• Knesset Enacts Trajtenberg Committee Tax Proposals
• China's Chery & Israel Corp Launch Qoros Car Brand
• Saudi Pursues Crackdown on Male Lingerie Clerks
• Qatar Signs $10.9 Billion in Deals for Infrastructure Work
• UAE Cabinet Approves Draft Law Allowing Majority Foreign Ownership
• Egypt Pound Falls to Weakest In Almost 7 Years
• UAE: US Fast Food Brands To Dominate the Market
• MOROCCO: Morocco's Election - Yet Another Islamist Victory
  

TABLE OF CONTENTS:

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Finance Ministry Wants To Cut Nis 3 Billion From Defense Budget
1.2 Netanyahu Government Approves Customs Exemption on Online Purchases
1.3 Knesset Enacts Trajtenberg Committee Tax Proposals

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 XTR Concludes $8 Million Financing Round
2.2 China's Chery & Israel Corp Launch Qoros Car Brand
2.3 IEC Looks to Replace Egyptian Gas with Imported LNG
2.4 CHS Signs Agreement to Acquire Israel's Soy Protein Firm Solbar
2.5 NICE Acquires Merced Systems - Leader of Service & Sales Performance Solutions
2.6 Strauss Cuts Prices on 36 Food Products
2.7 DSP Group Announces Acquisition of BoneTone Communications

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Investcorp Swells US Property Assets to $300 Million
3.2 New Esri Office in Middle East Includes International Tech Hub
3.3 General Electric Signs $300 Million Saudi Power Contracts
3.4 Saudi Pursues Crackdown on Male Lingerie Clerks
3.5 The Libyan Medical Market: Status & Post-Conflict Opportunities

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 IAI to Build Innovative Desalination Plant

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Lebanon Ranks 13th in MENA on Corruption Perception Index

►►Arabian Gulf

5.2 Bahrain Third Quarter GDP Growth Accelerates as Unrest Impact Eases
5.3 Bahrain Improves in Transparency International's 2011 Corruption Perceptions Index
5.4 Qatar October Inflation Hits New High Of 2.5%
5.5 Qatar Signs $10.9 Billion in Deals for Infrastructure Work
5.6 UAE Cabinet Approves Draft Law Allowing Majority Foreign Ownership
5.7 UAE Nuclear Power Facilities Said To Cost $30 Billion
5.8 UAE Sees Indian Workforce Shrink as Home Salaries Rise
5.9 Abu Dhabi's Tourism Revenues Hit $111 Million in October
5.10 Abu Dhabi Hopes To Attract 2.3 Million Visitors Next Year
5.11 Saudi Considers Plan to Curb $7.1 Billion in Expat Remittances
5.12 Saudi Construction Contracts Exceed $25 Billion in Third Quarter
5.13 Saudi Arabia Plans First Tender For Nuclear Plant by End of 2012
5.14 Record Number of Saudi Students Now Studying in the U.S.

►►North Africa

5.15 Muslim Brotherhood Says It Supports Free-Market Economy with Strong Private Sector
5.16 Egypt's Salafis Seek Gradual Removal of Non-Islamic Banks & End to Foreign Borrowing
5.17 Egypt Pound Falls to Weakest In Almost 7 Years
5.18 Egypt Keeps Central Bank Governor for Third Term
5.19 Suez Canal Tolls for All Vessels to Increase 3% as of March 2012
5.20 Arabian Gulf Nations Invest In Morocco Tourism

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Turkey's Inflation Nears Double Digit
6.2 Turkish Income Gap Still Over Average
6.3 Cyprus Inflation Climbs To 3.8% in November

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7: GENERAL NEWS AND INTEREST

*REGIONAL:

7.1 Diabetes Hits One In Five in the UAE
7.2 Egypt's First Post-Mubarak Legislative Elections
7.3 Libya Names New Cabinet
7.4 Morocco Parliamentary Elections First Under New Constitution
7.5 Islamists Take Power in Morocco

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8: ISRAEL LIFE SCIENCE NEWS

8.1 MMATech Announces CE Mark & ISO13485 for Its Acetabular Liner Implant.
8.2 Dune Medical's MarginProbe Obtains Procedure Code for Reimbursement in Germany
8.3 Regenocell in Negotiations With Potential New Distributors to Increase Patient Flow
8.4 Teva Announces Tentative Approval of Generic Lipitor
8.5 Hadasit Bio-Holdings Reports Significant External Financing for Portfolio Companies
8.6 BioLineRx Positive Results from Phase Ia Clinical Trial of BL-1021 for Neuropathic Pain

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Sapiens Signs Agreement with Menorah-Mivtachim, one of Israel's Largest Insurance Groups
9.2 Elbit Systems' Subsidiary Upgrades US F-16 Wide Angle Conventional Head-Up Displays
9.3 Japanese Manufacturer Standardizes on Silicom Adapters for Mainstream Server Product Line
9.4 Ness Technologies Wins $2.5 Million Contract With Vix
9.5 iiNet Takes Celeno "Down Under" to Support In-Home Wi-Fi for its IPTV Service

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10: ISRAEL ECONOMIC STATISTICS

10.1 OECD Says Israel Will Avoid Recession
10.2 Israel's Poverty Rate Drops, But Children Still Hungry
10.3 Israel Falls to Lowest Ever Ranking on Corruption Perceptions Index

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11: IN DEPTH

11.1 ISRAEL: A Good Case to Ease Policy?
11.2 ISRAEL: After Mumbai Attack, Indo-Israel Ties Stronger Than Ever
11.3 LEBANON: IMF Mission Visits in November
11.4 LEBANON: Civil-Military Dynamics - Weathering the Regional Storm?
11.5 JORDAN: Bid to Create Hub With Airport Expansion
11.6 QATAR: Moody's Assigns Aa2 Rating to Qatar's Global Bonds
11.7 EGYPT: Ratings Lowered To 'B+' On Heightened Political Transition Risks
11.8 UAE: US Fast Food Brands To Dominate the Market
11.9 United Arab Emirates Tourism Report Q4/2011 by BMI
11.10 UAE: Abu Dhabi Ratings Affirmed At 'AA/A-1+' On Fiscal Flexibility & Asset Strength
11.11 UAE: Dubai Has Private Opportunities in Public Transport
11.12 ALGERIA: Fracture Futures
11.13 MOROCCO: Morocco's Election - Yet Another Islamist Victory
11.14 MOROCCO: Ramping Up Phosphates
11.15 TURKEY: Energy-Sector Maneuvers
11.16 GREECE: IMF Executive Board Completes Fifth Review Under Stand-By Arrangement
11.17 GREECE: Corruption Costing Greece $13.5 Billion Annually

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Finance Ministry Wants To Cut Nis 3 Billion From Defense Budget

The Ministry of Finance is preparing to cut the Ministry of Defense's 2012 defense budget by NIS 3 billion. However, this cut might not be enough in light of global economic developments. At the same time, an across the board cut affecting all government ministries except the Ministry of Education, is being prepared for if the economic situation deteriorates. The Ministry of Finance senior officials are meeting more and more frequently on this matter. Tax collection as of November 2011 is already NIS 5 billion below the target of NIS 213.5 billion on which the 2011 budget was based. The gap stems from lower income in H1/11 when exports to North America and Europe were lower than expected. The missing NIS 5 billion in taxes represents 0.6% of GDP. (Globes 28.11)

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1.2 Netanyahu Government Approves Customs Exemption on Online Purchases

On 4 December, the cabinet approved exempting from customs online purchases of goods up to a value of NIS 1,200, after Prime Minister Netanyahu raised the exemption by 20%. The exemption does not require legislation, only Minister of Finance Steinitz's signature on the directive. However, the cabinet postponed discussing other Trajtenberg committee recommendations, including the construction of scores more gas stations, proposals for improving government regulations, lowering customs and reducing concentration in the economy. (Globes 04.12)

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1.3 Knesset Enacts Trajtenberg Committee Tax Proposals

The Knesset plenum has approved the second and third readings of Trajtenberg Committee's tax proposals by a majority of 41 votes. The tax reforms are as agreed by Knesset Finance Committee chairman MK Gafni (United Torah Judaism) and the Ministry of Finance. According to the tax reform that will come into effect from January 1 2012, those earning between NIS 8,000 to NIS 14,000 a month will pay 2% less income tax, costing the state coffers NIS 1 billion annually. Other tax incentives in the new legislation include tax points for fathers with children aged up to three worth NIS 418 per child per month. In addition, interest rates on government subsidized mortgages will not rise above 3%, lower than the interest charged by banks. The planned rise in fuel excise has also been cancelled. (Globes 05.12)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 XTR Concludes $8 Million Financing Round

Extreme Reality (XTR3D) concluded an $8 million financing round led by Crescent Point's Ohad Finkelstein and Yuval Shahar. The round was conducted by the Furth, Wilensky, Mizrahi & Knaani law firm and included the company's current investors such as Texas Instruments and angel investor Nissim Zarfati, formerly Kardan Investments chairman. Another XTR investor revealed lately is billionaire Ron Conway – one of Silicon Valley's most heavy investors. Now that the financing round has been completed, XTR will hire another 20 employees who will join the company's staff of 30. The company's technology is already installed in mobile phones, tablets and televisions and that the company is poised to make its debut in the automobile market. Herzliya's Extreme Reality (XTR3D - http://xtr3d.com/) is a privately held company, established in 2005. XTR3D enables consumer electronic devices with Gesture Control Interface and Motion Capture for Gaming using software only, using a single standard 2D camera. By "device" XTR3D means ANY DEVICE as long there's a camera attached to it. XTR3D technology can be implemented across multiple industries and verticals. (XTR3D 28.11)

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2.2 China's Chery & Israel Corp Launch Qoros Car Brand

Israel Corporation and China's Chery Automobile Company announced that their joint venture, Qoros Automotive Company, will launch a new brand targeting the Western European and Chinese markets. Qoros, owned in equal shares by the two companies, was also renamed today from Chery Quantum Auto. Sales of the first model, a compact sedan, are slated to begin in 2013. Israel Corp and Chery have invested $500 million in Qoros since they founded it in 2007. The company aims to meet the 2013 five-star ratings by European New Car Assessment Program (NCAP). Qoros is building a factory in Changzhou, an industrial city west of Shanghai, that will have an annual capacity of 150,000 cars, which could expand in the future to 300,000. Qoros said that, through cooperation with its worldwide partners, it aims to address Chinese and international demand for cost-effective, attractively designed cars that meet stringent European quality, safety and emissions standards. (Globes 28.11)

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2.3 IEC Looks to Replace Egyptian Gas with Imported LNG

Israel Electric Corporation has published a request for information (RFI) to international companies and traders for the import of liquefied natural gas (LNG) to replace Egyptian natural gas, whose supply has been suspended again, causing a sharp jump in electricity rates. The price of LNG is 2 - 3 times the price of Egyptian natural gas, but still 50% less than the price of diesel, which IEC is currently buying as an alternative fuel to generate electricity. There have been reports of contacts between Israeli parties and Qatar, the world's largest LNG exporter. Trinidad and Tobago is another major LNG exporter. Egypt also has an LNG infrastructure for exports, but surplus domestic demand greatly limits its gas exports. Israel would import LNG by tankers that would moor at a gas terminal buoy located off IEC's coal terminal at Hadera. Israel Gas Pipelines is responsible for building the buoy. IEC's RFI states that it wants to buy gas in deliveries every two weeks. On the basis of these figures, total gas procurements would amount to 1.5 billion cubic meters. At its peak, Egypt's East Mediterranean Gas Company (EMG) delivered at an annual rate 2 billion cubic meters of gas. (Globes 28.11)

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2.4 CHS Signs Agreement to Acquire Israel's Soy Protein Firm Solbar

St. Paul, Minnesota's CHS, the US' leading farmer-owned cooperative, has signed an agreement with Solbar Industries, a global leader in specialty soy proteins and soy isoflavones to acquire 100% of the shares of Solbar. The purchase price reflects an equity value of approximately $133 million. Provided all conditions are met, the parties anticipate closing on the CHS acquisition of Solbar in Q1/12. Among the required conditions are the approval of the shareholders of Solbar and antitrust approvals in certain jurisdictions outside the US. Solbar http://www.solbar.com/ provides soy protein ingredients to manufacturers in the meat, vegetarian, beverage, bars and crisps, confectionary, bakery, and pharmaceutical manufacturing markets. Solbar corporate offices are in Ashdod, Israel. Solbar is a public company, traded on the Tel Aviv Exchange since 2004. (CHS 23.11)

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2.5 NICE Acquires Merced Systems - Leader of Service & Sales Performance Solutions

NICE has entered an agreement to acquire Redwood Shores, California's Merced Systems, the leader in service and sales performance management solutions. The acquisition of Merced underscores NICE's commitment to provide its customers the market leading, best-in-class analytics solutions and Workforce Optimization suite. Merced's flagship solutions, available in on-premise, SaaS and hosted models, include Merced Service Performance Management, which provides performance analytics and dashboards, service coaching, incentive management and real-time reporting for enterprise service personnel. They also include Merced Sales Performance Management with incentive and quota management, performance analytics and dashboards, sales development and coaching, and other analytics solutions. Integrating Merced and NICE capabilities creates a closed-loop Performance Management solution. Adding capabilities such as real-time interaction analytics and real-time customer feedback to traditional data sources will deliver more accurate performance measurement and insights. These insights will then be fed into other NICE solutions such as coaching and the unique real-time agent guidance to enable organizations to ensure ongoing improvement in agent performance and customer centric processes. Under the terms of the agreement, NICE will acquire Merced for a total consideration of approximately $150 million, net of cash acquired.

Ra'anana's NICE http://www.nice.com is the worldwide leader of intent-based solutions that capture and analyze interactions and transactions, realize intent, and extract and leverage insights to deliver impact in real time. Driven by cross-channel and multi-sensor analytics, NICE solutions enable organizations to improve business performance, increase operational efficiency, prevent financial crime, ensure compliance and enhance safety and security. (NICE 02.12)

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2.6 Strauss Cuts Prices on 36 Food Products

Israel's Strauss Group has permanently cut prices on 36 items by 5-10%, including cocoa, Turkish coffee, Para (cow) brand chocolate, cookies and wafers, and hummus and other salad. The price cuts are in response to the cottage cheese consumer boycott movement. Strauss has also frozen executive pay and raised salaries of low-paid employees. It will also hire contract workers as regular company employees. In early September, Strauss launched discount campaigns on its Milky puddings (NIS 10 for a pack of four) and Sky white cheese (two 250-gram containers for NIS 10), and in October, it cut the prices for these another items by 6-12% in the updated price list for retailers. The latest price cuts are in addition to the October reductions. In January, when the discount campaigns end, the recommended price for Milky will be NIS 2.85 per container and for Sky white cheese will be NIS 6.40 per container. Cottage cheese protest organizer Itzik Alrov said in response, "In recent years, Strauss has sharply raised the prices of many products, and these reductions on a limited number of products are simply not enough, although every savings by the citizenry is welcome. The cottage cheese protest has publicly made the demand for an across-the-board 30% price reduction on consumer products. Until that happens, the public will continue to fight and limit its purchases of these companies' brands. (Globes 04.12)

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2.7 DSP Group Announces Acquisition of BoneTone Communications

DSP Group announced the exercising of its option to acquire BoneTone Communications. The acquisition provides DSP Group with diversification and cutting-edge technology in the promising and fast-growing mobile device market. BoneTone's products are expected to generate revenues already in 2012. BoneTone leverages unique signal-processing technologies that transform inaudible voice calls into clear and comprehensive conversations, and redefines the music-listening experience in mobile devices. Raising the bar for mobile sound quality, BoneTone offers two groundbreaking chips. HDClear is the only chip that completely removes background noise for far end users. The chip can be embedded in mobile devices, as well as in Bluetooth, corded and DECT headsets. HDMobileSurround enables mobile phone, tablet and PC users, through the use of an advanced small form-factor headset, to enjoy home theater-quality sound on the go while gaming or watching movies. DSP Group's acquisition of BoneTone, for a consideration of approximately $10 million, comes two years after the companies entered into a strategic partnership. Toward the end of 2009, DSP Group acquired an equity stake in BoneTone that included a 24-month option to purchase the company's remaining shares.

Rosh HaAyin's BoneTone Communications http://www.bonetone.com is a provider of innovative IC solutions that redefine audio quality and voice intelligibility in mobile devices and headsets. Leveraging the Company's unique signal processing technology and off-the-shelf bone conduction components, BoneTone Communications improves voice call intelligibility and the music-listening experience in mobile devices. BoneTone Communications' HDClear chip removes all background noise for far end users to ensure uninterrupted voice calls in both high-ambient indoor and outdoor environments. Herzliya's DSP Group http://www.dspg.com is a leading global provider of wireless chipset solutions for converged communications at home. Delivering system solutions that combine semiconductors and software with reference designs, DSP Group enables consumer electronics manufacturers to cost-effectively develop new revenue-generating applications with fast time to market. At the forefront of semiconductor innovation and operational excellence for over two decades, and with a growing share of the wireless home telephony market, DSP Group provides a broad portfolio of wireless chipsets integrating DECT, Wi-Fi, PSTN and VoIP technologies with state-of-the-art application processors. (DSPG 05.12)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Investcorp Swells US Property Assets to $300 Million

Investcorp, the Bahrain asset management firm, said it had acquired three real estate assets in the United States, bringing its total property buys this year to $300m. The deals span a seven-story office complex in Long Beach, California and a $37m healthcare complex in Florida. The firm also bought a 221-unit garden and townhouse development composed of 15 residential buildings in Atlanta, Georgia, for an undisclosed price. The acquisitions are the latest in a series of US investments for the Bahrain firm, which has closed eight real estate deals in the country this year. Investcorp most recently bought the 176-room Residence Inn Manhattan Beach in Los Angeles in May, in a deal valued at $40m. In September, the alternative asset manager bought US kitchenware retailer Sur La Table, which operates 86 stores across the US. The value of the deal was no disclosed. Investcorp had assets under management of $11.8b as of June 30. (AB 20.11)

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3.2 New Esri Office in Middle East Includes International Tech Hub

With the opening of its latest office in Dubai, UAE, Redlands, California's Esri continues to expand its international network of offices and distributorships, further demonstrating its commitment to supporting the user community. The primary focus of the Dubai office, which is responsible for the first Esri ArcGIS Technology Hub outside the United States, is to help the distributor network further develop its ArcGIS technical capabilities as the growing geospatial market expands into new industries. In addition to its ArcGIS Technology Hub, the office is developing an Executive Briefing Center that will be used to stage technology workshops and discuss Esri's latest software and its potential use with senior managers. The center will also be available to Esri's distributors and partners to hold meetings and seminars.

Since 1969, Esri has been giving customers around the world the power to think and plan geographically. The market leader in geographic information system (GIS) technology, Esri software is used in more than 300,000 organizations worldwide including each of the 200 largest cities in the United States, most national governments, more than two-thirds of Fortune 500 companies, and more than 7,000 colleges and universities. Esri applications, running on more than one million desktops and thousands of web and enterprise servers, provide the backbone for the world's mapping and spatial analysis. (Esri 28.11)

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3.3 General Electric Signs $300 Million Saudi Power Contracts

On 5 December, General Electric (GE) signed contracts totaling almost $300m with the Saudi Electricity Company (SEC) to supply 13 gas turbines and associated services for the expansion of six power plants in the kingdom. The expansions will add nearly 800 MW of power to the Saudi grid by the summer of 2013, in time to support peak electricity demands and reduce the risk of blackouts, GE said in a statement. The new contracts bring the number of GE turbines delivered for SEC projects to nearly 200 turbines in the last five years. To date, GE power generation technology and services are supporting the generation of nearly half of Saudi Arabia's electricity. In addition to supplying 13 turbines and associated generators, GE will also provide technical advisory services and performance testing. The six sites for the expansions are Wadi Al Dwasir, Tabuk, Qurrayat, Sharura, Ala-Wajh and Najran simple-cycle power plants. The gas turbines will be manufactured in GE's factory in Greenville, US, and will be delivered to the various sites during Q4/12 and Q1/13. Commercial operations are slated to begin in May 2013. In June, GE inaugurated its newest technology center in Dammam. (GE 05.12)

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3.4 Saudi Pursues Crackdown on Male Lingerie Clerks

Hundreds of inspectors are to be employed across Saudi Arabia from January as the kingdom moves to push male lingerie salesmen aside and force stores to hire female clerks. A Labor Ministry directive unveiled in July ruled that only women could be employed as sales clerks in lingerie stores, a second stab at enforcing a ruling originally rolled out in 2006. Some 60 inspectors will be employed in Riyadh alone to ensure boutiques are abiding by new employment guidelines. Street shops as well as those in shopping malls would be subject to the new rules, with all lingerie outlets compelled to have blinds or curtains to stop passers-by being able to look in.

Saudi Arabia enforces restrictions interpreted from the Wahhabi version of Sunni Islam. Men and women are strictly segregated in public, a rule that has shuts women out of sales jobs in malls and stores - unless the store caters exclusively to a female clientele. The government last month issued a circular to stores selling women's fashion and lingerie warning they would be placed on a visa blacklist if they failed to phase out their male staff. Further sanctions will be considered if shops that sell make-up, women's clothing, abayas and accessories have not made the staffing switch by July 2012. Official data puts the employment rate of Saudi women among the lowest in the Gulf Cooperation Council, estimated at 12% in 2008. (AB 21.11)

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3.5 The Libyan Medical Market: Status & Post-Conflict Opportunities

Research and Markets http://www.researchandmarkets.com "The Libyan Medical Market: Status & Post-Conflict Opportunities" report says that with the fall of the Gaddafi regime, opportunities for the medical market exist. There is no shortage of money in Libya. In 2010, GDP was $79.2 billion, equal to $12,096 per capita. This is one of the highest levels of per capita GDP in Africa, and is broadly comparable to that found in Russia. Growth, however, is dependent on erratic international oil markets, and financial abuses by the former governing elite meant that investment in the provision of health services could have been better.

Even with this background, it is true that the oil wealth has enabled Libya to create a reasonably comprehensive healthcare system, but spending – while high in African terms – remains low in comparison with other oil-rich countries of comparable income, such as Saudi Arabia. There is no private insurance as such, so local people are largely reliant on the public hospital system. There is a well-equipped private sector, which caters for the wealthy local population and workers in the oil industry. There is considerable scope for expansion and modernization in the future, and as the market is nearly totally dependent on imports, this signals a market with real potential.

Libyan market potential must been seen in two phases. Phase one will see the market expand and imports rise as reconstruction and restoration of damaged health infrastructure takes place. Looking further forward in a second development phase, Libya has the opportunity to use its oil wealth to create a sophisticated and advanced health sector in the style of the Arabian Gulf States, assuming a degree of political will and ongoing political stability. The latter is far from a certainty, but the prospects appear far brighter post-Gaddafi than under his rule. (R&M 02.12)

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 IAI to Build Innovative Desalination Plant

Within 18 months, Israel Aerospace Industries (IAI) plans to build the first desalination plant of its kind to demonstrate an innovative method for desalinating water. IAI has designated the water infrastructures industry as a sector that will have strong global demand, due to the expected water shortage. Seawater desalination is an expensive process, mainly because of its high energy consumption, a fact which raises questions whether building desalination plants is economically worthwhile. The first facility to be built will demonstrate IAI's new desalination abilities. Later, if the company wants to develop these abilities into a product, it will link up with another company, either Israeli or foreign, that will focus on the marketing of the new facilities, mainly overseas. In addition to seawater desalination, IAI has begun to examine the development of innovative technologies to constantly monitor water infrastructures, especially pipelines, in an effort to prevent leaks from aging or damaged infrastructures, by using methods to identify the problem in advance.

IAI is seeking to add civilian fields to its core business. Six months ago, it announced collaboration with a European company to develop, produce and build innovative wind turbines for the generation of electricity. As part of the feasibility work, the companies decided to build two experimental wind farms at a cost of €43 million. IAI said that each turbine can generate three MW of electricity. The wind turbines will be built on rigs offshore or onshore. The companies' joint venture will manage the production, marketing and maintenance of the product. IAI's decision to enter new fields is a response to the decline in the company's civil aviation division since the global economic crisis of 2008. (Globes 30.11)

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Lebanon Ranks 13th in MENA on Corruption Perception Index

Transparency International's annual Corruption Perception Index for 2011 ranks Lebanon in 134th place among 183 countries worldwide and 13th among 17 countries in the Middle East and North Africa region. TI said the need for enforced institutional oversight and legal frameworks coupled with effective regulation remains crucial for Lebanon. On a global basis, Lebanon tied with Cameroon, Eritrea, Guyana, Maldives, Nicaragua, Niger, Pakistan and Sierra Leone. While mass demonstrations took a toll on the MENA region as revealed by the drop in scores and rankings in several of its countries, Lebanon managed to sustain last year's score of 2.5 points, but regressed in rankings from the 127th spot as other countries improved this year. This continues to reflect the impact of numerous corruption cases on domestic and international public opinions. (TDS 02.12)

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►►Arabian Gulf

5.2 Bahrain Third Quarter GDP Growth Accelerates as Unrest Impact Eases

Bahrain's economic growth sped up to 2.2% quarter-on-quarter in the July-September period, the government said, as high oil prices continued to help the economy recover from political unrest and capital flight earlier this year. GDP growth accelerated from 1.3% in the second quarter of this year. On a year-on-year basis, GDP expanded 2.4% in Q3 after 1.1% growth in the second. The Gulf financial hub was hit hard in February and March by its worst unrest since the 1990s, which forced banks and shops to close and triggered an outflow of funds. GDP shrank a revised 1.3% in Q1/11, the first contraction since the global credit crisis in 2008. Output of the hydrocarbon sector climbed 3.5% in inflation-adjusted terms in the third quarter compared with the same period a year ago. But the real estate sector was down 5.6% and hotels fell 8.7% in the quarter. Bahrain is now trying to heal sectarian divisions between the island kingdom's Sunni rulers and majority Shi'ites to prevent any further unrest. A government-commissioned report, designed to help this process, acknowledged that security forces used excessive force to suppress pro-democracy protests. King Hamad bin Isa al-Khalifa, speaking after the report was published, said laws would be reviewed and if necessary revised in light of the unrest. The country's finance minister estimated that GDP would grow between 1.6% and 1.7% this year, accelerating to 4.5% in 2012. (BI-ME 24.11)

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5.3 Bahrain Improves in Transparency International's 2011 Corruption Perceptions Index

Bahrain increased its ranking in Transparency International's Corruption Perceptions Index (CPI) by two positions in 2011, the report said. The index, initiated in 1995, is recognized as the worldwide standard for corruption measurement in the public sector. Transparency International uses opinion surveys and expert assessments to construct the index. Bahrain currently ranks 46th out of the 183 countries included in the index. (BNA 04.12)

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5.4 Qatar October Inflation Hits New High Of 2.5%

Annual inflation in Qatar rose to 2.5% in October 2011 from 2.2% in September 2011, according to latest data from Qatar Statistics Authority. On a monthly basis, consumer prices rose 0.4% in October 2011 after growing only 0.1% in September 2011. Excluding rents, the overall index shows an increase of 5.8% compared to the same month last year, and an increase of 1.2% compared to last month. Pundits expect annual inflation in Qatar to remain within an average of 2.0% by end-2011. Inflation has increased in recent months, mainly on the back of rises in food prices and other commodities, which together account for at least 20% of the CPI basket. This is largely a reflection of imported inflation rather than strengthening domestic demand. Moreover, declining rents will continue to keep overall inflation under check. (Beltone 30.11)

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5.5 Qatar Signs $10.9 Billion in Deals for Infrastructure Work

Qatar's Public Works Authority (Ashghal) said it has signed contracts for infrastructure projects worth $10.9b. Six new contracts were inked to improve Qatar's local roads and drainage network. Ashghal's president Al Mawlawi said the award of the contracts represented a "significant step towards delivering the infrastructure required to achieve Qatar's National Development Plan". The infrastructure upgrade will cover the entire state of Qatar and would be split into five zones. Each zone will have a general engineering consultant to provide design and construction supervision services over a five year period. Ashghal said Parsons Brinkerhoff International had been appointed as program management consultant with other companies awarded contracts for the five zones. (AB 23.11)

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5.6 UAE Cabinet Approves Draft Law Allowing Majority Foreign Ownership

The United Arab Emirates cabinet has approved a draft companies law that may allow foreign ownership above 49%, as the Arabian Gulf state seeks to attract more investment to help diversify its economy. The law allows the cabinet to specify the types of businesses and sectors where a foreign partner may hold more than 49% of a company's capital. Currently, there is a maximum 49% ownership limit for listed companies, and foreigners need a UAE national or partner to conduct business, although full foreign ownership is permitted in "free zones." The legislation lays down a framework for the governance of public companies, ensuring transparency and disclosure of financial data as well as the efficiency and integrity of the board of directors. The agency did not say when the legislation, which is also expected to make it easier to set up businesses and strengthen the protection of shareholders, was expected to take effect. The UAE has been trying to diversify and modernize its economy, developing areas including tourism, finance and aerospace, to reduce its heavy dependence on oil exports. (BI-ME 05.12)

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5.7 UAE Nuclear Power Facilities Said To Cost $30 Billion

The UAE's nuclear- power program, a joint venture between state-owned Emirates Nuclear Energy and Korea Electric Power, will cost about $30 billion. Financing will be split into one-third equity and two- thirds debt. Emirates Nuclear is going ahead with plans to develop four nuclear reactors in the UAE, even as other countries halt atomic programs after the March earthquake and tsunami in Japan caused radioactive material to be released from its Fukushima plant. Korea Electric, the country's biggest electricity producer, won a contract in 2009 to complete the plants from 2017 to 2020, which will make the UAE the first Arabian Gulf nation with atomic power. Abu Dhabi will provide most of the $10 billion equity, and $10 billion of the debt is likely to come from export-credit agencies, mainly from South Korea. The remaining $10 billion will be a mix of bank financing and sovereign debt, the person said. Abu Dhabi may consider a government-debt issue and Emirates Nuclear may raise debt backed by the government. A financing agreement will probably be reached by the end of 2012, the second person said. The UAE will decide on the financing structure by the end of March. (BI-ME 24.11)

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5.8 UAE Sees Indian Workforce Shrink as Home Salaries Rise

The Indian Consulate in the UAE saw a fall in new visas for Indian nationals last year for the first time, as rising salaries in the Asian state kept workers at home. The UAE is likely to see a steady decline in blue-collar migrants as India's economic growth offers better opportunities to workers. The numbers are declining because of the demand for labor in India. The UAE's civil construction sector has a shortage of civil engineers and skilled workers, plumbing and carpentry. India has initiated a National Rural Employment Guarantee Act which offers 100 days of work a year to rural households, giving employment to workers in villages who traditionally have looked abroad for jobs. The Arabian Gulf plays host to millions of migrants, primarily from Asia, who account for the majority of blue-collar workers in the construction, domestic work and service industries. An estimated 3 million migrate each year, sending back an estimated $175b in remittances annually, according to Human Rights Watch data. The UAE alone is home to an estimated 1.75 million Indian expatriates, the largest group of foreign workers in the Gulf country. But experts have warned the country may struggle to attract and retain migrants if it fails to keep pace with rising salaries in India. (AB 22.11)

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5.9 Abu Dhabi's Tourism Revenues Hit $111 Million in October

Abu Dhabi saw record numbers of tourists in October and is now within sight of its target of attracting two million guests in 2011. The UAE capital welcomed 182,553 guest arrivals in October - a 21% increase on October 2010. Guest nights also rose 17% to 582,929 and occupancy was up 7%. October performance means that in the first 10 months of this year, Abu Dhabi's hotels and hotel apartments received 1,697,140 guests which is 15% higher than the same period last year. Indicators are good for achieving their 2011 stretch target with expected good figures for November resulting from the staging of the third Formula One Etihad Airways Abu Dhabi Grand Prix and with an end-of-year influx anticipated as guests arrive for the New Year's hosting of the Volvo Ocean Race fleet. October also recorded a 2% increase in overall revenue to $111.7m when compared to October 2010, which was primarily driven by a strong performance in food and beverage revenue. Overall increases in revenue were tempered by decreases in average room rates and RevPAR which fell 11% to $133 and 5% to $102.70 respectively. Year-to-date, occupancy levels are up 9% to 68%, revenue has risen 5% to $941m and average length of stay has increased by 8% to 2.99 nights. (AB 23.11)

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5.10 Abu Dhabi Hopes To Attract 2.3 Million Visitors Next Year

The Abu Dhabi Tourism Authority (Adta) hopes to attract 2.3 million hotel guests in 2012. Visitors arriving from France, Italy, Germany, the UK, Saudi Arabia, India, China and Russia would help Adta achieve its hotel guest target for next year. This year, guests who occupied the 22,000 hotel rooms in the emirate will contribute an estimated 11.1% to Abu Dhabi's non-oil gross domestic product (GDP). Abu Dhabi took a major leap forward on the leisure scene with the recent opening of Ferrari World Abu Dhabi, the world's biggest indoor theme park. Abu Dhabi's hotels welcomed about 1.65 million guests last year. According to Adta, around 1.54 million guests stayed in hotels throughout the emirate in 2009. Guest arrivals rose from 960,000 in 2004 to over 1.5 million in 2009. In 2009, Abu Dhabi's main source markets for hotel guests were the UK, the US, India, Germany, Egypt, France, Saudi Arabia and Italy. Adta is in the midst of a five-year plan under which it hopes to attract 2.7 million hotel guests a year. (Adta 01.12)

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5.11 Saudi Considers Plan to Curb $7.1 Billion in Expat Remittances

Saudi Arabia's suggestion last month that it will try to limit how much money expatriate workers send home showed concern about the cost of having foreigners make up nearly a third of the population. An estimated 9 million foreign workers and their dependents remitted $7.1b out of the country in Q2/11, central bank data shows. That amount was equivalent to 17% of Saudi Arabia's current account surplus at a time of historically high oil revenues. With the stability of the global financial system threatened by the euro zone debt crisis and Saudi Arabia keen to use more of its monetary resources domestically under a $130b government spending plan announced this year, the outflow of funds may be starting to look uncomfortably large. Saudi Arabia, which wants to develop its economy to reduce its reliance on oil revenue, also appears to be waking up to the opportunity cost of having so much economic output produced by foreigners, most of whose money is not spent or invested within the kingdom.

Expatriates account for nine out of 10 private-sector jobs in Saudi Arabia. They fill roles that range from domestic service and factory work to management positions in large finance companies. The value of their remittances has almost doubled in the past five years. Higher-paid workers tend to spend more of their income inside Saudi Arabia because they are more likely to bring their families with them, but they often have their salaries paid directly into foreign bank accounts. An even bigger obstacle to controlling remittances is the fact that foreign workers are needed to keep the economy running. Weaning businesses off them is a difficult and long-term task.

Addressing unemployment among Saudi nationals, which officially stands at 10%, is a key goal for King Abdullah in a country where the population is growing more quickly than the government can provide public sector jobs. Around half of Saudis in full-time employment work for the government and King Abdullah announced the creation of tens of thousands of new Interior Ministry jobs earlier this year. Earlier this year, the government refined its "Saudization" program by rewarding companies that employ more Saudis and making it more difficult for those that employ fewer Saudis to gain visas for expatriate workers. (AB 24.11)

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5.12 Saudi Construction Contracts Exceed $25 Billion in Third Quarter

Saudi Arabia will see no near-term slowdown in the value of construction contracts being awarded as the kingdom continues to embark on mega infrastructure projects, the National Commercial Bank said on 23 November. The bank's Construction Contract Index showed that a total of $25.3b worth of deals were awarded during Q3/11, more than in the previous two quarters of the year. NCB said the value of 2011's contract has far exceeded those of last year and "has the potential to exceed 2009". The mixed-use real estate sector accounted for 26% of the third quarter's value of awarded contracts while the transportation and industrial sectors accounted for 16% and 15% respectively. Third quarter construction deals were 104% up on the same period last year while the nine-quarter figure represented a 125% rise over 2010. It added that the growth was an indication that the government continues to place an emphasis on capital expenditures to meet its commitment to improve the Saudi kingdom's infrastructure capabilities. The Construction Contract Index peaked at 358.6 points in July but eased to end the quarter at 316.4 points, compared to 172.8 points at the end of Q3/10. (AB 23.11)

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5.13 Saudi Arabia Plans First Tender For Nuclear Plant by End of 2012

Saudi Arabia, which plans to build 16 nuclear reactors by 2030, will begin the tendering process to construct the first station by the end of next year, according to the King Abdullah Center of Atomic and Renewable Energy. The site of the reactor will be announced by March. The bidding will be of a gradual pace rather than one award, for the construction of all the proposed reactors. Saudi Arabia and the UAE are investing in nuclear power to help meet rising domestic demand for electricity. (AB 28.11)

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5.14 Record Number of Saudi Students Now Studying in the U.S.

The number of Saudi students studying in the United States has reached nearly 50,000. The number of Saudi students on scholarships in the U.S. has increased significantly; as recently as 2005, only 2,500 Saudi students were studying in the U.S. The current percentage of Saudi female scholarship students is approximately 30%. To complement domestic education programs, King Abdullah has also found ways to allow Saudi youth to experience the best universities the world has to offer through its King Abdullah Scholarship Program. The program provides qualified students the opportunity to attend colleges and universities around the world. The Saudi government has offered scholarships to more than 120,000 students worldwide. (RESAIO 01.12)

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►►North Africa

5.15 Muslim Brotherhood Says It Supports Free-Market Economy with Strong Private Sector

Egypt's Muslim Brotherhood (FJP, or Freedom & Justice Party) says it supports a free-market economy with a strong private sector. Many Brotherhood members have big business interests, including in consumer goods such as furniture and clothing. They say they seek to emulate the Turkish experience in terms of economic growth with a focus on boosting manufacturing and exports, but say that does not mean they wish to follow Turkey's political model. The group has said it seeks to gradually expand Islamic banking in Egypt as an alternative to commercial banking that would lure investors, but would leave both banking options available to consumers.

Officials have tended to sidestep questions about whether the party would, for example, seek to ban alcohol, a move that would deter tourists, a major source of revenues and jobs. The party might seek to ban alcohol for Egyptians but allow it for tourists on hotel beaches. The MB added that many deals reached under Egypt's old order should be reviewed. Regarding to foreign aid, they believe that "any country that relies on aid is a slave to others' policies and Egypt's will must be freed," commenting on aid from the United States that has flowed into Egypt since Cairo signed the 1979 peace treaty with Israel. The FJP's program, like others, calls for deep reform of the internal security forces whose crackdown on dissent in the Mubarak era fuelled the uprising against the president. The FJP program says it seeks "freedom of creativity and the protection of society's ethics, propriety and customs." (Beltone 06.12)

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5.16 Egypt's Salafis Seek Gradual Removal of Non-Islamic Banks & End to Foreign Borrowing

Egypt's Salafi Islamists seek the gradual removal of non-Islamic banks and an eventual end to foreign borrowing. The Nour party, which follows a strict interpretation of Islamic law, will push for an expansion in Shariah-compliant lending to help the ailing economy reach "unprecedented" growth levels. "We are completely against riba (interest) because our religion tells us that Allah will wipe out all the money when riba is involved,"Nour's spokesman said. Shariah-compliant banks replace interest charges with financial instruments based on the sharing of profit and loss. The Nour Party won at least 24% of last week's vote, behind the Muslim Brotherhood's Freedom and Justice Party. Asked about the party's stance on tourism, Hammad said Nour plans to promote types of tourism that won't involve the sale of alcohol, which is banned under Islamic law. While the Nour Party isn't seeking a "confrontation" that may increase unemployment, it will act "in view of what Allah has allowed and banned." Nour will seek to replace conventional banks with Islamic institutions "gradually so as not to hurt the Egyptian economy." (Beltone 06.12)

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5.17 Egypt Pound Falls To Weakest In Almost 7 Years

The Egyptian pound was bid as weak as 6.0036 to the US dollar in late November, its lowest in almost seven years, as the country's deepening funding crisis overshadowed a smooth start to a parliamentary election. The central bank spent almost $2 billion of its foreign reserves in October, partly to support the currency, traders say. The pound was at its weakest since January 2005. (AA 29.11)

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5.18 Egypt Keeps Central Bank Governor For Third Term

Egypt's ruling military council has decided to keep Central Bank governor Farouk al-Okdah in office for a third four-year term. US-trained banker Okdah became governor in December 2003 after his predecessor, Mahmoud Abul-Eyoun, oversaw a trouble-free flotation of the pound during his two years in the job. The Central Bank unexpectedly raised interest rates recently for the first time in more than two years, acting after depleting its foreign reserves trying to defend a local currency weakened by street violence and political chaos. Investors have been rattled by violent clashes in Cairo and other cities between security forces and protesters demanding an immediate end to military rule, days before the scheduled start of a parliamentary election on Monday. (AA 26.11)

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5.19 Suez Canal Tolls for All Vessels to Increase 3% as of March 2012

Suez Canal tolls for all vessels will increase 3% as of March 2012, Egypt's Suez Canal Authority announced. The toll increase was based on studies the canal management conducted over recent months regarding maritime transport forecasts for next year, according to an authority statement. The studies took into account predicted economic growth in various regions around the world and trade expectations. The authority added that it also considered the canal's vital economic role in Egypt and abroad, the importance of keeping it an affordable maritime route and the stability of tolls over the past three years. (AA 04.12)

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5.20 Arabian Gulf Nations Invest In Morocco Tourism

Three countries of the Arabian Gulf have set up a $2.5 billion sovereign investment fund to support Morocco's tourism sector. Qatar Emir Hamad Bin Khalifa Al Thani was in Morocco recently, together with General Shaikh Mohammad Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, and Kuwaiti Foreign Minister Mustafa Jasem Al Shamali to sign the accord with Morocco's king. King Mohammad VI also signed a series of other bilateral economic cooperation accords with Qatar's emir. A major destination for European tourists seeking sun and sand, Morocco's industry suffers from a lack of investment due to financial constraints. The countries of the Gulf Cooperation Council have been publicly discussing ways of aiding Jordan and Morocco. (GN 26.11)

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Turkey's Inflation Nears Double Digit

Turkish inflation increased to 9.5% in November from 7.7% a month earlier, reaching a 19-month record as economists warn of a nearly two digit yearend figure. The hike in food and clothing prices, increase in special consumption tax on tobacco, cars and mobile phones and rise in import taxes played a major role in the unexpectedly high inflation rate. Turkey's producer prices increased only by 0.65% from a month earlier. The Central Bank's preferred measure of core inflation jumped to 8.2%, the highest since June 2007. Consumer price inflation is now more than double the four-decade low of 4% reached in March. Turkey is revising its inflation estimate for this year to nearly 10% in a draft accession document for its European Union membership bid. The figure was increased from a previous estimate of 7.8% in the country's three-year economic plan. The estimates, which are included in a document to be presented by the government to the EU on 15 December, will be approved by the cabinet and may change. The budget deficit for 2011 is estimated at 1.4% of economic output compared with a previous prediction of 1.7%. (HDN 05.12)

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6.2 Turkish Income Gap Still Over Average

Turkey's income gap is still high despite a slight recovery from 30 years ago, according to a report issued by the Organization for Economic Co-operation and Development (OECD) on 4 December. Turkey currently stands at the same level with the United States and Israel, the OECD report "Divided We Stand: Why inequality keeps rising," said. The income gap is 10 to one in Italy, Japan, Korea and the United Kingdom, and higher still at 14 to one in Turkey, Israel and the U.S.. (HDN 05.12)

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6.3 Cyprus Inflation Climbs To 3.8% in November

Inflation in Cyprus is on the up again, with the annual inflation rate climbing to 3.8% in November, compared with 3.0% in October 2011 and 1.5% in November 2010. For the period January-November 2011, the CPI recorded an increase of 3.2% compared with the corresponding period of 2010. Compared with the previous month, prices in November rose by 0.32%, mainly owing to increases in the prices of certain fresh vegetables, certain clothing items, potatoes and petroleum products. Decreases were recorded in the prices of certain fresh fruit. (FM 04.12)

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7: GENERAL NEWS AND INTEREST

*REGIONAL:

7.1 Diabetes Hits One In Five in the UAE

New numbers released by the International Diabetes Federation (IDF) show that 19.2% - or 800,000 people - in the UAE now live with diabetes. On top of the alarming prevalence rates, an additional 39% of the UAE's population is also at risk of developing diabetes, according to the findings from the latest MENA Diabetes Awareness Survey. This new data demands a serious call for action to spread awareness and provide education about diabetes, its consequences and the change in lifestyle which can help prevent it. With a prevalence of around 20%, most families in the UAE will be affected by diabetes. (Novo Nordisk 05.12)

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7.2 Egypt's First Post-Mubarak Legislative Elections

Egypt's first post-Mubarak legislative election began with the start of a complex democratic transition. Forty million Egyptians have the right to cast their vote for the 498 seats of the people's assembly, equivalent to the lower house (Chamber of Deputies), and 270 of the Shura, comparable to the upper house (Senate). The occupants of the parliament will not be seated or inaugurated until mid-March. The voting is to begin with the people's assembly in the first of three electoral turns. Each vote will be counted one week later. The first to vote will be the citizens of Cairo, Alexandria, Luxor and Port Said. The voters of Suez, Aswan and Ismailia will turn out on 14 December and voting in the Sinai and along the Mediterranean coast will take place on 3 January. Election to the Shura will be by a mixed system: two-thirds of the seats will be assigned by the proportional system and one-third by a non-proportional system. The results will be announced after each ballot count, while the proportional will be made public no later than 13 January 2012. Approximately 40 parties are participating with over 15,000 candidates. (APO 28.11)

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Libya's National Transitional Council has named a new cabinet that will lead the country to elections later in 2012. Abdulrahman Benyiza was named as oil minister, Hassan Ziklam as interim finance minister and Aashur bin Khayal as foreign minister. Acting Prime Minister Abdurahim al-Keib has said the new cabinet will consist of officials from various regions of Libya to reduce tension between regional factions. The first task of the new cabinet is to centralize political and military power and draft a new constitution. A referendum will then be held to approve the new constitution, followed by legislative and presidential elections. (Beltone 23.11)

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On 25 November, Moroccans voted in the country's first Parliamentary election since recent Constitutional reforms that increased the power of Morocco's parliament. Voters chose from among 5,873 candidates and 33 different parties to fill 395 seats. Seventy seats were set aside for younger adult and women members to ensure parliament includes new faces reflecting the nation's changing population. Under the new Constitution, the head of government is to be appointed from the party with the most seats. Provisional results show 45.4% of Morocco's 13.6 million registered voters participated, an increase of 21.6% over the previous parliamentary election in 2007.

Supporters of King Mohammed VI say the moderately elevated interest in elected politics points to public confidence that the constitutional reforms passed in a referendum in July represent a genuine shift toward democracy. For the first time in its history, the political powers of Morocco's premier and the judiciary will be separate from the crown. Vote-monitoring groups say the elections were conducted cleanly, with little evidence of fraud. The voter rolls were drastically shortened between the 2007 and 2011 parliamentary elections while the voting age was decreased to 18 from 21.

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7.5 Islamists Take Power in Morocco

Morocco's King Mohammed VI appointed Abdelilah Benkirane, head of the Islamist Justice and Development Party (PJD), as Prime Minister of Morocco and charged him with forming a new government. Earlier, Benkirane mentioned that his government's primary focus is to cut poverty and raise the minimum wage by 50%. Benkirane also mentioned that he will promote Islamic finance to diversify Morocco's financial sector, but it will avoid issues such as alcohol and tourism.

The victory by the Justice and Development Party (PJD) in Morocco's first parliamentary elections makes Morocco the second Arab country this year to bring a moderate Islamist party into power. The PJD won 107 seats in Morocco's 395-seat parliament, more than twice the number of seats they hold in the current assembly. The PJD's imminent victory comes one month after the success of the moderate Islamist Ennahda Party in Tunisia, where the so-called Arab Spring of successive, pro-democracy uprisings began last December.

While the PJD's plurality in parliament will grant the Islamist party unprecedented power, the party will still need to form a coalition with less religious groups. Candidates for such a partnership are likely to come from the "Koutla," a left-leaning coalition of three parties traditionally opposed to the king. The main challenge for the PJD is to restore public confidence in political life. Some supporters believe that the Islamist party is up to the task. For many, however, the vote for the Islamist opposition party had less to do with their religious credentials but signaled a public desire for change. The PJD's success was also a result of the government's loss of popularity, as well as changes taking place in the Arab world. (Magharebia 28.11)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 MMATech Announces CE Mark & ISO13485 for Its Acetabular Liner Implant.

MMATech announced the CE Marking and ISO13485 of its New Acetabular Liner Implant, the next-generation MP-1. Acetabular liner is designed to optimize implant safety, advance patient care and improve hip replacement procedure outcomes. The MP-1 Acetabular liner is a strong, tough, wear, creep and fatigue resistant polyimide which enhances joint stability and restores closer to normal joint function. The acetabular liner allows greater flexibility in implant design resulting in improved range of motion. Nahariya's MMATech http://www.mma-tech.com is a private company founded in 2001 by a group of leading scientists and physicians with extensive experience and expertise in developing bio-materials. The company specializes in developing high bearing load articulating implant components of the material it has developed, Polyimide MP1. MMATech faces extensive clinical studies next year with strategic companies in the field. (MMATech 30.11)

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8.2 Dune Medical's MarginProbe Obtains Procedure Code for Reimbursement in Germany

The German Ministry of Health has published a new and unique procedure code for Dune Medical's MarginProbe System, which becomes effective in January 2012. Use of this procedure code is the first step in securing reimbursement for new medical technologies from the German Ministry of Health and will facilitate determination of cost effectiveness and cost benefit of the MarginProbe System, currently in use at a number of breast cancer centers in Germany. The MarginProbe System allows surgeons to detect microscopic cancer intra-operatively, allowing the surgeon to remove all the cancer in a single surgery and dramatically reduce the need for repeat surgeries. Between 20-40% of patients having a lumpectomy for breast cancer will require more than one surgery to remove all the cancer. Results of a multicenter clinical study of the MarginProbe System in Germany demonstrated that use of MarginProbe System led to more than a 50% reduction in unnecessary repeat surgeries for lumpectomy patients.

Dune Medical Devices http://www.dunemedical.com was founded to realize the extraordinary medical potential of its proprietary tissue characterization technology. Offering surgeons and radiologists the real time ability to identify cancerous tissues and react immediately, this technology holds the promise for a broad range of surgical and diagnostic applications. The MarginProbe System is Dune's first commercial product and is commercially available in Europe. The MarginProbe device is an investigational device in the U.S. (Dune Medical 27.11)

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8.3 Regenocell in Negotiations with Potential New Distributors to Increase Patient Flow

RegenoCELL Therapeutics, a leader in adult stem cell therapy, announced that its wholly owned subsidiary Regenocell, Ltd. is in the final stages of negotiations with several potential new distributors. It is anticipated that one or more will be finalized by year end and begin purchasing cell processing services in the near term. This will have a beneficial impact on revenues generated by the cell processing operations of Regenocell Laboratories in Israel. It is anticipated that one or more of the new potential distributors will increase patient flow to Regenocell, Ltd. substantially increasing the utilization of existing capacity. Since 2005, the Company's stem cell therapy has successfully treated over 500 patients. The typical patient is suffering from congestive heart failure with no treatment options and 3 to 6 months to live. Over 5 years later patents initially treated are leading active and fulfilling lives. RegenoCELL Therapeutics http://www.regenocell.net is a stem cell therapy company using adult stem cells for autologous treatment of patients. The Company plans to obtain regulatory approval in the United States and the European Community to market its stem cell treatments. Through its wholly owned foreign subsidiaries, the company is marketing its stem cell treatments for transplantation in countries where autologous therapy is permitted. (RegenoCELL 27.10)

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8.4 Teva Announces Tentative Approval of Generic Lipitor

Teva Pharmaceutical Industries announced today that the U.S. FDA has granted tentative approval for the company's Abbreviated New Drug Application (ANDA) for Atorvastatin Calcium Tablets, the generic version of Pfizer's Lipitor. Teva anticipates launching this product at the end of Ranbaxy's 180-day exclusivity period in May 2012. A portion of the profits from Ranbaxy's sales of Atorvastatin Calcium Tablets during Ranbaxy's 180-day first-to-file exclusivity period will be paid to Teva. Ranbaxy has launched this product. Teva Pharmaceutical Industries http://www.tevapharm.com is a leading global pharmaceutical company, committed to increasing access to high-quality healthcare by developing, producing and marketing affordable generic drugs as well as innovative and specialty pharmaceuticals and active pharmaceutical ingredients. Headquartered in Israel, Teva is the world's largest generic drug maker, with a global product portfolio of more than 1,300 molecules and a direct presence in about 60 countries. Teva's branded businesses focus on CNS, oncology, pain, respiratory and women's health therapeutic areas as well as biologics. (Teva 01.12)

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8.5 Hadasit Bio-Holdings Reports Significant External Financing for Portfolio Companies

Hadasit Bio-Holdings, a publicly traded portfolio of biotech companies, all based on intellectual property developed and owned by the Hadassah University Hospital, Israel's foremost medical research center, announced that three more of its portfolio companies have received grant approvals from the Israeli Office of the Chief Scientist (OCS) in the Ministry of Industry, Trade and Labor. These approvals come in addition to the grant received earlier this year and bring total government support to over $2.7m for 2011 alone. These grants are intended to cover nearly 60% of the R&D financing needs of specific projects in ProtAb, Enlivex, BioMarCare and CellCure. The Israeli OCS grants are NOT equity based and are returned based on revenue generated from the ultimate success of the supported projects. Jerusalem's Hadasit Bio-Holdings http://www.hbl.co.il, established in 2006, is the publicly traded subsidiary of Hadasit Ltd. - the technology transfer company of the Hadassah University Hospital, Israel's foremost medical research center. The Company was established for the purpose of promoting and commercializing the intellectual property and R&D capabilities generated by Hadassah.

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8.6 BioLineRx Positive Results from Phase Ia Clinical Trial of BL-1021 for Neuropathic Pain

BioLineRx announced the final results of the Phase Ia study of BL-1021, an orally available small molecule for neuropathic pain. In this study it was demonstrated that a single administration of BL-1021 in the dose range examined was safe and well tolerated, with no significant changes noted in vital signs, ECG or laboratory safety parameters at any dose when compared either to baseline measurements or to the placebo group. In addition, BL-1021 demonstrated a favorable pharmacokinetic profile and the potential for once daily oral administration. BL-1021 is an orally available small molecule for the treatment of neuropathic pain that was designed to have similar activities to other anti-neuropathic drugs without their common adverse effects.

Jerusalem's BioLineRx http://www.biolinerx.com is a publicly-traded biopharmaceutical development company. BioLineRx is dedicated to building a portfolio of products for unmet medical needs or with advantages over currently available therapies. BioLineRx's current portfolio consists of five clinical stage candidates: BL-1020 for schizophrenia is in Phase II/III clinical trials; BL-1040 for prevention of pathological cardiac remodeling following a myocardial infarction has completed a Phase I/II study and has been out-licensed to Ikaria Inc. for a total deal value of $282.5 million, in addition to sales royalties; BL-5010 for non-surgical removal of skin lesions has completed a Phase I/II study; BL-1021 for neuropathic pain is in Phase I trials; and BL-7040 for treating Inflammatory Bowel Disease (IBD) has completed Phase I. In addition, BioLineRx has nine products in various pre-clinical development stages for a variety of indications, including central nervous system diseases, oncology, infectious diseases, cardiovascular and autoimmune diseases. (BioLineRx 06.12)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Sapiens Signs Agreement with Menorah-Mivtachim, one of Israel's Largest Insurance Groups

Sapiens International Corporation reported that a $27m frame agreement with Menorah-Mivtachim Group to support its life, health, pension and reinsurance systems has been signed. The agreement is for 4 years, starting January 2011, and continues previous activities between the two companies. Menorah-Mivtachim is one of the largest insurance groups in Israel, and leads the pension market with the largest number of members served. Sapiens insurance systems are used by Menorah-Mivtachim over the past few years to support its life insurance, health insurance, pension and reinsurance business. All new life and health policies are produced under the Sapiens system; the pension system is one of the largest in Israel and serves all the members of Mivtachim. Menorah-Mivtachim is also using the Sapiens solution to manage its reinsurance operations. Rehovot's Sapiens International Corporation http://www.sapiens.com is a leading global provider of innovative business solutions for the insurance industry, helping to modernize business processes, to proactively define and provide innovative new services and to respond quickly to changes in the industry. They offer end to end solutions for the L&P, P&C and Reinsurance markets, with customers across the globe. (Sapiens 27.11)

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9.2 Elbit Systems' Subsidiary Upgrades US F-16 Wide Angle Conventional Head-Up Displays

Elbit Systems' US subsidiary Elbit Systems of America was awarded a 5-year, Indefinite Delivery/Indefinite Quantity (IDIQ) contract, in an amount of up to $38.5 million, by the Defense Logistics Agency-Ogden for the manufacture of Reliability and Maintainability (R&M) Electronic Module Assemblies (EMA) for all U.S. Air Force Block 30 and Block 50 F-16 Wide Angle Conventional (WAC) Head-Up Displays (HUDs). To date, Elbit Systems of America has received initial orders in the amount of $3 million under the IDIQ contract. The Wide Angle Conventional Head-Up Display (WAC HUD) takes critical flight and mission data which is normally displayed inside the cockpit on an instrument panel and projects that information on a transparent surface directly in front of the pilot allowing for eyes out of the cockpit and improved situational awareness. The new design reduces total part count, lowering power consumption and significantly improving meantime between failures (MTBF).

Haifa's Elbit Systems http://www.elbitsystems.com is an international defense electronics company engaged in a wide range of programs throughout the world. The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance (C4ISR), unmanned aircraft systems (UAS), advanced electro-optics, electro-optic space systems, EW suites, airborne warning systems, ELINT systems, data links and military communications systems and radios. (Elbit 04.12)

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9.3 Japanese Manufacturer Standardizes on Silicom Adapters for Mainstream Server Product Line

Silicom announced that the IT division of one of Japan's leading industrial companies has selected Silicom as its standard supplier of 1Gbps and 10Gbps adapters for two of its server product lines. The customer, a major server manufacturer, selected Silicom's adapters after a comprehensive evaluation that confirmed Silicom's superior technologies, manufacturing standards and support capabilities. Based on the customer's guidance, Silicom expects related sales to ramp up to approximately $1 million per year. Kfar Saba's Silicom http://www.silicom.co.il is an industry-leading provider of high-performance networking solutions designed to increase the throughput and availability of networking appliances and server-based systems. Silicom's large and growing base of OEM customers includes most of the market-leading players in the areas of WAN Optimization, Security and other mission-critical gateway applications. Silicom's products include a variety of multi-port 1/10 Gigabit Ethernet server adapters, innovative internal and external BYPASS solutions and advanced Smart adapters, including SSL encryption solutions and Redirector adapters. (Silicom 28.11)

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9.4 Ness Technologies Wins $2.5 Million Contract With Vix

Ness Technologies announced that its Software Product Labs business unit has won a three-year, $2.5 million contract with Vix, a global provider of solutions to the transport sector. Ness will establish an Extended Development Center for Vix at Ness's global development facility in Košice, Slovakia. The Ness Software Product Labs team will partner with Vix, a global provider of transit based mobility, payment and telecommunications solutions. Vix provides solutions utilizing best-of-class technologies which are not limited by proprietary or closed systems. The result is greater flexibility and cost benefits. Tel Aviv's Ness Technologies http://www.ness.com is a global provider of IT and business services and solutions with specialized expertise in software product engineering; and system integration, application development, consulting and software distribution. Ness delivers its portfolio of solutions and services using a global delivery model combining offshore, near-shore and local teams. (Ness 06.12)

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9.5 iiNet Takes Celeno "Down Under" to Support In-Home Wi-Fi for its IPTV Service

Celeno Communications announced that iiNet, Australia's second largest DSL broadband provider, has selected Celeno-enabled Wi-Fi Ethernet bridges to support wireless delivery of its fast-growing IPTV services, including Video on Demand (VoD) and other interactive video applications. By entering the Australian market with iiNet, Celeno has broadened its technology reach across a range of wireless solutions spanning a range of market sectors including cable, satellite and, as in the case of iiNet, IPTV. IPTV is experiencing significant growth worldwide and Australia is no exception. To acquire and retain market share, service providers must not only meet but surpass the existing video quality expectations of their subscribers. The Celeno-powered bridges seamlessly and reliably stream video over the Wi-Fi spectrum to enable a high quality viewing experience throughout the home. The Celeno-enabled wireless bridge links the set-top box to the modem over a wireless connection, removing the need for expensive rewiring or running of network cables throughout the home. The fast, plug-and-play installation and set-up means that subscribers can set up and enjoy wireless video within minutes.

Ra'anana's Celeno http://www.celeno.com is a leading provider of high performance Wi-Fi chips for HD multimedia and entertainment home networking applications. Powered by Celeno's system-on-chip (SoC) and its OptimizAIR technology, home gateways, multi-room DVRs and media servers can distribute multiple and simultaneous HD video streams to standard set-top boxes, PCs, television sets and other Wi-Fi-enabled consumer devices. (Celeno 06.12)

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10: ISRAEL ECONOMIC STATISTICS

10.1 OECD Says Israel Will Avoid Recession

The OECD says that Israel will probably avoid recession, but the weakening external demand is nevertheless prompting a slowdown in output growth that is unlikely to reverse until the middle of 2012. The worsening prospects for output and employment, along with lower inflation expectations and outcomes, have led to an easing of the monetary policy stance. In its Economic Outlook, the OECD predicts that Israel's GDP growth rate will slow from 4.7% in 2011 to 2.9% in 2012, and rebound to 3.9% in 2013. Export growth will slow from 4.8% in 2011 to 3.9% in 2012, and partly recovery to 7.8% in 2013. The unemployment rate will rise from 5.6% in 2011 to 6% in 2012, and fall back to 5.8% in 2013. The OECD also expects the rise in the Consumer Price Index (CPI) to slow from 3.5% in 2011 to 2% in 2012 and 2.1% in 2013 - the mid-point of the government's 1-3% inflation target. The budget deficit will fall from 4% in 2011 to 3.8% in 2012 and 3.5% in 2013. (Globes 28.11)

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10.2 Israel's Poverty Rate Drops, But Children Still Hungry

Recent Israeli government figures say that while the poverty rates have dropped to levels not seen since 2003, but a third of Israel's youth are still hungry. The 2010 poverty report noted that 19.8% of the nation's families – 1.7 million citizens – are still living at or below the official poverty line, including 873,000 children, compared to 20.5% in 2009. The number of children living below the poverty line fell from 36.3% in 2009 to 35.3%, and the overall percentage of Israeli citizens living in poverty also fell – from 25% in 2009, to 24.45. There were total of 433,300 poor families in 2010, comprised of 1,733,400 people.

While the number of Israel living in "poverty" has grown again, the statistical calculations in effect make the "circle of poverty" eternal. The annual report from the National Insurance Institute (Bituach Leumi) states that the number of Israelis living under the "poverty line" rose last year by more than 7%. The report actually reflects financial inequities more than it does poverty, a term which is statistically defined by a family's income being less than half of the median.

If every family were to receive a grant of another 3,600 shekels ($1,000) a month, the number of poor people would remain the same because the median average would rise. The inequities exist because of an increasing rich-poor situation, where the extremely high incomes for a small percentage of wealthy families grow faster than the increase for poor families. The "Poverty Report" also reveals that poverty and financial inequities are more pronounced among the ultra-Orthodox and Arab communities. One reason for the increased inequity in incomes was the global financial crisis, which forced many wage earners out of work and cut the pay of others. (Various 17.11)

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10.3 Israel Falls to Lowest Ever Ranking on Corruption Perceptions Index

Israel has fallen to 36th place in Transparency International's 2011 Corruption Perceptions Index, tying with St. Vincent and the Grenadines, down from 30th place in 2010 and its lowest-ever ranking since it was first included in the index. This year's index covered 183 countries. Israel's score fell from 6.1 points in 2010 to 5.8 points in 2011. New Zealand tops the rankings as the least perceived corrupt country, with a score of 9.4 points. Japan is ranked 14th, the UK is in 16th place and the US is in 24th place. Israel is ranked 25th out of the 34 OECD member states, ahead of Turkey, Italy and Greece. In the Middle East, Israel is perceived to be more corrupt than Qatar (22nd), the United Arab Emirates (28th) and Cyprus (30th). t should be noted that in 1996, Israel received a score of 7.71. There has been a steady decline ever since in the perception of corruption in Israel. The Corruption Perceptions Index ranks countries based on how corrupt their public sector is perceived to be. A country's score indicates the perceived level of public sector corruption on a scale of 0-10, where 0 means that a country is perceived as highly corrupt and 10 means that a country is perceived as very clean. A country's rank indicates its position relative to the other countries included in the index. (Globes 01.12)

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11: IN DEPTH

11.1 ISRAEL: A Good Case to Ease Policy?

Tevfik Aksoy writes for Morgan Stanley http://www.msdw.com/ that as nearly all coincident and leading indicators suggest, the Israeli economy has entered a period of a macro slowdown even though the outlook for growth still remains more or less close to the long-term trend. That said, the significant downside risks to growth in the Eurozone as well as in the US, which remain as key determinants of Israel's exports potential, rising perception of geopolitical risks (a nuclear Iran, unstable Syria and what is left of the Arab Spring) and deteriorating consumer sentiment suggest that things will be increasingly challenging for policy-makers.

Q3/11 growth heralded the slowdown, and more to come: Real GDP growth eased to 0.8% in Q3/11 (3.4%Y saar), the lowest rate posted over the past ten quarters. Meanwhile, the growth rate for Q2/11 was also revised down from 3.7%Y to 3.5%Y. The slowdown was on the back of weak contribution coming from private consumption (again one of the lowest since the 2008 crisis) and negative net exports due to a sharp quarterly decline in exports (4.5%Q). On the flipside, investment expenditures remained buoyant and there was some marginal support from public spending.

The close correlation between the State-of-the-Economy index (S-index) published by the BoI and the headline GDP growth rate helps to predict the growth rate of the current quarter with a reasonable degree of accuracy and with some lead time. The S-index has been pointing to a slowdown for a while and the recent growth data did not come as a significant surprise. While we have very limited data at hand, our expectation is that the ongoing slowdown will be more pronounced in Q4/11 at 0.5%Q. This will take the full-year headline growth to 4.8%Y. Our current growth rate forecast for 2012 stands at 3.4%Y, but it is currently under review and we believe that achieving such a rate (close to trend) might be fairly difficult. Hence, we see significant downside risks to our current 2012 forecast.

Exports losing steam: The Israeli economy is highly dependent on exports. With nearly half of its GDP being based on exports (including services), clearly the macroeconomic performance of the main trading partners, i.e., Europe and the US, will be setting the direction of growth to a significant extent. Despite the fact that Israeli exports are concentrated on high-tech goods and services that have proven to be fairly resilient in the previous crisis episode, the prolonged weakness in global demand will take its toll, in our view. Looking at the trade data, we notice a steady decline in momentum, with monthly exports growth (smoothed) remaining in the negative territory the past six months.

Improved inflation outlook: The gradual slowing in economic activity, coupled with the seemingly effective public protests of high prices, has had a meaningful impact on both contemporaneous and expected inflation. Both in September and October, headline inflation was noticeably below expectations, primarily driven by substantial cuts in food prices and partially the decline in housing rent (in October), which has a significant weight in the CPI index. As a result, the headline inflation rate eased to 2.8%Y, comfortably inside the target range of 1-3%.

Home prices still an issue, but there is hope: Housing and home prices have been a significant issue adversely impacting inflation in Israel. Among other things, supply constraints had been the main factors keeping a certain floor on prices. In recent months there has been some improvement and there was increased activity on the supply side against a noticeable decline in demand, according to the BoI. That said, according to the bank's assessment, this has not yet been reflected in prices, which means that more positive news might actually be on its way. However, we should also note that the annual rate of increase in home prices remains high, at around 12%Y.

CPI inflation set to ease: Looking forward, we expect inflation to continue its descent on slow growth, the influence of public protests and possibly some improvement in the housing sector. Taking into account the recent data on inflation as well as other macro indicators, we are revising down our end-2011 and 2012 forecasts to 2.6%Y (previously 3.2%Y) and 2.3%Y (previously 2.7%Y), respectively.

Inflation expectations will encourage the BoI: We are not alone in predicting a noticeable decline in inflation. Over the next 12 months, the consensus inflation forecast eased noticeably to 2.2%Y, according to data published by the BoI. Moreover, the inflation expectations calculated from the capital market (derived from debt instruments) even eased to 1.8%Y - the lowest since April 2009.

Policy outlook: Overall, we think that the BoI will be inclined to cut the policy rate, taking advantage of the fact that inflation expectations have improved significantly, actual headline inflation has entered the targeted range, coincident indicators are showing clear signs of deceleration in growth (and hence there is lack of demand pressures on prices) and policy rates globally are still at very low levels. Regarding the last point, the ECB cut its policy rate on November 3, some two weeks after the last BoI rate-setting meeting took place. We believe that the members of the monetary policy committee will take this into consideration as well while discussing the next move. This, coupled with rising possibility of further easing on part of ECB (in 1Q12) and QE3 discussions in the US (whether this materializes or not) might lead policy-makers to take some pre-emptive action, in our view.

Geopolitical risks: The Arab Spring, the current domestic instability in Syria and more importantly the increased concerns surrounding a ‘nuclear' Iran all contributed to the rise in risk perceptions in the region. While the impact of this had been minor on Israeli asset prices (perhaps excluding CDS spreads), risks still remain. Especially the debate on whether, if and when Israel would take action regarding Iranian nuclear facilities is a significant one, in our view. Domestically, the Iranian issue was one of the top concerns among local citizens back in 2010, which switched to the debate surrounding a unilateral decision by Palestinians to declare a state. The picture seems to be reverting again.

While we are not completely convinced yet, one symptom of increased risk perception could be seen in the annual change in tourist arrivals in Israel. The trend over the past year had been downwards already, but especially in recent months, there was a sharp drop. Unless this proves transitory, the economy might receive a partial dent on this account as well. On the positive side, the Bank of Israel has been decisively preparing for such times with a substantial FX reserve build-up. We believe that the economy is generally well managed and should withstand exogenous shocks to a significant extent as long as the current monetary and fiscal policy mix is broadly maintained. As for the high level of FX reserves, as BoI Governor Stanley Fischer puts it, "it is an insurance policy which we [Israel] have". (MS 22.11)

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11.2 ISRAEL: After Mumbai Attack, Indo-Israel Ties Stronger Than Ever

Mark Sloman wrote in the Jerusalem Post http://www.jpost.com on 23 November that the 2008 terrorist attacks in Mumbai left more than 170 dead and Indian society to grapple with its nation's equivalent of America's September 11. The analogy is so strong in the Indian psyche, in fact, that they refer to the attack as simply "26/11."

Collectively, most of the targets – a commuter rail station, an upscale coffee shop, two luxury hotels – represented the democratic, market-oriented, global values embraced by India in the past 20 years and embodied in Mumbai's vibrant business environment and diverse, multi-ethnic culture. The attacks on these locations were symbolic, a striking down of all things deemed unacceptable to the extremist mind.

But what about the other target, a Jewish community center at Nariman Point? In India, a country that has never suffered from the scourge of anti-Semitism, what did the terrorists hope to accomplish? What message did they intend to send? The Chabad House, a symbol of Jewish outreach and hospitality, was deliberately and brutally assaulted, leaving six Jews dead. In choosing such a small, insignificant target, the assailants were not merely expressing their hatred of all things Jewish. They were sending an overt message to the Indian government and its citizens to distance themselves from a growing relationship with the state and the people of Israel. In this regard, the terrorists utterly and completely failed.

As the third anniversary of the 26/11 attacks approaches, the Indo-Israeli relationship is strong and growing. What began as a mutual concern about the rise of global terrorism and need to protect citizens served as the impetus for significantly strengthening and broadening the areas of mutual cooperation. Today, bilateral trade surpasses $5 billion annually and is firmly rooted in a mutual drive for technological excellence.

On many fronts, Israel and India find themselves facing the future together. Israeli and Indian researchers and entrepreneurs are collaborating on a wide range of life improving technologies addressing critical issues such as water management, agricultural production, alternative energy sources, biotechnology and medicine, space, nano-technology and homeland security, to name but a few.

On a more pragmatic level, the partnership brings together the best of both worlds, marrying Israel's penchant for developing and commercializing new technologies with India's vast reservoir of experienced, global managers and educated human resources. In doing so, Israeli start-ups will be able to contemplate a corporate life cycle that extends beyond the allure of the lucrative exit to that of launching lasting multinational enterprises.

Perhaps most importantly, the blossoming Indo-Israel partnership is anchored by a mutual love and respect for the principles of democracy, and a passion for realizing a better future for their people. Despite living in the world's toughest neighborhoods, both countries stand as pillars of economic, political and social stability and progress.

Indeed, a free trade agreement is expected to be signed in 2012, the 20th anniversary of the formal launch of diplomatic relations, and will likely double the volume of goods and services flowing between the two countries.

The Islamic radicals that planned and executed the 26/11 attack may have intended to drive a wedge between the Indian and Israeli peoples, but they succeeded in doing just the opposite. The chaos and sadness of those 60 hours of siege served only to amplify and reinforce the mutual concerns and commitment to overcome shared by both countries. Both nations' continued success, separately and together, will serve as a resounding rejection of the destructive ideology that still seeks to undermine them.

Mark Sloman is director of the India Program at The Israel Project. (JP 23.11)

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11.3 LEBANON: IMF Mission Visits in November

An International Monetary Fund (IMF) mission visited Beirut during November 8-23, 2011 to conduct the annual discussions in the context of the Article IV consultation. The mission met with Prime Minister Mikati, Minister of Finance Mohammad Safadi, Governor of the Banque du Liban (BdL) Salameh and various members of Cabinet and administration officials, as well as representatives of the private sector, civil society and academia. At the conclusion of the discussions, the IMF made the following remarks:

"After four years of strong growth, Lebanon's economy has lost momentum reflecting domestic political uncertainty and regional unrest. Latest indicators are pointing to some pick-up in activity, and the economy could grow at 1-2% in 2011, markedly below an average of 8% per year during 2007-10.

"The authorities managed the downturn well, using buffers built up during the upswing. The BdL relied on its large foreign reserves to intervene forcefully when the Lebanese pound came under pressure from deposit outflows and currency conversions in January 2011. Thanks to the marked decline in the debt-to-GDP ratio since 2006 and the sizeable primary surplus in 2010, Lebanon's fiscal position improved and freed up room for an accommodative fiscal stance in 2011.

"Growth could increase to 3-4% in 2012. But risks are high and to the downside, reflecting among others an uncertain global and regional environment, particularly in Syria. Thus, strong domestic policies are needed to instill confidence.

"The key policy challenges are to maintain macroeconomic stability and lay the foundation for a more dynamic economy that leads to inclusive growth, while reducing the country's debt-to-GDP ratio, which is among the highest in the world.

"High downside risks call for a prudent 2012 budget, embedded in a medium-term agenda. Fiscal policy should target a small primary surplus in the 2012 budget, which would imply a broadly neutral fiscal stance and keep the debt-to-GDP ratio on a downward path. There is also scope for making fiscal policy more equitable through revenue measures and better targeted social spending. Investment in the electricity sector is welcome as are accompanying reforms to address losses and ultimately bring tariffs to a cost-recovery level.

"The government's reliance on BdL financing should be reduced. Letting interest rates on Lebanese pound T-bills with maturities of less than 7 years rise would allow the treasury to return to market financing. Parliamentary approval for new borrowing in foreign currency would also provide an opportunity to benefit from globally low interest rates and high foreign exchange liquidity of domestic banks.

"Lebanon's medium-term strategy should focus on generating sustained inclusive growth while reducing vulnerabilities. Structural reforms are key to tackle the infrastructure deficit and improve the business environment. This would strengthen competitiveness and ultimately have a tangible impact against unemployment and poverty.

"Addressing high unemployment calls for a more efficient labor market, including by attuning the education system to the needs of the labor market and reforming the social security system. Wage increases should be in line with productivity growth so as to not risk undermining competitiveness.

"Medium-term fiscal policies should be anchored in reducing the debt-to-GDP ratio. There is scope for revenue and expenditure measures to create fiscal space for both a reduction in the debt-to-GDP ratio and higher social and capital spending. Potential revenue measures include introducing a capital gains tax, broadening the VAT base, raising excises, and rescinding the February fuel excise reduction. Savings could come from reducing subsidies to the electricity company by reforming the sector and rationalizing non-priority current spending, while better targeting safety nets.

"Thanks to prudent management and conservative regulation, banks report capital above the regulatory minimum, high liquidity buffers, low levels of nonperforming loans, and stable profits. However, the recent expansion abroad exposes banks to heightened risks from the regional turmoil. In this context, the mission welcomes the authorities' ongoing efforts to strengthen bank regulation and supervision as well as the Anti Money Laundering/ Combating the Financing of Terrorism (AML/CFT) framework.

"Despite progress in a number of areas, national accounts, balance of payments statistics and social and labor market indicators remain weak. Thus, continued efforts are needed to strengthen statistics, including by providing the Central Administration of Statistics with a clear legal mandate, high-level support and appropriate funding. (IMF 23.11)

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11.4 LEBANON: Civil-Military Dynamics - Weathering the Regional Storm?

On 21 November, Aram Nerguizian wrote in Sada http://carnegieendowment.org/sada that Lebanon is often susceptible to wider regional instability but has remained stable since the start of the Arab uprisings.

Should the country experience spillover effects from continued popular unrest in the Levant, most Lebanese expect the Lebanese Armed Forces (LAF) to play a stabilizing role. The LAF has demonstrated a consistent preference for minimizing and containing the effects of regional unrest that could destabilize the country's fragile post-war political order. Unlike most state institutions, it has operated with relative independence from sectarian politics since the end of the civil war. However, political forces are increasingly trying to penetrate the military - working hard to "capture" at least part of the institution so as to foil the military's attempts to check civilian autonomy.

Lebanon has a long history of precarious civil-military dynamics - a direct byproduct of the country's sectarian system. Lebanon's post-independence sectarian factions have traditionally been the country's most important centers of political power. With few exceptions, weak state structures serve as arenas for contestation between competing sectarian and cross-sectarian political forces. The LAF is no exception, though unlike most state institutions it has had more episodes of relative autonomy: it briefly played a major role in national politics in the late 1950s and 1960s, and during the presidency of General Fuad Chehab, the first commander of the newly formed LAF, the military and its intelligence branch, the Deuxieme Bureau, attempted to regulate political life in Lebanon. This in turn triggered a backlash supported by many of the country's political forces during the 1970-1976 Franjieh Presidency. The replacement of key Deuxieme Bureau senior officers and the sidelining of "Chehabist" officers signaled the downgrading of the military's role in Lebanese politics.

Lebanon's 15-year civil war presented yet another key setback to the military. During the conflict, the LAF experienced internal pressures that led eventually to its partial fragmentation. Sectarian forces and their militias played the leading role in shaping domestic and security politics in Lebanon, and in the wake of the civil war, Syrian hegemony regulated both state-society and civil-military dynamics; Syria's military and intelligence apparatus vetted high level administrative appointments, streamlined Lebanon's foreign policy orientation, and maintained a check on the country's sectarian political forces, as well as sustaining the neo-patrimonial networks that served Syria's interests. The withdrawal of Syrian forces from Lebanon in 2005 allowed Lebanese sectarian politics to re-assert its roles in shaping state-society and civil-military relations. Although the military in post-war Lebanon is no longer a political force to be reckoned with, the country's dominant communities distrust state institutions they were unable to capture outright in the wake of Syria's withdrawal.

There have been competing efforts to penetrate and shape the orientation of the military, first by the pro-Western March 14 Alliance from 2005-2009, and since 2009 by the March 8 Alliance aligned with Syria and Iran. During the first period, officers trained in Syria or with ties to pro-Syrian political forces were marginalized or encouraged to retire, while during the second, officers who had received US military education (or were suspected of ideologically supporting Washington) were similarly sidelined. During both periods, officers viewed as ideologically compliant or supportive were solicited for information about the military's internal mechanics and efforts were made to promote their professional advancement.

As a result of the repeated political buffeting since 2005, the LAF has struggled to maintain morale. As less capable or under-qualified officers seek the support of competing elites to prolong their careers and ensure their futures, patronage is more widespread than ever. Within the LAF, Christian officers (who regard themselves as the ideological and qualitative backbone of the LAF officer corps) grow increasingly frustrated; due to divisions among Christian political forces, these officers are not as explicitly linked to specific feudal political elites, unlike some of their Sunni, Shi‘a, or Druze counterparts. As one senior Christian officer put it, "They have nowhere to go" referring to Christians' weakened political role in post-Ta'if Lebanon, broad dissatisfaction with the state of post-war Christian politics, and a desire to bolster the role of the state. Across communal lines, there are officers who want the military to be better insulated from politics and play a more prominent role in shaping stability.

Across the country's political spectrum, these dynamics create apprehension about the future role and development of a military that no single community controls and that could one day serve to check party political autonomy. As a consequence, civil-military efforts remain atrophied and devoid of trust - lacking adequate coordination or cross-confessional support on military development, budgeting or organization of future defense needs. Despite repeated requests, the LAF could not secure even modest national funding for military development and procurement. The country's political actors have also excluded the military from even a consultative role in formal discussions of Lebanon's future national defense strategy in the context of the National Dialogue. Long-term challenges are likely to remain largely unaddressed: the absence of a monopoly on military power relative to Hezbollah; uncertainty over how to address the overstaffed senior officer corps; and the transformation of the military into a welfare structure (as more officers' turn to lifelong careers as a means of socio-economic advancement and financial security).

Today, the struggle for political power between Lebanon's Shi‘a and Sunni communities and the risk of sectarian conflict in Syria only serves to further aggravate an already tenuous order and pose key challenges to internal security. Given popular mistrust of the Internal Security Forces (ISF) due to perceived links to Sunni politicians, the LAF as a cross-confessional institution has little alternative but to secure the "least worst" common denominator by remaining centered on keeping the peace and limiting the risk of escalation: containing growing fault lines among communities by deploying units to where tensions rise. This includes, of course, the Alawite-Sunni hotspots in the north and the closely packed and mixed Sunni-Shi‘a communities of Beirut, but also among co-religionists as well - as is the case of competing Christian political forces.

Since national independence in 1943, Lebanon has been largely unable to insulate itself from regional conflicts. In the case of Syrian instability and military incursions along the Bekaa Valley, the LAF cannot but engage bilaterally with the Syrian military. Much of the reporting on Syrian incursions into Lebanon has done little to underscore the fact that Lebanon and Syria have yet to agree on a permanent border. Meanwhile, in the south, the LAF will also continue to take part in tripartite discussions with the Israel Defense Forces (IDF) and the United Nations (UN). Despite some qualitative military improvements in terms of command and control, as well as the ability to sustain four or more brigades south of the Litani River, the LAF remains an expeditionary force in its own country. Still-limited offensive and defensive capabilities and the continued absence of much-needed infrastructure (barracks and training facilities) mean that the tripartite framework remains the only option available to mitigate the risk of another Israel-Hezbollah confrontation along the UN Blue Line.

There are real risks that regional turbulence and popular upheaval will have long term implications for Lebanese security and instability. Instability in the Alawite-led regime of Bashar al-Assad and the rise of predominantly Sunni political forces in Damascus could serve to embolden Lebanon's Sunni community and deepen the risk of Sunni-Shi‘a political miscalculation and violence. The risk of war between Israel and Hezbollah are also informed by Syrian instability. The Lebanese experience holds stark lessons for other cases with atrophied state structures and strong political forces divided along communal, tribal or religious lines outside the state.

Aram Nerguizian is a Resident Scholar with the Arleigh A. Burke Chair in Strategy at the Center for Strategic & International Studies (CSIS), where his work focuses on Middle East & North African military development. This article is based on interviews the author conducted with senior Lebanese military personnel, most recently in October 2011. (Sada 21.11)

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11.5 JORDAN: Bid to Create Hub With Airport Expansion

David Rosenberg http://www.themedialine.org wrote in The Media Line that Jordan's Queen Alia International Airport is making a bid to become the Middle East's next regional hub. Right now a smallish facility, the first phase of a new $800 million state-of-the-art terminal is due to be completed next year, doubling the airport's annual capacity to seven million passengers. In the years following, the aim is to increase capacity 6% annually to bring capacity up to 12 million passengers a year by 2033.

The airport's operators are aiming for glamour as well as numbers. Designed by the firm of world renowned British architect Norman Foster, the new terminal will be topped by distinctive sculpted domed roofs that echo the shape of Jordan's traditional Bedouin tents. Pools of water in the terminal's courtyards are designed to reflect daylight into the building and provide passive air-cooling. "The new iconic terminal will play a key role in Jordan's plans to emerge in the near-future as a major regional travel hub," Airports Group International (AIG), a private firm took over responsibility for expanding and operating Queen Alia four years ago, said in a statement marking the latest progress in construction.

Jordan's hub-airport ambitions come at a time of breakneck airport development in the Gulf as well as doubt about the short-to-medium term prospects for global aviation amid a sputtering global economy. Governments in the Middle East are expected to spend nearly $90 billion in aviation infrastructure development, including Dh86 billion in the Arabian Gulf over the next decades.

Saudi Arabia intends to invest approximately $7 billion in its new airport project. In Oman, the Muscat airport is being developed at a cost of $330 million to handle 48 million passengers annually, while Qatar, which is gearing up to host the 2022 World Cup in football, aims to boost to its aviation infrastructure at a cost of $1 billion.

Dubai Airports, which pioneered the strategy of turning the Gulf into a transit hub for long-haul flights between Europe and Asia, unveiled a plan recently to spend nearly $8 billion through 2020 to increase the airport's capacity to over 90 million passengers annually. "With Qatar and Dubai expanding, we have overcapacity," Christian Lambertus, managing partner of Germany-based Aviationexperts, told The Media Line. "The question in all this overcapacity is there a niche someone could benefit from. Is it Jordan? I can't tell … You need traffic through the hub to justify the investment."

Positioned half way between Europe and the burgeoning economies of Asia, Dubai and other Gulf countries have built massive airports that can funnel passengers quickly and efficiently. "The Gulf airports are now taking over the hub transfer business, which until recently was centered on London, Frankfurt, Paris and Amsterdam," Philip Butterworth-Hayes, lead consultant at PMi Media, a British firm that tracks the aviation and defense industries, told The Media Line.

Even though the spruced up Queen Alia Airport will be competing with Gulf airports for traffic, the state-owned Abu Dhabi Investment Company is the biggest shareholder in AIG.

Lambertus, who said he hadn't studied Jordan's airport-expansion plans, said there is no reason why its location closer to Europe would detract from its efforts at developing a hub. The key challenge is to ensure quick turnaround times between flights and, failing that, attractive shopping and other facilities for travelling to while away the time. "Istanbul is not far away and Turkish Airlines has a very good job there, using it as their hub and taking traffic from Europe to the Gulf and for long haul to Asia. Amman is a little further south and little further east but it might benefit from it location as well."

Queen Alia currently rates a 5.8 out of 10 on a user scale operated by the aviation research organization Skytrax. But Dubai International Airport scores a 4.7 and Abu Dhabi International Airport a 5.6 while Doha International Airport rates a 7.6. Singapore Changi Airport, widely regarded as one of the best run airports in the world, scored an 8.2.

Jordanian tourism has taken a hit from the turmoil of the Arab Spring, even though the kingdom has largely avoided the mass protests and violence that have paralyzed the economies of countries like Syria and Egypt. The kingdom still has big plans to increase the number of visitors and the government's goal is to double its 2010 tourism revenues of $2.4 billion by 2015. To become a hub, however, you need to have a major international carrier based in your airport. The big, bulk airlines are unlikely to help Jordan.

AIG said last week that transit passengers using the airport as a hub for travel within the MENA region represented a third of Queen Alia Airport's total traffic during the third quarter, totaling over one million passengers. Passengers traveling outside the region stood at 641,000 passengers.

To increase that, the country's national carrier, Royal Jordanian, will have to make a bid to expand its routes. The carrier now has a fleet of 32 mainly Airbus jets, but it has an order for 11 new Boeing 787 Dreamliners, to be delivered in the beginning of 2014. By comparison, Dubai's Emirates airlines placed an order for 50 Boeing 777s at a cost of $18 billion two weeks ago. Including options to buy 20 more of the twin-aisle jets and other agreements, the order could grow to $26 billion. (TML 24.11)

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11.6 QATAR: Moody's Assigns Aa2 Rating to Qatar's Global Bonds

On 6 December, Moody's Investors Service http://www.moodys.com assigned an Aa2 rating to the Qatari government's global bond offering consisting of three tranches: $2 bond due in January 2017, $2 bond due in January 2022, $1 bond due in January 2042.

Ratings Rationale

The Aa2 rating for Qatari government's new global bonds is based on the state of Qatar's Aa2 sovereign issuer rating, given that any direct government obligation whose repayment is handled by the Qatari Ministry of Economy and Finance receives a rating equivalent to that of the government.

Qatar's Aa2 foreign and local currency issuer ratings and foreign currency government ratings are supported by the government's successful management of its considerable hydrocarbon resource endowment, as reflected in very strong government financial and external payments positions. In addition, Qatar's exceptionally high per capita income level -- one of the highest levels in the world at $88,222 in 2010, as estimated by the IMF in purchasing power parity terms -- has helped provide social stability and has insulated the country from the political turmoil seen in a number of Middle Eastern and north African countries in the past year.

Qatar's ratings are constrained by economic, institutional and political factors. Hydrocarbon production is likely to reach a plateau in 2012, and this is likely to lead to an increase over time in the country's vulnerability to potential price shocks in terms of their impact on economic growth, government finances and the balance of payments. Although the government holds large assets, the precise scale of the country's net international investment position is not known, reflecting limitations in the coverage, quality and timeliness of official statistics. Moreover, Qatar faces geopolitical threats, which Moody's assesses as representing a 'moderate' level of event risk as part of the rating agency's sovereign methodology.

Rating Outlook

Qatar's sovereign ratings have a stable outlook based on the country's fiscal and external current account surpluses, which are likely to remain large over the medium term. Moody's has some concerns about the country's accumulation of external debt within the public sector in recent years, much of which has been due to the development of the liquefied natural gas (LNG) industry. For 2011 as a whole, Moody's estimates that proceeds from LNG production will have comprised around 60% of Qatar's total exports and 20% government revenues, thus benefiting the country's debt-repayment capacity. (Moody's 06.12)

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11.7 EGYPT: Ratings Lowered To 'B+' On Heightened Political Transition Risks

On 24 November, Standard & Poor's Ratings Services lowered its long-term foreign- and local-currency sovereign credit ratings on the Arab Republic of Egypt to 'B+' from 'BB-'. At the same time, S&P affirmed the 'B' short-term ratings on Egypt. The outlook is negative. The transfer and convertibility (T&C) assessment was also revised to 'B+' in line with the sovereign ratings. The recovery rating on the unsecured foreign-currency debt is '3', indicating our expectation of a 50%-70% recovery in the event of a default.

The downgrade reflects S&P's opinion that Egypt's weak political and economic profile, as defined by our criteria, has deteriorated further. This follows the clashes between protesters and security personnel that began on November 20, 2011, and resulted in significant loss of life. S&P's appraisal of Egypt's flexibility and performance profile remains unchanged.

Last month, S&P indicated it could lower Egypt's ratings again in 2011 if the political transition faltered in a manner that led to renewed political turmoil, which, in turn, placed further pressure on Egypt's net international reserves. In S&P's view, this political scenario has now been realized and we expect reserves to continue their downward trend. Net international reserves have fallen steadily to $22 billion as of Oct. 31, 2011 (the latest published figure) from $36 billion at the start of the year. Accordingly, S&P took this rating action.

S&P assesses the policy choices of Egypt's ruling Supreme Council of the Armed Forces (SCAF) - such as allowing violence to escalate in Tahrir Square from Nov. 20 in an effort to disburse protestors - as having weakened the prospects of a smooth political transition to democracy and having reduced the ability of the government to place the public finances on a more sustainable path.

In S&P's view, policy responses in Egypt are difficult to predict both for now and, likely, following the untested election process. This is due to a highly polarized political landscape and highly centralized decision making. However, S&P still views as a possibility the parliamentary and presidential elections taking place according to the official schedule - the first round of parliamentary elections being set for Nov. 28, 2011, the presidential elections by July 2012.

In S&P's opinion, there is an ongoing high, and recently increased, risk of challenges to political institutions that will possibly involve further domestic conflict. These challenges could arise if populist demands for greater political participation are thwarted, or from demands for improved living standards from different sectors of the population no matter who is governing Egypt. Following Egypt's popular uprising of January 2011, public expectations regarding the government's ability to promptly deliver improved living standards remain high. Egypt has pressing economic development needs, in our view; per capita GDP in 2011 is about $2,700 (S&P estimate) and its Human Development Index ranking was 101 out of 169 countries in 2010.

S&P expects any incoming government will continue to run high general government deficits, as previous governments have done. General government deficits have averaged 8% of GDP during the last five years. S&P anticipates large government deficits will result from increased spending, particularly on food and fuel subsidies (these already account for over one-fifth of government spending), and weak government tax revenues.

S&P's T&C assessment is equalized with the sovereign foreign-currency rating to reflect our opinion that the likelihood of the sovereign restricting access to foreign exchange needed by Egypt-based non-sovereign issuers for debt service is similar to the likelihood of the sovereign defaulting on its foreign currency obligations.

S&P's '3' recovery rating on Egypt's senior unsecured foreign-currency sovereign debt reflects a scenario in which fiscal slippages and additional reserve losses trigger a debt restructuring or default. Nonetheless, under this stress scenario, Egypt's history of cooperation with external creditors and its assumed relatively modest share of bond debt suggest an estimated recovery range of between 50% and 70% of face value.

The negative outlook reflects S&P's view that government or SCAF policymaking during the political transition process could further weaken Egypt's ability to fund its government borrowing requirement or the country's external needs. Under S&P criteria, if continued political turmoil weakens Egypt's external metrics or other key indicators, they could lower Egypt's ratings. Conversely, S&P may revise the outlook to stable if Egypt's political transition strengthens the social contract and if government debt dynamics remain close to or better than our expectations. (S&P 24.11)

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11.8 UAE: US Fast Food Brands To Dominate the Market

The UAE restaurant market is set to grow 30% to $780m in the next four years and will be dominated by American-style fast food brands. Branded table-service restaurants generate about $600m a year in the UAE, a number set to swell to $780 by 2015, according to Tribe Restaurant Creators in Abu Dhabi. In a poll of dining outlets in the Gulf state, Tribe found American brands comprised up to 47% of food and beverage offers in Dubai malls. Homegrown restaurants, by comparison, made up between 8-17%.

US-based chains are set to open some 250 outlets across the Middle East over the next decade, as profits slow in their domestic markets. Brands including Shake Shack, Red Lobster and Texas Roadhouse have all debuted in the UAE market in recent months, under tie-ups with local firms. TGI Friday's, PF Chang's China Bistro and Applebee's, owned by DineEquity, are growing in the region by putting new spins on their menu options, while rivals Smashburger and Darden Restaurants are just getting started, braving the Arab Spring political turmoil to open locations in Egypt, Saudi Arabia and the UAE.

Friday's, owned by Carlson Cos, started doing business in Dubai in 1996 and has grown to 31 restaurants in the region. The company said last year it plans to open an additional 30 locations in the Middle East in the next five years. Darden, the biggest casual-dining operator in the US, opened its first Red Lobster in the Dubai Mall in July and will open two more restaurants in Kuwait City in 2012. Last year, the company committed to opening at least 60 Red Lobster, Olive Garden and LongHorn Steakhouse chains in the region in five years.

Smashburger, with about 120 locations in the US, will open its first international store in Kuwait next year. The Denver-based chain has agreed to open 37 stores in the Middle East and is getting rid of applewood-smoked bacon and making other menu tweaks.

The growth in restaurant brands has spilled over into other areas of the food and beverage market. Franchise brands from Europe were virtually non-existent in the GCC before the launch of Costa Coffee into the market in 1999. Between 2000 and 2007, the region saw the arrival of brands like Yo!Sushi, Gourmet Burger Kitchen, Wagamamas and Wrapid, among others. (AB 29.11)

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11.9 United Arab Emirates Tourism Report Q4/2011 by BMI

Research and Markets http://www.researchandmarkets.com has announced the addition of the "United Arab Emirates Tourism Report Q4 2011" report to their offering.

Tourism Overview: The tourism sector continues to record solid growth in 2011. After a strong performance in Q1/11, the most recent available data, figures for H1/11, show that guest numbers at Dubai hotels totaled nearly 4.6m. We estimate that this represents good growth of about 10% year-on-year (y-o-y). In Abu Dhabi, data for the first seven months of 2011 show a robust 15% y-o-y increase in tourists (including Emirati arrivals) at hotels to over 1.2m guests. Key source markets France and Germany recorded sizeable growth in visitors of 27% and 17% y-o-y respectively.

There was also a surge in arrivals from the Gulf Cooperation Council (GCC) countries, particularly in July. In H1/11, in Sharjah, there was modest growth of 3% y-o-y in tourist arrivals (including UAE nationals) at hotels to about 0.8m. In July, visitor numbers went up 18% y-o-y. As in previous years, European arrivals accounted for 40% of total visitors in H1, while tourists from the GCC, particularly Saudi Arabia and Asia accounted for 29% and 18% respectively. Arrivals from Russia, more than 153,000, which dominates visitors from Europe, by 36% y-o-y in H1.

Hospitality: The hospitality sector is on course to achieve another good year, after a strong recovery in 2010. BMI estimates that the number of resident nights at Dubai hotels rose solidly in H1/11 y-o-y. Data for January- July for Abu Dhabi show occupancy levels were up by 10% y-o-y to 70%, while the average length of stay increased by 11% to just under three nights. The UK remained the most important international source market, with a 21% y-o-y increase in guest nights to 354,155. The second key market, the US, recorded 282,510 nights, up by 26% y-o-y.

The third most important market, India, which has been especially targeted by the marketing authorities, provided 235,695 guest nights, rising by a robust 52% y-o-y. Average room rates in Abu Dhabi dropped markedly, improving competitiveness. In Sharjah, there was robust growth in H1/11, with the number of hotel room nights sold totaling 908,309, an increase of 16% y-o-y. The overall occupancy rate was 75%. Figures for July show even more growth of 25% y-o-y in the number of room nights, while the occupancy rate rose to 74% from 69%.

Forecast Scenario: Although we have moderated our forecast slightly this quarter, BMI expects annual growth in foreign tourist arrivals to the UAE in 2011 to be little changed compared with a year earlier at nearly 11%. A slight slowdown is anticipated in 2012 but growth should remain relatively strong. The outlook is based on solid economic growth in the Middle East and weak but stable growth in the Eurozone (the two major source regions). Our growth forecasts for Eurozone have been revised this quarter to 1.9% and 1.7% in 2011 and 2012 respectively. Concerning the UK, the top source market for inbound tourists to Dubai in 2009 and 2010, we forecast economic growth of 1.4% (revised down) in 2011 and 2.2% in 2012.

Airlines: In July, Dubai-based Emirates signed a code-share agreement with Nigerian carrier Arik Air. From August, Emirates began a non-stop daily service to Copenhagen – the airline's first passenger service to Scandinavia. In January 2012, it will begin its first route to Ireland, with daily flights to Dublin. In February 2012, Emirates' extensive African network will be boosted with the launch of two new destinations: Lusaka (Zambia) and Harare (Zimbabwe) – its 20th and 21st African destinations. In mid- 2011, the flag carrier of Abu Dhabi, Etihad Airways, and Czech Airlines signed a new code-share agreement, effective from September (four Prague-Abu Dhabi flights a week).

In December, Etihad will start services to Chengdu, China's south-west economic hub. From March 2012, Etihad will expand its network in China with daily non-stop, return services between Abu Dhabi and Shanghai (the airline's 70th global destination). In Q2/11, Sharjah-based Air Arabia recorded growth of 5% y-o-y in passenger traffic. In July, the carrier introduced flights to Gassim (Saudi Arabia) from its primary hub. In October, the airline will start direct services to new destinations in Ukraine: Kharkov, the country's second-largest city, and Donestsk. From November, Air Arabia will offer flights to Yanbu in Saudi Arabia. (BMI 05.12)

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11.10 UAE: Abu Dhabi Ratings Affirmed At 'AA/A-1+' On Fiscal Flexibility & Asset Strength

On 30 November, Standard & Poor's Ratings Services http://www.standardandpoors.com/ affirmed the 'AA/A-1+' long- and short-term sovereign credit ratings on the Emirate of Abu Dhabi, a member of the United Arab Emirates (UAE). The outlook is stable. S&P's transfer & convertibility (T&C) assessment is 'AA+'.

The ratings on the Emirate of Abu Dhabi are anchored by the emirate's strong fiscal and external positions. With its wealth and high resource endowment, Abu Dhabi has been able to respond with strong countercyclical policies and preemptive support for the financial sector to the domestic and external conditions that have affected its economy in the past two years.

In addition to making available the financial means to accommodate fiscal flexibility, the exceptional strength of the government's net asset position provides a buffer to counter the negative impact of oil price volatility on economic growth and government revenues, as well as on the external account.

The ratings are constrained by weak political institutions, a lack of transparency and public accountability, and limited availability of timely financial and economic data, particularly regarding the government's assets.

The ratings are also constrained by the contingent liabilities from Abu Dhabi-based state-owned enterprises (SOEs) and government-related entities (GREs), as well as those related to the UAE more broadly.

The ratings are also undermined by Abu Dhabi's limited monetary policy flexibility in view of the pegged exchange rate and the underdeveloped domestic bond markets.

The Emirate of Abu Dhabi boasts GDP per capita that we estimate at $97,710 in 2011, one of the highest among rated peers. After the 2009 economic slowdown, growth recovered in 2010, and we expect it to reach 3.8% in 2011, bolstered by strong performance in non-oil sectors including manufacturing and business services.

Adjusted for population growth, however, Abu Dhabi's per capita growth has been negative since 2007, reflecting the strong influx of low-income labor into the emirate. In terms of its oil economy, Abu Dhabi holds 9% of the world's proven oil reserves and almost 5% of the world's natural gas. It can be conservatively assumed that Abu Dhabi can maintain current oil and gas production levels, and relatively low production costs, for the rest of the century.

To meet its targets for stronger growth in the non-oil economy, S&P expects that the government will continue to use its oil wealth to deepen and diversify the economic production base, decouple it from the volatility in the oil economy, and enhance the employability of the national labor force.

We expect the fiscal outturn for 2011 to show significant improvement, estimated at 13.0% of GDP (including petroleum dividends and investment income), on the back of higher oil prices as well as a leveling-off in the one-off expenditures that were deployed in response to the crisis. For 2010, we forecast Abu Dhabi's public finances will have registered a modest surplus position, estimated at 1.3% of GDP (including petroleum dividends and investment income) as the government maintained its stimulus policy.

It targeted selective spending to safeguard economic stability and helped develop strategic sectors such as health, infrastructure and tourism. Large surpluses - estimated at 11%-13% of GDP in 2012–2014, and contingent on oil prices remaining firm - will help further build the government's net external asset position.

With its exceptionally robust net asset position, the Abu Dhabi government has the financial resources to cover fiscal costs from contingent liabilities, including those that may arise from the high debt burdens of SOEs and GREs (which we estimate at 54% of 2010 GDP).

At the same time, we believe that the government is aware that the changed global economic environment and continued risks in the real-estate sector warrant a review of the pace of spending on the various projects that GREs are undertaking. It has therefore taken measures to scale back some of these projects, and to strengthen the monitoring of financing needs and debt management practices at the different GREs and SOEs.

The UAE remained largely unaffected by the wave of social unrest seen in several Middle Eastern countries. The population appears broadly satisfied with the underlying political system and economic platform. Nonetheless, the political process remains largely centralized and based on personal capacities of the rulers. Institution building is nascent and will require some time to reach the maturity observed in other 'AA' rated sovereigns outside the region. Similarly, the emirate lags behind similarly rated peers in terms of transparency, accountability and availability of data and information.

The local-currency rating is equalized with the foreign-currency rating because monetary policy options, which underpin a sovereign's greater flexibility in its own currency, are constrained by the UAE's pegged exchange rate regime.

The stable outlook balances Abu Dhabi's economic resilience and policy flexibility, resulting from its exceptionally strong external and fiscal net asset position and responsive policy stance, against the risks emanating from structural and institutional weaknesses that could derail growth and its high contingent liabilities and geopolitical risks.

S&P could consider raising the ratings if there were significant improvements in transparency and governance, better availability of financial and economic data, and progress in institutional reforms. Moreover, measures to improve monetary flexibility, such as strengthening the monetary policy framework and developing domestic capital markets, could eventually be positive for the ratings.

Conversely, and although such a scenario is currently unlikely, the ratings could come under pressure if regional geopolitical risks escalate sharply, threatening Abu Dhabi's political and economic stability, or if domestic events compromise stability. The ratings could also come under pressure if there is a prolonged depletion of the government's asset position. (S&P 30.11)

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11.11 UAE: Dubai Has Private Opportunities in Public Transport

The Oxford Business Group reported that Dubai has cleared the way for private investors to enter the emirate's public transport sector, having laid the foundations for a partial privatization of some operations in the state's growing rail, road and waterborne networks.

On October 19, Crown Prince Sheikh Hamdan Bin Mohammad Bin Rashid Al Maktoum, the chairman of Dubai Executive Council, issued a resolution clearing the way for the private sector to move into the public transport field. Under the resolution, the Public Transportation Agency (PTA) of the Roads and Transport Authority (RTA) will be empowered to issue licenses to private companies interested in operating public buses and bus stations. The agency will also be authorized to lease public transportation utilities to private firms, on the condition that the companies adhere to the rules and regulations laid down by the PTA.

Though the RTA is looking to hand over at least some of its public transport concerns, the resolution made it clear that responsibility for the planning and introduction of new routes within the city, and for bus connections between Dubai and other emirates, would remain with the PTA. The agency would also be responsible for testing, maintaining and repairing RTA buses, and for licensing drivers. Another resolution issued the same day set out the conditions for the RTA to lease operation rights for abras, or water taxis, with the authority retaining control of routes and maintaining a regulatory role.

The proposal to open up the public transport sector to private investment is not a new one, the concept having been raised a number of times over the past 10 years or so. Yet the idea was given added impetus last January when the RTA announced it had submitted draft legislation to the government aimed at promoting private involvement in the transport sector.

However, interest in taking over some of the RTA's services has yet to be publicly announced, nor have the exact terms of any operational agreements been issued. What is also unclear is how keen the private sector is to buy into Dubai's public transport network. To date, it is only the bus services and the abras that appear to be on the radar for limited privatization, with no mention of the jewel in the crown, the emirate's metro.

Potential private sector operators will need to proceed with diligence to ensure that by taking part in Dubai's public transport system they can reap the dividends, so will likely look carefully at what routes the RTA may bring to the table. Finer details, such as shared ticketing arrangements, between those elements of the network that go private and the part that remains in state hands will also have to be hammered out.

The proposal to open up the public transport sector to private investment comes as the state is stepping up efforts to promote greater use of existing options and rolling out plans for new public transport projects. In mid-October, Mattar Al Tayer, the chairman of the RTA's board and its executive director, said the RTA hoped to see 30% of all trips conducted in the emirate made via public transport by 2020 – a substantial increase from the 6% posted in 2005 or even the 10% as of the middle of this year. Al Tayer said 13% of all passengers would be carried by the metro, with the remainder split between other modes. The 2020 target date is sooner than originally planned; the RTA had previously aimed to achieve the 30% movement figure in 2030.

Recent data released by the RTA suggests that setting a new, earlier date is achievable. There has been a steady increase in the number of people using state-provided transport modes, with the metro in particular being well supported. In September, nearly 6m passengers travelled on the metro's two lines, with 1.27m of these riding the newly opened Green Line, which had only been in operation for the final 20 days of the month.

The public will be even more spoiled for options in the coming years, with Dubai unveiling the final design for the first stage of an extensive tram system. With a cost of around $1bn, the 10.7 km-line will run from the Dubai Marina via Media City to Knowledge Village, with at least 13 stops on the route. Following completion in 2014, the tram system is expected to be able to move some 10,000 passengers an hour. A second line, running for 4 km, is planned for later development, and will link the Burj Al Arab Hotel and the Mall of the Emirates.

While Dubai's public transport system is growing apace, so too is the emirate's love affair with the combustion engine. As of the end of 2010 there were more than 1.1m cars on the roads, and though the RTA's campaign to encourage the travelling public to make use of public transport is meeting with some success, and the authority's road building program has improved traffic flow, problems remain. Privatization of some public transport services may help, especially if operators can further entice commuters away from their cars, though much will depend on how attractive the government makes the terms for making some of its network private. (OBG 28.11)

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11.12 ALGERIA: Fracture Futures

Algeria's natural gas sector is expanding rapidly on the back of increased production, with recent successes aided by international partnerships and technological advances. At the same time, the country is looking forward to solidifying its standing as a regional transit hub for natural gas.

With the October 10 announcement that Irish oil and gas firm Petroceltic International (PCI) had more than doubled gas production rates from its south-eastern Algerian interests, the company saw shares rise by 12.5%. For its part, the country's state-owned gas company, Sonatrach, which partners with PCI on this project, also had good reason to celebrate.

PCI said fracture stimulation of the AT-8 well on the Ain Tsila discovery had boosted the pre-fracture flow rates to 38.6m standard cu feet of gas per day (mmscf/d). Previously, pre-fracture gas flow rates at AT-8 were 15.4 mmscf/d.

Fracture stimulation – also known as fracking – involves relatively new technologies such as hydraulic fracturing and horizontal drilling, in which liquid is pumped into rock formations at high pressure to open spaces between the rock, allowing gas or oil to flow out more readily.

According to Oil and Gas Journal, as of January 2009 Algeria already had 159 trillion cu ft (tcf )of proven natural gas reserves, making it the world's eighth-largest holder of the substance.

Figures from the BP Statistical Review of World Energy 2010 also show the country with 2.4% of the world's total proven gas reserves and a reserve-to-production ratio of 55.3 years. Meanwhile, the US Energy Information Administration puts Algeria's 2010 natural gas production at 3.007 tcf and consumption at 1.05 tcf, impressive export figures.

PCI's success comes half a year after Algeria announced it was seeking partners to develop its huge shale reserves. The OPEC member country is estimated to have up to 1000trn cu ft (tcf) of natural gas trapped in shale rock more than 1000 meters below the surface.

In March, Youcef Yousfi, the minister of energy, told a conference of oil and gas sector players in Houston, "We are interested in growing unconventional gas reserves. The preliminary results of our evaluation of shale gas potential indicate that the potential is at least comparable to the major plays known in the US." However, with no experience in developing shale gas, the minister said Algeria was looking to partner with international companies to develop its reserves. "The development of the unconventional hydrocarbons will be a new experience that we will be willing to share with companies that have demonstrated their know-how in this field," Yousfi said.

Sonatrach dominates the country's natural gas production and wholesale distribution, however foreign investment in the sector continues to increase. Foreign gas producers such as PCI, BP, Statoil, Total, BHP-Billiton, Eni and Repsol have entered into partnership agreements with Sonatrach.

Meanwhile, the country's importance as a transit hub for West African gas and its access to the Mediterranean and European markets will also be broadened when the much-anticipated Trans-Saharan Pipeline comes online. With a launch date now set for 2015, the 2800-mile, $20bn pipeline (a joint project of Sonatrach and the Nigerian National Petroleum Corporation) will pump natural gas from Warri, Nigeria to Algeria's Hassi R'Mel natural gas hub and pipeline. The ultimate aim is to bring Nigerian natural gas to European markets.

Though the pipeline has been planned for years, it has seen many stumbling blocks and implementation has been repeatedly delayed, due in large part to the challenging technical and financial requirements of the project. But on July 12, speaking at the 25th Summit of the Heads of State and Government Orientation Committee of the New Partnership for African Development (NEPAD), Nigerian president Goodluck Jonathan said Nigeria would continue its partnership with Algeria to develop the pipeline. With boosted production, advanced technology transfer and a regional reach in sight, Algeria's ratings as a natural gas producer could soon rise ever higher. (OBG 01.12)

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11.13 MOROCCO: Morocco's Election - Yet Another Islamist Victory

The Economist wrote on 3 December that, invigorated by the Arab spring's bracing breeze, Moroccan newspapers greeted victory for the Justice and Development Party (PJD) in an election on 25 November with headlines such as "Earthquake!" and "Tsunami!" In fact, the Islamist party's breakthrough into government, in this first election under a new constitution approved in a referendum in July, was neither a big surprise nor an electoral landslide. But it marked yet another striking advance for political Islam since the Arab protesters began to challenge autocracy a year ago.

The PJD, headed by Abdelilah Benkirane, a former physics teacher with an offbeat sense of humor, won 107 seats in the 395-member parliament. The independence-era Istiqlal Party, with 60 seats, came a distant second. The most radical change in the new constitution requires King Muhammad to pick a prime minister from whichever party wins the election.

Mr. Benkirane was duly summoned by the king and asked to form a government. He will now seek to build a solid parliamentary majority with, as his preferred partners, the centrist Istiqlal and the left-wing Socialist Union of Popular Forces. "Our heart is towards the left, we have always said so," he said. "But maybe the left doesn't agree with our proposals."

Despite the king's promise to move towards parliamentary democracy, the old political establishment hedged its bets, hoping that the National Rally of Independents, with traditional backing from villagers, would, at the head of an eight-party coalition, challenge the PJD. But in the event the rally came a poor third, with 52 seats.

The Islamist PJD has been Moroccan voters' main alternative to the status quo since it surged to prominence in a parliamentary election nine years ago, with a socially conservative message inveighing against corruption and promoting some of the same values that have inspired the Arab spring. The PJD has also, however, been careful to present itself as a loyal opposition, co-operating with the authorities in counter-terrorism and refusing to bid for unfettered power. In 2008 the Authenticity and Modernity Party (PAM), approved by the palace, was created to put the Islamists firmly in their place by offering voters a rival opposition party. The PAM, which got 47 seats, is the only party Mr. Benkirane has ruled out as a coalition partner.

The latest election was the first in which the Islamists ran candidates in all constituencies. Mr. Benkirane emphasized that the election result must be fully respected. That was the price of his support for the king's new constitution, which gives a bigger executive role to the prime minister but still leaves the king with decisive powers if he wants to exercise them.

King Muhammad is generally regarded as sincere in seeking more democracy and a more open, competitive economy. But it is less clear just how far or at what pace he is prepared to go. Some members of the February 20th Movement, a youth-led outfit that seeks to echo protesters elsewhere in the Arab world, are quietly proud that their street rallies have helped bring into government the only party bent on real reform. Supporters of February 20th say their demonstrations will continue. Their ultimate aim is something close to Tunisian and indeed European democracy.

Political Islam coexists with the king

That is not yet in the offing. Only 45% of registered voters turned out, and only 13m-odd of the 21m Moroccans of voting age bothered to register, 2m fewer than in 2007. The 8 million who did not register include many poor and often illiterate villagers and shantytown dwellers. Though many of them still look to the king as a source of authority and unity, they too will need to be drawn into a more democratic system.

As Europe's economy falters, the king hopes that his rapprochement with his rich peers in the six-country Gulf Co-operation Council may encourage investment in Morocco and give his people better access to the Gulf job market. The day before the election, sovereign-wealth funds in Kuwait, Qatar and the United Arab Emirates said they would invest more than €2 billion ($2.7 billion) in Moroccan tourism. If that boosts jobs and economic growth in Morocco, the PJD, at the head of a new government, will not complain. (The Economist 03.12)

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11.14 MOROCCO: Ramping Up Phosphates

Moroccan production of phosphate and derivatives such as fertilizers is set to increase significantly as the country's phosphate monopoly, the Office Chérifien des Phosphates (OCP), embarks on a massive investment program, funded in large part through publicly-traded bonds.

In September the group went to the private debt markets for the first time in its history, launching a Dh2bn (€177.8m) bond issue with a maturity of seven years that was oversubscribed nearly sevenfold. About Dh1.8bn (€160m) of the issue have been listed on the Casablanca stock exchange.

The transparency requirements of the issue led the company to publish its financial results in unprecedented detail. According to the figures, OCP's 2010 profits stood at Dh8.85bn (€786.8m), on turnover of Dh46.3bn (€4.1bn). The group's long-term debt fell by approximately 10% on 2009 to around Dh10bn (€889.1m) at the end of 2010, while its capital increased to Dh24.4bn (€2.2bn) thanks to high phosphate prices.

2011 has also been a good year for the firm, with phosphate rock prices in September standing 40% higher than they did at the beginning of the year. Moroccan exports of phosphates and by-products grew by 34% by value in the first nine months of the year compared to the same period in 2010 to Dh35.4bn (€3.1bn), including exports of phosphate rock up 42% to Dh9bn (€800.4m), in spite of a 7% fall in volume.

The recent success at OCP, which is 94% owned by the Moroccan state – Moroccan banking group Banque Central Populaire owns the rest – and has a monopoly on phosphate mining in Morocco, should continue on the back of plans to invest a total of Dh98bn (€8.7bn) between 2010 and 2020 to increase annual phosphate production capacity to 50m tonnes per annum, from 26.4m tonnes as of 2010.

The bulk of the investment – Dh44.9bn (€4bn) – will be spent on chemical facilities, including infrastructure to transform its output into phosphate slurry so that it can be transported by pipeline, and for the construction of four phosphoric acid and DAP fertilizer plants, as well as two granulation facilities. The investment should triple the firm's fertilizer output by 2020.

Some Dh29.5bn (€2.6bn) of the sum will go towards mining facilities and Dh6bn (€533.4m) to infrastructure. Another Dh22bn (€2bn) of the total will be invested in the company's largest mine in the town of Khourigba, including for the construction of three phosphate treatment plants, one of which began operations last year, at a cost of more than Dh11.5bn (€1bn).

Phosphate production capacity at Khourigba will rise from 20m tonnes per annum to 38m. Another Dh6bn (€533.4m) is to be spent on the construction of three new mines, which are to begin operations in 2012, 2015 and 2017, respectively.

The infrastructure investments include construction of a phosphate slurry pipeline project scheduled to enter into operations in April 2013 and being built by Turkish firm Tekfen. The 187-km long, Dh4.2bn (€373.4m) pipeline will extend from Khourigba to industrial facilities and a port at Jorf Lasfar and will be able to transport all the phosphate produced at the mine, greatly reducing transport costs (which are expected to fall from $7-8 per tonne to just $1) as well as carbon emissions. The company also has plans to eventually build a second pipeline.

A new system to supply water from a reservoir 80 km away to the Khourigba mine to support its increased capacity is also being built and is set to enter into operation next year, at an investment cost of Dh1bn (€88.9m).

The firm has also launched a program called OCP Skills to boost employment in the regions in which it operates, following rioting by jobseekers in Khourigba in March this year. In September OCP launched the third phase of the program, which aims to create 5800 jobs in total and provide employment training for 15,000 young people.

Morocco is thought to possess around three-quarters of the world's phosphate reserves and is the world's third-largest producer of phosphates, accounting for around 17% of global phosphate rock output. The economy ministry in early November said prices would remain high in 2012 thanks to strong international demand and tight supply, though it said supply pressures should ease after that as new projects in Morocco and elsewhere come online. (OBG 29.11)

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11.15 TURKEY: Energy-Sector Maneuvers

The Oxford Business Group reported that at the high-profile Black Sea Energy and Economy Forum, Turkey's top leadership expressed strong rhetorical support for the Nabucco gas pipeline project, while reminding Europe that the country plays the key role in Nabucco's success and implying that more serious consideration needs to be given to its EU membership bid.

The paired messages of EU-Turkey gas cooperation and the importance of Nabucco were emphasized in a series of speeches given by Prime Minister Tayyip Erdogan; Deputy Prime Minister Ali Babacan; the Minister of Energy & Natural Resources, Taner Yildiz; and Egemen Bagis, Minister for EU Affairs and chief negotiator of Turkey in accession talks with the EU.

That strong rhetoric is backed by a series of recent maneuvers on the part of the government to secure Turkey's role as a future transporter and supplier of natural gas to Europe. The government took aggressive action in September to assert itself with an Eastern Mediterranean drilling expedition, while simultaneously opting not to renew a gas importation agreement with Russia – instead favoring Azerbaijan for its state contract.

For years, the Nabucco and Southern Stream pipeline projects – the former of which will transport natural gas via Turkey to Eastern Europe and Austria, and the latter of which will provide Russian natural gas to the same region – have been competing for financing and the approval of governments throughout the region.

The EU's interest in achieving energy security through diversified sources has collided with the efforts of Russia's Gazprom to secure a long-term revenue stream and greater regional influence, in a struggle that has become a textbook example of the importance of energy policy in international affairs over the past decade.

While he did not consider the ministers' statements about Nabucco as an exclusive endorsement of the pipeline project, the international president of the Turkish Petroleum Pipeline Corporation (BOTAS), Ibrahim Palaz, clarified Turkey's role in the pipeline competition. "Turkey is foremost a transit country for gas – for instance, it is only buying 6bn cu meters of the 16bn cu meters available from Azerbaijan's Shah Deniz field," he told OBG. "Europe needs to vastly diversify its sources of natural gas, and currently the sources with the greatest combined potential are those to the south and east of Turkey."

While positioning itself as a transit route to meet European demands, Turkey is also grappling with importation issues to supply its own needs. On October 1, Yildiz, announced that BOTAS, the state-owned energy supply company, would not extend its 25-year natural gas supply contract with Gazprom that is set to expire in December, following a dispute over a discounted gas price.

The so-called Western Route contract, which brings gas to Turkey via Ukraine, Romania and Bulgaria, currently represents 15% of Turkey's natural gas supply. The government has said it expects private firms will negotiate their own contracts with Gazprom to overcome the loss, but the future of imports from the route remains uncertain.

Turkey's annual natural gas consumption reached 38.3bn cu meters in 2010, and imports totaled nearly all of that, at 38.04bn cu meters. Production within Turkey averaged only 885m cu meters per year between 2006 and 2009; however, the country is able to import a total of 45bn cu meters of gas under its current agreements, according to Yildiz. In 2010, approximately 45% of Turkey's gas imports originated in Russia. Iran was the second-largest supplier (21%) and Azerbaijan the third largest (12%).

The move thus appears to be part of plans to promote the country as a transporter and supplier of gas, perhaps as an alternative to Russia, and to this end Turkey is positioned to better support the Nabucco project. Over the past decade, Turkey has imported 93% of the oil and 98% of the natural gas that it consumed. In the first half of 2011, the country's energy imports increased by roughly 41%.

Thus, while private Turkish firms will likely ensure that no supply-side problem results from the cancellation of the Western Route contract, the government is looking to other suppliers to increase their contribution.

In August, the State Oil Company of Azerbaijan Republic (SOCAR) announced it would increase supplies to Turkey from 6m to 16m cu meters per day while repairs are conducted on the Tabriz-Ankara pipeline, after being damaged by two bombings in July and August. If such increases can be achieved over the longer term via a variety of sources, it is reasoned, the country's reliance on Russian gas can be mitigated.

The yet unbuilt Nabucco Gas Pipeline will cross the Caucasus and Turkey, transporting gas over 3900 km to Austria from the Caspian Sea. BOTAS is just one of six shareholders, the others being Bulgarian Energy Holding, Transgaz (Romania), MOL (Hungary), OMV (Austria) and RWE (Germany), each with a 16.67% stake.

The project saw the support of a seventh shareholder, the publicly owned German-Austrian gas-procurement vehicle Bayerngas, on September 30. Bayerngas' announcement was timed to precede the deadline for bids on the Shah Deniz II gas field. The field off Azerbaijan's Caspian Sea coast is a key source of natural gas supply for the future Nabucco pipeline.

Turkey also moved to the epicenter of a second critical gas competition that has implications for the entire region. The commencement in late September of exploratory drilling operations off southern Cyprus in the Levantine Basin resulted in swift condemnation from the Turkish government and threw a spotlight on the region's natural gas resources. In 2010 the US Geological Survey had estimated the Levantine Basin held 1.68bn barrels of oil and 122trn cu feet of natural gas, but the start of drilling operations compounded the already strained relationships between Israel, Turkey and the Cypriot governments.

The extensive pipeline project and new exploration in the Mediterranean have implications for Turkey's foreign policy position regarding both Europe and the Middle East. The country's emphasis on the Nabucco pipeline's importance, combined with its efforts to secure a stake in the Levantine Basin, demonstrate that Turkey is just getting started as a leader in regional energy supplies. (OBG 24.11)

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11.16 GREECE: IMF Executive Board Completes Fifth Review Under Stand-By Arrangement

The Executive Board of the International Monetary Fund (IMF) completed the fifth review of Greece's economic performance under a program supported by a three-year Stand-By Arrangement (SBA) for Greece. The completion of the review enables the immediate disbursement of an amount equivalent to about €2.2 billion, bringing total Fund disbursements under the SBA to an amount equivalent to about €20.3 billion.

In completing the review, the Executive Board also approved the modification of performance criteria as well as waivers of non-observance of performance criteria related to the primary cash balance for the general government, privatization receipts and external payments arrears. The Board also approved waivers for the non-observance of the external payments arrears performance criterion following minor data revision after the approval of the arrangement.

The SBA, which was approved on May 9, 2010, is part of a joint package of financing with Euro area member states amounting to €110 billion over three years. It entails exceptional access to IMF resources, amounting to about 2,400 percent of Greece's new quota as a result of the 2008 quota reform.

Following the Executive Board's discussion, Ms. Christine Lagarde, IMF Managing Director and Executive Board Chair, said:

"Greece has substantial achievements to its credit, including a large fiscal deficit reduction. However, the program is in a difficult phase, with structural reforms proceeding slowly, the economy weak, and the external environment deteriorating. This has warranted a substantial downward revision to the medium-term outlook.

"The creation of a national unity government and the endorsement of program objectives and policies by major parties is an important step. The new government should use its wider mandate to steadfastly implement the program, which is the best way to help Greece manage the risks it now faces.

"Fiscal adjustment remains the most immediate challenge for the authorities. The recent enactment of new measures will help correct implementation slippages. Adjustment efforts will have to be supported by a prompt implementation of underlying fiscal reforms, which are necessary to downsize the public sector and strengthen tax collection.

"Preserving financial sector stability is another key challenge. Plans to recapitalize banks are in place alongside a revised resolution framework that can help avoid disruptions to depositors and contain public sector costs. Viable banks should continue to have access to liquidity support.

"The government's privatization plan can deliver higher investment, growth and debt reduction. Preparations must move forward expeditiously, to give the Privatization Agency scope to meet the overall program target in a reasonable timeframe.

"Structural reforms must accelerate to help improve competitiveness via productivity growth. Plans are in place to reduce high labor taxes, and the authorities must also finalize the liberalization of closed professions and implementation of business environment reforms.

"Private sector involvement and prolonged support at low interest rates from European partners are crucial to reduce debt to a sustainable level. Near-universal participation in the proposed private debt exchange will be important to realize a sustainable debt position, meet financing needs and ensure continued Fund support," Ms. Lagarde said. (IMF 05.12)

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11.17 GREECE: Corruption Costing Greece $13.5 Billion Annually

As Greece tries to tax its way out of near-bankruptcy – along with pay and pension cuts and layoffs – a major part of a solution, catching the country's notorious tax evaders, could bring in more than $13.5 billion a year, the head of Transparency International's Athens office said. He added that authorities in Greece must focus on boosting transparency on all levels, re-iterating similar warnings that have been ignored. While there has been a spate of recent arrests of people charged with failing or refusing to pay their taxes, Finance Minister Venizelos has missed several self-imposed deadlines to release the names of major evaders, including a promise to do so on Nov. 24.

Transparency International released a report that found Greece and Mafia-riddled Italy are among the most corrupt countries in the European Union and 17 countries of the Eurozone that use the euro as a currency. TI said corruption was a major reason why both countries are essentially broke and why Greece had to ask the Troika of the EU-International Monetary Fund-European Central Bank for a $152 billion bailout that came with attached austerity measures that have crippled the economy and caused a deep recession of 18.4% unemployment, 17% homelessness and the closing of more than 100,000 businesses with projections many more will fail as many Greeks have stopped spending. There are also more than 500,000 Greeks with no income, their unemployment benefits having ended.

Greece ranked in 80th place worldwide for 2011, compared to 67th place in 2010. Many Greeks believe the problem is even worse as they have to bribe doctors, lawyers, tax inspectors, driver's license officials and civil servants to get expedited services, while many professions do not give receipts, making it difficult for authorities to track their income.

"Euro-zone countries suffering debt crises, partly because of public authorities' failure to tackle the bribery and tax evasion that are key drivers of debt crisis, are among the lowest-scoring EU countries," the group said in the report. The economic crisis in Greece has triggered more than 18 months of protests, riots and strikes and led to creation of a coalition government that is pushing more austerity measures in hopes of getting a second bailout of $175 billion and a write-off of 50% of much of the country's debt.

In a desperate bid to raise revenues while tax evaders are largely escaping with impunity, Venizelos has put harsh taxes on many vulnerable sectors of society, including the poor while Transparency International said corruption remains rampant. Critics have said it reaches the highest levels of society and government and business. (Kathimerini 02.12)

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