TOP STORIES

• Cabinet Approves Across-The-Board $143 Million Cut
• Qatar Airways Maiden USA Flight Arrives in New York
• Kuwait Pharmaceuticals & Healthcare Industry Efficient Though Underdeveloped
• Turkish GNP Growth Exceeds Forecasts
  

TABLE OF CONTENTS:

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Cabinet Approves Across-The-Board $143 Million Cut
1.2 Olmert Appoints Bar-On as Finance Minister
1.3 Governor Fischer Says Low inflation is "Perplexing"
1.4 Israeli Bank Fees To Be Cut to 75 from 350
1.5 Knesset Committee Clamps Down On Porn Sites With New Bill

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 ECI Telecom Announces Agreement to Be Acquired in $1.2 Billion All-Cash Transaction
2.2 Yorkville Advisors Opens Israel Office
2.3 Avistar & RADVISION Announce Patent License Agreement
2.4 Mellanox to be Listed on TASE in Addition to NASDAQ Listing
2.5 PDSi and Startronics Announce Strategic Partnership
2.6 Herley Israel Receives Additional $1 Million Award for Integrated Microwave Assemblies for Missiles
2.7 Hybrid Battery Management Company Techtium Raises $10 Million
2.8 QualiSystems Raises $10 Million
2.9 NICE to Acquire Actimize, Convergence of Real-Time Transaction & Interaction Analytics Solutions
2.10 Syngenta buys Zeraim Gedera for $90-100 Million
2.11 El Al to Buy 2 Boeing 787s
2.12 VUANCE to Acquire Security Holding Corp. for $5.1 Million

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 ConocoPhillips to Establish Global Water Sustainability Center in Qatar
3.2 Qatar Airways Maiden USA Flight Arrives in New York
3.3 Istithmar Agrees To Acquire Barneys New York For $ 825 Million
3.4 Emirates Group Selects Plateau Systems for Enterprise-Wide Learning Management
3.5 Janson Beckett Cosmeceuticals Expands International Presence Signing Distributor in Egypt
3.6 GE Energy's 2.5xl Wind Turbine Technology Selected for Largest Wind Project in Turkey
3.7 People's Liberation Signs New Distribution Agreement For William Rast in Greece & Cyprus

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4: ISRAEL MACRO-DEVELOPMENTS

4.1 Bank of Israel Sees 4.1% Growth In 2008
4.2 BioJerusalem Launches Activities

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Iraqis To Inject $400 Million Of Investments In Aqaba
5.2 Iraqi Oil Production Costs Some $75 Billion
5.3 Kuwait Pharmaceuticals & Healthcare Industry Efficient Though Underdeveloped
5.4 Bahrain's Pharmaceuticals & Healthcare Industry Will See Strong Growth
5.5 UAE & US Work On Free Trade Pact
5.6 UK Achieves $6 Billion Trade Surplus With GCC Last Year
5.7 Emirates Will Start Pumping Gas From Qatar Despite Saudi Objections
5.8 Dubai Most Congested City In The Middle East
5.9 No Place For Hooters In Dubai
5.10 Dubai Airport Ranks 10th In International Traffic
5.11 Oman Healthcare System One of Region's Most Efficient
5.12 Saudi Arabia's Pharmaceuticals Market Largest in the Arabian Gulf Region
5.13 Lebanon's Pharmaceuticals & Healthcare Industry Shows Solid Growth

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6: TURKISH & CYPRIOT DEVELOPMENTS:

6.1 Turkish GNP Growth Exceeds Forecasts
6.2 Portugal Rejects Major EU Debate on Turkey This Year
6.3 Bidders Compete For Petkim
6.4 More Than 12 Million Motor Vehicles In Turkey
6.5 Cyprus to Maintain Robust Growth In 2007-2008 6.6 Cyprus Inflation Eases In June

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Tisha B'Av to Be Observed
7.2 Two-Shekel Coin To Arrive In Fourth Quarter of 2007
7.3 Neil Armstrong Visits Israel

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*REGIONAL:

7.4 Jordan Hopes Petra Win Will Double Tourists

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Hadasit's Derotation Brace for Scoliosis Yields Positive Clinical Trial Results
8.2 Teva's Ondansetron HCl Tablets & Ondansetron Orally Disintegrating Tablets USP Approved
8.3 Pharmos Commences Phase 2a Trial of Topical Diclofenac NanoEmulsion Cream
8.4 GammaCan Discovers Anti-Angiogenic Properties in Plasma-Derived IgG
8.5 Teva Announces Tentative Approval of Famciclovir Tablets
8.6 Teva Announces Approval of Amlodipine Besylate Tablets
8.7 Teva Announces Approval of Terbinafine HCL Tablets
8.8 Merz Pharmaceuticals & Tel Aviv University Partner in Novel Drug Treatment of Alzheimer's
8.9 Kamada to Start Phase II Clinical Trial of the Aerosolized Form of AAT for the Treatment of Cystic Fibrosis

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 emoze - The Most Secure, Push Email Architecture in the Global Market
9.2 Exanet Takes Clustered NAS to New Heights with Release of ExaSearch
9.3 Telmap Applications Integrate INRIX Traffic Solutions to Power Industry's Biggest Consumer Brands
9.4 Mobifon-2000 Selects VocalTec's Next Generation VoIP Solution
9.5 Australia Chooses Alvarion's WiMAX to Deploy Rural and Regional Broadband Network
9.6 Tevet Integrated Metrology Emerges as Enabling in Shift to High Throughput Processing
9.7 WorldMate Professional, Personal Travel Assistant for Nokia E90 Communicator
9.8 Allegro Networks to Deploy First Business WiMAX Network in Australia with Alvarion's BreezeMAX
9.9 Tower Semiconductor Delivers the First Space Application SoC Product
9.10 Mellanox ConnectX IB InfiniBand Mezzanine Adapters Accelerate HP BladeSystem c-Class
9.11 Digicel Selects ECI Telecom's Optical and Ethernet Solution for WiMAX Network

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10: ISRAEL ECONOMIC STATISTICS

10.1 Record Number of Workers in Israeli Economy
10.2 Foreign Real Estate Investment in First Half Reaches $784 Million
10.3 Israel Sees Near Record 20,400 Vehicles Sold In June
10.4 D&B Israel Says 14% of Israeli Companies Paid Late

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In Depth

11.1 ISRAEL: Chief Rabbinate Begins Phasing Out Controversial 7th-Year Sale
11.2 ISRAEL: When Kibbutzniks Embrace Capitalism
11.3 ISRAEL: Redecorating Monetary Policy
11.4 GCC: Oil Revenue Bonanza Has Boosted Government Spending
11.5 GCC's Aluminum Output To Hit 3.75 Million Tons
11.6 ABU DHABI: Avoiding The Dire Strait
11.7 QATAR: Economy Could Double
11.8 UNITED ARAB EMIRATES: Moody's Upgrades UAE Aa2
11.9 UAE's GDP Set To Cross $188 Billion
11.10 ABU DHABI: Fitch Assigns 'AA' Ratings; Outlook Stable
11.11 Dubai Transport & Foreign Trade Sector
11.12 DUBAI: New Queen of the Desert
11.13 OMAN: Fishing Wider Markets
11.14 ALGERIA Business: Investors Alert
11.15 TURKEY: Voting for the Future
11.16 CYPRUS Upgraded To A1, Malta Upgraded To A2; Outlooks Positive

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1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Cabinet Approves Across-The-Board $143 Million Cut

The cabinet has approved a $142.85m across-the-board cut in the budget, in place of the $310m cut originally proposed by Minister of Finance Bar-On. The change was initiated by Prime Minister Olmert, after all the cabinet ministers opposed a cut of 6%. It was decided that the cut would be halved to 3%, with the remaining 3% coming from ministerial budget reserves frozen by the Finance Ministry in the 2007 budget. Fifteen ministers voted in favor of the cut, with Labor's six ministers voting against it, while Minister of Justice Prof. Friedman and the two Shas ministers abstained. The approval of the cut was made conditional on the release by the Finance Ministry of the 3% held in reserve for contingencies (this sum is considered part of the budget but remains frozen). It was also decided that the cut would not apply to the programs currently underway in the IDF, a matter that will discussed at a future meeting. The cut is intended to finance a $95m budget supplement for defense; $81.9m for home front preparations, including protecting classrooms in communities around the Gaza Strip, upgrading air raid shelters in the north, civil defense against atomic, biological, and chemical (ABC) warfare; $108.6m supplement for educational reform; and other purposes. (Globes 08.07)

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1.2 Olmert Appoints Bar-On as Finance Minister

Prime Minister Olmert decided to appoint Minister of the Interior Bar-On as the next Minister of Finance. After a night of deliberations at his home in Jerusalem, Olmert decided to go with his advisors, who said that after the public storm surrounding Attorney General Mazuz's decision concerning President Katzav, MK Ramon's appointment to the Ministry of Finance would raise sharp public criticism and his chances in the High Court of Justice were slim. Olmert is expected to appoint Ramon to the position of Vice Premier, in the place of Shimon Peres, who took the office of president. Ramon will also be given the position of a Minister in the Prime Minister's office with political responsibilities. Additionally, Ramon will fulfill a central role in the rehabilitation of the Kadima political party and as a member of the political-security cabinet. Bar-On, should he be approved, will have to deal with several urgent matters. These include the 2008 budget deliberations, the across the board ministerial office budget cuts, the Histadrut (General Federation of Labor in Israel) strike threats and preparation of the tender for the acquisition of Bank Leumi, which is due to be held in the coming months. (Globes 02.07)

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1.3 Governor Fischer Says Low inflation is "Perplexing"

Globes quoted Governor of the Bank of Israel Prof. Fischer saying that he is puzzled by Israel's low inflation rate. "Israel's low inflation rate is perplexing. While it's true that this is a great achievement compared with the years of hyperinflation, still all of our efforts to raise the inflation rate have failed," he said recently. Fischer said that Israel's inflationary environment was about to change and that he sees prices rises. Inflation was minus 1.3% over the past 12 months, but domestic prices are now rising by 3-4%. Fischer predicts further GDP growth in 2008, but says that that it will be lower than in previous years, partly because of budget and wage pressures. "We've had four excellent years, with average annual growth at over 5%. This is a tremendous achievement, taking into account last year's war." (Globes 27.06)

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1.4 Israeli Bank Fees To Be Cut to 75 from 350

Supervisor of Banks Hizkiyahu has sent the banks of Israel a draft paper with an updated list of fees, with guidelines to cut the number of fees to around 75, compared with approximately 350 currently. The draft consolidates fees and eliminates duplicated fees. The list was compiled under the new bank fees supervision bill, which empowers him to do that. The Knesset Economic Committee unanimously passed the bank fees supervision bill, which applies to all bank fees on private and business customers. The Banking Supervision Department's new price list sets minimum fee for many services, such as bank guarantees. These fees will be fixed, rather than as a percentage of the transaction, unless otherwise mandated by the central bank. The permitted bank fees are organized under 11 sections. Fees included in the current bank accounts are divided between private customers, small business, and large business. Other headings include fees for information services, credit, securities, foreign currency, and credit cards. The Bank of Israel added that it will further reduce the number of bank fees in the future and will rename fees in order to shorten and simplify the price list for the benefit of consumers. The Bank of Israel will meet representatives of the banks on July 15, following by five more meetings once a week. The banks have until July 25 to respond to the draft. Israeli banks collected more than $2.61b in fees altogether in 2006. It is still too early to estimate how the reduction in fees will affect the banks' revenue from fees, especially fees they charge households. (Globes 09.07)

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1.5 Knesset Committee Clamps Down On Porn Sites With New Bill

The Knesset Constitution and Law Committee gave initial approval on 8 July to a controversial bill that will automatically prevent internet users from accessing sites that contain violence, gambling or pornography. The bill will require users to identify themselves in order to prove they are old enough to gain access to the sites. Internet providers will be required to provide a free screening program to consumers who do not specifically state their rejection of the software. Those who wish to remove the software will be forced to provide an identity card or credit card number in order to prove their age. As a result, the internet providers may gather information about their customers' ages, genders and movements on the internet as a result of the identification requirement. There are mixed reactions to the bill, despite its initial approval. Knesset members expressed reservations about the potential invasion of privacy that will inevitably come along with implementation of such a measure. Concern over whether providers would be able to gather lists of customers who request access to pornography or gambling sites was mixed with questions about who would pay for the program. Public reactions to the proposed measure are mixed as well. Many media outlets and bloggers slammed the law as a blatant violation of individual and public freedom, wondering who would have the right to determine which sites should be restricted and which would not. (INN10.07)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 ECI Telecom Announces Agreement to Be Acquired in $1.2 Billion All-Cash Transaction

ECI Telecom has entered into a definitive merger agreement to be acquired by affiliates of the Swarth Group, an investment vehicle, and certain funds that have appointed Ashmore Investment Management Limited as their investment manager. Ashmore, a leading emerging markets investment manager, in a transaction valued at approximately $1.2b. Under the terms of the agreement, ECI shareholders will receive $10 per share in cash at closing, representing a premium of approximately 22% over ECI's average closing share price during the 30 trading days ended June 15, 2007. The Company confirmed it was in discussions with third parties regarding a possible transaction on June 17, 2007. There is no financing condition to the obligations of the buyers to consummate the transaction. The Board of Directors of ECI approved the agreement and recommended that ECI shareholders vote in favor of the transaction. The closing of the transaction is subject to shareholder approval, certain regulatory approvals and other customary closing conditions. Upon the closing of the transaction, ECI ordinary shares would no longer be traded on NASDAQ.

Petah Tikva, Israel's ECI Telecom (http://www.ecitele.com) delivers innovative communications platforms to carriers and service providers worldwide. ECI provides efficient platforms and solutions that enable customers to rapidly deploy cost-effective, revenue-generating services. The Swarth Group is a privately held investment group active mainly in debt and equity transactions globally with a focus on special situations in emerging markets. Based in London, the Ashmore Group is a specialist active value-oriented fund manager focusing on emerging markets globally. (ECI02.07)

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2.2 Yorkville Advisors Opens Israel Office

Yorkville Advisors, the investment manager to Cornell Capital Partners, a private investment firm that specializes in structured finance and direct investments, announced the launch of an Israeli operation as part of its continued global expansion. Based in Tel Aviv, Cornell Israel Limited will be staffed initially by a team of five executives under a joint venture with Amos Bentzur and Co, a leading Israeli law firm. According to the agreement, Amos Bentzur and Co. will act as the exclusive agent for sourcing deals for Cornell Capital Partners in Israel. Though Cornell will focus on Israeli companies listed on the Tel Aviv Exchange, it will continue to finance those that are listed on other leading global exchanges. While its primary focus is to target companies in Israel, the Tel Aviv office would be used as a gateway to access other key regions in the Middle East and Central Asia. Founded in 2001, Cornell Capital Partners is a private investment firm that specializes in structured finance and direct equity investments in private and public companies. Amos Bentzur & Co., located in Tel Aviv Israel is a multidisciplinary commercial law firm, serving public and private companies, private equity investors, governmental agencies, educational and research institutions, charitable organizations, and individuals. (Yorkville26.06)

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2.3 Avistar & RADVISION Announce Patent License Agreement

San Mateo, California's Avistar Communications Corp., a desktop video collaboration platform provider, and RADVISION have entered into an agreement to cross license their patent portfolios. Under the license agreement, Avistar UK, a wholly owned subsidiary of Avistar Communications Corp., has granted RADVISION a non-exclusive worldwide patent license to all of Avistar's patents for the field of videoconferencing according to Avistar's standard terms and conditions. RADVISION, in turn, has granted Avistar a license to all of RADVISION's patents in the same field. Tel Aviv, Israel's RADVISION (http://www.radvision.com) is the industry's leading provider of market-proven products and technologies for unified visual communications over IP, 3G and IMS networks. With its complete set of standards-based video networking infrastructure and developer toolkits for voice, video, data and wireless communications, RADVISION is driving the unified communications evolution by combining the power of video, voice, data and wireless – for high definition video conferencing systems, innovative converged mobile services, and highly scalable video-enabled desktop platforms on IP, 3G and emerging next-generation IMS networks. (RADVISION28.06)

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2.4 Mellanox to be Listed on TASE in Addition to NASDAQ Listing

Mellanox Technologies has obtained approval to list its ordinary shares for trading on the Tel-Aviv Stock Exchange (TASE). Trading on TASE commenced on 9 July under the symbol MLNX. Mellanox Technologies' ordinary shares will continue to be listed and traded on the NASDAQ Global Market under the ticker symbol MLNX. Mellanox Technologies will continue to be subject to all the rules and regulations of the NASDAQ Global Market and the U.S. Securities and Exchange Commission. Potential additional advantages of TASE dual listing status may include longer trading hours and lower trading costs for Israeli investors. The company's management does not anticipate any significant changes associated with this dual listing activity, since the TASE reporting requirements are nearly identical to those of the U.S. SEC. Mellanox Technologies (http://www.mellanox.com) is a leading supplier of semiconductor-based, high-performance, InfiniBand and Ethernet connectivity products that facilitate data transmission between servers, communications infrastructure equipment, and storage systems. The company's products are an integral part of a total solution focused on computing, storage and communication applications used in enterprise data centers, high-performance computing and embedded systems. Founded in 1999, Mellanox Technologies is headquartered in Santa Clara, California and Yokneam, Israel. (Mellanox 02.07)

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2.5 PDSi and Startronics Announce Strategic Partnership

Columbus, Ohio's Pinnacle Data Systems announced a partnership with Startronics, a wholly owned subsidiary of STG International, to jointly market and support PDSi products and services in Israel. Under the terms of the agreement, Startronics will represent and resell PDSi products in the Israeli market, as well as provide the first level of support for existing and new customers. Startronics is pleased to offer PDSi's products and services to the Israeli market. PDSi provides a convenient outsource for programs that global OEMs would otherwise find difficult to support. PDSi provides computer design, production, and repair services to original equipment manufacturers who build computers into their products in industries including medical equipment, telecommunications, defense and imaging. PDSi also helps major computer platform manufacturers respond to customer requirements for customized solutions and extended service life. Not simply a repair depot or a contract manufacturer, PDSi represents a more collaborative and flexible outsourcing partner who helps its clients manage costs, meet unplanned demand changes, improve customer satisfaction, and respond aggressively to new trends in the technology market place. Startronics (http://www.startronics.co.il) was founded in 1982 as a wholly owned subsidiary of STG International (http://www.stggroup.co.il), one of the most established leading engineering and sales organizations in Israel, that has been in business for the past 40 years. Startronics was founded with the aim of establishing a very technical engineering core to deal with sophisticated, engineering-intense solutions. (Startronics 27.06)

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2.6 Herley Israel Receives Additional $1 Million Award for Integrated Microwave Assemblies for Missiles

Herley Industries announced that its Israeli operation has been awarded orders exceeding $1m for engineering and production of Integrated Microwave Assemblies (IMA) for an international customer. This award is in addition to an award announced in May, bringing total contract awards for IMAs for this customer and missile program to more than $2.3m. Herley anticipates receiving follow-on contracts for roughly this same amount in fiscal year 2008. This is a long-term program, with production delivery set to begin next year and extend to 2011. Lancaster, Pennsylvania's Herley Industries is a leader in the design, development and manufacture of microwave technology solutions for the defense, aerospace and medical industries worldwide. (Herley 02.07)

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2.7 Hybrid Battery Management Company Techtium Raises $10 Million

Start-up Techtium has raised $10m in its second financing round from Pitango Venture Capital and Poalim Ventures. Techtium has raised $25m to date, including $5m from Energizer Holdings a year ago. Two and a half years ago, Energizer selected Techtium's solution as the basis for joint products. The first products from this joint venture include Energi-To-Go, an AA battery recharger for mobile telephones. Energizer acquired 10% of Techtium at a company value of $50m, after money. Founded in 1995, Tel Aviv, Israel's Techtium (http://www.techtium.com) is a privately held, fables semiconductor company that is redefining industry standards in the field of battery management solutions. Identifying one of the major obstacles in today's mobile industry, namely, the lack of confidence in the power of portable devices, Techtium set out to devise solutions that would afford mobile device users the true confidence they need in their devices. Using its extensive expertise in both power IC development and battery chemistries, Techtium has developed an innovative, patent-protected technology that provides instant backupower anytime, anywhere. Techtium's backupower IC-based technology may be used in a variety of solutions, all of which share a common result – they all bring true meaning to the phrase "portable device". With backupower, mobile device users enjoy the peace of mind they need that their devices will be powered up and ready to be used at any given moment. (Techtium04.07)

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2.8 QualiSystems Raises $10 Million

QualiSystems has raised $10m in its second financing round from private and institutional investors, including Fishman Holdings, Tao Tsuot, Altshuler Shaham Investments and Strauss Investments. The round was held at a company value of $24m, after money. The company has raised $12m in both round altogether. QualiSystems recently expanded its activity to Europe and the US. Proceeds from the current financing round will enable the company to pursue product development and expand its international marketing network. Ganey Tikva, Israel's QualiSystems (http://www.qualisystems.com) TestShell unique solutions represent a suit of integrated applications that enables our customers to test, manage and optimize quality throughout the entire product lifecycle. These solutions enables the creation of complex high quality products, shortens time-to-market and significantly reduces costs. Lead by a seasoned management team and a highly motivated technical team, and backed by world-class investors, QualiSystems is committed to bringing about the new generation of hardware testing automation. (QualiSystems04.07)

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2.9 NICE to Acquire Actimize, Convergence of Real-Time Transaction & Interaction Analytics Solutions

NICE Systems has signed a definitive agreement to acquire Actimize, the leading provider of transactional risk management software for the financial services industry. Under the terms of the agreement, NICE would acquire Actimize for a total consideration of approximately $280m. The consideration comprises of approximately 80% paid in cash and approximately 20% by allocating NICE ordinary shares. The transaction is subject to the satisfaction of customary closing conditions and is anticipated to close towards the end of Q3/07. As a leader in the financial services market, NICE solutions today capture and analyze hundreds of millions of voice, web, email and other interactions daily, at customers including the world's top banks, brokerages, and thousands of financial institutions worldwide, which seek to improve compliance, enterprise performance, and customer loyalty. Actimize solutions are analyzing today close to one billion transactions daily at the world's top banks and brokerage firms, which are seeking to improve compliance, fraud prevention, and anti-money laundering. Leveraging on these synergies, NICE and Actimize will focus initially on the financial services industry to offer the first solution in the world which provides real-time transaction and interaction analytics. Actimize will operate as a wholly owned subsidiary following completion of the transaction with its current management team remaining in place.

Mitigating transactional risk across enterprise silos, Actimize is a leading provider of software solutions for anti-money laundering, brokerage compliance, customer due diligence and fraud prevention. Actimize has offices in New York, Israel, London and Tokyo. Ra'anana, Israel NICE Systems (http://www.nice.com) is the leading provider of Insight from Interactions solutions and value-added services, powered by advanced analytics of unstructured multimedia content – from telephony, web, radio and video communications. NICE's solutions address the needs of the enterprise and security markets, enabling organizations to operate in an insightful and proactive manner, and take immediate action to improve business and operational performance and ensure safety and security. (NICE 02.07)

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2.10 Syngenta buys Zeraim Gedera for $90-100 Million

Globes reported that Swiss agrochemicals giant Syngenta International is acquiring seed development company Zeraim Gedera (http://www.zeraim.co.il) from Markstone Capital Partners Group at a valuation of between $90 - 100m. Syngenta has a market cap of $20b. Markstone bought Zeraim Gedera in 2005 for $48m and undertook to pay the company's shareholders an additional $4m, subject to its performance. The company has paid $9m in dividends over the subsequent 18 months, which means that Markstone is making a return of more than 100% on the investment. Markstone will record a profit of $50 - 55m on its investment. Zeraim Gedera was founded in the 1950s. The company has over 200 employees and operates both in Israel and internationally. Zeraim Gedera will reportedly continue as an independent company, even as it will now benefit from Syngenta's business infrastructure in sales, marketing and so forth. (Globes 08.07)

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2.11 El Al to Buy 2 Boeing 787s

El Al Israel Airlines is negotiating to buy two Boeing 787 Dreamliners, considered the most advanced passenger plane in the world. The decision comes just one day before Arkia Airlines inaugurates two 787s ordered a few months ago. It is reported that the timing of El Al's announcement is part of the competition between the airlines to fly the first Dreamliner. El Al had an option to buy 14 787s, but unexpectedly cancelled the order in late 2006, apparently with the idea of leasing the planes instead of buying them. The 787 is built of composite materials of innovative design. It has large windows, silent systems, and low fuel consumption. Each plane costs $150m and can fly non-stop from Tel Aviv to Los Angeles or Sydney. This range meets many airlines' goal of minimizing flight times. El Al will receive two Boeing 777s at the end of July. The planes cost $400m. It is not known when the airline will receive the 787s. (ELAL08.07)

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2.12 VUANCE to Acquire Security Holding Corp. for $5.1 Million

VUANCE (formerly SuperCom) has entered into a definitive agreement to acquire Security Holding Corp (SHC) from Homeland Security Capital Corporation and other minority shareholders, for approximately $5.1m in VUANCE shares. The closing of the acquisition is subject to certain conditions, including approval of the transaction by the shareholders of VUANCE and is scheduled to occur on or about 17 August 2007. The acquisition will complement VUANCE's RFID-enabled solutions and sophisticated access control products portfolio and bolster the Company's presence in a variety of strategically important markets. SHC is a manufacturer and distributor of RFID, security management and forward-thinking access control systems and equipment that can leverage VUANCE's technological commitment to the credentialing and tracking of mission-critical people, objects and assets. Kadima, Israel's VUANCE (http://www.vuance.com) provides innovative incident management, RFID and credentialing solutions to the public safety, commercial and government sectors. The Company's Incident Response Management System (IRMS) is the industry's most comprehensive mobile credentialing and access control system, as required by Homeland Security and other initiatives. With the addition of SHC its flexible multitechnology RFID devices provide a complete, cost-effective solution for the continuous tracking of assets and individuals. SuperCom, Inc. is based in McLean, Virginia. (VUANCE05.07)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 ConocoPhillips to Establish Global Water Sustainability Center in Qatar

Houston, Texas' ConocoPhillips will establish a global Water Sustainability Center that will examine ways of treating and using by-product water from oil production and refining operations, as well as other projects relating to industrial and municipal water sustainability. The center will be located in Qatar Science & Technology Park at Education City, Doha, Qatar. When companies produce oil and gas, water often is produced along with the oil – on average, worldwide, roughly three barrels of water for every barrel of oil, estimates ConocoPhillips. Impurities usually make the by-product water unusable without costly treatment. ConocoPhillips aims to develop more efficient and cost-effective treatment technologies at its Qatar Water Sustainability Center. Proposed uses for treated water could include crop irrigation, livestock watering, wildlife habitats, and industrial cooling, potentially leaving more fresh-water available for domestic use. ConocoPhillips plans to invest $25m in the center over its first 5–7 years. The center will conduct research on and develop and test technologies relating to water production and management. The center will be designated as ConocoPhillips' worldwide center for water technologies, disseminating findings to the company's global operations as well as to local government and industry partners. ConocoPhillips is a major participant in Qatar's oil and gas industry as the key foreign partner in the Qatargas 3 project, which is expected to produce 7.8 million tons of liquefied natural gas annually beginning in 2009. (ConocoPhillips09.07)

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3.2 Qatar Airways Maiden USA Flight Arrives in New York

Qatar Airways' maiden flight to North America touched down on 26 June at Newark Liberty International Airport to a 'fireman's salute' water arch ceremony and a fanfare of music and entertainment. The new service from Doha, capital of the State of Qatar, to Newark also marked another first as the flight operated via Geneva, the airline's newest European destination, taking its international network to 77 destinations. Flight QR083 arrived at Newark Liberty International Airport with a host of government, business and media VIP dignitaries from Qatar and the GCC countries onboard. Qatar Airways' award-winning Five Star service bridges the capital of Qatar and America's financial heartland four-times-a-week using the carrier's state-of-the-art Airbus A330 aircraft in a three-class configuration. The airline operates 12 seats in First Class - seats that convert into flat beds - 18 seats in Business Class, which offer generous space with 160 degree recline, and 208 seats in Economy. Starting July 19, Qatar Airways will serve a second destination in America. The airline will be the only Middle East carrier flying daily non-stop scheduled services between Doha and Washington DC. Qatar Airways currently operates a modern fleet of 58 all-Airbus aircraft to 77 destinations across Europe, Middle East, Africa, Far East, Indian subcontinent and America. Qatar Airways is one of only five airlines in the world with a Five Star ranking for service and excellence awarded by Skytrax, the independent aviation industry monitoring agency. The airline's fleet will almost double in size to 110 aircraft by 2015. Qatar Airways is to acquire 80 Airbus A350s and 22 Boeing 777s, with deliveries of the latter beginning in November 2007. (Qatar Airways 26.06)

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3.3 Istithmar Agrees To Acquire Barneys New York For $ 825 Million

Istithmar, a leading private equity and alternative investment house headquartered in Dubai, announced the signing of definitive agreements to acquire Barneys New York, the luxury specialty retailer, from Jones Apparel Group for $825m. The transaction is subject to customary closing conditions and approvals. Barneys New York, currently a wholly owned subsidiary of Jones Apparel Group, is a luxury retailer with flagship stores in New York City, Beverly Hills, Chicago, Boston and Dallas. Peter J. Solomon Company and Citi acted as M&A advisors to Istithmar and Cleary Gottlieb Steen & Hamilton LLP acted as legal advisor to Istithmar. Citi is providing committed financing for the acquisition and are taking an equity position. (Al Bawaba 24.06)

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3.4 Emirates Group Selects Plateau Systems for Enterprise-Wide Learning Management

Arlington, Virginia's Plateau Systems, a leading provider of talent management software, content and services, announced that the Emirates Group, which operates one of the fastest growing airlines in the world, has selected Plateau's proven, highly-scalable Learning Management Systems (LMS) to support learning and development for its global workforce. Following a thorough evaluation, Plateau was selected as the critical enterprise-wide infrastructure for delivering and managing online learning to support the training and development of Emirates' employees, partners and customers, worldwide. Plateau will also be used to track and improve Emirates' training effectiveness and performance. (Plateau 02.07)

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3.5 Janson Beckett Cosmeceuticals Expands International Presence Signing Distributor in Egypt

Cherry Hill, N.J.'s Janson Beckett Cosmeceuticals, a leading developer of age-defying, peptide-based skin care products, announced that it has reached exclusive distribution agreements with Aspect Arabia (Egypt). Aspect Arabia operates in the medical sector, where topical BOTOX alternatives like Janson Beckett's AlphaDerma CE are strong complements to popular restorative skin care services like photo-rejuvenation and micro-dermabrasion. Launched in 2004, Janson Beckett Cosmeceuticals enjoys market presence in 20 international countries and has built a strong domestic base of storefront, catalog and internet retailers that compete in diverse market segments. The company is known for its comprehensive range of high-performance skin care treatments that excel at repairing aging and damaged skin and restoring skin to a healthier, more radiant appearance. Janson Beckett Cosmeceuticals is a privately owned company that develops and manufactures advanced peptide skin care products for age- and image-conscious consumers. Aspect Arabia is a medical instruments and supplies company that has operated successfully in Cairo, Egypt since 2002. (Janson Beckett 02.07)

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3.6 GE Energy's 2.5xl Wind Turbine Technology Selected for Largest Wind Project in Turkey

A new, 130-megawatt wind power project in southeastern Turkey will be the world's largest installation of GE Energy's latest 2.5xl wind turbine technology and will more than double the country's installed wind capacity. GE will provide 52 of the 2.5xl machines to Zorlu Enerji Elektrik for the wind park in Bahce, about 40 kilometers from Osmaniye province. This will be the largest wind power project to date in Turkey. The project's estimated annual electricity production of 500 million kilowatt-hours will be purchased by independent power consumers. Interest in wind-generated electricity has been increasing in Turkey. According to the European Wind Energy Association, the country had 84 megawatts of installed wind capacity at the beginning of 2007, an increase of 65 megawatts from the start of 2006. The 2.5xl wind turbines will be manufactured at GE Energy's facilities in Salzbergen, Germany and Noblejas, Spain and shipped to the project site for installation beginning in March of 2008. The owner/operator of the new wind park, Zorlu Enerji Elektrik, is owned by Zorlu Group and is the newest and fastest growing member of the group. The Zorlu Group is one of the largest corporate groups in Turkey, and its companies are active worldwide principally in the areas of textiles, electronics manufacturing, energy and real estate. GE Energy is one of the world's leading suppliers of power generation and energy delivery technologies, with 2006 revenue of $19b. Based in Atlanta, Georgia, GE Energy works in all areas of the energy industry including coal, oil, natural gas and nuclear energy; renewable resources such as water, wind, solar and biogas; and other alternative fuels. (GE Energy 03.07)

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3.7 People's Liberation Signs New Distribution Agreement For William Rast in Greece & Cyprus

Los Angeles-based People's Liberation, the designer of high-end casual apparel under the brand names People's Liberation and William Rast, has signed an exclusive distribution agreement with LAKIS GAVALAS for the distribution of all William Rast branded apparel in Greece and Cyprus. LAKIS GAVALAS.SA is an exclusive importer and distributor of brand name clothing, accessories, leather goods, shoes, lingerie, fragrances, jewelry, home furnishings and lighting. Included in their impressive list of brands are, Burberry London, Dolce & Gabbana, Dsquared2, Jean Paul Gaultier and Seven for all Mankind. LAKIS GAVALAS.SA boasts a well-staffed marketing and public relations/advertising department, which contributes to their high impact mass media reach, particularly in fashion media. (People's Liberation28.06)

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4: ISRAEL MACRO-DEVELOPMENTS

4.1 Bank of Israel Sees 4.1% Growth In 2008

On 27 June, the Bank of Israel published its forecast for Israel's economic growth in 2008, in which it said economic growth would reach just 4.1%, while business sector product would rise by 5%. This was amore guarded assessment than that issued by the Ministry of Finance, which predicted that growth will reach 4.3%. The Bank of Israel believes that economic growth will slow next year, compared with the rates of more than 5% in the last four years. Economic growth is likely to reach 5.1% in 2007, after reaching 5.1% in 2006 and 5.3% in 2005. The bank also expects unemployment to fall by 0.1% to 7.4%. Unemployment has now fallen by 3.2% since 2003. The Bank bases its forecast on some major factors, including the weakness in cyclical growth factors and the strengthening of supply-side constraints, expressed in a simultaneous rise in wages and labor productivity, in a slowdown in the rate of increase in the number of people employed and in a small reduction in the current account surplus in the balance of payments. The Bank of Israel also stressed that the general government deficit is expected to fall slightly relative to 2007, reaching 1.8% of GDP. The public debt to GDP ratio will fall to 83.2%, a fall of 1.6 points on the previous year, assuming no further privatizations in 2008. The Bank of Israel's macro forecast is based on a number of core assumptions, whose development depends on external forces and the government's fiscal policy. The bank places special emphasis on the worsening of global trade conditions, growth in developing countries and the continuation of the current security situation. (BoI27.06)

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4.2 BioJerusalem Launches Activities

BioJerusalem, an initiative of the Jerusalem Development Authority (JDA), launched its activities. JDA has allocated $2m that will be directly invested in developing the life science industry in Jerusalem through BioJerusalem. This amount will be supplemented by additional funds that will serve to advance the biomedical industry in the city and create new job opportunities. These funds stem from the Jerusalem Economic Development Program approved by the Israeli government in 2005, which originally allocated $67m, to be distributed over seven years, for the economic development of the city. BioJerusalem is launching its website (http://www.biojerusalem.org.il) containing the most updated information on Jerusalem's life and biomedical science sectors, including a unique and comprehensive resource database. In addition, BioJerusalem is engaged in a variety of activities intended to leverage the biomedical knowledge and capabilities that exist in Jerusalem for the benefit of the industry. Attracting existing biotechnology and medical device companies to the city, encouraging the inception of new companies, strengthening start-ups and assisting in creating the essential infrastructure to advance the city's biomedical industry are key components in BioJerusalem's strategy.

Jerusalem is home to world class and prestigious academic, research and medical institutions, including the Hebrew University of Jerusalem, Hadassah University Hospitals and Shaare Zedek Medical Center. Jerusalem also has the highest number of life sciences Ph.D. students in Israel and over 2000 leading research scientists and physicians. Currently, there are nearly 90 life science companies in Jerusalem, ranging from entrepreneurial start ups to more established biotechnology and medical device companies, as well as global pharmaceutical and medical device enterprises. More than 2,300 people are employed by Jerusalem's life sciences companies located in several technology parks throughout the city. In addition, a unique biomedical park is being built in adjacent to Hadassah medical school and Hospital that will host biomedical start ups. (BioJerusalem26.06)

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Iraqis To Inject $400 Million Of Investments In Aqaba

Several memoranda of understanding signed on 3 July between the Aqaba Development Corporation (ADC) and Iraqi businessmen will add around $500m to the investments in the port city. The ADC and the Iraqi Business Council (IBC) established a $141m holding company to invest in Aqaba. The memoranda focused on industrial and logistic support as the ADC works on attracting more investments in such areas. The memoranda covers different facilities to produce parts for aircrafts and training service on helicopters as well as the cement industry. During a three-day forum, tens of Iraqi investors representing the IBC and ADC officials explored available investments opportunities in Aqaba. Iraqi investors also aired the difficulties they face in Jordan and complained about the residency procedures and regulations in the country. They want to obtain a three-year residency permit for the first time, while the current regulations entitle them to have a one year residency permit and another three years upon renewal. The current residency regulations in the Kingdom and difficulties with regard to foreign labor are the major issues that would reflect on Iraqi investments in the country. Aqaba provides a solution to this problem as besides other forms of facilities, the regulations of the Aqaba Special Economic Zone allow investors to bring 70-80% of their total employees from abroad. (Petra04.07)

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5.2 Iraqi Oil Production Costs Some $75 Billion

The estimated cost of boosting Iraq's oil output to six million barrels per day has soared to as high as $75b, a government adviser said. Iraq's shattered oil industry is currently producing around two million bpd. Officials had said around $25b would be needed to triple that figure. Constant sabotage attacks on the country's pipelines have left crude oil production stuck at around 2 million bpd since the 2003 liberation of Iraq. If the violence on oil facilities subsided, Iraqi production could increase to 2.8 million bpd by the end of the year. Other related questions revolve around the Iraqi parliament's discussion of a draft hydrocarbon law over the next few months. The legislation has been approved by cabinet but has been held up by disputes over annexes that detail who will control the oilfields and how contracts with foreign companies will be negotiated. Kurdish officials say the annexes are unconstitutional because they wrest oilfields from regional governments and place them under a new state oil company. Most oil reserves in Iraq are in the Kurdish north and Shi'ite south. Parliament voted lately to cut its summer holiday by a month to give lawmakers more time to pass a package of laws, including the hydrocarbon legislation. (Reuters27.06)

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5.3 Kuwait Pharmaceuticals & Healthcare Industry Efficient Though Underdeveloped

Kuwait's healthcare system is both efficient and effective, though the country's pharmaceutical industry is in its nascent stage. In 2005, the drug market was worth $360m, with this forecast to rise to around $525m by 2010. Over-the-counter (OTC) and generic drugs represent a minor proportion of the total drug market (at 10% and 15% respectively), due to the strong preference for brands. The forecast period is likely to witness little relative change in the pharmaceutical market, but the absolute values will continue to rise at a steady pace. However, as healthcare is provided free to all Kuwaiti citizens, the pressure on public finances will eventually result in a shifting of some financial responsibility away from the state, although this is a longer-term possibility. In the meantime, reimbursed drugs will remain available through the ‘Circular 365' list, which covers around 70 active ingredients, with the government increasingly looking to use generics in order to cut costs. Expatriates pay mandatory health insurance premiums, and can only access a limited list of reimbursed medicines. Although Kuwait's population renders the overall market size small, the advanced nature of its economy will provide some of the drivers. Additionally, Kuwait's limited domestic manufacturing industry and lack of technological capabilities does provide an opportunity for foreign drug makers, although the outlook is tempered somewhat by the poor intellectual property regime in the country. The weak domestic drug manufacturing sector means that foreign imports dominate, although future regional harmonization with other Gulf Cooperation Council (GCC) states may help to mitigate this dependency, as well as unify prices. In the meantime, drug prices in Kuwait will remain among the highest in the Gulf region, which is causing a growing number of people to purchase healthcare outside the country. However, regional harmonization is likely to introduce lower prices in the longer term. Meanwhile, the government is planning to invest record oil windfalls in its health sector, a common policy in the Gulf as countries seek to make the most of the current favorable economic climate. (Research & Markets27.06)

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5.4 Bahrain's Pharmaceuticals & Healthcare Industry Will See Strong Growth

Bahrain's drug market is relatively small by regional standards, worth only $49.2m in 2005, although growth is expected to be strong in the coming years, with the market size expected to almost double by 2010. Branded medicines will continue to account for the bulk of the pharmaceutical market, although they will slowly lose share to generics, from the present 96%. Over-the-counter (OTC) medicines generate a fraction of the total market value, at 5% in 2005, with the percentage forecast to remain static throughout the forecast period. Overall, however, solid economic growth and a rapidly expanding population are two macro factors that are helping to pull the market upwards. The healthcare system is undergoing rapid modernization, with the government focusing on improving primary care. It has announced a scheme that will see all expatriate workers covered by private health insurance by 2013. This will reduce public health expenditure and is part of a government strategy to offload more of the burden of health spending to the private sector. The emergence of chronic diseases will accelerate this process but also encourage the use of more expensive and novel medicines. The adjusted Business Environment Rankings for the Middle East reveal that Bahrain is in 2nd place behind only the UAE. This is primarily due to forecasts of high market growth, coupled with the country's world class intellectual property (IP) regime. Bahrain's limited domestic manufacturing industry and lack of technological capabilities have also made the country an excellent investment opportunity for foreign drug makers, although the outlook is tempered somewhat by the small overall market size. Bahrain's recent free trade agreement (FTA) with the US should also have a beneficial impact on multinational presence in the country, which exclusively comprises imports. As well as making US produced drugs more available, the FTA has significantly tightened Bahrain's intellectual property laws, which will in turn encourage foreign investment in the market. The domestic manufacturing sector is small, comprising just four companies producing basic drugs. However, Bahrain Industrial Pharmaceutical (Bidapharm), currently a pharmaceuticals importer, is in the process of building a manufacturing plant, which will make it the country's fifth producer. (Research and Markets27.06)

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5.5 UAE & US Work On Free Trade Pact

UAE Minister of Economy Lubna and Minister of State for Finance & Industry Bin Kharbash recently held talks with US officials in Washington to move towards a closer trade and investment relationship within the Trade and Investment Framework Agreement Plus (TIFA Plus). The UAE and US are keen to boost trade and investment links despite the failure to conclude a free trade agreement (FTA) before the Bush administration's special powers to approve such pacts expired on June 30. TIFA Plus is a step towards a full trade agreement while outstanding issues are resolved. The two governments began FTA negotiations in March 2005 but progress has been slow due to differences over labor and investment issues. One of the contentious issues is foreign investment in the telecommunications sector. The UAE does not appear ready to allow foreign investment in the telecom sector before 2010 as it wants local operators to grow before they face competition. (GN04.07)

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5.6 UK Achieves $6 Billion Trade Surplus With GCC Last Year

The UK achieved a healthy $6.18b trade surplus with the GCC in 2006, according to information supplied by the Dubai Chamber of Commerce and Industry (DCCI). UK imports from the GCC reached $6.62b compared to exports to the region valued at $12.85b. As expected, around 50% of UK's imports from GCC during the year consisted of petroleum oil and related products. In comparison 54% of its exports were machinery, mechanical and electrical appliances and electronics. However, the value of total UK trade with GCC accounted for only 1.8% of its full global trade. Although the GCC is a major world supplier of petroleum oils and related products, UK's imports of these products from GCC countries represented barely 6% of UK's world imports in this trade category. In terms of UK trade with individual GCC nations, the bulk of its surplus resulted from trade with the UAE. UK imports from the UAE totaled $1.987b, while total exports was valued at $7.21b, resulting a UK-favorable trade surplus of about $5b. UK imports from Saudi Arabia, valued at $2.2b, slightly exceeded imports from UAE, but exports to the kingdom were less than half the value of UK's exports to UAE. (GN03.07)

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5.7 Emirates Will Start Pumping Gas From Qatar Despite Saudi Objections

The Emirati firm Dolphin Energy plans to borrow $3b to refinance the Middle East's largest cross-border gas pipeline project. The Emirates government, which owns half of Dolphin Energy, expects to begin pumping gas it produces with partners Total S.A. and Occidental Petroleum Corporation off Qatar's shore in July. Demand for gas is rising in the Emirates and in other Gulf countries due to increased power generation and desalination requirements. Increased usage in industries such as petrochemicals are leaving the natural resource in scarce supply. By 2008, Dolphin's 226-mile pipeline will start pumping the full 2 million cubic feet (57,000 cubic meters) a day, an equivalent to about 330,000 barrels of oil a day. The gas will be processed at Ras Laffan, Dolphin's the world's biggest gas treatment plant. But the Dolphin venture, which will tap the world's single-largest gas field in Qatar's Gulf waters, faces objections from Saudi Arabia last year because of a quarter of a century old territorial dispute Riyadh has with Qatar. A document the Saudi government sent to The National Bank of Abu Dhabi, the initial sponsor of the gas pipeline project, warned that the kingdom had not approved a section of the pipeline that it claims passes through its territorial waters. An official from one of the lenders originally involved in the $3.5b financing for the project said Saudi Arabia's objections haven't been of much concern since the project owners had guaranteed the financing. EFG-Hermes, a Middle East investment bank, predicts that due to raising energy needs, gas consumption in the Gulf states could more than double to 17 trillion cubic feet (481 billion cubic meters) by 2025 from 8 trillion cubic feet (227 billion cubic meters) in 2002. (TradeArabia27.06)

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5.8 Dubai Most Congested City In The Middle East

Dubai is officially the most congested city in the Middle East, according to the latest survey by GulfTalent.com, the region's leading online recruitment portal. The survey, which was conducted last month and released on 5 July just before the launch of Dubai's new road toll system (Salik), found that professionals working in Dubai spend on average 1 hour and 45 minutes each day in total commuting time to and from their place of work, the highest figure in the region. The journey times are particularly long for those commuting to Dubai from neighboring Sharjah, home to many expatriates working in Dubai. Although just 15 km away and connected to Dubai via two express highways, Sharjah residents working in Dubai reported spending on average 2 hours and 44 minutes for the daily return journey to and from work, much of it in slow-moving bumper-to-bumper traffic. Many reported high levels of stress and fatigue as a result. According to GulfTalent.com, many employers in the emirate are becoming increasingly concerned at the impact of traffic-related stress and exhaustion on the productivity of their staff. Cairo came second in the traffic rankings, with total daily commute time at 1 hour and 33 minutes on average. Jeddah, by contrast, saw the lowest reported commute time, with employees spending on average just 46 minutes each day commuting. The average commute time per day to and from work in Doha was 56 minutes, 53 minutes in Amman and 48 minutes in Muscat.

Based on GulfTalent.com's survey findings, Dubai also tops the list as the city with the most acute shortage of parking space, with nearly half the respondents reporting difficulties in finding parking space near their place of work. Many reported having to leave home much earlier than necessary, to avoid the morning rush and to secure a parking space close to their place of work. Dammam in Saudi Arabia was the easiest city for finding parking space, with only 21% reporting shortages. The rate was 40% in Abu Dhabi, 39% in Cairo, 28% in Amman and 26% in Kuwait.

According to some traffic experts, Dubai is suffering from an originally flawed road system, with in-built bottlenecks on certain key routes such as the Dubai-Sharjah road. Over time, however, the new infrastructure including transit trains, the new bridges and complex of flyovers is expected to ease congestion to some extent. A core underlying problem remains that, across much of the region, the development of support infrastructure is lagging behind more prestigious mega-projects such as airports, business parks, and high-rise towers – leading to continuous bottlenecks and disruptions in traffic. GulfTalent.com's study was based on a survey of 5,000 professionals in fourteen major cities in the Middle East. The survey was conducted during May 2007 as part of an exercise to understand the key issues affecting employees at work. (Mena Report 05.07)

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5.9 No Place For Hooters In Dubai

Dubai has put the kibosh on a reported plan by an American restaurant famous for dressing its waitresses in revealing clothes to open in the city. Hooters wanted to launch outlets in Dubai. A Kuwaiti investor, who has the franchise rights to Hooters, said in recent reports he was trying to secure a location to open a restaurant this year. However, Ali Ebrahim, deputy director-general for executive affairs at the Department of Economic Development (DED), said Hooters has not been registered with the department. The local laws will not allow restaurants that are in violation of "religion, traditions and culture," he said. He said the DED is closely following the US firm's plans to open an outlet in Dubai. (GN26.06)

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5.10 Dubai Airport Ranks 10th In International Traffic

Dubai International Airport reported an 18% rise in passengers in the first half of 2007, propelling it to become the world's tenth biggest airport by international traffic. The latest figures by Airports Council International reveal Dubai occupies the number 10 spot for the last 12 months ending in March, behind Bangkok and just ahead of Seoul, South Korea. In its half-yearly report, Dubai airport revealed strong growth, handling 16.2 million passengers in the first half of 2007, up from 13.2 million during the year-earlier period. Cargo also saw double-digit growth, carrying 11% more freight. Reflecting a regional boom in air traffic - the International Air Transport Association said Middle East airlines grew 18.2% from January through May - the Dubai figures reflect seven years of strong growth for the airport and its biggest airline, Emirates. The airport said aircraft movements grew by 9.5%, handling a total of 127,500 flights during the six months ending June 2007, compared with 116,500 from January to June 2006. January, the busiest month, alone handled nearly 22,000 flights, a jump of 11%. In the second half of the year, airport movements should rise with the second runway being put into service. (ACI03.07)

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5.11 Oman Healthcare System One of Region's Most Efficient

Oman has one of the most efficient healthcare systems in the Middle East & North Africa (MENA) region. This rapid growth (of around 10% per year) of its pharmaceutical market is being driven predominately by a rapid increase in population and the growing contribution of the private sector, stimulated by the exclusion of expatriate workers from public healthcare schemes and the increased demand for medical tourism. Prescription and branded drugs continue to dominate the market, standing at more than 90% and 95% of the total value, respectively. The recent Oman-US Free Trade Agreement (FTA) has also resulted in a marked improvement in Oman's intellectual property (IP) rights legislation, including the implementation of a data exclusivity regime and tougher penalties for counterfeiters. This will serve to further boost import opportunities, especially for treatments of chronic diseases. However, the drug regulatory system in Oman is still considered to be below international standards, with multinational drug makers claiming that it is opaque and somewhat arbitrary and that it unfairly provides high levels of protection to local manufacturers. Plans to harmonize the drug regulation process in the GCC could help standardize procedures in the country. Oman's limited domestic manufacturing industry and lack of technological capabilities have also made the country an excellent investment opportunity for foreign drug makers, although the outlook is tempered somewhat by the small overall market size. Development in the country's healthcare sector could increasingly focus on the provision of outsourced pharmaceutical production as the GCC begins to challenge markets such as India and China in this field. Gulf drug makers have the advantage of being able to offer low-cost drugs, which have been manufactured to a high standard. Local player Oman Pharmaceutical Products Company (OPPC) is attempting to exploit this avenue through offering contract manufacturing to multinationals. (Research & Markets27.06)

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5.12 Saudi Arabia's Pharmaceuticals Market Largest in the Arabian Gulf Region

The Saudi Arabian pharmaceutical market is the largest in the Arabian Gulf region and was worth an estimated $1.14b in 2005. However, it is cautioned that growth will be sluggish despite favorable economic conditions in the country. This is primarily due to tight price controls. Products can be sold in the country only after the Ministry of Health (MoH) has approved their prices. US drug industry association PhRMA says that these controls act as a considerable barrier to investment. The body also alleges that the MoH discriminates in favor of local drug firms, which have their prices reviewed every five years, compared to four years for foreign companies. Imports dominate the market, accounting for around 90% of drug consumption, because of the traditional wealth of the country. However, the government is looking to curb health spending, recently introducing mandatory insurance for expatriates, and is encouraging generic substitution. This should provide a boost to domestic manufacturers, with Saudi Pharmaceutical Industries & Medical Appliances Corporation (SPIMACO) the most likely beneficiary. SPIMACO is the leading domestic drug maker and has recently recorded strong results. In Q3/06, company profits grew 15.1%, on the back of rising sales. Projects include investing in a number of production areas and developing commercial trademarks. This strategy could be aided by plans to establish a regional trademark office for the GCC. Such a development would be a positive step for the trade bloc and represent a milestone for the protection of intellectual property rights in the region. It is hoped that a regional patent office will also soon be established. (Research & Markets28.06)

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5.13 Lebanon's Pharmaceuticals & Healthcare Industry Shows Solid Growth

The Lebanese pharmaceutical market has shown solid growth in recent years, with annual expansion of 6- 7%, although this positive trend has been interrupted by the recent conflict. Particularly damaging has been the Hezbollah war, considering that Lebanon is reliant on imports for around 95% of pharmaceutical consumption. Prescription drugs dominate the market, with OTC drugs accounting for approximately 10% of the market. Generic drugs take only a small market share due to a lack of awareness of their merits among both consumers and health professionals. It is forecast that the Lebanese drug market will be worth $612.5m at retail prices by 2010. Per capita drug expenditure is expected to reach $154.4 in 2010. Drug prices in the country remain relatively high by regional standards. However, the government is said to be considering implementing a new pricing system, which would be based on the reference prices of drugs in similar markets around the world. This is unlikely to encourage multinational sector investment, but will enhance public access to medicines. Only about 62% of Lebanese have health insurance – either public or private – to help cover their drug costs. The adjusted Business Environment Rankings for the Middle East reveal that Lebanon is in the joint 10th place with Egypt, ahead only of Iran, Nigeria and Zimbabwe. This is primarily due to a number of regulatory barriers such as lax intellectual property (IP) standards. Lebanon's uncertain long-term political and economic climate also has a negative impact on the country's business environment rankings. In the future, Lebanon will have to tighten its IP regime if it wishes to attract greater foreign direct investment (FDI), and help its local industry to develop. Currently, the IP regime falls short of international standards, particularly in areas such as data exclusivity and pipeline protection. Counterfeiting is also rife, severely impacting sales for multinational companies. As a result, these are more likely to raise prices, in order to recoup losses, or economize in other areas such as R&D. (Research & Markets28.06)

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6: TURKISH & CYPRIOT DEVELOPMENTS:

6.1 Turkish GNP Growth Exceeds Forecasts

On 2 July it was announced that Turkey's first quarter GNP beat forecasts with a 6.7% annual rise, as state spending ahead of a general election was higher than expected and far outpaced still weak consumer spending. Economists said that while private spending data showed last year's 4.25% interest rate hike was working, high state spending provided the central bank with another reason to stay hawkish. The figures also provide good news for the ruling AKP (Justice and Development Party) as it faces a general election on July 22. The Turkish Statistics Institute said first quarter gross domestic product rose an annual 6.8%, beating a poll forecast of 5.75%. GNP had been seen up 5.10%. External demand was a major factor as exports of goods and services rose 14.0%. But economists said the main surprise came from the public sector as state consumption spending rose 9.0%. The central bank has warned about loosening fiscal policy ahead of elections and urged discipline to help fight inflation. The AKP has presided over strong growth since coming to power after a 2001 financial crisis and polls show it winning a second term, helped by its good economic record. These figures show growth was also stronger than it was in Q1/06 - when GNP grew 6.4% and GDP 6.7% - before the central bank starting hiking rates to rein in a lira slide and rising inflation. But the effect of tightening was seen on consumer spending, which rose just 1.6%. This is good news for the disinflation process. Turkey targets growth of 5% this year, after GNP growth of 6.0% last year and economists said the above-trend growth in the first quarter would not last. GNP rose a sharp 9.3% in the second quarter of last year, and a new government and a return to fiscal discipline are expected to trim growth further out. (Various03.07)

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6.2 Portugal Rejects Major EU Debate on Turkey This Year

Portugal, which assumed the European Union presidency, rejected on 28 June a request by France to hold a major debate this year on EU borders and Turkey's future membership. Portugal aimed to get Turkey's membership negotiations back on track and pursue a further expansion of negotiations, despite strong objections from French President Sarkozy. France moved earlier to limit entry talks with Turkey in two minor policy areas, a move which did little to heal already tense EU-Turkey relations. The two sides agreed to open talks on statistics and financial control, but France prevented the expansion of the negotiations to the more important economic and monetary policy. Portugal, which took over as EU president from Germany, will be at pains to keep Sarkozy at bay however. Paris has vowed to bring up its opposition to continuing negotiations with Ankara at future EU summits and other meetings. Sarkozy is also demanding the EU draw up its final borders, after which no further expansion of the 27-nation bloc should take place, a debate which in the past has deeply divided EU nations. Lobo Antunes reiterated that Portugal remains a strong backer of Ankara's EU bid, adding that the EU now had to complete its own reforms, finalizing a deal reached by EU leaders last weekend on a new treaty to streamline the way it reaches decisions. French President Sarkozy believes that Turkey does not have a place in the EU and has called for wide debate on future enlargement in December, just before Portugal ends its six-month presidency starting 1 July. Portugal is organizing an intergovernmental conference, from 23 July, to draw up the EU's new "reform treaty", which was agreed after a marathon summit last week and will replace the old constitution. In April, the EU and Turkey began talks on "enterprise and industry policy," only the second chapter Ankara had managed to open since "science and research" in June 2006. (TNA28.06)

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6.3 Bidders Compete For Petkim

Indian Oil Corporation (IOC) has entered the last lap for acquiring a controlling stake in the Turkish government-owned petrochemical firm Petkim, valued at over $1b. IOC, which has tied up with Calik Enerji of Turkey for the bid, has already been given a license to set up a $6b greenfield refinery at Ceyhan in the Turkish province of Adana on the Mediterranean Sea. The greenfield investment is not connected to the privatization. The IOC-Calik Enerji combine is one of the eight shortlisted bidders. The Turkish government is in the process of privatizing some key sectors like telecommunication, electricity, refining and petrochemicals. The IOC-Calik combine is favorably positioned to clinch the deal given their aggressive investment plans in the region, analysts said. The duo had joined hands while bidding for the Tupras refinery, which they lost out in the final round. IOC is also picking up a 12.5% stake in Samsun-Ceyhan pipeline. Other shortlisted bidders in the race include Socar & Turcas Enerji AS-Injaz, Carmel-Limak, TransCentral Asia Petrochemical Holding, Zorlu Holding, Hokan Chemicals, Naksan-Torunlar-Toray-Kiler and Firat Plastik, Kaucuk Sanayi ve Ticaret.

Earlier in 2003, an attempt was made to sell Petkim. Five bids were received, out of which three had been shortlisted. Following an auction in June 2003, Standart Kimya Pet Dog San ve Tic AS had won the bid for the block sale of about 88% of Petkim shares. However, due to failure of Standart Kimya to meet its obligation in time, the deal was cancelled and its $10m deposit was forfeited. Another attempt was made to sell 88% of the company's share without any success after which 34.5% share of Petkim was sold through secondary public offering in 2005. (TDN04.07)

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6.4 More Than 12 Million Motor Vehicles In Turkey

Total number of motor vehicles in Turkey has reached 12.4 million as of end-April. According to data announced by the Turkish Board of Statistics (TUIK), automobiles amounted to 6.2 million, minibuses to 362.3 thousand, buses to 179.1 thousand, vans to 1.7 million, trucks to 714.9 thousand, motorcycles to 1.8 million and tractors to 1.3 million. Meanwhile, 62.6 thousand motor vehicles were registered to the traffic in April. Automobiles stood at the top with 25.1 thousand among all motor vehicles registered in April. (TNA28.06)

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6.5 Cyprus to Maintain Robust Growth In 2007-2008

PricewaterhouseCoopers' latest economic analysis points to continued strength in the Cypriot economy during 2007 and 2008. The economy is expected to grow by 3.9% in 2007 and 3.8% in 2008, easily outperforming the Euroland average economic growth rates in both years. Once again, the contribution of the domestic economy is expected to outweigh that of the export sector in both 2007 and 2008. The PwC report argues that domestic demand is likely to continue to be the main driver of overall growth despite investment growth moderating somewhat in 2007. Consumer spending in particular is likely to perform well over the next two years owing to relatively low interest rates and favorable labor market conditions.

On the external sector, the report finds that Cyprus' exports performance is likely to improve slightly in 2007, despite a slightly slowing pace of growth in Cyprus' main export markets, namely the UK and Euroland. The report suggests the Euroland economy achieved a healthy pace of growth in 2006, growing by its fastest pace since 2001. However, some moderation is anticipated in 2007 owing to the lagged effects of past European Central Bank interest rate rises, a further possible appreciation of the euro and tighter fiscal policy in a number of member states. The pace of economic growth in the Euroland is expected to average a reasonable 2.5% in 2007 before slowing to 2.2% in 2008.

Euroland inflation is expected to average 1.9% in 2007 and the ECB is likely to raise interest rates by a further 25-50 basis points before the end of the year, in order to contain price pressures and anchor inflation expectations. PricewaterhouseCoopers said that the economic outlook for the Cypriot economy remains positive and the goal of adopting the euro in 2008 is looking increasingly attainable. However, inflation deserves vigilance over the rest of the year, given the upside risks from robust domestic demand, excess credit and the possibility of further oil price rises. (PricewaterhouseCoopers 27.06)

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6.6 Cyprus Inflation Eases In June

Consumer prices rose by 1.9% in June compared with the same month of 2006, down from 2.2% in May. The consumer price index decreased by 0.22 or 0.21% over the previous month to 104.78, compared with 105.00 in May 2007. The Statistical Service reported that this was mainly owing to decreases in the prices of certain fresh fruit and vegetables and potatoes. Increases were recorded in the prices of petroleum products and electricity. For the period January-June 2007 the CPI recorded an increase of 1.7% over the corresponding period of 2006. (FN03.07)

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Tisha B'Av to Be Observed

This coming 24/25 July, Tisha B'Av, the Fast of the Ninth of Av, will be observed in Israel and around the world. It is a day of mourning to commemorate the many tragedies that have befallen the Jewish people, many of which coincidentally have occurred on the ninth of Av. Tisha B'Av means "the ninth (day) of Av." Tisha B'Av primarily commemorates the destruction of the first and second Temples, both of which were destroyed on the ninth of Av (the first by the Babylonians in 586 B.C.E.; the second by the Romans in 70 C.E.). Although this holiday is primarily meant to commemorate the destruction of the Temple, it is appropriate to consider on this day the many other tragedies of the Jewish people, many of which occurred on this day, most notably the expulsion of the Jews from Spain in 1492.

Tisha B'Av is the culmination of a three week period of increasing mourning, beginning with the fast of the 17th of Tammuz, which commemorates the first breach in the walls of Jerusalem, before the First Temple was destroyed. During this three week period, weddings and other parties are not permitted, and people refrain from cutting their hair. From the first to the ninth of Av, it is customary to refrain from eating meat or drinking wine (except on the Sabbath) and from wearing new clothing.

The restrictions on Tisha B'Av are similar to those on Yom Kippur: to refrain from eating and drinking (even water), washing, bathing, shaving or wearing cosmetics, wearing leather shoes and engaging in sexual relations. There is also a prohibition to refrain from studying Torah, save for those sections relating to Jerusalem's destruction. Work in the ordinary sense of the word is also restricted. People who are ill need not fast on this day. Many of the traditional mourning practices are observed: people refrain from smiles, laughter and idle conversation, and sit on low stools. In synagogue, the book of Lamentations is read and mourning prayers are recited. The ark (cabinet where the Torah is kept) is draped in black.

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7.2 Two-Shekel Coin To Arrive In Fourth Quarter of 2007

Israel will begin issuing a two shekel coin during the fourth quarter of 2007. On 6 July, the first, small, shipment of the coin arrived at the Bank of Israel for technical inspections. Technical inspections include weight and diameter. The Bank of Israel also provides the coin for inspection companies that operate vending machines. Before deciding to mint the new coin, the Bank of Israel conducted surveys among the public and sectors that commonly use cash, such as taxi companies and banks. It found widespread support for the two-shekel coin. The process of issuing the new coin actually began in 2004. Israel has no mint of its own. Bills are flown in by air and coins are shipped in containers by sea.

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7.3 Neil Armstrong Visits Israel

The Jerusalem Post reported that the first man to step on the moon, former NASA astronaut Neil Armstrong, landed in Israel in early July and met with children at the National Science Museum in Haifa. Armstrong, who will be 77 in August, was mission commander of Apollo 11. He is making his first trip to Israel as a guest of Yashir Investment House, "for a visit to promote the values of pioneering, innovation and excellence," according to the company. Armstrong, who was a US Navy test pilot before he became an astronaut, made only one other spaceflight - on Gemini 8 - in 1966, for which he was the command pilot. On that mission, he performed the first manned docking of two spacecraft, together with pilot David Scott. More recently, he was a professor and head of the space faculty at the University of Cincinnati. (JP05.07)

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*REGIONAL:

7.4 Jordan Hopes Petra Win Will Double Tourists

Jordan expects the choice of its centuries-old Petra ruins among the seven "new" world wonders to double the number of tourists to the site and boost its economy. The ruins of Petra, a UNESCO World Heritage Site, are located 200 kilometers south of the Jordanian capital Amman. Petra was selected along with six other sites by around 100 million people in a worldwide internet and telephone vote, the results of which were announced in a televised ceremony in Portugal on 8 July. Following the announcement, thousands of Jordanians cheered, waved flags, set fireworks and broke into traditional dance in Amman and Petra. Petra comprises stunning temples and tombs carved in rock. It was the capital of Arab Nabataean nomads, who settled in the area more than 2,000 years ago, turning it into a key junction for the silk, spice and other trade routes that linked China, India and southern Arabia with Egypt, Syria, Greece and Rome. Among other sites chosen were the Great Wall of China, the Coliseum in Rome and the Taj Mahal in India. (AFP09.07)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Hadasit's Derotation Brace for Scoliosis Yields Positive Clinical Trial Results

Hadasit announced the first set of data from its ongoing clinical trial of the Derotation Brace for the treatment of scoliosis, a complex 3-D deformation of the trunk, spine and rib cage. Of the 20 patients in the study, 14 experienced curve improvement or remained stable, meaning there was no further deterioration in the curvature of their spines. One mild patient, one moderate patient and two severe patients progressed to a more acute condition. Two severe patients opted out of the study. The Derotation Brace employs a dynamic derotation mechanism to create neutral rotational forces that reverse the rotation of the spine and help correct the scoliosis. The brace consists of two parts that allow for progressive derotation and the improvement of spinal balance in a three dimensional direction. Hadasit (http://www.hadasit.co.il) was established as a subsidiary of Hadassah Medical Organization (HMO) in Jerusalem, Israel to promote and commercialize its continuously generated intellectual property (IP), purposed to helping solve the problems of modern medicine. Hadasit guides technologies from innovation to commercial application. (Hadasit27.06)

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8.2 Teva's Ondansetron HCl Tablets & Ondansetron Orally Disintegrating Tablets USP Approved

Teva Pharmaceutical Industries announced that the U.S. FDA has granted approval for the Company's Abbreviated New Drug Applications (ANDA) to market Ondansetron Hydrochloride Tablets, 4 mg, 8 mg and 24 mg and Ondansetron Orally Disintegrating Tablets USP, 4 mg and 8 mg. Teva has commenced shipment of these products. Teva's Ondansetron products are AB-rated generic equivalents of GlaxoSmithKline's Zofran Tablets and Zofran ODT, which are indicated for prevention of nausea and vomiting in patients undergoing chemotherapy, radiation therapy, or surgery. Teva Pharmaceutical Industries (http://www.tevapharm.com), headquartered in Jerusalem, Israel, is among the top 20 pharmaceutical companies in the world and is the leading generic pharmaceutical company. The company develops, manufactures and markets generic and innovative human pharmaceuticals and active pharmaceutical ingredients, as well as animal health pharmaceutical products. (Teva26.06)

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8.3 Pharmos Commences Phase 2a Trial of Topical Diclofenac NanoEmulsion Cream

Pharmos Corporation announced that patient screening has commenced in its Phase 2a clinical trial of its topical NanoEmulsion (NE) drug delivery technology formulated with 3% diclofenac. The trial will compare the safety and analgesic efficacy of the diclofenac NE cream with placebo in approximately 126 subjects with knee osteoarthritis (OA). Patients will apply the 3% diclofenac NE cream or placebo cream three times daily for 28 days. Diclofenac is an approved and widely used generic non-steroidal anti- inflammatory drug (NSAID). Due to their analgesic and anti-inflammatory properties, NSAIDs, including diclofenac, are commonly used for the pharmacological management of OA, especially in patients that have moderate or severe degrees of pain. However, oral administration of NSAIDs results in higher systemic drug exposure, which may lead to gastrointestinal, renal and cardiovascular toxicity, especially in the elderly population. In contrast, topical drug administration results in low systemic drug exposure and completely avoids direct exposure to the gastrointestinal tract. Applying an analgesic medication directly to the affected area also improves patient compliance, and enables a more controlled delivery of drugs with shorter half- lives and/or narrower therapeutic windows compared to oral administration.

Pharmos' NE drug delivery system consists of an efficient solvent-free topical vehicle based on drug entrapment in stable, submicron particles of oil-in-water emulsions with a mean droplet size between 100 and 200 nm that are uniformly dispersed in an aqueous phase. One of the unique characteristics of the NE technology is the relatively high percentage of total particle volume occupied by the internal hydrophobic oil core of the droplets. This provides high solubilization capacity for lipophilic compounds compared to other lipoidal vehicles such as liposomes. Viscosity-imparting agents are used for NE thickening to produce creams with the desired semisolid consistency for application to the skin. Another unique characteristic of Pharmos' NE technology is that it does not employ the chemical penetration enhancers commonly used in other topical drug delivery vehicles, which may cause skin irritation and sensitization. Pharmos' NE cream is composed of natural lipids and oils designed to minimize irritation.

Rehovot, Israel's Pharmos (http://www.pharmoscorp.com) discovers and develops novel therapeutics to treat a range of indications including specific diseases of the nervous system such as disorders of the brain-gut axis (GI/IBS), pain/inflammation, and autoimmune disorders. The Company's lead product in development, dextofisopam, is undergoing Phase 2b testing in IBS patients. Dextofisopam has completed a Phase 2a IBS study in which it demonstrated a statistically significant effect compared to placebo on the primary efficacy endpoint of adequate relief (n=141, p=0.033). The Company's core proprietary technology platform focuses on discovery and development of synthetic cannabinoid compounds with a focus on CB2 receptor selective agonists. (Pharmos27.06)

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8.4 GammaCan Discovers Anti-Angiogenic Properties in Plasma-Derived IgG

GammaCan International announced that its Chief Scientist Professor Shoenfeld has discovered that gamma-immunoglobulins, or IgG, manufactured from human plasma, contain sub-fractions with potent anti-angiogenic properties which may have application in disorders of neovascularization, including cancer and other diseases. This discovery is the subject of a recent patent application filing with the U.S. Patent and Trademark Office. GammaCan has recently made substantial advances in understanding how IgG-based therapies produce some of their anti-cancer effects. One such effect is that specific fractions of IgG appear to prevent tumors from recruiting the blood supply required for their growth. That process is known as angiogenesis. The Company anticipates that this discovery may be developed into broad-based cancer therapies and other therapies that address non-cancer disorders. Kiryat Ono, Israel's GammaCan (http://www.GammaCan.com) develops proprietary immunotherapy and related approaches to treat melanoma and other cancers. GammaCan's platform patented technology is based on the use of IgGs (gamma-immunoglobulins), a safe, relatively non-toxic human plasma-derived product used to treat a variety of immune deficiencies and autoimmune diseases. The Company's lead drug candidate, VitiGam, targets Stage lll and Stage lV melanoma for which no effective treatment currently exists. (GammaCan 28.06)

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8.5 Teva Announces Tentative Approval of Famciclovir Tablets

Teva Pharmaceutical Industries announced that the U.S. FDA has granted tentative approval for the Company's ANDA for Famciclovir Tablets, 125 mg, 250 mg and 500 mg. Final approval of this application is anticipated on 24 August 2007, upon expiry of the mandatory stay of approval associated with patent litigation related to this application. Teva Pharmaceutical Industries (http://www.tevapharm.com), headquartered in Jerusalem, Israel, is among the top 20 pharmaceutical companies in the world and is the leading generic pharmaceutical company. The company develops, manufactures and markets generic and innovative human pharmaceuticals and active pharmaceutical ingredients, as well as animal health pharmaceutical products. (Teva28.06)

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8.6 Teva Announces Approval of Amlodipine Besylate Tablets

Teva Pharmaceutical Industries announced that the U.S. FDA has granted approval for the company's ANDA for Amlodipine Besylate Tablets, 2.5 mg, 5 mg and 10 mg. Shipment of the product will begin shortly. Teva's Amlodipine Besylate Tablets are the AB-rated generic equivalent of Pfizer's Norvasc Tablets and are indicated for treatment of hypertension, chronic stable angina and vasospastic angina. Mylan has sued the FDA arguing that its 180-day exclusivity blocks other final approvals until September, 2007. Teva Pharmaceutical Industries (http://www.tevapharm.com), headquartered in Jerusalem, Israel, is among the top 20 pharmaceutical companies in the world and is the leading generic pharmaceutical company. The company develops, manufactures and markets generic and innovative human pharmaceuticals and active pharmaceutical ingredients, as well as animal health pharmaceutical products. (Teva29.06)

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8.7 Teva Announces Approval of Terbinafine HCL Tablets

Teva Pharmaceutical Industries announced that the U.S. FDA has granted final approval for the Company's Abbreviated New Drug Application (ANDA) to market Terbinafine Hydrochloride Tablets, 250 mg (base), the AB-rated generic equivalent of Novartis' antifungal agent Lamisil Tablets. Shipment of this product will begin immediately. Teva Pharmaceutical Industries (http://www.tevapharm.com), headquartered in Jerusalem, Israel, is among the top 20 pharmaceutical companies in the world and is the leading generic pharmaceutical company. The company develops, manufactures and markets generic and innovative human pharmaceuticals and active pharmaceutical ingredients, as well as animal health pharmaceutical products. (Teva03.07)

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8.8 Merz Pharmaceuticals & Tel Aviv University Partner in Novel Drug Treatment of Alzheimer's

A novel drug technology to treat Alzheimer's disease developed by researchers at the George S. Wise Faculty of Life Sciences at Tel Aviv University (TAU), Israel, was licensed to Germany's Merz Pharmaceuticals by Ramot at Tel Aviv University, the University's technology transfer company. The worldwide exclusive license deal includes an upfront fee and milestone payments as well as royalties on future sales. The technology developed at TAU was one of a portfolio of technologies that were selected to be funded by an $8.5m investment raised by Ramot in 2003 from a group of US investors. Ramot's licensing partner Merz Pharmaceuticals is one of the main pharmaceutical players in the area of Alzheimer's disease research and development. With Memantine, Merz' blockbuster anti-dementia drug, the company has proven its expertise in successful development of innovative Alzheimer's disease treatments.

Founded in 1963, Tel Aviv University (http://www.tau.ac.il) is one of Israel's foremost research and teaching universities. Located in Israel's cultural, financial and industrial heartland, Tel Aviv University is at the forefront of basic and applied research in a wide variety of scientific research disciplines, including engineering, exact sciences, life sciences, medicine, social sciences, management, law, humanities and the arts. Ramot (http://www.ramot.org) is the technology transfer company of Tel Aviv University. Ramot fosters, initiates, leads and manages the transfer of new technologies from university laboratories to the marketplace by performing all activities relating to the protection and commercialization of inventions and discoveries made by faculty, students and other researchers. (TAU10.07)

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8.9 Kamada to Start Phase II Clinical Trial of the Aerosolized Form of AAT for the Treatment of Cystic Fibrosis

Kamada announced that following discussions with the EMEA (European Agency for the Evaluation of Medicinal Products), the company is planning a phase II clinical trial of the inhaled version of its Alpha-1 Antitrypsin [AAT] product to treat Cystic Fibrosis (CF). The phase I trial is currently in progress and shows good intermediate results. Kamada has also recently received EMEA approval for its plans for phases II/III clinical trials of AAT for treating Congenital Emphysema. The aerosolized formulation of Kamada's AAT has been designated an Orphan Drug for the treatment of CF and of Congenital Emphysema, both in Europe and the U.S. This designation grants Kamada a range of support mechanisms such as research fund support, tax incentives, reduced fees and 7-12 year exclusive distribution rights, if the company's product is first on the market. Ness Ziona, Israel's Kamada (http://www.kamada.com) manufactures a line of highly-safe specific immunoglobulins and other plasma-derived therapeutics, using sophisticated chromatographic purification technology. Licensed and marketed in more than 15 countries, several of these specialty biopharmaceuticals hold registered and pending patents and are in advanced clinical trials. (Kamada 09.07)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 emoze - The Most Secure, Push Email Architecture in the Global Market

A French Government ban on the RIM BlackBerry on 20 June 2007, citing a security risk, has created a wave of concern around the world. Some governments allow the device to be used for declassified data and low levels of confidential information, but for classified information, the system is not authorized for use by many governments and agencies. The main security concern is that Blackberry subscribers' emails, attachments, contact lists and diaries are not only transmitted to the mobile devices, but are also stored on third party servers along the way. Unlike Blackberry, emoze provides push email service to all mobile devices with a very high level of security without storing the data on its servers. emoze deliberately only routes traffic and does NOT duplicate or store any data en route. With emoze, data is pushed from one's exchange (or any other emailing program) to their mobile device, maximizing security and privacy levels for the individual and organization. Personal and corporate information remains only on one's own secure server and the individual mobile device. Avoiding data duplication reduces the chances of data loss to a minimum and eliminates the risk of 'data sniffing' by a third party. Highest level of security is a major issue in emoze's design consideration. The emoze solution implements an encryption mechanism in addition to its proprietary synchronization that not only increases levels of security and privacy but adds speed and efficiency and dramatically reduces the costs of unnecessary hardware. As a default, emoze implements end-to-end security and maximum data and mobile networks protection. emoze's Military Grade security standard includes protection of the internal network and of the mobile device.

Ra'anana, Israel's emoze (http://www.emoze.com) turns mobile phones and mobile devices in to fully functional personal communication devices with a single, simple and free download for the individual user. It delivers real-time, secure synchronization of emails, calendars, contacts and tasks - pushing data and updates to you anytime, anywhere using any mobile service provider network or WiFi and all leading brands of mobile device. Download, registration and use of emoze are all free for the individual user. Users need a data package from their mobile service provider. emoze supports all popular email data sources (e.g. Lotus Notes and Domino Servers, Microsoft Outlook and Exchange, POP3 and Web-Access) and mobile device operating systems, and provides a simple user interface and high level security for emails and data. (emoze 26.06)

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9.2 Exanet Takes Clustered NAS to New Heights with Release of ExaSearch

Exanet announced the availability of ExaSearch, an enterprise-class search engine, which integrates with the company's scalable, high-performance ExaStore software, allowing customers to turn massive amounts of stored data into easily accessible information. ExaSearch is an enhanced search engine capable of searching multiple sources: file servers, email systems, groupware, databases and employee directories. It can process unstructured data and queries, and allow immediate access to newly generated content through real-time indexing, ensuring users receive the most relevant and current results. The product is designed to integrate with Exanet's flagship ExaStore software resulting in the first scalable, high-performance clustered NAS solution combined with enterprise-class search capabilities. Exanet's clustered NAS solution, ExaStore – ICM (Intelligent Cluster Management), delivers a new data storage paradigm to address the trends that are driving the future of data centers: virtualization, standardized hardware, and applications demanding the most extreme standards of performance, availability and scalability. Exanet's enterprise-class search solution, ExaSearch, is designed to integrate with ExaStore – ICM. With headquarters in Ra'anana, Israel, Exanet (http://www.exanet.com) sells its flagship ExaStore – ICM solution and its ExaSearch enterprise-class search engine through its channel partners worldwide. (Exanet26.06)

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9.3 Telmap Applications Integrate INRIX Traffic Solutions to Power Industry's Biggest Consumer Brands

Telmap and INRIX, the leading provider of traffic information, announced the integration of INRIX real-time and predictive traffic speeds as well as incident solutions in the Telmap Navigator application. The enhancement offers both business users and consumers a superior traffic-influenced navigation experience on GPS-enabled mobile devices. The INRIX solution will provide end-to-end traffic information for mobile phones equipped with the Telmap program, enabling traffic-influenced routing and maps across more metropolitan markets nationwide than any other traffic information provider. The private label solution will be deployed by Telmap's industry-leading cellular operators and handset manufacturer partners. Telmap Navigator is a complete GPS navigation solution that provides guidance with voice, graphics and text. It allows subscribers to navigate in-car or on foot, with free-text local search and enhanced address search capabilities that include auto-complete and fuzzy matching to generate accurate results even from minimal or misspelled entries. The Telmap solution is the only commercially available cross-platform product in its class, bringing navigation to both resource-constrained devices and high-end smart phones on platforms including Symbian, Java, BREW, Windows and BlackBerry. Israel's Telmap (http://www.telmap.com) is a developer of award-winning, location-based mobile mapping and navigation solutions that deliver turn-by-turn driving and walking directions, points-of-interest search and content sharing from the mobile phone. Telmap's server-based technology offers the industry's easiest navigation experience, most comprehensive global geographic coverage and premium content, voice/graphic/text instructions, traffic information and traffic-aware routing, and exclusive cross-platform support for Symbian, Java, BREW, Windows and BlackBerry devices. The company's flagship product, Telmap Navigator, is the most widely deployed navigation service with implementations by leading wireless operators and handset manufacturers around the world, including Vodafone subsidiaries, Mobilcom and Sprint/Nextel under the brand name MapQuest Navigator through a partnership with MapQuest. (Telmap26.06)

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9.4 Mobifon-2000 Selects VocalTec's Next Generation VoIP Solution

VocalTec Communications announced that Mobifon-2000 has selected VocalTec's Essentra VoIP technology for the build-out of its National and International next generation network. Mobifon-2000 is a licensed service provider offering wire-line and data services in Russia. Mobifon-2000 and VocalTec have reached an agreement for the purchase of VocalTec products and services. VocalTec anticipates revenues of several millions of dollars related to this agreement over the next years, out of which product revenues of approximately $2m are expected during the balance of 2007. The VocalTec solution will enable Mobifon-2000 to build a national VoIP network, offering its customers a highly reliable network, while reducing costs, enhancing flexibility and enabling the rapid addition of new services and applications. The deployment includes VocalTec's Essentra CX Trunking solution, offering seamless connectivity to PSTN/SS7 services; the Essentra EX, Peering Manager, enabling secure IP-to-IP routing and service mediation, the Essentra OSS, Operational Support Server, a web-based management system, enabling remote element management; and the Essentra TMS, Traffic Management System, enabling effective utilization of network resources. Herzliya, Israel's VocalTec Communications (http://www.vocaltec.com) is a global provider of carrier-class multimedia and voice-over-IP solutions for communication service providers. A pioneer in VoIP technology since 1994, VocalTec provides proven trunking, peering, access gateway and service delivery solutions that enable flexible deployment of next-generation networks (NGNs). (VocalTec 28.06)

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9.5 Australia Chooses Alvarion's WiMAX to Deploy Rural and Regional Broadband Network

Alvarion noted the Australian government's support of WiMAX as part of its Federal Government Broadband Connect project, which is aimed at further extending high-speed affordable broadband services to all Australians. After a competitive tender process, it awarded the project to OPEL, jointly owned by Elders, Australia's leading rural and regional service provider, and Optus, a leader in integrated communications in Australia. OPEL's successful proposal followed 18 months of detailed work and evaluation including equipment trials to verify that WiMAX represents an excellent choice for low-density population areas like Australia. OPEL's network is expected to cover 638,000 square kilometers and will extend across all Australian states and territories. In addition to expanding ADSL2 installations, OPEL expects to deploy over 1300 broadband wireless sites using technology based on WiMAX standards, each with a range of about 20 kilometers. The Australian government requires the network to be built by mid-2009. With more than 3 million units deployed in 150 countries, Tel Aviv, Israel's Alvarion (http://www.alvarion.com) is the world's leading provider of innovative wireless broadband network solutions enabling Personal Broadband to improve lifestyles and productivity with portable and mobile data, VoIP, video and other services. Alvarion is leading the market to Open WiMAX solutions with the most extensive deployments and proven product portfolio in the industry covering the full range of frequency bands with both fixed and mobile solutions. Alvarion's products enable the delivery of personal mobile broadband, business and residential broadband access, corporate VPNs, toll quality telephony, mobile base station feeding, hotspot coverage extension, community interconnection, public safety communications, and mobile voice and data. (Alvarion 28.06)

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9.6 Tevet Integrated Metrology Emerges as Enabling in Shift to High Throughput Processing

Tevet Process Control Technologies announced that recent and fundamental changes in the semiconductor Chemical Vapor Deposition (CVD) market segment have abruptly created the demand for high speed, every-wafer integrated metrology. Tevet's unique patent pending parallel sensor Integrated Metrology Module (IMM) with its best-in-class two second per wafer measurement cycle is the only production proven IMM that can measure every wafer in the fastest CVD processes. Tevet's Trajectory series integrated metrology is built upon a unique patent pending parallel sensor architecture. With multiple sensors positioned in the IMM above the wafer, the Trajectory series IMM can simultaneously measure multiple sites (usually nine; site number and position is configurable) covering more than 100X the wafer area vs. conventional small spot techniques. The Trajectory series IMM measures and completes calculations within 2 seconds per wafer enabling throughputs of over 300 wph with optimized CVD tool wafer routing sequences and robot speeds. With no moving parts required for measurement, the Trajectory series IMM provides measurement without reliability risk to the high throughput CVD cluster. Tevet's proprietary IsTMS algorithms enable measurement in die areas with output of thickness for deposited layers as well as measurement of under-layers in complex stacks. These data are sent to the CVD tool and the fab HOST computer for dispensation on excursions and for input to APC engines to optimize chamber matching and tighten thickness distribution limits.

Tevet's Trajectory series IMM products became established in the CVD and PECVD segment prior to the recent introduction of the high throughput process tools. Tevet now believes that with the new deposition tools phasing, customer adoption of IMM will become much more widespread with a great majority of customers using IMM immediately for excursion control and later increasingly for enabling APC as the industry transitions to the advanced technology nodes. Yokneam, Israel Tevet Process Control Technologies (http://www.tevet-pct.com) serves the semiconductor industry with unique integrated metrology solutions for critical process control challenges. Supporting customers worldwide, Tevet develops its technology and products in its headquarters in Israel and provides sales, marketing and technical support through its US offices. (Tevet 02.07)

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9.7 WorldMate Professional, Personal Travel Assistant for Nokia E90 Communicator

MobiMate announced a new release of WorldMate Professional – the "Swiss Army Knife" of travel applications, now tailored for Nokia E90 Communicator. Nokia E90 Communicator users can breeze through travel arrangements, by having critical travel information immediately available to them. With the release of WorldMate Professional for S60, vital information including flight schedules and status, weather forecasts and currency exchange rates can be integrated into Nokia E90 Communicator and other Nokia Eseries business devices. WorldMate 2007 for S60 will be bundled with the Nokia E90 Communicator as well as other Nokia Eseries devices. Services including worldwide weather forecasts, weathercaster, world clocks, a currency converter with an online exchange rate service and world day/night map will be available to end-users for free. Premium services such as Real-Time Flight Status, Flight Schedules and Satellite Weather Imagery will require a paid subscription to WorldMate Professional. Lod, Israel's WorldMate (http://www.mobimate.com) is the world's leading mobile travel and itinerary management service, providing subscribers with a host of services for travel planning, travel execution and travel reporting. Mobile services range from weather and currency information to flight schedules and real-time flight status. The WorldMate product line is available on most mobile platforms including Java, BlackBerry, Palm OS and all variants of Microsoft Windows Mobile and Symbian. It is the only mobile application worldwide to have been a top-10 best seller on more than 5 platforms to date. (WorldMate 03.07)

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9.8 Allegro Networks to Deploy First Business WiMAX Network in Australia with Alvarion's BreezeMAX

Alvarion announced that Allegro will use its BreezeMAX system for the first WiMAX deployment in Australia, further demonstrating Australia's strategic vision of WiMAX as it offers businesses innovative services. This project means that thousands of businesses in the outer metro and growth corridors across Queensland are expected to benefit from access to a high-speed network providing converged voice and data services. Allegro's first-to-market deployment with business grade service confirms that WiMAX is the best broadband infrastructure for leveraging fiber backhaul. Allegro will seek to gain wholesale access to the backhaul fiber and other network elements of the Optus Elders consortium (OPEL). These networks were awarded nearly a billion dollars by the Federal Government as part of the Federal Government's visionary Broadband Connect project for regional Australia. Allegro Networks is one of Queensland's largest wireless broadband internet server provider (ISP). With more than 3 million units deployed in 150 countries, Tel Aviv, Israel's Alvarion (http://www.alvarion.com) is the world's leading provider of innovative wireless broadband network solutions enabling Personal Broadband to improve lifestyles and productivity with portable and mobile data, VoIP, video and other services. Leading the market with the most widely deployed WiMAX system in the world, Alvarion is leading the market to Open WiMAX solutions with the most extensive deployments and proven product portfolio in the industry covering the full range of frequency bands with both fixed and mobile solutions. Alvarion's products enable the delivery of personal mobile broadband, business and residential broadband access, corporate VPNs, toll quality telephony, mobile base station feeding, hotspot coverage extension, community interconnection, public safety communications, and mobile voice and data. (Alvarion 03.070

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9.9 Tower Semiconductor Delivers the First Space Application SoC Product

Tower Semiconductor and Ramon Chips announced the successful completion of a prototype radiation-hardened System-on-Chip (SoC) controller for space applications. The SoC is being fabricated on Tower's Fab2 0.18-micron process technology. The SoC controller operates at 150 MHz, and the on-chip SpaceWire interface achieves 250 Mbits/sec transfer rates. The product is expected to sustain cosmic radiation and harsh environmental conditions and is thus useful for all space missions in earth-orbiting satellites. It is also intended for high-reliability avionic applications. The SoC controller has been designed and fabricated using Ramon Chips' proprietary RadSafe methodology and standard cell library, which assure radiation hardness of parts fabricated in Tower Semiconductor's manufacturing lines. Another prototype chip fabricated using the same RadSafe library and the same Tower Semiconductor 0.18 micron CMOS process has been tested successfully at radiation levels of 300 Krads and had sustained no radiation-induced latch-ups and less than 10-13 soft error events per bit per day at LET levels exceeding 100 MeVªcm2/mg.

Migdal Haemek, Israel's Tower Semiconductor (http://www.towersemi.com) is an independent specialty foundry established in 1993. The company manufactures integrated circuits with geometries ranging from 1.0 to 0.13-micron; it also provides complementary technical services and design support. In addition to digital CMOS process technology, Tower offers advanced non-volatile memory solutions, mixed-signal & RF-CMOS, and CMOS image-sensor technologies. Ramon Chips (http://ramon-chips.com) is a fables semiconductor company focused on developing and marketing unique VLSI /ASIC solutions for space and avionics applications, based on its RadSafe methodology and cell library and on Tower Semiconductor CMOS processes. Named in memory of the late Col. Ilan Ramon, Israel's first astronaut who perished at the Columbia space shuttle re-entry accident in 2003, the company was founded in 2004 and is based in Israel. (Tower 03.07)

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9.10 Mellanox ConnectX IB InfiniBand Mezzanine Adapters Accelerate HP BladeSystem c-Class

Mellanox Technologies announced that the company's 20Gb/s ConnectX IB InfiniBand mezzanine cards provide the optimal performance interconnect for HP BladeSystem c-Class. Mellanox's ConnectX IB InfiniBand adapters provide unparalleled I/O connectivity for high-throughput and latency-sensitive clusters, grids and virtualized environments. HP BladeSystem c-Class is an ideal platform for high-performance computing clusters. A Mellanox ConnectX IB 20Gb/s InfiniBand mezzanine card adapter can reside on each server blade in the BladeSystem enclosure to provide high-performance connectivity to the processor through a PCI Express interface. InfiniBand signals are carried over a midplane that supports 5 Terabits per second of aggregate bandwidth to InfiniBand switch modules that plug into high-speed switch bays. Each ConnectX IB mezzanine card adapter supports two ports and can connect to two independent switch modules for redundancy and higher aggregated bandwidth – capabilities that are useful for mission-critical applications and the most-demanding HPC deployments. Mellanox Technologies (http://www.mellanox.com) is a leading supplier of semiconductor-based, high-performance, InfiniBand and Ethernet connectivity products that facilitate data transmission between servers, communications infrastructure equipment and storage systems. The company's products are an integral part of a total solution focused on computing, storage and communication applications used in enterprise data centers, high-performance computing and embedded systems. Founded in 1999, Mellanox Technologies is headquartered in Santa Clara, California and Yokneam, Israel. (Mellanox 10.07)

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9.11 Digicel Selects ECI Telecom's Optical and Ethernet Solution for WiMAX Network

ECI Telecom announced that Digicel, the fastest-growing telecommunications operator in the Caribbean, has chosen ECI's optical and Ethernet solution to expand its broadband services enabled by WiMAX technology. Digicel is the first GSM mobile provider in the Caribbean to offer broadband wireless services via WiMAX to business and residential subscribers. This win demonstrates ECI's growing momentum in the converged optical and Ethernet market. Digicel deployed ECI's XDM Multi-Service Transport Platform (MSTP). Digicel's next generation network will offer cost-effective fixed and mobile voice and data communications solutions to corporate customers, including VoIP. In the Caribbean, and more specifically in Jamaica, previous broadband offerings relied on fixed lines limiting services offered to subscribers. Most recently, Digicel purchased new XDM nodes to increase bandwidth to support the growing broadband wireless backhaul traffic island wide into Kingston.

Petah Tikva, Israel's ECI Telecom (http://www.ecitele.com) delivers innovative communications platforms to carriers and service providers worldwide. ECI provides efficient platforms and solutions that enable customers to rapidly deploy cost-effective, revenue-generating services. Founded in 1961, Israel-based ECI has consistently delivered customer-focused networking solutions to the world's largest carriers. The Company is also a market leader in many emerging markets. ECI provides scalable broadband access, transport and data networking infrastructure that provides the foundation for the communications of tomorrow, including next-generation voice, IPTV, mobility and other business solutions. (ECI09.07)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Record Number of Workers in Israeli Economy

The Central Bureau of Statistics announced onm 8 July that the number of salaried employees in Israel rose to a record 2.72 million in April 2007, after rising by an annualized 1.2% in March-April. The number of employees included 2.63 million Israelis, 66,000 legal foreign workers and 18,000 Palestinians. The average national gross salary of Israelis fell to $1,846 in April, $33 less than the average salary of $1,879 in March. Trend figures, however, point to an annualized rise of 6% in the average salary, even before the government acceded to Histadrut (General Federation of Labor in Israel) demands for pay hikes of 7-13%. The average gross wage in the economy, including Israelis, foreign workers and Palestinians, was $1,817 in April; the average salary for foreign workers was $999. (CBS08.07)

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10.2 Foreign Real Estate Investment in First Half Reaches $784 Million

The Bank of Israel reports that foreign investment in real estate totaled $784m during H1/07. At the present rate, foreign investment in real estate will reach an all-time of $1.57b, compared with $1.44b in 2006 and $1.22b in 2005. The Bank of Israel said that the extensive purchase of apartments by foreign residents was a direct continuation of the trend that began with the end of the more recent Palestinian war against Israel in mid-2003 and that the trend was growing stronger. Foreign investment in real estate has totaled $4.71b since the beginning of 2003 and $5.3b since the beginning of 2000. (BoI09.07)

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10.3 Israel Sees Near Record 20,400 Vehicles Sold In June

Israel's vehicle market is reaching record sales as 92,492 vehicles were delivered during H1/07, 26% more than during H1/06, according to the Israel Motor Vehicles Importers Association. During H1/07, 76,817 private cars were delivered, 25% more than during the corresponding period of 2006. Off-road vehicle deliveries rose by 57% and deliveries of commercial vehicles rose by 6%. Almost as many vehicles were delivered in June as during the record month of May - 20,441, 35% more than in June 2006. Mazda was the number one brand during the first half, with 14,014 delivers, up 18.4% over the corresponding half. Toyota was in second place, with 11,335 deliveries, up 38%; Hyundai was in third place, with 11,122 deliveries, up 8%; Ford was in fourth place, with 7,279 deliveries, up 14%; and Subaru was in fifth place, with 5,340 deliveries, up 34%. Daihatsu deliveries rose 181%, Honda deliveries rose 64%, Suzuki deliveries rose 64%. (IMVIA03.07)

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10.4 D&B Israel Says 14% of Israeli Companies Paid Late

D&B Israel reports that companies' average payment was current +68 days in June 2007. The number of companies paying late rose by 28% in June, to 14% of all companies, up from 11.2% in May. A late paying company is defined as a company paying bills after the average payment period for its sector. D&B Israel says that the payment ethic improved during the first half of the year: 12% of bills were paid late, down from 13.4% during H1/06. D&B Israel said there was an anomaly in the economy. On one hand, the economy has been expanding for four years, but the payment ethic has not dramatically improved. He attributes the anomaly to the fact that suppliers' credit was the cheapest in the country, so customers prefer taking credit from suppliers, rather than from another source, such as banks. He added that this fact raised prices for services and products for end customers, and suppliers roll over the credit cost onto customers, who have to absorb the credit cost. The textiles and clothing industry has the highest average credit days, at current + 90 days. The wood, printing and paper industry is in second place, at current + 89 days, and the construction and contractors industry is in third place, at current + 85 days. The business services sector has the lowest average credit days, at current + 55 days. (Globes 09.07)

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In Depth

11.1 ISRAEL: Chief Rabbinate Begins Phasing Out Controversial 7th-Year Sale

As the upcoming Shemittah (Sabbatical) year for the Land of Israel approaches (it begins on Rosh HaShanah, 13 September), farmers and rabbis are preparing to deal with the unique halakhic [Jewish legal] issues involved in the Biblical ban on working the fields in the Land of Israel.

The Chief Rabbinate plans to kosher-certify fruits and bananas only if they are grown in accordance with special regulations (see below). The Rabbinate will instruct the public as to how to treat these fruits with special Shemittah sanctity. Neither fruits destined for export nor vegetables are included in this arrangement.

The Torah's agricultural ban occurs once every seven years, in accordance with Exodus 23 and Leviticus 25. Today, these Shemittah regulations retain only Rabbinic, and not Biblical, authority, due to the lack of a majority of the Jewish People in the Land of Israel. For this reason and others, rabbis in the mid-19th century ruled that Jews in Israel could sell their fields to non-Jews and continue performing many otherwise forbidden farming activities. This arrangement was known as the Heter Mechirah (the Sale Dispensation).

Rabbi Avraham Yitzchak HaKohen Kook, the first Chief Rabbi of the modern-day Land of Israel, promulgated the Heter Mechirah on a national scale, in order to prevent the collapse of the agricultural economy. The Heter Mechirah increasingly became a matter of controversy between religious-Zionist circles, which largely accepted it, and the hareidi-religious sector, which did not. The farmers of the latter were largely supported by communal funds during Shemittah years, while hareidi-religious consumers purchased fruits and vegetables either from Arab sources or from outlying areas of the Land of Israel not bound by Shemittah laws. This latter approach, however, strengthens the Arab share of the agricultural market not only during the Shemittah year, but in the following years as well.

In fact, in the last Shemittah, seven years ago, 50,000 dunams (some 12,500 acres) of new agricultural farms were developed in Jordan to meet the consumption needs of those who wished to buy non-Jewish produce. Rabbi Neriah Gutel, the Dean of Orot College who has written widely on the topic, writes that not only were these farms not dismantled afterwards, but they continue even now to compete with Jewish farms in Israel.

A third approach to Shemittah that has been increasingly making inroads is the Otzar Beit Din, or Public Treasury. It is based, inter alia, on the idea that Shemittah fruits are forbidden to be sold, but not to be eaten - and in fact have a sanctity that renders their consumption extra meritorious. To this end, and in order to enable everyone to enjoy the fruits of the Land - another Shemittah objective - harvesting, fruit distribution, and land upkeep is carried out not for commercial profit, but by a public body appointed by a court of Jewish Law acting as the public's representative.

The Chief Rabbinate has decided to implement the Otzar Beit Din method on a national scale for fruits and bananas. Accordingly, all fruits and bananas sold throughout the country under the certification of the Chief Rabbinate - which includes most large supermarkets in Israel - will not be Heter-fruits, i.e., from lands exempted from Shemittah by virtue of having been sold to a non-Jew, but rather raised in a permitted manner in accordance with Lev. 25, 6: "The produce of the land shall be food for you..."

In a letter to municipal rabbis and kashrut inspectors recently, the Chief Rabbinate writes, "Our universally agreed upon goal is to reach a point where we will not need the Heter at all, just as Rabbi Kook wrote... in order that we may observe this commandment in all its glory. Accordingly, the Chief Rabbinate Council has decided to reduce the use of the Heter as much as possible. For several months we have been in personal contact with every farmer... Similarly, the Heter will be implemented only in cases where other solutions - such as Otzar Beit Din, early seeding, raised platforms, and the like - cannot be used."

The ramifications for the public are two-fold: Special care will be taken to ensure that the price of fruits and bananas is not raised arbitrarily, but will rather cover only normal costs and expenses, including a fair and normal salary for those involved. In addition, signs will be placed in the fruit sections instructing the public that the fruits must be treated with special Shemittah sanctity. Specifically, the fruits must be used only in their normal manner (generally eating or drinking), and their remnants must not be thrown out in a degrading fashion. To this end, Rabbinate officials said that an educational campaign would be undertaken, though its extent and framework have not yet been determined. Most vegetables will not be included in the above arrangement. (INN03.07)

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11.2 ISRAEL: When Kibbutzniks Embrace Capitalism

Morgan Stanley's (http://www.morganstanley.com) Serhan Cevik commented on the peculiarities of the Israeli economy. "Kibbutzes are a good example to study the past, present and future of the Israeli economy. Israel is a country full of contradictions. It has become one of the most open economies with a competitive edge in technology-intensive sectors, but also maintained socialist ideals that represented the country's pioneering spirit. Kibbutzes — collective settlements idolizing the dream of a socialist agrarian state — are a good example, in our view, to study Israel's past, present and future. There are 268 kibbutzes with about 120,000 residents who live and work together.

Although the main source of income was farming, kibbutzniks have also marched into manufacturing and tourism. But diversification was not enough to achieve financial sustainability, and kibbutzes faced a fiscal crisis in the 1980s. Working with banks, the government engineered a rescue package (amounting to approximately 30 billion shekels) to keep the vision of kibbutzniks alive. However, socialist ideals have faced the challenge of cultural and economic change in an Israeli society valuing individualism and free markets. As a result, almost two-thirds of kibbutzes have moved away from the ‘socialist dream' and adopted privatization plans in recent years. With greater openness, the productivity of kibbutzniks has started increasing for the first time in ages.

Socialist principles created fiscal imbalances and kept Israel below its true potential. The progression of kibbutzes from socialist ideals to capitalism tells an interesting tale of structural change. Just like kibbutzniks, the state of Israel also struggled with imbalances that kept the economy below its potential. In our view, two factors — socialist principles and political fragmentation — played a significant role in worsening public finances. With the expansion of the welfare state, public spending increased to 75% of GDP and the budget deficit widened to 15% of GDP in the mid-1980s. The result was a distressing rise in public debt and hyperinflation that eventually forced the authorities to introduce a stabilization plan. It worked — correcting fiscal imbalances helped to normalize inflation dynamics, lower interest rates and put the economy on a sustainable growth path. Unfortunately, coupled with the burst of the global IT bubble and domestic security problems, the same factors led to a new episode of imbalances between 2001 and 2003. The primary budget balance deteriorated from a surplus of 2.9% of GDP in 2000 to a deficit of 1.4% in 2002. In turn, the overall budget deficit widened from 0.7% of GDP in 2000 to 5.4% at the end of 2003, increasing the risk premium and spoiling economic performance.

Fiscal consolidation has contributed to the growth acceleration in recent years. Facing an increasingly fragile outlook, the authorities have once again introduced a program of fiscal consolidation and structural reforms to address underlying weaknesses and, more importantly, to bring the governing philosophy in line with global realities. As a result, public expenditures declined from 52% of GDP in 2002 to 47% last year, helping to narrow the budget deficit by 4.5 percentage points of GDP to 0.9% and lowering gross public debt from 102% of GDP to 87.7% over this period. Contrary to popular views, fiscal discipline worked once again, reducing uncertainty and bringing an expansionary stabilization. Real GDP growth accelerated from -0.9% in 2002 and 1.6% in 2003 to an average of 5% in the last three years. Furthermore, the unemployment rate improved from more than 10% in 2003 to 7.5% this year, even against a sustained increase in the labor force participation rate.

Israel's own experience shows that fiscal discipline must be a lifestyle, not an occasional hype. Fiscal correction has so far been impressive, and the latest figures imply a deficit of below 1.5% of GDP in 2007. However, the ghosts of the past are showing up here and there. After a period of correction, public spending increased by 6.3% in Q1/07 and there are now widespread demands for a 20-30% wage increase and attempts to increase transfer payments. Such a shift in public finances would undermine price stability, especially when the economy is already growing fast and therefore push interest rates higher. As Israel's own experience shows, fiscal discipline must be a lifestyle, not just an occasional hype, in order to realize the economy's true potential. (MS09.07)

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11.3 ISRAEL: Redecorating Monetary Policy

Morgan Stanley's (http://www.morganstanley.com) Serhan Cevik observed that linking monetary policy to the exchange rate left little cushion against volatility. "While maintaining a constructive assessment of the Israeli economy and the shekel, we have argued that linking the monetary policy stance to currency fluctuations would expose the economy and financial markets to higher volatility. Unfortunately, this is exactly what has happened in recent weeks, as the shift in the US yield curve weakened the shekel and pushed interest rates higher. Some observers may see the sudden depreciation of the exchange rate as a success in attempts to ‘normalize' inflation dynamics by weakening the shekel through interest rate cuts, but we consider it as a risky strategy that may well have unintended consequences. After all, the ultimate objective of monetary policy is maintaining stability, not just hitting an inflation target, especially as the economy weathers through uncharted territories. In short, even though we still believe that the shekel is fundamentally undervalued against the US dollar (and even more so vis-à-vis the euro), the current level of interest rates is not justified by the behavior of domestic demand and inflation trends.

Inflation, hidden behind the shekel's appreciation, has actually moved higher. The consumer price index posted a year-on-year reading of -1.3% in May, which was unchanged from a month ago but still significantly lower than 3.5% a year ago. This is indeed the lowest reading in the past three years, and well below the lower bound of the central bank's target range. However, Israel experiences no ordinary deflation stemming from weak economic conditions. Instead, it is simply a result of the shekel's appreciation lowering prices that are linked to foreign currencies. One of the best examples of this immediate pass-through effect is the housing sector, with extensive linkages to the behavior of the exchange rate and a 22% weight in the CPI. As the shekel appreciated against the dollar, housing prices dropped by 1.6% in the first five months of this year and by 5.3% over the last 12 months. As a result, CPI components influenced by currency fluctuations posted an annualized drop of 4% so far this year, while unaffected ‘domestic' prices recorded a 3% increase. This is why we need to look beyond the headline figure and focus on underlying inflation trends.

With strengthening consumer demand, inflation risks will become more apparent. As the shekel's appreciation comes to end, we will see real economic factors having more influence over inflation dynamics. The Israeli economy has already been on a rapid expansion trend, and now with low interest rates and broadening gains in the labor market, it will keep enjoying a boost from the rise in consumer demand. In the first quarter of the year, for example, real GDP growth reached an annualized rate of 6.3%, thanks partly to an 11.8% surge in private consumption. The latest indicators — ranging from the state of the economy index to wage growth and the consumer confidence index — point to strong performance in the remainder of the year. Indeed, considering the lagged effects of monetary easing — by 200bp since last autumn — the rate of economic growth is likely to be around 6% this year, up from 5.1% in 2006.

The central bank will start redecorating its policy stance towards neutrality later this year. With the unemployment rate declining to the lowest level in ten years, real wage growth has accelerated to about 3% in the first quarter and increased cost pressures in the economy. This could become a challenge if productivity growth continues to slow down and push unit labor costs higher. In our opinion, all these emerging trends suggest that the Israeli economy no longer has a ‘disinflationary' output gap, just as the deflationary power of currency appreciation is fast disappearing. Furthermore, the disinflationary effects of globalization have also become less influential, with the world economy growing at an above-trend pace and facing higher energy and food prices. Therefore, we expect consumer price inflation to steadily move out of the deflationary territory in the coming months and reach 2.2% by the end of this year. Although the Bank of Israel has room, for the time being, to keep short-term interest rates at 3.5%, it will start redecorating its monetary policy stance towards neutrality later in the year, in our view." (MS03.07)

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11.4 GCC: Oil Revenue Bonanza Has Boosted Government Spending

In its latest economic publication covering the Gulf Cooperation Council (GCC), National Bank of Kuwait (NBK) states that the private sector has played an important role in the ongoing economic expansion in the Gulf, unlike the previous oil boom in the 1970s. Private businesses have boosted their investment across a number of vital industries, providing the GCC economies with a new dynamism unseen in the past.

Consumers too have helped the current boom along. Rapid population growth combined with a rise in purchasing power, particularly among GCC nationals, has resulted in healthy and steady growth in consumer spending, rejuvenating the business sector in the process. Booming personal lending is one noticeable sign of strength of consumer spending, though part of it is also explained by the boom in equity markets. Personal lending has grown more rapidly than other forms of bank lending during the past few years.

Higher oil prices combined with increased production levels have resulted in a massive fiscal windfall in the GCC. Oil revenues tripled between 2002 and 2005, rising from 25% of GDP to 38%. In contrast, growth had averaged 18% in the 1990s. Growth in 2006 is expected to have remained rapid, despite some slowdown as a result of a retreat in oil prices later in the year and output reductions due to cuts in OPEC quotas. According to the NBK report, GCC countries are putting the current windfall from the oil price rally to good use by investing a large part of it in the domestic economy and providing a strong impetus for growth in other sectors. Domestic spending by governments has accelerated, averaging 14% in the past four years.

Capital spending has been an important beneficiary of this growth, with governments increasing their spending on infrastructure and projects. Project activity in the GCC region has boomed, with governments sponsoring more than half of the projects launched since 2003. Around 600 government-sponsored projects worth in excess of $200b have been launched since 2003 throughout the GCC. While much such spending has come from ministries, municipalities, and other government-owned entities such as national oil companies, there has also been a flurry of projects resulting from private-public partnerships structured as build-operate-transfer projects, independent water and power plant projects, or joint ventures.

NBK reports that Saudi Arabia and the UAE, which have enjoyed the most sizable windfalls, accounted for more than half of the project activity since 2003. Qatar followed with its vibrant liquefied natural gas sector taking most of the investment. Although a large part of the investment focused on a number of strategic sectors linked to oil, such as gas and petrochemicals, the period saw increasing investment in infrastructure and real estate projects.

It is estimated that less than 20% of the initiated projects have actually been completed as a result of the slow project implementation in the region. The bulk of planned investment remains in the pipeline and is expected to be a strong driver for growth in the coming years. Indeed, project activity accelerated in 2006, with work starting on some 252 megaprojects. More projects are scheduled to enter the implementation stage in 2007, with 250 projects worth $250 billion currently in advanced execution stages. Another 261 projects worth $281 billion are at the early planning or feasibility stage.

Despite the hike in spending, according to NBK, GCC countries managed to save about two-thirds of the increase in oil revenues received since 2002. Fiscal policy has been relatively prudent compared with what it was during the previous oil boom in the 1970s. Government spending as a percentage of GDP has remained largely unchanged over the period at 30%, while growth in expenditures has been easily outpaced by revenue growth. This has allowed the continued accumulation of large fiscal surpluses, which have regularly exceeded 10% of GDP for four GCC countries—Kuwait, Saudi Arabia, the UAE, and Qatar. In Oman and Bahrain, where oil production has been on the decline, budget surpluses have been more modest.

A large part of the oil windfall has been used to repay public debt and to accumulate financial assets in stabilization funds. The combined public debt of GCC countries dropped from 60% to 18% of GDP between 2003 and 2006. Saudi Arabia saw the largest decline, having paid down $85 billion in debts. During the same period, financial assets of the public sector increased by $368 billion, bringing total asset holdings to an estimated $700–$1,000 billion. Kuwait and Saudi Arabia have been the largest savers, followed by the UAE.

NBK notes that the GCC economic performance has benefited from robust growth in consumer spending that averaged 10% in the past four years, pushing aggregate spending to an estimated $220 billion in 2006. Incremental increases in GCC-wide aggregate private consumption averaged $18 billion a year between 2000 and 2006. Per capita private consumption increased sharply as well, reaching $6,000 compared with the $4,000 average seen throughout most of the 1990s. Much of this growth is owed to the favorable demographics that characterize the region and to accelerating growth in government spending. Readily available consumer lending and the wealth generated from booming equity markets have also had a positive impact on consumer spending growth.

GCC population growth has averaged 3.4% per annum in the last four years, among the highest rates in the world. While this growth was led by the flow of migrant workers to meet strong demand for labor, it was also supported by high fertility rates. Rapid population growth combined with a rise in the participation rate, especially among women, has doubled the economically active population over the past decade. The population aged 15 to 60 years hit 23 million at the end of 2006 (constituting 64% of the total). Of these, 12.6 million were employed.

The unprecedented boom in GCC equity markets has been an additional force driving growth in consumer spending in the last few years. Between 2003 and 2006, GCC markets saw average per annum gains in stock prices of 31% as measured by the SHUAA Capital GCC Index, despite a large correction in 2006. This pace of growth far outpaced other emerging markets during the same period. This has greatly boosted the purchasing power of households across the Gulf, especially as small investors have been increasing their activity in the market.

According to NBK, the oil windfall and growth in government spending have built significant momentum in the business sector. Unlike previous oil booms, this one has been accompanied by soaring private investment. Iraq's openness to trade since 2003 and the privatization drive in a number of GCC countries have been positive factors as well. The private sector has invested some $120 billion since 2003 in about 500 projects, and at least three times more is in the pipeline. Private investment was particularly strong in Qatar and the UAE. The financial services, transport and storage, communications, construction, and manufacturing sectors have all recorded double-digit growth since 2003, having benefited from the bulk of the private investment.

Investor confidence has also manifested itself in the scramble by GCC companies to expand their activities in the region. A number of leading companies have expanded in the GCC, and in some cases beyond, either through acquisitions or through organic growth. In 2006, as many as 39 large publicly traded companies, with a total market value in excess of $48 billion, announced plans to invest outside their home markets. Roughly a third were seeking to target other GCC opportunities, while the rest sought markets in the Middle East and North Africa (MENA) and Asia. (Al Bawaba05.07)

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11.5 GCC's Aluminum Output To Hit 3.75 Million Tons

GCC's aluminum production capacity build up is likely to exceed 3.75 million tons per year by 2010 following the commissioning of new smelters and expansion of existing ones. While new aluminum production plants are expected to go on stream in Oman, Saudi Arabia and Qatar soon, Aluminum Bahrain (Alba) and Dubai Aluminum Company (Dubal), the region's industry pioneers, are on course to build up capacity.

"With the world's major aluminum producing nations pondering the closure of smelters due to increased fuel costs, energy-rich countries in the Gulf are expected to meet the projected production shortfall in the aluminum industry. Consequently, there are several smelter projects in the pipeline while existing units have been initiating major expansion," industry sources said.

While the region's leading smelter, Dubai Aluminum (Dubal) is on track to further boost its capacity to 1.5 million tons per year by 2011 - consolidating its position as the largest single site smelter in the world - Alba is set to increase capacity further to 1.3 million tons per year with installation of the sixth pot line project, the construction of which is under way, according to Global Investment House. Dubal and Alba, the region's two pioneering smelters, have been steadily expanding their capacity over the years to meet the increased demand from within the region and abroad. Alba, commissioned in 1971, has since grown from a modest 120,000 tons per annum smelter to 872,000 tons per year, making it one of the largest smelters in the world.

Dubal, currently one of the largest single-site aluminum operators in the Eastern world and now ranked as the 7th largest global producer in the industry with a current production capacity of 861,000 tons per annum, is expected to boost capacity to 920,000 tons in 2008.

Qatar Petroleum (QP) and Norsk Hydro of Norway are planning to develop one of the world's largest aluminum plants in Qatar. Under the plan, Qatalum, the company set up to build and operate the plant, will have in the first stage a 585,000 ton capacity smelter, 15,000 tons more than initially planned.

Az Zabirah Aluminum Project, under taken by Saudi Maaden involves the construction and operation of a 0.62 million ton per annum aluminum smelter and 1.4 million ton per annum alumina refinery at Ras Al Zour located on the central east coast of Saudi Arabia, and a 3.3 million per annum bauxite mine located at Az Zabirah in central northern Saudi Arabia. Oman's Sohar aluminum is also building a greenfield smelter which will have a capacity of 350,000 tons per annum. It has a long term Aluminum supply contract with Alcan. The total budget of the project is about $2.4 billion and it will commence production by the second quarter of 2008.

According to the report by Global, there has been an upward shift in the cost curve for primary aluminum production, triggered mainly by a significant increase in energy prices in historically-important producing areas for aluminum during the past three year. "The increase in energy prices is also influencing the cost of, and consequently the price for, alumina, as well as other important cost elements. Even though the estimated long-term aluminum price expectation has been increased, announcements of temporary and permanent closure of aluminum production plants have been made in Europe and the United States, the regions most severely affected by the cost increases. In general terms, aluminum production plants in these regions may be subject to closure if they are unable to renew or replace their power contracts at sustainable terms," it said.

The report said new capacity, needed to replace closed capacity and to meet increasing future demand, is expected to be largely developed in energy-rich areas. "Such countries and regions include the Middle East, Russia, Iceland and some countries in Africa, Asia and South America. Aluminum production, which was once confined to western countries, is now shifting to the developing world. Within the developing world, it is shifting to those countries that either have the raw materials or have the energy resources to produce aluminum - the GCC region with its abundant energy resources."

Due to the expansion in the construction sector, several extrusion plants have been set up all over GCC states. There are 22 major extrusion plants in the region with a total production capacity of 300,000 TPA, and the overall capacity utilization exceeds 88%. Most of the plants have anodizing, powder coating and painting facilities. About 60% of the extruded products are used in GCC and the balance is exported to international markets. The number of firms for aluminum finished product industries amounts to 496 with investments exceeding $950 million, and a labor force of more than 24,000, the report said. (KT02.07)

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11.6 ABU DHABI: Avoiding The Dire Strait

Abu Dhabi has taken another step in its program to guarantee oil exports, calling for bids to construct a pipeline bypassing the Strait of Hormuz and connecting its oil field at Habshan with Fujairah on the Gulf of Oman. On July 4, Abu Dhabi's state-owned International Petroleum Investment Company (IPIC) announced it had invited six firms to take part in the tender for the engineering and design contract for the Abu Dhabi Crude Oil Pipeline (ADCOP), with bids due to be evaluated in August. The six firms are the UK companies Penspen International and JP Kenny Limited, the Chicago Bridge & Iron Co and VECO Engineering of the US, France's Technip and Worley Parsons of Australia.

Preliminary work on the line is expected to begin late this year. When completed, the 320km pipeline will carry 1.5m barrels per day (bpd), well over half the daily output of the United Arab Emirates (UAE). At one point just 34 miles wide, the Strait of Hormuz has long been one of the busiest waterways in the world and serves as the lifeline of the West's oil and gas supplies. More than 13m bpd of oil passes through the strait daily, representing over 15% of the world's supplies, according to the International Energy Agency.

The planned pipeline will both ease congestion in the Strait of Hormuz and provide for a more secure route to transport Abu Dhabi crude. Long running concerns that Iran could seek to block traffic in the strait if there was a further ramping up of tension between Tehran and the West over Iran's controversial nuclear program have served as an added spur to the project.

This tension and the price of crude escalated in June when Ayatollah Ali Khamenei, Iran's supreme leader, suggested that his country could move to disrupt oil supplies flowing through the strait if the West took military action against Iran. US naval exercises in the region in late May, which were meant to reassure Washington's partners in the Gulf that it could protect the sensitive oil supply route, prompted oil prices to spike at over $70 a barrel. It is just this sort of instability that the ADCOP is designed to avoid.

The ADCOP project will also involve the construction of storage and terminal facilities at Fujairah, and could also be used to supply a new refinery with a processing capacity of 500,000 bpd according to IPIC. When the plans for the pipeline started to take shape in March this year, the project was warmly greeted by the industry. According to Mustafa Alani, a security analyst for the Dubai-based Gulf Research Centre, the pipeline could help to ease the volatility in the oil price market. "Crisis after crisis is threatening stability," he said in a news agency report on March 21. "We need a permanent solution. Any threat, real or imaginary, will increase the price a dollar or two. This project will give a new boost to the stability of oil."

The ADCOP scheme is not the only idea the Gulf states have to secure their export routes. Dubai is considering building a $2bn liquefied natural gas storage plant in Fujairah with a capacity of 1.8m cu meters. There is also the proposed Trans-Gulf Strategic Pipeline, a far greater endeavor than the IPIC's project.

The Trans-Gulf plan would involve building a 2,500 km long pipeline linking Kuwait, Saudi Arabia, the UAE and running to Muscat in Oman or to Yemen to avoid the Strait of Hormuz. If built, it could carry up to 5m bpd of crude, and along with the ADCOP reduce tanker traffic in the strait by an estimated 40%, according to the Gulf Research Centre.

ADCOP and the other projects under discussion would offer a number of other advantages. It would free up ports inside the Gulf for other trade, reduce shipping time and offers the possibility of lower fuel prices. This would be both as a result of traders dropping their "Iran premium", a tariff imposed to hedge against any threat posed by Tehran to block supplies, and a reduction of high insurance costs on tankers operating in the Gulf. (OBG10.07)

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11.7 QATAR: Economy Could Double

According to a recent economic report compiled by the International Bank of Qatar (IBQ) and its partner National Bank of Kuwait (NBK), as cited by the Oxford Business Group, Qatar's economy is the fastest growing in the Middle East in terms of nominal gross domestic product (GDP). It is expected to see the pace of growth sustained at high levels over the next five years and as a result, its economy could double in size by 2012. These findings are attributed to the government's expansion program, favorable energy prices and high investment spending.

The authors of the report based their findings on Qatar's projected production capacity of energy supplies by 2012. An increase in oil production, which will reach 1m barrels per day, combined with increased LNG exports, which are expected to reach 77m tons per annum (Mta) by 2010, and rising gas to liquids (GTL) exports, will result in the Qatari economy doubling in size by 2012. "The government actually expects this increase in production to come online before 2012, but we think this is probably a bit optimistic, so we anticipate 2012 as a more realistic timeframe," NBK told OBG.

In the past five years, Qatar has seen massive investment in the gas sector, which has bolstered and sustained economic growth. If crude oil remains the backbone of the economy, generating 60% of total export revenues, both oil and gas revenues continued to rise, reaching above $20bn in 2006.

These trends were confirmed by Ragavan Seetharaman, deputy chief executive of Doha Bank, who told OBG, "The main reason for the Qatari economic boom has been the oil boom. Other reasons are the modernisation and inter-regional Arabian investment flow." He also told OBG that it is Qatar's natural gas expansion program that will ensure a sound economic future. "Qatar has taken a lead in gas, and we forecast huge revenues from this sector. The demand and the price have ensured that the economy has done very well," he said.

In 2006, GDP expanded by 24%, after averaging 30% per annum in the three previous years. Real growth remained high, supported by solid gains in hydrocarbon output and major investment flows. Meanwhile, the non-oil sector continued to do well, suffering only slightly from the impact of the correction in the Doha stock market in early 2006. However impressive this performance may be, the rapid growth rate has exacerbated resource constraints and mounting prices, with consumer price inflation hitting a new record high of 15% in the first quarter of 2007, caused by soaring rent, fuel and energy prices.

Prior to 2004, inflation in Qatar stood at 3%, rising to 11.8% in 2006 while excess demand for housing and office space began putting pressure on the construction sector in 2003. Expansionary fiscal policy also contributed to the acceleration in inflation, together with signs of a wage-price-inflation spiral.

"Unless structural adjustments in the housing market stabilize rents, the risk of accelerating inflation is not expected to abate. With monetary policy remaining largely accommodative, high inflation may well become entrenched in the economy with long-lasting negative repercussions on the real economy," warned the IBQ report. On a more positive note, Basel Gamal, the chief executive of Ahli Bank, told OBG, "I feel we will continue to see growth for the next five to ten years. The government budget is a reflection of this growth and they're investing heavily in infrastructure for the future." (OBG29.06)

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11.8 UNITED ARAB EMIRATES: Moody's Upgrades UAE Aa2

On 9 July, Moody's Investors Service (http://www.moodys.com) upgraded the foreign and local currency government bond ratings of the United Arab Emirates (UAE) to Aa2. In an associated action, the country ceiling for foreign currency bank deposits was also raised to Aa2. The country ceilings for foreign and local currency bonds remain at Aa2. The short-term rating also remains unchanged at Prime-1 (P-1). The outlooks on all ratings are stable.

The primary factor driving the upgrade was the ongoing strengthening of the government's balance sheet. "Persistently high oil prices have allowed the government to continue to accumulate significant foreign assets at a rapid rate" said Tristan Cooper, Moody's Vice-President and Senior Analyst. "This has led to a further strengthening of the government's fundamental creditworthiness." The government is expected to run a fiscal surplus of more than one-fifth of GDP again this year and the ratio of direct government debt to GDP is expected to remain very low, said Cooper.

Although there are some indications of economic overheating in certain economic sectors, the risk of macroeconomic instability is low. Economic diversification is proceeding apace as the non-hydrocarbon side of the economy grows quickly. The rise in inflation in recent years was primarily caused by supply bottlenecks in specific sectors of the economy, and is expected to decline gradually as those constraints are addressed. Moreover, the current account surplus will likely remain in a substantial surplus this year as high oil prices have boosted hydrocarbon exports. Both the government and the private sector hold substantial net foreign assets, much of it in liquid securities.

Geopolitical risks and institutional weaknesses continue to weigh on the rating, noted Cooper. "Despite the government's extraordinary financial strength, the ratings are constrained by the country's political, administrative and legal institutional development, which lags that of other similarly rated countries," said Cooper. The domestic political regime is highly stable, but broader geopolitical tensions surrounding Iraq, Iran and the wider region also create a more hazardous environment than exists for the most highly rated sovereigns. However, the UAE receives strong support from the international community in recognition of its strategic importance. (Moody's09.07)

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11.9 UAE's GDP Set To Cross $188 Billion

Buoyed by higher oil revenues and vibrant growth in all economic sectors, UAE's gross domestic product is poised to cross $188b in 2007, recording a surge of 15.3% over 2006. Ahmed Humaid Al Tayer, Chairman of Emirates Bank Group, said UAE's GDP, which continued its fast-track growth in 2006 to reach $163b, up 23%, is expected to grow slower this year. "There are signs that it (GDP) may well cross the $188b in 2007."

In his keynote address at the International-Arab Banking Summit 2007 "Euro-Arab Banking Dialogue" in Brussels, Al Tayer said the UAE recorded an impressive growth in both its current account surplus budget surplus. He said the UAE banking sector, which registered a surge in total assets by 35% to $234b in 2006, would sustain the upturn with total assets already reaching $242b, as of 31 March 2007. "In 2006, the value of deposits grew by 33% to $128b. On the other hand, the total value of loans and advances increased by 39% to $137b in 2006," he said at the"Euro-Arab Banking Dialogue," an international platform for representatives of the public and private sectors as well as leading bankers to meet and discuss issues of concern to the Arab and international economies.

According to Al Tayer, although the UAE banking sector has made big strides on many fronts, there are some key challenges that the banking industry is most likely to face in the coming years. On the challenges facing the banking sector, he said as a result of WTO commitment, the country has already opened up its market to more foreign banks, which have shown increasing interest in the region "where investment is more rewarding than anywhere else."

Al Tayer said the current state of hyper competition, where banks as well as other financial institutions offer lower pricing to gain market share, is putting a squeeze on the margins. Another challenge faced by the UAE banks is their relatively small size at international level. "The mega projects, in infrastructure development, hydrocarbon industry, airline industry valued at over $1 trillion, are far too large for the national banks to take on their balance sheet." "With the announced merger of Emirates Bank and National Bank of Dubai, UAE's banking sector's backdrop may radically change," he said. "The newborn entity will be biggest, not only in the country, but also across the Middle East, commanding close to 19% of total assets in the UAE banking industry."

According to him, the UAE's diversification strategy is working extremely well for the federation with the non-oil sector gaining support from the strategy. Manufacturing and trade continues to grow at high rates in turn keeping the overall economy strong. The diversification program, lead by the country's policymakers, is helping the UAE to prepare for eventual oil price moderation and the gradual reduction in domestic hydrocarbon reserves.

Al Tayer said the GCC countries are riding a wave of record economic prosperity on the back of high oil prices. "No less important, it is also driven by the world's increased confidence in the region's future. Revenues of GCC have surpassed even that of China's huge foreign reserves, to register a record $1,600b in foreign assets. Given the huge inflow of cash due to higher crude prices, the current account surplus of the six Gulf countries are poised to record exponential growth, "he said.

According to latest statistics on the region, nominal GDP growth rates in the GCC are expected to surge this year supported by expansionary fiscal policy and an active private sector. After growing at the average rate of 25.7% to $597b in 2006, this year's nominal GDP for the six Gulf states could exceed $700b. Saudi Arabia saw its nominal GDP grow from $215b in 2003 to $347b 2006 and it is forecast to hit $380b in 2007. The Kingdom used part of its oil surplus to reduce its huge domestic debt, while other Gulf countries used the surplus to increase their foreign asset accumulation. Saudi government debt dropped from 82% of GDP in 2003 to 46.5% in 2005, 28% in 2006 and is forecast to decline further to 24% of GDP in 2007. Recent estimates put Saudi Arabia's foreign assets at $250b, Kuwait's foreign assets are believed to have grown from $60b in 1995 to well over $200b, while UAE's foreign assets are estimated at more than $500b. (GN29.06)

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11.10 ABU DHABI: Fitch Assigns 'AA' Ratings; Outlook Stable

On 2 July, Fitch Ratings (http://www.fitchratings.com) assigned the Emirate of Abu Dhabi foreign currency and local currency Issuer Default ratings ("IDR") of 'AA' with a Stable Outlook. A Short-term foreign currency rating of 'F1+' has also been assigned.

"The 'AA' rating reflects Abu Dhabi's track record of economic and political stability, exceptionally strong public and external balance sheets as well as its huge per capita hydrocarbon endowment that underpins one of the highest incomes per head of any Fitch-rated sovereign" said Richard Fox, Head of Fitch's Middle East and Africa Sovereign rating team.

Although dependence on oil revenues is a weakness, this is mitigated by the investment income from the foreign assets managed by the Abu Dhabi Investment Authority ("ADIA"), the stock of which dwarfs annual budget expenditures. The risk of domestic political and social upheaval is judged to be minimal, but regional political risk weighs negatively on the rating. Other weaknesses in Abu Dhabi's credit profile relate to very limited public disclosure and availability of financial and economic data, relatively weak institutional constraints on executive power and the potential for unexpected calls on government finances, including from other emirates in the United Arab Emirates (UAE).

Abu Dhabi is the largest of the seven emirates making up the UAE. It generates over half of UAE GDP, including virtually all its oil and gas production, exports of which were worth more than $50b last year. It funds over half the federal UAE budget, including direct funding of the defense and security services. The ruler of Abu Dhabi has historically been the UAE President. For these reasons, Fitch regards it appropriate to treat Abu Dhabi as an essentially sovereign entity.

Abu Dhabi's proven oil reserves are the fifth-largest in the world and are equivalent to more than 100 years of current production of 2.5mbd. ADNOC (Abu Dhabi National Oil Company) plans to expand hydrocarbon production capacity to 3.5mbd in the medium term from the current 2.7mbd (including condensates), working with major international oil companies that, unusually in the region, have upstream operations in Abu Dhabi under long standing agreements. In per capita terms, proven oil reserves are by far the largest in the world, as is oil production, underpinning per capita income that exceeds that of many more highly rated sovereigns, though this is not reflected in all aspects of social development and human capital. Abu Dhabi has an evident comparative advantage in hydrocarbons and its downstream derivatives, which will support a high standard of living for the foreseeable future. Nevertheless, its government has embarked on an ambitious program of economic and structural reforms, aimed at cementing its role as the UAE's industrial hub, expanding the role of the private sector and improving the productivity and competitiveness of its citizens and the non-oil economy.

High oil prices are rapidly swelling Abu Dhabi's already substantial external assets, which are mainly managed by ADIA. In absolute terms and relative to GDP, the government is one of the largest net external creditors amongst rated sovereigns and currently has no domestic or foreign debt. However, the rating factors in some moderate future foreign borrowing as public investment spending accelerates. At current oil prices, Fitch expects gross external assets to continue rising rapidly over the next two years. Even taking account of the external liabilities of the wider public sector, the banks and non-bank private sector, Abu Dhabi is one of the top ten net external creditors rated by Fitch. Moreover, Abu Dhabi's government balance sheet is robust to even dramatic declines in oil prices and investment income. Contingent liabilities in the rest of the public sector and in Abu Dhabi banks - many of which have direct or indirect government stakes - are assessed to be modest and do not pose a material risk to sovereign creditworthiness. Fitch nonetheless cautions that even though most of the planned infrastructure and other projects (estimated at over $100b over the next five years), will be largely private sector-led and financed, they nonetheless could result in future calls on government finances if not successfully executed or if the economic and financial environment were to change dramatically. In the UAE context, Abu Dhabi already supports the smaller emirates through the federal budget and circumstances can be envisaged in which further ad hoc support might be requested. However, Fitch believes Abu Dhabi would exercise discretion in meeting such demands and treat its own obligations as senior and would not imperil its own financial and credit standing.

Fitch believes that the lack of public disclosure on a wide range of economic and financial statistics, including the budget and assets managed by ADIA and other government investment funds, is a weakness because greater public transparency would further strengthen accountability and policy credibility. There are also significant deficiencies in economic data, notably measures of price and wage inflation as well as private sector external assets and liabilities, though the authorities are investing to address these weaknesses.

Government and executive authority is not subject to the public and institutionalized checks and balances typical in most other sovereigns in the 'AA' category. However, the potential for misrule is constrained by respect for property rights, traditional codes of behavior and sensitivity to the welfare of emirate citizens - approximately 350,000 in Abu Dhabi - and which has cemented the respect and legitimacy enjoyed by the royal family and government. Geopolitical risks, including but not only relating to the current tension in the region between the international community and Iran, are a constraint on Abu Dhabi's credit standing. (Fitch Ratings02.07)

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11.11 Dubai Transport & Foreign Trade Sector

Dubai transport sector (including also storage and communications) represented 13% of Dubai total GDP in 2005. The sector recorded extraordinary 20% growth rate in 2005 compared to the previous year, situating itself among the most growing economic sectors in the Emirate. Dubai transport sector employs nearly 7% of Dubai total workforce. Given the importance of the transport sector in Dubai, DCCI conducted a research to highlight the recent developments witnessed in the sector during the latest years and how they affected the movement of goods and passengers as well as foreign trade.

Sea Transport

The quantity of goods discharged at the two main sea ports of Dubai (i.e. Rashid and Jebel Ali ports) has increased by almost double during the period 2001-2005 at annual growth rate of 18.7%. In 2005, the quantities of discharged goods totaled 58.1 million tons of which 57% are containers, 22% are petroleum and 21% are general goods. On the other hand, the quantities of goods loaded were estimated at 34.4 million tons doubling almost by that its value in 2001 of 17.5 million tons. The shares of containers, petroleum and general goods in goods loaded were 76%, 18% and 6% respectively. It is obvious that containers represent the majority of goods loaded and discharged followed by petroleum and general goods. More specifically, 67% (53%) of loaded (discharged) containers are classified as transit shipments while the rest are registered as exports (imports), which reflect clearly the importance of Dubai as a re-export hub.

Similarly, passengers' movement in Dubai sea ports has also witnessed notable growth between 2001 and 2005. The number of total passengers in 2005 reached around 77,000 (of which 50% are arrivals and 50% are departures) showing an increase of 70% compared to 2001. This increase is mainly attributed to increase in number of arrivals (from 13,800 in 2001 to 38,600 in 2005) given that growth in number of departures was much lower (22%).

Air Transport

The total number of aircraft that landed at Dubai international airport in 2005 was almost 217,000, which represents a growth rate of 62% compared to year 2001. The landed aircraft can be divided into three categories: 83% scheduled flights, 14% non-scheduled flights, and only 3% military aircrafts. The number of scheduled flights grew on annual growth rate of 12% during the period 2001-2005.

On one hand, passengers at Dubai international airport in 2005 were 24.8 million of which 49% are arrivals, 48% are departures and only 3% are transit passengers. This figure represents a growth of 84% in total number of passengers compared to 2001. On the other hand, cargo movement at Dubai international airport in 2005 totaled 1.3 million tons of which 53% were discharged goods and 47 % were loaded goods. More interesting, both discharged and loaded goods doubled their quantities in five years period, which logically resulted in almost doubling the total cargo movement at Dubai international airport.

Land Transport

Dubai has paid special attention to continuously improve its roads and land transport. For instance, the length of total asphalted roads in Dubai (i.e. single and dual carriageway) has reached 2,998 kilometers in 2005 compared to 2,177 kilometers at the beginning of 2001 (i.e. 38% growth). Despite this remarkable development witnessed in roads, the number of trucks departing from Dubai to neighboring countries has not improved. In contrast, it dropped by -18% between 2001 and 2005.

The fact that Dubai trade by land transport is not improving –despite the huge increase in roads and land logistics– combined with the significant improvement witnessed in movements of goods and passengers by sea and air leads to the conclusion that trade by sea and air are still the most preferable ways of transport for both goods and passengers. Land transport is important mainly for Arab countries located in the vicinity. In 2005, Arab countries were the destination of the vast majority of trucks departing from Dubai (97%), of which Gulf Cooperation Council countries (GCC) share is considerable (61%). In addition, Jordan, Iraq and Yemen top the list of Arab countries destined by trucks departing from Dubai.

Transport and Foreign Trade

Maritime shipment is still the main gate for Dubai foreign trade. Dubai foreign trade by sea stood at AED 152 billion in 2005 representing 54% of total foreign trade. Air transport comes in the second place to take care of 43% of Dubai total foreign trade. Dubai foreign trade by land has been very limited and represented only 3% of total foreign trade.

Between 2001 and 2005, developmental investments by Dubai government reached almost AED 11 billion. This substantive amount of investments affected foreign trade positively. Specifically, Dubai total foreign trade increased by almost 150% between 2001 and 2005, from AED 112 to 280 billion. Its share relative to Dubai total GDP also increased from 170% to 200% during the same time period. (Al Bawaba 04.07)

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11.12 DUBAI: New Queen of the Desert

On 18 June, Cunard Line announced it had agreed to sell the 40-year-old Queen Elizabeth 2 (QE2) to Istithmar, the investment arm of the development firm Dubai World. After sailing off on her final cruise late next year, the ocean liner will make her last voyage to Dubai, where she will be converted into a floating hotel and moored at an artificial palm-shaped island, part of the Palm Jumeirah resort project. The Oxford Business Group added that after a complete refit, which the QE2's new owners say will restore the liner to her original décor when launched in 1968, the latest addition to the $64bn Dubailand development of hotels, theme parks, museums, retail outlets and cultural attractions will lower her gangway to paying guests, who are expected to book out her 950 cabins.

Istithmar has yet to announce a costing for the refit of the QE2, or the budget for putting in place the special deep water pier and other infrastructure needed to moor the vessel and make it accessible to the public, though it will add greatly to the $100m price to be paid to the British-owned Cunard Line. Perhaps the only feature of the QE2 that will be removed is the liner's lavish casino. With gambling banned in Dubai, the roulette wheels and card tables will make way for additional shopping outlets and entertainment facilities.

Even without the casino, Sultan Ahmad Bin Sulayem, the chairman of Dubai World, is sure the QE2 will prove a major draw card for the Emirate and will become one of the "must-see experiences" of Dubai and of the Middle East. "The Queen Elizabeth 2 is without a doubt one of the wonders of the maritime world, and is easily the most famous serving liner in the world today," he said. "I am delighted we will be able to create a home for her on the newest wonder of the world, the Palm Jumeirah."

News of the sale was hailed by Mark Beer, the chairman of the British Business Group in Dubai, who said having the QE2 permanently located at Palm Jumeirah would help boost business and tourism ties between the United Kingdom (UK) and the emirate. "There is a long history of association between the UAE and UK business communities, not least within the travel and leisure markets," said Beer. "The presence of this historic ship in Dubai will also help to increase the number of UK tourists visiting the UAE, which currently stands at around one million per year."

However, the sale was not welcomed by all, with groups in the QE2's home port of Southampton angered that Cunard had not given the city the chance to bid on the liner, scuttling nascent plans to turn the ship into a conference centre. Though one group had approached the company two years ago asking for the chance to buy the old lady of the seas when she went into retirement, efforts by Southampton to be the final resting place of the QE2 would have always faced a number of obstacles. These included the lack of a suitable berth for the vessel in the cramped port district, expensive infrastructure to provide access to the site and the high cost of maintaining the ship, none of which poses any problems for Dubai.

"Dubai is a maritime nation and we understand the rich heritage of the QE2," said Bin Sulayem when the sale was announced. "She is coming to a home where she will be cherished." The 70,000 ton liner has long since been eclipsed by bigger and faster liners. However, nothing can take away the special something that the QE2 has, the last of the great liners of the old tradition, a ship that has seen four decades in times of peace and war, having served as a troop ship in the Falklands War and carried more than 2.5m passengers on that once-in-a-lifetime holiday. (OBG26.06)

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11.13 OMAN: Fishing Wider Markets

Long before there was oil or gas, as recounted by the Oxford Business Group, one of the biggest industries in Oman was fishing. As Oman looks to a future when its energy resources run dry so too its fishery industry is contemplating the threat of diminishing returns, with fish stocks being stretched as demand increases.

There are some 30 companies active in the Omani fisheries and seafood export sector, altogether accounting for $104.7m worth of overseas sales to 50 countries in 2006, with the majority of exports going to other Gulf Co-operation Council member states and Europe. The industry is the second highest export earner after energy resources.

To maintain this position though, Oman's fisheries industry has to make plans to cast its net wider in order to meet its orders. Mohammed bin Hamad al Masrouri, the chairman of Oman Fisheries SAOG, the sultanate's largest processor and exporter, announced in late June that the company was looking at overseas investments to boost supplies and its financial results. Among the proposals that al Masrouri identified were facilities for fish procurement, storage and fish farming in Yemen, Vietnam and India.

In the financial year ending March 31, Oman Fisheries' results suffered due to a number of factors, including falling fish stocks, with catches of some prime varieties falling by more than half. Though the company boosted its consolidated turnover from $17m in the previous year to $21m, it fell into the red, posting a net loss after tax of $1.1m, compared to a profit of $1.7m for the 2005-06 financial year. Along with the rest of the industry, Oman Fisheries had to deal with rocketing fuel prices, with diesel costs up nearly 250%, again forcing up the buying rates of fish.

Though not directly referred to by al Masrouri, the Omani fisheries industry took another blow in early June, when Cyclone Gonu blew in. While most of the sultanate's fishing fleet was saved from any major damage due to early warnings issued by the authorities, some vessels were damaged. However, the massive storm washed hundreds of tons of sediment into the Gulf of Oman and the Arabian Sea, which along with the subsequent high temperatures, drove a large percentage of fish stocks into deeper waters. Sediment and storm damage from Gonu also impacted on Oman's shellfish industry, with some producers having to make repairs and wait for the waters to fully clear before their farmed produce can again be marketed. In the wake of the cyclone, seafood prices around the Gulf region shot up by as much as 70%, mainly a result of the fall in production from Oman.

Though stocks may be declining, the industry is working to open up new export opportunities. One new market the Oman fisheries sector is looking to expand into is the US, assisted by the coming into force of a free trade agreement between the two countries in 2006. A number of the sultanate's leading exporters took part in one of North America's biggest marine products fairs, the International Boston Seafood Show, in March, with favorable feedback leading to a potential $4m worth of new orders.

The state has done much to support the fishing industry, mindful that it is one of the country's main employers, with some 30,000 directly involved in fishing activities and around 5000 working in associated jobs such as packaging and processing. Funding assistance for fishermen to buy new boats and equipment, the establishment of research centers to provide detailed information to the industry and state funded training have all strengthened the industry.

In 1998, when the EU briefly banned imports of Oman seafood due to health and safety concerns, the government acted quickly to protect one of the sultanate's oldest and most valuable industries. New laws were enacted to ensure all processing facilities met stringent EU and Japanese quality control requirements and further assistance was provided to producers to help upgrade their equipment. As a result, any question marks over the standards of Omani seafood soon disappeared. The state has also moved to regulate fishing seasons and impose limits on the catch of some species, in order to preserve stocks and maintain standards.

Though the sector may be under pressure from high prices and falling resources, it has established a reputation for quality and is now looking to expand beyond its home waters. While vagaries of weather and seasonal conditions may affect net profits, future investments and sound management of stocks should ensure Oman's fishing industry remains buoyant. (OBG03.07)

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11.14 ALGERIA Business: Investors Alert

Foreign investor interest in Algeria has sparked up recently with the entry of HSBC and Deutsche Bank into the financial services sector, and the acquisition by Linde of Germany of a controlling stake in a state-owned industrial gases company, a rare instance of a privatization deal being struck. These initiatives suggest that some international companies are starting to look more favorably on Algeria, despite its difficult business climate and history of political violence.

Hot on the heels of the news that HSBC had been authorized by the banking authorities to set up a branch in the country - the first UK-based bank to do so - came the announcement from Deutsche Bank in mid-June that it plans to set up an investment banking affiliate in Algeria, in partnership with the local Strategica. These moves come as the government prepares to solicit final offers from six shortlisted banks for a majority stake in Credit Populaire d'Algerie (CPA), the first state-owned bank to be offered for privatization, and as foreign banks assess a number of opportunities to finance a series of new heavy industrial projects, including two fertilizer plants and the first units in a $15bn petrochemical investment program.

Catalyst

The HSBC move, announced by the Conseil de la Monnaie et du Credit at the end of May, brings to 13 the number of foreign bank branches in Algeria. Other recent entrants include Al-Salam Bank - a Bahrain-based institution, whose shareholders include Dubai Holding and Emaar Properties of the UAE - and Calyon, the investment banking affiliate of Credit Agricole, both of which received their licenses last year. HSBC is a powerful player in the region, with extensive operations in the Gulf Arab states and Egypt. However, the establishment of the Algerian branch will be its most substantial investment to date in North Africa, where French banks tend to predominate.

The Deutsche Bank approach has been different from that of most other foreign banks targeting the Algerian market, as it has focused on the investment banking sector. The vehicle for its entry has been the acquisition of a 51% stake in Strategica, a financial advisory firm set up in 2002 by Lachemi Siagh, an Algerian academic who has taught business management courses in Canada. Strategica has been the pioneer of the corporate bond market in Algeria, having advised on 31 issues worth $2.2b in total. Almost all of these have involved state-owned enterprises. The one significant exception was an issue last year by the privately-owned Cevital group. Besides formalizing its relationship with Strategica (after several years of co-operation), Deutsche Bank has set up an Algerian subsidiary, Deutsche Securities Algeria, which will apply for requisite licenses from Banque d'Algerie (the central bank) and the Commission de Surveillance des Operations de Bourse (Cosob), the body responsible for supervising Algeria's moribund stock market.

The comments of Deutsche Bank's vice-chairman, Caio Koch-Weser on the Algerian initiative were remarkably optimistic. He referred to the "dynamism" of the Algerian economy and the "vast reform of the financial sector that has been successfully carried out". The bank said that Algiers would become the centre of its business for all the Maghreb region, offering the whole gamut of financial services products, including advisory on mergers and acquisitions, private equity, debt issuance, initial public offerings and project finance.

Reality Check

In reality, Algeria's financial sector reforms have made rather modest progress, and in some respects have actually regressed. The attempt to promote private-sector banking came to grief with the Khalifa Bank scandal, the appalling dimensions of which were exposed in the recently concluded trial of the main figures involved. The stock market, which was inaugurated in 1999 has, sunk without trace. Of the three stocks that were originally listed, Eriad Setif, a food company, has withdrawn, the El-Aurassi hotel is soon to be pulled out as part of its proposed sale to a strategic investor, and Saidal, a pharmaceutical company, is barely traded (its chief executive, Ali Aoun, was among those sentenced to prison terms in the Khalifa case). The main activity on the bourse is related to the three bond issues that have been listed--Cevital, Air Algerie and Algerie Telecom.

However, it is clear that a thriving capital market could be an important ingredient in stimulating the Algerian private sector, and Deutsche Bank's entry is a vote of confidence in the sector's potential to develop. The CPA privatization likewise provides the opportunity for the commercial banking sector to start to play a much more effective role promoting the growth of private business. The six shortlisted banks--BNP Paribas, Citibank, Banco Santander, Credit Agricole, Societe Generale and Natexis -have been invited to conduct due diligence, with bids for a majority stake to go in later this year.

Project finance also has potential for rapid growth. Foreign banks have been involved in a number of medium-sized deals over the past few years, including a series of cement projects carried out by Orascom Construction Industries (OCI) of Egypt and several desalination schemes. OCI has appointed Societe Generale to advise on a limited recourse financing facility for a fertiliser plant to be built in Arzew in partnership with Sonatrach, the state energy corporation. Banks are also lining up for a second fertiliser scheme, for which Sonatrach has teamed up with Bahwan of Oman. These schemes are each expected to be worth in excess of $1bn. (EIU20.06)

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11.15 TURKEY: Voting for the Future

Morgan Stanley's Serhan Cevik observed that Turkish voters will soon not just choose a new government — they will also decide the country's future. "Less than a month from now, Turkey will have a new government that will not only shape the next five years but will also determine whether Turkey will become a member of the European Union. Hence, Turkish voters will be voting, on July 22, for a mandate to remove institutional bottlenecks that have kept the economy below its true potential. Indeed, as recent developments have clearly shown, institutional uncertainties remain the biggest obstacle for faster, welfare-enhancing economic growth and progress towards liberal democracy compatible with European standards. Unfortunately, the degree of uncertainty has become far more distortionary, with the military's venture into politics and constitutional confusion about the presidential election process.

Of course, if you just focus on financial markets, you would not notice even a grain of unpredictability, thanks to the lure of carry trades making the lira extremely attractive in the sea of global liquidity. However, that does not change the disturbing fact that Turkey now faces new institutional constraints and political risks that may possibly deepen fragilities in the political landscape, disturb accession negotiations with the EU and weaken the economy.

Strategic voting is likely to become widespread and alter political preferences. One of the side effects of instability in the past decades is the emergence of "swing voters" with no strong party affiliation. Studies show that more than a quarter of Turkish voters changes party preferences in two consecutive elections, leading to election surprises. Although measuring political attitudes is difficult (due to the lack of comprehensive polls), recent developments (including failed attempts to engineer a merger between centre-right parties) possibly will amplify strategic voting, especially among undecided voters and those without strong political attachments. Indeed, if voters abandon their first preference with a poor chance of winning for a less preferred candidate with a better chance of winning, we may see yet another surprising result this summer.

The latest opinion polls suggest more fragmentation, compared to political consolidation in the 2002 elections, albeit the ruling AK Party is still leading with a wide margin that would be enough to keep it as the leading party. However, we need to be cautious about extrapolating opinion polls to estimate the distribution of parliamentary seats. Since there is a 10% threshold for parliamentary representation, even a small margin of error could lead to unexpected results. In fact, all the opinion polls bring to light the likelihood of at least three parties (AKP, CHP and MHP) in the next parliament, unlike the previous elections when only two parties qualified for parliamentary representation. Having two other parties (GP and DP), with each getting around 10% of the votes, and more independent candidates, implies a more fragmented outcome in the coming elections.

Economic performance supports the AK Party, but there are other factors influencing voters. Judging from the economy's performance in the last five years — with real GDP growth reaching to 7.4% a year and inflation declining below 10% for the first time in ages, the AK Party should enjoy strong support from the voters. However, the macro picture alone is not enough to shape voting behavior, particularly in rural areas and urban peripheries. While even socioeconomic indicators have shown encouraging improvements, there are still deep-seated structural constraints that result in opportunity and income differentials across regions and social groups. Take, for example, rural voters who account for more than one-third of all voters and therefore can have overwhelming political clout. Since the beginning of the stabilization program in 2000, structural reforms have led to a significant reduction in transfer income to (small) farmers. This adjustment is certainly necessary for economic well-being in the longer term, but also creates a disgruntled voter base. Likewise, although non-farm employment increased from 13.9 million in 2002 to 16.2 million last year, there are still millions of discouraged workers, which will make the behavior of 4 million new voters even more critical in the coming elections. Of course, in addition to economic issues, we think that recent political tensions will likely bring ideological stances back in vogue, as well.

A single-party government is still possible, but the likelihood of coalition is not negligible. Estimating the distribution of parliamentary seats is subject to a high margin of error, but it still seems that a single-party government is possible, as long as there are three parties in the next parliament. However, we should not ignore the possibility of a coalition government, which is likely if another party qualifies or there are more than 50 independent members in parliament. Even though there is nothing wrong with a (strong) coalition government, the Turkish economy has always recorded below-potential performance (with widening imbalances) under coalition governments. The question is whether the voters will remember the past before casting their votes on July 22. (MS26.06)

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11.16 CYPRUS Upgraded To A1, Malta Upgraded To A2; Outlooks Positive

On 10 July, Moody's Investors Service upgraded the long-term foreign and local currency government bond ratings and the long-term country ceilings for foreign currency bank deposits of Cyprus (to A1 from A2) and Malta (to A2 from A3). The outlook on these ratings has been changed to positive from review for possible upgrade. Malta's short-term country ceiling for foreign currency bank deposits was also upgraded, to P-1 from P-2. These rating actions followed the European Union's final decision to allow Cyprus and Malta to adopt the euro on 1 January 2008. These actions conclude the review for upgrade initiated by Moody's on 17 May 2007.

"Moody's views the eventual adoption of the euro by these two countries as a credit positive because it will all but eliminate the risk of a currency crisis and thereby isolate their economies from external financial shocks," says Tristan Cooper, Vice President -- Senior Analyst in Moody's London office. Moody's views on this issue are more fully explained in a Special Comment entitled "The European Union's ERM2 Experience Justifies Some Credit Enhancement", published in March 2006.

Today's positive rating action is further supported by the strengthening economic fundamentals of both Cyprus and Malta. "In recent years, both countries have successfully implemented a program of fiscal consolidation that has narrowed their fiscal deficits and reversed the previous upward trend in their public debt burdens," adds Mr Cooper.

Cyprus and Malta's long-term country ceilings for foreign currency bonds remain at Aa1 with a positive outlook, while their country ceilings for local currency bonds and bank deposits remain at Aaa. Cyprus' short-term country ceilings for foreign currency bonds and bank deposits remain at P-1 and Malta's short-term country ceiling for foreign currency bonds also remains at P-1. (Moody's10.07)

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- Israeli Shekel conversions done at a rate of NIS 4.20 = $1.00
- Turkish Lira conversions done at a rate of NTL 1.5 = $1.00
- Cypriot Pound conversions done at a rate of C£ 1.00 = $1.60
- Jordanian Dinar conversions done at a rate of JD 1.00 = $1.41
- UAE Dirham conversions done at a rate of Dh 3.70 = $1.00
- Omani Rial conversions done at a rate of OR 0.385 = $1.00
- Pakistani Rupee conversions done at a rate of Rs 60 = $1.00

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