the first seven months of last year. Not having increased prices for electricity since 1998, the new hikes are going to come as a shock to some.

The higher costs for utilities can be expected to flow on to prices throughout the economy, as businesses seek to pass on the pain of increased tariffs. This in turn could fuel inflation, which come analysts have predicted could hit 12% across the UAE this year.

Abdullah Al Hajri, DEWA's corporate communications manager, played down the likely impact of the increased charges, saying the higher prices will be offset by reductions in usage. "We are trying to encourage people to conserve electricity and water," Al Hajri reported on March 3. "With minor changes to the way residents use energy, they can ensure they are not affected by higher tariffs." It is not sure whether Dubai's businesses and citizens can switch on to lower energy consumption by being turned off by higher prices. Still, with the increase in electricity usage running at 15 to 20% a year according to DEWA figures, there is a powerful current of consumption that must be reversed. (OBG04.03)

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11.7 OMAN: Moody's Issues Annual Sovereign Report On Oman

Moody's Investors Service (http://www.moodys.com) explains in its new sovereign credit report on Oman that the country's investment grade A2 foreign and local currency government bond ratings with a stable outlook primarily reflect the very strong public finances, with the maintenance of a wide fiscal surplus and ongoing accretions to net official assets on the back of buoyant oil receipts. The ratings were last changed in July 2007 when they were upgraded from A3. Other A2-rated countries include Bahrain, Botswana, Chile, Korea, and Poland. "The favorable trend in Oman's government finances has continued. Moody's estimates that the overall fiscal surplus was around 10% of GDP in 2007 and that the level of net official foreign assets (the government's net foreign financial assets plus the central bank's foreign exchange reserves) approached 80% of GDP at year-end," says Tristan Cooper, a Moody's Vice-President / Senior Analyst and author of the report. "We project another wide fiscal surplus in 2008 given that average global oil prices are expected to exceed $90 per barrel, their highest ever annual average," Mr Cooper adds.

While the short- to medium-term outlook for Oman's public finances is therefore very sound, Moody's has some concerns with regard to the longer-term prognosis in light of two factors. "The first concern relates to inflation, which has risen significantly in recent years, reaching a 16-year high of 8.3% in December 2007. Rising costs and popular demands for expenditure increases to offset the effects of inflation, coupled with an ambitious public investment plan, are contributing to a marked loosening of fiscal policy. This will erode fiscal flexibility," Mr Cooper cautions.

"Secondly, there are growing uncertainties over the long-term outlook for the country's hydrocarbon sector. Oman's crude oil production peaked in the late 1990s and has since been on a declining trend. While there is hope that the fall in crude production will finally be halted this year and possibly reversed, remedial action is increasingly costly. Meanwhile, Oman's gas production is failing to keep pace with burgeoning gas demand, constraining the growth prospects for the country's energy-intensive industrial sector," Mr Cooper explains.

Moody's also highlights that, in light of the still heavy dependence of the Omani public finances on hydrocarbon receipts, there is a growing need to diversify the government's sources of revenue to preserve fiscal sustainability over the longer term. The issuance of this credit report by Moody's Investors Service is an annual update to the markets and is not a formal action to alter the credit rating of the issuer. (Moody's25.02)

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11.8 EGYPT: Energy to the Fore

Egypt's oil and gas sector has surged to the fore once again in recent weeks, according to the Oxford Business Group. A major oil discovery in the North Shadwan Concession was announced in February and in recent days several updates concerning long-awaited gas pipelines to Israel, Syria and Turkey have been released.

The North Shadwan announcement was made by BP Egypt and Tri-Ocean Energy, a subsidiary of Egypt Kuwait Holding. A discovery of high quality light crude was found in the North-east Suez, 6km from the existing Hilal field. The new well is expected to produce an eventual 10,000 bpd, and represents the first new discovery in the region for over 10 years. The gas sector has also recently seen several important developments, with the long-awaited and controversial underwater pipeline to Israel reportedly beginning to flow last week. The pipeline, agreed in 2005, links the Egyptian Mediterranean city of El Arish with the Israeli port of Ashkelon 100km away, supplying gas from the northern Sinai.

The pipeline will be run by the East Mediterranean Gas Company (EMG), a joint Israeli-Egyptian venture. The project is estimated to be worth some $2.5bn and will see an expected 1.7bn cubic meters of natural gas per year piped to Israel. The move is part of Israel's efforts to diversify away from a reliance on coal and meet the majority of its energy needs with gas.

In other news, officials announced on 24 February that the third stage of the long-planned Arab gas pipeline would be operational by August. The current phase, taking the pipeline as far as Deir Ali in Syria, is due to commence testing in March. Supplies will rise from 90m cubic meters a year to a maximum of 2bn, depending on Syrian demand. Lebanon is also set to receive Egyptian gas under the same deal by mid-2008. The first phase of the Arab gas pipeline, completed in 2003, linked El Arish to Aqaba. The second phase, finished in 2005, runs from Aqaba to El Rehab, 24km from the Syrian border. The completed pipeline will have a total capacity of 10bn cubic meters a year, pumping gas through a 36-inch diameter pipe. The latest development is good news for Turkey as well, as it has plans for a pipeline linking the Syrian line to the Turkish border and then to Europe.

Natural gas is fast becoming a major export for Egypt. With the nation's limited oil supplies in long-term decline, the government hopes recent major discoveries in the Sinai will see gas replace oil as a major foreign currency earner. Recent years have seen an exponential increase in Egyptian gas output. In 1996 production was only 11.5bn cubic meters per year, from proven reserves of only 0.85trn cubic meters, according to BP. By contrast, last year's figures from the Egyptian oil ministry placed production at 62bn cubic meters, with 28.8% exported. Reserves stood at 1.94trn cu meters in 2006 and Egypt became the sixth-largest producer of liquid natural gas (LNG) in the world.

Egypt's push to the fore in natural gas saw production increase by 29.3% in 2006, a rise only bettered by Libya, itself undergoing a renaissance in its energy industry. In terms of production, Egypt is now at a similar level to Qatar. Its capacity is however dwarfed by Russia, which holds more than a quarter of world reserves, and comprises more than a fifth of current global production.

The Middle East currently accounts for just over 10% of world gas consumption, or around 290bn cubic meters a year. Europe (excluding Russia) by comparison accounts for 25% of consumption, or over 700bn cubic meters a year. Seen in this light, Egypt's new pipeline seems little more than a drop in the ocean. However, among Levantine, Mediterranean and Eastern European states where gas consumption is currently low, Egypt is likely to become an increasingly attractive energy source in coming years. (OBG28.02)

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11.9 SAUDI ARABIA: Land Transport

OBG noted that signaling a possible shift to the national transportation scheme, the Ministry of Transport may be relinquishing the Saudi Arabian Public Transport Company's (SAPTCO) monopoly on the city-to-city bus transfer service, in a bid to improve service for the general public via increased competition. "The ministry is currently studying a proposal to open up bus transport between cities when an agreement with SAPTCO ends in the middle of this year," an official source told local press on February 8.

Established in 1979, the bus company has been operating in the kingdom on a contract from the government. Agreements are reviewed every ten years, with the current one running out in 2008. SAPTCO has a fleet of over 2000 buses and carries more than 3m passengers per annum. It offers services to cities and towns across the kingdom, as well as 10 international routes that are used by nearly half a million travelers each year. Private companies also operate about 9000 buses on international routes to and from the United Arab Emirates (UAE), Kuwait, Syria, Egypt and Yemen. Investments in the sector are estimated at $2.9bn, according to local press.

Overall population growth is a major factor necessitating public transport, particularly in bigger cities. Although, the kingdom has a solid road infrastructure, thanks to heavy investment, the rapid growth of large cities is worsening traffic congestion. The population of Riyadh has tripled from 1.4m people 20 years ago to 4.6m today. The ArRiyadh Development Authority (ADA), the body in charge of the expansion and development of the Riyadh area, has identified the need to offer attractive alternatives to cars, while also accommodating automobile drivers through the expansion of the road network and improved traffic management.

ADA hopes to connect low-density residential areas with high-density business and commercial corridors and aims to "raise public transport usage in Riyadh from the present 2% to 15% or more by 2025", Abdullatif Alshaikh, the president of ADA, told OBG. The development authority has completed the preliminary 30% of the design for a 16-km, east-west light rail system in the city, and a 25-km, north-south link. The ADA is in the process of formulating strategies for a possible public-private partnership to implement it, said Alshaikh.

Preliminary design for the electric rail network was awarded to the French consulting firm Semaly and the Middle Eastern engineering firm Dar Al Handasah. A committee from ADA and the ministry of finance is now reviewing the design. Dates for the bidding process, the construction and the completion of the project have not yet been released.

Other areas of the country are also planning public transit systems. The Mecca-Medina Rail Link Project (MMRL) aims to cater to passengers, predominantly religious pilgrims and commuters, wishing to travel between Mecca, Jeddah and Medina. The MMRL will be constructed on a design-build-operate-transfer contract. The estimated cost of the project is $4bn, with starting dates still to be confirmed. At this stage, the government has said that six unnamed consortia have been qualified to enter the bidding process.

With an area of 2.15m sq km accounting for 80% of the Arabian Peninsula, land transport plays a vital role in the economy of Saudi Arabia, catering to the productive and service sectors alike. The government is working to develop a national strategy to provide a modern transport network linking the nation's residential, industrial and agricultural areas. "The transport sector is not just a service sector. It is also an economic sector and we work under that understanding because without a comprehensive transport system we can not really optimize our strengths," Jobarah Al Suraisry, the minister of transport, told OBG.

A railway expansion program has been gaining momentum, with companies currently bidding for the east-west land bridge connecting Riyadh and Jeddah and Dammam and Jubail. The winning bidder for the $5bn project is expected to be announced in April. A north-south rail track is also planned, running from the north-western region of the kingdom to Riyadh and the Gulf port of Ras Al Zawr. It will carry some 4m tons of phosphate ores and bauxite from mines in the country's north-western region as well as general cargo and up to 2m passengers each year, local press reported. The expansion of the rail network is intended to facilitate the economic development of Saudi Arabia's eastern, northern and central regions. "In areas with agricultural advantages, good tourism or valuable minerals, unless you connect them to the big markets in the kingdom and also to the ports and airports, they lose their comparative advantages," Al Suraisry told OBG. (OBG22.02)

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11.10 PAKISTAN: Election Points To Stability But Concerns Remain

Pakistan's recent elections may offer, but do not yet assure, an opportunity for a new coalition government to restore the rule of law, alleviate institutional rifts, and reduce regional, religious, and ethnic tensions, according to Moody's Investors Service's (http://www.moodys.com) lead analyst for the country.

"The election brings with it the promise of real political improvements, especially if levels of domestic violence are reduced and government actions can be afforded greater legitimacy and predictability," said the analyst, Moody's Vice President Aninda Mitra. "This would likely improve economic activity, boost domestic business and investor sentiment, and restore foreign investor confidence and support a change in the ratings outlook to stable from negative."

However, he said, until the two main opposition parties demonstrate an ability to restore political stability and forge an effective government, Moody's will retain its negative outlook on Pakistan's B1 ratings. The Pakistan People's Party (PPP) and the Pakistan Muslim League (Nawaz) or PML(N) "have a history of animosity with ideological differences on several constitutional as well as socio-political issues," said Mitra.

The parliamentary representation of both parties falls just short of a two-thirds majority needed to make constitutional changes, leaving them dependent on third-party support and vulnerable to pressure from the smaller parties. Neither commands a majority in the Senate to fully secure legislative initiatives against opposition senators aligned with the executive and able to obtain implicit backing from the army. "The most serious credit challenge would probably arise from a synchronization of further political infighting, coupled with policy drift and worsening inflation and fiscal fundamentals that could further worsen macroeconomic as well as socio-political stability," said Mitra.

Moody's changed the outlook on Pakistan's B1 sovereign bond ratings to negative in the immediate aftermath of the imposition of emergency rule in November. "At that time, we believed that the suspension of the rule of law had systemically heightened political uncertainty, making stable political outcomes unforeseeable," said Mitra. "Such high levels of political uncertainty and institutional opacity could affect confidence-sensitive investment flows and generally worsen macroeconomic stability."

The subsequent assassination of Benazir Bhutto, the leading opposition candidate to President Musharaff, and the accompanying violence, demonstrated the high level of political uncertainty that were of concern to Moody's, said Mitra. Concerns about deterioration in Pakistan's credit fundamentals were further fueled by the shocks to economic activity, business sentiment, and reduction in foreign investment inflows that followed along with a sharp up-tick in inflation and widespread power cuts. "Considerable uncertainties still abound and a wider process of reconciliation faces deep chasms," said Mitra. "Nonetheless, the impending transition following a fair and legitimate electoral process could lead to a number of important developments."

These might include:

• The re-establishment of constitutional processes that better balance the relationship between the three main branches of government in a manner that is acceptable to major political parties and is consistent with popular aspirations;
• More sustainable efforts against internal and regional terrorism on account of the sharp reduction in popular sympathy for religiously extremist political parties, whose heretofore sizeable parliamentary representation may have hampered such initiatives in the recent past;
• The possibility of a gradual relegation of the role of the army in the management of civil and public sector institutions, that, by catalyzing a stronger private-sector response, could improve economic efficiency; and
• Improved chances for a more judicious and politically legitimate redress of regional and ethnic grievances that have frayed relations between the center and the states and spawned several insurgencies. (Moody's 25.02)

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11.11 TURKEY: The Year of Europe

The Oxford Business Group reported that after a year of setbacks, Turkey's bid for EU membership may start moving forward again. Leading Turkish politicians have thrown their weight behind accession, and elections in Cyprus and domestic reforms could help ease current blockages.

Foreign Minister Ali Babacan told local press on February 5 that Turkey remains committed to accession, despite opposition from some member states, and other government officials seem to agree. In the wake of the government's decision to lift the ban on women wearing headscarves in public universities, parliamentary speaker Koksal Toptan moved swiftly to quash claims that the ruling Justice and Development Party (AKP) is shifting its focus from Europe. "Turkey cannot turn back from the point we have reached in regard to civilization, modernization and Westernization," Toptan, an AKP moderate, said. "There will be no change here. Turkey cannot give up on its target of membership of the European Union, which is part of its Westernization and modernization process," he added.

Turkey has been an EU associate member since the 1960s, but commenced accession negotiations only in 2005. The country must complete 35 "chapters" of reform and integration in order to be fully eligible for membership of the EU. However, eight of these chapters were suspended in December 2006 due to Turkey's refusal to allow ships and aircraft registered in the Republic of Cyprus (effectively the ethnic Greek southern half of the island) into its ports and airports. The chapters are to date still suspended and remain a serious barrier to progress.

The slow pace of tangible steps towards accession, as well as the attitude of some European politicians towards Turkish membership, have been blamed for a decrease in the proportion of Turks who want the country to join the EU. According to a Eurobarometer poll in December, only 53% now support membership, down from 62% in spring 2007.

French President Nicolas Sarkozy is publicly opposed to Turkish membership of the EU and campaigned as such. German Chancellor Angela Merkel has spoken out against Turkey joining the Union in the past, although she has been more moderate.

Nonetheless, recent developments mean that the wheels may indeed start to move again this year. On February 17, Tassos Papadopoulos, president of the Republic of Cyprus and a staunch opponent of reunification of the island and Turkey's interests in the EU, failed in his re-election attempt. Victory by Demetris Christofias is seen as more likely to recommence negotiations with the Turkish north of the island and with the Ankara government itself. This may be key to unfreezing the eight suspended chapters.

On February 20, Turkey passed the "Foundations Law", allowing non-Muslim religious foundations to accept funding from abroad and returning to them property previously confiscated by the state. In 1974, at the time of Turkey's invasion of Northern Cyprus, land belonging to Christian and Jewish community organizations was seized. The EU has been lobbying for the return of the property, which includes schools, orphanages and churches, for some years now, as part of its push to encourage Turkey to respect minority rights.

While the EU welcomed the ratification of the law, it indicated that Turkey would be judged by action on the ground. Enlargement Commissioner Olli Rehn said the legislation was "important to ensure fundamental rights and freedoms for all Turkish citizens", but added "its implementation will be the test of Turkey's progress in ensuring rights and freedoms". On February 18, EU foreign ministers approved a revised list of priorities for Turkey in its bid for EU accession, highlighting the reinforcement of the "rights and freedoms". The government is now considering amendments to the controversial Article 301 of the constitution, which forbids insulting "Turkishness" and has been used to prosecute various writers and journalists. (OBG22.02)

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- Israeli Shekel conversions done at a rate of NIS 3.60 = $1.00
- Turkish Lira conversions done at a rate of NTL 1.2 = $1.00
- Cypriot Pound conversions done at a rate of C£ 1.00 = $1.60
- Jordanian Dinar conversions done at a rate of JD 1.00 = $1.41
- UAE Dirham conversions done at a rate of Dh 3.66 = $1.00
- Omani Rial conversions done at a rate of OR 0.385 = $1.00
- Pakistani Rupee conversions done at a rate of Rs 60 = $1.00

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