TOP STORIES

• IMF Sees Israel's Growth Rate Above US and Europe
• UAE to Keep Dollar Peg
• Turkey & IMF Reached a Consensus in Letter Of Intent
• Protalix BioTherapeutics Receives Grant from Chief Scientist's Office
• ISRAEL: IVC Says Capital Raised by Israeli VCs $1.1 Billion in 2007
• LIBYA: Al Qaddafi Reforms Show Sign of a Boost to the Private Sector

TABLE OF CONTENTS:

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Finance Minister Says Israel's Economy Will Withstand World Economic Crisis
1.2 Bank of Israel Officials Met Palestinian Banks Supervisor

Back to Top

2: ISRAEL MARKET & BUSINESS NEWS

2.1 IBM Signs Agreement To Acquire FilesX
2.2 CJSC 'Synterra' & ECI Telecom Sign Russian Frame Agreement
2.3 Mellanox Expands Its End-User Benchmark Center with ConnectX and Quad-Core

Back to Top

3: REGIONAL PRIVATE SECTOR NEWS

3.1 Burj Dubai Now World's Tallest Manmade Structure
3.2 Nakheel Trumps Emaar With 1,200 Meter Tower

Back to Top

4: ISRAEL MACRO-DEVELOPMENTS

4.1 IMF Sees Israel's Growth Rate Above US and Europe

Back to Top

5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Persian Gulf in Fresh Push To Hit Single Currency Deadline
5.2 Unemployment Remains a Serious Problem in the Persian Gulf
5.3 Kuwait Budget Surplus Tops $32 Billion
5.4 Kuwait Unveils Post-Oil Era Plans
5.5 Kuwait Inflation Jumps To Fresh Record
5.6 Iraq to Purchase Planes Worth Close to $6 Billion
5.7 Bahrain Plans Foreign Spending Spree
5.8 UAE to Keep Dollar Peg
5.9 Less Than 4% of UAE Workforce Emirati by 2020
5.10 Oman Considering First Rail Link
5.11 Saudi King Orders Oil Discoveries To Be Left Alone
5.12 Egypt's Balance of Payments in Surplus
5.13 Price of Bread in Egypt Soars 50% in 12 Months
5.14 Morocco's GDP Growth Falls to 2.1% in Fourth Quarter of 2007
5.15 Morocco to Boost Energy Output

Back to Top

6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS:

6.1 Turkey & IMF Reached a Consensus in Letter Of Intent
6.2 US Companies Plan Expansion To Turkey
6.3 Turkish FDI Slows in 2008 from 2007's Record Level
6.4 Greek Unemployment Drops To 8% in January
6.5 Bulgarian Inflation Rises.

Back to Top

7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Passover Observance Will Begin on 19 April
7.2 New NIS 20 Bill Enters Circulation
7.3 Controversy Rages in Israel Over Court's Passover Ruling

*REGIONAL:

7.4 UAE Proxy Server Imposed Nationwide
7.5 23 April – Turkey Marks National Sovereignty and Children's Day

Back to Top

8: ISRAEL LIFE SCIENCE NEWS

8.1 Obecure Signs Agreement with Farmaceutici-Formenti for Manufacturing of Betahistine in Europe
8.2 Protalix BioTherapeutics Receives Grant from Chief Scientist's Office
8.3 Quark Pharmaceuticals Closes $27m Financing
8.4 D-Pharm Secures Funding From Israel's Chief Scientist's Office
8.5 Teva Receives Court Ruling Awarding Exclusivity for Generic Risperdal

Back to Top

9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 PowerID Introduces First EPCglobal Class 1, Generation 2 Battery-Assisted, Passive (BAP) RFID Label
9.2 RADA Received $1.7 Million Order for Avionics Interface Units
9.3 Elbit Vision Systems Wins $1.3 Million in Orders for Surface Inspection Products
9.4 Cimatron's CimatronE Version 8.5 Has New CAD/CAM Features

Back to Top

10: ISRAEL ECONOMIC STATISTICS

10.1 March CPI Surprises with 0.3% Rise
10.2 Israel Leads the World in Number of Computers Per Capita
10.3 Israel's Organic Farming Hits Billion Shekel Mark
10.4 Israel Matzoh Exports Top $9 Million
10.5 Israel's Wine Sales Up 40% for Passover

Back to Top

11: In Depth

11.1 ISRAEL: IVC Says Capital Raised by Israeli VCs $1.1 Billion in 2007
11.2 LEBANON: Economy of Knowledge
11.3 JORDAN: Beyond the Inflation Rate
11.4 JORDAN: Moving Upstream
11.5 PERSIAN GULF: Strengthening Investment Relations with China
11.6 BAHRAIN: Nuclear Ambitions
11.7 QATAR: Sourcing Gas to Europe
11.8 UAE: Dubai - in the Swing
11.9 OMAN: Oil Still Greases the Wheels
11.10 SAUDI ARABIA: Tackling Inflation
11.11 EGYPT: Economic Pressure Cooker
11.12 EGYPT: Cutting Exports to Curb Inflation
11.13 EGYPT: Gas Lift-Off Economy
11.14 LIBYA: Al Qaddafi Reforms Show Sign of a Boost to the Private Sector
11.15 ALGERIA: Mediterranean State with a Wealth of Natural Resources
11.16 ALGERIA: Energetic Ambitions
11.17 MOROCCO: Is the Electoral System Unfair?
11.18 TURKEY: Court Case Leads Market Slide
11.19 TURKEY: Politics Take an Economic Toll

Back to Top

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Finance Minister Says Israel's Economy Will Withstand World Economic Crisis

On 13 April, Finance Minister Bar-On told the government of Israel that "I believe in the strength of the Israeli economy and its ability to withstand the shocks of the world economy, as has been proved in previous cases." Part of Sunday's cabinet meeting was devoted to a presentation on the state of the economy by Bar-On and senior treasury officials, along with the governor of the Bank of Israel, Stanley Fischer. Bar-On emphasized: "Israel is part of the global economy and therefore it is impossible to prevent the leakage of negative influences from the developments in the world economy to the Israeli economy." According to Bar-On, the Finance Ministry is implementing a policy of "automatic stabilizers" for the economy, with keeping government spending from exceeding the budgetary framework as the policy's centerpiece, alongside lowering taxes. The automatic stabilization in this case refers to a situation in which lower than forecast tax revenues lead to automatic adjustment in ministry spending. At the same time, Bar-On said the Ministry is working to remove barriers to various infrastructure projects to help stimulate the economy.

Bar-On named the three Ministerial main policy goals: Lowering the GDP-to-debt ratio, keeping within budgetary spending limits and lowering taxes. In light of the world economic crisis, Bar-On said Israel was at a better point than other economies after four years of growth of more than 5%. The Israeli economy was exposed in a limited way to the subprime crisis and the liquidity crisis. Nevertheless, the crisis in Western capital markets and the changes in exchange rates are expected to influence the performance of the Israeli economy," Bar-On told the cabinet.

Stanley Fischer forecast that the shekel would continue to strengthen against the dollar in the medium- and long-term future. He said exporters would be wise to prepare for such an event. According to Fischer, Israel as part of the global economy may be hurt by the U.S. recession and the slowdown elsewhere. He added that Israel is entering the world crisis in good shape. Fischer feels the economy will grow in 2008 at a slower pace than in the previous four years. However, Israeli economic growth will be higher than in the U.S. and Western Europe; and similar to the average Israeli growth rates over the past 25 years. According to Fischer, the central bank's growth forecast for 2008 of 3.2% is not pessimistic, even if it is lower than growth in previous years. (Various13.04)

Back to Table of Contents

1.2 Bank of Israel Officials Met Palestinian Banks Supervisor

The Bank of Israel and the Association of Banks in Israel are formulating rules for activity with Palestinian banks. Last week, representatives of the Banking Supervision Department and commercial banks met the Palestinian Monetary Authority director and representatives of Arab banks operating in the Palestinian Authority to discuss the effect of certain clauses of an anti-money laundering ordinance, which is coming into effect. Israeli commercial banks have reduced or suspended activity altogether with their Palestinian counterparts in order to avoid breaches in the Prohibition of Money Laundering Law (5760-2000) and the cabinet decision in October 2007 to declare the Gaza Strip "hostile territory". The Palestinian bankers raised the issue of the increase in cases in which Israeli banks return checks with no explanation. The Palestinians asked that the reasons for returning checks be specified. The Israeli bankers said that reasons were given for almost all cases of returned checks, and that they often received checks drawn on Palestinians banks with additional text written on them, raising concern about the checks' veracity. The official added that the parties were discussing temporary arrangements until a permanent arrangement was formulated through the Postal Bank. (Globes 13.04)

Back to Table of Contents

2: ISRAEL MARKET & BUSINESS NEWS

2.1 IBM Signs Agreement to Acquire FilesX

IBM announced it has signed a definitive agreement to acquire FilesX (http://www.filesx.com), a privately held storage software company based in Newton, Mass., and Haifa, Israel, that specializes in continuous data protection and nearly instant data and application recovery software for enterprises and remote/branch offices. The acquisition is expected to close shortly. Financial terms were not disclosed. The proliferation of data and information across the distributed enterprise are causing businesses of all sizes to seek better data recovery and information risk management solutions. FilesX products help address this need by delivering continuous data protection and fast recovery of business critical applications and servers running on Microsoft Windows platforms. Following close, IBM intends that the FilesX technology will become part of the Tivoli Storage Manager (TSM) family of products, IBM's flagship suite of leading data protection and information infrastructure offerings, with proven compatibility in customer environments today. FilesX enterprise-level continuous data protection solutions would complement IBM's existing file-based software called IBM Tivoli Continuous Data Protection for Files, which is targeted at SMB customers and individual PC users. With its patented technology, FilesX helps IT staff restore data from virtually any type of failure and from nearly any point in time. Ease-of-use and self-managing features make FilesX offerings particularly attractive in environments where IT skills and budgets are limited. Beyond the expanded data and application protection that the FilesX acquisition would provide, existing IBM customers would see no change to their current TSM environment, product set or support. (IBM10.04)

Back to Table of Contents

2.2 CJSC 'Synterra' & ECI Telecom Sign Russian Frame Agreement

ECI Telecom signed a cooperative frame agreement with CJSC "Synterra", one of Russia's largest national telecommunications operators, for delivery of the XDM and BroadGate Multi-Service Transport Platform (MSTP) solutions to support the carrier's 60,000 km-long network, one of Russia's largest nationwide transport networks. ECI's multiservice and multi-technology XDM platform offers CJSC "Synterra" the unique convergence of Carrier Ethernet, SDH and all-range ROADMs onto a single platform. A variety of both legacy and new packet-based services will be deployed over CJSC "Synterra" transport network through the future-proof XDM. CJSC "Synterra" is deploying ECI's class-leading 10-degree WSS ROADM in all major nodes, allowing for easy and quick forecast-tolerant provisioning of any or all services across the entire network. The extensive use of ROADM allows for OPEX reductions, substantially shorter provisioning time, and CAPEX savings by extending the optical reach. ECI is CJSC "Synterra" major network infrastructure equipment vendor, and as such ECI will establish an emergency stock warehouse for swift and seamless provisioning of packet-optical transport equipment to support the carrier's urgent deployment needs. Petah Tikva, Israel's ECI Telecom (http://www.ecitele.com) delivers innovative communications platforms to carriers and service providers worldwide. ECI provides efficient platforms and solutions that enable customers to rapidly deploy cost-effective, revenue-generating services. (ECI Telecom 08.04)

Back to Table of Contents

2.3 Mellanox Expands Its End-User Benchmark Center with ConnectX and Quad-Core

Mellanox Technologies announced the expansion of the Mellanox Cluster Center with Vulcan, a high-performance compute environment, based on Mellanox's industry-leading ConnectX interconnect adapters and Quad-Core AMD Opteron processors. The Mellanox Cluster Center provides customers, partners and independent software vendors with the ability to qualify, benchmark, and optimize high-performance enterprise and storage applications. The Cluster Center has been operational around the clock since August 2006 and has been utilized by a large number of end-users and commercial vendors. The Vulcan cluster increases the center's capability and addresses the growing needs for high-performance clusters in commercial high-performance computing and enterprise data centers. Vulcan is comprised of 32 Colfax International servers, each containing two Quad-Core AMD Opteron processors, for a total of 256 cores, and connectivity to native InfiniBand-based storage systems. Mellanox ConnectX 20Gb/s InfiniBand and 10 Gigabit Ethernet adapters, and Flextronics' 24-port 20Gb/s switches in a full Fat-Tree non-blocking network architecture connect the cluster server and storage nodes. Zarlink's ZL60615 ZLynx active optical cables interconnect the servers and switches. Z-Research GlusterFS cluster file system provides an option to utilize native InfiniBand-based storage during various application testing.

The Mellanox Cluster Center, located in Santa Clara, California, offers an environment for developing, testing, benchmarking and optimizing products based on multi-core systems and the latest InfiniBand and 10GigE technology. Yokneam, Israel Mellanox Technologies (http://www.mellanox.com) is a leading supplier of semiconductor-based, high-performance, InfiniBand and Ethernet connectivity products that facilitate data transmission between servers, communications infrastructure equipment and storage systems. The company's products are an integral part of a total solution focused on computing, storage and communication applications used in enterprise data centers, high-performance computing and embedded systems. (Mellanox09.04)

Back to Table of Contents

3: REGIONAL PRIVATE SECTOR NEWS

3.1 Burj Dubai Now World's Tallest Manmade Structure

Emaar Properties' iconic Burj Dubai has reached a towering 629 meters, smashing the existing record to become the world's tallest manmade structure. The 160 story tower, already the world's tallest building and tallest free-standing structure, has now surpassed the 628.8-metre high KVLY-TV mast in North Dakota. The KVLY-TV mast, used for transmitting television signals, had held the title of world's tallest supported structure since 1963. Emaar plans for the Burj Dubai to eventually be the tallest structure in the world in all four of the criteria listed by the Council on Tall Buildings and Urban Habitat (CTBUH). The council measures height to the structural top, the highest occupied floor, to the top of the roof, and to the tip of the spire, pinnacle, antenna, mast or flag pole. The Burj Dubai will not be officially recognized as the world's tallest structure until it is completed in early 2009. Emaar has remained tight lipped over the final height, but it is rumored to be around 900 meters. The Burj Dubai is to be the centerpiece of a city within a city, Downtown Burj Dubai. The $20b development as a whole will include 30,000 homes, nine hotels, 6.2 acres of parkland, 19 residential towers, the Dubai Mall, and a 30-acre manmade lake. However, Emaar's triumph may not last long with Dubai developer Nakheel planning to build its own 1,200-metre high tower, which would comfortably surpass the Burj Dubai. The tower is expected to be located on Dubai's Arabian Canal, a $61b project being developed by Dubai-based developer Limitless. (AB07.04)

Back to Table of Contents

3.2 Nakheel Trumps Emaar with 1,200 Meter Tower

Dubai developer Nakheel announced it is to build a tower 1,200 meters high, comfortably surpassing the Burj Dubai as the tallest building in the world, it was reported in the press. A source at Australian architects Woods Bagot, which was recently awarded a contract for the project, said the tower is to be located on the Arabian Canal, a $61b project being developed by Limitless. Both Limitless and Nakheel are part of state-owned conglomerate Dubai World. At 1,200 meters high Al Burj would be significantly taller than Emaar Properties' Burj Dubai, which is expected to be up to 900 meters once complete in early 2009, although the final height remains a closely guarded secret. Speculation over whether Nakheel would trump rival Emaar in the race to build the world's tallest tower has been rife ever since the developer announced the Al Burj project back in 2006. The tower was initially planned to be over a kilometer high and form part of Nakheel's Dubai Waterfront development, but the location was changed. The tower is now expected to be built between Jumeirah Lake Towers and Ibn Battuta Mall close to Sheikh Zayed Road, according to Construction Week. (B06.04)

Back to Table of Contents

4: ISRAEL MACRO-DEVELOPMENTS

4.1 IMF Sees Israel's Growth Rate Above US and Europe

The IMF predicts that Israel will have a significantly higher growth rate than most European and North American countries, but far less than several other countries in the region. The prediction appears in the semiannual IMF global growth forecast, published on 10 April in Washington. The IMF has included Israel in its group of advanced economies for years. The IMF is more pessimistic than the Bank of Israel regarding Israel's growth rate. The IMF predicts 3% growth in 2008, compared with 3.2% predicted by the Bank of Israel. Both institutions predict 3.4% growth in 2009. The projects reflect a sharp decline in Israel's growth rate, in line with other advanced economies. Israel's economy grew by 5.3% in 2007 and 5.2% in 2006.

The IMF's 2009 growth forecast for Israel puts it among the rate projected for emerging economies, behind Singapore (4.5%), South Korea (4.4%), Taiwan (4.1%), Slovenia and Cyprus (3.5% each). These growth rates are well above the 1.3% average growth projected for developed economies in 2009: US (0.6%), the Euro bloc (1.2%), Japan (1.5%) and the UK (1.6%). Israel is also well positioned among emerging economies in 2008, as well, lagging behind the five countries listed above, plus Greece.

However, Israel is at the bottom in comparison with other Middle Eastern countries in terms of growth. The IMF says that Middle Eastern economies, and not only oil exporters, are undergoing rapid growth, and it predicts 6.1% growth for the region in both 2008 and 2009. The IMF predicts 7% growth for Egypt in 2008 and 7.1% in 2009; Syria is projected to see 4% growth in 2008 and 4.8% in 2009; Jordan will see 5.5% growth in 2008 and 5.5% in 2009; Iran will see 5.8% growth in 2008 and 4.7% in 2009 and Saudi Arabia will see 4.8% growth in 2008 and 5.6% in 2009. The IMF predicts that Israel will have 2.6% inflation in 2008 and 2% in 2009. (Globes 09.04)

Back to Table of Contents

5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Persian Gulf in Fresh Push To Hit Single Currency Deadline

Gulf Arab states agreed on 6 April on fresh impetus for efforts to create a single currency by 2010 and resist pressure to revalue currencies or drop their dollar pegs unilaterally to offset soaring inflation. Central bank governors from the six-member GCC will meet again in two months to "complete the legislation and the matters relating to monetary union as we march to reach 2010", GCC Secretary-General Abdul-Rahman Al-Attiyah said after a meeting of the governors in the Qatari capital, Doha. The governors' regular twice-yearly meeting discussed removing obstacles to the single currency plans. Of the six countries, Oman said in 2006 it would not join by a January 1, 2010 target and Kuwait dropped its dollar peg in May, throwing the plan into disarray. Saudi Arabia, the UAE and Qatar are among the oil producers that have come under pressure to revalue their currencies or drop their pegs as the link forces them to track declining US interest rates when their own economies are surging. Oil prices have surged five-fold during the last six years. Several Gulf states are determined to meet the 2010 deadline, GCC Secretary-General Attiyah said. UAE inflation hit a 19-year high of 9.3% in 2006 and probably accelerated to more than 10% last year. In Qatar, the world's largest exporter of liquefied natural gas, it was 13.7% in the fourth quarter. (Reuters 07.04)

Back to Table of Contents

5.2 Unemployment Remains a Serious Problem in the Persian Gulf

Despite record oil revenues, the Gulf oil countries have so far failed to solve their unemployment problem. While many of these countries have introduced a variety of training programs the private sector continues to rely on foreign workers. The nationals of the Gulf countries have shown deliberate preference for work in the public sector - where the pay is good, working hours are few and the work discipline is low. A foreign applicant for a driver's license in a Gulf country was kept waiting at the counter for about 30 minutes while the employee in charge of issuing the license was reading his newspaper. The population of the six member countries of the Gulf Cooperation Council (Saudi Arabia, United Arab Emirates, Qatar, Oman, Bahrain and Kuwait) is estimated at 37m, of which 40% are foreign workers. Saudi Arabia, the largest member of the group with a population of 24m, employs 6.5m foreign workers. The Kingdom issued 1.7m work permits in 2007, a record. Kuwait has taken an unusual step to encourage young Kuwaitis to join the private sector. The private employer pays the basic salary while the government pays the benefits. Still, the public sector in Kuwait employs 324,000 individuals, or 79% of the small country's labor force. By contrast, Kuwaitis represent 3.9% of the labor force in the private sector. In Qatar, native Qataris occupy 2% of the labor force in the private sector. (al-Sharq al-Awsat 04.04)

Back to Table of Contents

5.3 Kuwait Budget Surplus Tops $32 Billion

Oil-rich Kuwait is forecast to have posted a record budget surplus of $32.7b in FY2007/2008 that ended in March. The National Bank of Kuwait (NBK) estimated the oil-rich emirate has posted record revenues of 19.17b dinars in the year running from April 1 to March 31, up 130% on a budget projection of 8.3b dinars. NBK, without giving a figure, also estimated spending to be five to 10% off the budget projections of 11.3b dinars. The unprecedented high revenue and surplus is the result of record oil revenues, estimated by NBK at 18.15b dinars, or just under 95% of total income. The government has not announced actual official figures for last fiscal year but the finance ministry said in March that revenues in the first 11 months of the year reached 17b dinars. NBK said the price of Kuwaiti oil last fiscal year averaged $75 a barrel, more than double the conservative $36 adopted by the budget in calculating oil income. Kuwait, which says it sits on about 10% of global crude reserves, is pumping 2.55m barrels of oil a day. Kuwait's largest surplus was $24b in 2005/2006 although it dropped to $18b the following year. In the eight fiscal years preceding last year, Kuwait's budget surpluses have totaled around $72.5b. In all those years, it projected a deficit. As of March 2007, the emirate said it had $213b of assets in two funds invested in huge foreign holdings. The Gulf state has a native population of just over one million, besides 2.345m foreign residents. (AFP03.04)

Back to Table of Contents

5.4 Kuwait Unveils Post-Oil Era Plans

Kuwait wants to diversify its economy away from oil, attract more investment, speed up the sale of state firms and ease land ownership rules to prepare for the post-oil era. The major Opec oil producer wants to control spending amid rising inflation in the next five years, the country's top planning council said in a 2009-2014 policy strategy plan. The Gulf Arab state wants to emulate the success of neighbors Dubai and Bahrain which have become regional financial centers and popular tourist destinations, but setting up a non-oil economy is still in the early stages. Kuwait's ruler dissolved parliament last month to end a prolonged crisis between deputies and government that has stalled many economic reform projects. Under the 5-year plan, Kuwait wants to boost its non-oil economy, which currently accounts for less than 10% of state revenues. Kuwait also wants to attract more foreign investment by becoming a financial hub and continue privatizations after parliament approved the sale of loss-making Kuwait Airways early this year. More than 90% land is owned by the government.

The cabinet vowed last year to bring down property prices, a main contributor to inflation which hit 6.7% in November, driven by a 12.6% jump in housing prices. In an apparent reference to inflation, the paper calls on the government to "rationalize" spending amid a cradle-to-grave welfare state that looks after citizens. At the same time, the plan calls for huge infrastructure projects such as improving the airport, roads, phone lines, power plants as well as the ailing state health system. While the policy paper, which the government is to discuss with the private sector, makes proposals for almost every sector from energy and real estate to education and health, it does not contain a concrete action plan or detailed time frame. (AB02.04)

Back to Table of Contents

5.5 Kuwait Inflation Jumps To Fresh Record

Annual consumer inflation in Kuwait, which dropped its dollar peg last year in an effort to curb rises in the price of imports, accelerated to a record 7.54% in December. The All Items Consumer Price index rose to 124.1 points at December 31, compared with 115.4 points a year earlier, government data showed. Inflation in November was 6.68%, just below October's earlier record of 7.26%. Housing costs surged 16.1% and food 6.3%, the data showed. Education and medical care costs rose 11.6%. Inflation could climb further as more foreigners move to the world's seventh-largest oil producer, attracted by an economy that is growing on extra government spending. Kuwait, the world's seventh-largest oil exporter, is the only Gulf Arab state that does not peg its currency to the dollar. It dropped the peg last May in favor of a basket for currencies, in an effort to control imported inflation. The country pays for about a third of its imports in the euro, which has gained almost 8% against the dollar this year alone. Since dropping the peg, the Kuwaiti dinar has gained 8.78% against the dollar. Last month, the central bank tightened rules on consumer lending to try to rein in inflation. (Various08.04)

Back to Table of Contents

5.6 Iraq to Purchase Planes Worth Close to $6 Billion

Iraq signed two contracts to purchase planes from Boeing and from its Canadian competitor Bombardier for a total cost of up to $5.9b. The Iraqi government signed a contract with Boeing to buy 40 airplanes of type 737 and 787, with the option to purchase 15 more planes for a total value of around $5.5b, Baghdad announced. The government also signed another contract worth about $400m with Bombardier to buy 10 planes, he added. Iraq will start to receive the new planes this year with final delivery expected by the end of 2019. This will strengthen the Iraqi civil aviation capability to address the increasing demand for transportation to and from Iraq. This purchase is Iraq's first major aircraft order since at least before its invasion of Kuwait in 1990. Most of the country's fleet was destroyed during the 2003 liberation. (INA31.03)

Back to Table of Contents

5.7 Bahrain Plans Foreign Spending Spree

Bahrain is planning to purchase stakes in a number high-profile international companies as it embarks on a foreign spending spree. State investment arm Mumtalakat intends to dramatically increase its foreign interests over the next five years to create a 50-50 balance between local and global investments. Currently, the body's only current foreign interest is a 30% stake in the McLaren Mercedes F1 team. Further automotive investments are likely, following the success of the Bahrain International Circuit, which contributed more than $500m to the country's economy last year. (AB02.04)

Back to Table of Contents

5.8 UAE to Keep Dollar Peg

The UAE will stay with the US dollar and will not change its currency exchange rate against it for the nation's higher interests, it was announced on 9 April. The commission tasked with studying the de-pegging of the UAE Dirham has recommended maintaining the peg without any change in the country's currency exchange rate against the greenback. The move was when Sheikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, met the commission. The commission has recommended maintaining the peg without any change in the country's currency exchange rate against the greenback. The commission also ruled out any revaluation of the dirham. Sultan Bin Nasser Al Suwaidi, Governor of the UAE Central Bank, who took part in the meeting along with other senior officials said the commission's recommendations reflect the UAE Government's plans to maintain the dollar-dirham peg as part of its efforts to preserve the UAE's supreme national interests as well as to preserve a healthy economy in the short and the long run. Sheikh Mohammad praised the commission's recommendations and reiterated his confidence in its members' experience as well as in their vision for the future. (WAM09.04)

Back to Table of Contents

5.9 Less Than 4% of UAE Workforce Emirati by 2020

Emiratis will make up less than 4% of the UAE's workforce by 2020 unless urgent action is taken, a Dubai Municipality official warned on 7 April. A study by the municipality found 99% of employees in the private sector and 91% in the public sector were expatriates, a trend that would only get worse in the coming years. According to official figures, by 2009 UAE nationals will account for less than 8% of the workforce and by the 2020 UAE nationals will account for less than 4%. Expatriates accounted for around 85% of the 5.6 million people living in the UAE at the end of 2006, according to a Federal National Council (FNC) study. According to the last official figures, the UAE's population stood at 4.1 million at the end of 2005, of which 825,000, or 21.9%, were Emiratis. The UAE, like other Gulf Arab states, is heavily reliant on foreign workers to fuel its booming economy as nationals are often unable or unwilling to do the work of expatriates. The UAE has been implementing numerous schemes to both encourage nationals into employment and force companies to hire more nationals. However, these efforts have largely been unsuccessful in reducing the Gulf state's reliance on expatriates. (Various08.04)

Back to Table of Contents

5.10 Oman Considering First Rail Link

Oman is considering building a 200 km railway linking the industrial town of Sohar with Barka, Economy Minister Mekki said on 13 April. It would be the country's first rail link. Initially, it is for carrying goods between Sohar and Barka and later it may be extended for passenger transport. Barka is about 100 kilometers north-west of Muscat. The link could be extended to Duqm on Oman's eastern coast. Oman and Daewoo Shipbuilding & Marine Engineering Construction Company may agree this month on a $20b project to build an airport, seaport, refinery and a town, a person with direct close to the plan said last month. The construction company is a unit of South Korea's Daweoo Shipbuilding and Marine Engineering. The GCC is working on a feasibility study with the World Bank to create a $2.5b pan-Gulf rail network. (Various13.04))

Back to Table of Contents

5.11 Saudi King Orders Oil Discoveries To Be Left Alone

Saudi Arabia's King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world's top exporter for future generations. In contrast, US President George W. Bush in January urged the Saudi king to help tame soaring prices by encouraging Opec to pump more oil. The kingdom has spent billions on building over two million barrels per day (bpd) of spare crude capacity and is the only country in the world able to bring online large volumes of crude supply quickly to deal with unexpected supply shortages. Opec held production steady at meetings in February and March despite calls for more oil from the US and other consumers. Opec officials blame the high price on factors beyond the group's control such as the weak dollar, investment flows into commodities and speculation. Saudi Oil Minister Al-Naimi said last recently that global oil markets were well supplied and there was no need to put more oil on the market, despite prices hitting a record of over $112 a barrel last week. Saudi Arabia has trimmed its output to around nine million bpd to reflect lower customer demand. The kingdom had in previous months pumped around 9.2 million bpd. Crude demand traditionally dips at this time of year after the end of winter as refiners carry out maintenance and prepare to meet summer demand. Saudi production capacity stands at around 11.3 million bpd and is scheduled to rise to 12. 5 million bpd next year. (Reuters13.04)

Back to Table of Contents

5.12 Egypt's Balance of Payments in Surplus

During July/December of FY 2007/2008, Egypt's balance of payments (BOP) ran an overall surplus of $3.1b (against $2.9b in the corresponding period of the previous FY). This was a main outcome of a net inflow of $3.1b in the capital and financial account; and a deficit of $0.2b on the current account, generating from the expansion in the trade deficit which exceeded the surplus on services and net unrequited transfers. Merchandise exports stepped up by $2.4b or 22.8%, to reach $13.1b. Non-oil exports were the main engine, expanding by 26.2%, (mainly finished goods and raw materials), while oil exports augmented by 19.1%. Merchandise imports increased by $7.1b or 41.2%, to reach $24.4b, driven by the noticeable rise in oil imports, as well as non-oil imports. The services surplus registered $6.8b, (compared with $5.6b in the period of comparison). This was mainly due to arise of 28.5% in services receipts; chiefly tourism revenues rising by 30.1%, to $5.6b, and transport proceeds because of the rise in Suez Canal earnings by 24.6% to $2.5b, spurred by the rise in the number of transiting ships and in net tonnage. In addition, receipts of investment income accelerated by 18.7%. Net unrequited transfers rose by 42.5%, to reach $4.2b during the period under review, compared with $3.0b. (MENA30.03)

Back to Table of Contents

5.13 Price of Bread in Egypt Soars 50% in 12 Months

The price of cereals and bread in Egypt has leapt by nearly 50% over the past 12 months, official figures showed on 12 April, as the Arab world's most populous nation faced a wave of protests. From the beginning of the year to March, the price of both cereals and bread rose by 48.1%, the director of the Central Agency for Public Mobilization and Statistics announced. The price of cooking oil rose by 45.2% while foodstuffs as a whole rose by an average of 23.5%. The rise in food prices sharply exceeded the general inflation rate for the 12-month period which stood at 15.8%. Egypt has been rocked by a wave of protests against skyrocketing prices in recent weeks, particularly in the Nile Delta industrial centre of Mahalla El-Kobra, which saw two days of deadly riots. (AFP12.04)

Back to Table of Contents

5.14 Morocco's GDP Growth Falls to 2.1% in Fourth Quarter of 2007

Morocco's GDP growth fell to 2.1% in Q4/07, from 8.1% during the same period in 2006, the country's High Commissioner for Planning announced. Poor weather conditions were the primary reason for the 19.4% decline in crop production compared with the same period a year earlier. A 6% increase in non-agricultural GDP growth was not enough to offset the impact of the agricultural slump. Apart from the mining and energy sector, which fell by 1.8%, industrial output was up 4.7%, driven largely by growth in the construction and public works sectors, which expanded by 8%. (Magharebia31.03)

Back to Table of Contents

5.15 Morocco to Boost Energy Output

Morocco's strategy in the energy sector aims at boosting national production to 5,000 MW during the upcoming five years to satisfy the growing demand for energy, the kingdom's Minister of Energy & Mines Benkhadra said. The statement came after the launch of the world's first combined cycle thermo-solar power plant, which will cost some $631m. It is located near the eastern city of Oujda. The plant, due to open in mid 2009, will boast an output capacity of 472 MW, including 20 MW from solar energy, and is set to supply up to 8.5% of national energy production. Built by Spanish group Abengoa, the project is funded mainly by the African Development Bank (AfDB), the Global Environment Facility (GEF), and the national electricity utility (ONE). Earlier in March, Morocco has started the construction works of a thermal power plant due to provide the country with 27% of its electricity needs. The plant, which will adopt environment-friendly techniques, will cost $ 2.7b and will have a capacity 1,320 MW. (MENA30.03)

Back to Table of Contents

6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS:

6.1 Turkey & IMF Reached a Consensus in Letter Of Intent

Turkish Minister Mehmet Simsek announced that Turkey and IMF have reached an overall consensus. Simsek said stand-by arrangement with the IMF would continue till May 10th, and after this, a post-program monitoring will start automatically. He said the talks might take place for cautionary stand-by if necessary. Simsek also noted that the letter of intent would be sent soon and thus the IMF program would be concluded successfully. An IMF mission held discussions with the Turkish authorities in Ankara during 3 – 10 April. These talks continued during 11 – 14 April in Washington, D.C. in the context of the Spring Meetings of the IMF and the World Bank. The mission has reached ad referendum broad agreement with the authorities on a package of policies that aims at completing the seventh and final review under Turkey's Stand-By Arrangement with the IMF. In the weeks ahead, IMF staff and the authorities will work together to finalize a draft Letter of Intent, with a view to allowing the IMF Executive Board to consider the completion of the seventh and final review under the current Stand-By Arrangement in early May. The completion of this review will enable Turkey to draw an amount of about $3.7b. (BGC15.04)

Back to Table of Contents

6.2 US Companies Plan Expansion To Turkey

Some 65 companies from the United States gathered in Istanbul on 14 April with the aim of finding local business partners and expanding their operations to Turkey and the nearby region. The meetings were held within the framework of the "Trade Winds Europe" conference organized by the U.S. Department of Commerce and the Turkish-American Business Association (TABA AmCham) in Istanbul. The three-day conference that ends April 16 consists of panel discussions and hundreds of one-to-one meetings between U.S. companies and their potential local partners. Many of the U.S. companies participating in the event had notable roles in the U.S. market but did not necessarily have expertise in international trade. The companies looking for Turkish partners operate in a variety of industries including aeronautics, energy, transport, mining, environment, defense, telecommunications, automotives, software, health and construction. Global brands taking part in the conference include Oracle, Motorola, Amelio Solar and M&T Bank. Some companies visiting Istanbul would continue their journey to Athens later on to inspect potential investment opportunities in Greece. Some 250 U.S. companies have offices in Turkey. The annual trade volume between Turkey and the U.S. stands at around $11.2b. (TDNZ15.04)

Back to Table of Contents

6.3 Turkish FDI Slows in 2008 from 2007's Record Level

Foreign direct investment (FDI), which had been growing since Turkey started negotiations with the EU in 2005, saw a significant slowdown in the first two months of 2008. FDI in the January-February period of 2007 amounted to $7.4b, while it decreased to $1.6b in the same period of 2008, based on data from the Central Bank of Turkey. The annual total of foreign direct investment, realized through purchases as part of privatizations and mergers, was equal to $622m in 2002 and $745m in 2003. This figure increased to $1.2b in 2004, $8.5b in 2005 and $17.6b in 2006. It hit a record level in 2007 of $19.2b. The services sector had the largest share in FDI with $622m in the January-February period of 2008. Out of the total, $258m was invested in financial intermediary companies, while $235m went to real estate, rentals and certain sub-sectors. The mining and quarrying sector, which has only recently attracted significant foreign investment, followed the services sector with $457m. Manufacturing, food and beverages, and plastics and rubber saw $427m, $147m and $101m of investment, respectively. EU countries contributed the most in FDI, with $568m in the January-February period of 2008; the Netherlands topped the EU member states with $295m. Holland had made a record level of direct (annual) investment in 2006 and 2007 with $5.69b and $5.67b, respectively. Asian countries, the Americas and African countries invested $290m, $199m and $8m, respectively, in the January-February period of 2008. (Zaman 15.04)

Back to Table of Contents

6.4 Greek Unemployment Drops To 8% in January

Greece's unemployment rate fell back to 8.0% in January after a sharp rise to 8.9% in December, the National Statistics Service (NSS) said on 14 April. Unemployment was 8.6% in January 2007, the NSS said. Greek unemployment data is not seasonally adjusted. Greece, which had been reporting unemployment data on a quarterly basis, started providing monthly figures last year. (Kathimerini15.04)

Back to Table of Contents

6.5 Bulgarian Inflation Rises

Bulgaria's annual inflation quickened to 14.2% in March from 13.2% in February, mainly driven by high food prices, statistics office data showed on 14 April. The consumer prices acceleration slowed to 0.8% on a monthly basis in March from 1.1% in February, the office said in a statement. The IMF sees inflation easing to 7% at the end of the year on hopes that grain crops will increase from last year's drought-hit levels, avoiding renewed food price hikes. High food prices and strong domestic demand drove inflation to 12.5% at the end of 2007. (Kathimerini15.04)

Back to Table of Contents

7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Passover Observance Will Begin on 19 April

On Saturday night, 19 April, Israel and world Jewry begin the week long celebration of the Passover (Pesach) holiday. One could say that Pesach is indeed the "Independence Day" or "National Liberation Holiday" of the Jewish People, since it marks the liberation of the Jewish People from slavery in Egypt by the hand of G-d. It is central to Jewish identity and Jewish practice, since the Exodus and life in the wilderness led to the true birth of the Jews as a distinct entity. Jacob and Josef came to Egypt numbering 70 souls and Moses led 600,000 out after the defeat of Pharaoh. Probably the most significant observance related to Pesach involves the removal of chametz (or leaven) from Jewish homes and businesses. This commemorates the fact that the Jews leaving Egypt were in a hurry and did not have time to let their bread rise. Even converts to Judaism relate to the Exodus as their own ancestors as having left Egypt. It is also a symbolic way of removing the "puffiness" (arrogance, pride) from our souls. Instead, a special non-leavened bread called matzah is consumed, among a myriad of other special holiday dishes.

On the first night of Pesach (first two nights for traditional Jews outside Israel), there is a special family meal filled with ritual to remind Jews of the significance of the holiday. This meal is called a seder, from a Hebrew root word meaning "order," because there is a specific set of information that must be discussed in a specific order. The seder is full of symbolism, all pointing to one salient point: that Jews all remember that G-d took us out of slavery in Egypt to freedom to observe his Torah. Pesach lasts for seven days (eight days outside of Israel). The first and last days of the holiday (first two and last two outside of Israel) are days on which no work is permitted. Work is permitted on the intermediate days. These intermediate days on which work is permitted are referred to as Chol Ha-Mo'ed, as are the intermediate days of Sukkot. Though work is permitted, many take vacations and a full work environment returns only after the holiday. Passover ends on 26 April in Israel, 27 April in the Diaspora.

Back to Table of Contents

7.2 New NIS 20 Bill Enters Circulation

On 13 April, the Bank of Israel began distribution of a new NIS 20 bill. Commercial banks and the postal bank will distribute the new bills. The new bill, made of a polymer, has the same design as the paper bill, except for minor changes in the watermark. The most prominent difference is a transparent window in the new bill with the number "20" engraved in it for easy reading by the public. The polymer bill is longer lasting and more resistant to wear and tear than paper bills. The Bank of Israel has also begun distribution of a limited number of polymer NIS 20 bills with a special text "60 years of Israel", to mark Israel's 60th anniversary. A total of 1.8 million bills will be distributed only through ATMs of some banks that pay out NIS 20 bills: Israel Discount Bank (TASE: DSCT), its subsidiary Mercantile Discount Bank, and Bank Otsar Hahayal. (Globes 13.04)

Back to Table of Contents

7.3 Controversy Rages in Israel Over Court's Passover Ruling

A Jerusalem Magistrate Court's decision to allow restaurants and groceries to sell chametz (leavened products) during Passover is being bitterly criticized by religious leaders from across the spectrum. Judge Tamar Bar Asher Zaban rejected summonses issued by the Jerusalem municipality against businesses which sold chametz last year. She said that eateries are not public places in which chametz is prohibited for sale by law. She called the Passover Law largely symbolic. An owner of a Jerusalem pizzeria was fined last year during the holiday for selling leavened pizza. As one of the petitioners, he now has the right to remain open during Passover, a ruling which has ramifications for the entire secular business community. Despite The Passover Law, market research finds that 60% of adult Israelis who define themselves as not religious keep kosher kitchens anyway, separating milk from meat and refraining from selling seafood or pig products. Many kosher restaurants will be open all over the country this Passover, with several taking part in the third annual "Chef Tuchal Kasher" (Chef Eat Kosher). Participating restaurants are offering diners a three-course menu at a substantially reduced fixed price. The 45 participating restaurants are located in the Tel Aviv area as well as Herzliya, Ashkelon and Ashdod. (KT08.04)

Back to Table of Contents

*REGIONAL:

7.4 UAE Proxy Server Imposed Nationwide

UAE telecom provider Du has blocked all websites deemed to offend the "moral, social and cultural values" of the Gulf Arab state. The move means from 14 April, companies operating out of Dubai's free zones and residents in Nakheel or Emaar Properties freehold developments will come under the UAE's proxy server for the first time. According to the UAE Telecommunications Regulatory Authority (TRA), the proxy server blocks websites that contain pornography, alcohol, gambling, hatred, child abuse or terrorism. However, many more sites than just those containing these subjects are covered by the proxy. The move will raise concerns that media freedom is being restricted as many local and international media organizations have headquarters in Dubai Media City (DMC), one of the free zones to which Du provides telecoms and internet services. Du informed customers of the change in its content filtering policy on 13 April via SMS text message. Internet services offered by UAE incumbent telecom Etisalat have long been covered by the proxy server and TRA officials have said on several occasions over the past year that Du services would follow. Censorship of the internet, common in much of the Arab world, has long been opposed by press freedom advocates and human rights groups that claim unrestricted access to information is integral to free expression. (AB14.04)

Back to Table of Contents

7.5 23 April – Turkey Marks National Sovereignty and Children's Day

April 23 is the "National Sovereignty and Children's Day" (Ulusal Egemenlik ve Çocuk Bayramı) in Turkey. The date commemorates the opening of Turkish National Assembly in 1920 during the Turkish Independence War. The designation of Children's Day came in 1929 upon the recommendation of the Institution of Children's Protection. Since 1986 the Turkish government organizes an international children's festival on April 23. On April 23 of every year, children in Turkey celebrate this "Sovereignty and Children's Day" as a national holiday, and is celebrated by citizens throughout the country during ceremonies preceding the day. Among the activities on this day, children from all around Turkey gather in the capital city, Ankara, and they replace the selected members of the Grand National Assembly. They have an elected president and prime minister and they govern Turkey for one day in order to emphasize the importance of the children in the society. In many places governmental agencies leave the authority to children symbolically for the day. Traditionally since 1986, children come to Turkey to represent their country of origin to children of the world with artistic performances. They're housed in Turkish homes and can meet with Turkish children. This event is organized by the Turkish Radio and Television Corporation. The groups of foreign children also participate in the special session held at the Grand National Assembly. Turkish people hope these children will remember the day for their lives and will contribute to a bond with other cultures. The internationalization is thus aimed toward Turkey's principle of, "peace at home, peace in the world", and "Sovereignty belongs unconditionally to the people".

Back to Table of Contents

8: ISRAEL LIFE SCIENCE NEWS

8.1 Obecure Signs Agreement with Farmaceutici-Formenti for Manufacturing of Betahistine in Europe

Obecure announced the execution of a strategic manufacturing and supply agreement with Farmaceutici Formenti SPA, the Italian Subsidiary of the Grunenthal Group (Grunenthal). Obecure is currently investigating the use of Histalean in Obesity and prevention of drug-associated weight. Histalean is comprised of betahistine, an established drug, approved in Europe for treatment of Meniere's disease (vertigo). According to the terms of the agreement, Grunenthal will supply Obecure with betahistine and matching placebo tablets for use in its upcoming clinical studies. Pending successful development and receipt of a marketing authorization of Histalean in Europe, Grunenthal will exclusively supply the betahistine tablets for packaging as Histalean for all countries in European Community. Grunenthal will also be entitled to license Histalean for co-marketing in Italy. Founded in 2005, Ramat Gan, Israel's Obecure (http://www.obecure.com) is a biopharmaceutical company dedicated to the development of weight management drug therapies. The Company is currently pursuing the clinical development of its lead compound Histalean for general obesity and for weight gain associated with anti-psychotic drug therapy. Obecure has a worldwide exclusive license from Mor Research Applications, the Technology Transfer Office of Clalit HMO to clinically develop and commercially exploit the technology. (Obecure09.04)

Back to Table of Contents

8.2 Protalix BioTherapeutics Receives Grant from Chief Scientist's Office

Protalix BioTherapeutics has been awarded a grant of up to approximately $4m by the Office of the Chief Scientist (OCS) of Israel's Ministry of Industry and Trade. The OCS has awarded this grant to the Company for the advancement of its clinical and preclinical drug development programs. The Company intends to apply approximately $3.1m of the proceeds from the grant to costs being incurred in connection with the clinical development of prGCD, the Company's plant cell expressed recombinant Glucocerebrosidase enzyme, an enzyme naturally found in human cells that is mutated or deficient in patients with Gaucher disease. prGCD is currently the subject of a phase III clinical trial in which it is being tested as an enzyme replacement therapy for Gaucher disease. The Company also intends to apply $900,000 from the proceeds of the grant to advance two of the other drug candidates in its drug pipeline. The Company intends to apply funds to the preclinical development of a plant cell-based acetylcholinesterase (AChE) and its molecular variants for the use in several therapeutic indications, including a biodefense program and an organophosphate-based pesticide treatment program, and to the preclinical development PRX-102, a therapeutic enzyme for the treatment of Fabry disease. The grant is available through the end of 2008 and funds are to be made available to the Company over the course of the year based on actual expenditures made by the Company in connection with designated programs.

Carmiel, Israel's Protalix (http://www.protalix.com) is a biopharmaceutical company. Its goal is to become a fully integrated biopharmaceutical company focused on the development and commercialization of proprietary recombinant therapeutic proteins to be expressed through its proprietary plant cell based expression system. Protalix is also advancing additional recombinant biopharmaceutical drug development programs. (Protalix08.04)

Back to Table of Contents

8.3 Quark Pharmaceuticals Closes $27m Financing

Quark Pharmaceuticals announced the closing of a private financing totaling an aggregate of $27m. The major investors are Investment vehicles of SBI Asset Management Co. and SBI Investment Co., subsidiaries of the prestigious SBI Holding. Quark Pharmaceuticals will use the funds to progress the clinical studies of its RNAi drug pipeline.

Quark Pharmaceuticals is a development-stage pharmaceutical company engaged in discovering and developing novel therapeutic RNAi drug candidates. Quark has a fully integrated drug development platform that spans therapeutic target identification to drug development. Quark's RNAi technology includes novel siRNA structures and chemistry that the Company believes provide Quark with freedom to operate in the siRNA intellectual property arena, as well as the ability to deliver siRNA locally and systemically to organs including the eye, ear, kidney, lung, spinal cord and bone marrow. Quark (http://www.quarkpharma.com) is headquartered in Fremont, California and operates a R&D facility in Ness-Ziona, Israel. (Quark07.04)

Back to Table of Contents

8.4 D-Pharm Secures Funding From Israel's Chief Scientist's Office

D-Pharm received notice from Israel's Chief Scientist's Office (CSO) of its commitment to match expenditures on four of D-Pharm's R&D programs with a total grant of over $3m. D-Pharm's drug-development programs emerged from the company's unique platform technology of lipid-like medicine. The CSO grant supports four major company developments: GMP production of DP-b99 in-house, IND preparations and initiation of a pivotal Phase III trial in stroke patients; a Phase II migraine study of DP-VPA in Israeli medical centers; and two preclinical programs, DP-460 for Alzheimer's disease and LipidoMimetix for cancer. The Chief Scientist's Office has supported D-Pharm since its establishment, providing grants of about $18m, excluding this latest announcement. Rehovot, Israel's D-Pharm (http://www.dpharm.com) is clinical stage biopharmaceutical company pioneering the development of lipid-like therapeutics and has generated a rich pipeline of patent protected proprietary products. D-Pharm's pipeline includes advanced clinical stage products DP-b99 for treatment of acute ischemic stroke patients and DP-VPA, a novel drug for treatment of epilepsy, bipolar disorder and prophylaxis of migraine. (D-Pharm07.04)

Back to Table of Contents

8.5 Teva Receives Court Ruling Awarding Exclusivity for Generic Risperdal

Teva Pharmaceutical Industries announced that the U.S. District Court for the District of Columbia has granted a request of the Company's subsidiary, Teva Pharmaceuticals USA, Inc. that the U.S. FDA relist in the Orange Book U.S. Patent No. 5,158,952 and grant Teva 180-day exclusivity for a generic version of Janssen Pharmaceutical's Risperdal (Risperidone) Tablets. Teva expects final approval with exclusivity on June 29, 2008. This decision may be appealed. Teva Pharmaceutical Industries (http://www.tevapharm.com), headquartered in Israel, is among the top 20 pharmaceutical companies in the world and is the world's leading generic pharmaceutical company. The Company develops, manufactures and markets generic and innovative human pharmaceuticals and active pharmaceutical ingredients, as well as animal health pharmaceutical products. Over 80% of Teva's sales are in North America and Europe. (Teva11.04)

Back to Table of Contents

9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 PowerID Introduces First EPCglobal Class 1, Generation 2 Battery-Assisted, Passive (BAP) RFID Label

PowerID announced the general availability of its BAP label product line utilizing the EPCglobal Class 1, Generation 2 air protocol. Representing an industry first, PowerID's Gen 2 products combine the high performance and reliability of a BAP label with support for standards-based Gen 2 RFID readers. The new labels address the needs of organizations that utilize an EPC Gen 2 RFID infrastructure, but find that the performance of passive RFID does not meet all of their tracking needs. Utilizing PowerID's thin and flexible power source, PowerID's Gen 2 labels are affordable and provide high performance in challenging environments. The labels operate in the ultra high frequency (UHF) range (850-960 MHz). With support for EPCglobal Gen 2 technology, customers can leverage their existing RFID infrastructure to read BAP labels without an additional investment in new equipment. PowerID (http://www.power-id.com) is the industry leader in the field of Battery-Assisted, Passive (BAP) RFID. The company provides reliable and cost-effective BAP RFID labels for selected applications in industries involving freight, metals, chemicals, paper, people tracking, and cold chain. With corporate headquarters in Petah Tikva, Israel, PowerID is a privately-held company backed by first-tier investors such as Partech International, Apax Partners, Amadeus Capital Partners, Infinity Venture Capital and Bank of America. (PowerID 10.04)

Back to Table of Contents

9.2 RADA Received $1.7 Million Order for Avionics Interface Units

RADA Electronic Industries has received production order valued $1.7M to produce and deliver Avionics Interface Units. Delivery of units is scheduled to start in Q4/2008 and to conclude within 9 months. Netanya, Israel's RADA Electronic Industries (http://www.rada.com) is an Israel based company involved in the military and commercial aerospace industries. The Company specializes in Avionics systems (Digital Video Recorders, Ground Debriefing Stations, Stores Management Systems, Flight Data Recorders, Inertial Navigation Systems), Trainers Upgrades, Avionics systems for the UAV market, and Electro optic cameras for airplanes and armored vehicles. (RADA14.04)

Back to Table of Contents

9.3 Elbit Vision Systems Wins $1.3 Million in Orders for Surface Inspection Products

Elbit Vision Systems has a won a number of orders worth a total of $1.3m for automated surface inspection products, all with leading manufacturers. Revenues from these are expected to be recognized in H1/08. EVS optical surface inspection systems are used for quality inspection in the production of fabrics. They run at high speed and automatically detect defects. The systems provide a strong return on investment for manufacturers by increasing product yield and thereby decreasing costs. Kadima, Israel's EVS (http://www.evs-sm.com) offers a broad portfolio of automatic State-of-the-Art Visual and Ultrasonic Inspection Systems for both in-line and off-line applications, and quality monitoring systems used to improve product quality, safety, and increase production efficiency. EVS' systems are used by over 600 customers, many of which are leading global companies. The headquarters, manufacturing and R&D of EVS are all located in Israel. (EVS14.04)

Back to Table of Contents

9.4 Cimatron's CimatronE Version 8.5 Has New CAD/CAM Features

Cimatron Limited announced the general availability of the newly released CimatronE 8.5. Cimatron's CAD/CAM solutions address the entire process-from quoting through design, engineering changes, NC, and EDM programming to delivery-helping tool makers and manufacturers deliver higher quality tools and products at lower costs and shorter cycle times. Cimatron's concurrent engineering capabilities improve productivity and collaboration and significantly compress product delivery times. Concurrent design capabilities are built into Cimatron's CAD applications, enabling multiple users to simultaneously work on the same assembly and shorten the design cycle. Starting with version 8.5, these concurrent design capabilities are available throughout the entire Cimatron CAD product line. With more than 25 years of experience and over 20,000 installations worldwide, Givat Shmuel, Israel's Cimatron (http://www.cimatron.com) is a leading provider of integrated, CAD/CAM solutions for mold, tool and die makers as well as manufacturers of discrete parts. Cimatron is committed to providing comprehensive, cost-effective solutions that streamline manufacturing cycles, enable collaboration with outside vendors, and ultimately shorten product delivery time. Cimatron's cutting-edge CAD/CAM solutions are widely used in the automotive, medical, consumer plastics, electronics, and other industries. (Cimatron14.04)

Back to Table of Contents

10: ISRAEL ECONOMIC STATISTICS

10.1 March CPI Surprises with 0.3% Rise

Israel's Consumer Price Index (CPI) rose by 0.3% in March 2008, belying predictions of a drop of up to 0.3%. Inflation in the first quarter was 0.1%. The announcement by the central Bureau of Statistics on 15 April added that fuel prices rose in March by 3.9%, food rose by 1.6%, communications and transport item rose by 15 and housing rose by 0.4%. These rises were partly offset by a 13.4% drop in prices for fresh vegetables and a 4.8% drop in prices for clothing and footwear. The CPI excluding fruits and vegetable rose by 0.4% in March, but fell by 0.3% in the first quarter. The CPI excluding housing rose by 0.2% in March and by 0.7% in the first quarter. (CBS15.04)

Back to Table of Contents

10.2 Israel Leads the World In Number Of Computers Per Capita

Israel is ranked number one in the world in computers per capita, with seven computers for every 100 people, according to the World Economic Forum's yearly report released on 10 April. Canada is second with 5.26 computers for every 100 people. The United Kingdom and the United States are ranked seventh and eight, respectively. Israel was once again ranked 18th in the world in the quality of their communication networks for the fourth year in a row, which places it above the likes of Japan (19th place) and France (21st place). Denmark tops the list with the most developed communications networks in the world, followed by Sweden and Switzerland. (Haaretz10.04)

Back to Table of Contents

10.3 Israel's Organic Farming Hits Billion Shekel Mark

Organic farmers in Israel produced NIS 1 billion in crops in 2007, according to figures from the Israel Bio-Organic Agriculture Association (IBOAA). This reflects a 30% rise in sales to the local market and a 60% increase in fresh organic exports compared to 2006. Organic farming now makes up almost 5% of all Israeli agricultural production, for both animal and food crops. Israel exported 60 tons of organic vegetables in 2007, half of which was potatoes. Other exports included 8,000 tons each of organic carrots and peppers, 8,500 tons of various fruits, including citrus, avocado and grapefruits. Some 93 % of organic agricultural exports go to European markets, and the rest to Asia and the U.S. The IBOAA's forecasts show increasing demand for Israeli organic products and there is a huge potential for the market. (IBOAA03.04)

Back to Table of Contents

10.4 Israel Matzoh Exports Top $9 Million

Matzoh exports from Israel in 2007/2008 totaled $9m, the same as the previous year. The Israel Export Institute announced that exports of unleavened bread to the European Union have grown by 30% totaling $2.7m. Matzohs are exported to 40 countries including the U.S., Canada, Russia, Ukraine and the former Soviet Union states, Australia, New Zealand, South Africa, Kenya, Tanzania, Zambia, Ghana, Nigeria, Singapore, Malaysia, Indonesia, Ethiopia and Egypt. Sales to the U.S. constitute 52% of the total exports. The Director of Business Development in the Export Institute's Food Division said that in addition to regular matzohs, exports included organic matzoh as well as matzohs from whole-wheat flour, matzoth made with honey, chocolate-covered, round and egg matzohs. The Export Institute also said that for the first time matzoh exports went to Guinea Bissau in Africa because of an Israeli delegation of 40 people who are there building hospitals. (KTW14.04)

Back to Table of Contents

10.5 Israel's Wine Sales Up 40% for Passover

Israel's wine market, estimated at $270m a year in sales, has reportedly seen a dramatic increase of 40% for this Passover. Israelis are becoming more sophisticated in their tastes and the Business Data Institute survey shows that there was a 4% increase in sales in 2006 when compared with 2005. This year the Orthodox community which generally prefers the sweet wines for ritual purposes, are also seen as a growing niche market for better table wines beyond the sacramental variety. (KTW14.04)

Back to Table of Contents

11: In Depth

11.1 ISRAEL: IVC Says Capital raised by Israeli VCs $1.1 Billion in 2007

The following are data based on information published in the IVC 2008 Yearbook by the IVC Research Center, which for more than 12 years has been at the forefront of venture capital and private equity research in Israel. Additional details about venture capital fund raising will be available in the soon-to-be-published IVC 2008 Yearbook.

In 2007, Israeli venture capital funds raised a total of $1.1 billion by vintage year*, twenty-one percent increase from the $903 million raised in 2006.

Vintage 2007 funds include Pitango's fifth fund – closed at $330 million; Pontifax II, which raised $85 million; 7Health Ventures, a new life sciences fund of $70 million; and Wanaka Capital Partners, fund of $45 million.

In addition, six Israeli venture capital funds announced first closings in 2007. These include two new cleantech funds – AquAgro and Israel Cleantech – and a new medical device fund, Agate Investments. Included, too, are Aviv Venture's second fund and two funds established by Israeli firms in partnership with foreign investors - SCP Vitalife and DFJ Tamir Fishman.

According to IVC CEO Guy Holtzman, “The current economic climate is affecting both VC funds and high-tech companies. Still, the level of foreign institutional investor interest and activity continues high and Israeli institutional investors are increasing their allocations to Israeli VC and private equity funds. Concurrently, uncertainty in the capital markets and the weakness of the dollar are causing Israeli high-tech companies to seek more funds in order to meet their financial needs.”

In the past ten years, Israeli VCs attracted a total of $10.6 billion. According to IVC; $2 billion in capital is currently available for investment by Israeli VCs, of which $1.2 billion is intended for First investments in high-tech companies and the remainder reserved for Follow-on investments. $800 million is expected to be raised in 2008 by Israeli VCs for investment in Israeli high technology over the next few years.

Capital Raised by Israeli VCs by Vintage Year*

* Vintage year – first capital call or first investment, including venture lending

IVC Research Center is Israel's leading research center providing business leaders with an unmatched wealth of data on Israeli venture capital, private equity and high-tech industries. IVC products and services are used regularly by venture capital funds, private investors, high-tech companies, financial investors and institutions, as well as public entities such as the Office of the Prime Minister, the Central Bureau of Statistics, the Bank of Israel and the Office of the Chief Scientist. IVC publishes the most comprehensive guide to Israeli venture capital and high technology companies – the IVC Yearbook. Among IVC products and publications are the Quarterly Survey, which examines capital raising trends by Israeli high-tech companies; the quarterly Israel Venture Capital Journal (IVCJ), which reviews developments in the venture capital, private equity and high-tech industries; and a comprehensive online database (http://www.ivc-online.com) containing over 5,500 Israeli high-tech companies, venture capital funds, investment companies and technology incubators, as well as news updates and lots more. (IVC07.04)

Back to Table of Contents

11.2 LEBANON: Economy of Knowledge

Lebanon is slipping behind other countries in the region and around the world in developing a knowledge-based economy, according to a recent study by the World Bank. The World Bank's Knowledge Economy Index, released at the end of March, showed that Lebanon had fallen 16 places in the global rankings to 66th out of 140, and had slumped four rungs on the Middle East and North Africa (MENA) ladder to eighth out of the 17 regional countries surveyed.

The World Bank's previous knowledge economy study was conducted in 1995, at a time when Lebanon was only just emerging from 15 years of civil war. While the results of the study reflect the advances made by other countries in developing their knowledge economy base, pushing Lebanon down the rankings, they can also indicate that both the public and private sector have done little over the past two decades to help the country's cause.

The survey assessed each country's level of development in creating an environment conducive for fostering economic growth through the use of and access to knowledge. With a global score of 5.03 points out of 10, Lebanon came in under the international average of 5.93 points and below the MENA average of 5.30 points.

While holding its third-place ranking in the MENA region and scoring 56th worldwide for education and human resources development, Lebanon placed 75th globally in the economic incentives regime sub-index. The country rated 71st in terms of having an effective innovation system of firms, research centers, universities and consultants that could access global knowledge, adapt it to local needs and create new technology.

Somewhat better was Lebanon's ranking of 62nd on the information and communications technology (ICT) sub-index, though it was still below the global average for availability of ICT to support the effective creation, dissemination and processing of information. Difficulties in providing effective internet service may be one of the things that are holding Lebanon back in the knowledge economy stakes. It was only in 2007 that digital subscriber line (DSL) services came to Lebanon, while asymmetric digital subscriber line (ADSL) services started last May. As such, Lebanon was one of the last countries in the Arab world to adopt what had become the standard technology for internet services. Long delays in privatizing Lebanon's two mobile phone service providers and in establishing a third license have also placed restrictions on new investments and limited the expansion of internet and communications services.

Another contributing factor is the under-funding of Lebanon's education system, as well as challenges in attracting and retaining educational staff. On April 3, nearly 100,000 educators from schools and universities went on strike seeking an improvement in their wages and conditions. Salaries for teachers have not been increased since 1996, resulting in a high turnover of staff and loss of expertise.

Factors that limit the wider access to and implementation of technology, such as state control of land lines and red tape hindering the establishment of new companies, have not been fully addressed. In addition, a failure to enforce copyright protection means that many firms are left exposed to piracy and losses brought on by infringements, in turn discouraging investments in knowledge-based industries. According to Nassib Ghobril, the head of research at Byblos Bank, Lebanon's fall in the rankings was due to a failure to provide the resources needed to make the knowledge economy a key contributor to economic growth. "We need to create the right environment," he said in an interview with the local press. "Other countries in the region are focusing on it... The knowledge economy will play an increasingly important role to drive economic growth. The models for economic growth have shifted from the last century." (OBG10.04)

Back to Table of Contents

11.3 JORDAN: Beyond the Inflation Rate

The Jordan Times observed that official figures have finally come out to confirm what was predicted: an inflation rate of close to 11% in Q1/08. However, the average belies other important figures that should be taken into consideration for the sake of stabilization and crisis mitigation. Furthermore, the whole burden of decreasing the inflationary pressure is being carried by the fiscal, not the monetary, policy, which is an ineffective and outright wrong approach.

According to the Jordanian Department of Statistics, the consumer price index in the first three months of this year rose by 10.76% relative to the same period last year. The main groups that contributed to the increase were “fuels and lighting” (33.9%), “dairy and dairy products and eggs” (31.73%), “cereals and cereal products” (23.99%), “fruits” (23.43%), “oils and fats” (21.18%) and “dry and canned legumes” (24.14%). In other words, food and energy product groups, which are all necessary goods, have witnessed a significant increase in prices.

While most of the food items are imported, which would explain the price rise, vegetables, fruits and eggs are domestically produced; hence, one would think that they should have not risen by such a high percentage. As expected, the “communications” and “recreation” groups, which are considered luxury (non-necessary) items, have witnessed a decrease in prices, by 0.94% and 0.57% respectively. However, communication products are not totally luxury, since businesses use communications as an input in production. Therefore, the decrease in their prices may signal an unwelcome decline in economic activity, and not simply rationalized consumption.

Most importantly, inflation affected mainly food items, and it is extremely high. Therefore, the impact will be felt mainly by the poor, since the majority of their income goes on food and heating. Herein lies the danger and dilemma for policy markers. Expectations of further price increases will trigger more increases and cause inflation to spiral. Unlike unemployment, inflation has no limits; it can continue to rise for ever and at accelerating rates. Hence, it must be quickly and properly addressed. In fact it should have been attended to months ago.

Furthermore, inflation will bring those close to the poverty line to below poverty line. The poverty line itself, of JD553 per capita, is no longer valid; it is much higher. The limited income will feel poorer as their spending power decreases in spite of the salary increase they received. Nevertheless, since the monetary policy is stubbornly refusing to budge and evaluate the dinar upwards, the government's hand is being forced. But to use fiscal policy would be wrong. For instance, the government may reduce sales tax and duties to zero on a certain item but if the dinar continues to fall with the US dollar against world currencies, the tax reduction will be useless, as prices continue to rise.

Increased salaries are also ineffective, since they are not able to match a hyperinflation. The government, strapped for funds, loses revenues and resorts to either taxing the citizen elsewhere or to borrowing. Someone once said that inflation is like cutting your money in half without destroying the paper. Unfortunately, the current pressure on the government to react is forcing it to spend more, and receive less, which is not a good economic recipe and can have dire consequences. The monetary policy should be activated if a proper solution is to be reached at. Unfortunately we'll pay the cost of bad policies later, maybe not much later. (JT15.04)

Back to Table of Contents

11.4 JORDAN: Moving Upstream

With the price of oil hovering around $100 per barrel, the Oxford Business Group states that oil-importing countries are turning to ever more creative ways of alleviating the cost of fuel, including developing their own upstream capacities. Jordan has begun to explore its hydrocarbon and oil shale potential in an effort to stave off continuing fuel inflation and establish a degree of energy self-sufficiency.

In a bid to jumpstart upstream development, Jordan's National Resources Authority (NRA) has implemented a new oil exploration policy, recently offering favorable terms on production sharing agreements (PSAs) for the country's nine hydrocarbon concession blocks. According to industry insiders, the PSA regulations, which award concession holders up to 60% of the total oil or gas production from a development, have made Jordan an attractive country for new exploration and production projects.

Ala Nuseibeh, CEO of Jordan-based KAN International Petroleum Services, told OBG, "Jordan has really opened up to exploration and production across the entire country, helped in part by the rising cost of imported oil. As a result, where there was previously only one foreign company active in the upstream sector, a number of international companies have now moved in and begun signing PSAs for new blocks."

Jordan's hydrocarbon resources have historically been meager compared to other regional producers, with only one oil field, the Hamza field in the eastern Azraq block, currently yielding around 25 barrels per day (bpd) of light crude, as well as a single gas project - in the Risha field along the Iraqi borders - which churns out some 30m cubic feet per day.

Jordan enjoys a favorable location alongside the rich oil-production basins of the Gulf Coast Geosyncline, but nearly 60% of the 100 or so wells drilled in Jordan were clustered around discoveries, with only a few wells extending through the entire sedimentary spectrum. There have been few attempts to invest in exploration within Jordan, leading to a dearth of up-to-date data on Jordan's subsurface geology.

However, encouraging seismic data being culled from re-processed mapping and new 3D techniques has encouraged a raft of new PSA signings for the available blocks. US-based Sonoran Energy inked one of the first new PSAs in 2005 to take over wells in the 11,000 sq km Azraq block, as well as to initiate a new exploration and development program.

The recent enthusiasm has been buoyed in part by the discovery of extended gas reservoirs in the Risha district in 2003, which has prompted the Jordanian National Petroleum Company (NPC) to seek strategic partners in an attempt to further boost the field's capacity. In addition to Sonoran, several other companies signed exploration and production agreements with Jordan in 2007, including India's Universal Energy and Ireland's Petrel Resources.

For Jordan, the historical lack of upstream capacity and proven reserves has meant that the kingdom imported nearly all of its fuel requirements. Prior to the 2003 US-led liberation of Iraq, Jordan imported approximately $700m worth of crude from its eastern neighbor. A large portion of the Iraqi oil was offered free, while the remainder was provided at substantially discounted rates. The agreements fell apart following the collapse of Saddam Hussein's regime, causing fuel costs to rise dramatically and leading the Jordanian government to recast its oil subsidies. Fuel imports now account for a sizeable amount of Jordan's GDP - as much as 20% according to some industry experts. The majority of Jordan's oil supply currently comes from Saudi Arabia, Kuwait and the United Arab Emirates (UAE); in 2006, the kingdom's crude oil imports from Saudi Arabia came to almost $1bn.

While the possibility of Jordan having greater reserves than previously believed has led to stepped-up interest, the government has remained cautious. Responding to reports in local media that significant oil deposits had been found in the kingdom, Minister of Energy Khaldoun Qteishat emphasized in parliament last month that Jordan has yet to see any commercially feasible discoveries.

The kingdom is pressing ahead with more definite upstream alternatives, however. Jordan's massive reserves of oil shale, for example, have come under particular scrutiny. With an estimated 40bn tons of proven oil shale reserves in over 18 known fields, Jordan boasts one of the world's largest deposits of the sedimentary kerogen-infused rock. In 2006, Jordan awarded a grant to US-based America Asia Petroleum to study the feasibility of shale oil extraction and recovery, and Royal Dutch Shell and Brazil's Petrobras have signed MOUs to carry out exploration and production projects on a testing basis. However, while the reserves may be confirmed, oil shale production still comes with a set of unique challenges - including high extraction costs, heavy pollution and energy consumption - that must be overcome before it becomes economically viable. (OBG10.04)

Back to Table of Contents

11.5 PERSIAN GULF: Strengthening Investment Relations with China

China and the Gulf will be moving closer economically, as high-powered delegations from several Abu Dhabi and Qatar investment entities, along with a senior Saudi investment official will soon arrive in Beijing. The leaders of both the UAE and China have also reached out to one another, with Sheikh Mohammad bin Rashid al-Maktoum-the vice-president and prime minister of the UAE and ruler of Dubai-visiting Chinese president Hu Jintao, and Hu being quoted as encouraging an increase in bilateral investment.

The root of the growing friendship is evolving from a nexus of mutual need: Middle Eastern sovereign wealth funds are scouring the globe for investment opportunities for their oil revenues, while the Chinese consider securing stable supplies of energy of paramount importance. The trend may become even more solidified due to the current banking crisis in the US, which has made America seem an increasingly risky target for investment. So, while no deals of Wall Street-scale have been announced between a Gulf country and China, there is much growth potential.

David Rubenstein, co-founder of the US-based Carlyle Group, in which the Mubadala investment arm of Abu Dhabi has recently made a significant investment, was quoted as saying that “the economic center of the world is beginning to shift from the US and Europe to the Middle East and Asia." A recent economic research note by JPMorgan cited a "virtuous circle of trade and investment growth between China and other emerging economies, particularly the commodity producers."

The Chinese economy continues to grow strongly and the currency is appreciating at an accelerated rate (many analysts predict that the yuan will soon rise to about six yuan to the dollar), and these factors have made China an attractive market to Gulf countries for some time.

China's official sovereign fund, the China Investment Corp. (CIC), has been in close consultation with both Kuwait and Abu Dhabi, as Bader al-Sa'ad, the head of the Kuwait Investment Authority, and officials from the Abu Dhabi Investment Authority (ADIA) have both met with senior staffers at CIC. Additionally, the Kuwait Investment Authority (KIA) took a stake in Industrial and Commercial Bank of China when the Chinese bank went public in 2006. In September last year, the KIA sent a delegation to China with a mandate to look into property investments. At the time, the KIA found Chinese property overvalued, but valuations have regained their attractiveness as both the Chinese stock market and the real estate market have come down significantly since then.

For its part, Beijing is expected to seek reassurance about energy supplies, though Dubai investment bankers say it is unlikely that these talks will result in any direct Chinese stake in Gulf companies. The KIA and ADIA recently turned once more to the US, a more traditional recipient of Gulf money, regarding the credit crisis as an amazing opportunity to make use of a lot of capital at bargain prices. ADIA led the recapitalization wave with its investment in Citibank, while KIA followed with the second recapitalization of the Wall Street investment firm Merrill Lynch. In contrast to the attractions of the appreciating yuan, however, the dollar weakness is proving a severe headache, both from a financial and macroeconomic standpoint. (GN & FT 10.04)

Back to Table of Contents

11.6 BAHRAIN: Nuclear Ambitions

The Oxford Business Group reported that Bahrain is one step closer to achieving its goal of developing a civilian nuclear energy industry, a plan it hopes will minimize its dependence on increasingly expensive fossil fuels and power the country's economy into the future. On March 24, Bahrain signed a memorandum of understanding (MOU) with the US, setting out the terms of co-operation between the two countries for developing the kingdom's nuclear energy sector. The agreement, signed in Washington by Bahrain's Foreign Minister Sheikh Khalid bin Ahmed Al Khalifa and US Secretary of State Condoleezza Rice, will allow Bahrain to access international expertise in its drive to develop nuclear energy, with the US agreeing to provide training, human resources development and assistance with infrastructure.

For its part, Bahrain gave a commitment not to develop any nuclear material enrichment technologies, and instead to buy the fuel needed for its atomic energy program on international markets.

This put it in stark contrast with nearby Iran, which the US fears is using the fuel enhancement capacity linked to its nuclear energy program to develop weapons-grade nuclear materials, a point the US was keen to make in the signing of the deal. "This MOU reflects Bahrain's commitment to serve as a model in the region," the US State Department said in a statement. The MOU is the first such agreement to be signed by a Gulf state and the US, giving Bahrain something of a head start on its neighbors in the nuclear energy race.

In a statement issued on March 29, the Bahraini government said the move to develop a nuclear energy capacity had become a necessity for Bahrain and other countries. Though having more than 2.3 gigawatts of installed electric generating capacity, according to the US Energy Information Administration, and more set to come on line between now and 2010, Bahrain is struggling to meet demand. "An in-depth study of the challenges facing the development process in Bahrain such as the increasing electricity consumption, oil and gas price rises and limited oil reserves, added to the population explosion, reinforce the urgent need for the kingdom to switch to alternative energy sources like nuclear power to achieve its developmental goals," the statement said, forecasting that electricity demand would double by 2014.

This challenge is particularly acute for Bahrain, as its current reserves of oil are dwindling fast, despite massive investments to enhance output from its wells. The kingdom now has to import nearly all of the natural gas it requires to fire its existing power stations.

Bahrain, along with other Gulf states, flagged its intention to develop a nuclear energy program in December 2006, at the end of the 27th Gulf Co-operation Council summit held in Riyadh. The meeting's final communiqué announced that a study had been commissioned to look into setting up a common program to establish nuclear energy for peaceful purposes. In mid-February 2008, Bahrain announced it would join with other Arab countries to develop a comprehensive strategy on nuclear energy.

Abdulmajeed Habib Abdulkarim, a senior advisor to Bahrain's Electricity and Water Authority, said the broader terms of the strategy had been set out at the Cairo meeting of the Arab League earlier that month, with the finer details to be hammered out in April. "The depleting resources of natural gas used for electricity generation are prompting Arab countries to look into alternative energy resources like nuclear power," Abdulkarim said in an interview with local press on February 18. "Bahrain will support a joint Gulf program in this connection, and details will be worked out soon." (OBG04.04)

Back to Table of Contents

11.7 QATAR: Sourcing Gas to Europe

Already the world's largest exporter of liquefied natural gas (LNG), Qatar has unveiled plans to more than double its gas production, a timely move as the country looks to step up its energy supplies to European markets. On April 8, Mohammed Saleh Al Sada, Qatar's minister of state for energy and industrial affairs, said gas production would be raised to 77m tons by 2010, up from the present output of 31m tons. The planned increase will be the result of new fields coming on line and further investments to boost output, he said.

Along with the plans for the massive expansion of gas production, Al Sada also announced Qatar would increase its oil output to more than 1m barrels per day, from the present level of 850,000.

With the world's third-largest gas reserves, behind only Iran and Russia, Qatar is seeking to maximize the benefits of its resources and to further diversify its client group. Having already become the largest single supplier to the Asian market, Qatar is now going head-to-head with Russia, which has all but cornered the European market. In part, Qatar is seeking to benefit from Europe's growing unease at the continent's dependence on Russia for much of its natural gas needs.

With Moscow regaining much of the political clout lost in the years after the fall of communism and the economic meltdown that ensued, many of its traditional European clients are becoming increasingly concerned about the reliability of Russian sources. At various times in recent years, Russia has cut gas supplies to Ukraine and Belarus, to add pressure during disputes.

In their search for an alternative source of gas supplies, an increasing number of European countries are turning to Qatar. One of these is Poland, which currently imports 70% of its gas needs from Russia. However, having had supplies disrupted when Russia turned off the taps on its pipeline running through Ukraine last year, Polish officials have started talks with Qatar over the possibility of forming a strategic partnership in a LNG terminal being built on the Baltic coast by the Polish Oil and Gas Company, in addition to supplying gas for processing and distribution.

During a visit to Doha on April 8, Andrzej Arendarski, the president of the Polish Chamber of Commerce, said Poland was looking for Qatari partners in the energy sector. "LNG is an area of possible future co-operation because Poland has decided to diversify the sources of supplementation," Arendarski said.

Another potential client for Qatari gas is Hungary, which has flagged an interest in reducing its reliance on Russian imports, which currently account for 80% of its liquefied natural gas requirements. Abel Garamhegyi, Hungary's deputy minister of economy and transportation, said Budapest was keen to source gas from Qatar, though this was dependent on being able to access supplies. Hungary has announced plans to link its gas pipeline network to that of Croatia by 2010, with a terminal at Rijeka scheduled to come on line by 2011, which could allow it to access gas from Qatar. "We can use LNG from Qatar but it is dependent on when the Croatian terminal will be ready," he said during a visit to Doha on April 9.

Though not sourcing gas from Russia, Spain is another European country looking to expand its gas-buying options. While Algeria currently meets most of Spain's gas needs, a series of disputes over pricing, as well as Algeria's demands to be allowed greater direct access to the Spanish market, have resulted in importers scouting around for alternatives. Last year, Qatar supplied 13% of Spain's gas needs, a figure both buyer and seller are looking to increase. On April 7, the Qatargas LNG tanker Duhail docked in the Spanish port of Cartagena to unload a delivery of gas for Spain's Gas Natural. The Duhail, with a capacity of 210,000 cubic metres, is a Q-Flex tanker, a new model of LNG transport vessel that is marketed as being more efficient, as well as larger, than traditional ships.

While en-route to Cartagena, the Duhail made a small piece of history, being the first tanker of its size and model to transit the Suez Canal, an event Qatargas shipping manager Abdullah Al Sulaiti described as a milestone achievement, one he indicated was part of Qatar's push to expand into Europe. "The Q-Flex is currently the largest vessel to pass through the canal and we expect several more voyages by Q-Flex vessels this year," Al Sulaiti said. Having grabbed a large slice of the Asian LNG market, Qatar now appears to have set sail for Europe. (OBG10.04)

Back to Table of Contents

11.8 UAE: Dubai - in the Swing

Golf is becoming big business in the Gulf, but nowhere more so than in Dubai. While other GCC states may have courses and resorts dedicated to the sport, the emirate already has more than a dozen courses either in operation or under construction, with still more on the drawing boards. Since its first course was laid out in 1971, on land donated by the late Sheikh Rashid bin Saeed Al Maktoum, Dubai has embraced golf as both a domestic recreational pastime and as a major plank in its program to develop itself as an international tourist destination, in turn an effort to diversify the economy and reduce reliance on the energy sector.

One of the key components of its campaign is the Dubai Sports City, a $3.6bn self-contained development just outside the capital. When completed in 2010, the complex, which will cover some 4.6m square meters, will have facilities and training academies for sports such as football, rugby, field hockey, tennis, cricket, swimming and of course golf. Dubai Sports City is part of a strategy to promote the country by hosting major sporting events and attracting both the large crowds and the televised coverage they bring. Dubai even has Olympic aspirations, either on its own or as part of a joint bid by the United Arab Emirates (UAE).

On March 31, Dubai's ruler Sheikh Mohammed bin Rashid Al Maktoum told press that the emirate was very interested in hosting the games, though he did not specify what year Dubai or the UAE would bid for.

Dubai's developers are making their own bid for gold, racing each other to launch a series of sports ventures. One of the latest golfing projects to tee off is the Jumeirah Golf Estates, a large-scale development that will incorporate three 18-hole courses along with private residential and hotel accommodation, a 9800 square meter clubhouse, a golf academy, tennis centre and up-market restaurants and bars.

On March 29, Leisurecorp, an arm of Dubai World and the developer of the Jumeirah Golf Estates, announced it had signed contracts for the construction of 165 villas, part of the residential component of the project. The development has been chosen to host the inaugural Dubai World Championship, due to start on November 19.

Undisputed world number one Tiger Woods, the winner of this January's Dubai Desert Classic, included as one of the events of the Professional Golf Association's European Tour, is another to have turned his hand to designing a course in the emirate. Developed by Tatweer, part of Dubai Holding, The Tiger Woods Dubai is the golfer's first venture into course design. The project is part of the larger Dubailand development, which incorporates theme parks, shopping complexes, sporting centers and accommodation facilities.

Of course, developing a golfing industry in a desert country does have its challenges. According to Mohammed Juma Buamaim, vice president of Golf in Dubai, the promoter of the sport in the emirate, each of Dubai's courses requires around 4.5m liters of water daily. However, much of this is recycled wastewater, he said in an interview with international media on February 25, meaning less strain is put on Dubai's limited water resources in the battle to keep the greens green.

Another challenge is to convince overseas visitors that Dubai, especially in its sweltering summers, is a viable alternative to golfing holidays in Europe or the states. One answer put forward by some of the existing courses is to offer discount rates for the hotter months of the year. However, while some may be wary of playing in 50-degree heat in the summer, Dubai's courses do have the advantage of being able to stay open year-round, something many US and European links struggle to do in the depths of winter.

While Dubai has got a strong head start on other countries in the region in terms of golfing developments, its neighbors are seeking to close the gap. Both Abu Dhabi and Qatar now stage European Tour events, and new courses are springing up like oases in the desert. In January, Dubai's Zabeel Investments and Abu Dhabi firm Aldar unveiled a $950m project to develop a golf course and resort on Yas Island off the coast of Abu Dhabi. (OBG03.04)

Back to Table of Contents

11.9 OMAN: Oil Still Greases the Wheels

While Oman, like most of the other Gulf states, is seeking to diversify its economy away from a dependency on fossil fuel exports, oil remains the driving force on which the sultanate relies, at least for the time being. The Oxford Business Group related that on April 2, the Omani Centre for Investment Promotion and Export Development (OCIPED) announced that the country's non-oil exports for 2007 had reached $3.4bn, up 59% on the $2.1bn of 2006. Aiman Ambusaidi, the centre's director of export development, said the group's objective was to lift non-oil exports to more than $5bn by 2010.

The sultanate's banking industry is also enjoying success, with the central bank releasing figures on April 1 showing robust combined growth of net profits for the country's commercial banks and steep rises in deposits and assets. According to the report, Oman's commercial banks recorded net profits of $105m in the first two months of the year, up from $65m for the corresponding period in 2007. Total banking sector assets were up by 46.7% to hit $28bn, while deposits increased by 39.6% to nearly $18bn. However, despite these and other achievements, it is oil that continues to grease the wheels of Oman's economy.

When handing down the 2008 budget in January, National Economy Minister Ahmed bin Abdulnabi Macki said oil production this year would be around 790,000 barrels per day (bpd), generating revenue of $9.4bn. This would represent 67% of the state's total earnings for the year, he said. Even though Oman's oil output is in retreat, well down on the 959,000 bpd produced in 2000, revenues from this segment still overshadow those of non-oil products or the profits from the country's banking sector.

In order to maintain production, Oman is both promoting the development of new fields and investing heavily in enhanced oil recovery (EOR) technology to extend the life of existing fields. Last year, the ministry of oil and gas announced plans to invest $10bn by 2012 to boost production from operational oil fields, with one-third of this to be spent on EOR projects.

Some of the planned investments have already been made, with their effects expected to be felt this year. The production figure announced by Macki of 790,000 bpd is far higher than the average 710,000 bpd extracted in 2007, a reflection on the more than $2bn spent last year by Petroleum Development Oman on projects to enhance output. Oman is also calling for bidders to develop three new onshore blocks and two offshore blocks, located between Salalah in the south and Musandam in the north, as part of its program to extend the life and earning power of its oil industry.

Announcing the planned tender on March 30, Oil and Gas Minister Mohammed bin Hamad Al Rumhy said it was hoped negotiations on at least one concession could be finalized before the end of the year.

It is not just in its oilfields that Oman is stepping up investment. In late March, the state-owned Oman Shipping Company (OSC) unveiled plans to spend up to $4bn on new vessels, all intended to serve the oil industry. At present, OSC has a fleet consisting of seven liquefied natural gas tankers and two clean tankers, with four oil tankers on order. Part of the $4bn expansion program includes ordering ten very large crude carriers, to be built by Korean companies Hyundai Heavy Industries and Daewoo Shipbuilding and Marine Engineering, with the two contracts together worth around $1.5bn.

Kuldeep Mathur, OSC's chief financial officer, said the aim was ultimately to increase the company's fleet by between 15 and 20 tankers. "We are expanding the fleet with a view to the future demands for our export grade crudes and products," he told the press. Mathur said OSC was looking at chartering some of its new ships out to other companies, potentially including the National Iranian Tanker Company. While OSC may be looking abroad to broaden its operations, there is no doubt that oil-related industries will still be bringing the sultanate's revenues in. (OBG07.04)

Back to Table of Contents

11.10 SAUDI ARABIA: Tackling Inflation

Speculation of a looming recession in the US, combined with the further weakening of the dollar, is putting increased pressure on Saudi Arabia's economy. Rising prices and record inflation are rekindling discussions over de-pegging the kingdom's currency from the dollar and prompting authorities to take steps to ease the strain on citizens. Inflation rose to a 27-year high of 8.7% in February, due to the kingdom's fiscal policy of mirroring cuts in US interest rates. Saudi Arabia, with its dependency on hydrocarbon exports priced in US dollar, has matched the US Federal Reserve's (Fed) cuts to avoid inflows of funds aimed at exploiting interest-rate differentials.

Some industry experts believe that if the dollar falls further, it will inevitably feed into more price hikes, as it effectively increases the cost of goods imported into the kingdom. Given recent oil prices and the subsequent oil boom, some economists believe the kingdom should be tightening interest rates, not loosening them.

Although it is generally accepted that pegging limits the ability to control inflation, the government is still in favor of the policy. The Saudi Arabian Monetary Agency (SAMA), the kingdom's central bank, has a strong record of keeping inflation low over the past 20 years and officials have said there are additional factors at play. Hamad Al Sayari, governor of SAMA, told OBG that today's global environment restricted every monetary agency in effective policy. "Globalization and free movement of capital means money supply exceeds acceptable levels in many developed countries," he said. Sayari added that the kingdom was particularly affected as it had to follow the direction of the US Fed.

On March 19, local press reported that SAMA had lowered its reverse repo rate, the amount the central bank pays on deposits from commercial banks, to 2.25%, mirroring a step by the Fed. A previous move by SAMA in January had reduced the rate to 3%. Since November, following the Fed, SAMA has gradually cut the reverse repo rate from 5%, a total of 275 basis points. At the same time, SAMA has increased the commercial bank reserve requirement on two occasions by a total of 300 basis points, to 10%. Increasing the reserve requirement restricts the banking sector's ability to extend credit, which, given current levels of liquidity, is a concern.

When asked if SAMA would continue this policy throughout the year, Al Sayari told OBG the bank would "look at the best options and use all our tools in managing monetary policies given global influences such as the dollar and global liquidity".

Brad Bourland, chief economist at Riyadh-based Jadwa Investment, said he believed Saudi Arabia's monetary policy has worked against attempts to restrain inflation. "Raising interest rates is the standard approach to tackling inflation, but the exchange rate peg to the US dollar has forced SAMA to follow the US in cutting rates," he said in a report for Jadwa published in February.

With inflation hitting areas such as food and rent particularly hard, the government has stepped in to alleviate some of the financial discomfort felt by the general public. On January 28 the Supreme Economic Council approved a 17-point plan to ease the impact of rising prices. The strategy includes higher wages for public sector workers over the next three years and reductions in fees for driving licenses and residency permits for domestic workers. Additionally, some basic commodities, such as rice and milk, will continue to be subsidized by the government, with a review date set for 2011.

In addition, the government hopes steps to diversify sources of goods and encourage greater competition will alleviate some price hikes. The creation of a National Housing Agency, which aims to alleviate real estate supply bottlenecks and accelerate the construction of public housing, as well as the approval of the mortgage law are both expected to reduce inflationary pressures coming from that sector. The plan also calls for a review of the health sector, including an examination of the pricing of drugs and looking at a compulsory health insurance system for nationals.

Analysts have said the measures will trim some specific price rises but will not eliminate the broad concern about inflation. According to the Jadwa report, Saudi Arabia's strategy to control inflation will cost the country $21bn over the next three years. Jadwa said this would not affect the country's public finances this year, due to the nation's budget surplus, which is expected to reach $49.8bn. Nonetheless concern has been voiced among analysts, and the central bank, that subsidies and extensive government assistance do not make for sound fiscal policy in the long term.

Inflationary pressures are more likely to increase in 2008 than go down, though overall the Saudi economy is expected to continue to perform well. High oil revenues and ongoing economic liberalization are expected to facilitate strong growth in the non-oil private sector. "This is more of a temporary challenge rather than a long-term problem. We expect inflation to begin slowing down in 2009. Going forward, our preliminary forecast for 2008 is as follows: real GDP of 5.7%, nominal GDP 9.1% and inflation 4.2%," John Sfakianakis, chief economist at Riyadh-based SABB bank, said in a report. (OBG03.04)

Back to Table of Contents

11.11 EGYPT: Economic Pressure Cooker

The Economist Intelligence Unit reported that Egyptian social unrest has been growing on the back of rising inflation, which is undermining consumers' purchasing power and fuelling general dissatisfaction with the fallout of economic reform. This has led to a rising number of demonstrations. These include further protests against rising prices by thousands of textile workers at Mahalla al-Kubra (who are generally credited with having started the current wave of labor protests in late 2006). Groups such as doctors, nurses and university professors have also threatened to strike, a rare phenomenon in Egypt.

Thin Rations

The government has sought to address the discontent in several ways. It is especially attempting to improve subsidy provision, separating the production and sale of subsidized bread—the main element in the Egyptian diet—in order to reduce corruption. Families were allowed to add children to their ration cards in February for the first time since 1988 (increasing the total number of beneficiaries from 40m to an estimated 55m). Nevertheless, as rising wheat prices force more and more people to rely on subsidized bread, the queues are lengthening and supplies are coming under strain. Similar problems have also arisen regarding diesel fuel, which is used to power machinery and farm equipment. Shortages have led to outbreaks of fights at petrol stations, and accusations that the government is deliberately keeping stocks hidden to boost prices.

Consumer price inflation rose again in February, to 12.1% year on year, up from 10.5% in January. The month-on-month increase was 1.8% in February, compared with 4% in January. Food prices, which account for 40% of the basket of goods used to calculate consumer price inflation, rose by 16.8% year on year in February, similar to the 16.2% year-on-year increase recorded in January.

In addition to soaring food prices, building materials, especially steel and cement, have also seen sharp price increases, driven by buoyant domestic demand which is further boosting inflationary pressures. The price of rebars produced by Al-Ezz Steel, which commands a 65% share of the domestic steel market, rose by E£370/ton ($67) at the beginning of March, pushing up the wholesale price to E£4,580/ton and the consumer price to E£5,000/ton. This was the fourth increase so far this year, which the company blames on global factors boosting input costs. Cement prices also rose in mid-March, to E£450/t, from E£440/t the previous week. Fertilizer prices, which are government controlled, have also risen sharply, by around 90% to E£1,500/ton at the beginning of March in an effort to equalize global and domestic prices (though this still leaves a 40% discount on world market prices). Subsidizing prices has led to distortions in the local market, creating insufficient supplies at the low, official prices and a growing parallel economy.

At the same time, international commodity prices, especially for wheat and food oils, have increased strongly, by nearly 70% during 2007. This has forced the government to increase domestic wheat prices, from E£220 per bushel to E£320 per bushel—the price paid by the government to farmers for the 2008 crop, in the hope that more wheat will be made available for the domestic market. Egypt is the world's largest wheat importer, importing around 6m tons/year, about half the country's needs. Rising food prices led the government to increase subsidies by E£4.7bn in the fourth quarter of 2007, taking total subsidies for fiscal 2007/08 to E£14.4bn.

Minimum Wage

To alleviate pressure, the government is considering raising the minimum wage from the current level of £E35/month (US$6). A meeting in mid-February of the Higher Council for Wages (which includes representatives of government, unions and business) recommended a rise to £E250/month, with an annual review. However, unions are demanding at least £E600 to ensure minimum living standards, and protestors have called for a minimum wage of as much as £E1,200/month. Even in the event of the government agreeing to a higher minimum wage, given the size of Egypt's informal economy, such an increase is unlikely to provide much assistance to the very poor. (EIU15.04)

Back to Table of Contents

11.12 EGYPT: Cutting Exports to Curb Inflation

Egypt is facing inflationary pressures across the economy and has turned to controlling exports of certain goods in a bid to keep a lid on rising prices. Cairo, according to the Oxford Business Group, has announced it will freeze exports of cement until October, in an effort to stabilize prices and increase the supply available for local construction. The ban was announced by Minister of Trade and Industry Rachid Mohamed Rachid on March 27. Samiha Fawzi, first deputy to the minister of trade, told the press the move was "a temporary measure to face the seasonal increase of demand for construction material during summer".

Egypt's construction sector has been seeing a flurry of activity in recent years, showing growth of more than 15% in 2006/07, and materials suppliers were among the first to benefit. However, inflation is an increasing worry in the country, hitting 12% in February. In addition, the comparably more lucrative export market has been putting pressure on availability at home.

Local cement prices increased by some 27% in 2007, according to the press. In February 2007, the government imposed a $12 duty on every ton of exported cement. By August, the duty had been increased to £E85. Although such duties were helpful in reducing exports, which dropped by 36% between March and December 2007, according to the ministry of trade and industry, the government's efforts were not able to ensure lower prices. "Even with the export duties and more availability, prices kept rising locally because of the construction boom," Ghada Rasky, analyst at Egypt's Commercial International Brokerage Company, told OBG.

Exports are not the only element currently affecting the price of cement. Companies have been known to reduce production in order to increase prices through scarcity, and 20 executives from cement factories are currently facing trial over conspiring to fix prices. The government has announced hefty penalties for producers who do not comply with the export ban, including imprisonment, fines and the closure of the factory or retailer involved for up to six months.

Another strategy aimed at increasing availability of cement has been to step up production. The government granted 13 licenses for the creation of new cement factories and the expansion of existing ones in October and January, and the ministry of trade and industry has announced that only when some of these new cement operations begin production will the ban on exports be lifted. The government expects these plants to lift the national production capacity to 55m tons, from the current 35m tons.

Cement is not the only product to have witnessed a surge in prices. Recently, Egypt increased export duties on steel by £E20, to £E180 per ton. Duties applied in 2007 had reduced steel exports by 50%, local media reported. However, the rise in prices since the beginning of this year has led the government to take further action. Speculators also had an impact; local wholesalers and distributors increased their prices in February by 30%, although internationally, the price for steel rose by only 10%.

In order to ensure the availability of construction materials through the summer peak, the ministry of trade and industry announced in March that cement and steel factories would not be allowed to halt production without a special permit. The government has also stepped up its monitoring of the market. The ministry will be observing cement and steel producers on a weekly basis regarding export figures, local sales and stock quantities, local media reported. Meanwhile, the Competition Commission has been investigating all companies in the cement and steel market for monopolistic practices and is set to issue a report on the matter in three months.

Despite the supply crunch, and with no sign of lowering prices on the horizon, ongoing demand means the expansion of Egypt's construction industry looks set to continue for now. "The market won't be affected; it will probably keep growing for the next few years, and slow down in 2011, or 2012," Rasky said. (OBG11.04)

Back to Table of Contents

11.13 EGYPT: Gas Lift-Off Economy

The Economist Intelligence Unit reported that the signing of a gas sales agreement between Germany's RWE Dea and the Egyptian Natural Gas Holding Company (EGAS) provides a positive indication for the prospect of Egypt adding to its liquefied natural gas (LNG) export capacity. The agreement is the first of its kind to be concluded for several years, as foreign operating companies and the Egyptian government have sought to resolve differences over commercial terms for gasfield development.

The existing formula dates back to 2000 and sets a price ceiling based on the calorific equivalent of $20 per barrel of Brent crude for the gas that the government contracts to buy from the operators. This works out at about $2.65 per million BTU. With international oil prices now over $100/barrel and gas trading at $9/mBTU, the Egyptian price is considered too low to induce foreign operators to invest the considerable sums needed to bring new reserves on stream. As a result, companies such as RWE Dea, BP of the UK and Italy's Eni, which have discovered several major new fields off Egypt's Mediterranean coast, have held back from signing development contracts.

New Formula

The Egyptian Ministry of Petroleum, for its part, has been constrained from revising the gas price formula because of the difficulty of passing these extra costs up the line in the heavily subsidized domestic energy market. However, last year the government announced plans to increase fuel and electricity prices for heavy industry, opening the way for a resolution to the gas price issue. Finding a solution was becoming a matter of urgency for the government because without new development there would not be enough gas to meet Egypt's domestic gas demand, let alone to support export commitments. The terms of the RWE Dea deal have not been disclosed, but it is thought that the new formula agreed with gasfield operators ranges from $3.7/mBTU up to $4.7/mBTU, with the higher prices applying to deepwater areas where development costs are greater.

According to the EGAS chairman, Mahmoud Latif, Egypt is currently producing 6.3bn cu ft/day of natural gas, equivalent to about 65bn cu meters/year. This is significantly higher than the 45bn cu meters produced in 2006 (the last year for which complete figures are available), reflecting the new output that has recently been brought on stream by BG Group of the UK and some other operators, based on gas sales agreements signed several years ago. However, a new crop of projects needs to get underway soon if Egypt is to meet the target, set out by Mr. Latif, of lifting production to 10bn cu ft/d by 2012.

At present, some 17bn cu meters/y of Egypt's gas is exported from three LNG terminals—two at the Egyptian LNG complex at Idku, in which BG is the main partner, and one at the SEGAS plant in Damietta. Egypt also exports just over 1bn cu meters/y to Jordan via the Arab Gas Pipeline, which will soon start pumping gas to Syria, which is banking on receiving some 2bn cu meters/y from this source by 2012. Egypt has also just started pumping some 1.7bn cu meters/y of gas to Israel. The remainder of Egypt's gas is used for power generation, industry and for domestic cooking and heating. Electricity alone accounts for some 30bn cu meters/y, and power demand is rising by more than 7% per year. Until Egypt's nuclear power stations come on line, which will not be until about 2015, most of the new generating capacity will be gas-fired. Egypt's nuclear plans are taking shape, with 15 companies having bought tender documents for the contract to provide consultancy services, including advice on locations and technology options; bids are due in May.

At the same time, the government recognizes the importance of deriving foreign exchange revenue from Egypt's gas resources. The new gas price formula is likely to revive interest in building new LNG plants. First in line is expected to be a second train at Damietta, for which BP and Eni signed a Memorandum of Understanding in 2005 for the supply of the required 7.5bn cu meters/y. (EIU26.03)

Back to Table of Contents

11.14 LIBYA: Al Qaddafi Reforms Show Sign of a Boost to the Private Sector

The decision of Libyan President Muammar al Qaddafi to abolish much of his country's state bureaucracy may herald a much bigger role for the private sector in a society that eagerly looks forward to reaping the fruits of its enormous oil wealth. Although similar reforms during his four-decade rule have failed, observers say the March 2008 announcement could indicate a drastic change in a country where the state has long dictated to the citizens what they ought to do.

Rajeev Singh Molares, a senior partner at Monitor Group, which prepared a national economic strategy report for Libya, says, "This is not a hollow speech…There's a real intent to make the government more efficient in the decision making [process] and in the use of oil revenues - as the price for a barrel of oil reaches $110 - in order to make a meaningful difference in people's lives."

Al Qaddafi told the General People's Congress [the Libyan parliament] that the ministries - known in Libya as the General People's Committees (GPCs) - had failed to manage the $37b state budget, and the big projects in the oil-exporting desert country have fallen behind schedule. Most GPCs should be dismantled and power should be given to ordinary people so that they can introduce new ways in sharing the oil wealth. The ministries dealing with foreign affairs, defense and security will most probably stay [the way they are currently constituted].

The move is in line with Libyans' aspirations for a lifestyle similar to those in other Arab oil exporting countries, where the state would drop the economic decision making process in favor of the private sector and would limit itself to playing a regulatory role only. Such a move could bring more foreign investments, though the reforms did not specifically focus on that. So far, foreign [investment] interest has focused on oil and gas but it is expected to extend to banks, services, tourism and infrastructure projects.

Saad Jabbar, a London-based Algerian lawyer and expert on Libyan issues said, "people want an end to corruption, lack of accountability and inefficiency rampant everywhere in the utilities, education, transport and health [sectors]….The country needs a big change and currently al Qaddafi is the only man who has the power to make it." Singh Molares said the emphasis is directed on fostering the enterprise…, and some of the government activities could even be transferred to the private sector.

Recently, a government statement said the new committees would make state agencies more efficient and would streamline the relationship between the citizen and the state, which will play a role in planning the services instead of providing them. Libyans maintain that there is a need for an action of some sort, in order to translate the oil wealth into higher living standards.

In terms of GDP per capita, Libya alongside Mauritius, Botswana and South Africa, is classified among Africa's wealthiest states. But in reality Libyans complain of poor schools, hospitals and utilities. They must deal with old banking methods and a bureaucracy-burdened life. The new firms struggle to deal with senior corrupted officials who have thrived under policies of a state-controlled economy that monopolized profitable sectors.

Libyans now have an opportunity to compare their lives with others, thanks to satellite TV and internet. They can compare their incomes with those of the Gulf Arab states that, like Libya, have huge oil reserves but which pride themselves on better living standards. Oliver Miles, deputy chairman of the Libyan-British Business Council and a former UK ambassador to Tripoli says "the Libyan people must be wondering where all this money goes." Al Qaddafi plans on reforming the bureaucracy and granting people economic power seems to be in line with his non-party [oriented] ruling regime, based on GPCs. This is a system that theoretically gives the decision making [authority] to ordinary people at the grassroots level. But analysts say the transfer of economic power will not mean a real transfer of political power.

Critics add that al Qaddafi's system of governance, based on a government popular among the masses, is an illusion and that the real power lies at the top of the pyramid in a brutal, police-ruled country. (Elaph28.03)

Back to Table of Contents

11.15 ALGERIA: Mediterranean State With A Wealth Of Natural Resources

The Deutsche Bank reported that Algeria's recent history is above all a story of the phoenix from the ashes – arising from the turmoil caused by ten years of civil war that started in the 1990s. The return to better fortunes was aided by high oil and gas prices that had been steadily climbing since 2003, endowing Africa's third-largest economy with a surge in revenues and thus the means to start anew and run down debt. Algeria is now in the process of healing old wounds and joining the league of internationally important business partners.

Good Macroeconomic Environment

The market-oriented reforms launched by Algeria over the past few years are beginning to bear fruit. Following a sharp slowdown in growth in 2006 Algeria managed to turn around its economy in 2007 and achieve robust expansion of 5% or so, which was mainly attributable to the non-energy sector. Government investment, especially in housing and infrastructure, was the main driver. Similar growth rates are expected for the current year. Last year, the inflation rate remained firmly anchored in the single-digit range, at 3.5%. It is expected to accelerate to around 5% this year, driven by rising food prices. Moreover, Algeria reports sizeable budget surpluses equaling roughly 12% of gross domestic product; part of the surpluses flow as savings into the FRR hydrocarbon stabilization fund (Fonds de regulation des recettes). FRR funds have partly been used to redeem Algeria's foreign debt, reducing it from around 58% of GDP in 1999 to roughly 4% in 2007. Algeria's current account surpluses also range in the double digits as a percentage of GDP thanks to a boom in export receipts and remittances from Algerians working in Europe. The biggest challenges still facing the Algerian government are the struggles to rein in high (youth) unemployment and corruption as well as to develop the private business sector. The after-effects of central economic planning in the 1960s and 1970s, excessive bureaucracy, a weak banking sector and the security problems of the 1990s have left their mark on the private business sector, so it is still too small. Generally, the government plans to continue its drive to gradually liberalize the economy and slowly open certain sectors (telecommunications, construction and water).

Dominance of the Energy Sector

In a global ranking, Algeria occupies 7th place for natural gas reserves and 16th for oil. In terms of global output it already features 6th and 13th, respectively. The government has announced plans to boost oil production from 1.3m barrels per day now to 2m bpd in 2010 and to increase gas production to 85 billion cubic meters per year. However, this could further reinforce the already dominant position of the energy sector in the Algerian economy. In 2007, the energy sector accounted for 97% of Algeria's goods exports, 81% of fiscal revenues and 46% of total economic output. Since this blessing may rapidly turn into a curse if energy prices plummet, one of the government's main objectives at present is to foster diversification of the economy. High hopes are being pinned on the transport, tourism, construction and IT sectors. Since the transport infrastructure has proved to be a particular curb on Algeria's economic development, in 2005 the government devised a 5-year plan providing for its modernization by entering joint ventures with private-sector entities. One example is the port of Bejaia, which is to be managed by a company from Singapore. There is also substantial catch-up potential to be tapped in tourism. After all, Algeria is among the Mediterranean countries whose tourism industry still contributes the least to their economy. Around 70% of the tourists are Algerians visiting friends or relatives. The construction sector has already received a major fillip thanks to a state investment program worth $60 billion. Among other things the program provides for the building of one million new homes. The prospects for the IT sector, and mobile telephony in particular, also seem very promising. By contrast, industry is still largely dominated by state-owned companies, and the sector is only slowly being opened to private-sector investment. Fertilizer, petrochemical and pharmaceutical companies are the focus of this initiative.

Strategic Partner for the European Union

The proposal recently put forward by President Sarkozy of France on the creation of a Mediterranean Union clearly shows the strategic significance of the commodity-rich Mediterranean countries in relations with the European Union – especially, of course, in view of energy security. Rising energy prices and concerns about the reliability of natural gas deliveries from Russia will make Algeria an increasingly important trading partner – Algeria already supplies 25% of the European Union's gas imports. Former colonial power France, in particular, will continue to cultivate close relations with Algeria and expand them especially in terms of business and energy policy.

Politics Against the Backdrop of Constitutional Referendum

Holding the reins of power since 1999, President Abdelaziz Bouteflika has played a key role in the ongoing transformation of Algeria from a country devastated by civil war and under military rule into a better functioning democracy. For example, he has cracked down on the influence of the old guard in the military – known as “le pouvoir” – by replacing the hardliners with followers from his own camp. A controversial amnesty that took effect in 2006 enabled guerrilla fighters to surrender their weapons without, as a rule, having to face retribution. It is still unclear how long President Bouteflika will be able to remain in office. Since his second five-year term comes to an end next year, he is seeking to have the constitution amended by means of a national referendum to clear the way for him to serve for a third term. The referendum is planned for the middle of this year and the issue will very probably go through. Moreover, the constitutional amendment is meant to clarify the matter of orderly succession in the presidential office. This is essential since the current concentration of power in the hands of Bouteflika and the opaque succession arrangements are a risk to political stability in the region.

Headlines about Algeria in the international media are dominated by a separate issue, though, with the focus not on the upcoming referendum but on Islamist attacks. The danger of further attacks by militant Islamists will indeed remain high in the near future. However, these attacks do not represent a threat to the Algerian state or political stability in Algeria. The dispute with Morocco over Western Sahara still appears to be far from any sort of settlement.

Gradual Reform of the Banking Sector

The International Monetary Fund recently confirmed that Algeria had made progress in reforming its underdeveloped banking sector since Khalifa Bank collapsed in mid-2003. Six state-owned banks continue to dominate the market; combined, they control 83% of total banking sector assets. Since these six banks continue to grant loans to unprofitable state-owned companies, non-performing loans account for over 30% of the total loan portfolio. Moreover, compared with peers in neighboring Tunisia or Morocco, businesses still have insufficient access to bank loans because of the Algerian banks' thin capital base. Cash transactions dominate the business world. Over the past few years, however, foreign banks have discovered the potential offered by this underdeveloped market. Their interest focuses on the privatization of Credit Populaire d'Algerie, which has been postponed until the end of this year. This is the first major state-owned bank due to be turned over to private hands.

Underdeveloped Capital Markets

Algeria has a managed-float exchange-rate regime and the central bank uses it to keep the exchange rate of the dinar relatively stable vis-à-vis the US dollar. Last year, the central bank had to intervene on several occasions to prevent the dinar from appreciating excessively against the benchmark. Mainly because of the costs of importing foodstuffs from the EU, the central bank will tolerate a steady appreciation of the dinar vis-à-vis the dollar again in the current year. Last year, Algeria's foreign exchange reserves surpassed the $100 billion mark thanks to strong revenues from the oil and gas sector; together with comprehensive capital controls (except on foreign direct investment) they ensure the stability of the currency. The Algerian stock market is one of the newest such markets worldwide, and is still in its infancy with barely a handful of listed companies. Algerian companies still prefer to obtain a listing on foreign stock exchanges – for example in London, Cairo or Alexandria. The bond market has already reached a slightly more advanced stage of development. This is mainly attributable to several tranches of issuance, mostly by state-owned companies, during the past few years (examples include state-run petroleum company Sonatrach and state-run energy utility Sonelgaz, but also Cevital, a privately owned food company). By international standards, though, the market is small and illiquid, and access is limited to the local financial institutions. (DB03.04)

Back to Table of Contents

11.16 ALGERIA: Energetic Ambitions

Following the announcement of massive investments by Sonatrach and Sonelgaz into the energy sector, Chakib Khelil, the minister of energy and mines, released plans for the creation of a new city at Hassi Messaoud, an effort to respond to the logistical needs of one of Algeria's key energy producing regions. The Oxford Business Group said that the $6bn project will provide homes for workers and their families. The new development is part of a plan to protect urban areas from industrial hazards and to meet the increasing demand from companies located in Algeria's principal oil and gas production centre.

The government has, however, made it clear that it will not assume sole responsibility for financing the project, although the authorities have committed $775mn towards engineering studies for the new project. "Oil companies operating in the region, including the state-owned Sonatrach, will participate in funding the construction of their new headquarters at the site planned for the new city," Khelil said.

The foundation that will manage the new city (Etablissement de la ville nouvelle d'Hassi Messaoud - EVNH) has confirmed bids from two companies; the South Korean consortium Hassi Messaoud Korea Consortium, and the French-Tunisian group Iosim International/Studi International. The name of the winning bidder is expected to be released shortly. The timeframe for the completion of the project has been set at 76 months, including 16 months of engineering works. The large-scale urban planning project is part of an ambitious investment program which aims to ramp up energy production in the short to medium term. "The hydrocarbons sector will receive an investment of $45.6bn during the period 2007-2011, including $26.2bn allocated for exploitation and development programs," Khelil said.

Algeria aims to increase its production capacity to 2m barrels of oil and 85bn cu meters of gas by 2010. Natural gas, the easiest energy source to transport, is becoming the most sought-after energy source in the country. Algeria exports 94% of the Mediterranean region's natural gas reserves, and the country is the third supplier for the EU and the fourth-largest global exporter, after Russia, Canada and Norway.

Industry experts have estimated Algeria's initial proven reserves at around 4600bn cu meters, 80% of which is recoverable, while 15% has already been exploited. The country is also expected to possess another 1000bn cu meters of probable reserves. Algeria is currently planning two liquefied natural gas (LNG) projects with a capacity of 4.5m tons each. The two projects are scheduled to be launched in 2011-2012 and will allow Algeria to increase its annual gas exports by 30%. Algeria currently exports 62bn cu meters of gas, principally to the US and the EU, with LNG accounting for half of the total.

For its part, Sonatrach signed an agreement on March 2 with Noway's StatoilHydro, allowing the Norwegian company to increase its LNG production in Algeria. In return, Sonatrach will gain access to one of StatoilHydro's foreign terminals. "This agreement will give Sonatrach a regasification capacity of 20bn cu meters per year for a period of 15 years, starting in 2009. On the other hand, it will allow StatoilHydro to have access to 1bn cu meters per year from Sonatrach, also over the 15-year period starting in 2009," Kare Rosandhaug, general director of Statoil Hydro, told OBG.

Exports of Algerian gas currently represent 30% of revenues from hydrocarbon sales, some $15bn to $18bn per year, a figure that is predicted to grow under Algeria's program to increase production, not only because the resources are available, but also in a move to consolidate its profits on the European market, Algeria's principal buyer. "The gas side will become the more dominant focus of the group and the company is looking to be increasingly involved along the entire gas value chain. This means looking at an integrated strategy of developing gas fields, producing gas, transporting gas both nationally and internationally, and further developing LNG to get the maximum added value from gas," Mohamed Meziane, CEO of Sonatrach, said.

This mandate is visible in the group's transportation projects, most notably in the advancement of work on the Medgaz and Galsi pipelines, which link Algeria directly with Europe. The first will connect Algeria to Spain, with a capacity of 8bn to 10bn cu meters per year; while the second will reach Sardinia in Italy, with an initial capacity of 8bn cu meters per year.

"Medgaz, which was created from a consortium of five world leaders in the gas sector (Sonatrach, Cepsa, Iberdrola, Endesea and Gaz de France), will be operational in the second half of 2008 and will help Algeria consolidate its dominant position in Southern Europe," Robert Argiolas, director of Gaz de France, told OBG.

However, the most ambitious and innovative project is without a doubt the Trans-Saharan Gas Pipeline, a 4128-km line that will cross three countries (2310 km in Algeria, 841 km in Niger and 137 km in Nigeria) in an effort to link gas reserves from the Gulf of Guinea to the banks of the Mediterranean on the way to Europe. The pipeline will transport 20bn to 30bn cu meters per year at a total cost of around $13bn. The project was officially announced in Nigeria in March by Odrein Ajumogobia, the Nigerian minister of energy, and Algeria's Khelil. When the pipeline opens in 2015, it will reinforce Algeria's role in the European market, providing gas that will be much needed, as analysts forecast a gas shortage in Europe beginning in 2015. (OBG04.04)

Back to Table of Contents

11.17 MOROCCO: Is the Electoral System Unfair?

The Carnegie institute said that in looking at the September 2007 elections to Morocco's lower house of parliament, foreign observers agreed on two principal conclusions: the elections were conducted freely and fairly, but the election system itself was unfair, not allowing the emergence of any strong party. But are these conclusions justified? Morocco's elections are certainly more competitive and open than many other polls in the region and no party has alleged that the results were completely manipulated. There is a large area, however, between completely manipulated and genuinely democratic contestation - and the Moroccan elections fell somewhere in that gray zone.

Regarding the conduct of the elections, the preliminary findings by the National Democratic Institute (NDI) state that “overall, the voting went smoothly and was characterized by a spirit of transparency and professionalism.” Meanwhile the local observer network Collectif Associatif was more circumspect, voicing concerns about vote buying and bias among election officials in some cases. Several political parties also alleged vote buying and inaccurate counting and aggregation of results. Given these concerns, the question is how the Moroccan system deals with appeals. The NDI mission left shortly after election day and thus could not comment on counting, aggregation and publication of results, or complaints and appeals; the statement recognized that a final evaluation of the elections could only be made once all appeals have been dealt with. Some 400 appeals have been lodged with the Constitutional Council against results in specific electoral districts, sixteen of them by the largest opposition party, the Islamic Party of Justice and Development. Following the 2002 elections the Constitutional Council took two years to decide on election appeals. Such delays fail to provide an effective remedy, and elections without effective remedies suffer from a serious flaw.

When it comes to the electoral system, the conventional wisdom among journalists and scholars is that it is engineered to prevent any single political party from emerging with a majority. While it is true that there are many parties in the Moroccan Parliament and none holds more than 15% of the seats, this is not primarily an outcome of the election system. The fragmentation is primarily a reflection of the political landscape and voting results. In September's elections no single party won more than 11% of the vote.

Morocco is divided into ninety-five electoral districts with two to five seats each. It is thus a proportional system with a very low district magnitude. Generally, small districts favor large parties. Where only two seats can be won, a small party stands little chance of winning one of them. The effects can be seen in the Moroccan elections; all large parties gained a higher share of seats than votes, as shown in Democracy Reporting International's assessment of the elections. While such a system can result in the best-scoring party being checked by the second largest (but possibly much smaller) party, it can also result in a leading party sweeping the polls. Everything depends on local voting patterns. Thus in order for the Moroccan government to use this system in a manipulative way, it would need to have very accurate predictions of outcomes in each constituency and adjust the districts accordingly.

If it is not the proportional system, then it is the votes/seat allocation formula that observers often blame for the fragmentation of Morocco's parliament. It is true that the method used in Morocco, which allocates leftover seats according to parties' relative proportions of the vote, tends to favor smaller parties more than alternative methods do. Taken together, however, its various effects make the outcome more proportional, thereby balancing out the impact of low district magnitude, which tends to favor large parties, to some degree. Proportional election systems by definition do not easily allow one party to become overwhelmingly strong. In fact many people regard proportional election systems as more fair in terms of representation.

The fragmentation of Moroccan politics must therefore have causes other than the electoral system. There are many possibilities, including a history of royal intervention and royal creation of parties and the strong role of local notables, who often do not care under which party's name they enter parliament. In retrospect, therefore, a second look at Morocco's parliamentary elections shows that while the conduct of the elections was not as good as reported, the election system also is not as bad as is generally believed. (Carnegie ARB 04 2008)

Back to Table of Contents

11.18 TURKEY: Court Case Leads Market Slide

Confirmation that Turkey's Constitutional Court will hear a lawsuit aimed at banning the ruling Justice and Development Party (AKP) could have longer term implications for the economy, or so believes the Oxford Business Group. However, currently seasoned observers see the case as - for now - very public verbal fisticuffs.

On March 31, the 11-member Constitutional Court unanimously agreed to accept the lawsuit filed by Chief Prosecutor Abdurraham Yulcinkaya against the ruling AKP, demanding its closure on the grounds that the party has become a "focal point of anti-secular activities". The court also convened to consider Yulcinkaya's proposal to impose a five-year ban from politics on 71 AKP members including Prime Minister Recep Erdogan and seven judges agreed to hear the case against President Abdullah Gul.

Turkey's constitution allows for the banning of political parties by judicial process if they threaten the country's strong secular values. The case against the AKP was built in the wake of the government's decision in January to lift the ban on headscarves in universities. Although widely considered a 'conservative-liberal' party, and despite its commitment to economic and social reforms, the AKP stands accused of harboring strong anti-secular political goals. According to Yulcinkaya's indictment, "All actions and rhetoric of the party are aimed at establishing an Islamic society in which Islamic rules and values have priority... and then carrying out legal arrangements to move toward sharia."

In many respects it is the threat of banning the party's most charismatic and experienced leaders that serves as the biggest threat for the AKP, a party that retained power in 2007 with 47% of the vote, the biggest share in four decades. Political parties can easily be reformed under a new name - the AKP is itself heir to the Welfare Party and the Virtue Party, which were closed down in 1997 and 2001 respectively - but the loss of senior members would be a severe blow.

Few political analysts believe that the case will result in severe punishments for the AKP and its leadership but the decision to press ahead with the case has given rise to long-held fears about Turkey's commitment to democracy. Olli Rehn, the EU Commissioner for Enlargement, said the case "revealed a systemic error in the Turkish constitutional framework". He also alluded to the damage the case could do to Turkey's EU membership bid, "In EU member states the kind of political issues referred to in this case are debated in the parliament and decided in the ballot box, not in the court rooms."

The effects of the court's decision reverberated on the markets with the Istanbul Benchmark Share Index (ISE National 100) falling 3.1% to 38,147 points by close on March 31, its lowest level since January 2007. Turkish stocks, which have fallen 30% year-to-date, have underperformed other emerging markets this year after a stellar 2007. At the same time the lira, which has remained strong in recent years as a result of high interest rates, fell 2.2% against the dollar to a seven-month low of 1.324 YTL to the dollar. A research note from Merrill Lynch said, "The lira appears vulnerable in the period ahead in our view, and we no longer believe it will outperform its peers in the region."

Turkish business leaders are also critical of the impact the political situation could exert on the economy. Rizanur Meral, chairman of the Turkish Confederation of Businessmen and Industrialists, said, "We have been shocked by the news... and our anxiety about the future of the economy has soared. This may jeopardize the future of the economy."

Although political fears were at the forefront of market sentiment, the news that the court case would proceed coincided with the release of disappointing Gross Domestic Product (GDP) growth figures. The Turkish Statistics Institute showed fourth quarter growth in 2007 standing at just 3.4%, leaving annual GDP growth at 4.5%, significantly down on the 5% annual growth that the government had anticipated. A breakdown of the figures reveals significant slowdowns in the agricultural sector, mainly due to last year's drought, and in the construction sector, where the boom years of 2004-2006 appear to be at an end. Citigroup economist Ilker Domac said the government's target of 5.5% GDP growth for 2008 was 'unobtainable' and predicted a rate of 3.9%. Even so, the reassessment of Turkey's GDP last month by calculating it according to criteria used in Europe meant the figure rocketed by more than 30% overnight. It follows that growth rate targets should be judged according to what level is being used for current GDP.

While the timing of the release of the figures could scarcely have been worse for the stockbrokers, the public's attention remains focused on the political scene. Now that the court has accepted the indictment, the trial will formally begin. A verdict is expected to take up to six months. According to the constitution, at least 7 of the 11 members of the court have to vote for closure in order for the court to shut down a political party.

The AKP may well attempt to amend the constitution, making it harder for the judiciary to close down political parties. Such an amendment is drawing criticism as it is seeking to circumvent checks in the system to save itself. Legal experts are divided on whether such an amendment would help the AKP fight an eventual ban, some saying the constitution forbids parliament from debating or ruling on issues under judicial process.

President of the Turkish Exporters Assembly Oguz Satici told the media, "The court's decision means that Turkey will have to pass a serious and hard test of democracy... Such kinds of cases have done no good for Turkey and to the Turkish people so far, as our past is full of closed and banned parties. Everyone has to keep in mind that the economy grows only in a politically stable environment." Certainly the whole situation spooked analysts at global rating agency Standard & Poor's, which unexpectedly downgraded. (OBG07.04)

Back to Table of Contents

11.19 TURKEY: Politics Take an Economic Toll

Der Spiegel reports that the Turkish fight over secularism is dimming the economic prospects of the republic: Growth has slowed, inflation is up, and the lira is down.

The political drama in Turkey this spring may turn out to be a rite of passage for Turkish democracy. After an intense year of infighting between the country's powerful secular establishment and the popular Islamist-rooted government of Prime Minister Erdogan, matters have come to a head with the March 31 decision by the nation's Constitutional Court to hear a lawsuit seeking to abolish Erdogan's party for undermining the secular nature of the republic.

If the court decides against Erdogan's ruling Justice and Development Party (AKP), the organization could be outlawed and both the Prime Minister and President Abdullah Gul, who also hails from the AKP, could be banned from politics for five years. Although most observers think that outcome unlikely, the mere possibility has thrown Turkey into turmoil and cast a shadow over its economic prospects.

It may be difficult for outsiders to understand the stakes—or even to imagine the scenario. After all, nobody has tried to sue the Republican Party in the US for violating the separation of church and state because President George W. Bush is an avowed Christian. But the entire history of modern Turkey is staked on the legacy of Mustafa Kemal Ataturk, who led the battle for Turkish independence after World War I and founded the Republic in the 1920s on secular principles.

Growth Forecasts Lowered

Turkey today is an advanced country of 72 million people with a gross domestic product of $420 billion (€267 billion). But political turmoil is dividing the people, distracting politicians from needed reform, and threatening business. Already, economic growth has slowed from the 7% it averaged between 2002 and 2006 to potentially just 4.5% this year, and inflation is hovering around 9%, well above the Turkish central bank's year-end target of 4%.

In an April 8 note to clients, economist Banu Tokali of Istanbul brokerage FinansInvest noted that her 2008 growth forecast for Turkey was set at 4.7% before the Constitutional Court agreed to hear the lawsuit against the AKP. Now, Tokali says, "This faces a downward revision depending on the extent that domestic demand responds to the recent political disturbance."

That uncertainty is giving investors pause. The Istanbul stock exchange is currently trading down more than 25% from its 2007 peak. The Turkish lira has fallen 8.7% against the dollar since the start of the year, and 14.8% vs. the euro - a particular problem since Turkey trades so much with Europe. There are early indications that foreign direct investment could fall by 16% this year, to a projected $18 billion. On April 3, Standard & Poor's downgraded Turkey's outlook to "negative" due to concerns over domestic political instability and broader global economic conditions.

Economy Booms under Erdogan

For Erdogan, who was convincingly reelected last summer in part due to his successful stewardship of the economy, the turn of events presents enormous challenges. Turkey has long coveted membership in the European Union, and voters rewarded the Prime Minister for convincing the EU to open accession talks in 2005. Although Erdogan is a practicing Muslim and his wife wears a headscarf - a traditional symbol of observance - he is known as pro-Western and pragmatic. Many Turks, regardless of their religious views, think his government has been the most effective and competent in decades.

The Prime Minister, who was first elected in 2002, has managed to wipe out the punitive inflation that sapped Turkey throughout the 1990s and has boosted foreign investment to levels 20 times higher than a decade ago, attracting businesses including automobile manufacturers and investment banks. Sectors such as tourism, real estate, telecommunications, and technology have boomed.

Secular Resentment

The current political crisis threatens to dim those achievements and complicates Turkey's uncertain path to EU membership. The situation first heated up a year ago, when Turkey's secular-dominated military attempted to strong-arm the Prime Minister into nominating a "suitable" - that is, secular - candidate to fill the vacant office of President. Turkey's entrenched secular order has distrusted the Islamist-leaning AKP from its inception, and sought a counterbalance to Erdogan.

The Prime Minister held to his prerogative and nominated his urbane Foreign Minister, Gul, who was duly elected by parliament. The activist Constitutional Court annulled the vote and forced early elections. But the AKP won reelection last July with 47% of the popular vote and now holds 340 seats in the 550-seat Parliament.

Erdogan used the victory to force the army to accept Gul's election and swearing-in as President. The military backed down, but resentment burned among secularists. Erdogan took the fight a step further by pushing through a constitutional amendment allowing women with headscarves to attend university, a practice that had been banned. The state prosecutor who brought the case against the AKP to the Constitutional Court specifically mentioned the headscarf issue in his indictment.

Perceived Move toward Islam

To shift focus away from the court case and bolster his international image, Erdogan now is trying to clear away a sore spot in Turkey's foreign relations. In a speech on April 3 in Stockholm, the Prime Minister proposed abolishing the notorious article 301 of Turkey's penal code, a statute that makes it a crime to insult Turkish identity and that has been used to prosecute numerous writers and journalists. The enforcement of article 301 has been a human-rights sticking point for the EU.

Moves such as these could help counteract concerns that Turkey is drifting toward a more Islamic-flavored government and society. Most observers think the Constitutional Court will stop short of throwing the government out of office. It is felt savvy foreign investors understand that crises of this sort arise every year in Ankara - and aren't taking this one too seriously.

Still, with the global economy on shaky ground and many economic indicators moving in the wrong direction in Turkey, the battle over headscarves and other matters of faith could have an outsize impact on Turkey's financial wellbeing. Businesses and investors are hoping that doesn't prove to be the case. (Der Spiegel 09.04)

Back to Table of Contents

- 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

This fortnightly newsletter is a free service of Atid, EDI. We are a team of economic and trade development consultants, headquartered in Jerusalem, with satellite operations in Istanbul and Amman. EDI works with an international clientele interested in identifying and researching business opportunities in the region. We also serve as the regional representative offices for a number of U.S. states and bilateral Chambers of Commerce. EDI's other services include development of feasibility studies and tailored research reports, as well as identification of potential joint ventures for commercial clients. For more information on how we may better assist you, please visit our Web site at: http://www.atid-edi.com.