• Answers.com's WikiAnswers Continues Strong Growth
• GCC to Stay With Dollar & Launch Common Market
• Turkish Nuclear Tender to Take Place on 21 February 2008
• Greece's GDP Rises By 3.6% in Third Quarter
• The Fast of the 10th of Tevet Observed on 19 December
• Eid el Adha – Feast of the Sacrifice – Mark By Moslems
• Amarin Signs Agreement to Acquire Ester Neurosciences

TABLE OF CONTENTS:

1.1 Finance Committee Approves Investment Advice Documentation Rules
1.2 Olmert Says Target is 6% growth

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2.1 Answers.com's WikiAnswers Continues Strong Growth
2.2 Deloitte Finds Israel a Top Market for US VC Funds
2.3 El Al Approves Code Share Deal With American Airlines
2.4 EL AL Israel Airlines Releases Best Ever Quarterly Financial Results
2.5 Carbon Design Systems Adds New Distributor in Israel
2.6 Solicore Provides First Paper-Thin, Flexible Battery to Leading Israeli Distributor

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Tel Aviv Apartments Among the Region's Most Expensive
3.2 47 Billionaires in Arab World
3.3 GPCA Says Ethylene Production in Middle East to More Than Double Over Next 5 Years
3.4 Altair Nanotechnologies Announces Completion of $40 Million Private Placement
3.5 Synopsys Chooses Sanco as Distributor for Middle East
3.6 Shells Seafood Restaurants Sign Agreement for 10 Restaurants in Middle East
3.7 Tunisie Telecom Selects Telarix's iXTools to Expand Its International Carrier Business

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4: ISRAEL MACRO-DEVELOPMENTS

4.1 National Planning Commission Approves Antennae Plan
4.2 Landfill-Turned-Park to be Named For Ariel Sharon

5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 GCC to Stay With Dollar & Launch Common Market
5.2 GCC Attracted $42 Billion in FDI During 2006
5.3 $10 Billion Rush for More GCC Hospitals
5.4 US Plans Up To $10.4 Billion in Gulf Arms Sales
5.5 Kuwait Inflation Surges to Highest On Record
5.6 Qatar Population Set To Hit One Million
5.7 Canadian University of Dubai signs a MoU with University of New Brunswick
5.8 S&P Says Pakistan's Politics May Jeopardize Positive Credit Fundamentals

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 The Fast of the 10th of Tevet Observed on 19 December

*REGIONAL:

7.2 Eid el Adha – Feast of the Sacrifice – Mark By Moslems
7.3 Bahrain Celebrates Its National Day
7.4 Musharraf Steps Down As Army Chief

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Amarin Signs Agreement to Acquire Ester Neurosciences
8.2 Clal Biotechnology & Teva Collaborate for Final Stage Development of Type 1 Diabetes Drug
8.3 Teva Announces Tentative Approval of Generic Requip Tablets

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Fighting Fire With Video – Optibase IPTV Solution Installed at Portland Fire and Rescue
9.2 Tower Semiconductor Starts Volume Production for International Rectifier
9.3 N-trig Ships Over 10,000 DuoSense Digitizers to Global OEM Customers
9.4 Rimon Winery Introduces Pomegranate Dessert Wine
9.5 IDO Security Expands MagShoe Shoes-On Weapons Detection Systems Poland
9.6 Telecom Italia San Marino Expands VoIP Network Using VocalTec's Solutions
9.7 Australia's Optus Selects Gilat for Broadband Satellite Network Expansion
9.8 Elbit Vision Systems Enters Alliance for Distribution of Ultrasonic Products to UK Rail Industry

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's High Tech Exports Rise Slowly
10.2 Israeli Vehicles Sales Approach 200,000 Milestone
10.3 Israelis Among World Leaders In Internet Usage
10.4 Hanukah 5768 Saw Less doughnuts, More Candles

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1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Finance Committee Approves Investment Advice Documentation Rules

The Knesset Finance Committee has approved a serious of regulations that will require any investment advice to be either recorded or documented in writing. The new regulations set out a code of practice for investment advice, and the marketing of investment product and management of portfolios. Documentation is compulsory, but there were no specific regulations to govern the way it is carried out until now. Under the new regulations, any transaction will be documented in such a manner that will enable all the details it contains to be reproduced. An example of this would be the price cap quoted by the portfolio manager for a security, and the commission charged to the customer for buying it. The regulations also provide that customers must be informed in advance by the vendor if the advice given will be recorded. Advisers will also be required to make a record of the consultation process that fully reflects the advice given and includes all material information. (Globes 05.12)

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1.2 Olmert Says Target is 6% growth

Prime Minister Olmert set a sustainable growth target of 6% in his speech at the "Globes" Israel Business Conference on 10 December. He added, "This is a pretentious target, but not an impossible one. If we continue to maintain fiscal discipline and cautiously make the spending ceiling more flexible, as we have done until now, we can reach this target. "This year, economic growth will be no less than 5.5%, and perhaps even higher. The rate of unemployment decreased in the final quarter to a rate of 7.4% - the lowest in over a decade. Our balance of payments is positive for the third year in a row, and the surplus will this year stand at $8 billion. Inflation is close to zero, our national debt has decreased to a rate of 82% of the GNP." Olmert added, "All these measures point to a dramatic improvement in the economic stability and substantial strength in the capability of the Israeli economy to deal with the social challenges which Israel faces." Olmert also noted that " the Israeli economy cannot be built solely on the hi-tech field," and that it was necessary to upgrade and strengthen traditional industries. He noted that in addition to the great importance of high tech, Israel could be a world leader in the traditional industries as well, and conquer new markets in Europe and Asia with innovative products in the traditional industries. (Globes 11.12)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 Answers.com's WikiAnswers Continues Strong Growth

Answers Corporation announced that WikiAnswers had reached a milestone of 400,000 registered contributors. According to ComScore, WikiAnswers had 5.189m unique monthly US visitors in October, up from 4m in September, or over 25% growth month over month. The company last reported, on November 6, that the rate of new registered users was almost 1,700 per day, on a weekly average, compared to around 150 last November. Less than a month later, this figure has exceeded 2,000 per day on a weekly average. ComScore recently ranked WikiAnswers as the 2nd fastest growing site in the US, for the first nine months of 2007, based on unique monthly visitors, among the top 1,500 US sites. Founded in 1999 by CEO Bob Rosenschein, Jerusalem, Israel's Answers Corporation operates the award-winning Answers.com answer engine, delivering comprehensive content on over forum topics spanning health, finance, entertainment, business and more. Content includes over 180 licensed titles from leading publishers such as Houghton Mifflin Company, Barron's, Encyclopedia Britannica, All Media Guide and others; original articles written by Answers.com's editorial team; and user-generated questions & answers from Answers.com's industry-leading WikiAnswers (http://wiki.answers.com). (ANSW-p30.11)

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2.2 Deloitte Finds Israel a Top Market for US VC Funds

Israel is one the four preferred global investment locations for US venture capital funds, a joint survey by accounting and consultancy firm Deloitte Brightman Almagor, the Israel Venture Association reveals. The survey was conducted among members of the venture capital associations in the US and Europe, and 16 other venture capital funds across the world. The survey also found that US venture capital managers gave Israel top rating for quality deal flows. Some 70% of those polled named Israel as a major source, compared with 21% who named Canada; 18% for China, 17% for the UK and Ireland and 10% for India. Israel came second in the ratings for top-rate entrepreneurs. 20% of venture capital managers said the country was a prime source of high quality entrepreneurs, against 21% who named Canada. The managers also rated Israel third in the list of preferred locations for off shoring R&D activity. Some 7% named Israel as their preferred location, against 29% who named India, and 8% who named China. 6% of US venture capital managers consider Israel their primary location for expanding their investments overseas, compared with 2% who chose Europe, and less than 1% who chose the Asia-Pacific region. (Globes 05.12)

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2.3 El Al Approves Code Share Deal With American Airlines

El Al Israel Airlines has approved a code sharing agreement with American Airlines, to come into effect on 1 February 2008. The agreement is for two years and will be automatically renewed in one-year increments, unless one of the airlines terminates the agreement. The agreement will apply on El Al routes between Tel Aviv and New York, Los Angeles, and Miami; El Al routes to Europe, from where American Airlines flights will continue to many US destinations; and El Al's US destinations and follow-on flights to 23 US cities by American Airlines, including Atlanta, Chicago, Dallas, Fort Worth, Orlando, San Francisco, San Diego, and Seattle. El Al has applied to the Ministry of Transport, and American Airlines has applied to the US Department of Transportation to approve the agreement. American Airlines and El Al already have a partnership giving allowing passengers on El Al to record American Airlines frequent flier miles. For American Airlines, the code sharing agreement with El Al gives it access to the Israeli market, and is a response to the great success of Delta Airlines and Continental Airlines' routes to Tel Aviv from Atlanta and Newark, respectively. Delta Airlines plans to inaugurate a route from JFK as well. (El Al 05.12)

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2.4 EL AL Israel Airlines Releases Best Ever Quarterly Financial Results

EL AL, the national airline of Israel, continues to fulfill its projections as revenues increased by a record 27% in Q3/07, totaling approximately $567m. This compares to $447m in the same quarter last year. EL AL's net profit rose to $41.2m this quarter, compared to a net profit of $1.4m in Q3/06. Cash flow from operating activities totaled $74.1m. Operating expenses for this quarter totaled approximately $415m, which is mainly attributed to the rise in fuel costs ($6m), and the devaluation of the dollar, which added $12m to the company's expenses. This quarter, hedging activity by EL AL saved $5.1m in fuel costs. Operational profits reached $63.8m, compared to $8.5m last year in the third quarter. As of September 30, 2007, the cash balance for the company was $265.4m. The dramatic increase in the third quarter net profit is partially due to the enormous growth in passenger traffic during this period. As a result, EL AL offered 4% more seats to Israel and the load factor rose to more than 87%. Other contributing factors to the quarter's outstanding profit are the meticulous care the airline has devoted to improving EL AL services and the overall product, an increase in revenue from cargo and leasing aircraft, as well as the providing of high quality EL AL maintenance services to other airlines. All of these gains were realized despite the fact that El Al observes the Jewish Sabbath and does not travel from Friday afternoon until Saturday night! (EL AL 27.11)

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2.5 Carbon Design Systems Adds New Distributor in Israel

Waltham, Massachusetts' Carbon Design Systems, the leading supplier of tools for the automatic creation, validation and deployment of virtual hardware models, announced the addition of EG Design Systems as its distributor for Israel. EGDS, a European sales agent based in Israel, represents software companies specializing in electronic design automation (EDA), intellectual property (IP) and embedded development. Carbon is the leading supplier of system-level tools to automatically create, validate and deploy software models generated from Verilog and/or VHDL descriptions. (Carbon11.12)

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2.6 Solicore Provides First Paper-Thin, Flexible Battery to Leading Israeli Distributor

Lakeland, Florida's Solicore announced an agreement with Israel's Semicom-Lexis for the exclusive distribution of Solicore's paper-thin Flexion battery in Israel. This strategic alliance introduces Solicore to the Middle East market by leveraging Semicom-Lexis's extensive knowledge of key industrial and consumer needs in the region, as well as their network of relationships with original equipment manufacturers (OEM). Israel has emerged as a leader in high-tech development of advanced security solutions, with Semicom-Lexis at the cutting edge of new technologies and applications. Semicom-Lexis is one of only five design and distribution companies of its kind to be publicly traded on the Tel-Aviv Stock Exchange. Its partnerships with diverse global OEMs allow the company to provide value-added engineering and distribution services to its high-profile client roster. Adding the Flexion battery, as the only thin and flexible power source to its existing portfolio of battery solutions, broadens the scope of opportunities for diversification to its clients. Solicore's entrance into the Israeli market brings exciting opportunities. Semicom-Lexis does 15 to 20% of its business with the Israeli military - a new market segment that will showcase the limitless applications of Solicore's batteries. (Solicore 11.12)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Tel Aviv Apartments Among the Region's Most Expensive

The Global Property Guide announced on 26 November that the prices of apartments in central Tel Aviv are among the highest in the Middle East. It found that the average price per square meter in Tel Aviv is $5,000, followed by Dubai's average cost of $4,000 per square meter, followed by Tunis at $2,500 per square meter. Cairo has the lowest apartment prices, at just $400 per square meter on average, but with highest yield from rents, about 11%. Tel Aviv ranks eighth in average yield, at 6%. Jordan's Amman came second on yields from rentals at 10%. The reason for the high yields in Tel Aviv is demand, as the shortage of apartments that have led to soaring rents. Owners have raised the dollar rental prices to counter the dropping dollar-shekel exchange rate and divided apartments to push up yields.

In Marrakech, Morocco, yields of nearly 9% are available on 60-square-meter apartments, while in Cairo's Maadi neighborhood, investors can generally get double-digit earnings of up to 17% on a 250-square-meter apartment. In Europe, by contrast, earning from rentals is quite low as a result of the rising cost of apartments over the past decade. An apartment in Paris can yield about 4.5% and in Spain, earnings of between 2-4% just barely cover the cost of an investment. Investors that have come to the region will find the costs involved in purchasing or selling an apartment in the Middle East, such as registration, legal fees, brokerage fees and taxes, are low or mid-range. The nation with the highest costs associated with buying an apartment and selling it is in Jordan, reaching 15% of the apartment's value. Israel is in fourth place, at 10% of the value of the property, similar to Lebanon (6th) and Tunisia (5th). The lowest transaction costs are found in Dubai, at about 3% of the value of the property. (GPG26.11)

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3.2 47 Billionaires in Arab World

The Arab world now boasts a record 47 billionaires, according to the annual Arabian Business Rich List. The list of the world's 50 richest Arabs contains a record number of new entries, with the entry level to become a member of the world's most exclusive club having risen to $700m from $520m. While Saudi Arabia's Prince Alwaleed, with a fortune estimated at $29.5b, takes pole position, there is as much to learn from Syrian born Moafaq Al Gaddah with wealth estimated at $700m, who sits at the other end of the table. The highest riser is fifth place Maan al-Sanea, worth $10b - a massive jump of $8.6b and a rise of 33 places up the list. The highest new entry is the 70 year old former Deputy Prime Minister of Lebanon, with a $2.4b fortune at 27. (AMEInfo27.11)

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3.3 GPCA Says Ethylene Production in Middle East to More Than Double Over Next 5 Years

The Middle East is set to become the epicenter of global petrochemicals manufacturing, producing essential materials for packaging, healthcare, pipes, electronics goods, personal care, construction, and many other industrial or consumer requirements, according to a forecast by the Gulf Petrochemicals and Chemicals Association (GPCA). The GPCA said that these products were the raw materials for industry around the globe, and much of the new output will be supplied to the booming markets of China and India. Ethylene is the building block of the petrochemicals industry and is supplied from gas in the Middle East at great cost advantage. Production capacities for ethylene in the Middle East will more than double in the next five years, rising from over 13m metric tons in 2007 to over 29m metric tons in 2012. This represents nearly half of global capacity growth. (Various02.12)

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3.4 Altair Nanotechnologies Announces Completion of $40 Million Private Placement

RENO, Nevada's Altair Nanotechnologies, a provider of advanced nanomaterial-based products and technology used in energy for transportation and stationary power, industrial and life science applications, announced the completion of a $40m private placement of its common stock to Al Yousuf LLC. Under the purchase agreement, Altairnano has agreed to issue an aggregate of 11,428,572 shares of common stock to Al Yousuf LLC at a purchase price of $3.50 per share. The shares will be contractually restricted from resale for at least two years, with one-third of the shares being released from this restriction on the second, third and fourth anniversaries respectively. J.P. Morgan Securities acted as the exclusive agent in the private placement. Al Yousuf LLC was founded in Dubai in 1953 and since that time has steadily grown to become one of the leading commercial groups in the United Arab Emirates. Al Yousuf operates in a wide range of industries including automobiles, marine, manufacturing, real estate, information and communication technology, electronic goods and chemicals. With partnership at the core of all of its activities, Al Yousuf has developed strong value-added relationships with major international companies such as Chevrolet, Yamaha, Daihatsu, Daewoo and Suzuki in the automotive and marine sectors, LG in electronics and ATI/Sapphire, CNet, Concerto-Aspect, Epson NEC, SimpleTech and ViewSonic in the information and communication technology sector. Al Yousuf is constantly seeking new opportunities to partner with regional and world brands that are looking to expand to new markets. Increasingly, these companies are recognizing the advantages of partnering with Al Yousuf. (Altair30.11)

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3.5 Synopsys Chooses Sanco as Distributor for Middle East

Mountain View, California's Synopsys, a world leader in software and IP for semiconductor design and manufacturing, announced it has chosen Sanco Middle East (FZC) as a distributor for implementation, verification and design-for-manufacturing (DFM) products in the Middle East. Territories served by the contract include Saudi Arabia, Jordan, Qatar, Oman, Bahrain and Kuwait. Headquartered in the UAE, with offices in Saudi Arabia and Pakistan, Sanco has a successful track record in the region that spans more than two decades. Sanco offers leading-edge technology and services to the region's growing research and development, education, government and commercial markets. Synopsys is a world leader in electronic design automation (EDA) software for semiconductor design. The company delivers technology-leading system and semiconductor design and verification platforms, IC manufacturing and yield optimization solutions, semiconductor intellectual property and design services to the global electronics market. (Synopsys 28.11)

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3.6 Shells Seafood Restaurants Sign Agreement for 10 Restaurants in Middle East

Tampa, Florida's Shells Seafood Restaurants signed a major international agreement that will bring 10 new Shells restaurants to several countries in the Middle East, over the next decade. Saudi Arabia-based Food and Entertainment Co., Ltd., which operates numerous restaurants throughout the region, has purchased the rights to the Shells brand within a 10-nation territory, and has agreed to open a minimum of 10 Shells restaurants over the next 10 years. Food and Entertainment has purchased exclusive rights to the Shells concept within Saudi Arabia, Egypt, Jordan, Qatar, Oman, Bahrain, UAE, Kuwait, Pakistan and India, with an option for future rights to Tunisia and Morocco. Under the terms of this agreement, Food and Entertainment Co. purchased for $1,750,000 over a nine-month period, Shells service marks and proprietary systems for expansion within the territory. Under a separate services agreement, Shells will provide, among other things, training, operations, menu development and marketing support to Food and Entertainment for the 10-year period. Food and Entertainment Co. operates multiple foodservice brands throughout the Middle East. Food and Entertainment's parent, the Al Hokair Group, is one of the region's leading real estate, retail and mall developers. (Shells10.12)

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3.7 Tunisie Telecom Selects Telarix's iXTools to Expand Its International Carrier Business

Vienna, Virginia's Telarix, the leading provider of Interconnect Business Optimization (IBO) and settlement solutions for content providers, IP service providers and global fixed and mobile operators, together with GET Wireless, one of North Africa's leading international systems providers, announced that Tunisie Telecom, the leading national telecommunications company in Tunisia, will deploy Telarix's comprehensive portfolio of interconnect business optimization solutions to manage the carrier's growing interconnect business. Tunisie Telecom will implement Telarix's partner management, routing and trade solutions as well as the revenue assurance modules, iXBill and iXAudit. iXBill is a robust and highly flexible interconnect billing system that allows carriers to eliminate revenue leakage by ensuring that every call is captured, rated and invoiced correctly. Integrated with iXConnect, the solution is able to define and manage an unlimited number of interconnect agreements with other carriers and content partners, regardless of the level of complexity. This level of sophistication enables a carrier to support a variety of agreement types and rating scenarios including multi-party settlements and sophisticated revenue sharing partnerships. (Telarix 04.12)

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4: ISRAEL MACRO-DEVELOPMENTS

4.1 National Planning Commission Approves Antennae Plan

The National Planning & Building Commission has approved National Outline Plan 36 for transmission facilities. The new plan supports the construction of as many small antennas as possible in the belief that this will reduce radiation in urban areas. The commission has sent the plan for the public's responses and comments by the regional planning and building commissions. The National Planning Board also wants to minimize antennas' impact on vistas and to foster an equitable sharing of the distribution of antennas. It believes that a broad distribution of small antennas will also provide wider and more effective cellular coverage while ensuring lower radiation by cellular telephones. On the basis of this principle, National Outline Plan 36 provides three planning and licensing tracks for cellular antennas in accordance with the range of health hazards from them. The fast-track procedure will apply to antennas with a minimal physical footprint and a safety zone of up to three meters. There are also a medium track and slow track procedure. (Globes 05.12)

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4.2 Landfill-Turned-Park to be Named For Ariel Sharon

On 28 October, in honor of former Prime Minister Sharon's landmark decision in April 2005 to establish the Ayalon Metropolitan Park, the park-in-the-making was renamed Ariel Sharon Park. This took place amidst a festive ceremony that included politicians, luminaries and the businessman-philanthropist Ted Turner. The park will span over 2,000 acres and will complete the contiguous green belt between south Tel Aviv and other towns in the country's most densely populated area. The Ayalon Park Company envisions the park as a natural gem at the heart of an urban conglomeration, allowing thousands of residents of the southern metropolis access to ‘the wilds' only steps from their homes. Parts of the park are already in use as bike paths and nature trails. The Hiriya 'garbage mountain' is now undergoing remediation as a recycling and educational center. The IUED and other environmental organizations campaigned under the banner "Parks are not real estate" for the government and planning authorities to approve the Ayalon Metropolitan Park.

Ensuring that Hiriya and the flat flood lands around it would be reclaimed as open green space for the residents of southern Tel Aviv, rather than falling into the hands of eager real estate developers, was one of the last and lesser known battles fought by Mr. Sharon. The Hiriya dump, closed nine years ago, will serve as the centerpiece for what is to become a vast 2,000-acre urban wilderness. The monumental dirt mountain, which sits at the intersection of some of Israel's busiest highways, will be transformed by a German landscape architect. (Various24.10)

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 GCC to Stay With Dollar & Launch Common Market

On 4 December, Gulf Arab leaders concluded a two-day summit that agreed to maintain their currencies' peg to the US dollar and to launch a pan-Gulf common market in January. In the new market, Gulf nationals will be considered equal citizens and will enjoy the same rights in the fields of travel, employment and education as well as the same economic, financial and investment opportunities. Gulf leaders also discussed how to move forward common energy and water grids and a regional railway system. The summit, dominated by a rare appearance by Iranian President Ahmadinejad, concluded with a final communiqué that also maintained the 2010 target to issue a single Gulf currency. The six monarchies also agreed to maintain a 2010 target date for the launch of a single currency. The decision to work towards a monetary union was effectively made ahead of the summit, when GCC foreign and finance ministers decided to stick to the date despite worries of high inflation. A delegate said the decision was taken at the insistence of Saudi Arabia, although some member states, notably the UAE, had openly said the 2010 launch was not possible because of technical, legislative and fiscal hurdles. Leaders also decided to keep pegging their currencies to the sliding dollar, and not follow Kuwait's move to peg its dinar to a basket of currencies. The final declaration said GCC leaders were waiting for ”positive steps” to follow a recent Middle East peace conference in the United States. (AFP05.12)

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5.2 GCC Attracted $42 Billion in FDI During 2006

The Persian Gulf is witnessing a robust growth with real GDP growth in the GCC peak at 7.4% this year. Combined real GDP is approaching one trillion dollars, making the GCC the world's 14th largest economy and accounting for more than half of the GDP of the all Middle Eastern countries combined. While the GCC represents 45% of the world's proven oil reserves, 25% of its crude oil exports and 17% of its proven gas reserves, in 2006 the region also attracted $42b in foreign direct investment. (Bahrain Tribune 05.12)

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5.3 $10 Billion Rush for More GCC Hospitals

With demand for hospital beds in the region set to double by 2025, Arabian Gulf countries are rushing to meet the unprecedented challenge with a near $10b hospital building program, say industry experts. The program – which does not include the budgets for required medical equipment – is led by Saudi Arabia with dozens of public and private sector hospital and clinic projects worth a total of around $6.5b in progress, according to statistics compiled by database company Proleads. “Arabian Gulf governments have been encouraging international institutions to set up health care facilities in the region but many more providers will be required to meet the huge future demand,” said Simon Page, Director of Healthcare for IIR Middle East, organizers of Arab Health, the region's premier event for the health care industry which takes place from 28 – 31 January 2008 at Dubai International Convention and Exhibition Centre.

Qatar, with a substantially smaller number of health care facilities underway, comes second after Saudi Arabia in terms of hospital projects with a $1.5b set aside. The UAE has nine current hospital projects with a value of $596m, Kuwait has four valued at $428m and Bahrain one worth $130m. The driving force is an unparalleled rise in regional demand for health care forecast for the next two decades. Consultants McKinsey & Co. recently estimated total health care spending in the Gulf Co-operation Council (GCC) countries will reach $60b by 2025. “No other region in the world faces such rapid growth in demand,” McKinsey said, predicting the need for 162,000 more hospital beds with the biggest increases in Saudi Arabia and the UAE.

The region faces three major driving factors which are dramatically increasing health care demand – population growth, an aging population and unique health risks. “Total GCC population by 2025 is expected to be twice what it is today,” said Page. “In addition, improvements in life expectancy mean more elderly people requiring care. For example, a sevenfold increase is forecast in those over 65 in Saudi Arabia during the next 25 years.” The region also has major and growing health risk factors among GCC nationals with the prevalence of Type 2 diabetes and obesity at unusually high levels relative to the rest of the world. “Levels of diabetes have been put by the World Health Organization at 25% of UAE citizens with the level of obesity for GCC nationals at 40%,” Page added. “The health complications associated with both will have a dramatic impact in coming years.” (Al Bawaba 26.11)

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5.4 US Plans Up To $10.4 Billion in Gulf Arms Sales

The Bush administration announced plans to sell advanced anti-missile systems to the UAE and Kuwait with a potential combined value of nearly $10.4b. The deals would be the biggest yet in a US drive to bolster GCC states, including Saudi Arabia, as a counterweight to Iran, Syria, Al Qaeda and Hezbollah. The Pentagon told Congress the UAE had asked about buying 288 Patriot Advanced Capability PAC-3 missiles and related gear worth up to $9b. The prime contractors would be Raytheon and Lockheed Martin, the Pentagon's Defense Security Cooperation Agency announced. Kuwait has asked about buying 80 PAC-3 missiles, PAC-2 upgrades and Patriot ground support equipment worth as much as $1.36b, a separate notice to Congress said. The Pentagon said the proposed Patriot PAC-3 sale -- worth up to $9b if all options are exercised - would 'strengthen the effectiveness and interoperability of a potential coalition partner, reduce the dependence on US forces in the region, and enhance any coalition operations the US may undertake with the UAE.' These sales are part of a Bush administration strategy announced in late July to enhance Gulf security. The notices to Congress of potential arms sales are required by law. They do not mean a deal has been concluded. Congress has the power to block a proposed sale. The Bush administration has agreed to delay until next month congressional notification of related plans to sell Saudi Arabia a package expected to include Boeing made kits designed to make bombs pinpoint accurate. (Reuters 06.12)

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5.5 Kuwait Inflation Surges to Highest On Record

Annual inflation in Kuwait surged to the highest on record in September, jumping to 6.2% as housing, food, and transport and communication costs accelerated. Housing costs, the most heavily weighted item in the All Items Consumer Price Index, surged 12.6%, while food costs rose 3.7%, and transport and communications 5.6%, according to data from the government's Central Statistics Administration. The inflation rate is the highest on record, according to central bank statistics dating to December 1994. Kuwait, the only Gulf Arab state whose currency is not pegged to the dollar, cut interest rates twice in September, once before a cut in the United States and again after. Combined, the rate cuts totaled 75 basis points. (Reuters03.12)

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5.6 Qatar Population Set To Hit One Million

Qatar's population may rise above 1 million during the next few months, from 900,000 now, as more foreign workers enter the country, sustaining demand for housing, a report said. 'Such a large influx of people will keep the demand for housing units and commodities at a high level,' the Gulf Times newspaper quoted an unidentified demographic specialist as saying. The specialist based his projection on National Health Authority data showing that the number of foreigners doing a mandatory health test to gain their residency permits rose 23.6% to 46,730 in November, the newspaper said. Annual inflation in Qatar accelerated to 13.73% at the end of September as accommodation costs in the Gulf Arab state, including rents, jumped nearly 29%, government data showed last month. Rents and utility costs, which comprise one category in the index, surged 28.8% in the third quarter, compared with 27% in the previous three months, according to data from the government's Planning Council. (Reuters06.12)

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5.7 Canadian University of Dubai signs a MoU with University of New Brunswick

Canadian University of Dubai (CUD) has signed an MoU with University of New Brunswick (UNB) - the First English Speaking University in Canada. Canadian University of Dubai is a full subsidiary of Emirates Investment and Development Company PSC (Emivest). CUD will benefit from exchange programs between students and faculty of UNB and benefit from actual delivery of UNB programs at all levels. CUD, with its provision of MOHE accredited programs, is the only Canadian institution in Dubai and is attracting students who are seeking a rounded education. (AMEInfo03.12)

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5.8 S&P Says Pakistan's Politics May Jeopardize Positive Credit Fundamentals

There is no telling what the outcome on the Pakistan turmoil will be but one thing is certain: the country is at a turning point. Standard & Poor's Ratings Services (http://www.ratingsdirect.com), in a report titled "Pakistan At A Turning Point--Is Sovereign Credit Quality At Risk?", said how the country's political transition unfolds over the next few months will give a strong indication on whether Pakistan's ratings will remain supported by reforms, foreign investment and a prudent policy mix, or whether they will be eroded by continued instability or a regression into a highly politicized and ineffectual administrative environment under an elected government. "Fiscal slippages may arise, jeopardizing the currently favorable debt trajectory," said Standard & Poor's credit analyst Agost Benard. "Foreign currency inflows could also be affected, thus hurting Pakistan's external liquidity position. The other notable risk is that economic growth could also suffer," he said. Standard & Poor's recently revised the outlook on the sovereign rating on Pakistan to negative after President Pervez Musharraf declared a state of emergency on Nov. 3, 2007. The sovereign credit ratings (foreign currency: B+/B; local currency BB/B) remain unchanged for now because the country's economic fundamentals are sufficiently strong to withstand a period of uncertainty without a material decline in credit quality. "Greater clarity is only likely after the National Assembly elections, scheduled for Jan. 8, 2008, but it's clear that past achievements could be put at risk and credit supporting factors diminish, should political uncertainty persist or, if the new paradigm yields revolving-door governments, where political imperatives detract from reforms and fiscal consolidation," Mr. Benard said. (S&P27.11)

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6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS:

6.1 Turkish Consumer Prices Up By 1.95%

The Turkish Statistical Board (TUIK) announced on 3 December that Turkey's consumer prices increased by 1.95%, while producer prices increased by 0.89% in November. As of the end of November, annual inflation was 8.40% in Consumer Price Index and 5.65% in Producer Price Index. The major factors in the rise were an increase in excise taxes on cigarettes and gasoline and a hike in water bills. Annual inflation rates as of November 2007 were 8.4% in the CPI and 5.65% in the PPI. A rise in transportation costs had also spurred an increase in the rate of inflation; however, inflation has been dropping and that the rise in inflation for this month only means a slowdown of the drop in the year's inflation figure. (TUIK03.12)

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6.2 Turkish Inflation Seen Falling in Medium Term

Turkish inflation is expected to resume a falling trend in the medium-term although there are short-term risks, the Central Bank said on 5 December, a day after official data showed consumer prices rising well above forecast. The bank said the inflation outlook was not negative, when administered prices and components affected by food are excluded. Food prices rose more than expected due to drought which led to an increase in utility tariffs. Turkey has been hit by a drought, which has reduced crop production. November prices were also affected by increases in water tariffs and a tax rise on tobacco products. Power prices are also expected to be increased as Turkey prepares for privatizations in the energy sector. While likely price adjustments in components such as electricity and natural gas and uncertainty over food prices pose a short-term risk, in the medium-term inflation is expected to enter a downward trend again, the Central Bank said in a statement. (TUIK04.12)

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6.3 Privatization of Turk Telekom Planned for 2008

Ankara plans to auction 15 to 25% of Turk Telekom via IPO in May 2008. The state currently owns 45% of the telecoms company. The Council of Ministers will soon make its final decision on this public offering. Government also initiated a tender process to determine the consulting firm which will carry out public offering procedures. This process is expected to be finalized in January. As a reminder 55% of Turk Telekom was privatized in a tender on 1 July 2005. Oger Telecoms group won the tender offering for $6.55m. (BGC05.12)

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6.4 Turkish Nuclear Tender to Take Place on 21 February 2008

On 28 November, Turkish Ministry of Energy and Natural Resources Guler said that Ankara plans to advertise a tender for the construction of a nuclear power plant on 21 February 2008. Purchase guarantees will be present in the tender conditions. Officials claimed that due to the mass production and cost efficiency calculations; purchase guarantees of electricity will be the most important element in the tender for the nuclear power plant. However, the government said it would not buy excess electricity from producers, discouraging energy sector investors with aggressive production plans. President Gul approved a law earlier this month allowing construction and operation of the country's first nuclear power plants. The law, vetoed by Gul's predecessor Sezer, is intended to help avert a serious energy shortfall in the fast-growing emerging economy. According to the new law, approved by parliament on 9 November 2007, qualifications for companies wishing to participate in the tender will be published within a month. The capacity is planned to be around 5.000 MW. (BGC29.11)

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6.5 Turkish Incentives for The Energy Sector

Turkey's Ministry of Energy and Natural Resources prepared a bill to amend provisions of the Electricity Market Law No. 4628. The bill provides that legal entities with production licenses that pledge to invest in the energy sector through the end of 2012 will be included in government incentives regardless of location. Companies that plan to invest in the energy sector by 2008 will benefit from a 100% tax exemption on investments; those that participate in the sector between 2008 and 2013 will benefit from this allowance at a reduced rate (95% exemption in 2009, 90% exemption in 2010, etc.). If they intend to use transmission lines, currently state owned, for distributing the electricity they generate, they will be exempt from all taxes and charges related to equipment imports. They will also be exempt from the excise tax if they use fuel oil. Furthermore, they will also benefit from related provisions of Law No. 5084 on the Encouragement of Investment and Employment for five years starting in 2008 and they will be exempt from taxes if they use transmission lines through the end of 2013 beginning from the date they start investing in the sector. (BGC30.11)

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6.6 Cyprus Inflation Hits 3.5% As Effect of Car Tax Vanishes

The consumer price inflation rate in Cyprus hit 3.5% in November, as the impact of the cut in car excise duties in November 2006 fell out of the index. Compared with the previous month, the overall consumer price index rose by 0.7%. However, transport prices rose in the same period by a much higher 1.6%. Compared with November 2006, transport prices were up 6.6%. The Statistical Service CYSTAT also noted increases in the prices of clothing and footwear items, petroleum products, electricity, gas and potatoes. It said that decreases were recorded in the prices of certain fresh vegetables as well as in the prices of fruit juices, chocolates and bottled water, owing to the decrease in the VAT rate applies to confectionery and other items. For the period January-November 2007 the CPI recorded an increase of 2.2% compared with the corresponding period of 2006. (CYSTAT05.12)

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6.7 Cyprus GDP Growth Revised up to 4.6% in Q3

The reported real GDP growth rate for Cyprus in the third quarter of 2007 was revised up to 4.6% over Q3/06. Real GDP growth in the first nine months of 2007 is estimated at 4.4%, compared with a growth rate for the whole of 2006 of 3.8%. The Statistical Service said the main reason for the revision of quarterly national accounts is employment data coming from the Ministry of Labor and Social Insurance on the employment of foreigners in Cyprus. The number of registered foreign workers was 51,045 in July not including 36,296 EU workers, making a total of 87,341. The number of gainfully employed persons in Cyprus has been revised upwards from 364,000 to 367,000 in 2006 and from 370,200 to 377,900 in 2007. The Statistical Service also reported that the indicative indices on the performance of various economic activities during the third quarter of 2007 compared to the corresponding quarter of 2006 were as follows. Production volume index of manufacturing +3.5%, tourists arrivals +5.8%, tourism revenue +11.1%, building permits in sq.m. +9.5%, turnover volume index of retail trade +8.2%, turnover value index of telecommunications +12.3%, turnover value index of air transport -3,8% (minus 3.8%) , financial intermediation services +30.5%, imports of goods +14.2%, exports of goods -4.2% (minus 4.2%), registration of motor vehicles +32.1%. (FM11.12)

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6.8 Greece's Budget Seeks 4% Growth

Greece's conservative government promised to further reduce its budget deficit to 1.6% of GDP in the 2008 budget. The budget was presented to parliament on 20 November by Finance Minister Alogoskoufis. The projected deficit was down from 2.7% this year. Alogoskoufis also forecast growth unchanged at 4.0% next year and inflation at 2.8%, up from 2.7% projected for this year. Budget figures were in line with a recent European Union-approved increase of Greek GDP figures by 9.6%. Greece's conservatives won re-election in September general elections, and have promised to continue a policy of fiscal discipline. Earlier this year, the EU lifted the threat of budget sanctions against Greece. (AP23.11)

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6.9 OECD Says Greece's GDP Improving

Greece's Gross Domestic Product (GDP) stood at 88% of the OECD average in 2005 (up from 85% in 2002) according to new figures released on November 21 by the Organization for Economic Cooperation and Development. The survey compared 55 countries on the basis of GDP and household consumption figures for 2005. Portugal stood at 69% (down from 72% in 2002), and Turkey at 27% (up from 25% in 2002). The figures were based on purchasing power parity between the countries. GDP refers to the value of all final goods and services produced within a country in a given year. (Athens News23.11)

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6.10 Greece's GDP Rises By 3.6% in Third Quarter

Greece's Gross Domestic Product grew by 3.6% in the third quarter of 2007, according to provisional estimates published by the National Statistics Service. Economic growth slowed by half percentage point in the July-September period, compared with the second quarter of the year (GDP growth was 4.1%) and with the third quarter of 2006 (GDP growth was 4.5%). (ELKE11.12)

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6.11 Greece's Organic Farming Grows

Organic farming is becoming increasingly popular in northern Greece, marking a rise of up to 120% in 2005-2006. Based on figures released by the Organic Farming Division of the Ministry of Rural Development and Food, a total of 61,000 hectares of farmland in northern Greece was used for organic cultivation in 2006. According to Eurostat figures, in 2005 organic farming in the EU of the 25 member states corresponded to 4% of the overall cultivated land. The countries where organic farming is gaining the most ground are Austria (11%), Italy (8.4%), Greece (7.2%) and the Czech Republic (7.2%), whereas Malta (0.1%), Poland (0.6%) and Ireland (0.8%) are behind in alternative farming methods. (ELKE11.12)

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 The Fast of the 10th of Tevet Observed on 19 December

The fast of the 10th day of the Hebrew month of Tevet, which this year occurs on 19 December, commemorates the beginning of the siege of Jerusalem by King Nebuchadnezzar and his Babylonian army in 588 BCE, as recounted in chapter 25:1-4 of Second Kings. The siege ultimately resulted in the destruction of the First Temple two years later, and the Jews' exile to Babylon. Like the three other minor fast days of the Hebrew calendar (Tzom Gedaliah, the 17th of Tammuz and Ta'anit Esther), Aseret b'Tevet, as it's known in Hebrew, involves refraining from eating and drinking between dawn and the beginning of night The full fast days of Yom Kippur and Tisha b'Av last the approximately 25-hour period from sundown to nightfall of the next day. Working is permitted on this day. In 1948, Israel's Chief Rabbis decreed that the Fast of the 10th of Tevet would also be the day of commemoration of victims of the Holocaust. By doing so, the Chief Rabbis were creating a continuum between the catastrophes of Jewish history, from the Temple's destruction and loss of Jewish sovereignty to the Nazi genocide that claimed two-thirds of European Jewry.

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*REGIONAL:

7.2 Eid el Adha – Feast of the Sacrifice – Mark By Moslems

Eid al-Adha is a religious festival celebrated by Muslims worldwide as a commemoration of Ibrahim's willingness to sacrifice his son Ismael for Allah. It is one of two Eid festivals that Muslims celebrate. Like Eid ul-Fitr, Eid ul-Adha begins with a short prayer followed by a sermon. Eid al-Adha is three days long and starts on the 10th day of the month of Dhul Hijja of the lunar Islamic calendar. This is the day after the pilgrims in Hajj, the annual pilgrimage to Mecca in Saudi Arabia by Muslims worldwide, descend from Mount Arafat. It happens to be approximately 70 days after the end of the month of Ramadan.

Men, women, and children are expected to dress in their finest clothing and perform the Eid prayer in any mosque. Muslims who can afford to do so sacrifice their best domestic animals (usually sheep, but also camels, cows, and goats) as a symbol of Ibrahim's sacrifice. The sacrificed animals, called "udhiya" also known as "qurbani", have to meet certain age and quality standards or else the animal is considered an unacceptable sacrifice. Generally, these must be at least 4 years old. At the time of sacrifice, Allah's name is recited along with the offering statement and a supplication as Muhammad said. According to the Quran a large portion of the meat has to be given towards the poor and hungry people so they can all join in the feast which is held on Eid-al-Adha. The remainder is cooked for the family celebration meal in which relatives and friends are invited to share.

There is some controversy as to when it will fall, as it is celebrated by some on 20 – 24 December, while others mark the holiday from the 19th to 23rd of the month (such as in Turkey, where it is known as kurban bayrami). The UAE is closing its ministries and public departments for five days from 18 December to 22 December 22, to mark the Eid.

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7.3 Bahrain Celebrates Its National Day

On 16 – 17 December, the island nation of Bahrain celebrates its independence every year with parades, speeches, marches, pyrotechnics and special events. Bahrain received its independence on 16 December 1971 from the UK. Initially the national day was celebrated on the 16th alone, but since 1999 it is marked on two consecutive days, courtesy of King Hamad. Becoming a British protectorate in 1880, the UK defended Bahrain and ran its affairs for almost a century. The island nation was granted autonomy in 1961 before receiving full independence a decade later.

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7.4 Musharraf Steps Down As Army Chief

On 28 November, Pakistani President Musharraf stepped down as army chief and was sworn in as a civilian leader for a second five-year term on 29 November. Musharraf passed the baton of command to his hand-picked successor, General Ashfaq Kayani, at a ceremony at army headquarters in Rawalpindi. In doing so he has fulfilled one of the long-held demands of his political rivals and Western allies, taking off the uniform he has referred to as his 'second skin' and becoming a civilian president ahead of national elections in January. For Musharraf, who seized control of Pakistan in a 1999 coup, command of the army has been his main source of power. He now aims to become a civilian president, supported by his hand-picked successor as army commander, with a new prime minister heading the government after the Jan. 8 poll. His power and influence are bound to be affected. The question is by how much. For the time being, Musharraf will retain powers under the emergency rule he declared on Nov. 3. He imposed the emergency in his capacity of army chief but transferred those powers to the presidency. The United States and other Western allies, as well as the opposition, are pushing for the emergency to be lifted. (Reuters28.11)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Amarin Signs Agreement to Acquire Ester Neurosciences

London, UK's Amarin Corporation signed an agreement to acquire Ester Neurosciences Limited (http://www.esterneuro.com), a private research and development company based in Herzliya Pituah, Israel. The initial consideration is $15m, plus up to $17m in contingent payments. Ester's core assets include (i) a platform messenger RNA (mRNA) silencing technology which targets the cholinergic pathway; (ii) EN101, a Phase II compound with promising efficacy data for the treatment of myasthenia gravis (MG) utilizing this technology; and (iii) a preclinical program in neurodegenerative and inflammatory diseases. Ester's lead product candidate, EN101, is in Phase IIa clinical development as a treatment for MG, a chronic autoimmune neuromuscular disease characterized by progressive muscle weakness. EN101 has demonstrated safety and efficacy in a Phase Ib clinical study and in interim results from an ongoing Phase IIa clinical study. EN101 has been granted orphan drug status for the treatment of MG by the U.S. FDA and by the European Medicines Agency. Amarin's focus will be on completing the ongoing Phase IIa clinical study and other non-clinical studies in preparation for commencing a Phase IIb or Phase II/III study.

Ester's therapeutic platform is based on novel and proprietary discoveries in the field of acetylcholinesterase (AChE), developed by Professor Soreq of the Hebrew University of Jerusalem. AChE is a degrading enzyme of the neurotransmitter acetylcholine, the imbalance of which plays a central role in a range of currently incurable and highly debilitating neurodegenerative conditions.

Preparations for the integration of Ester and Amarin have already begun. Amarin is not acquiring any facilities or office space in Israel. The management of Ester's programs and R&D activity is being transitioned to Amarin's R&D team in Oxford, England. (Amarin05.12)

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8.2 Clal Biotechnology & Teva Collaborate for Final Stage Development of Type 1 Diabetes Drug

Clal Biotechnology Industries announced that Andromeda Biotech, a wholly owned subsidiary of CBI, signed a Term Sheet with Teva to develop and commercialize DiaPep277, an innovative and advanced drug for the treatment of type 1 diabetes. According to the Term Sheet, Teva and other investors will invest in Andromeda and will finance the development cost. In return, Teva will receive worldwide exclusive rights to manufacture, sell and distribute the drug. Under the term sheet, within 60 days of submission of an interim report from the current Phase III clinical study, Teva and other investors will have the option to invest $17.5m dollars in Andromeda at $90m pre-money valuation. In a second stage, after the completion of the current Phase III clinical study, Teva and other investors have an option to invest additional $17.5m dollars at 170m dollars pre- money valuation. In addition, Andromeda has an option to receive additional 15m dollars investments from Teva.

Andromeda Biotech, wholly owned by Clal Biotechnology Industries, is focused on development of innovative treatment for autoimmune diabetes. The company lead product is DiaPep277, currently in phase III clinical studies, is a novel therapeutic approach in treating type 1 diabetes (T1D). It is a unique peptide derived from the human protein, HSP60, which immuno-modulates the immune system, prevents the destruction of pancreatic cells that secrete insulin and preserves their natural function.

Powered with strategic vision and financial vigor, Tel Aviv's Clal Biotechnology Industries (http://www.cbi.co.il) is one of the largest biotechnology investment entities in Israel. CBI targets promising companies with innovative bio-pharma technologies and transforms them into thriving, productive businesses. Backed by Clal Industries and Investments, one of Israel's largest investment companies (owned by IDB group), and Teva Pharmaceutical Industries, the world's largest manufacturer of generic drugs, CBI successfully leverages its unique investment model of large-scale, long-term financial and managerial commitment to yield significant results and valued creation. (Clal03.12)

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8.3 Teva Announces Tentative Approval of Generic Requip Tablets

Teva Pharmaceutical Industries announced that the U.S. FDA has granted tentative approval for the Company's Abbreviated New Drug Application (ANDA) to market its generic version of GlaxoSmithKline's Requip (Ropinirole HCl) Tablets, Eq. 0.25 mg base, 0.5 mg base, 1 mg base, 2 mg base, 3 mg base, 4 mg base and 5 mg base. Final approval of Teva's Ropinirole HCl Tablets is expected upon expiry of patent protection for the brand product on May 19, 2008. Upon final approval, Teva's product will be the AB-rated generic equivalent of Requip Tablets, and will be indicated for the treatment of the signs and symptoms of idiopathic Parkinson's disease as well as treatment of moderate to severe primary restless leg syndrome. Jerusalem, Israel's Teva Pharmaceutical Industries (http://www.tevapharm.com) 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 pharmaceuticals and active pharmaceutical ingredients. (Teva30.11)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Fighting Fire With Video – Optibase IPTV Solution Installed at Portland Fire and Rescue

Optibase announced that Portland Fire and Rescue selected Optibase's advanced video over IP streaming solution for broadcasting its training channel, which augments their current analog closed circuit cable system. Portland Fire and Rescue produce on a regular basis instructional videos teaching its firefighters to effectively and safely respond to emergency situations. With Optibase's advanced IPTV streaming solution, Portland Fire and Rescue presently utilizes the Optibase Media Gateway (MGW) 1100 encoding and streaming platform to provide streaming of H.264 directly to three fire stations not currently on their analog cable system. The previous video system included recording the analog video on DVD and sending copies to all the stations not on the analog system. Based on Optibase cutting-edge H.264 Media Gateway (MGW) 1100 streaming and encoding platforms, the training channel is broadcasted to all the fire stations currently supported by their IP network at top picture quality and low bit rates. Herzliya, Israel's Optibase (http://www.optibase.com) provides professional encoding, decoding, video server upload and streaming solutions for telecom operators, service providers, broadcasters and content creators. The company's platforms enable the creation, broadband streaming and playback of high quality digital video. (Optibase03.12)

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9.2 Tower Semiconductor Starts Volume Production for International Rectifier

Tower Semiconductor has successfully produced, delivered and qualified the first prototype products for International Rectifier Corporation (IR). Volume production starts this quarter at Tower's Fab 2. The products utilize IR's proprietary technology. The manufacturing of wafers in Fab2 progressed according to plan and wafers were delivered on schedule. The first product came out functional and the yield met the customer's expectations. The first product already passed qualification. Migdal Ha'Emek, Israel's Tower Semiconductor (http://www.towersemi.com) is an independent specialty foundry that delivers customized solutions in a variety of advanced CMOS technologies, including digital CMOS, mixed-signal and RF (radio frequency) CMOS, CMOS image sensors, power management devices, and embedded non-volatile memory solutions. Tower's customer orientation is complemented by its uncompromising attention to quality and service. Its specialized processes and engineering expertise provides highly flexible, customized manufacturing solutions to fulfill the increasing variety of customer needs worldwide. (Tower28.11)

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9.3 N-trig Ships Over 10,000 DuoSense Digitizers to Global OEM Customers

N-trig announced that over 10,000 digitizers have been shipped to OEM customers around the world. N-trig's solution offers OEMs a thinner and more integrated solution providing the ultimate human interface experience. Instead of using today's industry standard resistive touch and a digitizer mounted behind the LCD, N-trig's zero-pressure touch is based on capacitive touch and transparent sensor technology, enabling the best touch and pen experience in any product anywhere in the world. It's the only digitizer currently available that fully enables all the capabilities of the latest mobile platforms. As demand for N-trig's products grow, the company ramps production capabilities to reach over 50K units per month in Q2/08. Kfar Saba, Israel's N-trig (http://www.n-trig.com) is the provider of DuoSense digitizer technology combining pen and zero-pressure touch for mobile computers into a single device. N-trig enables OEMs and ODMs to provide innovative new technology for the next generation of mobility by making notebook PCs more mobile, productive, user-friendly, natural, and intuitive to use. DuoSense is easily integratable and supports any type of LCD, giving OEMs and ODMs more flexibility. (N-trig28.11)

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9.4 Rimon Winery Introduces Pomegranate Dessert Wine

Rimon Winery (http://www.rimonwines.com), a new Israeli winery and producer of kosher pomegranate wines recently launched its new pomegranate dessert wine. The wine was awarded the top prize in the 'Best New Wine, Beer or Spirit' category at the Kosherfest 2007 New Product Competition. This wine is a sweet, yet light wine, with fruity aromas and bright cherry flavors. Notes of chocolate and lush pomegranate flavors linger on the finish. It can be served alone or paired with desserts and soft, ripe cheese. Rimon Winery is located in the Upper Galilee region of Israel. It sits on a basalt plateau nearly 3,000 feet above sea level, nestled in the heart of a thriving pomegranate orchard. As was reported by KosherToday's Israel Bureau Chief, the winery's owners and winemakers specialize in cultivating pomegranate fruit and producing pure pomegranate wine of the highest quality. All Rimon Winery wines are made using traditional winemaking techniques to produce kosher wines made from 100% pure pomegranate that retain the flavors and healthful properties of the pomegranate fruit even after it has been fermented into wine. Kosher certified under the OK Kosher Certification. (KT03.12)

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9.5 IDO Security Expands MagShoe Shoes-On Weapons Detection Systems Poland

IDO Security announced the sale of additional MagShoe units from Port Lotniczy Gdansk Spolka, the operators of Lech Walesa International Airport's terminal facilities. This sale expands a prior installation of MagShoe units at the airport providing the capability to quickly and accurately screen all passengers for metallic weapons. The MagShoe will be used to accelerate and enhance passenger screening effectiveness at Gdansk Lech Walesa International Airport, a major Polish transportation hub. IDO's authorized distributor in Poland, Pimco Sp., is a Polish security enterprise with expertise in airports, explosive ordnance detection and removal, ports, CBN, surveillance and a full range of security products and systems, arranged the sale. IDO, headquartered in New York and Rishon Lezion, Israel (http://www.idosecurityinc.com), is engaged in the design, development and marketing of devices for the homeland security and loss prevention markets for use in security screening to detect metallic objects concealed on or in footwear, ankles and feet through the use of electro-magnetic fields. These devices were designed specifically for applications in the security screening to complement the current methods for the detection of metallic items during security screenings and at security checkpoints in venues such as airports, prisons, schools, stadiums and other public locations and other venues requiring individual security screening. (IDO02.12)

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9.6 Telecom Italia San Marino Expands VoIP Network Using VocalTec's Solutions

VocalTec Communications announced that Telecom Italia San Marino, (TISM), a long-standing VocalTec customer, has selected VocalTec for the expansion of its international telecommunications network. TISM will use VocalTec equipment for its expansion to new locations in Latin America and other regions. The expansion is intended to enable TISM to increase traffic exchange between San Marino and these regions, while ensuring end-to-end service and network quality. At the core of the deployment is VocalTec's Essentra EX Peering Manager, which enables the provision of a full range of IP services to both residential and enterprise customers. TISM has recently upgraded its VocalTec Essentra EX Peering Manager to the new EX version 7.0, featuring enhanced capabilities and a significant increase in capacity. This latest release of VocalTec's Essentra EX Peering Manager introduces improved topology hiding capabilities and is a one-stop solution for VoIP peering, featuring advanced routing, accounting, security, and industry leading protocol interworking. 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 and residential/enterprise VoIP application solutions that enable flexible deployment of next-generation networks (NGNs). (VocalTec05.12)

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9.7 Australia's Optus Selects Gilat for Broadband Satellite Network Expansion

Gilat Satellite Networks announced that Optus, an Australian leader in integrated communications is expanding its network with two additional SkyEdge satellite hub stations and thousands of VSATs. SkyEdge VSAT technology will provide cost-effective connectivity to regions in Australia which otherwise would not be able to benefit from broadband Internet services. The SkyEdge platform can serve tens of thousands of subscribers, providing high-speed IP connectivity with excellent space segment efficiency. Advanced features such as embedded Internet acceleration enables Optus to provide the user experience subscribers demand at a cost they can afford. Optus deployed one of the first SkyEdge networks and has since expanded it several times. With this latest expansion, Optus will operate one of the world's largest Gilat satellite hub installations comprising more than 20,000 Gilat VSATs to serve a wide range of corporate, government and residential customers.

Petah Tikva, Israel's Gilat Satellite Networks (http://www.gilat.com) is a leading provider of products and services for satellite-based communications networks. The Company operates under three business units: (i) Gilat Network Systems ("GNS"), which is a provider of network systems and associated professional services to service providers and operators worldwide; (ii) Spacenet Inc., which provides managed services in North America for businesses and governments through its Connexstar service brand and for consumers through its StarBand service brand; (iii) Spacenet Rural Communications, which offers rural telephony and Internet access solutions to remote areas primarily in Latin America. (Gilat11.12)

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9.8 Elbit Vision Systems Enters Alliance for Distribution of Ultrasonic Products to UK Rail Industry

Elbit Vision Systems has signed a strategic distribution and supply agreement with Unipart Rail, one of the largest independent rail logistics companies in Europe. The agreement authorizes Unipart to distribute the Company's ultrasonic solution - ScanMaster - to the rail industry in the UK. Elbit Vision Systems (http://www.evs-sm.com) offers a broad portfolio of automatic in-line inspection and quality monitoring systems used to improve product quality and increase production efficiency. The Company's Industrial Division provides automatic optical inspection (AOI) and non-destructive ultrasound inspection systems for heavy manufacturing (automotive, aeronautics, steel and others). EVS maintains headquarters and manufacturing in Israel, R&D operations in Israel, and offers global sales and support coverage. (EVS11.12)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's High Tech Exports Rise Slowly

The Manufacturers Association of Israel announced on 28 November that high-tech exports grew by 0.5% in Q3/07 to $4.9b, after remaining unchanged in the second quarter. High-tech production includes electronic components, computers, telecommunications equipment, monitoring and supervision equipment, avionics and pharmaceuticals. Industrial exports enjoyed renewed growth in the third quarter. Industrial exports grew by 3% over the second quarter to $11.1 billion. (MFA28.11)

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10.2 Israeli Vehicles Sales Approach 200,000 Milestone

Israel's vehicles market is nearing the historic milestone of 200,000 sales in a year. Some 16,436 vehicles were delivered in November, 30% more than in November 2006, even as the purchase tax cut on new cars will come into effect in January, according to the Israel Motor Vehicles Importers Association, on the basis of Motor Vehicle Department reports. 175,868 vehicles were delivered in January-November, 27% more than in the corresponding period of 2006. Car deliveries rose 26% to 145,032, including 12,393 SUVs, an increase of 55%. Mazda continued to be the top brand, with 26,308 deliveries in January-November, up 25% on the corresponding period. November deliveries totaled 2,500 units. Toyota was in second place, with 20,445 delivers in January-November, up 16%. Hyundai was in third place, with 20,441 deliveries, up 10%; Ford was in fourth place, with 12,059 deliveries; Chevrolet was in fifth place with 9,901 deliveries, up 33%; and Subaru was in sixth place, with 9,108 deliveries, up 30%. Vehicle industry sources said that deliveries of private cars have slowed, as many people are postponing purchases until next year, when the 2% cut in the purchase tax comes into effect. (Globes 05.12)

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10.3 Israelis Among World Leaders In Internet Usage

The Israeli user ranks second worldwide in the number hours spent surfing the internet, with an average of 37.4 hours a month, according to a survey by D&B Israel. The rate of usage was higher among people using broadband internet, with an average of 38.8 hours, compared with 10.9 hours on average among people using slow connections. The survey also revealed that the rate of penetration of broadband internet services to the Israeli market is one of the highest in the world. Israel was ranked sixth at the end of 2006, with a rate of 68.79% to Jewish households alone. Ahead of Israel in the world rankings were South Korea, Monaco, Hong Kong, Iceland, Singapore, the Netherlands and Denmark. Israel's high ranking is especially interesting, given that the UK was ranked in 20th place and the US 25th. (Globes 05.12)

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10.4 Hanukah 5768 Saw Less doughnuts, More Candles

Israelis are eating fewer jelly doughnuts (sufganiyot) for Hanukah this year, and lighting more candles, according to a Manufacturers Association of Israel survey among candle and doughnut makers. The survey found a 4% fall in doughnut sales compared with Hanukah 2006: altogether 17.5m doughnuts will be sold this year for a total of $13.5m. Prices range from $0.62 to $2.50, depending on the filling. This year's prices are 10-15% higher than last year. The Manufacturers Association reports that 30% of doughnuts sold this year – six million - will be mini-doughnuts, compared with five million last year. A mini-doughnut weighs 35-50 grams, compared with 80 grams for a full-sized doughnut. Sales of baked doughnuts are on the rise this year, at the expense of deep-fried doughnuts, amounting to 5% of all doughnuts sold. The survey also reports that 40 million Hanukah candles will be sold this year, 10-15% more than last year, amounting to $1.125m. (Globes 03.12)

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In Depth

11.1 LEBANON: Cautious Improvement

The Lebanese economy is showing distinct signs of improvement and resilience, though still under pressure from long-running political instability, according to a report by the International Monetary Fund (IMF). The report, released in mid-November, said real growth of gross domestic product for the year should register between 2% and 3%, with the annualized inflation rate coming in at around 5%.

Lebanon should continue to receive financial inflows at a sustainable pace, allowing the central Banque du Liban to maintain international reserves at the current level or even achieve a modest further build-up, while state borrowing from the bank should decrease by the end of the year, the IMF said. The study cited the government's work to privatize the country's two mobile networks next year, sales that, if they go through as scheduled in February, should generate around $6bn.

While the IMF report gave a generally positive picture of developments in Lebanon, it placed some important conditions on future progress. Foremost was the need for some degree of political stability, or at least continuity, allowing the economy to rebuild. A more stable environment would be required for the advancement of the reform process and the implementation of reforms.

Though the government of Prime Minister Fouad Siniora has managed to pass through a number of economic reforms, they were deemed illegal by then President Emile Lahoud, who refused to ratify cabinet decrees. Lebanon will need all arms of the state to work together in some measure of harmony to smooth the path for further progress. While the IMF said the economic recovery following the conflict with Israel in the summer of 2006 has maintained momentum, it warned, "economic prospects continue to be hostage to political developments".

The continued support of international donors is key to prolonged economic recovery, the IMF report said. The Paris III summit in January saw foreign countries and aid agencies pledge $7.6bn in loans and grants, though there have been delays in disbursing these funds. "Inflows of external donor support of the government have continued to fall short of expectations, with few of the resources pledged at the January 2007 Paris III conference having been received by the government to date," the IMF said.

In part, this can be attributed to wariness on the part of donors over the uncertain political situation, which has not been improved by the repeated failure of parliament to find a consensus candidate to replace Lahoud, whose term of office expired on November 23. Not all agree with the IMF's assessments, especially as most of the facts and figures were provided by state agencies.

Zuhair Berro, the president of price watch lobby group Consumer Lebanon, said the current and projected inflation figures did not reflect the reality on the ground. Prices of commodities have increased by around 10% in the third quarter of 2007, according to a study by the group, well above the rate suggested by the IMF. "Some of these reports want to glorify the government with misleading facts," Berro said in an interview with local press on November 28. "We are living in this country and we know how prices and inflation are moving."

Another to take a less than positive view of developments in Lebanon was Standard & Poor's (S&P), which on November 27 gave a "B-" grading with a negative implications credit watch on the country's long-term sovereign foreign and local currency ratings. Lebanon had briefly been on S&P's credit watch during the conflict with Israel last year. This time, the move has been prompted by the political situation and the failure to find a new head of state, which the agency warned could result in the creation of parallel administrations. "This would probably hinder policy-making and therefore raise serious concerns over the government's administrative capacity to service its debt, which [...] would at least hit 173% of GDP by end-2007," the agency's statement said.

With Siniora's government supposed to stand down after a new president is named, an issue that in itself poses deep divisions, there is a degree of uncertainty over the future and the incoming government's commitment to the economic reform process. While Siniora is expected to continue in the top job, backed by the team that has held office since last year, no guarantees can be made at this juncture. Some of the improvement in the economy is due not so much to government initiatives but to the absence of active conflict during the past few months. A return to factionalism, parallel administrations or the threat of civil war could quickly undo what progress has been made. (OBG01.12)

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11.2 BAHRAIN: Dollar in Question

Bahrain has moved to cut interest rates, in an effort to ease pressure on its economy caused by the weakening US dollar. Officials hope the move will end growing speculation on the dinar's dollar peg. On November 26, the Central Bank of Bahrain (CBB) announced a 50 basis points reduction on its key policy interest rates, reducing its rate on the bank's one-week deposit facility from 4.75% to 4.25%. The CBB's new rate for overnight deposits was set at 3.75%, down from 4.25%. As noted by the Oxford Business Group, in a statement accompanying the announcement of the reductions, the CBB's monetary policy committee said it would "continue to pursue a [...] policy firmly committed to monetary and exchange rate stability".

According to Abdul Rahman Saif, the CBB's executive director for banking services, the rates cut was in line with the policy of maintaining the tie up with the dollar. "The steps we have made confirm our full commitment to the exchange rate policy," Saif said during an interview with local media. "The reduction takes into consideration the levels of interest rates globally and regionally."

The CBB's cut came days after similar moves by both the United Arab Emirates and Saudi Arabia, which had seen strong shifts into the local currencies away from the dollar, with speculators betting on a revaluation. Bahrain adopted the US dollar peg in 2001, having previously linked the dinar with the International Monetary Fund's Special Drawing Rights (SDRs), a mixed basket of currencies. The adoption of the dollar peg by Bahrain and other members of the Gulf Cooperation Council (GCC) was envisioned as the first step in creating the long-planned GCC Monetary Union and a common currency.

The CBB has maintained a pegged exchange rate of 0.376 Bahraini dinars to the US dollar, though the recent fall in the strength of the greenback has increased pressure for a revaluation of the local currency. The falling value of the dollar has also added to inflationary pressure, with many essential imports becoming more expensive. Unlike Kuwait, which unpegged its currency from the dollar in May in an effort to curb inflation, Bahrain has distanced itself from such a move.

On November 25, Sheikh Ahmed bin Mohammed Al Khalifa, the kingdom's finance minister, denied media reports that Bahrain would abandon the dollar peg or had plans to link the Bahraini dinar with the Saudi Arabian riyal. However, Gerard Lyons, the chief economist for Standard Chartered, believes more radical measures than rates cuts are needed to head off the effects of the falling dollar. "The markets are holding on in anticipation of a revaluation because they do not believe the current monetary policy will work," Lyons told local press on November 27. "Cutting interest rates is not the best economic policy."

A report released by Standard Chartered in mid-November recommended either a 20% revaluation of the region's currencies and a phased ending of the dollar peg over an 18-month period, or an immediate severing of the link with the dollar and a less dramatic revaluation. Bahrain and other GCC counties needed a tighter monetary policy to rein in inflation, Lyons said, rather than interest rates cuts that could actually fuel spending. The leaders of the GCC are due to meet in Qatar in the first week of December. Though Bahrain and some other GCC member states have moved to head off speculation that the meeting will endorse dropping the dollar peg, the region's growing inflation problem and the sinking dollar are high on the list of topics to be discussed. (OBG30.11)

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11.3 UAE: Abu Dhabi - Bank Investment

The Abu Dhabi Investment Authority (ADIA) recently purchased $7.5bn worth of shares in Citigroup, the US' biggest bank in terms of assets. With many banks facing overstretched balance sheets, sovereign wealth funds (SWFs) are now seeing Western markets as increasingly attractive investment opportunities.

Citigroup has been operating under increasing financial strain from the sub-prime mortgage crisis and other investment losses, difficulties which resulted in the resignation of its former CEO, Charles Prince, on November 4. During the third quarter of this year, Citigroup recorded about $6.8bn in losses and write-downs and announced in November that it might write down another $8bn to $11bn in the fourth quarter. Citi's stock is trading at a five-year low and has fallen nearly 40% since the beginning of this year.

ADIA has purchased equity units in Citigroup that will yield 11% and must be converted into common stock between March 15, 2010 and September 15, 2011. The yield offered is almost twice the interest Citigroup offers to its bond investors. The recent investment makes ADIA Citigroup's largest shareholder at 4.9%, followed by Saudi Prince Alwaleed bin Talal's Kingdom Holding Company, which invested some $600m in Citigroup in the early 1990s during the last US mortgage crisis. As per the investment agreement, ADIA will have "no role in the management or governance of Citi, including no right to designate a member" of the company's board.

Win Bischoff, Citigroup's acting CEO, said, "This investment… provides further capital to allow Citi to pursue attractive opportunities to grow its business. ADIA is a significant participant in alternative investments and emerging markets financial services, two areas in which we have major positions and have been expanding."

Analysts at Morgan Stanley estimate that SWFs have invested more than $37bn in financial institutions during the eight-month period starting in April of this year as many banks have come under pressure in a challenging funding environment. Investments by SWFs from China to Russia to the GCC have met with mixed reviews by foreign governments who may be sensitive to the growing influence of these investment vehicles.

In the American political arena, the Citigroup investment was well received by leaders, including Senator Charles E Schumer, who had spoken out strongly against the attempt to purchase major US ports by Dubai's DP World. During a televised interview following the deal, Schumer said the investment was good for Citigroup and would allow the company to bolster its capital position and would help it to weather a difficult time.

In a market note on the sale, Morgan Stanley analyst Betsy Graseck said the purchase by ADIA "shores up [Citi's] capital base and reduces investment risk". Some insiders however say the $7.5bn cash infusion is not enough money to help the struggling bank. Meredith Whitney, a financial analyst at CIBC World Markets, suggested that Citigroup might be forced to sell more than $100bn of higher quality assets at a discount in order to raise the additional cash.

Regardless of the source, most experts agree that the investment terms are favorable for ADIA and a good opportunity for the SWF to invest in a blue-chip stock at an undervalued price. Sheikh Ahmed bin Zayed Al Nahyan, managing director of ADIA, said, "Citi is a highly respected company with a premier brand and with tremendous opportunities for growth. This investment reflects our confidence in Citi's potential to build shareholder value." (OBG11.12)

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11.4 UAE: Northern Emirates - Government Payday

Sheikh Humaid bin Rashid Al Nuaimi, the ruler of Ajman, recently ordered a wage increase for all national and non-national government employees in the emirate, part of a federal directive to increase salaries across the United Arab Emirates (UAE). The 70% wage increase is planned to take effect in January. With mounting concerns over the rising cost of living throughout the region, the pay raise is expected to ease some of the financial burdens placed on residents in Ajman, increase the standard of living, boost job productivity and create incentives to buy property.

However questions remain about the effectiveness of the move. Last year inflation in the UAE reached a high of 9.3% and analysts are wondering if the increased spending power brought about by this dramatic pay increase, followed by price hikes for goods and services, may create further inflation problems. Mohammad Khalfan bin Kharbash, the UAE's minister of finance and industry, was optimistic however, stating that the increase would not create an imbalance but instead offset differences in federal and local pay scales.

Sheikh Humaid said he would enforce legal action against those who abused the salary increase. He asked governing bodies in the emirate to keep a close eye on the market to avoid any exploitation of the wage increase through higher prices for goods and services. He also expressed the hope that the private sector would take steps to raise the wages of non-government workers.

Despite these warnings, prices in Ajman's supermarkets and general stores reached an all-time high in the week following the announcement of the wage increase, when costs for primary food products and gasoline increased by 15% to 35%. Store owners have blamed the rising prices on external factors such as the ban on eggs imported from Saudi Arabia due to reported bird flu cases, as well as continued global increases in the cost of essential goods. Nevertheless many residents have claimed the price hikes are disproportionately high and are linked to the proposed pay raise.

Ajman's municipal council is monitoring the situation, asking supermarkets to keep receipts of their transactions while periodic inspections are intensifying in an effort to quell unauthorized price hikes.

A similar situation occurred after the wage increase in 2005, which called for a 25% raise for nationals and 15% for non-nationals. Prices for essential food items rose and the municipality was forced to intervene by regulating prices. The Ajman government established teams to supervise the prices in markets to ensure that goods would remain affordable, especially for those who worked in the private sector and did not receive a set wage increase.

Concern over wages and costs of living are ongoing in the region. In August 1,600 workers walked from Ajman to the Labor Department in Sharjah, claiming that their wages were still fixed to a salary of Dh500 per month even though they had been promised Dh800 per month. According to the US Department of State, in 2005 the UAE witnessed approximately 20 publicized, organized demonstrations about unpaid wages and poor working conditions.

While rents in the Northern Emirates are considerably lower than those in Dubai, inflation is high across the region and rapid housing price increases have continued to hit residents' pockets. In 2004 when the Al Naeymiyah Towers, specifically designed for middle-income buyers, went on the market in Ajman, flats were priced at about Dh150 per square foot. In 2007 the price soared to Dh350. Ajman is hoping the wage increase will provide a boost to its freehold real estate sector, with freehold investment introduced for non-nationals in 2004. Catering to the influx of workers, many of whom now prefer to live in the Northern Emirates and commute to neighboring Dubai, more projects slated to the middle-income segment are in the pipeline. (OBG10.12)

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11.5 SAUDI ARABIA: Mobile Penetration

In the coming five years mobile penetration rates in Saudi Arabia are expected to rise 48 points to 130%, according to a recent report released by HSBC. This was reported by the Oxford Business Group. This forecast follows surging mobile phone subscriber rates over the past five years. The kingdom's telecommunications regulator, the Communications and Information Technology Commission (CITC), has estimated that the number of mobile users has swollen from a mere 2.5 million five years ago to 20 million today. "In terms of mobile penetration, in the next five years we expect the Saudi market to catch up with other similar economies and to reach 130%," said the report.

Around 40% of mobile phone users in 2006 had more than one SIM (subscriber identity module) card, according to a survey conducted by the Saudi-based Arab Advisors Group. However, HSBC estimated a lower number of 30% for multi-SIM users. Even with this growth, the Saudi mobile phone market is considered one of the most attractive in the region. "Countries, such as the UAE [United Arab Emirates] or Qatar have over 100% penetration for mobile subscribers. So the kingdom represents a window of opportunity for growth," Mohammed Saqer, president of locally based Integrated Telecom, told OBG. His estimation is backed up by HSBC's report, which put penetration rates at 82% of the population in the first half of 2006.

Saudi Arabia's young and rapidly growing population is one reason for the high expectations for the information communications technology (ICT) sector within the kingdom. In 2006, 40% of the population was in the 15 to 34 age bracket, while 38% was aged 14 years or younger.

This, coupled with the economic growth being witnessed in the kingdom, means consumers have more disposable income for luxuries such as communications technology. GDP per capita currently stands at $14,500 while the real GDP growth rate was 5% in 2006. This accounts for around $355bn in absolute terms. The CITC has estimated the ICT sector accounts for 6% of the country's GDP with future growth expected to far exceed its current standing, Saqer said. "In order to achieve sustainable economic success, Saudi Arabia needs to make ICT the second or third biggest contributor to the country's GDP."

Contributing to penetration rates is a reduction in handset prices and tariff rebalancing which has been a result of the ongoing liberalization of the telecoms markets. Over the last 10 years, liberalization of the sector has resulted in a transformed telecommunications landscape and the entrance of new players. It began with the conversion to a joint stock company of Saudi Telecom Company (STC). Etihad Etisalat/Mobily was subsequently licensed in 2004, with Kuwait's Zain Company winning the third license last June. The HSBC report stated the CITC is not expected to issue any more licenses, thereby fixing the number of mobile phone players in the market in the long term.

STC is the dominant mobile phone operator, claiming a 45% market share. 0Mobily is second with a market share of up to 38% and Zain, the newcomer, is third with a market share of between 18% and 20%. According to Abdul Rahman Al Jafari, governor of the CITC, the main independent regulator of the sector, the liberalization has resulted in a 100% growth in the mobile communications sector this year alone. Given the country's appetite for mobile phone technology, it is hardly surprising that the stage for the next wave of telecommunications development is being set now.

In anticipation of future convergence, the regulator has licensed two data service providers (DSP), Bayanat Al Oula and Integrated Telecoms, readying the market for the eventual nationwide rollout of WiMAX, as well as other wireless technologies. "These technologies will revolutionize how Saudis access information," Saqer told OBG. "The next step is laying the infrastructure for the technology, which we're doing. We're investing $1.6bn on infrastructure in the next three years," he said.

The number of internet users in Saudi Arabia reached 4.7m in 2007, compared to 2.5m in 2005, according to Internet World Stats. Meanwhile the average internet speed in the kingdom is 500 kbps, although operators are offering faster packages. In contrast to mobile phone penetration rates, the level of broadband penetration remains surprisingly low, "below 2% of the total population", according to Saqer. However, Abdulaziz Al Noghaither, general manager of Intel believes, "the introduction of WiMAX and high-speed downlink packet access services should change this fact." (OBG10.12)

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11.6 EGYPT: IMF Executive Board Concludes 2007 Article IV Consultation

On November 28, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Arab Republic of Egypt .

Background

Sustained and bold reforms, prudent macroeconomic management, and a favorable external environment enabled the Egyptian economy to register another year of impressive performance. Growth remained high and has become more broad-based, creating record numbers of jobs. Inflation has returned to single digits after spiking during the year through March 2007. Investor confidence remains high.

Real GDP growth in 2006/07 is estimated at 7.1%, the highest in years. The expansion was broad-based, with a further acceleration in non-hydrocarbon sectors, including in agriculture and manufacturing. The growth since end-2004 has added 2.4m jobs as of end-March 2007, reducing unemployment from 10.5% to 9%.

Strong growth and rising equity and real estate prices have boosted domestic demand, contributing to strong import growth and a pick-up in underlying inflation. Exports also rose sharply, along with worker remittances, Suez canal receipts, and tourism revenues. With record levels of Foreign Direct Investment, the balance of payments recorded a surplus of $5.3b in 2006/07, bringing official reserves to the equivalent of more than 6 months of imports of goods and services. A spike in inflation over the year through March 2007 was driven largely by the impact of an avian flu outbreak and adjustments in administered fuel prices in 2006; but a rise in underlying inflation (one that excludes food and most energy prices) points to some spillovers and demand pressures as well, along with some imported inflation. After peaking at 12.8% in March 2007, inflation measured as the Consumer Price Index has gradually receded since, to 8.5% in August; underlying inflation has also fallen substantially.

Macroeconomic policies in 2006/07 helped contain demand and inflationary pressures, but were complicated by strong capital inflows. Monetary policy was tightened once spillover effects of administered price increases became visible, and the nominal exchange rate allowed to appreciate by 1.1% against the U.S. dollar in the year to end-June, with considerably greater flexibility since then. Through the partial sterilization of external inflows, broad money growth was kept in the 13-15% range until April 2007, but subsequently surged to 18%.

Fiscal imbalances narrowed as there was significant underlying adjustment in 2006/07. Preliminary data indicate a central government deficit of 7.5% of GDP, below the 9% average of recent years, largely due to structural improvements in the tax area, fuel price adjustments, wage restraint, and windfall receipts from a telecom license sale, with a broadly similar adjustment for the general government (which includes social security funds and the National Investment Bank, NIB). Combined with privatization receipts and the draw-down of idle cash balances following the consolidation of most government accounts into a Treasury Single Account, budget borrowing requirements fell dramatically, contributing to a decline in Treasury-bill yields.

Structural reforms advanced significantly in promoting a private-sector driven economy. The fourth largest state bank (Bank of Alexandria) and a large department store chain along with other assets were sold to foreign investors (about 1.4% of GDP). Import tariffs were reduced in early 2007, and tax administration reforms progressed. Cash and debt management was streamlined by consolidating government accounts into a treasury single account and by the settlement of circular debts among the central government, the NIB and the Social Insurance Funds. Plans are afoot to restructure the pension system with assistance from the World Bank and the government is putting in place a strong institutional framework for Public Private Partnerships. Egypt successfully issued its first international local-currency bond (E£ 6b), seeking to widen the investor pool, foster secondary trading and hence establish a meaningful benchmark yield curve.

Recent steps undertaken to facilitate business activities include slashing the time, fees, and minimum capital required to set up a business; drastically lowering fees for registering property; and cutting further the time needed for imports and exports to clear customs.

Egypt's macroeconomic vulnerabilities seem low. The diversified sources of foreign capital (mostly from Europe, the countries of the Gulf Cooperation Council and North America) and a still-low share of speculative funds limit the risk of a sudden reversal of capital flows. The vulnerability to any reversal is furthermore limited as little of these inflows have been intermediated through the banking system and the Central Bank of Egypt's international reserves are high. Stress testing conducted during the recent joint World Bank/IMF Financial Sector Assessment Program (FSAP) Update highlights that the banking system would be vulnerable mainly to a deterioration of domestic credit quality and much less to exchange and interest rate movements. To date Egypt has weathered the recent turbulences in global financial markets rather well, some pullback in the stock and fixed-income markets notwithstanding.

Executive Board Assessment

Executive Directors commended the Egyptian authorities' sound macroeconomic management and bold economic reforms. Fiscal adjustment and significant achievements in privatization and financial sector reform have increased market confidence and boosted investment, thereby helping to sustain a high pace of economic growth. Growth is increasingly broad-based, contributing to a substantial reduction in unemployment.

Looking ahead, Directors observed that important challenges remain. They pointed, in particular, to the high government budget deficit, shallow financial intermediation, and remaining bureaucratic barriers to private sector activity. Furthermore, domestic demand continues to contribute to the inflationary pressures. Directors also cautioned that the slow trickle-down of the benefits of economic growth could weaken public support for the reform effort.

Against this background, Directors welcomed the authorities' commitment to reduce the fiscal deficit to 3% of GDP by fiscal year 2010/11. This will help further increase investor confidence, further improve the economy's resilience to exogenous shocks, reduce the public debt, and underpin macroeconomic stability. In this context, Directors commended the fiscal adjustment achieved last year, including through the reform of tax administration and public finance management and the reduction of fuel subsidies. They welcomed the planned further reduction of fuel subsidies, and called for stronger social safety nets to protect vulnerable segments of the population, as well as more efficient and better prioritized social spending. Directors looked forward to quick progress on the value added tax reform, containment of the wage bill, and further broadening of the tax base.

Directors commended the efforts of the central bank to strengthen monetary policy formulation and improve the interest rate transmission mechanism. They generally supported the central bank's pragmatic approach of focusing on underlying inflation to forestall second-round effects of administered price increases and supply shocks. Directors cautioned that, going forward, monetary policy will need to be vigilant in light of continued demand pressures. They welcomed the planned adoption of inflation targeting, which should be introduced after steps are taken to ensure a competitive banking system and a consistent monetary policy framework.

Directors welcomed the move to greater exchange rate flexibility since mid-2007, which has enhanced the coherence of the macroeconomic policy mix. The ensuing exchange rate appreciation has helped in curbing inflation. Directors considered that allowing a greater role for market forces in determining the exchange rate would help to deal with pressures arising from capital inflows and to underpin the move to inflation targeting. They agreed that Egypt's current account is consistent with external stability, and that the exchange rate is broadly in line with economic fundamentals.

Directors commended the significant progress in financial sector reform, and welcomed the authorities' plans for further reform in line with key recommendations of the recent FSAP Update. They welcomed the successful sale of a major state-owned bank and the efforts to reduce the nonperforming loans in the banking system. They encouraged completion of the privatization of another bank in 2008 as planned. Directors emphasized the importance of improving supervision, completing bank recapitalization, enhancing the monitoring of state banks, and undertaking complementary regulatory and judicial reforms. Some Directors called for gradual privatization of the large state-owned insurance company, in line with the authorities' overall thrust toward greater private sector participation in the financial sector.

Directors stressed that enhancing the investment climate will be crucial to sustain the growth momentum. They welcomed the ongoing efforts to reduce barriers to private sector activity, including through lower import tariffs, reduction of red tape, and a strengthened legal framework for business activities. They also pointed out that a faster pace of job creation will require labor market reforms and education to reduce skill mismatches, non-wage costs, and constraints on hiring and firing. (IMF03.12)

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11.7 LIBYA: IMF Staff Visit, Conclusions of the Mission

I. Recent Economic Developments and Outlook

1. Overall, Libya's macroeconomic performance strengthened further in 2007, notwithstanding an acceleration in inflation. Real GDP is projected to increase by 6.8% (up from 5.2% in 2006) on account of rapid growth in non-oil activity (7.5%) and robust growth in oil production (4.7%). Annual CPI inflation accelerated substantially from low levels in the first half of the year to about 11% in the third quarter due to the large increase in public expenditure (particularly wages), excess liquidity, and the price of imports, notably food items.

2. Despite higher oil revenues, the fiscal surplus in 2007 is expected to be smaller than in 2006. The fiscal surplus for 2007 is projected at about 35% of GDP, compared to 39% of GDP in 2006. The narrowing of the surplus reflects the rise in expenditure, although the spending increase was less than what was in the budget.

3. The external current account surplus is also projected to narrow in 2007. It is expected to fall to (a still very large) 40% of GDP, compared to almost 52% of GDP in 2006, due to a surge in imports. Gross official reserves increased by $20 billion in 2006 and are projected to increase by another $24 billion in 2007, reaching about $83 billion by the end of the year.

4. Broad money growth accelerated in 2007 (projected at 31% by year-end, up from 20% in 2006). This reflects a substantial increase in the net foreign assets of the Central Bank of Libya (CBL), public spending, and lending by specialized credit institutions. The real effective exchange rate depreciated by about 1% in the first half of 2007 due to the appreciation of the Euro2 against the SDR, to which the dinar is pegged. The dinar appreciated by 4% against the U.S. dollar during this period.

5. Libya's economy is expected to benefit in 2008 and beyond from continued high oil prices, further growth in oil output, and increased interest of foreign investors. Oil production is projected to almost double (to about 3m barrels per day) by 2012 on account of the utilization of advanced exploration and extraction techniques by international oil companies. Large investment projects announced for the various sectors (from hydrocarbon to tourism) already exceed $35 billion in total value. Turning these positive prospects into sustainable job-creating growth while maintaining macroeconomic stability hinges on containing expenditure growth, advancing structural reforms, and solid evaluation and appropriate sequencing of the planned investment projects.

6. Libya still faces key challenges in the medium term. The current favorable global environment and Libya's strong financial position provide an opportunity to take additional decisive steps to address these challenges. Laying the basis for a sustainable non-inflationary growth and creating sufficient job opportunities for a fast-growing labor force hinge on (i) containing the increase in spending and enhancing its quality; (ii) upgrading the infrastructure; (iii) strengthening the management of the oil savings to safeguard inter-generational equity; (iv) developing the financial sector; and (v) improving the domestic business climate and diversifying the productive base in order to reduce dependence on oil.

II. Fiscal Policy

7. Containing the growth of public expenditure will be essential to ensure its quality and curb inflationary pressures. The full year implementation of the 2007 increase in public wages would contribute to a likely 25-30% growth in recurrent expenditure in 2008. Capital expenditure would increase by an almost 50% compared to 2007 (even if only 70% of the proposed amounts are implemented). Overall, public expenditure would grow by 40%. This rapid increase would likely contribute to inflationary pressures and could negatively impact the quality of expenditure. To minimize these risks, the mission urges the authorities to prioritize and sequence the proposed investment projects, especially in view of the existing bottlenecks in infrastructure, and fully implement their plan to reduce the civil service and apply the wage increase selectively. Starting with a more conservative budget, which can be augmented with supplementary allocations during the year if conditions permit, would be preferable to proposing a very ambitious budget at the outset.

8. Going forward, the mission urges the authorities to ensure that increases in public sector wages are linked to performance and to civil service reform. The private sector should also be encouraged to take the lead in upgrading the infrastructure and in implementing Libya's ambitious investment program, including in the context of private-public partnership (PPP) arrangements within adequate safeguards.

9. The authorities are encouraged to step up their efforts to strengthen revenue administration. The mission welcomes the initiation of a comprehensive reform of customs administration and the establishment of a large taxpayer's office (LTO). The LTO should serve as a pilot unit for overall tax administration reform by pioneering key initiatives such as moving to a self-assessment system and reorganizing its departments in line with functional, rather than tax type, responsibilities.

10. Progress has been made in improving public financial management, including by the consolidation of the budget presentation and the initiation of a macro-fiscal unit. The intended move to a functional classification of the budget starting in 2008 will be advantageous. To improve the efficiency of budget execution, it would be important to determine individual budgetary allocations for line ministries according to specific spending programs in addition to operating within the overall spending envelope. These reforms should be extended to capital expenditure. Unifying the recurrent and capital budgets under the auspices of the ministry of finance would also be essential to modernize Libya's public financial system.

III. Monetary Policy and Financial Sector Reforms

11. The mission welcomes the plan to enhance monetary policy operations, including through the development of indirect monetary policy instruments and the reorganization of the CBL. For indirect monetary instruments to be effective there would need to be a competitive banking system and a well functioning interbank market. Relaxing the current rules limiting banks' ability to place investments abroad would also help reduce the system's excess liquidity. Furthermore, lending by specialized credit institutions should be monitored and controlled as part of the overall liquidity management.

12. The mission welcomes the ongoing strengthening of banking supervision, including by improving off-site surveillance techniques and upgrading the methodology of setting capital requirements. Supervision would benefit from enhanced coordination between the off-site and on-site units and capacity building through additional staffing and training.

13. Considerable progress has been made in bank restructuring and privatization. The decision to merge 41 regional banks into one bank and to merge the Jamahiriya and Umma banks are notable steps in this direction. The recent successful sale of a large share in Bank Sahara to BNP Paribas and the ongoing privatization of the Wehda Bank will help to enhance knowledge transfer and competition. The authorities are encouraged to maintain their approach of seeking strategic partners for the remaining public banks.

14. The recent improvement in financial soundness indicators of banks is encouraging. Adoption of international accounting standards would support efforts of banks and supervisors to monitor developments and take early corrective action as needed. To preserve the health of the banking system it will be important to ensure that credit allocation is based on commercial considerations while addressing social needs through other channels.

IV. Sovereign Asset Management

15. The mission welcomes the authorities' approach in establishing the Libyan Investment Authority (LIA), which emphasizes transparency and good governance. The intention to invest the initial $40 billion allocated to the LIA on a commercial basis and almost exclusively abroad will help protect and develop Libya's savings and diversify its sources of income. The plan to ensure that the LIA will be run by a qualified and independent management and that transfers to the state budget will be limited to a part of the profits will also enhance inter-generational equity. Some important details remain to be determined, including how much of the profit can be withdrawn and how much of the fiscal surplus should be transferred to LIA. Staff stands ready to provide technical assistance and to review the draft LIA law to ensure its consistency with international best practices. Should the authorities' plans for the LIA be implemented as intended, it could stand as a model for other sovereign wealth funds in the region and beyond.

V. Structural Reforms and Other Issues

16. The authorities' plan to develop the non-oil sector by promoting the private sector and supporting small and medium size enterprises would contribute to economic diversification and job creation. These efforts should focus on training, deregulation, as well as enhancing property rights and the legal system in order to facilitate access to bank credit. It would be important to avoid complex incentive schemes which tend to be costly, ineffective, and highly distorting. In addition, the process of privatizing public enterprises needs to be simplified and accelerated.

17. The authorities are encouraged to improve economic and financial statistics, in order to facilitate the monitoring of developments and policy formulation. In particular, priority should be accorded to GDP, employment, and balance of payment statistics.

18. Libya's generous support of low income countries, particularly in Africa, through financial assistance and outward foreign investment is commendable. The mission encourages the authorities to provide full debt relief to heavily indebted poor countries in line with the HIPC Initiative. (IMF12.11)

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11.8 MOROCCO: Taxing Capital Gains

Morocco's 2008 budget raises capital gains tax in an effort to increase government revenues used to subsidize the rising prices of commodities on international markets. The move has raised concern in the securities industry, with some insiders saying the new provisions could undermine the recent renewed interest of small investors in the stock market.

Capital gains were totally exempted in 2005, though the tax was reinstated at a rate of 10% in 2006. The 2008 budget law includes a provision to raise the rate to 15%. Of the 325 members of parliament, 96 members voted for the draft bill last week and 67 against.

Investors began adjusting their portfolios even before the legislation was passed, beginning in early November when Salaheddine Mezouar, the minister of economy and finance, presented the proposed budget provisions to the press. The massive rearrangements triggered a drop in the country's benchmark MADEX index, which had gained 47.6% at its highest level in September. The index had dropped 9.6% by the beginning of December. As the fiscal year draws to an end, individuals are expected to join institutional investors in asset reallocations that may well exacerbate this decline.

The tax hike could also jeopardize the renewed interest of investors in the Casablanca Stock Exchange, reviving memories of the late 1990s correction that took its toll on investor confidence. The booming initial public offerings (IPOs) seen in the kingdom in recent years, most of which have posted hefty gains, are largely responsible for the renewed interest in the stock market. Seven companies have already sold stocks to the public this year. This follows the record ten IPOs listed in 2006, when property developer Addoha more than tripled its stock price in less than six months.

Stokvis, a construction equipment distributor, along with consumer credit agency Salafin, are scheduled to make their bourse debuts in December, raising the number of companies listed on the Casablanca exchange to 72. Total market capitalization currently stands at $77bn.

The rush to snap up stocks sold in IPOs frequently leads to overwhelming subscription rates, resulting in low stock allocation. Atlanta, an insurer which said it would raise $156.7m in a share sale in October, received applications for more than 100 times the number offered, forcing the exchange to close the share sale on October 3, one day ahead of the initial four-day subscription period. The 111,777 Moroccan individual investors who had placed orders for as many as 55m shares were allocated only 520,683 securities, less than one stock for every 100 sought. Frustrations continue to run high as the company's stock has performed well following listing, surging by 58.8% in less than two months.

Another to experience the rush to buy newly listed shares was Compagnie Generale Immobiliere (CGI), a property developer in which the government's investment arm Caisse de Depot et de Gestion has an 80% stake. When the Rabat-based company said it would raise $457m by selling 3.5m new and existing shares, analysts did not expect massive oversubscription, given that it was Morocco's second-largest IPO ever. Yet investors placed orders for as much as 520m shares, 141 times the number of shares available, dragging down the rate of allocation for the 54,872 new shareholders to less than 0.8%. CGI shares have more than doubled in price since their listing.

If the new fiscal provisions undermine the interest of small investors in the stock market, it may well drag down the trading volume, which has picked up speed in recent months, boosted by the launch of on-line brokerage services by three Moroccan banks. Although the tax increase might generate additional revenue, it is unclear whether it will be able to bridge the gap generated by the rising subsidies the government has pledged in an effort keep retail prices stable.

In addition to the tax revenue forfeited after lowering the corporate tax rate from 35% to 30%, the government has also earmarked $2.6bn to subsidize the inflation in prices of cereals and oil products seen on international markets, 49% more than was allocated last year. In a bid to improve the purchasing power of low-income households, the government-run Caisse de Compensation will allocate $1.56bn to finance oil product prices in the kingdom. An additional $1bn was budgeted to subsidize the prices of wheat, sugar, and cooking oil. The amount set aside for subsidies represents 8.4% of the government's total revenues of $31bn for 2008. (OBG10.12)

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11.9 PAKISTAN: Musharraf Gives Up Uniform

Pervez Musharraf, Pakistan's president, has met one of the key demands of his political opponents by stepping down as chief of army staff. The move cleared the way for him to be sworn in for a new five-year term, as a civilian president, on November 29th. This is unlikely to be enough on its own to defuse the political crisis. His opponents are demanding, among other things, that he lift emergency rule and reinstate the suspended constitution. General Musharraf will also have to persuade the opposition parties that a parliamentary election scheduled for January 8th will be free and fair.

General Musharraf's relinquishment of his "uniform" is nonetheless a seminal moment in the country's recent political history. General Musharraf took power in a bloodless military coup in 1999, ruling first as self-declared chief executive before taking over the presidency in mid-2001. His simultaneous holding of the roles of army chief and president has been an important contributing factor in the country's recent political turmoil. Not only has it been decried as unconstitutional by his opponents, but his efforts to hold on to both roles have forced him to employ tactics (such as twice firing the chief justice of the Supreme Court in 2007) that have ignited yet further controversy.

General Musharraf's retirement as army chief addresses one of the key complaints of opponents such as Benazir Bhutto and Nawaz Sharif, both former prime ministers who have returned from exile with the declared aim of reinstating democracy. Both have also returned with the possible intention of contesting the forthcoming parliamentary election, but they have threatened to boycott the vote unless the president lifts restrictions in place since the announcement of emergency rule on November 3rd. Whether Ms Bhutto and Mr Sharif take part in the election or instead attempt to force the president from power by maintaining their current stand-off will hinge on the extent to which they are satisfied that his withdrawal from military life is genuine, and that the conditions both for the election and the post-election period are not stacked heavily against their respective parties.

General Musharraf is to be succeeded as army chief by General Ashfaq Pervez Kayani, a former head of the intelligence services. General Kayani is seen as a pro-Western Musharraf loyalist likely to continue his predecessor's co-operation with the US-led "war on terror". General Kayani's closeness to his predecessor, combined with the president's own continuing status as head of the National Security Council, may convince Ms Bhutto and Mr Sharif that the president has appointed little more than his own puppet. General Musharraf may struggle to convince his opponents of his good faith unless he follows his latest action with credible responses to their other demands.

The opposition parties are adamant that an election is impossible unless the state of emergency is lifted. There are indications that the government may soon repeal the "provisional constitutional order", the document that formally suspended the constitution when the state of emergency was imposed. If this occurs, it would mark a substantial concession by the Musharraf camp, particularly if accompanied by a relaxation of restrictions on political activity and the media. General Musharraf's opponents are also demanding that he reinstate an independent Supreme Court. The president's sacking in November of Supreme Court justices, whom he replaced with judges thought to be favorable to his own agenda, was an attempt to ensure the failure of legal challenges to his recent re-election as president. The court duly dismissed the last of these challenges on November 22nd, but while the decisions nominally validate his presidency, the credibility of the rulings will remain in serious doubt.

Mutual mistrust will continue to hamper efforts to broker a truce between the president and one or more of the opposition parties - probably the Pakistan People's Party (PPP) led by Ms Bhutto. Before the imposition of emergency rule raised tensions dramatically, the PPP had been trying to negotiate a power-sharing deal with the government that could have allowed Ms Bhutto to become prime minister alongside General Musharraf as president. Emergency rule has made this scenario a more distant possibility, since Ms Bhutto subsequently announced that she would not negotiate with General Musharraf unless the state of emergency was repealed. Mr Sharif has said that he is not prepared to take power under a Musharraf presidency.

How the situation unfolds will depend on how genuine the opposition's protestations of principle are, in particular on whether the events under the state of emergency have irreparably damaged Ms Bhutto's relations with the president. The PPP will want to be seen to keep a distance from General Musharraf, as its credibility has been tainted by its earlier negotiations with the Musharraf government. But if the president were to yield on some of the party's other concerns, and if the resulting arrangement were suitably packaged for popular consumption--for example as an unselfish action to save the country, rather than as naked political expediency - a power-sharing deal might still be conceivable. The fundamental basis for the anti-Musharraf movement has been weakened by his decision on the uniform.

Still, many hurdles remain. The opposition parties will not trust General Musharraf not to try to control the army from behind the scenes, especially as in the past he has reneged on promises to relinquish his military role. Nor will they trust that the election will be fair, even if many of the current political restrictions are lifted. Most difficult of all are constitutional questions over the Musharraf presidency, which will come to the fore if the government makes enough concessions to convince the opposition parties to take part in the election. With an independent judiciary and the 1973 constitution (or some variant thereof) back in place, the legitimacy of the October 6th 2007 presidential vote, which controversially re-elected General Musharraf, would be open to critical re-examination. Because of this, General Musharraf will probably insist, at a minimum, on maintaining the controversial power to dismiss the prime minister and parliament. But opposition leaders will be wary of taking part in the parliamentary election if they continue to fear that the president can easily remove them if he doesn't like the result, or that he can do the same to an elected government if it subsequently pursues policies that he dislikes. (EIU28.11)

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11.10 TURKEY: Looking at Inflation

Market observers have been scrutinizing Turkey's rate of inflation of late, and with good reason. They are partially right, as noted by the Oxford Business Group, in concluding the country was wide off its target as inflation reached 8.4% last month: almost 4.5% over the annual target for 2007. But close inspection shows the gap between Turkey's current position and its target is not as unbridgeable as it might appear.

That said, the spike in inflation between October and November was significant. Last month the central bank's monetary policy committee revealed that consumer prices increased by 1.8% during October, pushing annual inflation up to 7.7%. A further 0.7% increase was added in November.

A number of factors have been responsible for the rise. The drought this summer pushed agricultural commodity and processed food prices up, with consumers having to pay for a shortfall in domestic food supplies. Figures from the central bank (TCMB) showed that the prices for non-alcoholic beverages and food spiked by 14.7% year-on-year. Increased household expenses have also been a factor, with new municipal water tariffs in Istanbul accounting for a 14% increase in costs in November compared to the previous month, according to the local investment firm and brokerage house AK Securities.

In November the government announced tax hikes on tobacco and petroleum products. While the special consumption tax on tobacco was increased from 1.40YTL to 1.55 YTL ($1.19 to $1.31), the tax for gasoline increased by 5% on average. The central bank predicted these would account for a 0.8% rise in inflation. Meanwhile, consumers are bracing themselves for anticipated electricity and natural gas price increases.

The rise in the price of global crude oil hardly helped, particularly for a country that, according to energy experts, imports 92% of its oil supplies. Consumers have had to bear the brunt of the higher logistical costs of transporting goods and produce. The central bank nonetheless points out that the strength of the Turkish lira has limited the internal impact of the global rise in crude prices. This is not to say that the causes of Turkey's higher-than-desired inflation can be explained solely through recent events.

"The turmoil in the market that we experienced in June of last year was one of the reasons why inflation has deviated from the target," Durmus Yilmaz, governor of the TCMB, told OBG. "There was a huge, almost a 3.5%, pass-through effect until the end of the year due to the negative currency development." The run on emerging markets in mid-2006 saw the Turkish lira lose almost 20% of its value and saw the Istanbul Stock Exchange (ISE) index fall by 32.3% in US dollar terms by the end of June that year.

While the divergence between reality and Turkey's inflation target may appear significant, a number of considerations help neutralize initial fears. "Positively, by reducing the purchasing power of consumers, high food and energy prices restrict demand on other items of the consumer price index basket and help service sector disinflation," said Hakan Aklar, chief economist at AK Securities. The TCMB also underlined positive inflationary developments in the CPI basket - a reference to the breakdown of inflation as applied to individual commodities, goods or activities in the economy.

"Excluding food and energy prices, inflation for goods is around 5% and therefore in that respect the disinflation process is continuing," said Yilmaz. "When you look at the services sectors as well, inflation in this area stayed around 11% for some time in a very sticky way. But it also began to come down starting in the second quarter of this year. As of today, inflation for services stands at around 8%."

Despite the setbacks, the TCMB maintains that the disinflation process resulting from its tight monetary policy is in fact working. In support of this, Aklar said that annual core inflation, which excludes such inflationary commodities as energy, unprocessed food, alcoholic beverages, tobacco products and gold, remains flat at 6.4%. As a result, most economists have expressed optimism that the current inflationary pressures will fade. Through cutting interest rates in a measured fashion to encourage economic growth, the central bank is confident the fruits of its disinflation efforts will become far more apparent in the medium term. In this respect, it is telling that the inflation target for 2008 and 2009 remains at 4%. (OBG07.12)

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- Israeli Shekel conversions done at a rate of NIS 4.00 = $1.00
- Turkish Lira conversions done at a rate of NTL 1.20 = $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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