TOP STORIES

• Bar-On Sees Israel in OECD by 2009
• IBM to Set Up New Lab In Israel
• Israel Improves Standing as Business Location
• Jordan's First Oil Shale Power Plant Expected In 7 Years
• Greek Measures to Combat Air Pollution
• JORDAN/EGYPT: Why Don't the Benefits of Growth Trickle Down?

TABLE OF CONTENTS:

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Bar-On Sees Israel in OECD by 2009
1.2 Tourism Ministry Proposes Overnight Flights at Ben-Gurion
1.3 New Israeli Law Hampers Stolen Car Chop-Shop Industry

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 ECtel Expected to Strengthen IRM Market Position with Acquisition of Compwise's Assets
2.2 Phoenix Technologies Completes Acquisition of BeInSync
2.3 WorkLight Secures $12 Million in Series B Round Financing Led by Pitango Venture Capital
2.4 Defense Industries International $4.5 Million Order from the Israeli Ministry of Defense
2.5 IBM to Set Up New Lab In Israel
2.6 ICL Fertilizers Signs New Potash Supply Contract With Chinese Customer
2.7 Israel Cleantech Ventures Raises $75 Million
2.8 Israelis Face Steep Food Price Increases After Passover
2.9 modu Opens its First European Office to Deal with Growing MNO Demand
2.10 CopperGate Communications Buys HomePlug AV Powerline Technology from Conexant Systems
2.11 Boeing & El Al Israel Airlines Finalize Order for Four 777-200ER Jetliners

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 VINCI Signs Contract For Qatar–Bahrain Causeway, The World's Longest Bridge
3.2 Verizon Business to Open Dubai Office to Further Strengthen Middle East Presence
3.3 Dubai Group Acquires 40% Stake in India's Chiranjjeevi Wind Energy
3.4 Tatweer Brings Legoland to Dubai

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4: ISRAEL MACRO-DEVELOPMENTS

4.1 Israel Improves Standing as Business Location
4.2 Israel & EU Agree On Agriculture Trade
4.3 Government Publishes Tender For Second Solar Plant

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Jordan's First Oil Shale Power Plant Expected In 7 Years
5.2 Jordan's Ranking on ICT Rises
5.3 OPIC Extends $250 Million Loan to Jordan's Disi Project
5.4 Inflation Reaches 10% in Lebanon
5.5 Iraq Orders 30 Boeing 737-800 Planes
5.6 IMF Says Gulf's Recent Growth Impressive
5.7 Qatar Signs $3.8 Billion Water Plant Deal
5.8 UAE Ready for VAT by Year-End
5.9 Abu Dhabi Foreign Trade Hits $9.8 Billion
5.10 Abu Dhabi to Spruce Up Image
5.11 Oman 2007 Budget Surplus Hits $1.13 Billion
5.12 Economic Fears Pushing Saudi Women to Work
5.13 ADSL Available to 63.4% of Egyptian Households
5.14 Qaddafi Tells Libyan Government to Distribute Oil Revenues to People

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6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS:

6.1 Turkish Inflation Surges in April
6.2 Turkey Completes IMF Stand-By Successfully For First Time
6.3 Turkish Energy Bill Jumps 56% in First Quarter
6.4 Turk Telekom IPO Yields $1.9 Billion
6.5 Greek Measures to Combat Air Pollution
6.6 Greece & Russia Sign Deal On Gas Pipeline

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Israel at 60 - Population Nears 7.3 Million

*REGIONAL:

7.2 Turkish Parliament Approves 301 Amendment

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Agile Patency Capsule Clears Stricture Patients for Small Bowel Diagnostic Procedure
8.2 Dune MarginProbe Reduces Repeat Lumpectomy Surgeries
8.3 InspireMD Announces Positive 6-Month Efficacy and Safety Results of the MGuard Coronary Stent
8.4 Can-Fite Successfully Completed Phase I Clinical Trial with its 2nd Drug CF102

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 CopperGate Communications Achieves Five Million HomePNA Chipset Milestone
9.2 One Laptop per Child Becomes a Reality With Wavion Solutions in Uruguay
9.3 Mellanox Wins 'Best of Interop' Award
9.4 VeNotion Named 'Cool Vendor' by Leading Analyst Firm
9.5 Actimize Unveils Surveillance Solution for Rogue Trading Detection
9.6 STMicroelectronics & Mobileye Deliver 2Gen System-on-Chip for Vision-Based Driver Systems
9.7 RDS Canada Chooses Orad's First Down Line System To Enhance Viewing Experience
9.8 IDO Security Announces Availability of MagShoe Shoe-Scanning Security Device
9.9 Mongolia's Incomnet Selects Gilat's SkyEdge Satellite Network for Telephony & Data Connectivity
9.10 Check Point's New ZoneAlarm ForceField Protects Users' Private Information Against Web Attacks

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10: ISRAEL ECONOMIC STATISTICS

10.1 Jerusalem Received Record Number of Passover Visitors
10.2 Gas in Israel Rises to $7.19 a Gallon at the Pump

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11: In Depth

11.1 JORDAN/EGYPT: Why Don't the Benefits of Growth Trickle Down?
11.2 KUWAIT: Central Bank Urges Action
11.3 QATAR: Moody's Rating outlook stable
11.4 UAE: Abu Dhabi Dabbling with Danger
11.5 UAE: Dubai Moving on With VAT
11.6 OMAN: IMF Executive Board Concludes 2007 Article IV Consultation
11.7 OMAN: Port Expansion
11.8 SAUDI ARABIA: Sovereign Wealth Fund Launch
11.9 EGYPT: Mubarak's Giveaway
11.10 EGYPT: Energy Outlook
11.11 GREECE: IMF Executive Board Concludes 2007 Article IV Consultation
11.12 GREECE: Pipeline Politics, In Perspective
11.13 TURKEY: Driving Toward Europe

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1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Bar-On Sees Israel in OECD by 2009

Minister of Finance Bar-On has predicted that Israel will become a full member of the OECD by the end of 2009. On 12 May, he met with the heads of the OECD membership steering committee and the professional teams working on Israel's membership. Bar-On received a briefing on the progress to date in the membership process and on the teams' work with the various OECD committees. The steering committee has completed the initial membership procedures as set out by the OECD. He was also informed that the steering committee has set up at least 18 work teams, which are reviewing the terms and conditions for Israel's membership. (Globes 12.05)

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1.2 Tourism Ministry Proposes Overnight Flights at Ben-Gurion

Five million foreign tourists will visit Israel annually by 2012, according to Tourism Ministry estimates. The Ministry's Director General feels that expanding Ben-Gurion Airport's hours of operation while using new and quiet passenger planes will help increase the number of incoming tourists to Israel, and the industry's profits by millions of dollars annually. The ministry anticipates a growth of 20% in the number of incoming tourists within the next few months. It expects 500,000 tourists in July-August and more than 550,000 in October-November. The Ministry is holding discussions on operating Ben Gurion Airport overnight with the heads of the Israel Aviation Authority and representatives of foreign airlines as part of the ministry's preparations for 2009. Foreign carriers are interested in expanding the capacity of their flights to Israel. European airports do not normally operate at night and therefore the airline companies' planes would be available. Adding operation hours to Ben Gurion Airport's schedule would also help reduce plane ticket prices, while companies interested in landing in Israel at night will have to use new and quiet planes that are even safer than usual. The Tourism Ministry plans to bring the initiative to the cabinet for approval in the next few months, he said. (JP12.05)

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1.3 New Israeli Law Hampers Stolen Car Chop-Shop Industry

A new Israeli law, which went into effect at the beginning of April, bans Israelis from having their cars repaired in Palestinian Authority-controlled areas. As a result, car thefts are already down significantly. Israel Police's Etgar (Challenge) unit has been operating in recent months to dismantle the stolen car-parts industry, a mainstay of the economy of Arab villages in Judea and Samaria. The industry is based largely on car parts mostly stolen from Israeli vehicles and then transplanted, illegally and often unsafely, into Israeli cars. Etgar detectives carried out, over the past week, enforcement activity in the Arab parts of Hebron, the village of Nabi Alias between Kfar Saba and Karnei Shomron and other places. The police confiscated several dozen cars in various stages of being repaired, and questioned many Arab workers in the relevant garages. Police say the information will lead to indictments against the owners of the vehicles and of the tow-trucks that brought them to the Arab garages. The findings thus far show that among those bringing cars to be repaired in the PA are dealers who buy totaled cars from insurance companies, bring them to the PA for "repair," and then sell them in "perfect condition" to the public at large. The successes of the new law and efforts have been successful, as the statistics show. In 2006, the average number of cars stolen daily in Israel was 93, while this year that number dropped to 66 and was only 59 in April. (INN11.05)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 ECtel Expected to Strengthen IRM Market Position with Acquisition of Compwise's Assets

ECtel announced that it acquired substantially all assets of Israel-based Compwise, a provider of business analytic solutions for telecommunication operators, for approximately $1.3m. The acquisition is expected to expand and strengthen ECtel's market leading Integrated Revenue Management product suite, as well as expand its customer base. The acquisition is expected to be accretive to earnings. Compwise's products provide innovative business intelligence solutions for telecommunications service providers. Their unique analytical approach enables operators to maximize tariff profitability, improve retention of profitable customers and detect revenue leakage. ECtel will merge Compwise's products into ECtel's leading IRM platform, further enhancing the Company's offering as a one-stop revenue management solution. Under terms of the acquisition, ECtel will continue to provide revenue management services and support to Compwise's current clients, which include some of the leading and most well known telecom service providers around the world.

Rosh Ha'Ayin, Israel's ECtel (http://www.ectel.com) is a leading global provider of Integrated Revenue Management (IRM) solutions for communications service providers. A pioneering market leader for nearly 20 years, ECtel offers carrier-grade solutions that enable wireline, wireless, converged and next generation operators to fully manage their revenue and cost processes. ECtel serves prominent Tier One operators, and has more than 100 implementations in over 50 countries worldwide. Established in 1990, ECtel maintains offices in the Americas and Europe. (ECtel30.04)

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2.2 Phoenix Technologies Completes Acquisition of BeInSync

Milpitas, California's Phoenix Technologies, the global leader in core systems software, has completed its acquisition of BeInSync, an Israeli-based provider of an all-in-one solution that allows users to backup, synchronize, share and access their data online. The transaction further solidifies Phoenix's position at the core of the PC industry. It will enhance the Company's ability to respond to consumer and business needs for secure and "always available" web access to their digital assets as well as automatic protection of all PC programs and data. With the completion of this acquisition, Sharon Carmel, Founder of BeInSync, is now Vice President & Chief Scientist of synchronization and continuity Solutions at Phoenix Technologies, and the entire BeInSync team will continue to maintain operations out of Tel Aviv, Israel, as a part of the Phoenix Technologies' global team. (Phoenix 03.05)

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2.3 WorkLight Secures $12 Million in Series B Round Financing Led by Pitango Venture Capital

WorkLight has closed a series B round of funding totaling $12 million led by Pitango Venture Capital, Israel's largest VC. The company's second round of financing also represents a renewed commitment from Genesis Partners, Index Ventures and Shlomo Kramer, a world renowned security expert and Imperva CEO. Proceeds from WorkLight's series B round funding will be used to further expand its presence in North America, Europe and Asia, substantiating the company's vision for the consumerized workplace. As the world of the consumer blurs with that of workplace, corporations worldwide increasingly rely on popular internet tools, such as personalized homepages (iGoogle, Netvibes, etc.), social networks (like Facebook), desktop widgets and gadgets, social bookmarking, RSS and other Web 2.0 platforms and services, to get things done at work. Since its inception in 2006, WorkLight has pioneered the secure use of consumer technologies as business tools, enhancing employee productivity and fostering collaboration inside and outside the organization. Yakum, Israel's WorkLight (http://www.myWorkLight.com) develops and markets a line of server products that consumerize the corporate computing experience by making popular consumer services like iGoogle, MS Live, Netvibes, and Facebook "enterprise-ready." Through WorkLight, employees and consumers connect to protected enterprise data (and to each other) using Web 2.0 services. WorkLight has received prestigious industry accolades including being selected as a Winner of the Red Herring 100 Europe 2008 Award, named as one of the "Five Enterprise 2.0 Startups to Watch," by InformationWeek magazine, selected as part of CIO Magazine's Web 2.0 Product Suite and singled out with an honorable mention as one of Computerworld's "10 Cool Cutting-edge Technologies on the Horizon." (WorkLight30.04)

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2.4 Defense Industries International $4.5 Million Order from the Israeli Ministry of Defense

Defense Industries International received orders of approximately $4.5m for bulletproof and tactical vests from the Israeli Ministry of Defense. Approximately 50% of the orders are expected to be delivered during 2008. This order follows an order that was received from the Israeli Ministry of Defense in the beginning of 2007. Ashkelon, Israel's Defense Industries International (http://www.defense-industries.com) is a leading manufacturer and global provider of personal military and civilian protective equipment and supplies. Defense Industries' main products include body armor, bomb disposal suits and bullet-resistant vests and jackets; ballistic wall covers, ceramic armor plates and lightweight armor UHMW-PE plates; personal military equipment, battle pouch units and combat harness units; dry storage units, liquid logistics, tents and vehicle covers; winter suits, sleeping bags and backpacks. (Defense Industries01.05)

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2.5 IBM to Set Up New Lab in Israel

Globes reported that IBM Corp. is setting up a new Systems and Technology Group Lab in Israel. The lab will leverage the deep technology skills and the creativity of the Israeli industry to create a unique organization that will attract top talent to IBM's System & Technology Group. Since January 2008, IBM has acquired three Israeli IT storage solutions start-ups: XIV, FilesX and Diligent Technologies Corporation. IBM has been active in Israel since acquiring Ubique in 1998, Israel's first computer research lab founded in the 1970s at the Technion Israel Institute of Technology. Based on this, IBM set up development labs in Rehovot and Jerusalem. The company also operates a semiconductor lab at Ramat Hayal in Tel Aviv. XIV will operate separately from the new STG Lab. The new IBM STG Lab will give the IBM R&D Labs in Israel a firm representation of the IBM divisions dedicated to infrastructure solutions and technologies. The STG Lab will work closely with its sister labs in Israel: the long-established Haifa Research Lab and the more recently established Software Lab. The three labs employ over 700 researchers and developers, whose research generates products and solutions worldwide. (Globes 30.04)

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2.6 ICL Fertilizers Signs New Potash Supply Contract with Chinese Customer

Israel Chemicals announced that it has signed a new potash supply agreement with a major customer in China, securing a price increase of $400 per ton compared to the previous contract. Due to the potash quantity constraints that characterize today's tight markets, in which record demand has risen faster than supply, ICL Fertilizers has agreed to supply the customer with 300,000 tons of potash through the end of 2008, a quantity that represents 40% of ICL's original commitment according to a three-year agreement signed in 2006. Other international potash suppliers have recently agreed to supply 40% of their original commitment quantities in view of their inability to make up for the delayed timetable of the signing of this pricing agreement. Israel's ICL (http://www.israelchemicals.co.il) is one of the world's leading fertilizer and specialty chemicals companies. ICL produces approximately a third of the world's bromine and approximately 10% of its potash. ICL is a leading supplier of fertilizers in Europe and a major player in specialty fertilizer market segments. One of the world's most integrated manufacturers and suppliers of phosphate products, ICL has become the world's leading provider of pure phosphoric acid and a major specialty phosphate player. The Group employs approximately 9,900 employees worldwide. (ICL30.04)

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2.7 Israel Cleantech Ventures Raises $75 Million

Israel Cleantech Ventures (ICV), the first Israeli cleantech-focused investment fund announced today that it reached a final close of $75m for its debut fund, significantly exceeding its original target of $60m. ICV will invest in Israeli based or Israel related high growth clean technology companies, including alternative energy, water conservation and purification, emissions reduction, and in technologies that enable existing industries to work in a more efficient and environmentally friendly manner. The Fund has made seven investments to date in companies operating in various clean technology sectors, such as – Aqwise (waste water treatment), CellEra (fuel cells), Citrine Renewable Energy (landfill biogas treatment), Emefcy (energy production from wastewater), Metrolight (energy efficient lighting), Project Better Place (electric vehicle infrastructure), and Pythagoras Solar (solar energy). Ramat Hasharon's Israel Cleantech Ventures (http://www.israelcleantech.com) was established in 2006 to provide value added growth capital to exceptional entrepreneurs building Israel's energy, water and environmental technology leaders. The fund has $75m under management. ICV's investment professionals combine industry expertise gained through decades in senior management positions at Israel's outstanding cleantech companies, with proven abilities in identifying, investing in and supporting VC-backed companies. (ICV06.05)

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2.8 Israelis Face Steep Food Price Increases After Passover

Shoppers at local Israeli supermarkets restocking their shelves after Passover were shocked to find that prices for many items had risen anywhere from 5% - 25%. While being aware of the worldwide surge in food prices, Israelis thought that the country's prosperity had rendered them immune. Many local media items focused on the skyrocketing rice prices. Rice is a basic staple of the Israeli diet and is viewed as the symbol of the rising prices. The major Israeli importer of rice, for example, took pain to point out the source of the price increase, blaming Japanese for setting the price at $1,200 per ton and now even levying a tax on Basmati rice that is preferred in Israel and not used by the Japanese (who prefer the cheaper kinds of rice). Choice Israel Marketing, which imports rice for a few Israeli marketing chains under a private brand name, was surprised by Tokyo's decision to levy a tax of $200 per ton on exports of Basmati rice. The importers feel that these actions by the Japanese will lead to further increases ion the price of rice of about 30% in the price of Basmati - on top of the latest price hikes of about 60% on average. The fact that Thailand just announced its suspension of rice exports will contribute to the upward spiral. The rice story may only be the tip of the iceberg for Israelis as the worldwide increase in Ethanol is likely to affect dozens of other food categories as it is in other parts of the world. (KT05.05)

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2.9 modu Opens its First European Office to Deal with Growing MNO Demand

Modu has opened an office in Austria as the base for its European sales activities, with more overseas operations planned for the future. At the heart of the modu ecosystem is modu - a tiny, sleek and sophisticated mobile phone. modu can be slipped into a wide variety of modu jackets - stylishly designed phone enclosures and modu mates – modu-enabled consumer electronic products. modu's ecosystem offers boundless possibilities in a simple and affordable way. Kfar Saba, Israel's modu (http://www.modumobile.com) has a vision to bring a fundamental change to the dynamics of the mobile phone industry. The company is dedicated to developing products, technologies, a wide ecosystem and business relationships that will help realize that ambition. modu gives users the freedom to choose a new phone as often as they like, meeting their changing needs, preferences and style- easily and affordably. At the heart of the modu ecosystem is modu – a tiny and sophisticated mobile phone. modu can be slipped into a wide variety of modu jackets – stylish phone enclosures that enable users to create a new look or design and provide added functionality. modu can also slip into modu mates– consumer electronic devices that are modu-enabled – allowing users to create an entirely new communication experience. (modu07.05)

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2.10 CopperGate Communications Buys HomePlug AV Powerline Technology from Conexant Systems

CopperGate Communications announced the purchase of the HomePlug AV business from California's Conexant Systems. CopperGate is now the first semiconductor company with home networking technologies supporting all three wire types – coax, phone and power lines. CopperGate acquired the HomePlug AV business from Conexant including all relevant power line technology and silicon products, related patents, appropriate licenses, and requisite personnel. CopperGate is already a leading provider of HomePNA compliant chipsets, the dominant coax and phone wire standard for IPTV installations and the company remains strongly committed to the HomePNA standard.

Tel Aviv, Israel's CopperGate Communications (http://www.copper-gate.com), the Everywire Home Networking Company, develops high performance chipsets for broadband access and networking for high fidelity home entertainment applications such as HD-enabled IPTV, multi-room DVRs, and video on demand (VOD). As a leader in multi-wire home networking, only CopperGate is capable to offer both HomePNA and HomePlug technology for use in individual homes and multi-dwelling and multi-tenant units (MDU/MTU) worldwide. CopperGate chipsets have been deployed by leading triple-play service providers representing nearly 100 million lines and have already connected over 15,000 miles of coax. (CopperGate 07.05)

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2.11 Boeing & El Al Israel Airlines Finalize Order for Four 777-200ER Jetliners

The Boeing Company and El Al Israel Airlines have completed an order for four 777-200ERs (Extended Range). The Israeli airline has secured options for two additional 777s and holds conversion rights for the 777-300ER, a larger version of the 777 with increased payload and range capability. The order is valued at $850m at list prices. El Al's long-haul fleet already includes six Boeing 777s. The relationship between Boeing and El Al dates back to 1948 when El Al started operations with a Douglas C-54. The twin-engine Boeing 777 is the most fuel-efficient airplane in its category, a key element in its leading economic and environmental performance. To date, 55 customers around the world have ordered 1,074 777s, making it the most successful twin-engine wide-body airplane on the market. Boeing has more than 360 777 orders yet to be filled. (Boeing 12.05)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 VINCI Signs Contract For Qatar–Bahrain Causeway, The World's Longest Bridge

France's VINCI Construction Grands Projets, leader of a consortium of construction companies, and Middle East Dredging Company – Medco - (a subsidiary of CFE, a VINCI Group company) have signed the design-build contract for the causeway between Qatar and Bahrain with the Qatar-Bahrain Causeway Foundation. The contract is worth $3b. The Qatar–Bahrain causeway project calls for the design and construction of a 40 km two-lane dual carriageway motorway between Qatar and Bahrain. The road will run over a total of 18 km of embankments where the sea is shallow and 22 km of viaducts and bridges over deep water, including two 400 meter cable-stayed bridges over shipping channels. The Friendship Bridge will create a direct link between Qatar and Bahrain, promoting trade and travel between the two countries. At present, the journey by road takes five hours; with the causeway, it will only take about 30 minutes. The project will have to comply with stringent environmental standards and ecological requirements. The construction company joint venture comprises VINCI Construction Grands Projets (leader), QDVC (a Qatari subsidiary owned 51% by Qatari Diar and 49% by VINCI Construction Grands Projets), Hochtief and CCC. Medco will carry out the dredging. Work will start after nine months of studies and will be completed in 51 months. (Vinci06.05)

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3.2 Verizon Business to Open Dubai Office to Further Strengthen Middle East Presence

Verizon Business plans to open an office in Dubai Internet City (DIC) to further strengthen the company's service and support capabilities across the Middle East. The office, to be opened next month, will provide a local contact in the same regional time zone for Verizon Business' multinational customers with operations in the Middle East, as well as a base for the company's ongoing regional expansion plans. The office was officially announced at a meeting between DIC and Verizon on May 1st in DIC. Many Verizon Business customers and partners already have operations within Dubai Internet City, an information technology park created by the government of Dubai as a free economic zone. Widely viewed as a strategic base for companies operating in the high-growth economies of the Middle East and North Africa region and beyond, DIC is the region's largest cluster of information, communications and technology enterprises. (Verizon07.05)

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3.3 Dubai Group Acquires 40% Stake in India's Chiranjjeevi Wind Energy

Dubai Group, the leading diversified financial services company of Dubai Holding, announced that it has acquired a 40% stake in India's Chiranjjeevi Wind Energy Limited (CWEL), a wind turbine manufacturer in India. The investment, which was made by Dubai Ventures, the equity investment company of Dubai Investment Group, a subsidiary of Dubai Group. Dubai Investment Group, which aims to build a diversified portfolio of assets in renewable energy, has made focused investments, through its subsidiary Dubai Ventures, over the past two years in the renewable energy sector across Asia, with exposure in direct renewable energy sources and upstream producers of raw material used in renewable energy. CWEL has recently signed a memorandum of understanding with two German companies - Frisia GmbH for acquiring the entire design, technology, intellectual property of 850KW wind turbines, and EUROS for transfer of technology to manufacture rotor blades. CWEL has already installed over 150 wind-turbine machines in India. Dubai Investment Group's investments in renewable energy include:
• China: Biomass power plants, waste-to-energy plants, soya bean oil producer, as well as fertilizer and methane gas producers.
• China and the Philippines: hydroelectric power plants.
• Malaysia and Indonesia: it holds stakes in crude palm oil and kernel oil plantations
• Malaysia: the group recently invested in bio-diesel and glycerin producers in Malaysia
• Indonesia: it invested in ethanol (sugar cane) producers.
• India: Wind farm development (Al Bawaba 28.04)

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3.4 Tatweer Brings Legoland to Dubai

Tatweer, a member of Dubai Holding, announced plans on 6 May to build a Legoland theme park in Dubai in partnership with Merlin Entertainments, the world's second largest visitor attraction group. The $248m project will occupy a total of three million square feet inside Dubailand, billed as the world's largest leisure and entertainment destination, Tatweer said. The first Legoland park built outside of North America and Europe, it will feature more than 40 interactive rides, shows and attractions geared towards families with children aged 2 - 12. The park will be the first in a series to be built across the Arab world under an agreement between Tatweer and London-based Merlin. There are currently four Legoland parks world-wide: Billund, in Denmark, Legoland Windsor in the UK, Legoland Deutschland and Legoland California. (AB07.05)

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4: ISRAEL MACRO-DEVELOPMENTS

4.1 Israel Improves Standing as Business Location

According to the Economist Intelligence Unit (EIU), Israel has moved up to 22nd position from 25th in their international business location survey for 2003-2007. According to the Economist's findings, Denmark, Finland, and Singapore will offer the best business environments in the five years from 2008-2012, according to the survey that covered 82 countries. The survey's authors note that Israel leads the Middle East. However, they did add that the improvement in the Israeli business environment will continue to be hampered by the political outlook. Their business rankings model considered ten separate categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labor market and infrastructure. Each category contained a number of indicators that were assessed by the EIU for both the past five years and the next five years. Israel's business environment outlook has improved from 7.18 points in 2003-2007, to 7.85 points for 2008-2012. The authors felt the improvement was partly attributable to the results of the structural reforms that have been introduced in the economy, as well as to the improvement in the security situation. Denmark, which was ranked highest, received a score of 8.76 points. Israel was not far behind France, which scored 8.03 points. (EIU30.04)

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4.2 Israel & EU Agree On Agriculture Trade

On 30 April, the European Commission and Israel reached a common understanding on mutual trade concessions in the fields of agricultural products, processed agricultural products and fisheries. According to the Delegation of the European Commission to the State of Israel, these trade concessions represent a major step forward in the integration of the EU and Israeli markets. For processed agricultural products, a high level of full liberalization of trade for both parties was achieved. For agricultural products, substantial progress was made towards full liberalization of trade. Regarding more sensitive agricultural products, market access improvement was achieved for both sides both by means of increasing existing duty free quotas and by creating new quotas. Technical verification of the text of the understanding will take place over the next few weeks before launching the formal process for the adoption of the agreement. The Delegation of the European Commission to the State of Israel stated that once adopted, the agreement will create new trade opportunities for EU exporters in a range of products that could not previously reach the Israeli market. On the other hand, Israel's major exporting sectors will benefit from further liberalization and better market access. (Globes 30.04)

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4.3 Government Publishes Tender For Second Solar Plant

After a two-month delay, Jerusalem has published the second tender, worth $70 – 100m, for the building of a solar power plant based on photovoltaic technology at the Ashelim site in the Negev. The government is issuing a build-operate-transfer (BOT) tender for a power plant with a 15 megawatt production capacity and the option of increasing this by a further 15 megawatts. The government will hold a preliminary qualification stage among the bidders. As reported by "Globes", the tender for the power plant using the more costly photovoltaic technology was delayed by disagreements between the Ministry of Finance and the Ministry of National Infrastructures over its terms. The previous tender, worth $650 million, for the building of a thermo-solar powered plant was published earlier this year. The threshold requirements set by the tender require bidders to have experience of maintaining and developing a power plant using photovoltaic technology with a minimum production capacity of at least 1 MW. The plant must have been in operation for at least two consecutive years out of the last five. Bidders are also required to have gained experience of acquiring, procuring and constructing at least two industrial electrical production facilities with a minimum production capacity of 10 megawatts. (Globes 05.05)

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Jordan's First Oil Shale Power Plant Expected In 7 Years

Jordan's switch to power plants operated by oil shale would reduce its energy bill by at least 40-50%, said National Electricity Power Company (NEPCO) officials after the government signed a deal with an Estonian firm specialized in the field. The percentage is calculated against the current prices of oil in the international market, they said. The Ministry of Energy & Mineral Resources went into the agreement with the Estonian oil shale company "Easti Energy" to build the Kingdom's first power generation plant operating on oil shale extracted through a process called "direct incineration". Oil shale fuel will replace heavy oil or gas and is expected to be operational in 2015 with a capacity of 600-900 megawatts. Jordan, in the long-term, will be able to rely on oil shale for the major part of its energy needs, for the fuel is the only indigenous energy resource that could reduce Jordan's dependence on imported crude oil and gas and hence ease the pressure on the national economy. Jordan, which is a passageway for the Egyptian gas pipeline extending to Syria and other regional countries, now buys the fuel at preferential prices under a 15-year deal with Cairo. Many power generation plants have switched to natural gas to cut down on the soaring fuel costs. Today 80% of the country's electricity is being produced using Egyptian gas and 20% is produced by power plants that use heavy oil. There are 23 known surface and near-surface deposits, the most important of which are Al Lajjun, Sultani, Jurf Al Darawish, Attarat Um Al Ghudran, Wadi Maghar, Siwaga, Khan Al Zabib and Al Thamad. (JT01.05)

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5.2 Jordan's Ranking on ICT Rises

The Hashemite Kingdom jumped 10 places on the world's information and communications technology (ICT) readiness index, ranking 47th out of 127 countries, according to the Information Technology Report for 2007/08. Last year, the country ranked 57th on the index, which measures the level and sophistication of the knowledge economy and the studied countries' capacity to generate technology or absorb and adapt it to meet national needs with the aim of improving their competitiveness. At the Arab level, Jordan came behind the UAE, which ranked 29th, Qatar (32nd) and Bahrain (45th). Meanwhile, the Kingdom surpassed Saudi Arabia (48th) and Oman (53rd), which were included in the ranking for the first time. The report also indicated that Qatar and Kuwait have moved up four places each on the index and Bahrain six, compared to last year.

According to the report, conducted by World Economic Forum and INSEAD, one of the world's leading business schools, each economy is benchmarked against three dimensions: market environment, the political and regulatory framework and the quality of available infrastructure. To enhance the country's position in the world of information and communications technology, public and private sector leaders of the ICT industry launched a four-year strategy in July last year to help revive the sector and enhance its competitiveness. The national ICT strategy, the outcome of joint efforts by int@j, the Ministry of Information and Communications Technology and the Telecommunications Regulatory Commission, seeks to increase the number of people who use Internet up to 50% from the current 20%. It also eyes increased employment in the sector to reach 35,000 jobs from 16,000 presently. In addition, it aims to double the sector's revenues, which stood at $1.5 billion in 2007, by 2011. (JT May 2008)

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5.3 OPIC Extends $250 Million Loan to Jordan's Disi Project

The Overseas Private Investment Corporation (OPIC), a US government agency that supports overseas infrastructure development, will be supporting Jordan's Disi Water Conveyance Project with a $250m loan. OPIC's board of directors approved the credit late last month and the amount will become $500m if the $250m financing from the International Finance Corporation is also taken into consideration. Work on the Disi Water Conveyance Project, projected to provide the capital with 100 million cubic meters (mcm) of water annually will start in June this year after the project's implementation, scheduled for July 2007, was postponed for several reasons. The project, deemed as a key solution for the country's annual water deficit of around 500mcm, has faced several obstacles since the first tender was floated in 2001. Recently, the tender was floated again and the Turkish company GAMA won the bid in September last year. (JT06.05)

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5.4 Inflation Reaches 10% in Lebanon

Lebanese central bank governor Salameh said on 2 May that inflation in Lebanon ran at 10% year-on-year in March, driven by the higher price of oil and food and a weaker dollar. Salameh said a political crisis and security concerns in Lebanon meant it was not possible to confront this wave of inflation. The crisis, the worst since the 1975-90 civil war, has paralyzed much of government, left the country without a president since November and triggered bouts of street violence. Finance Minister Azour said the central bank appeared "comfortable" with the level of inflation, which compared to an average of 4.5% for 2007. Inflation has eroded the purchasing power of Lebanese, whose economy has also suffered because of the political crisis, assassinations, a militant Islamist insurrection in 2007 and a war launched by Hezbollah against Israel in 2006. Azour said that 4% economic growth in 2007 was proof of "the steadfastness of the Lebanese economy". Growth in the first quarter of 2008 was "showing a very strong recovery", he told Reuters, adding that 4% growth this year was "guaranteed". The level would be higher if the political crisis eased. It is being driven by exports, consumption and investment in equipment, he said. Azour has said Lebanon's economy could be growing by up to 8% a year were it not for the country's instability. Salameh said interest rates should remain stable in 2008. (AB04.05)

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5.5 Iraq Orders 30 Boeing 737-800 Planes

Iraq has ordered 30 Boeing 737-800 commercial airplanes, the first step in re-establishing the country's scheduled commercial aviation operations. Iraq has also contracted options for 10 additional 737s, an announcement by Boeing and the Government of Iraq said. In addition, Iraq and Boeing are finalizing an agreement for 10 Boeing 787 Dreamliners, which will allow an Iraqi national airline to provide longer-range commercial service. The 787s will be added to Boeing's order book when the contract is completed. In recent months Boeing and Iraqi officials have discussed how Boeing can assist with the reconstruction of Iraq's aviation infrastructure and preparation for delivery and operation of new airplanes. Boeing will offer advice and expertise in areas such as the planning and development of airport infrastructure throughout Iraq; helping train aviation sector personnel; aiding in the selection and acquisition of airline support equipment; and arranging for cost-effective maintenance and service solutions for used aircraft obtained prior to new airplane deliveries. (TradeArabia 06.05)

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5.6 IMF Says Gulf's Recent Growth Impressive

The recent economic performance of the Gulf Cooperation Council (GCC) countries has been impressive while the rising prices will accompany the strong performance of the regional economies, according to latest regional outlook of the International Monetary Fund (IMF). Over the past five years, the GCC countries grew at an annual rate of about 7%, owing to record-high oil prices and a rapidly growing non-oil sector. However, the expansion has been accompanied by a general increase in consumer prices. Headline inflation averaged about 6% in 2007, with core inflation tracking closely behind at 5%. Both domestic and external factors have contributed to the rising inflation.

For the whole of GCC, the IMF estimates that inflation will average at 7.1% this year compared to 6.1% last year. In the UAE, the inflation estimate was revised to 11% last year against an earlier estimate of 9%. The IMF estimates the inflation to be about 9% in 2008. However, said that factors such as hosing shortages and supply bottlenecks could result in higher inflation. This means the IMF's estimate of 9% inflation for the UAE will be a floor level estimate that could be higher by the year end. On the domestic front, aggregate demand has been growing rapidly. Gross capital formation, including public and private investment, increased from about 35% of non-oil GDP in 2003 to about 48% in 2007.

Since 2003, government current spending has risen cumulatively by 58%, mainly reflecting increases in wages and subsidies. The private sector has contributed significantly to the spending boom, supported by inflows of foreign direct investment and increasing external and domestic debt. In particular, domestic credit has expanded rapidly, growing at about 30% a year since 2004, and reaching an estimated 56% of GDP in 2007. According to the IMF's estimates, supply constraints have contributed significantly to inflationary pressures in a number of non-tradable sectors, especially construction. Specifically, shortages of residential and commercial housing units have led to higher rents. The depreciation of the US dollar (to which GCC countries' currencies, except that of Kuwait, are pegged) vis-à-vis other major currencies has also contributed to inflationary pressures, but to a lesser extent. The IMF added that over the medium term, substantial domestic investments will continue to drive economic growth. Aggregate demand is expected to remain strong, fuelled by high oil prices and robust growth in the non-oil sector. (IMF12.05)

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5.7 Qatar Signs $3.8 Billion Water Plant Deal

Qatar has signed a series of deals to build a $3.8b desalination and power plant part-owned by Japanese and French firms. The facility will be completed in 2011 and will be owned and operated by Ras Girtas Power Company. The Qatar General Electricity and Water Corporation will purchase the power and water from the plant. The Ras Girtas Power Company is jointly owned by the Qatar Electricity and Water Company (45%), a consortium of Japan's Mitsui and France's Suez Energy International (40%) and Qatar Petroleum (15%). The plant will have eight gas turbine generators, eight heat recovery steam generators, four steam turbine generators and 10 desalination units. Officials from Qatar and the companies involved in the project signed deals to build the facility at a cost of $3.8b. Mitsui is the main contractor for the plant, which will produce 2,730mw of electricity per hour and will have a capacity of 63m million gallons a day. (TA13.05)

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5.8 UAE Ready for VAT by Year-End

The UAE will have the infrastructure in place for a value added tax (VAT) system by the end of this year. According Dubai Customs executive director Abdul Rahman Al-Saleh, the mechanics necessary for a nationwide system would be in place between October and December. However, the introduction of VAT was unlikely by year-end, as Federal approval and GCC co-operation was still required. The tax, which will replace customs duties to be phased out under free trade agreements, is likely to be set at a flat rate of between 3 and 5% and would be applied to all goods and services. The official said the introduction of VAT would not hit consumers, and that he did not expect a negative reaction from the public "because the providers of the services and the goods will take care of this [VAT expense]." Tourists would be able to claim back tax paid on purchases over a set amount, Al-Saleh added, while small businesses with revenues under $1 million would also be exempt. (AB07.05)

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5.9 Abu Dhabi Foreign Trade Hits $9.8 Billion

Abu Dhabi's foreign trade totaled $9.8b during H1/07, up 45% on the same period in 2006, according to the Department of Planning and Economy (DPE). Foreign trade had reached $6.8b during H1/ 06. The DPE said non-oil exports grew by 18.7% to reach $816m, an increase from the $545m generated in H1/06. Imports into Abu Dhabi represented almost half of all foreign trade, and were valued at almost $8.44 for the period compared to $5.72b in H1/06. The DPE said Abu Dhabi's urban development and economic growth had increased the activity of trade. Machinery was the major commodity imported for the period, totaling almost 32.8% of total imports, an increase by 81.3% compared to 2006 figures. Machinery imports generated $2.72b in value. Vehicles were the second highest imported commodity for the period, followed by base metals and articles. Saudi Arabia was the biggest importer of goods from Abu Dhabi, comprising almost 15.1% of total imports at a value of $1.25b. Germany ranked second on 11.1%, followed by the US on 10.3%. The total value of non-oil exports was $735m compared to $623m in 2006, an 18.7% increase. Plastics, rubber and related articles topped the list of non-oil exports, contributing to 45.4% of the total. (WAM30.04)

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5.10 Abu Dhabi to Spruce Up Image

Abu Dhabi is to undergo a five-year makeover in a bid to spruce up its image, including enforcing the smoking ban, improvements to the landscape and outsourcing services to the private sector. The Abu Dhabi Municipality unveiled a five-year plan, outlining a list of measures to strengthen its ‘world class' image, which also included improvements to beaches and the urban landscape, the building of new roads and new and improved recycling and waste management services. According to general manager Juma Al-Junaibi, the body would become more ‘customer orientated,' introducing a customer satisfaction rating system, and expanding its online services. (AB07.05)

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5.11 Oman 2007 Budget Surplus Hits $1.13 Billion

On 3 May, Oman announced it had made a budget surplus of $1.13b in 2007, wiping out a projected deficit of $1.039b, thanks to windfall oil revenues. Net oil earnings rose by 12.5% to $9.43b last year while gas income increased 32% to $2.1b, according to the economy ministry's monthly report. Oman spent 14b in 2007, about 9% more than a year earlier, mainly on projects and infrastructure, the report added. The sultanate's income depends heavily on oil and gas revenues which comprise 80% of its total earnings. It had estimated in its 2007 budget oil prices of around $40 per barrel. Actual oil prices averaged at $65 per barrel during the year. (Various04.05)

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5.12 Economic Fears Pushing Saudi Women to Work

Economic necessity is forcing hard-line clerics and the conservative society in Saudi Arabia to accept the idea of female entry into the workplace, a government official said in an interview. High unemployment among Saudis and the reliance on 7 million foreign workers are forcing those opposing women working in the country to modify their positions, the government official, who heads a body that promotes "National Dialogue", added. The debate - as demonstrated at a major forum of clerics, government ministers and businesswomen - is now focused on whether women can work in the same places where men are present, or if companies have to provide segregated areas between the two sexes to allow women to work. Liberal reformers in the government have expressed their concern about unemployment, which is officially estimated at 12%, but it is much higher among women, since more females now graduate from universities than males. Segregation is costing the country a lot of money. Thousands of foreigners are employed as drivers for women because of the ban on women driving. Women at the National Dialogue meeting - who were sitting in separate rooms so they could not be seen - said companies could provide extra [services] for women such as special transport so that they can work. (al-Qanat06.05)

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5.13 ADSL Available to 63.4% of Egyptian Households

A new Arab Advisors Group survey of Egypt's urban households reveals rampant broadband account sharing between neighbors. A massive 81.9% of households that use shared ADSL lines share them with more than three neighboring households. The Arab Advisors Group projects that around a million Egyptian households have access to broadband, due to the widespread practice of ADSL accounts sharing. The 159-page report provides the results of a major comprehensive survey of the telecommunications and media usage patterns and habits of the population across the Egyptian governorates of Greater Cairo, Alexandria, Dakahlia, Gharbia, Sohaj and Minya. The survey fieldwork was conducted during March and April 2008. Some 63.4% of Egyptian households with an ADSL connection reported sharing the ADSL connection with neighbors. Of those, a massive 81.9% share one ADSL line with more than three neighboring households. (Mena Report 29.04)

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5.14 Qaddafi Tells Libyan Government to Distribute Oil Revenues to People

Libyan leader Muammar al-Qaddafi accused the "corrupt" government of failing to manage the country's oil wealth and ordered it to hand out oil revenues directly to the country's 5 million people. In March, Qaddafi had ordered the implementation of a wide-range of reforms in government operation, saying most of the government bureaucracy should be dismantled to free Libyans from bureaucracy and protect the state's budget from corruption. He told a group of government officials and teachers that these "surgical operations" are necessary to reach a sound situation. The government has not yet carried out the reforms. Tripoli's government wants to raise oil production to 3 million bpd by 2012 from the current level of 1.6 million bpd. Many Libyans say they have not benefited from rising oil revenues and foreign investment since Libya's international isolation ended in 2003 after Tripoli abandoned its prohibited weapons programs. Qaddafi gave examples of the education and healthcare systems to highlight what he called pervading government corruption, nepotism and mismanagement of the state budget. (Addustour 09.05)

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6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS:

6.1 Turkish Inflation Surges in April

Turkey's inflation accelerated in April to a 12-month high, adding to pressure on the central bank to reserve its earlier policy of cutting the benchmark interest rate. The annual consumer inflation rate in April rose to 9.7% from 9.2% a month earlier. During April as a whole, prices rose 1.7%. The third consecutive monthly acceleration comes right after the central bank said it was abandoning its 4% inflation target for at least the next two years as increases in global food and oil costs made it unattainable. The bank had been lowering interest rates during the six months through February. The bank expects inflation to end this year at 9.3%, a prediction based on the assumption that interest rates are increased in a gradual and measured fashion until the middle of the year and held unchanged for the rest of 2008. The YTL has lost about 8% of its value against the dollar since the start of the year, driving up inflation by increasing the cost of imported goods. The central bank reduced its benchmark rate by 2.25%age points to 15.25% between September and February, arguing that core inflation, excluding food and energy, was approaching the target set under an International Monetary Fund loan accord. Turkey's economy grew 3.4% in Q4/07, the slowest rate in more than five years. The cost of goods leaving Turkish factories and mines rose an annual 14.6% in April, compared with 10.5% the previous month. Producer prices rose 4.5% in the month. (Bloomberg03.04)

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6.2 Turkey Completes IMF Stand-By Successfully For First Time

Turkey has successfully completed an International Monetary Fund (IMF) stand-by program for the first time. The program was completed on May 10. Turkey had previously signed 19 IMF stand-by agreements and these initiatives were all cancelled before the programs expired. The program that was completed on 10 May was actually an extension of the previous agreement. Turkey's first IMF stand-by program was launched on Jan. 1, 1961, the same year its relations with the EU began, and ended at the end of the same year on Dec. 31. Between 1961 and 1970 Turkey launched a stand-by agreement each year and all of them terminated before the end of the same year. Turkey did not sign a stand-by agreement with the IMF between 1970 and 1978. After that, it again signed two agreements between 1978 and 1980; each lasted less than a year. Turkey carried out the 17th stand-by program between 1999 and 2002. Finally, Turkey launched its 18th stand-by program on Feb. 4, 2002. In January 2005, a month before the end of the ongoing program, the due date of the program was extended to May 10, 2008 with a 19th stand-by agreement. The IMF will launch post-program monitoring immediately after the end of the stand-by program. In this post-program monitoring, an IMF delegation will visit Turkey periodically, as in a normal stand-by program, and prepare reports about Turkey's economic situation and performance. However, Turkey will be without access to credit. These reports will be monitored by international investors and corporations and they will play an important part in determining Turkey's financial credibility. (Zaman12.05)

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6.3 Turkish Energy Bill Jumps 56% in First Quarter

Following the dramatic rise in prices, oil and other fuel now amount to 22.3% of Turkey's total import volume cost. According to data provided by the Turkish Statistics Institute (TurkStat), oil and fuel imports increased by 56% in the January-March period over the same period of 2007, amounting to $11b. Total import costs of oil in Q1/07 equaled $7b and $33.8b for all of 2007. In the first quarter of last year the cost of these products increased by 14% and their share in Turkey's total imports stood at 20%. If this dramatic rise of oil prices continues during the rest of the year, the annual cost of Turkey's energy imports is expected to total $53 – 54b. Turkey's growing oil import costs grew parallel to increasing oil prices and elevated Turkey's foreign trade and current account deficits. Total oil and fuels import volume in 2002 was $9.2b, an increase of 10% compared to 2001. However, this number rose to $11.5b in 2003, a 26% hike over the preceding year. 2004 saw Turkey spend $14.4b for oil, but this cost reached $21.2b in 2005, an increase of 48%. The accelerated rate increases did not slow down in 2006, with Turkey seeing a 36% increase and paying $28.8b for oil imports. Energy experts claim there could be an increase of 15-20% in Turkey's electricity prices, paralleling changes in oil and natural gas prices, because more than half of Turkey's electricity production depends on natural gas power plants. If this rapid increase in oil and gas prices continues, Turkey's current account deficit, which has grown rapidly in recent years due to oil prices, will continue to grow.

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6.4 Turk Telekom IPO Yields $1.9 Billion

Ankara raised $1.9b in an initial public offering for a 15% stake in fixed-line phone company Turk Telekom, making it the country's biggest IPO. The government sold Turk Telekom shares for $3.66 each, close to its top range. International investors bid for 4.3 times the stock on offer, and domestic investors for 4.7 times the available shares. The IPO is the fifth-biggest in the world, with $1.15b coming from foreign investors, while $767m came from domestic investors. Some 30% of the sale to foreigners took place in Britain, while 15% was sold in the UAE. United States (11%), Switzerland (10%), Lebanon (9%), Saudi Arabia (6%), Singapore (6%) and other countries (13%) followed Britain and the UAE. At least 30% of the IPO shares allocated to foreigners went to investors from the Gulf and the Middle East. From the shares allocated to domestic investors, 7.35% was bought by Turk Telekom and Postal and Telecommunications General Directorate (PTT) staff. The price is little changed from 2005, when the government sold a 55% stake in Turk Telekom to Saudi Oger, Ltd. Turkey sold 60% of the shares to foreign investors because it needs international capital to help offset a widening current account deficit. Turk Telekom is scheduled to begin trading on the Istanbul Stock Exchange 15 May. The share sale values the company at $12.7b, compared with $11.9b when Oger bought its stake. (DN13.05)

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6.5 Greek Measures to Combat Air Pollution

On 12 May, Greek Environment Minister Souflias presented a 'National Plan for Combating Air Pollution', outlining a series of measures providing financial and other incentives for curbing emissions of pollutants, as well as the introduction of a "green zone" with restricted access for the vehicles. These included financial incentives for withdrawing old-technology non-catalyst vehicles, changes to current road taxes to incorporate environmental criteria and allowing local authorities to impose tolls for entry into central areas within their boundaries, as well as measures for encouraging industry to adopt non polluting technologies and for central heating systems. Souflias said that the financial incentives for renewing Greece's fleet of cars were an issue to be decided by the finance ministry based on the country's financial capacity while the rest of the measures announced could begin to be implemented between 2009 and 2010 after consultation with the various bodies involved. The minister said the measures sought to cut down air pollution at large and secondary urban centers by renewing the fleet of vehicles and based on a "polluter pays" philosophy. Regarding new-technology cars, meanwhile, he said the state should be a front-runner and purchase cars with hybrid or low-emission technology. The new road tax system proposed by the minister would seek to pass the cost on to the biggest polluters, so that the amount paid would not be determined by the size of the engine as now but by the amount of pollution that engine emits. Cars would thus be required to produce their exhaust emissions control card but the taxes would continue to be one-off payments made once a year. The system will introduce four 'classes' based on the amount of emissions produced, so that vehicles with no or low emissions would not have to pay road tax. The next three categories (medium, high and very high emission vehicles) will pay increasing amounts and receive color-coded tax stickers to display on their vehicles.

Proposed measures for industry include available optimum practices and regular inspections by environmental inspectors to check their implementation. Measures for central heating systems will include the mandatory replacement of oil-burning furnaces with natural-gas furnaces within three years of when a natgas supply is available in the area, more frequent inspections and applying EU directives for building energy efficiency. Souflias stressed as he presented the plan that Greece's air pollution problems could be divided into urban air pollution, especially in heavily populated areas, and the problems caused by industry. In urban areas, he clarified, the main source of pollution was emissions from vehicles and secondly from central heating systems. They were made more acute by bad town planning, with a lack of open spaces and by tall buildings ranged along narrow roads. (ANA13.05)

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6.6 Greece & Russia Sign Deal On Gas Pipeline

Greek Prime Minister Karamanlis and Russian President Putin signed a deal extending the natural gas pipeline that will run through Greece before ending in Italy. The Greek and Russian leaders signed the deal on 30 April in Moscow on Greece's participation in a gas pipeline deal that will help boost the country's role as an energy hub in the region and feed its growing energy appetite. The proposed Russian-Italian South Stream pipeline will pump Russian gas under the Black Sea to Bulgaria before splitting into two branches. One branch will take gas northwest to Austria, while the other will head southwest to Italy, going through Greek territory. According to experts, the amount of natural gas being consumed in Greece over the next eight years is expected to double. Meanwhile, Putin said both the South Stream project and a proposed Russian-backed oil pipeline through Greece could only benefit Europe. The two leaders also discussed the 280-kilometer (175-mile) Burgas-Alexandroupolis oil pipeline that will connect the Black Sea to the Aegean as a vital alternative route, bypassing the tanker-congested Bosporus Strait. (Various01.05)

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Israel at 60 - Population Nears 7.3 Million

Marking Independence Day, the Central Bureau of Statistics announced that Israel's population totaled 7.282 million on the eve of its 60th anniversary, including 156,400 babies who were born over the last year. That is more than nine times the 806,000 people who lived here when the state was established in 1948. Since last Independence Day, the population has grown by 1.8%, including both births and some 18,000 new immigrants. Israel has 5.5 million Jews, 75.5% of the total population, 1.46 million Arabs, 20.1% of the population, and 322,000 "others". Of the Jews, 69% were born in Israel, compared to only 35% in 1948.

Over the past 12 months, 156,400 babies were born in Israel and 18,000 new immigrants arrived. The average growth rate in 1948-2008 was 3.8%, 60% of which was natural increase and the rest was from immigration. The current annual growth rate is 1.8%. Israel's population crossed the one million mark in 1949, the two million mark in 1958, it reached three million in 1970, four million in 1982, five million in 1991, six million in 1998, and seven million in 2006. Population density has risen from 43 persons per square kilometer in 1948 to 310 today. Tel Aviv has the country's highest density, with 7,000 persons per square kilometer, while the Negev averages 72 persons per square kilometer. The number of cities with more than 100,000 residents has risen from one in 1948 (Tel Aviv) to 14 today. However, Tel Aviv and the surrounding area still contain 53% of Israel's population, which is down sharply from 71% in 1948. The north and south, home to only 19% of Israelis in 1948, now account for 31% of the country's residents.

Over the years, Israel's population has become steadily more educated: The proportion of those with no schooling has fallen from 16% in 1948 to 3% last year, while the proportion with 13 or more years of schooling has risen from 9% to 42%. In 1948, 208 people received degrees from the country's two universities; two years ago, 53,000 people received degrees from 62 local colleges and universities. Home ownership has also soared: Some 71% of Israelis currently own their own homes, compared to 54% at the end of the 1950s. In another sign of increased prosperity, food currently accounts for only about 16% of the average household's expenditures, down from 40% in the 1950s.

Clothing and footwear was the second largest item in the 1950s, 12% of the average household budget, and is now 3%. On the other hand, communications and transport has risen from 5% of household spending in the 1950s to 21% today. Between 1997 and 2006, the proportion of households with at least one cellular telephone rose to 87%, exceeding the 85% of households with a landline.

The Central Bureau of Statistics added that men's participation in Israel's labor force has fallen from 80% in the mid-1950s to 62% today, while women's participation has doubled from 27% to 51% over the same period. Israel's civilian labor force has grown from 631,000 in 1955 to 2.9 million in 2007. The proportion of full-time employees (people working at least 35 hours per week) has fallen from 78% in 1955 to 64% in 2007. Some 65% of part-time employees are women. The agricultural labor force has fallen from 10% of the total labor force in 1968 to 2% today, and the industrial labor force (including industry, construction, water, and electricity) has fallen from 33% of the total force in 1995 to 22% in 2007. The proportion of service sector employees has risen from 56% of the labor force to 76% over the same period. Israel's highest unemployment rate was 11.2% in 1992 and the lowest was 2.6% in 1973.

The proportion of people living in their own homes rose from 54% in the 1950s to 71% in the mid-1970s, where it has since held steady. The proportion of people living in rental accommodations more than halved from 45% in the 1950s to 20% in the mid-1970s, and has since risen to 26%. Household density has also fallen: in 1975, 24% of families lived with more than two persons per room; this proportion fell to 6% in 2007.

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*REGIONAL:

7.2 Turkish Parliament Approves 301 Amendment

On 30 April, Ankara approved a long-awaited amendment to Article 301 of the penal code that penalizes insults to Turkishness. The article has drawn strong criticism from the European Union, which says it is a threat to free speech. The amendment was approved after an eight-hour long debate with 250 votes for and 65 against, amid fierce criticism from the nationalist opposition. However, many writers and journalists believe the amendment is not enough to increase the level of freedom of speech in the country. Under the amendment, the word Turkishness - a term criticized as too broad and vague - was replaced with Turkish nation and the envisaged prison term was reduced from three to two years, thus allowing for the sentence to be suspended or converted to a cash fine. In a bid to make prosecution based on the article more difficult, the provision now requires the justice minister's approval before prosecutors can launch cases. In addition, a section that called for increased penalties for such crimes committed abroad was scrapped from the law. Dozens of intellectuals, including 2006 Nobel literature laureate Orhan Pamuk, have been tried under Article 301 and although some have been convicted, their sentences were suspended and no one has been jailed under the article to date. The EU has said easing restrictions on free speech is a test of Turkey's commitment to political reform as Ankara looks to advance slow-moving membership talks, which began in 2005. The European Commission welcomed Ankara's amendment of the disputed law but said it seeks more changes to ensure an end to such prosecutions. (TDN01.05)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Agile Patency Capsule Clears Stricture Patients for Small Bowel Diagnostic Procedure

Given Imaging announced a study entitled, "Agile Patency System Eliminates Risk of Capsule Retention in Patients with Known Intestinal Strictures who Undergo Capsule Endoscopy," appeared in the May edition of Gastrointestinal Endoscopy. The study utilizing the Agile patency capsule aided physicians in identifying patients with known strictures (areas where the GI tract has narrowed) whose small bowel patency was sufficient for the PillCam SB video capsule to pass. Capsule endoscopy helped physicians diagnose numerous small bowel diseases in these patients. The Agile patency capsule study assessed the ability of the device to identify which patients with known strictures may safely undergo small bowel capsule endoscopy. Of 106 patients with known strictures, the Agile patency capsule examination demonstrated that 56% of patients had a patent small bowel. These patients all proceeded to have a safe PillCam SB evaluation. Forty-one percent were found to have significant findings, including ulcers, tumors and vascular lesions. The Agile patency capsule allows physicians to determine whether small bowel patency is sufficient for safe passage of the PillCam SB video capsule. Small bowel follow through (SBFT) provides radiographic images only and has been shown to be unreliable when verifying functional patency of the small bowel. Without the Agile patency capsule, some patients with known strictures included in the study would likely have been determined to be ineligible for small bowel capsule endoscopy and, therefore, would not have benefited from PillCam SB.

Yokneam, Israel's Given Imaging (http://www.givenimaging.com) is redefining gastrointestinal diagnosis by developing, producing and marketing innovative, patient-friendly products for detecting gastrointestinal disorders. The company's technology platform is the PillCam Platform, featuring the PillCam video capsule, a disposable, miniature video camera contained in a capsule, which is ingested by the patient, a sensor array, data recorder and RAPID software. Given Imaging has a number of available capsules: the PillCam SB video capsule to visualize the entire small intestine which is currently marketed in the United States and in more than 60 other countries; the PillCam ESO video capsule to visualize the esophagus; the Agile patency capsule to determine the free passage of the PillCam capsule in the GI tract and the PillCam COLON video capsule to visualize the colon that has been cleared for marketing in the European Union. (Given Imaging30.04)

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8.2 Dune MarginProbe Reduces Repeat Lumpectomy Surgeries

The Dune Medical MarginProbe, a novel real-time surgical tissue characterization system, reduced repeat surgeries in breast conserving procedures, according to a study presented at the American Society of Breast Surgeons Annual Meeting. Currently, the MarginProbe system is in investigational use in the U.S. It is market-approved in the E.U. Using radio frequency spectroscopy technology (RFS), the handheld device intra-operatively assesses the malignancy status of tumors at the resection margin. If lumpectomy margins are identified as positive, physicians often re-shave the excision site during the initial procedure sparing patients the risk, trauma and expense of additional surgeries. The primary objective of breast conservation therapy is to achieve complete excision of tumors surrounded by a margin of healthy tissue. Currently, positive re-section margins must be addressed through additional surgeries. The Dune MarginProbe comprises a sterile hand-held probe and portable console. When the probe tip is applied to an excised lumpectomy segment, radio frequency signals are transmitted into the tissue and reflected back to the console where they are analyzed using a specialized algorithm to determine tissue status. With streamlined operation and instantaneous results, the technology is designed for easy integration into existing surgical workflow. The device is currently undergoing additional studies in the U.S. and Israel.

Caesarea, Israel's Dune Medical Devices (http://www.dunemedical.com) is a privately owned, venture-funded medical device company, backed by Apax Partners. Dune is engaged in the development and commercialization of devices for real-time tissue characterization. Dune Medical's devices facilitate complete, therapeutic excisions in surgical and interventional oncology procedures. The MarginProbe is undergoing extensive clinical trials in Israel and the U.S. (Dune02.05)

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8.3 InspireMD Announces Positive 6-Month Efficacy and Safety Results of the MGuard Coronary Stent

InspireMD announced continued positive results from the MGuard Coronary Stent First-in-Man, multi-center ongoing trial in Germany. This study aims at establishing the safety and efficacy of MGuard Coronary Stent in high risk patients with complex lesions. The study primary end point demonstrated 0% major adverse cardiac events (MACE) after 30 days in 60 patients, with 100% procedural success rate. Following these results, the company released the 6-month data of the first 30 patients. These data demonstrated no stent thrombosis and low overall MACE rate of 6.6%. The data also highlight the efficacy of MGuard in maintaining blood flow through the treated vessel after 6 months. The late loss, a measurement of the reduced vessel diameter, was 0.38 mm and the restenosis rate was 6.6%. The MGuard Coronary Stent presents a novel combination of a coronary stent merged with an embolic protection device. MGuard received CE Mark to treat patients with coronary artery diseases.

The MGuard Coronary Stent is a bare metal stent merged with an embolic protection device. The embolic protection device is comprised of an ultra-thin polymer mesh protective sleeve, wrapped around the stent. The protective sleeve is composed of a micron-level-fiber knitted mesh, engineered in an optimal geometric configuration and designed for utmost flexibility while retaining strength characteristics of the fiber material. The sleeve is designed to expand seamlessly when the stent is deployed, without affecting the structural integrity of the stent, and to prevent plaque detachment during and post procedure. Tel Aviv, Israel's InspireMD (http://www.inspire-md.com) is an innovative medical device company focusing on the development and commercialization of its proprietary stent platform technology, MGuard. The company intends to apply its technology to develop products used in interventional cardiology and other vascular procedures. (InspireMD 05.05)

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8.4 Can-Fite Successfully Completed Phase I Clinical Trial with its 2nd Drug CF102

Can-Fite BioPharma announced the successful completion of a phase I clinical trial with its second pipeline drug, CF102. Can-Fite is developing CF102 for the treatment of liver disease including hepatocellular carcinoma (HCC) and hepatitis C (HCV). The trial was a first exposure in humans and was conducted in the US under an IND in 25 healthy volunteers who were given the drug at 1 of 5 escalating doses. The trial successfully met its objectives of evaluating the safety profile and pharmacokinetic (PK) of CF102 single doses, and of determining a dose range for future clinical studies. CF102 was very well-tolerated, with no severe adverse events (SAEs) seen and no dose-limiting toxicity observed. No effects on vital signs, clinical laboratory tests, or electrocardiograms were recorded. The half-life time of CF102 supports once- or twice-daily dosing and exposure levels are above those expected to have pharmacologic activity in HCV and HCC. Based on the results obtained, the trial was considered a complete success. These results will allow Can-Fite to continue developing CF102 for various liver diseases.

Petah Tikva, Israel's Can-Fite Biopharma (http://www.canfite.co.il) is a public company traded on the Tel Aviv Stock Exchange. The Company focuses on the development of molecule-based drugs that bind to receptors of cancerous or inflammatory cells and inhibit their development. Can-Fite's development pipeline currently has two drugs: CF101 and CF102. The company is simultaneously conducting several preclinical and clinical trials with the two drugs for various indications. CF101 is being studied for the treatment of rheumatoid arthritis (Phase IIb), dry eye syndrome (Phase II) and psoriasis (Phase II). Can-Fite develops CF102 for the treatment of liver conditions, including liver cancer, hepatitis infections and liver tissue regeneration. (Can-Fite 06.05)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 CopperGate Communications Achieves Five Million HomePNA Chipset Milestone

CopperGate Communications announced the shipment of 5 million HomePNA chipsets worldwide – making the company the leader in IPTV services over coax and phone wires. HomePNA is the only ITU-T home-networking standard over coax and phone lines and it delivers up to 320 Mbit/s of transmission – more than any other home networking technology. HomePNA is perfect for coax installations. There are now more than 25 certified products supporting HomePNA, more than any other coax networking technology. The company delivers the highest Quality of Service (QoS) over coax which is why CopperGate's HomePNA chips are embedded in millions of devices deployed in the field and have connected over 15,000 miles of coax to date. Tel Aviv, Israel's CopperGate Communications (http://www.copper-gate.com), the Everywire Home Networking Company, develops high performance chipsets for broadband access and networking for high fidelity home entertainment applications such as HD-enabled IPTV, multi-room DVRs and video on demand (VOD). As a leader in multi-wire home networking, only CopperGate is capable to offer both HomePNA and HomePlug technology for use in individual homes and multi-dwelling and multi-tenant units (MDU/MTU) worldwide. CopperGate chipsets have been deployed by leading triple-play service providers representing nearly 100 million lines and have already connected over 15,000 miles of coax. (CopperGate 07.05)

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9.2 One Laptop per Child Becomes a Reality with Wavion Solutions in Uruguay

Wavion and the Technological Laboratories of Uruguay (LATU), the organization leading the One Laptop Per Child (OLPC) program in Uruguay, known as the CEIBAL Project (Basic Connectivity for Education), announced the deployment of Wavion's solutions in Uruguay. Wavion's base stations will deliver high-speed wireless internet (Wi-Fi) to schools in several provinces and to the towns and villages. The unique and powerful digital beamforming technology embedded in Wavion's spatially adaptive base stations provides extended range and penetration, minimizes dead spots. It requires about one third fewer units than other competing access points (APs) to cover the same area, and provides a high quality network for all the variety of applications enabled by Wi-Fi. Wavion's technology significantly improves the link gain and quality to 802.11 standards-based Wi-Fi clients – such as those found in OLPC's XO laptop and other notebook computers. Yokneam, Israel's Wavion (http://www.wavionnetworks.com) is transforming the metro Wi-Fi and rural markets with a new category of spatially adaptive base stations. The company's digital beamforming and SDMA technologies are the first and only to resolve the significant performance, penetration and profitability challenges facing large scale metro and rural deployments. (Wavion30.04)

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9.3 Mellanox Wins ‘Best of Interop' Award

Mellanox Technologies has been named ‘Best of Interop' in the Data Center and Storage category for its ConnectX EN 10GigE server and storage I/O adapter with Fibre Channel over lossless Ethernet (FCoE). ConnectX EN is the first adapter to support FCoE hardware offload and Priority Based Flow Control, providing a substantial performance boost while also enabling networking and storage I/O consolidation over a unified Ethernet fabric in the Data Center. These capabilities, in addition to several other integrated features such as virtualization acceleration, provide IT Managers with a simplified, cost effective infrastructure to manage and support, and are being recognized by the industry as being truly leading-edge and innovative. The finalists for the 2008 Best of Interop Awards were hand-selected by InformationWeek's panel of expert judges. Each year, Best of Interop winners prove to be the key players in the continuing evolution of business technology.

Mellanox Technologies (http://www.mellanox.com) is a leading supplier of semiconductor-based, interconnect products to world-class server, storage and infrastructure OEMs servicing Fortune 500 data centers, the world's most powerful supercomputers, and mission critical embedded applications. The company's Virtual Protocol Interconnect (VPI) enables any standard communication protocol to operate over any converged network (InfiniBand, Ethernet, Data Center Ethernet) with the same software solution. Founded in 1999, Mellanox Technologies is headquartered in Santa Clara, California and Yokneam, Israel. (Mellanox30.04)

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9.4 VeNotion Named 'Cool Vendor' by Leading Analyst Firm

VeNotion Technologies has been included as a "Cool Vendor" in the April 2008 "Cool Vendors in emerging technologies, 2008" report by Gartner, Inc. VeNotion provides Business ServiceWare software solutions which consist of automated business services and related IT assets models, assuring IT or SOA services are organized and managed by business context. VeN4 ServiceWare technology improves the Time to Business service by automatically breaking down siloed IT applications to a Virtual enterprise Network (VeN) of business services linked to IT functionality. The Virtual enterprise Network (VeN) of business services designed to enable rapid use and re-use of IT and SOA services linked to software components as standalone, autonomous, and loosely coupled software capabilities. These services can be readily combined and recombined into composite applications according to the changing needs of the organization. Netanya, Israel's VeNotion Technologies (http://www.venotion.com) provides Business ServiceWare software solutions to Global 2000 companies. ServiceWare consists of an automated business services and related IT assets models, assuring software components and SOA services are organized and managed by business context. VeN4 ServiceWare (patent pending) technology enables visibility, use and reuse of the enterprise business logic and software assets within the SOA initiative. (VeNotion 07.05)

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9.5 Actimize Unveils Surveillance Solution for Rogue Trading Detection

Actimize, a NICE Systems company, announced its Employee Trading Fraud solution for uncovering rogue trading in securities firms. The new solution combines trading surveillance and employee fraud detection and is built on Actimize's proven technology and domain expertise in the institutional and proprietary trading market. Based on a core analytics and profiling engine and a set of flexible enterprise case management and investigation applications, the Actimize Employee Trading Fraud solution is designed to identify trader behavior and activities that could be related to fraud or unauthorized activities. The new solution, which was designed for implementation in two phases-the first providing immediate surveillance within two-to-three months and the second providing additional data sources and integration points-analyzes data from various risk management, operations, human resources, compliance, trading, audit and control, IT security and other systems, detecting suspicious patterns and other key indicators. The solution integrates information from across the enterprise within an intuitive investigation and case management environment that 'connects the dots' and calculates the risk that a particular trader or set of trades exposes to the firm.

Mitigating transactional risk across enterprise silos, Actimize (http://www.actimize.com) is a leading provider of software solutions for anti-money laundering, brokerage compliance and fraud prevention. Built on a patented, scalable and extensible analytics platform, Actimize solutions enable financial institutions to increase their insight into real-time customer behavior and improve risk and compliance performance. Six of the top 10 global banks and eight of the top 10 U.S. brokerages use Actimize solutions to process hundreds of millions of transactions a day. A NICE Systems (http://www.nice.com) company, has offices in New York, Israel, London and Tokyo. (Actimize 07.05)

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9.6 STMicroelectronics & Mobileye Deliver 2Gen System-on-Chip for Vision-Based Driver Systems

STMicroelectronics, a leader in the design and manufacture of automotive ICs, and Mobileye announced that the two companies have successfully sampled the second generation of their system-on-chip EyeQ2 for the vision-based driver assistance segment of the automotive market. The implementation of this type of technology is fundamental for increasing safety on ever more congested roads. The first generation of Advanced Driver Assistance Systems, implemented on EyeQ1, are already in production at several car makers and offer functionality such as lane-departure warning (LDW), adaptive headlight control, traffic-sign recognition, collision avoidance through radar/camera fusion and forward collision warning that can drastically reduce the number of accidents. The LDW is akin to a 'virtual rumble strip' that alerts drivers when they cross lane markings - a common factor in many head-on collisions and other serious accidents. The new generation ADAS being sampled now takes this active safety concept to a new level. By increasing the processing power six fold, the EyeQ2 introduces added functionality, such as pedestrian detection and well as the previously mentioned lane-departure warning (LDW), adaptive headlight control, traffic-sign recognition, collision avoidance and forward collision warning on one vision processor. The EyeQ2 takes input from two high-resolution image sensors and has video-output capabilities that include graphic overlay.

Mobileye N.V. (http://www.mobileye.com) is a pioneer in the development of vision systems for intelligent transportation and is recognized as the world leader in vision-based Driver Assistance Systems (DAS). Mobileye has been selected as the vision engine supplier by the leading automotive companies worldwide such as BMW, GM and Volvo for their production vehicles starting from 2007. Mobileye N.V. is headquartered in The Netherlands, with a research and development center located in Jerusalem, Israel. (STM07.05)

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9.7 RDS Canada Chooses Orad's First Down Line System To Enhance Viewing Experience

Orad Hi-Tec Systems will be providing RDS Canada with TrackVision, its unique HD/SD First Down Line (FDL) football enhancement solution. The solution will be used for the entire 2008 Canadian Football League (CFL) season. RDS, Canada's French language sports broadcaster, chose Orad's FDL solution because of its unique new enhancements and features, including automatic calculation and display of tied-to-the-field down numbers as well as yards to go, scores, teams, and sponsor logos. Orad's FDL system is HD/SD switchable, extremely easy to operate, and can be used from the OB van as well as from the studio. RDS will also benefit from FDL's automatic detection of the camera's setup, enabling faster operation in the studio environment, quick adjustment for line width and opacity, specific game folders to save different venues' settings, and field crown adjustment capabilities for accurate first down line display. Founded in 1993, Kfar Saba, Israel's Orad (http://www.orad.tv) is a world leader in TV graphics and production technology. Orad's position in the graphics industry is quickly growing while maintaining its market dominance in virtual reality and sports enhancement. Orad's line of products includes virtual sets, on-air graphics systems, virtual advertisement, sports production solutions, and middleware for the industrial and military visualization industry. (Orad 07.05)

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9.8 IDO Security Announces Availability of MagShoe Shoe-Scanning Security Device

IDO Security has selected a leading contract manufacturer, UNI Sophisticated Electronic Assembling (http://www.unis.co.il) of Moshav Beit Nehemiah, Israel, to make MagShoe commercially available for global sales. The announcement follows months of testing and research to enable the high-volume production of MagShoe and accommodate explosive demand for the device in response to heightened security concerns worldwide. IDO Security has already completed a number of successful test pilots with MagShoe at international airports, government agencies, cruise lines and other high-security targets in Israel, Poland, the US and more. Purchase orders and implementations have quickly followed, with additional demonstrations currently in progress in countries around the world. Headquartered in New York with a subsidiary in Israel, IDO Security (http://www.idosecurityinc.com) designs, develops and markets the patented MagShoe metal detector system. MagShoe fills a critical void in today's metal detectors by extending screening to the lower body and feet. MagShoe's "shoes-on" design maximizes security, thoroughness and accuracy while eliminating the need to remove shoes for increased convenience and safety. Ideal for security and loss prevention at virtually any facility, MagShoe is currently in use at international airports, cruise lines, government agencies, private homes and more. (IDO Security08.05)

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9.9 Mongolia's Incomnet Selects Gilat's SkyEdge Satellite Network for Telephony & Data Connectivity

Gilat Satellite Networks will provide Incomnet with a Gilat SkyEdge broadband satellite communications network to serve end users throughout Mongolia. Incomnet is one of Mongolia's largest telecommunications service providers. Incomnet will use the new VSAT network to provide toll-quality telephony to rural citizens, meeting its Universal Service Obligations. The network will also provide interactive data networking to selected Mongolian government agencies and businesses, particularly those in the financial-services sector. Incomnet is a long-standing Gilat customer, having deployed Gilat VSAT networks nationwide since 2001. Gilat's SkyEdge is a satellite communications system that delivers high-quality voice, broadband data and video services over a powerful unified system. SkyEdge represents Gilat's extensive knowledge base and field-proven product offering, acquired through two decades of experience. SkyEdge's flexible architecture and efficient space segment utilization make it an ideal platform for operators and service providers. 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. (Gilat12.05)

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9.10 Check Point's New ZoneAlarm ForceField Protects Users' Private Information Against Web Attacks

Check Point Software Technologies announced the general availability of ZoneAlarm ForceField, the industry's first comprehensive, virtualized browser security solution enabling consumers to bank and shop online, or surf the internet without fear or limitation. Virtualized browsing places an impenetrable two-way "bubble of security" around the browser, preventing drive-by downloads, unwanted malware and other Web threats from damaging users' PCs or from stealing users' private information. Malicious Web sites or good sites that have been successfully compromised by hackers take advantage of browser vulnerabilities to silently install malware. The virtualization technology in ForceField forms a "bubble of security" around the Web browser so that all unknown or unwanted changes from these silent installs, or drive-by downloads, are made to a virtualized file system and disappear completely once the user is finished surfing. ForceField's virtualization offers additional security by protecting the browser session from any malware that might be on the PC. Tel Aviv, Israel's Check Point Software Technologies (http://www.checkpoint.com) is the leader in securing the internet. Check Point offers total security solutions featuring a unified gateway, single endpoint agent and single management architecture, customized to fit customers' dynamic business needs. This combination is unique and is a result of our leadership and innovation in the enterprise firewall, personal firewall/endpoint, data security and VPN markets. (Check Point 13.05)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Jerusalem Received Record Number of Passover Visitors

Over one million visitors came to Jerusalem during the recent Passover holiday. According to the Jerusalem municipality, the number of visitors to the capital represents the highest total in the past 20 years. Approximately 250,000 visitors viewed the Old City walls multimedia performance. For the first time, the municipality closed routes to Jerusalem's Old City and operated shuttles from organized parking lots. More than 50,000 people used these shuttles daily. Mayor Uri Lupolianski noted that the municipality's advance arrangements enabled hundreds of thousands of visitors to join the events and visit the Old City without encountering any problems or delays. (Globes 01.05)

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10.2 Gas in Israel Rises to $7.19 a Gallon at the Pump

Fuel prices in Israel rose to an all-time high of $7.19 a gallon on 30 April, a rise of 4.6%. Self-service 95 octane gas will be priced at NIS6.58 shekels a liter, with 96 octane NIS6.60 a liter – a rise of 29 agorot per liter for both types. Gas prices have risen for three months straight, rising 5.6% since the beginning of the year. Israel's gas prices have always been relatively high, as it must buy its fuel from middlemen and smaller oil-producing nations across the globe. Israel has purchased oil from Mexico, the UK and Norway, and more recently, from Russia and Kazakhstan. A steadily increasing amount of natural gas is bought from Egypt, and Israel also imports coal for some of its power plants from Australia, Angola, South Africa and Columbia. For the decade following the 1967 Six Day War, Israel benefited from direct reasonably priced fuel piped in from Iran, when it was ruled by the Shah. In 1979, when Iran underwent an Islamic revolution, the pipeline was closed. Israel also lost a major source of oil when it relinquished the oil fields of the Sinai Peninsula in exchange for a treaty with Egypt in 1982. In 2004, the Minister of Infrastructures revealed that most of Israel's oil imports originate in countries with which the Jewish state does not maintain diplomatic relations. About 3% of Israel's energy consumption is supplied by solar power, mostly in the form of rooftop solar panels to heat water for residential buildings. Several projects to expand solar power through large facilities in the Negev desert are currently underway. (INN30.04)

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11: In Depth

11.1 JORDAN/EGYPT: Why Don't the Benefits of Growth Trickle Down?

The Carnegie Endowment for International Peace noted that recent labor protests and bread lines in Egypt - in which the army was called in to organize distribution and restore order - present a stark contrast to the Egyptian government's narrative of impressive economic growth, which international financial institutions have validated. Jordan has not experienced serious protests recently, but it is also witnessing growing complaints about inflation despite notable economic growth. In both countries, the private sector has begun to play a much larger role, gross domestic product (GDP) has accelerated and foreign direct investment, financial markets, and real estate are booming. Yet the two countries' economies have thus far failed to address the needs of their poorest citizens, who feel the acute inflation in basic commodity prices. The gap between the rich and poor has not been reduced and unemployment levels remain stagnant.

Jordan's real GDP grew steadily at an annual rate of 6% from 2003 to 2007. Investment surged from $74.8m in 2002 to $3.1b in 2006 and all other macro indicators are similarly positive. Nevertheless, unemployment remains static at approximately 14% and the number of Jordanians living below the poverty line - estimated at 14.7% in recent government reports - has not declined.

There are many explanations for this welfare-less growth. First, growth in Jordan has come from just a few sectors such as manufacturing, telecommunications and construction. Within the manufacturing sector, most jobs resulted from qualifying industrial zones, designated areas that produce and export to U.S. markets. Investors mainly came from South Asia and based their competitiveness on cheap labor; 54% of some 40,000 new jobs in manufacturing have gone to non-Jordanians. In the construction sector, most new jobs also benefited foreign labor, primarily from Egypt. Thus, these sectors experienced growth and job creation, yet very little that benefited unemployed Jordanians. When new jobs were filled by Jordanians, they tended to be in low-paying sectors such as domestic services. These jobs are generally characterized by unacceptable working conditions and a lack of social security or overtime arrangements that protect workers.

The Jordanian finance and telecommunication sectors do create high-paying jobs, but they require levels of education that the poor normally do not possess. That growth has not benefited the poor is confirmed by the Gini coefficient - one of the most common means of measuring income inequality, where 0 corresponds to perfect equality and 1 to perfect inequality - which remained stagnant at 0.37 between 2002 and 2006. Jordan's unchanging ratio suggests that despite economic growth, no structural change has taken place in terms of income or consumption that would permit greater mobility between social classes.

In Egypt, real GDP grew at a sluggish 1.7% in 2003 but has climbed steadily since, reaching 6.8% in 2007 and expected to exceed 7% for FY2007/2008. As a result of the 2.4 million new jobs, unemployment fell from 10.5% in 2006 to 9% in 2007. Just as in Jordan, however, growth in Egypt has come largely in sectors (energy, telecommunications and construction) that do not employ unskilled workers, thus cannot absorb the 20% of citizens who live below the poverty line. The real estate market has been booming, putting housing increasingly out of the reach of the poor. Furthermore, the government has been forced to maintain food subsidies, leading to a budget deficit that in 2007 reached 7.5% of GDP and is expected to increase in 2008.

Hardship for many Egyptians is likely to increase. As in Jordan, the Egyptian government has begun to align energy prices with the international market, and intends to phase out most industrial energy subsidies by 2010. Egyptians, many of whom have stagnant wages, thus are beginning to feel the effect of global increases in energy and food prices, leading to an inflation rate of 6.2% in 2006 and 8.8% in 2007. Inflation has been concentrated in items such as food and basic commodities, which constitute a significant share of a household's consumption. In 2007, food items accounted for 44% of total inflation and increased energy costs contributed 13.5%. Shortages also are emerging, as the recent bread crisis demonstrated.

Economic reform has also led to other changes that are beginning to spark unrest in Egypt. Some 38% of Egyptians who receive wages or salaries work without formal contracts or social insurance; in the private sector, the number is an astounding 71%. There is evidence that privatization has led to deterioration in health and safety conditions, as the Ministry of Manpower and Trade Unions tries to create a balance between the rights of workers and the economic interests of private sector owners. As a result, in 2007-8, Egypt witnessed an intensity of worker strikes and mobilization that had not been seen in decades. The strikes began in clothing factories, but have since spread to include a broader spectrum of the Egyptian working class and have increasingly become political in nature.

It is possible that both Egypt and Jordan are witnessing transition periods and that eventually the benefits of remarkable economic growth will trickle down to the poor. For now, the poor are suffering disproportionately from the inflation that often accompanies growth, as well as from global price trends. Inflation is generally more prevalent in food items and basic commodities that constitute the largest share of the poor's consumption basket. Conversely, property and equity owners can adapt their expenditures and are more protected against the consequences of inflation. Considering the troubling political implications, it would behoove the Jordanian and Egyptian governments to formulate comprehensive macroeconomic polices to promote trickle down sooner rather than later. In this regard, governments should revise their fiscal policies toward subsidizing those in need rather than subsidizing all. Governments should also work to dismantle monopolies, particularly in commodity markets, so that the poor can negotiate more effectively. (ARB May 2008)

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11.2 KUWAIT: Central Bank Urges Action

Kuwait, the only Gulf Cooperation Council (GCC) member state to drop its dollar-peg, has not managed to escape the current inflationary cycle affecting the region. The rising cost of oil, coupled with the declining dollar, is piling inflationary pressure on the economy. Now, the Oxford Business Group observed, the governor of Kuwait's central bank is encouraging the government to take action.

One area highlighted as causing particular concern is the housing market. Sheikh Salem Abdul-Aziz Al-Sabah, Governor of the Central Bank of Kuwait (CBK), told reporters that, "In this period, the importance of state efforts to oversee the housing market and bring back a balance to the real estate market is clear." Analysts have interpreted the comment as the CBK favoring the introduction of a government-sponsored rent cap. A rent cap would be more popular with the CBK than the government's previously preferred strategy of further state sector pay rises. The Kuwaiti government employs over 90% of Kuwaitis and demands to raise government wages are featuring prominently in the current election campaign, with voting due to be held on May 17.

Wages were last increased as recently as February, when a $450 monthly "bonus" was paid out to all Kuwaitis employed in the public or private sector. Non-Kuwaitis employed in the state sector were awarded an increase of 50 KD ($187). Sheikh Salem appeared against further increases in state spending, advising the government not to heed to "political pressures". "We can see the first negative signs of such an increase," he said, in an apparent reference to the February increase, and other large-scale public spending programs.

Recently released figures for January show inflation in Kuwait rose to 9.5%. Housing prices increased by 16.1%, while food jumped 7.7%. While high, Sheikh Salem noted that the level remained "relatively moderate compared to inflation in other countries of the Gulf Cooperation Council". Qatar (13.7%), Saudi Arabia (9.6%) and the United Arab Emirates (around 12%) all currently have higher levels of inflation than Kuwait.

Even having dropped its dollar peg and shifted to a basket of currencies (thus in theory giving it greater control over its monetary policy) Kuwait is still limited in its ability to reduce the inflationary pressures currently assailing its economy. Sheikh Salem revealed the CBK was using "mainly non-direct monetary policy tools to readjust the level of local liquidity", i.e. selling bonds to reduce the amount of paper in the economy.

Since dropping the dollar peg last May, the Kuwaiti dinar has appreciated by around 9% against the greenback. One advantage of regaining an independent monetary policy for the Kuwaiti economy has been the ability of the CBK to avoid trailing the heavy-cutting policy of Ben Bernanke's Fed, which has slashed rates by 3.25% since last September.

The CBK cut its discount rate by 50 basis points in January to 5.75%, in partial imitation of the Fed's shock-therapy cut of 75 basis points. Since then the discount rate has remained stable, while the repo rate is at 3.5%. The latter is now 1.5% higher than in the UAE, which was last week forced to cut its repo rate even further down to 2%.

With oil now trading at close to $120 a barrel, and OPEC president Chekib Khelil predicting $200 as a real possibility, there is a limit as to how much inflationary wind the CBK can knock out of Kuwait's economy. The government may well reason that, with so much surplus revenue, and with the addition of external pressures on purchasing power such as the rising global cost of basic food, it may well bite the bullet and agree to a further wage increase for nationals.

By doing so, the government risks triggering an inflationary cycle. Yet Kuwait's economy is not overheating quite so rapidly as other Gulf States. Year-on-year broad money figures for March show growth of just under 20% - high, yet significantly lower than the UAE, whose February figure was 33.8%. It is a tough call for a government that will need to maintain public support if it wishes to push through the economic reforms which led to the dissolution of the previous parliament. (OBG09.05)

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11.3 QATAR: Moody's Rating outlook stable

Moody's has assigned Qatar Aa2 foreign and local currency government bond ratings, with a stable outlook. The recognition reflects the country's very high level of prosperity and robust public finances, which continue to strengthen as hydrocarbon export receipts are accumulated, according to Moody's Investors Service.

'The ratings were last upgraded in July 2007, from Aa3, chiefly to reflect the growing resilience of the Qatari government's balance sheet as oil- and gas-driven fiscal surpluses are funneled through the state-owned Qatar Investment Authority to build up financial assets abroad," Moody's said in its new sovereign credit report on the country.

"These assets, which are mostly invested in non-hydrocarbon sectors, provide an 'oil hedge' and their returns increasingly contribute to the country's Gross National Income,' explains Tristan Cooper, Moody's vice-president, senior analyst and author of the report.

Qatar's ratings also reflect the extremely rapid expansion in the domestic economy's productive capacity as more upstream and downstream hydrocarbon export projects are brought on line.

'Qatar is already the world's largest exporter of Liquefied Natural Gas (LNG) and it plans to more than double its LNG export capacity by 2010. With consensus forecasts indicating that oil prices will remain at elevated levels over the medium term, this will further boost the country's GDP per capita, which is already the highest in the world in purchasing power terms,' said Cooper.

The key elements constraining Qatar's ratings at their current level are political and institutional factors, to which Moody's gives comparatively more weight in the Aa rating category. 'Qatar's domestic institutions are still in a developing phase and the regional geopolitical environment is more hazardous than is the case with higher-rated countries,' said Cooper.

Moody's recognizes that Qatar's foreign assets provide an increasingly important source of capital diversification and that the non-hydrocarbon sectors are also enjoying strong growth. However, the domestic economy remains highly dependent on hydrocarbons and its performance is therefore far more volatile than is the case with larger, more diversified economies, it added.

'The most pressing short-term challenge for Qatar, as in other emerging markets, is inflation, which is undermining competitiveness, creating economic distortions and could raise social tensions. Inflation is being exacerbated by very strong growth in government expenditure and the currency peg to a weak US dollar,' said Cooper. Although the government's direct debt remains small, its contingent liabilities are rising rapidly given growth in the liabilities of government-owned corporates and banks. 'Whilst much of the country's corporate debt is being used for highly profitable hydrocarbon export projects, Moody's has some concerns with regard to Qatar's banks: given their aggressive loan growth, banks' asset quality could suffer, particularly in the event of a sharp correction in real estate prices, which have soared in recent years,' said Cooper. (Moody's 12.05)

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11.4 UAE: Abu Dhabi Dabbling with Danger

In line with the US Federal Reserve, Abu Dhabi has once again cut its interest rates. The Oxford Business Group noted that this has spurred further concerns about inflation and raising questions about maintaining the dollar peg. The Central Bank of the United Arab Emirates (UAE) responded almost immediately to the US Federal Reserve's rate cut on April 30 by lowering its own repo rate to 2%. The 25-basis point cut was the first response by any of the dollar-pegged Gulf Cooperation Council (GCC) states to the latest round of easing from the Fed.

Analysts have interpreted the Fed's accompanying press statement as hinting that this latest cut will be the last in the current cycle of easing. If so, this would prove a relief to the UAE. The central bank has been forced to cut rates by 325 basis points since last September in imitation of the Federal Reserve's policy, at precisely the time rising inflationary pressures would ordinarily counsel fiscal tightening.

Independent estimates of the current level of inflation in the UAE have varied from anywhere between 8% and 14% and the latest rate cut is likely to have exacerbated the situation even further. The Dubai Chamber of Commerce and Industry currently argues that 18% of the UAE's current inflationary pressure is the result of the dollar peg, while independent analysts have claim the figure for imported inflation may be as high as 30%.

Currently, transparency regarding the true level of inflation in the UAE is limited. In February, the government announced that it intended to bow to long-term pressure from the International Monetary Fund and publish a monthly consumer price index (CPI) rating. However, there is some debate as to whether the CPI basket currently used will give an accurate reflection of the true picture for UAE residents. Economists say up to 50% of local inflation is directly attributable to increases in rents, whereas the basket allocates only 36%.

The UAE's move was followed the next day by Bahrain and Qatar, who dropped their deposit rates while holding central bank lending rates level, in the hope of slowing credit growth. The UAE's central bank has only limited motivation for delaying a cut in the central bank lending rate: the three-month Emirates Interbank Offered Rate (EIBOR) was around 8 basis points lower than the central bank repo rate even after the cut, meaning commercial banks have little reason to borrow from the central institution.

The GCC currencies have been pegged to the dollar since 2003 as part of plans for an eventual common currency in 2010. This effectively forces the GCC's central banks to mirror the Federal Reserve's policy, at a time when the US economy's fundamentals are precisely the opposite of the Gulf's. The long decline of the greenback has placed the ambition of a GCC monetary union in some jeopardy of late, as the varying effects of the weak dollar and the high price of oil have strained solidarity among the organization's members. Last year Kuwait took the first step to regaining control of its monetary policy by unilaterally leaving the peg and switching to a basket of currencies. The Kuwait central bank has so far left its rates unchanged following this latest cut by the Fed.

For the remaining GCC states wishing to maintain a unified front, the only monetary policy available is a simultaneous revaluation. This option has been much discussed of late, yet it would now appear to be off the table, as members fear eroding market confidence in the dollar further and jeopardizing an eventual monetary union.

If the latest cut does prove to be the last, it is possible that the UAE may be able to weather its current inflationary storm. However, the government's target of 5% inflation for 2008 will now be extremely difficult to meet. Next year's broad money figures will also make interesting reading. In February, the central bank revealed annual M3 money supply growth for 2007 had hit the worrisome level of 33.8%. Figures for 2008 will probably be higher, given the buoyant price of oil and the effect of the past six months' rate cuts.

Short of raising minimum reserve requirements still further (a difficult proposition given the presence of foreign banks in the UAE's financial sector), the UAE will essentially be limited to protecting its residents' purchasing power through direct market intervention. Ultimately, the government perhaps reasons that the UAE's rapidly emerging economy is better served by maintaining growth, even at the price of relatively high inflation. (OBG05.05)

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11.5 UAE: Dubai Moving on With VAT

Dubai and the other members of the Gulf Co-operation Council (GCC) are edging closer to a significant change in how the region's states garner revenue, with plans to introduce a value added tax across the bloc, possibly as soon as the first quarter of next year. With the countries of the GCC in the process of negotiating a series of free trade agreements with major trading partners such as the European Union, China and India, the Oxford Business group reports that the bloc's member states have been looking at ways to compensate for the expected loss in customs revenues and fill the income gap. The path chosen is VAT.

The idea of introducing a VAT across the bloc has been around for some time, first being raised by an International Monetary Fund (IMF) report in late 2005, which recommended the broadening of the tax base and the introduction of a VAT system to be made effective in two stages. The first stage envisioned the imposition of VAT on selected goods such as tobacco, cars and electronic items and the removal of customs duty on all imports, with the tax being collected directly from the distributors, agents and wholesalers. The second stage consisted in a modification of the procedure for the tax on products to be chargeable at the point of sale only.

Dubai Customs was commissioned by the government of the UAE to research and introduce the VAT system before implementation in the UAE. A preliminary report prepared by concerned authorities and the IMF, completed in late 2006, concluded that the introduction of a tax on goods and services in replacement of the existing Customs duty was inevitable if GCC states were to maintain their current levels of economic welfare.

According to Abdul Rahman Al Saleh, the executive director of Dubai Customs, work on preparing for a comprehensive goods and services tax is well advanced. "Having spent two years studying VAT around the world to ensure that what is proposed for the UAE and the GCC is best practice, we are now in phase two, which is looking at how to successfully implement VAT," he said on May 8. Though having flagged the imminent arrival of VAT, Al Saleh and other Dubai officials have not indicated whether the recommendations of the IMF will be adopted wholesale or in a modified form.

However, Al Saleh revealed that when implemented, the new goods and services tax would only have a minimal effect on consumers, with its rate being lower than that currently imposed on imported goods. No exact rate for the tax has been decided on but it is expected to be between 3% and 5%, applied as a flat rate payment on all goods and services and projected to generate the same amount as customs receipts. There would be some exemptions, with small businesses with revenues below $1m not having to pay the tax, and companies in the health and education sectors also possibly in line for a VAT-free status, according to a statement released by the Dubai Customs on May 6.

Al Saleh also played down fears that the new tax would weaken the UAE's appeal as a business and investment hub. "I have no concern that the UAE will be perceived as less attractive for doing business, we have been looking at inflation and our conclusion is that VAT will not cause any inflation," he said. "The VAT is being introduced to replace customs duties. We are targeting a very low rate of tax compared to an average of 20% in Europe."

Though the final form of the new tax would have to be approved by the UAE government, Al Saleh said the objective of introducing VAT across the GCC region could be met within four to five years. While Al Saleh has said the new tax will be implemented by early 2009, comments in late February from a senior official of the UAE ministry of finance were slightly less optimistic.

"Introducing such a tax is not a simple issue as thorough studies are needed on the implementation and its consequences in every country, preparation and the necessary tax management system, and such issues are always considered during the GCC's financial and economic committee meetings," Younus Khouri, undersecretary at the ministry, was reported as saying on February 21. While a goods and services tax may not be popular with consumers or with businesses that will have to process the payments, it will probably prove a more attractive option than other state revenue raising alternatives such as an income tax. Popular or not, VAT will replace the revenue lost when trade barriers in the region go down. (OBG13.05)

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11.6 OMAN: IMF Executive Board Concludes 2007 Article IV Consultation

Background

Oman's economic performance during 2007 was strong. The economy withstood well the impact of the June cyclone and real GDP grew by 6.4%, supported by high oil prices and rapid growth of non-hydrocarbon sectors such as petrochemicals, trade, and transport and communications. Annual average consumer price inflation increased to 5.5% in 2007, from 3.2% in 2006. The increase in inflation reflected rising world food prices, supply-side constraints related to the construction boom, upward pressures on wages and the depreciation of the U.S. dollar. Domestic demand growth was mainly driven by high inflows of foreign direct investment, the fiscal stimulus from previous years, and strong private sector credit growth.

The overall fiscal and external positions are estimated to have registered large surpluses in 2007. The non-oil fiscal deficit (excluding grants) relative to non-oil GDP is estimated to have narrowed owing to an increase in non-hydrocarbon revenues attributable to strong growth in corporate profits and customs receipts, and to lower spending on defense that more than offset a surge in capital expenditure related to the government's development program. With oil production waning, and strong growth of imports for infrastructure investment and consumption, the external current account surplus is estimated to have fallen to 10% of GDP in 2007, from 12% in 2006. The Omani riyal has depreciated by about 1.6% in real effective terms since 2005.

Money growth accelerated in 2007, reflecting the accumulation of foreign assets and strong private sector credit growth. Broad money growth (year-on-year) increased from 25% in December 2006 to 34% in October 2007, with private sector credit growth rising from 20% to 31% over the same period. Private sector credit growth was boosted by abundant liquidity in the banking system, partly related to capital inflows triggered by expectations of a near-term revaluation of the Omani rial vis-à-vis the U.S. dollar, and negative real interest rates. In response to the acceleration in credit growth, the Central Bank of Oman (CBO) raised reserve requirements from 3% to 5% in December 2007; this followed another effective increase in July 2007, when cash balances were excluded from the calculation of accepted reserves. The CBO has also removed the cap on the total outstanding stock of certificates of deposit (CDs), thereby increasing the scope to mop up liquidity.

The banking sector remains sound. Banks are profitable and well-capitalized, and nonperforming loans are being reduced. Pillars I and II of Basle II are being implemented, and the CBO is currently developing a risk-based supervision model which is expected to be implemented in 2008. In addition, in April 2007 the CBO doubled the minimum capital requirement for local banks to RO 100 million, and for branches of foreign banks to RO 20 million.

Oman does not intend to participate in the GCC monetary union. However, it is part of the common market launched in January 2008 and continues to participate in all the technical meetings with other GCC countries, including on the harmonization of financial regulations, statistical frameworks and payment & settlement systems.

The authorities are moving ahead with the implementation of their diversification plans in the context of the Seventh Five-Year Development Plan, which was started in 2006. The plan aims to expand liquefied natural gas (LNG) output capacity, develop gas-based and non-hydrocarbon industries (manufacturing and tourism), and provide employment opportunities for Oman's rapidly growing population.

Executive Board Assessment

Executive Directors commended the authorities for Oman's strong growth performance over the past few years, despite declining oil production. They welcomed, in particular, the steady progress in implementing structural reforms that has contributed to strong non-oil output growth. Oman's medium-term prospects look favorable, supported by a continued positive outlook for energy prices, a strong investment momentum and an improved domestic business climate. The key challenge in the period ahead will be to contain inflation while sustaining growth through economic diversification.

Directors observed that inflationary pressures have increased, owing mainly to supply-side constraints related to the construction boom, the strong growth in domestic demand associated with the public investment program, rising international food prices, and to a lesser extent the depreciation of the U.S. dollar against other major currencies. They underscored that fiscal policy constitutes the main tool to moderate domestic demand growth. Directors recognized the importance of increases in capital outlays to address supply bottlenecks, but noted that expenditure increases should be consistent with the country's absorptive capacity. In this regard, Directors called on the authorities to restrain the growth of wages and transfers, phase the implementation of lower-priority projects. They encouraged the authorities to reduce over time the implied subsidy on petroleum products, and supported efforts to increase non-oil revenues through the introduction of a value-added tax. These measures will be essential to reduce the non-oil fiscal deficit over the medium term and safeguard macroeconomic stability.

Most Directors supported the authorities' intention to maintain the current peg of the Omani rial to the U.S. dollar, which has provided a credible monetary anchor and helped sustain investor confidence. Nevertheless, the peg requires that other policies play a supporting role. Directors attached particular importance to a prudent fiscal policy to contain inflation, and to the vigorous implementation of structural reforms to improve efficiency and sustain competitiveness. A few Directors saw merit in reviewing appropriate exchange rate arrangements in the long term. Directors took note of the authorities' decision not to join the Gulf Cooperation Council (GCC) monetary union, but to remain committed to other GCC initiatives and to participate in all GCC-wide fora.

While noting the limited scope for monetary policy under the current peg regime, Directors recommended that the authorities help reduce excess liquidity by more closely aligning short-term interest rates with comparable rates in the United States. They supported the authorities' willingness to raise reserve requirements further to mop up excess liquidity, as well as their intention to invest abroad a portion of the government's deposits currently held in commercial banks. They observed that the development of a government securities market would provide benchmarks for the pricing of corporate debt, and enhance financial intermediation.

Directors welcomed the strength of Oman's financial system, as evidenced by the high capitalization and profitability of financial institutions. They encouraged the authorities to develop a comprehensive licensing policy for the entrance of new banks, involving a thorough review of their business strategy, funding sources, and oversight and internal governance capabilities, in order to help balance banks' growth aspirations against the market's absorptive capacity.

Directors welcomed the authorities' commitment to the structural reform agenda and further economic diversification, including through continued implementation of the privatization program. Progress with these reforms will be crucial to sustain medium-term growth. Directors regarded infrastructure to develop tourism, manufacturing, and gas based non-hydrocarbon industries as key to increasing exports and providing employment opportunities for Oman's rapidly growing labor force. They commended the authorities for attaching high priority to education and training, in order to raise the productivity of the Omani labor force.

Directors commended the authorities for their efforts to improve the quality of economic statistics, especially labor market data, and encouraged them to make further progress in improving and disseminating economic data. (IMF30.04)

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11.7 OMAN: Port Expansion

The Oxford Business group observed that Oman is undergoing a massive expansion of the country's port facilities as part of a larger program aimed at boosting the sultanate's transport infrastructure to support trade and tourism. On April 27, the Omani government invited bids from engineering consultants for a feasibility study on the planned development of the port of Shinas in the north in the Batinah region. Currently, Shinas is able to serve only local trade, with shallow draft vessels using the port for small-scale agricultural, fishing and animal transshipment. Though preliminary work has already been carried out at Shinas, with a dredging project in 2002 deepening the harbor's basin to four meters, existing infrastructure precluded the loading and unloading of larger ships, thus limiting the port's usefulness.

The contract for the provision of consultancy services, which is being overseen by the ministry of transport and communication, is ultimately linked to the design and construction of a new port, with the aim of developing Shinas as a trade gateway for the north of the country, as well as serving to encourage investment in the region.

Envisaged at Shinas is the development of warehousing facilities and either a free trade zone or a special trade zone to help stimulate industry in the region. Having a direct shipping outlet in the area will assist the copper mines of Shinas and nearby Hatta, which between them have an estimated 4m to 6m tons of extractable ore with a 2% copper content.

As one of the few Gulf states with extensive mineral resources other than oil and gas, Oman has also seen the need to build ports for the specific needs of the industries in various areas. In this regard, there are plans for the port of Shinas to serve as a terminal for high- speed ferries running to Khasab, the Omani enclave on the Musandam Peninsula. The port will also be linked by a new coastal highway running from the port of Barka further down the Batinah coast, through the industrial port of Sohar and on to the border with the United Arab Emirates. The port of Barka has been earmarked for development into a logistics hub, with facilities large enough to handle container shipping and Customs services.

As part of a wider effort to expand transport infrastructure in and out of the wilayats, Ahmed bin Abdulnabi Macki, the national economy minister, announced on April 14 plans to build a rail line between Barka and Sohar. According to Macki, the line will be dedicated to freight, at least in its initial stages, and could be extended to the southern port of Al Duqm on the Arabian Sea. If the project goes through, it would mean that two of Oman's largest ports and industrial bases, Sohar and Al Duqm, would be linked by rail, cutting freighting costs and time spent in moving cargoes by sea.

The development of Al Duqm moved up a gear on April 29 with Omani construction firm Galfar and South Korea's Daewoo Shipbuilding being awarded a $442.2m contract for infrastructure work at the port. Under the contract, the joint venture is to carry out land reclamation work and dredging to deepen the harbor as well as build two breakwaters, two 400-metre long dry docks and a quay wall where vessels can be moored. According to the government's long term plans, Al Duqm is to become the centre of a ship building and repair industry in the region, as well as having a refinery and oil export terminal. By spreading the country's port facilities up and down the coast, and by connecting them with a network of road and rail links, Oman hopes to spread the wealth gained through its fossil fuel industry across the country and develop a diversified economy to sustain itself in the future. (OBG05.05)

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11.8 SAUDI ARABIA: Sovereign Wealth Fund Launch

Saudi Arabia, the largest economy in the Gulf Cooperation Council (GCC) and the world's biggest oil exporter, has announced it is in the "final stages" of launching its first sovereign wealth fund (SWF). The as yet unnamed SWF will be administered by the Public Investment Fund (PIF), and is due to have initial capital of $5.3bn. According to the PIF's secretary general Mansour Al Maiman, the new fund will focus on "maximizing long-term rates of return".

Speaking with the press, Mansour said a key feature of the new SWF's strategy would be "diversification - asset class, sectoral and geographic". Saudi Arabia's central bank already holds an estimated $330bn in foreign reserves. Some 85% of this is thought to be held in highly liquid dollar-denominated securities. The move to initiate a new fund indicates a shift in strategy for the kingdom, away from a traditionally conservative economic approach of safe, liquid assets to offset the impact of short-term swings in the price of oil. The planned SWF represents a more adventurous investment policy - offering potentially higher returns, but also greater risk.

Saudi Arabia is relatively late in entering the SWF market. GCC neighbors Kuwait, Oman, Qatar and the United Arab Emirates (UAE) already have their own funds, the largest by far being the Abu Dhabi Investment Authority (ADIA), which is thought to have assets totaling some $850bn. By comparison, Saudi Arabia's new fund will be a relative minnow, significantly smaller than the funds of nations such as Kazakhstan, Brunei and Malaysia.

The low starting capital of the kingdom's SWF, and its designation (at least initially) as a wholly owned subsidiary of the PIF, suggests the government has not completely changed gear when it comes to investing the nation's oil wealth. Saudi Arabia differs from the other GCC states in having a relatively large (and quickly growing) population. This means greater demands on the public sector, and less maneuver room for large holdings of illiquid assets.

The kingdom has a further dilemma: even if it wished to, it cannot easily offload its dollar assets for less liquid investments. With its large holding of dollar-denominated securities, Saudi Arabia has a significant stake in the fortunes of the US economy. In addition, the riyal, like all GCC currencies save the Kuwaiti dinar, is pegged directly to the greenback. Given the jittery condition of the dollar, the government is unlikely to make any sudden movement that could be interpreted as a lack of confidence in the currency.

There is no indication yet as to which markets the new SWF may choose to participate in. Its parent company, the PIF, was established in 1971 to invest internally within Saudi Arabia, and has holdings in a number of different industries, ranging from railways to cement to utilities. The PIF has also invested in joint projects, predominantly in other Arab countries. The fund is unlikely to emulate the actions of some other GCC investment vehicles, which have engaged in ambitious and highly leveraged buyouts. Perhaps a better projection might be something similar to the activities of Saudi Prince Alwaleed bin Talal's Kingdom Holding Company: namely, a portfolio including blue chip stocks, property and perhaps a stake in a major bank.

Given the current crisis affecting the US financial sector, Saudi Arabia may well have picked an opportune moment to launch its own SWF. Several large banks are on the prowl for recapitalization, and are offering fairly generous terms to potential investors. Already this year, ADIA and the Kuwait Investment Authority, for example, have bailed out banks like Citigroup and Merrill Lynch to the tune of billions of dollars. Although more modest, Saudi Arabia's fund is likely to court the attention of similarly prestigious corporations, who may well be bargaining that the initial capital of SR20bn represents merely the beginning of the kingdom's investment plans. (OBG02.05)

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11.9 EGYPT: Mubarak's Giveaway

The lot of a finance minister in an authoritarian state is not always a happy one, noted the Economist Intelligence Unit, as the best-laid fiscal plans can be upset at any moment by a presidential whim. Youssef Boutros-Ghali, the steward of Egypt's state finances, is a case in point. His president, Hosni Mubarak, has been prompted by the recent signs of popular discontent at soaring prices and shortages of subsidized bread to announce a 30% increase in salaries for all government employees - billed as "The biggest wage hike in the history of Egypt" by the main government newspaper, Al-Ahram. Mr. Mubarak revealed during his May Day speech that the government had been considering a more modest increase of 15%, but that he had insisted on pushing it up to 30%. Worse, from the finance minister's stance, Mr. Mubarak apparently decided only at the last minute to promise that the raises will be included in the May pay round, rather than going into effect from July 1st, the start of the new fiscal year.

Who pays?

Even with the increases, the salaries of Egypt's state employees will remain pitiably low. Al-Ahram quoted an official as saying that the raises will add only $6 to the monthly earnings of the most junior workers and about $37 to the pay packet of an undersecretary in a ministry. Nevertheless, they will significantly inflate the public payroll. The total wages and salaries budget for the current fiscal year is almost E£60bn ($11bn); this suggests that next year's salary budget could be E£18bn higher. Assuming that Mr. Boutros-Ghali had already been planning for a 15% wage increase, the extra funds (or savings) that he will need to find to finance Mr. Mubarak's promise will be in the order of E£9bn, roughly 1% of GDP.

Mubarak made clear in his speech that the option of cutting subsidies has been ruled out. As food and fuel prices have increased in the current fiscal year, the government has been obliged to make regular additions to the subsidies budget, which is now expected to total some E£65bn, or close to 8% of GDP. Mubarak said that in 2008/09 the total subsidies budget will increase to E£83bn, of which E£20bn is for bread and other basic foods and E£63bn for fuel.

Boutros-Ghali does not have much scope for raising revenue. It is highly unlikely that he will increase personal or corporate tax rates, as the government's economic policy program has been based on reducing the direct tax burden as a means to promote investment and economic growth - a strategy that has paid off handsomely, with record levels of foreign direct investment and real GDP growth averaging 7% per year. The finance ministry is expecting a significant increase in revenue from property taxes, as a result of recently enacted reforms that have provided a strong incentive for property registration. However, any extra revenue from this source has most likely already been factored in. The government is also looking to generate more revenue from shifting to a fully-fledged value-added tax (VAT) system in the new financial year, but again Boutros-Ghali has probably included this in his previous budget calculations.

Inflation Push

The inescapable conclusion is that the wage increases will push up the fiscal deficit and add to the already considerable inflationary pressures in the Egyptian economy. The government is likely to overshoot its target of keeping the budget deficit at, or just below, 7% in 2007/08, and it now seems that the deficit will be even higher next year. The rate of inflation rose sharply in the first quarter of 2008 to 14.4% year on year at the end of March, compared with an average of 9.7% in 2007. The Central Bank of Egypt has finally been obliged to react through increasing interest rates. All these factors will tend to take the edge off of Egypt's overall economic growth prospects. Furthermore, there is a risk that the wage increases will soon be swallowed up by inflation, and will thus have little effect on the growing social and political discontent. (EIU01.05)

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11.10 EGYPT: Energy Outlook

The Egyptian government has approved a rise in fuel prices, enacting a set of tax and duty increases for energy products such as natural gas, petrol and diesel, part of the country's move away from heavily subsidized energy. Following President Hosni Mubarak's decision at the end of April to ease the strain of rising food prices by increasing public sector salaries by 30%, the government is looking to raise additional funds to help cover the additional $2.3bn strain on the budget. The move to raise taxes, proposed by the ruling National Democratic Party (NDP) and approved by the parliament on May 5, will see a 30% to 40% rise in petrol prices, a 46% rise in diesel prices and 58% increase in gas prices for heavy industry.

Energy subsidies, which had been expected to cost $10.7bn for this financial year, have long been a drain on the national budget. Speaking in parliament, Ahmed Ezz, a senior NDP official, defended the rise in fuel costs, claiming that for an average car owner that uses 100 liters of petrol month, the government was spending $21 through subsidized fuel. Gas in Egypt has been about 50% cheaper than average international prices.

Analysts have suggested a move to reduce or even abolish energy subsidies and bring up prices would encourage more efficient use of energy resources. "Around 50 to 70 companies are responsible for between 60% and 70% of Egypt's annual gas consumption," Mohammed Khafajy, an energy consultant at Cairo-based Pico Energy, told OBG.

While the price hikes represent another step in the country's move from subsidies to a more sustainable policy, the government will be watchful. Some analysts have suggested the rise in energy prices could add to inflation, already at 14.4% in March. Higher fuel costs will impact transportation costs, which will make the price of most products rise further.

The country's recent strong economic growth has been accompanied by escalating energy needs. "Electricity demand in Egypt has risen 7.3% in the last year," Aktham Abou El Ella, undersecretary of state at the ministry of electricity and energy, told OBG. From 20,000 MW in 2006-2007, electricity usage in the country is predicted to reach 54,000 MW by 2027, according to the local press. Egypt is now trying to determine its future energy mix by diversifying sources.

As part of the government's long-term strategy, President Mubarak announced the decision to pursue nuclear power development late last year, targeting the goal of building six 2000-MW nuclear reactors. The tender for the first nuclear plant, to be built on Egypt's Mediterranean coast at a cost of $1.5bn to $2bn, is expected to be finalized by the end of this year. However, while Egypt is looking to the civil nuclear program as one of the main solutions for the future, nuclear energy production will not be operational before 2020.

The government has also discussed alternative energy, and aims to obtain 20% of its energy supply from renewable sources by 2020. In addition to hydroelectric production at Aswan's High Dam and other stations along the Nile already in operation, this could come from solar and wind power. Khafajy said he believes that the 20% goal is achievable and that wind will constitute a big part of this. "Not only is Egypt's terrain suitable for it, but wind power stations require less time to build," he said.

In the meantime, Egypt will need to focus on managing the use of its fossil fuels. At the same time energy consumption is increasing, oil production has been in slow decline since 1990, when it peaked at 941,000 bpd. Gas production, by contrast, has been on the rise during the same period, and Egypt is now the sixth-largest producer of liquefied natural gas in the world.

Official proven reserves of oil and gas currently stand at 3.7bn barrels and 1.94trn cubic meters respectively. This would represent another 10 to 11 years for oil and around 35 years for gas. However, hoping to prolong these figures with new discoveries, the government is currently vigorously promoting exploration and production and is selling licenses for 12 areas in the Red Sea, Gulf of Suez and the eastern and western deserts.

With a mix of alternatives to choose from, Egypt's energy future will depend on a correct balancing of short-term and long-term options. The cost of energy resource mismanagement could be grave: according to some analysts, the country risks becoming a serious oil and gas importer by 2020. (OBG13.05)

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11.11 GREECE: IMF Executive Board Concludes 2007 Article IV Consultation

On 18 April 2008, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Greece.

Background

The Greek economy has been buoyant for several years, supported by solid gains in employment, substantial real wage increases, low interest rates and rapid credit expansion. In 2007, real GDP rose by an estimated 4% driven by domestic demand, but the external sector was a drag on growth. After peaking in 2004, the fiscal deficit fell sharply to under 3% of GDP in 2006 and was contained at 2¾% of GDP in 2007 despite several unexpected one-off expenditures amounting to about 1% of GDP. Nevertheless, the level of government debt, at 93% of GDP, remains high. Private sector credit has risen rapidly but household indebtedness is still relatively low. Inflationary pressures and rising labor costs have resulted in a steady deterioration in competitiveness, contributing to a large current account deficit of 13.8% of GDP.

Economic growth is expected to moderate in the near term but should remain solid on the back of continued strong domestic demand. However, the risks to the outlook are tilted to the downside. In the near term, risks stem from a weaker external environment and a potential liquidity squeeze of banks. Over the longer term, a persistent loss of competitiveness raises the risk of a prolonged period of slow growth.

The authorities are pursuing further fiscal consolidation with the goal of achieving a balanced budget by 2010. The 2008 budget aims to reduce the general government deficit to 1.6% of GDP through ambitious revenue measures. However, the expenditure structure is set to become more rigid as the elimination of the one-off expenditures incurred in 2007 will be offset by higher outlays on wages and social transfers. The authorities are proceeding with a narrowly focused agenda on pension reform, which is nonetheless already drawing considerable protest.

The banking sector appears to be sound and has thus far remained largely unaffected by the global financial market turmoil. However, continued rapid credit growth and increasing presence in southeastern Europe, financed partly by wholesale funding, have increased banks' exposure to credit, country and liquidity risks. The Bank of Greece has responded to these risks by increasing provisioning requirements, seeking a tightening of lending standards, and stepping up cross-border banking supervision.

The authorities have introduced a number of structural reforms to improve labor and product markets. These include easing overtime restrictions, reducing disincentives to accept employment, a new bankruptcy code, an updated company law, and simplified licensing of manufacturing businesses. More initiatives are in the works including reducing administrative burdens and improving the quality of services provision. Nevertheless, the Greek labor market is relatively rigid by international comparison and competition in product markets remains a challenge.

Executive Board Assessment

Executive Directors welcomed the extended period of strong performance of the Greek economy, which has significantly narrowed the gap in real per capita income between Greece and the EU-15. Directors considered that, while economic prospects still appear relatively strong in the near term, risks to the outlook are tilted to the downside, given the weaker external environment and the deterioration of global financial conditions. Directors also underscored that a persistent loss of cost competitiveness risks constraining Greece's growth in the medium term. Against this background, they encouraged the authorities to build the social consensus needed to undertake more ambitious medium-term reforms.

Directors observed that the banking system appears sound and has remained unaffected by the recent financial market turbulence to date. Nevertheless, financial sector vulnerabilities, including those arising from continued rapid credit growth, rising exposures in southeastern Europe, the still-high level of nonperforming loans, and possible need to rely on wholesale funding will require close monitoring. In this context, Directors welcomed the Bank of Greece's efforts to strengthen provisioning requirements and lending standards, and called for upgrading the stress-testing framework. Directors particularly welcomed steps to strengthen cross-border banking supervision in cooperation with other supervisors in southeastern Europe. They also commended the authorities for the adoption of a risk-based approach to supervision by the new insurance supervisor.

Directors welcomed the authorities' intention to achieve a balanced budget by 2010, and considered that further improvements in tax administration and a tighter control over spending will be necessary to attain this target. Sustained fiscal consolidation thereafter to a surplus position will be helpful for safeguarding debt sustainability and addressing the prospective large aging costs. Directors called for the development of a medium-term budget framework to help guide fiscal strategy and prioritize policy objectives.

Improved revenue collection will be a centerpiece of fiscal consolidation in 2008 and beyond. Directors saw scope for broadening tax reform. Improving tax compliance by simplifying tax laws and procedures and further intensifying risk-based auditing should be a priority. Directors also encouraged the authorities to consider phasing out distortionary tax exemptions with a view to broadening the tax base and simplifying the rate structure.

Directors emphasized the need for further reforms to expenditure management. They welcomed the steps already taken to increase the transparency and accountability of public entities and to improve efficiency in the health care system. Additional budget reforms should include extension of the coverage of the budget, full integration of program-based budgeting into budget preparation and execution, and introduction of appropriate financial management information systems.

Directors agreed that comprehensive reform of the social security system will be required to preserve the long-term sustainability of the public finances taking into account the costs of population aging. They considered that the authorities' pension reform agenda will need to be broadened, with policy proposals based on a full assessment of financing needs and cost savings. Directors encouraged the authorities to complete and publish detailed projections of the cost of population aging in accordance with the EU methodologies, and to prepare an adequately ambitious reform program on this basis.

Directors saw further reforms to product and labor markets as key to sustaining medium-term growth and strengthening international competitiveness. They welcomed the progress already made in product market reform, and encouraged the authorities to press ahead with further measures. Areas for action include further extension of simplified business licensing procedures, privatization of infrastructure facilities, and strengthened competition in the network industries and the transport sector. Further initiatives in the labor market should include reducing the restrictiveness of the employment protection legislation and increasing the flexibility of the wage setting system. Directors stressed the importance of further steps to improve the quality of statistical data. (IMF30.04)

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11.12 GREECE: Pipeline Politics, In Perspective

The agreement between Greece and Russia for the construction and management of part of the South Stream natural gas pipeline that will cross Greece to Italy and the rest of Western Europe is, without doubt, an important development. The statements made by Greek and Russian officials, and the reservations expressed by Americans, make Greece look like the new major player on Europe's energy map. The numbers, though, tell a more complicated tale.

The agreement was signed in Moscow on April 29, at a ceremony that was one of Vladimir Putin's last appearances as president, with Prime Minister Costas Karamanlis in attendance. The deal is that the pipeline will be completed around 2013-2014 and will convey up to 10 billion cubic meters (bcm) of natural gas from Russia each year.

The number looks impressive, but if we consider the forecast of the International Energy Agency that in 2015 Europe will need 536 bcm annually, then we can see Greece's involvement in its true context. In 2008, Greece is expected to consume about 4.3 bcm of natural gas. Putin predicted that this will double over the next eight years. So, whether Greece uses up nearly all the gas that the new pipeline will carry or whether capacity is increased in the pipelines already in Greece (via Bulgaria and Turkey), the capacity to be offered to Italy via an undersea link will be relatively small. Italy is already linked to networks from the north and through undersea pipelines with Libya, Algeria and Tunisia. So the Greek pipeline will simply provide Italy with one more choice rather than a lifeline. In any case, the amounts that will be transported will not generate such transit dues as to change Greece's economy.

Meanwhile, Greece's DEPA state gas company and Italy's Edison have already agreed to build an undersea pipeline that will carry natural gas from Central Asia and the Middle East to Italy. The undersea link of the so-called ITGI pipeline, which has the blessing of the United States, is expected to cost about €950m. Will there be a convincing argument for a second such pipeline across the Adriatic?

US officials have repeatedly voiced reservations about Greece's apparent growing dependence on Russia's Gazprom for natural gas supplies. Given the difficulty in finding other suppliers, these declarations appear more a means of exerting pressure than a real gripe. In 2007, Greece obtained 77% of its natural gas from Russia and the rest from Central Asia and Algeria (the latter in liquefied form). The truth though is that aside from Iran (from which any pipeline would pass through Turkey), Russia is the major source of natural gas and Gazprom has already got a hold on most of the supplies coming out of countries east of Turkey anyhow.

On May 5, Development Minister Christos Folias forecast that "by 2012-13 domestic demand for natural gas will have reached about 7.5 bcm per year, of which 3 bcm will come from Russia, 3 bcm from ITGI and 1.5 bcm in liquefied form." Given the situation described above, it remains to be seen how supplies from Central Asia will grow to the extent mentioned by Folias. Washington is fully aware of the situation – as are Athens and Moscow. But it seems to suit all the players to pretend otherwise, in order to win points in a game of influence. The fact that Greece is now part of the South Stream network will not change things for Europe nor, on the other hand, will it be easy for Greece to avoid dependence on Russian gas.

For Russia, the agreement with Greece is important because it provides a small alternative at a time when the ambitious plan for the North Stream pipeline under the Baltic Sea, which is designed to carry 55 bcm annually, has not yet received a permit from any of the several countries that have a say in its construction. Also, it strengthens Moscow's influence in an important southern nation. For Athens, the investment of Russian capital is the best guarantee for its future supplies. For Washington, it is a test of how far it can go toward alienating a longstanding ally while still remaining its major partner. All of these factors are in themselves important for all parties involved, without anyone needing to exaggerate. Only if we see the issue clearly will we be able to weigh the true benefits and dangers – both financial and political – of the agreement. (Kathimerini12.05)

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11.13 TURKEY: Driving Toward Europe

Turkey is set to become a launch pad for China's rapidly growing car industry as it attempts to establish a presence in European markets, signaling growing confidence in the country's already strong automotive sector. On April 22, Chery Group, China's largest carmaker, announced that it planned to begin production of its Kimo, Tiggo and Alia models in Turkey, in partnership with local carmaker Mermerler Group. Zhou Biren, Chery's vice president, told media the company was currently looking for land for a new plant, which would take two years to come online and would have an initial capacity of 100,000 vehicles. The exact level of investment will be finalized following a feasibility study of Mermerler's production facilities.

"Being successful in Turkey will be a benchmark for our success in Europe," said Biren. "This is because Turkish customers have similar tastes to customers in the EU. For this reason, Turkey is the first step toward entering the European markets... which is our primary goal."

As part of the EU Customs Union, Turkey has an ease of access to EU markets that Chinese producers lack. However, the strict safety regulations imposed on imports also mean that many cheaper Chinese models would not be permitted entry. This factor, combined with persistent doubts among buyers over the quality of low price Chinese goods, goes some way to explaining why Chery and Mermerler have decided to focus on more expensive models.

With vehicle prices on average 30% below foreign brand equivalents, Chinese carmakers have traditionally targeted rapidly growing markets in the developing world. The company's QQ Hatchback model - whose price of $4,800 makes it the second-cheapest car in the world, after Indian firm Tata's $2,500 Nano model - will not be made in Turkey. The Alia and Tiggo models it will produce instead cost between $15,000 and $26,000.

The company will join other foreign firms Renault, Fiat, Toyota, Hyundai and Honda in producing passenger cars in Turkey. Vehicles account for approximately 20% of all Turkish exports, and in the first three months of 2008, Turkey exported 151,940 automobiles, a rise of 34.9% on the corresponding period in 2007, according to the Automotive Manufacturers Association. In 2007 total vehicle production, including commercial vehicles and buses, hit just over 1m and many analysts predict this figure could hit 2m in the next ten years.

Turkey faces stiff competition from countries such as Romania and Hungary, however, which are also looking to use cheap production costs to become centers of vehicle production in the EU. By the end of 2009, Renault's Romanian subsidiary, Dacia, aims to nearly double production of its budget Logan line to 400,000 units, with the majority intended for export.

In addition to bringing foreign investment and knowledge to the Turkish market, the entry of automobile firms provides additional opportunities for the country's growing subcomponents and spare parts manufacturing segment. In recent years the strength of the lira has encouraged firms to buy cheap intermediate goods and establish assembly plants in Turkey, and a number of firms from the US, Germany and Japan have opened plants or expanded the production of components ranging from steering wheels and seat belts to air conditioning units.

The automobile sector is now seeing a greater push from local businesses and the government to move into more high tech areas as well as research and development. Speaking at a conference on 29 April, Mehmet Simsek, the minister of economy, said that rather than simply being an outsourcing centre for the automotive industry, Turkey should look to design cars. The new tax law introduced this year offers a 90% tax break to firms engaged in research and development, indicative of the government's commitment to boosting innovation in Turkish industry.

While the opportunities for expansion into European markets are clear, the potential of the domestic market should not be overlooked. Chery is targeting 50,000 domestic sales for its first years of production, but Turkey's young demographic and rising income levels suggest that long term potential is strong. With half of the country's population under the age of 25 and with the government targeting a doubling of average personal income to $10,000 by 2013, there is likely to be a strong increase in car purchases in the coming years. (OBG02.05)

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- Israeli Shekel conversions done at a rate of NIS 3.50 = $1.00
- Turkish Lira conversions done at a rate of NTL 1.2 = $1.00
- Euro conversions done at a rate of € 1.00 = $1.50
- Jordanian Dinar conversions done at a rate of JD 1.00 = $1.41
- UAE Dirham conversions done at a rate of Dh 3.66 = $1.00
- Omani Rial conversions done at a rate of OR 0.385 = $1.00
- Pakistani Rupee conversions done at a rate of Rs 60 = $1.00

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