• Netanyahu Cabinet Diverts Ministries' Funds to Make Preschool Free
• California Grapes International in the UAE
• Greywater Could Be Solution For Israel's Water Shortage
• Jordan's Inflation at 4.4% During 2011
• Egypt Begins Negotiations with IMF Over $3.2 Billion Loan
• Israel Visited by 3.4 Million Tourists in 2011
• ISRAEL: Defense and Security Report Q1 2012
• EGYPT: Egypt Can't Replicate the Turkish Model: But It Can Learn From It
  

TABLE OF CONTENTS:

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Netanyahu Cabinet Diverts Ministries' Funds to Make Preschool Free
1.2 Israel Approves Harsh Penalties For Illegal Immigrants

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 OCZ Technology Group Acquires SANRAD
2.2 Coca-Cola Strengthens In Stagnant Soft Drinks Market
2.3 Elbit Imaging Sells GAP Franchisee to Gottex

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Kuwait's Alshaya Buys Troubled UK Chain La Senza
3.2 Qatar Restaurants See Trade Slump After Alcohol Ban
3.3 California Grapes International in the UAE
3.4 UAE & Saudi Among Top 5 Markets for Rolls-Royce
3.5 Hilton Signs Deal to Operate Fourth Riyadh Hotel

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 Environment Minister Says Israel's Desertification Intensifying, Rainfall Decreasing
4.2 Greywater Could Be Solution For Israel's Water Shortage
4.3 Supergas Wins Tenders For Two Negev Solar Power Plants
4.4 Swiss & German Firms Plan $2 Billion Oman Solar Project
4.5 SPI Solar to Develop 2 Megawatt Utility-Scale Solar Energy Facility in Evros, Greece

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Middle East Carriers Lead World in Demand Growth
5.2 Lebanon May Tap Gas Wealth in 2012
5.3 Beirut Hotels See 28% Drop in Occupancy In 2011
5.4 Jordan's Inflation at 4.4% During 2011
5.5 Jordan's 2011 Unemployment Rate Stood at 13.1%
5.6 Jordan Joins EBRD
5.7 Kurdistan Oil Reserves Could see them Rival the Arabian Gulf Emirates

►►Arabian Gulf

5.8 Road, Rail & Bridge Projects Planned in the GCC Worth $142 billion
5.9 Abu Dhabi Consumer Prices Up By 1.9% In 2011
5.10 Saudi Spending To Exceed 2012 Budget, But Surplus Likely
5.11 Saudi Arabia Signs $613 Million Rail Contracts
5.12 Brazil & Saudi Firms Partner for $500 Million Riyadh Project

►►North Africa

5.13 Egypt Begins Negotiations with IMF Over $3.2 Billion Loan
5.14 Fitch Says Egypt IMF Request Only a First Step Endorsement Policy
5.15 Egypt's Prime Minister Introduces Measures to 'Alleviate' Economic Woes
5.16 Egypt's Urban Headline Inflation Rose To 9.5% Y-O-Y In December 2011
5.17 US Expands Trade With Egypt By Granting More Duty-Free Access
5.18 Egyptian Bankruptcies Increase by 26%
5.19 Egypt Implements Biometric Visa Requirement for Foreign Officials
5.20 Egypt's Dabaa Nuclear Station Project Crisis Escalates
5.21 Libya's NTC to Review Investments Worldwide
5.22 The Conflict Over, 1.2million Children to Return to School in Libya

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Turkish Unemployment Up Slightly At 9.1% in October
6.2 Turkish Compulsory Education Length May Rise To 12 Years
6.3 Turkey Gets F Grade in English
6.4 Cyprus Unemployment at Record High
6.5 Greek Farms Must Return €425 Million Subsidies
6.6 Consumption Starting To Power Up Bulgaria's Economy
6.7 Bulgaria Formalizes Military Ties With Israel

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Israelis Restore 2,000 People's Eyesight
7.2 Knesset Panel Passes Bill Forbidding Use of Nazi Symbols
7.3 Tel Aviv Ranked World's Top Gay Destination

*REGIONAL:

7.4 UN Alarmed at Increasing Rate of Executions in Saudi Arabia
7.5 Libya Begins Plan to Elect Assembly
7.6 Tunisia's Islamist Party Slams Anti-Semitic Slogans
7.7 Cypriot Census Records 21.7% Increase in Population

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Roche & Itamar-Medical Developing EndoPAT for Pre-Clinical Longitudinal Studies

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Ness Technologies Engaged by Pegasus Solutions for Software Product Development
9.2 KinCare Improves Customer Services and Reduces Costs With ClickSoftware Cloud Solutions
9.3 Altair Semiconductor Production Test Tool Based on the Rohde & Schwarz CMW500
9.4 Israel Aerospace Industries Seals $1.1 Billion Deal with Asian Client
9.5 LucidLogix XLR8 Software Optimizes Power & Performance of Embedded GPUs
9.6 LucidLogix Cloud Gaming Infrastructure Brings High Performance Gaming to Any Device
9.7 Valens Introduces VS010 Chipset Featuring HDBaseT-Lite Transmitter and Receiver
9.8 RADVISION Receives 2011 INTERNET TELEPHONY Product of the Year Award
9.9 Orbotech Receives 2011 Supplier Appreciation Award from Viasystems

10: ISRAEL ECONOMIC STATISTICS

10.1 Israel Visited by 3.4 Million Tourists in 2011

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11: IN DEPTH

11.1 ISRAEL: Defense and Security Report Q1 2012
11.2 LEBANON: Year in Review 2011
11.3 JORDAN: Defense and Security Report 2012
11.4 ARABIAN GULF: Tough Year Seen for Region's Contractors as Margins Shrink
11.5 KUWAIT: Year in Review 2011
11.6 KUWAIT: Defense and Security Report Q1 2012
11.7 BAHRAIN: Year in Review 2011
11.8 QATAR: Year in Review 2011
11.9 UAE: Abu Dhabi May Rescue More Developers
11.10 OMAN: Year in Review 2011
11.11 EGYPT: Egypt Can't Replicate the Turkish Model: But It Can Learn From It
11.12 TUNISIA: Looking forward
11.13 MOROCCO: Year in Review 2011
11.14 TURKEY: Year in Review 2011

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Netanyahu Cabinet Diverts Ministries' Funds to Make Preschool Free

On 8 January, the Netanyahu cabinet approved budget cuts that would allow for an extension of the Free and Compulsory Education Law to include children as young as 3, starting in the 2012-13 school year. In addition, the cabinet approved funding to subsidize late afternoon childcare for working parents only. Free education currently starts at age 5 and day care and preschools for younger children are often prohibitively expensive. The new law will qualify childcare programs under the "education" umbrella, making them free for parents as soon as their children hit age 3. In addition, the length of the school day would be extended for children aged 3 to 9, and late-afternoon day care for children in this age group would be subsidized. However, the Yisrael Beitenu party stipulated that the subsidy for late-afternoon day care be given to working parents only and the cabinet approved this caveat. At present, a municipal preschool for children ages 3-5 in the center of the country costs about NIS 900 ($236) per month for mornings only, and about NIS 1,800 ($470) per month until 4 p.m. Day care for younger children can cost significantly more, but will not be covered by the new budget allocation. (Israel Hayom 09.01)

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1.2 Israel Approves Harsh Penalties For Illegal Immigrants

Israel's Knesset on 10 January approved harsh new penalties on illegal immigrants and Israelis who help them, passing one of several controversial measures designed to stop the flood of Africans seeking sanctuary from poverty and conflict. The bill makes it possible to imprison illegal migrants for life over property crimes and detain them for up to three years without trial. Anyone caught helping migrants could face prison terms of five to 15 years. Prime Minister Netanyahu, who has called the swelling number of illegal immigrants a "national scourge," voted for the bill. The legislation is part of a "multi-tier strategy to deal with the challenge of illegal immigration to Israel.

Africans began trickling into Israel through its porous southern border with Egypt's Sinai Peninsula after Egyptian security forces violently quashed a demonstration by a group of Sudanese refugees in 2005, killing at least 20. The number of migrants surged as word spread of safety and job opportunities in the relatively prosperous Jewish state. The government estimates that 50,000 Africans have entered Israel illegally since then. The overwhelming majority are said to have come in pursuit of a more comfortable life and are not fleeing persecution. Migrant advocates contend the Africans are bona fide refugees and should be granted asylum. They accuse the government of ignoring the retribution most of the migrants face should they return home. (Israel Hayom 10.01)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 OCZ Technology Group Acquires SANRAD

San Jose, California's OCZ, a leading provider of high-performance solid-state drives (SSDs) for computing devices and systems, announced it has acquired SANRAD, a privately held provider of flash caching and virtualization software and hardware. The move significantly enhances the ability for customers to increase datacenter performance and efficiency by putting more virtual machines (VM) on a server without slowing down the VM's ability to access stored data, thus substantially lowering the overall cost of deployment. SANRAD's VXL has the ability to optimize caching strategies based on the application and support for VMWare's vMotion, which sets the solution apart from others in the industry, allowing enterprises to finally realize the benefit of running a single unified virtualized environment. SANRAD's software is a wonderful complement to OCZ's Flash technology.

Tel Aviv's SANRAD http://www.sanrad.com designs cutting-edge cloud storage acceleration and virtualization software and hardware for datacenters. SANRAD currently sells its line of flash caching and virtualization software and hardware to storage and networking OEMs such as NEXSAN and Brocade as well as directly to the enterprise through its network of Value Added Resellers. SANRAD's virtualization software and solutions transforms storage access in virtualized environments with NAND flash allowing data centers to fully leverage their storage investments. SANRAD's products are VMware, Microsoft, and Citrix certified. (OCZ 09.01)

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2.2 Coca-Cola Strengthens In Stagnant Soft Drinks Market

Lower than average temperatures and the social protests were not good for the Israeli soft drinks market, which ended 2011 with a decline of 1.5% in the quantity of products sold, and financial growth of only 1.8%. Soft drinks sales reached NIS 4.391 billion, slightly up from NIS 4.31 billion in 2010. The Central Bottling Company Group (Coca-Cola Israel) strengthened slightly with 2.6% growth in sales, and market share rose from 39.3% in 2010 to 39.5% in 2011. The social protests and consumer price hikes had no effect whatsoever on the company's main brand, which is also the best-selling brand in the market: Coke. Coca-Cola Israel had a quantitative rise of 3.5% in consumption and a 6.5% rise in financial growth. Coca-Cola Israel's market share stood at 11.6% in 2011, and total sales were NIS 509 million, more than double the second best-selling drink, and NIS 31 million more than the previous year. In 2011, Coca-Cola Israel continued to hold five out of the ten best-selling soft drinks in Israel: Coca-Cola, Prigat, Neviot, Nestea, and Coca-Cola Zero. Moreover, Coca-Cola Zero sales rose 24.6% and its market share rose from 2.4% to 2.9%. As a result, the brand, which in 2010 was rated the tenth best-selling soft drink, was the sixth best-selling soft drink in Israel in 2011.

Prigat continues to be the second best-selling soft drink in Israel, but had a decline of 3.7% in sales this year, reducing its market share from 5.5% to 5.2%. In 2011, consumers spent NIS 228 million on the brand, NIS 9 million less than in 2010. Jafora-Tabori, Israel's second largest player in this sector, saw sales fall 2.4% in 2011, while its market share fell to 16.4% from 17.1% in 2010. The fall was largely due to weak sales of the mineral water brands it distributes - Ein Gedi and Eden Springs. Its Spring brand strengthened by 3.1%. Tempo Beer Industries, the country's third largest player in the soft drink sector, maintained its market share of 15.9%, and saw sales rise 1.9%. (Globes 09.01)

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2.3 Elbit Imaging Sells GAP Franchisee to Gottex

Real estate company Elbit Imaging sold subsidiary Elbit Trade and Retail and all its holdings GAP franchisee GB Brands LP to swimwear maker Gottex Models for NIS 26 million plus the value of the GAP franchisee's inventory as of the closing date, estimated at NIS 14 million, for a total of NIS 40 million. The Antitrust Authority has to approve the sale. Elbit Imaging will keep its Mango brand retail operations in Israel. Mango operates 25 stores in Israel and the company said its financial results have greatly improved in recent months. (Globes 10.01)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Kuwait's Alshaya Buys Troubled UK Chain La Senza

The UK unit of Kuwait-based retailer Alshaya said it had reached agreement to buy troubled lingerie chain La Senza out of administration. Financial details of the transaction to buy 60 of La Senza's stores were not disclosed, but it was part of Alshaya's plans to invest around £100m in the UK retail sector over the next two years. The remaining 84 La Senza stores will close with immediate effect along with 18 concessions resulting in the loss of around 1,300 jobs. The deal involved what is known as a pre-pack arrangement, under which La Senza briefly went into administration, before being sold. Pre-pack administrations give struggling companies some protection from creditors. Alshaya runs franchise licenses in the Middle East for a number of British retailers including Next, Debenhams and Mothercare. On December 14, La Senza called in KPMG to mull over a series of restructuring options, including administration. (AB 09.01)

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3.2 Qatar Restaurants See Trade Slump After Alcohol Ban

Restaurants and bars on Qatar's flagship Pearl development have seen revenues slump by more than 50% in the wake of a new ruling banning the sale of alcohol to customers. Outlets on the manmade island off the coast of Doha were told on 12 December they could no longer serve alcohol to guests in what is seen as a display of tension between Qatar's Muslim culture and its largely expatriate population. Managers of restaurants located on the popular tourist spot said they had received no explanation for the ban or any indication on whether it might be lifted in the future.

Qatar has shot to fame in recent years, thanks in part to an ambitious investment strategy that saw it snap up trophy assets such as Harrods, and stakes in Barclays, J Sainsbury's and the London Stock Exchange. The wealthy Gulf emirate in 2010 won the rights to host the 2022 World Cup, the first Arab country to do so. Doha has pledged to spend some $88b on infrastructure and hotels over the next decade as it gears up to hold the world's most-watched sporting event. But the country's rapid modernization has raised fears among the local population that Qatar's national identity could be diluted by the influx of expatriates and foreign investment. (AB 10.01)

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3.3 California Grapes International in the UAE

California Grapes International will work with the American Embassy in Abu Dhabi, UAE to conduct a multi-day CA Wine event in the cities of Dubai and Abu Dhabi. CGI and the US Embassy plan to conduct a series of 4 strategic tasting events designed to develop and secure new trading lines and business ventures into the UAE for CA Wines. The planned events are scheduled for the week of 20 February 2012 and include specific targeted audiences of trade professionals, corporate buyers and regional distributors that generally understand and appreciate the value of CA Wines. The events are being hosted or co-hosted by the American Business Council, American Chamber of Commerce, MMI (a leading Dubai distributor of CA Wines). (CGI 11.01)

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3.4 UAE & Saudi Among Top 5 Markets for Rolls-Royce

The UAE and Saudi Arabia were the fourth and fifth biggest markets for Rolls-Royce Motor Cars in 2011, the luxury vehicle maker said on 9 January. The company revealed record sales results for 2011 with a total of 3,538 cars sold globally, a 31% increase on the 2010 total of 2,711 cars. The figure represents the best sales result in the company's 107-year history; the previous record of 3,347 cars having been set in 1978 during the Silver Shadow II era. Sales figures for the Middle East rose by 23% in the past year, adding that the UAE registered 32% growth. (AB 09.01)

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3.5 Hilton Signs Deal to Operate Fourth Riyadh Hotel

Hilton Worldwide signed a management agreement to run a fourth hotel in Riyadh, Saudi Arabia. The deal with Obeikan Real Estate Development Company will see the hotel giant operating the 210-key Hilton Riyadh King Fahd Road which is scheduled to open in 2014. It will be the fourth Hilton Property in the Saudi capital after the Hilton Riyadh King Saud University, Hilton Riyadh King Saud University Residence and the Hilton Riyadh Hotel & Residence, all scheduled to open by 2013. Construction on the hotel has already started. Traditionally a corporate destination, tourism to Riyadh has been primarily driven by administrative activities and commercial developments in and around the city. The government's drive to develop the non-oil sector has resulted in some of the largest developments in the region including the Information Technology & Communication Complex and King Abdullah Financial District. Hilton Worldwide currently has six hotels operating and 14 hotels in the development pipeline in Saudi Arabia. (AB 11.01)

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 Environment Minister Says Israel's Desertification Intensifying, Rainfall Decreasing

On 9 January, Israel's Ministry of Environmental Protection announced a comprehensive national plan of action for what it called, "adaptation to climate change". The plan is based on a report prepared by a team of experts that examined the government's readiness for anticipated climate changes in the coming years. The climate change report predicts warm and gloomy forecasts: average annual temperatures will continue to rise in the upcoming decades at a rate of 0.3-0.5 degrees Celsius per decade. Average precipitation levels in the coming years will continue to decline, and intense heat waves will lengthen and become more frequent. On the other hand, periods of torrential rains and flooding will occur much more often during the winter rainy season. The specialists' report also warns of the worsening desertification, especially in southern Israel.

The Ministry of Environmental Protection said that the plan would include the adaptation of buildings in Israel to weather climate changes, as well as urban planning changes for the expected rise in temperature and flooding, using green building techniques. Civilian and military coastal facilities will be adapted in an effort to counteract rising sea levels that are predicted. New insurance plans covering natural disasters are also being prepared. (Globes 10.01)

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4.2 Greywater Could Be Solution For Israel's Water Shortage

The Federation of Israeli Chambers of Commerce urged the Knesset to embrace greywater recycling as a way to resolve Israel's water shortage. The Federation is currently campaigning for the greywater recycling bill, which is currently being prepared for its first Knesset reading. The problem now is that the lack of proper regulation has led to piracy in the field. There are currently 12 greywater recycling facilities in Israel that are operating unregulated, making them ill-equipped to properly recycle the water. The FICC suggests that greywater recycling in the private sector alone could save the water market about 150 million cubic meters a year – the same as the amount of water Israel's two future desalination facilities will recycle. Advancements in the water recycling industry will also help the job sector, as it stands to create some 1,500 new jobs. The FICC said that the sector also has substantial export potential, which can reach $100 million within five years. (Ynet 12.01)

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4.3 Supergas Wins Tenders For Two Negev Solar Power Plants

Supergas, of the Granite Hacarmel Investments group, has won the first two land tenders published by the Israel Lands Administration for the construction of solar farms in the Negev. The tenders are for leases on land in Mitzpe Ramon and En Avrona for the construction of photovoltaic solar systems and operating them for 20 years. Supergas bid in the tender through two subsidiaries. It will pay NIS 18.7 million for the land at En Avrona which is earmarked for the construction of a power plant with an output of 5 megawatts, and NIS 14.1 million for the land at Mitzpe Ramon, where a plant with an output of 4 megawatts will be constructed. Supergas is involved solar projects amounting to tens of megawatts that are at various stages of regulation and licensing, and is a major player in this industry. It is bidding for the construction of a 30 MW plant at Ashelim. (Globes 12.01)

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4.4 Swiss & German Firms Plan $2 Billion Oman Solar Project

Switzerland's Terra Nex Financial Engineering announced plans for a major $2b project in Oman in collaboration with the Middle East Best Select (MEBS) Group of Funds to develop solar power resources within the sultanate. Terra Nex, a Swiss licensed and global wealth management company, said in a statement that solar power electricity generation stations were central to the project. The project aims to generate approximately 400MW and industrial plants will be established in Oman to manufacture the solar panels and aluminum frames to be used by the power station. The project aims to tie up with major international technology companies and universities with expertise in renewable energy education, to help train the local population. The project will be financed by world investors and financiers, with the majority coming from Germany. From the $2b investment, $600m will be direct equity capital and the remaining covered by loans from European financiers. Terra Nex and MEBS said they have agreed with the local partner, Sheikh Hilal Al-Maawali, to offer 40% of the capital for public subscription in the future after not more than four years from the operation of the project. (AB 15.01)

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4.5 SPI Solar to Develop 2 Megawatt Utility-Scale Solar Energy Facility in Evros, Greece

Roseville, California's SPI Solar, a leading vertically integrated photovoltaic (PV) solar developer and engineering, procurement and construction services provider, announced it has successfully completed the acquisition of the necessary contracts and permits to serve as developer of a 2 megawatt fixed-ground-mount solar energy facility (SEF) which will be located in Evros, a North Eastern region of Greece. This is SPI's second major solar development in Greece. The first project, announced in August, was a 4.4 MW SEF also located in the Evros region. SPI acquired a limited liability corporation to gain interest in the Evros development to become the developer of record for the project, which was fully permitted and ready to be built. The SEF will be a fixed-tilt ground-mount utility-scale facility. The electricity generated by the SEF will be purchased by the Greek Public Power Corporation (PPC) through a 20-year Power Purchase Agreement (PPA). Construction is scheduled to begin in Q1/12. It is SPI's intention to sell the project during the construction phase or upon commissioning. (SPI Solar 17.01)

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Middle East Carriers Lead World in Demand Growth

Middle East airlines led the world for growth in demand in November, according to new data published by the International Air Transport Association (IATA). The region's carriers recorded year-on-year growth of 9.8% in November, the second consecutive month that the Middle East posted the strongest performance. Capacity increases outstripped the growth in demand with Middle Eastern carriers growing their capacity by 10.4%, IATA added. Middle Eastern airlines have seen a gain in market share on long-haul markets through price competitive products. Globally, passenger traffic was 4.3% above November 2010 levels but was 0.5% down on the previous month. Freight markets were 3.1% below November 2010 levels despite a 1.1% increase on October 2011 performance. The Middle East also delivered the strongest cargo performance with 4.6% growth. (AB 03.01)

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5.2 Lebanon May Tap Gas Wealth in 2012

Lebanon is sitting on one of the biggest gas reserves in the region and drilling is likely to start as early as this year. The Lebanese government recently passed a law to administer the country's oil and gas wealth off the coast. Pundits say that the 11th basin off the Lebanese coast is reported to have a gas reserve which are almost three times bigger than Libya's gas reserve. Energy & Water Minister Jibran Bassil, who lobbied hard to pass the law in the Cabinet, was upbeat about the future of the oil wealth in Lebanon, stressing that drilling can start in three months, once the tender is complete. The Cabinet endorsed the long awaited oil and gas decrees on 4 January after a prolonged and heated debate over who should administer the tender and oil and gas exploration off the Lebanese coast. In principle, the government will name a body which will administer the entire oil and gas exploration process. Lebanon is engaged in an ongoing debate with Cyprus, Turkey and Israel over the demarcation of offshore borders for its Exclusive Economic Zone. According to Lebanese energy experts, Lebanon's EEZ stretches some 12 nautical miles out to sea. The 11th basin stretches the entire length of Lebanon.. (TDS 06.01)

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5.3 Beirut Hotels See 28% Drop in Occupancy In 2011

Ernst & Young said hotel room reservations in Beirut in the first 11 months of 2011 fell by 28% compared to the same period of 2010.It said the occupancy rate at Beirut hotels was the ninth lowest among 21 markets in the region, while it was the eighth lowest in 2010. The survey said the average rate per room at Beirut hotels was $222 in the first 11 months of 2011, ranking the capital's hotels as the seventh most expensive in the region. The average rate per room at Beirut hotels decreased by 14% year-on-year and posted the third steepest decrease among all markets in the region, behind Hurghada and Sharm El Shaikh in Egypt. The average rate per room in Beirut came above the regional average of $188.2, which declined by 1.8% from $191.7 in the same period of 2010. Revenues per available room (RevPAR) were $129 in Beirut in the first 11 months of 2011, down from $178 in the same period last year, ranking it in 12th place in the region behind Riyadh and Medina. Beirut's RevPAR was down 27.6% year-on-year, compared to a decrease of 10% across the region. (TDS 12.01)

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5.4 Jordan's Inflation at 4.4% During 2011

Jordan's Consumer Price Index (CPI) rose by 4.4% last year compared with a 5% increase in 2010. According to a report issued by the Department of Statistics, the CPI increase was the outcome of an increase in the prices of several commodities and services, coupled with a drop in the prices of others. Prices of meat and poultry products, transport services, clothes and foot wear rose by 7.6%, 6.8% and 6.2%, respectively, the DoS said. Also, education costs and rentals went up by 5% and 4.8%, contributing to the CPI increase while the prices of vegetables dropped by 4.8%, cereals by 2.5% and telecommunications by 1.9%. (Petra 12.01)

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5.5 Jordan's 2011 Unemployment Rate Stood at 13.1%

Jordan's unemployment rate in 2011 was around 13.1%, according to the Department of Statistics (DoS) which said the jobless rate varied when measured by age and educational qualification. Statistics showed that unemployment during Q4/11 reached 12.1% compared to 11.8% during Q4/10. The DoS figures indicated that 45.1% of the unemployed was among those who have not completed high school (or the third secondary certificate) while the remaining 54.4 were holders of university degrees and above. On the basis of gender, jobless women accounted for 67% of those holding a university degree and above while jobless men constituted 22.8% of this bracket.

According to the International Monetary Fund (IMF) unemployment in the region is largely a youth phenomenon. Young people, aged 15 to 24, account for 40% or more of the unemployed in Jordan, Lebanon, Morocco and Tunisia, and nearly 60% in Syria and Egypt. The IMF attributed the problem partly to demographics as the young constitute a large portion of the population of these countries. There is also a mismatch between the skills young people possess and those that companies seek, the IMF said, noting that overly stringent hiring and firing regulations in most of the region also play a role. (DoS 03.01)

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5.6 Jordan Joins EBRD

Jordan has become a member of the European Bank for Reconstruction and Development (EBRD) as part of the process of becoming a recipient of EBRD investments. The bank said Jordan, also joined by Tunisia, sought membership of the EBRD in 2011, saying that they believed EBRD support would play an important role in helping to implement their programs of economic and political reform. Jordan and Tunisia now join Egypt and Morocco as EBRD shareholders in the southern and eastern Mediterranean region, with Egypt and Morocco being founder members when the bank was established in 1991, the statement indicated. All four countries are the target of support under the Deauville Partnership that was launched under the French presidency of the Group of Eight (G-8) in May 2011 in response to the historic changes under way in parts of the Middle East and North Africa. Indicating that EBRD is expected to take part in renewable energy projects, the bank will also provide financing without sovereign guarantees to infrastructure projects in the sectors of water, sewage and transportation. (JT 04.01)

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5.7 Kurdistan Oil Reserves Could see them Rival the Arabian Gulf Emirates

While much of Iraq may be viewed as in a metastable social and political state, the semi-autonomous northern region of Kurdistan has enjoyed relative peace for a number of years. This has enabled the regional government to develop oil exploitation laws and to lease much of the land to foreign exploration and production companies. Regional operator Gulf Keystone Petroleum has been involved in the discovery of the Shaikan Field, believed to hold between 8 and 13.4 billion barrels in place with appraisal of this giant (potential supergiant) on-going. Gulf Keystone Petroleum believes that Iraqi Kurdistan may hold 45 billion barrels of oil reserves, lending some credibility to Iraqi claims of 115 billion barrels reserves for the whole country. While it is the early days, given the exploration success so far, the estimate of 45 billion barrels reserves made by Gulf Keystone Petroleum does not seem unreasonable. It is reasonable to speculate that given peace, Kurdistan may export between 2 and 4 million barrels of oil per day within the next decade. With a population of 4 million, Kurdistan could expect to become wealthy like Norway and the Arabian Gulf emirates. (Oilprice 15.01)

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►►Arabian Gulf

5.8 Road, Rail & Bridge Projects Planned in the GCC Worth $142 billion

The GCC has $142 billion worth of road and bridge projects underway, or in the planning stages, according to figures released by market analysts Ventures Middle East; Saudi Arabia accounts for a third of this amount. According to the Kuwait Financial Centre or Markaz, GCC countries are on track to spend $97 billion between 2011 and 2020 on new road and railway projects. Railway projects, including rail, metro, tram, and stations are valued at $79 billion, this includes the $30 billion GCC rail network. The planned GCC rail network will begin from Kuwait and will pass through Saudi Arabia's eastern city of Dammam, where it will connect to Bahrain through a bridge that runs parallel to the King Fahd Causeway before reaching Qatar via Salwa. Qatar and Bahrain will be connected by a bridge. Markaz reports that the total value of ongoing projects in roads sector to be almost $18 billion. The GCC has historically focused its transportation investments in building roadways, thus ensuring high quality roads across most of the region. Almost 100% of the roads in the GCC are paved; compared to the average in other emerging countries, which is below 75%. The aggregate length of roads available in the GCC is 291,313 km, of this, 75% is in Saudi Arabia. By the end of June 2011, the GCC had around $18 billion worth of "ongoing" road projects. (AB 11.01)

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5.9 Abu Dhabi Consumer Prices Up By 1.9% In 2011

On 11 January, the Statistics Centre - Abu Dhabi (SCAD) said average consumer prices rose by 1.9% during 2011 compared to the previous year. The food and non-alcoholic beverages group contributed the largest share (67.7%) of the rise in the index during 2011. The largest increase within this group was in the prices of the coffee, tea and cocoa subgroup, followed by the meat group. Also driving the overall year-on-year increase in consumer prices during 2011 was the housing, water, electricity, gas and other fuels group, while transport also contributed to the rises. However, the clothing and footwear group weighed on inflationary pressure and contributed more than two thirds of the overall drop in prices during last year. SCAD said average consumer prices increased by 1.2% in December 2011, compared with December 2010 driven by price hikes in the restaurants and hotels and alcoholic beverages and tobacco groups. Month-to-month, average consumer prices edged down 0.2% in December compared to November, SCAD added. (AB 11.01)

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5.10 Saudi Spending To Exceed 2012 Budget, But Surplus Likely

On 5 January, the Fitch Ratings http://www.fitchratings.com said that spending by Saudi Arabia in 2012 will likely be higher than budgeted, but the country will still run a fiscal surplus of 4% of GDP. Spending growth will moderate in 2012 compared with last year. In 2011, spending growth reached 24%, the highest in a decade. The government raised public sector wages, created government jobs, injected capital into state-owned lenders and pledged more resources for housing. Capital spending - mainly on infrastructure - exceeded 12% of GDP. Saudi budgets typically underestimate both revenue and spending. In 2002-2011, central government spending exceeded the budget by an average of 24.8%. But in each year other than 2009, oil prices lifted revenues beyond expectations, giving the government room to spend more without running a deficit.

In its National Budget released December 26, the Ministry of Finance projected total revenues of SAR702b ($187.2b) and government expenditure of SAR690b, giving a surplus of SAR12b. This appears to be based on a conservative oil price assumption. Assuming Saudi Arabia reduces oil output to an average of 9mbd in 2012, the breakeven oil price would be around $60/b. However, a budget overspend in line with the recent historical average would result in spending of SAR846b and push up the breakeven oil price to $75/b. At Fitch's oil price assumption of $100/b, revenue would reach SAR907b, giving a surplus of SAR61b, or around 4% of GDP.

Over the medium term, there is still a possibility of Saudi Arabia running a deficit by 2015. Assuming 7% spending growth - which would be lower than the annual average of 12.5% in 2002-2011 - modest oil output growth, and an average oil price of $100/b, the country would run a deficit of 1% of GDP by 2015. Fitch rates Saudi Arabia 'AA-' with a Stable Outlook. The high investment grade rating largely reflects the very strong sovereign and external balance sheet. The sovereign balance sheet improved further in 2011, despite the highest spending growth in a decade. Sovereign net foreign assets grew by over $100b to 112% of GDP. (Fitch Ratings 05.01)

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5.11 Saudi Arabia Signs $613 Million Rail Contracts

Saudi Arabia signed three contracts worth $613 million for the construction of maintenance service buildings and five stations to support its longest railway, the North/South railway. Saudi Arabia, which is spending billions to boost its infrastructure, is building its longest railway, over 2,700 kilometers, which will link the capital Riyadh with the country's northern border near Jordan. The project is financed by the state-run Public Investment Fund (PIF). The largest contract, which is for the construction of five railway stations, has been signed with Saudi firm, Al Rashid Trading and Contracting Co. for 1.57 billion riyals. The railway will also link Saudi Arabia's industrial city of Jubail and Dammam port to a network that connects to mining centers through Ras Azzour. (Various 07.01)

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5.12 Brazil & Saudi Firms Partner for $500 Million Riyadh Project

Brazilian construction company Braengel has been chosen to design a $500m complex including a hospital and a five star hotel in Riyadh. The project will cover an area of 76,000 sq. m in the Saudi capital city, and will also include a luxury spa, gym, shopping center and several restaurants. The contract is part of a partnership established by Prince Abdul-Aziz Bin Mishaal Al Saud, who runs Al Shoula Holding Group, a Saudi-based conglomerate with interests in construction, finance and aviation. The prince said he wants the hospital to be an "icon" in the Middle East, attracting women from other countries in the region to Saudi Arabia. Construction of the complex should begin in October, with the project completed in two years. The investment will be $500m, of which 60% will come from Saudi and Qatari businessmen, and 40% from Brazilian companies. The site will be managed by a Brazilian company, which is yet to be chosen by the Saudis. (AB 07.01)

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►►North Africa

5.13 Egypt Begins Negotiations with IMF Over $3.2 Billion Loan

On 16 January, Egypt began long awaited negotiations with the International Monetary Fund (IMF) over a loan to reduce the balance of payments deficit, according to Egypt's Minister of Planning and International Cooperation Fayza Abou Naga. The negotiations are expected to take several weeks to complete. The IMF has not set any conditions for the loan yet. The IMF loan of $3.2 billion would extend over 18 months, after which Egypt may have the option to increase the amount of the loan, or seek additional funding from other sources. Abou Naga denied that the IMF requested an increase in prices of gasoline and diesel fuel. The minister added that the delegation will meet with the Advisory Council and the major political parties that have won seats in parliamentary elections in order to assess their views regarding the government's reform program. She said an IMF delegation would return to Egypt in late January. The IMF said that there were many technical details of the agreement are still to be resolved, and that this visit was to "hear and understand the Egyptian situation." (Various 17.01)

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5.14 Fitch Says Egypt IMF Request Only a First Step Endorsement Policy

On 17 February, Fitch Ratings http://www.fitchratings.com said Egypt's request for a $3.2b IMF standby facility is encouraging, although IMF assistance on this scale would only have a meaningful impact on the country's finances if it catalyzed additional international support. If granted, the facility's most positive impact would be to reassure international investors that Egypt is implementing clear and sustainable fiscal and economic policies, an essential platform for kick-starting renewed foreign investment. This in turn could stabilize - or even ease - borrowing costs until the transfer of power from the military council, due in June. Talks between the Egyptian government and the IMF mission began in Cairo on 16 January, seven months after the country's military council turned down $5.2b of assistance from the IMF and World Bank, reflecting its reluctance to take on large new external debt and its preference to rely on domestic funding to finance the budget deficit.

Although demonstrating a continuing conservative approach to external debt, a long-standing feature of Egypt's policy, this decision was a factor in keeping FX reserves under pressure in the second half of 2011. Fitch downgraded Egypt one notch to 'BB-' on 30 December 2011, following a substantial and accelerated fall in reserves since October that further weakened the sovereign external balance sheet. The Outlook is Negative. At the time of the downgrade, we said that the rating will remain under pressure until an elected government emerges and proves able to implement a comprehensive economic program that attracts external support and foreign investment. Fitch also said that the political backdrop seemed to be becoming less conducive to deficit cutting and spending reallocation, especially in the form of lower fuel subsidies. Egypt's commitments to the IMF, external financial support and decisions surrounding the FY2012/13 budget due at the end of June will all have an important bearing on future rating decisions. (Fitch 17.01)

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5.15 Egypt's Prime Minister Introduces Measures to 'Alleviate' Economic Woes

Rejecting the idea that the Supreme Council of the Armed Forces (SCAF) should hand over power to a civilian government at a sooner date, Egypt's Prime Minister Kamal El-Ganzoury announced on 4 January swift measures to "help alleviate" economic pressures. To boost local production, the government has collaborated with the Principal Bank for Development and Agricultural Credit to provide LE 300 million in order to provide soft loans to farmers with an interest rate not exceeding 4%. In coordination with the ministries of finance and agriculture, the "Veal Project" has been launched in which the government will reduce the price of meat, making it more affordable to consumers. Among the latest reforms, taxpayers who pay before the end of March this year will receive a tax break as an incentive to pay on time. According to El-Ganzoury, the Cabinet also discussed several actions aimed at reducing the growing LE 134 billion budget deficit, increasing resources, promoting investments and exports and reducing unemployment. (DNE 04.010

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5.16 Egypt's Urban Headline Inflation Rose To 9.5% Y-O-Y In December 2011

Egypt's urban headline inflation rose to 9.5% y-o-y in December 2011, but prices contracted on a monthly basis by 0.2%, preliminary data by CAPMAS showed. Annual headline inflation began to pick-up in November 2011 to reach 9.06%, after steadily slowing down the preceding three months. Prices of food and beverages followed the same trend as the overall index in December 2011, witnessing an acceleration in price increases on an annual basis and a monthly contraction in prices. This is due to the jump in inflation recorded in November on the back of the political events and the butane gas shortage, which had moved the index up while pressures in December began to slightly subside. (CAPMAS 10.01)

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5.17 US Expands Trade With Egypt By Granting More Duty-Free Access

The United States announced plans to expand trade with Egypt by granting more Egyptian producers duty-free access to the American market. The US embassy in Cairo said that it is planning to widen its Generalized System of Preferences (GSP) program, which currently offers duty-free access to the US market to an array of Egyptian products. The GSP program eliminates duties on over 3,400 products entering the US market from Egypt and other developing countries. In 2010, Egypt exported $51 million to the United States under the program, including agricultural produce and locally manufactured products. (Various 10.01)

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5.18 Egyptian Bankruptcies Increase by 26%

In 2011, Egyptian bankruptcies increased by 26% in comparison to the year before, according to a report released by the cabinet. Also, the value of securities traded on the Egyptian Stock Exchange fell by 67%, the number of companies started last year fell by 13%, exported capital witnessed a 40% decline and privately-owned companies lost 39% of their capital. According to a Monthly Economic and Social Indicators report issued by the Egyptian Cabinet's Information and Decision Support Center (IDSC), imports increased by 33% in December 2011 as compared to the same period in 2010. Exports increased by 7%. The value of the Egyptian pound dropped against the dollar, Euro and British pound in December by 3.7%, while the value of gold rose 27% from December 2010. The report also pointed to a 30% increase in the number of internet users, a 26% increase in the number of mobile phone subscribers, and a 10% decline in the number of land line subscribers as compared to 2010. The report showed a 33% decline in the revenue of goods transported by train and a 14% drop in revenues from natural gas exports. Concerning the health sector, the report said the number of cases treated abroad in 2011 at the state's expense increased by 80%, while the number of total cases treated at the state's expense decreased by 17%. (EI 01.01)

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5.19 Egypt Implements Biometric Visa Requirement for Foreign Officials

An Egyptian foreign ministry spokesman said the officials of 27 Schengen Area countries, plus the United States and the United Kingdom, would have to show biometric visas when entering the country. Foreign Minister Amr has ordered Egyptian embassies in those countries to implement the decision, which will apply to all officials, including those who have diplomatic passports. The employees who work in the foreign embassies in Egypt will also have to follow the new rule. The biometric visa is already used in countries that are part of the Schengen agreement. The decision to apply the measure on Egyptians visiting the Schengen countries, the US and UK a few months ago was met with resentment by the Egyptian government. The biometric visa requires visitors to submit a digital photo and fingerprints for approval. (Beltone 16.01)

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5.20 Egypt's Dabaa Nuclear Station Project Crisis Escalates

Dabaa locals stormed the site of the Dabaa nuclear station project on 15 January, as well as the buildings of the Egyptian Atomic Energy Authority in an escalation of the stand-off between the locals and the government. The protesters started a sit-in outside Dabaa plant in Marsa Matrouh on Egypt's Mediterranean coast on 13 January, before storming the premises two days later. They are currently refusing to leave the location until their demands are met and the project is terminated. The locals also blew up some of the buildings belonging to the Egyptian Atomic Energy Authority, allegedly using dynamite. The governor revealed in a meeting that the government was going to compensate the locals for the land, while members of parliament suggested that the nuclear project be transferred to another location. The nuclear station in Dabaa project has been controversial since its announcement under ousted president Mubarak. The project was met with opposition from the local community and tourism developers in the area, raising environmental concerns about the potentially devastating effects of the nuclear station. (Various 17.01)

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5.21 Libya's NTC to Review Investments Worldwide

Libya will review its investments in the Arab world, Africa, and elsewhere, and it will make major agricultural and property investments in neighboring Sudan, the ruling National Transitional Council announced. Under Qaddafi, Libya invested its oil wealth mostly in Europe but it also made major investments in Africa, the Middle East, North Africa and the United States. Some of Libya's major investments in Africa are managed by the $65 billion Libyan Investment Authority (LIA) through a $5 billion fund known as Libyan African Investment Portfolio (LAP). The African fund investments includes LAP Green Network, a telecom company operating in six African countries, which officials said made losses due to U.N. sanctions. The LIA has conducted a sweeping probe of its investments over the past few months and made recommendations to the new Libyan government. Among LIA's assets are stakes in Italian bank Unicredit, British publisher Pearson and Juventus Football Club in Italy. The U.N. Security Council's lifted sanctions on the Libyan Central Bank in December and granted a subsidiary giving the country's new rulers immediate access to cash needed for salaries, payment for former rebels and reconstruction efforts. (LBN 07.01)

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5.22 The Conflict Over, 1.2million Children to Return to School in Libya

More than 1.2 million children returned to school in Libya on 7 January, 10 months after evacuating classrooms because of the fighting during the country's popular uprising. The conflict took a heavy toll on Libya's education system, with schools closed, damaged and used for military and humanitarian purposes. Many children suffered deep scars from the violence and the loss of loved ones. With support from UNICEF and other partners, the Government worked round the clock to rehabilitate infrastructure and clear rubble, landmines and unexploded ordnance from schools. A total of 27 million revised textbooks are being printed, 10 million of which are already being distributed by the Ministry of Education throughout the country. Severely distressed children and their families are receiving psycho-social support and work is underway to track internally-displaced and other vulnerable children to ensure that they are enrolled. With assistance from the EU and other donors, UNICEF will support Libyan authorities in broad-based reforms. (Tripoli Post 08.01)

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Turkish Unemployment Up Slightly At 9.1% in October

Turkey's unemployment was 9.1% in October, a 0.3% increase over the preceding month when it hit its lowest level since 2001, said data from the Turkish Statistics Institute (TurkStat). The rate of unemployment in September 2011 was 8.8%, the lowest level since a 2001 domestic financial crisis. The rate rose slightly to 9.1% in the 10th month of 2011, representing, however, a 2.1% decline from the same month of 2010. The government's Medium-Term Economic Program (OVP) estimates the year-end unemployment in Turkey for 2011 at 12%. The number of unemployed in Turkey declined by 447,000 in October over the 10th month of 2010, while the number of persons employed jumped 1.5 million in the same 12 months; 1.12 million of this increase went to non-agricultural industry. The number of unemployed was 2.45 million as of October 2011, and the number of employed totaled 24.48 million, TurkStat data indicate. The unemployment rate was 11.1% in urban areas and reached 5.3% in rural areas with a 2.5% and a 1.1% decline in October over the same month of 2010, respectively. Turkey's unemployment rate reached a worrisome 15% in 2009 when the global financial crisis hit the world economy the hardest. Last year, the government's fight against inflation paid off, and the unemployment rate was able to be brought down to as low as 10.5%. The rate of unemployment fell to single digits after three years for the first time in April of last year, at 9.9%. (Zaman 16.01)

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6.2 Turkish Compulsory Education Length May Rise To 12 Years

A new draft bill foresees to extend compulsory education to 12 years while dividing it to three-tier system. Accordingly, students will be able to continue their education in vocational schools after the first four years The new system will require students to attend a primary, secondary and a high school for four years each instead of eight years of unbroken compulsory education. The ruling Justice and Development Party (AKP) is set to present a draft bill to Parliament soon to extend compulsory education in Turkey from the current eight years to 12 while augmenting the weight of specialized courses. Students will now be able to change their schools after the first four years and attend another school's second tier for their secondary education to vocational and religious vocational schools as well.

If Parliament approves the draft bill, the Education Ministry will also redesign the existing secondary school curriculum so as to lend greater weight to specialized field courses. Classroom teachers will conduct the initial four years of primary education, while subject-specific teachers will enter secondary school classes. Transition clauses will also reportedly be added to the amendment to prevent currently enrolled students from being unfairly affected by the new changes. The system currently in effect is based on regulations adopted in 1997. (Hurriyet 06.01)

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6.3 Turkey Gets F Grade in English

A study by the research foundation TEPAV warns about poor foreign language skills in Turkish society, claiming a better English education would support economic growth. Turkey has ranked a dismal 43rd out of 44 countries in the English Proficiency Index (EPI), possibly hindering its economic competitiveness, according to a recent report by the Economic Policy Research Foundation of Turkey (TEPAV). The EPI, prepared by Education First (EF), ranks Turkey just above Kazakhstan in English proficiency. Despite being the 16th largest economy in the world and a powerful regional player, Turkey lags behind countries like Chile, Saudi Arabia and India when it comes to English, the report said. TEPAV makes the argument that a high level of English proficiency is critical for achieving this second stage of economic growth. Reliance on exports may also affect English proficiency in a positive fashion, according to the report. Reliance upon exports creates an incentive for a country's population to learn English. If Turkey were to increase its trade and exports to English-speaking markets like the U.S., this would spillover into an improvement in English levels, the report proposed. Furthermore, the level of English in a country is one of the most important factors for American and British companies when deciding where to outsource a business. The report also points to educational spending as a key indicator of proficiency in English. Countries that rank in the top 25 of the EPI test spend an average of $32,000 on educational institutions per student, whereas Turkey only spends $12,708. The index was compiled from over 2 million adults from 44 countries who took a free online English test. (Hürriyet 22.12)

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6.4 Cyprus Unemployment at Record High

Cyprus recorded one of the highest increases in unemployment among EU member states, together with Spain and Greece, from November 2010 to November 2011. Cyprus unemployment in November 2011 stood at 9.1% in relation to 6% in November 2010, just below the EU average of 9.8%. Unemployment in young people under 25 also increased in Cyprus from 15.3% in September 2010 to 23.1% in September 2011. The EU average stood at 22.3% in November, up 1.3% from November 2010 (21%). Men and women were equally hit by unemployment in Cyprus with unemployment in men recorded at 9.2% and in women at 9.1% in November 2011. The corresponding period of last year saw unemployment in men at 5.7% and in women at 6.4%. EU average unemployment in men in November 2011 was 9.7% and in women 10% seeing a marginal increase from November 2010 when unemployment in men stood at 9.5% and in women at 9.7%. (FM 07.01)

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6.5 Greek Farms Must Return €425 Million Subsidies

Some €425m euros ($549m) in Greek government subsidies to farmers were incompatible with EU law and will have to be returned, a European Commission spokesman said. Details of precisely when the farmers must return the money will be decided after the Commission formally adopts a decision and publishes this in the EU's Official Journal. Farmers obtained the aid after blocking highways for weeks at the beginning of 2009, shutting border crossings with Bulgaria and cutting the main roads from Athens to major cities. They were demanding tax rebates and subsidies to cope with the global economic downturn. At the time the aid package was agreed, Greek media questioned whether it would violate EU rules on state assistance and ridiculed the government's failure to get authorization from Brussels. Greece's farming sector is one of the EU's biggest relative to the size of its national economy, accounting for about 3% of output. But the sector has shrunk considerably over the past decade, and most of it consists of small-scale farmers who rely on EU subsidies and guaranteed minimum prices to survive. Farmers, like the rest of Greece's population, have been hard hit by what is expected to be the fifth consecutive year of economic contraction in 2012. Any attempt to recover the subsidies may anger them even further ahead of a general election expected in the first half of the year. (FM 07.01)

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6.6 Consumption Starting To Power Up Bulgaria's Economy

Domestic consumption has become the main engine of economic growth in Bulgaria in Q3/11, according to Raiffeisenbank Bulgaria. The third quarter saw a shift in the structure of growth in the Bulgarian economy, with domestic demand now being the most powerful factor, when Bulgaria's economy grew by 2.3% year-on-year. At the same time, savings have seen a decline as a share of GDP for the first time since the start of the economic crisis in 2008, with indications that demand will remain the primary factor for growth in Bulgaria in the fourth quarter. The Raiffeisenbank economists stressed that Bulgaria had surprisingly low inflation in November. The macroeconomic report pointed out that domestic consumption increased by 5% in Q3, replacing exports as the leading contributor to the GDP growth. Savings declined to 25.1% for the first time since the start of the recession. Bulgaria's November inflation went up 0.3% compared with October, driving down the average yearly inflation to 4.4%. Bulgaria's budget deficit in the first 11 months of 2011 reached 1.4% of the GDP, which is substantially lower than the 2.5% projection for the year. The fiscal reserve amounted to BGN 5.3 B. Raiffeisenbank added that in December Fitch Ratings confirmed Bulgaria's credit rating at BBB-, changing it from a positive to a stable perspective, and Standard&Poor's confirmed Bulgaria's rating at BBB, preserving its stable perspective. (SMN 10.01)

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6.7 Bulgaria Formalizes Military Ties With Israel

Bulgaria and Israel have signed two military agreements at a meeting of their Defense Ministers, Angelov and Barak, in Tel Aviv. The first agreement provides for joint military drills between the armed forces of Bulgaria and Israel, the Bulgarian Defense Ministry announced. The second document singed on 15 January at the Angelov-Barak meeting in Tel Aviv is a MoU for cooperation in military industry. The memorandum on the military-industrial complex regulates military manufacturing and arms trade as well as research and development activities in the ties between Bulgaria and Israel. (SMN 16.01)

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Israelis Restore 2,000 People's Eyesight

Israeli doctors have recently restored the eyesight of more than 2,000 people in seven countries: Nepal, Myanmar, Uzbekistan, Tajikistan, Cambodia, the Maldives and Ethiopia. The surgical operations were performed in special camps set up by MASHAV (Israel's Agency for International Development Cooperation, which is subject to the Foreign Ministry) in cooperation with the Eye from Zion organization and the Kahn Foundation. All surgeons were Israeli ophthalmologists. Eye Camps is a special operation aimed at restoring the eyesight of patients in developing countries which have no infrastructure for eye surgery. Israel sends a team of ophthalmologists who for two weeks perform cataract, oculoplastics and sight restoring surgical operations on dozens of patients. The Israeli physicians also provide professional training and guidance to local teams engaging in ophthalmology. The locals are responsible for selecting the potential candidates for surgery and gathering them in a central hospital or any other suitable site. The equipment required for the operations and post-surgery treatments is purchased by MASHAV and flown to the different countries through diplomatic mail. (Ynet 12.01)

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7.2 Knesset Panel Passes Bill Forbidding Use of Nazi Symbols

On 10 January, the Ministerial Committee on Legislation approved a bill that, if passed into law, would prohibit the use of Nazi symbols or terminology. Any violator found to have made use of a Nazi symbol or term – including yellow stars, swastika, calling someone a Nazi and more – could face up to six months in prison and a fine of up to NIS 100,000 ($26,000). The bill comes on the heels of a recent demonstration organized by an extreme ultra-Orthodox sect in Jerusalem to protest widespread condemnation of their practices deemed demeaning to women. The demonstration included protesters wearing striped concentration camp uniforms and yellow star badges exclaiming that they were being subjected to a type of Holocaust. In addition, extremist right-wingers habitually call police officers and military personnel "Nazi" in confrontations over the evacuation of settlements and outposts. (Israel Hayom 09.01)

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7.3 Tel Aviv Ranked World's Top Gay Destination

The world's top travel destination for LGBT travelers is Tel Aviv, according to a worldwide survey jointly conducted by GayCities.com and American Airlines. Tel Aviv defeated metropolises including New York, Madrid, Sao Paolo and London, easily sweeping the competition with 43% of the vote. The new honor should come as no surprise to those who know and love Tel Aviv. Israeli officials have been trumpeting the country's second-largest city as a gay destination for several years, and this year, the government and Tourism Ministry joined hands to create a new gay-centered advertising campaign, dubbed Tel Aviv Gay Vibe. Every year for one week in the summer, the White City, as Tel Aviv is known, turns rainbow-colored for Gay Pride Week. Some 5,000 gay tourists joined some 65,000 Israelis to march in last year's annual Gay Pride Parade in Tel Aviv. The annual march cuts though the heart of Tel Aviv and culminates in a massive beach party. (Israel Hayom 11.01)

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*REGIONAL:

7.4 UN Alarmed at Increasing Rate of Executions in Saudi Arabia

The United Nations human rights office expressed alarm at the significant increase in Saudi Arabia's use of capital punishment in the past year. According to the Office of the High Commissioner for Human Rights (OHCHR), the number of executions in the country almost tripled last year compared with 2010. What is even more worrying is that court proceedings often reportedly fall far short of international fair trial standards, and the use of torture as a means to obtain confessions appears to be rampant. Saudi Arabia applies the death penalty for a wide range of offences, including the charge of sorcery and witchcraft, for which a woman was executed last month. OHCHR also expressed grave concern at the recent sentencing of six men convicted on charges of highway robbery. The men were condemned to "cross amputation" – a form of punishment which involves the amputation of the men's right hands and left feet. Last October, OHCHR voiced deep distress over the execution of 10 men who were publicly beheaded in the country's capital, Riyadh, while underscoring that about 140 of the 193 UN member states are now believed to have either abolished the death penalty or introduced a moratorium. (Various 06.01)

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7.5 Libya Begins Plan to Elect Assembly

Libya's interim government is considering a draft law laying out procedures for electing a planned constitutional assembly, taking a first step toward the establishment of a new government after the overthrow of Qaddafi. The draft law leaves the most difficult and politically delicate questions, like drawing up districts or settling on an electoral system, to a proposed commission to be named later. Those questions are especially thorny because their answers will inevitably favor some regions or groups over others. The transitional government is already struggling with little success to persuade various local militias around the country to surrender their arms and submit to a central authority. The local chiefs are holding on to their weapons in part to ensure that their local interests do not lose out in the formation of a new government. The law would bar former officials of the Qaddafi government from serving on the panel. But it would not remove them from the current interim administration or from future government jobs. The presence of former Qaddafi government personnel is a common complaint with the transitional administration. The law would allocate 20 of the 200 seats in the assembly to women. The assembly is expected to be chosen by June and empowered to form a government while it writes a new constitution. (LBN 02.01)

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7.6 Tunisia's Islamist Party Slams Anti-Semitic Slogans

The head of Tunisia's moderate Islamic party has condemned anti-Semitic slogans chanted by a handful of ultraconservative Muslims during the arrival of a top Hamas official. The chants alarmed the local Jewish community and are the latest action by a small group of ultraconservative Muslims over the past few months to have embarrassed the government in what was once one of the more secular countries in the Arab world. Rachid Ghannouchi reiterated that the policy of his Ennahda party, which heads the country's new government, was that Tunisia's Jews are "full citizens with equal rights and duties." Videos circulated online showed crowd members greeting Ismail Haniyeh, leader of the Hamas-ruled Gaza Strip, at the airport in Tunis chanting "Kill the Jews" and "Crush the Jews." The chants came from Salafists, ultraconservative Muslims who have been making their presence felt in Tunisia recently.

After decades of being oppressed by Tunisia's secular dictators, Ennahda won elections and has been at pains to demonstrate its moderate credentials and belief in universal rights and freedoms for all Tunisians. The party has been repeatedly embarrassed by ultraconservative Islamic groups that have emerged since President Ben Ali was ousted from power last year in an uprising in Tunisia that led to revolts around the Arab world. Hamas' founding charter is filled with anti-Semitic references and conspiracy theories about the Jews. Tunisia now has a Jewish population of 1,500 Jews, but in the 1960s there were 100,000. Most left following the 1967 war between Israel and Arab countries. (Israel Hayom 10.01)

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7.7 Cypriot Census Records 21.7% Increase in Population

Cyprus' population reached 838,897 persons on 1 October 2011, compared to 689,565 during the previous census in 2001, recording an increase of 21.7% over the past ten years, according to the preliminary results of the 2011 census, presented by the Statistical Service. The census began on 1 October and was concluded on 23 December. The distribution of the population by gender was 51.3% women and 48.7% men, with Nicosia holding 38.8% of the total population, Limassol 28%, Larnaca 17.1%, Paphos 10.5% and Famagusta 5.5%. The increase in the population was also due to the number of foreign nationals, which reached 21.4% of the total population, compared to 9.4% in 2001. A total of 179,547 foreigners were recorded, of which 62.6% from EU countries and 37.4% from third countries. The largest number foreign nationals recorded was from the EU, with 31,044 from Greece, 26,659 from the UK, 24,376 from Romania and 19,197 from Bulgaria, while foreigners from third countries were mainly from the Philippines with 9,744, Russia with 8,663, Sri Lanka with 7,350 and Vietnam with 7,102.

The number of households recorded was 302,619, compared to 223,790 in 2001, recording an increase of 35.2% over the past ten years. The average size of households in 2011 was 2.76 persons. During the previous census in 2001, the average size of a household was 3.06 persons. This did not indicate a drop in the birth rate, rather an increase in the number of persons living alone. (FM 29.12)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Roche & Itamar-Medical Developing EndoPAT for Pre-Clinical Longitudinal Studies

Itamar-Medical achieved the next milestone of the international pharmaceutical company, Roche, to further develop the EndoPAT technology for pre-clinical trials. This is a continuation of the original announcement from December 2010. The device developed will enable pharmaceutical companies in general to potentially integrate EndoPAT into a large number of drug development projects at a very early drug development stage. Itamar's EndoPAT technology serves as a vital, non-invasive diagnostic tool for measuring endothelial dysfunction – the early stage of arteriosclerosis in humans. Caesarea's Itamar Medical http://www.itamar-medical.com is a publicly-traded medical technology company utilizing PAT (Peripheral Arterial Tone) signal technology and applications. The PAT signal is a non-invasive "window" to both the cardiovascular and autonomic nervous systems. (Itamar-Medical 04.01)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Ness Technologies Engaged by Pegasus Solutions for Software Product Development

Ness Technologies announced that its Software Engineering business unit was selected as a software development partner by Pegasus Solutions, the world's leading provider of technology and services to hotels and travel distributors. The Ness and Pegasus partnership was solidified through agreement on a three-year contract worth $1.5 million. Ness and Pegasus established an extended software development center (EDC) in Mumbai, India to focus on developing adapters that will facilitate communication between customer applications and Pegasus' core reservations platform RezView NG. The engagement will include development, integration testing and end-to-end customer certification testing. Tel Aviv's Ness Technologies http://www.ness.com is a global provider of IT and business services and solutions with specialized expertise in software product engineering; and system integration, application development, consulting and software distribution. Ness delivers its portfolio of solutions and services using a global delivery model combining offshore, near-shore and local teams. (Ness 05.01)

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9.2 KinCare Improves Customer Services and Reduces Costs With ClickSoftware Cloud Solutions

ClickSoftware Technologies announced that KinCare, one of Australia's leading providers of in-home and nursing care services, will be implementing ClickSoftware Cloud. The SaaS workforce management solution is expected to be utilized by 1500 care-givers across Australia to help KinCare increase efficiency, manage costs, minimize time spent on IT maintenance and more easily scale its operations to meet demand. KinCare provides a wide range of home and health care services including nursing care, personal care, domestic assistance, social support, respite care, transport and case management. ClickSoftware Cloud will enable KinCare to automatically deploy its health professionals to the right place, with the right skills, at the right time, using the optimal route. This will help to ensure that the individual health requirements of each end client are managed in a consistent and timely manner. As part of a drive to revolutionize the homecare market in Australia through the consistent provision of the very best services to its clients, KinCare had already deployed ClickSoftware's on premise solution to optimize the deployment and activities of its employees. Now, with the company introducing a companywide cloud policy, it has decided to implement ClickSoftware Cloud.

Tel Aviv's ClickSoftware http://www.clicksoftware.com is the leading provider of automated workforce management and optimization solutions for every size of service business. Their portfolio of solutions, available as cloud or on premises, creates business value through higher levels of productivity, customer satisfaction and operational efficiency. Their patented concept of 'continuous planning and scheduling' incorporates customer demand forecasting, long and short term capacity planning, shift planning, real-time scheduling, mobility and location-based services, as well as on-going communication with the consumer on the expected arrival time of the service resource. (ClickSoftware 04.01)

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9.3 Altair Semiconductor Production Test Tool Based on the Rohde & Schwarz CMW500

Altair Semiconductor and Germany's Rohde & Schwarz, announced today the release of a production line tool that enables effective testing of LTE terminals built on Altair's FourGee chipsets. The introduction of the production tool comes in response to Altair's growing number of OEM and ODM customers currently transitioning into mass production. As LTE gains momentum around the world, demand for production tools that can quickly and effectively test LTE terminals is greatly increasing. The functional interaction of the Altair 4G LTE chipset and the R&S test equipment provides high value to the cost sensitive production market. Hod HaSharon's Altair Semiconductor http://www.altair-semi.com is the world's leading developer of ultra-low power, small footprint and high performance 4G semiconductors. Altair's chipsets can be found in approximately 30 end-user devices - ranging from USB dongles to smartphones - built by its more than 15 customers across North America, Europe, China, India and Taiwan - making it one of the only TDD/FDD LTE chipset manufacturers in the world with commercially available products. Altair's comprehensive product portfolio includes baseband processors, multi-band RF transceivers for both FDD and TDD bands, and a range of reference hardware and product level protocol stack software. (Altair Semiconductor 04.01)

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9.4 Israel Aerospace Industries Seals $1.1 Billion Deal with Asian Client

Israel Aerospace Industries announced it will sell weapons systems worth more than $1.1 billion to an Asian country over the next four years. The company will supply the unnamed client with missile systems for offensive and defensive purposes, planes, unmanned aerial vehicles, intelligence and other systems. Negotiations between the company and the foreign client spanned nearly two years and in recent months were conducted personally by the company's CEO. IAI said the deal was signed but did not identify the buyer. Some have speculated it to be India. Israel's past defense trading partners in Asia have included Singapore, South Korea, India and China. Israel Aerospace Industries http://www.iai.co.il, Israel's biggest arms firm, develops military and commercial aerospace technology, including communications satellites, unmanned air systems, naval attack missiles and business jets, and upgrades combat aircraft and helicopters. Following the current order, which is one of the largest in the past few years for IAI, the company's cumulative orders are estimated to be worth more than $10 billion. Israel plans a public offering of 20 to 30% of IAI this year, the Finance Ministry announced earlier. (Israel Hayom 09.01)

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9.5 LucidLogix XLR8 Software Optimizes Power & Performance of Embedded GPUs

LucidLogix announced GPU virtualization software designed to improve the response performance, visual quality and battery efficiency of mobile devices including smartphones, tablets, ultrabooks, notebooks and more. Codenamed "XLR8", Lucid has taken the core technology behind its recently announced Virtu MVP software and applied it to single, embedded graphics processors like AMD Fusion, ARM Mali, Intel Ivy Bridge and NVIDIA Tegra. XLR8 increases CPU frame generation while minimizing redundant GPU rendering tasks, providing maximum input responsiveness, sometimes as high as a 200% improvement. It does this while minimizing battery drain. XLR8 allows mainstream and mid-range GPUs to deliver the experience of higher priced systems with discrete GPUs. The core technology behind XLR8 uses unique multi-threading, task detection and redundant task removal processes that are also sensitive to battery/power draw. Kfar Netter's Lucid Technologies http://www.lucidlogix.com has reinvented multi-core graphics with its Virtu GPU virtualization software that optimizes system performance, visual quality and responsiveness while minimizing power drain. (Lucid 10.01)

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9.6 LucidLogix Cloud Gaming Infrastructure Brings High Performance Gaming to Any Device

LucidLogix announced Virtual Graphics Ware (VGWare), its new cloud graphics software that enables high-performance, AAA-quality gaming on all levels of CE devices. In addition to cloud gaming, VGWare allows for remote graphics rendering that improves the performance of a variety of client/server applications. The Lucid VGWare Cloud based infrastructure is an adaptive client-server remote graphics engine, which consists of massively scalable software that allows multiple concurrent applications, such as games, to run on a remote server in the Cloud or data center. This server is then able to stream these applications to client devices such as tablets, internet ready TVs, smartphones and more. In addition to remote graphics for gaming, VGWare can allow other power-hungry applications to be hosted on the server, like media and entertainment Cloud applications, as well as business software and even desktop Operating Systems. VGWare is a massively scalable and feature-rich Cloud gaming infrastructure.

Kfar Netter's Lucid Technologies http://www.lucidlogix.com has reinvented multi-core graphics with its Virtu GPU virtualization software that optimizes system performance, visual quality and responsiveness while minimizing power drain. Lucid Virtu software product line refined the meaning of performance, quality and responsiveness in PC and notebook gaming and video, allowing millions of consumers to get the most out of the hardware that they own. Now with VGWare, LucidLogix extends this quality experience to any device with a graphics processor. (Lucid 10.01)

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9.7 Valens Introduces VS010 Chipset Featuring HDBaseT-Lite Transmitter and Receiver

Valens Semiconductor announced the availability of its new VS010RX HDBaseT-Lite Receiver and VS010TX HDBaseT-Lite Transmitter chipset, and the associated evaluation kit. HDBaseT technology is a consumer electronics (CE) connectivity technology optimized for whole-home and commercial multimedia distribution. HDBaseT is ideal for installations requiring the full 5Play feature set - uncompressed, full HD video, audio, 100BaseT Ethernet, Power Over HDBaseT (POH) and various control signals - over distances up to 100 meters. Valens developed the VS010 chipset to meet the needs of installers requiring only select HDBaseT functionality at distances less than 70 meters. The new HDBaseT-Lite solution is complementary to standard HDBaseT technology, enabling single-cable transmission of uncompressed HD video, audio, power and controls through a single 70m LAN cable.

Hod HaSharon's Valens Semiconductor http://www.valens-semi.com provides semiconductor products for the distribution of uncompressed high-definition (HD) multimedia content. The company's HDBaseT technology enables long-reach connectivity of devices over a single 100m/328ft standard CAT5e/6 LAN cable and is fast becoming the new, global standard for advanced digital media distribution. Valens is a founding member of the HDBaseT Alliance, formed by leading CE companies to define a new industry standard for advanced digital media distribution. (Valens 10.01)

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9.8 RADVISION Receives 2011 INTERNET TELEPHONY Product of the Year Award

RADVISION announced that TMC, a global, integrated media company, has named RADVISION a recipient of the 2011 INTERNET TELEPHONY Product of the Year Award for its SCOPIA Mobile HD Video Conferencing solution. RADVISION SCOPIA Mobile v3 debuted in October 2011 as the industry's first standards-based mobile video application to enable HD video conferencing, data collaboration with review capabilities, conference call control, moderation and administration all through an intuitive user interface. With click-to-participate capabilities, users can join standards-based video conferences with full two-way video and see up to 28 participants simultaneously. Through SCOPIA video infrastructure, SCOPIA Mobile can connect to telepresence systems, standards-based HD video conferencing systems and unified communications applications such as Microsoft Lync for unmatched interoperability. Founded in 1992, Tel Aviv's RADVISION http://www.radvision.com is a leading provider of video conferencing and telepresence technologies over IP and wireless networks. RADVISION teams with its channel and service provider partners to offer end-to-end visual communications that help businesses collaborate more efficiently. RADVISION propels the unified communications evolution forward with unique technologies that harness the power of video, voice and data over any network. (RADVISION 12.01)

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9.9 Orbotech Receives 2011 Supplier Appreciation Award from Viasystems

Orbotech has been presented with the ‘Supplier Appreciation Award' for 2011 by St. Louis, Missourii's Viasystems Group, Inc., one of the world's largest full service providers of printed circuit boards (PCBs). Orbotech was selected for this prestigious award in recognition of its exceptional service at Viasystems' PCB production plants in Asia Pacific and its top performance in providing the enabling solutions required to support the company's continued success. An extensive fleet of Orbotech systems is utilized in production throughout Viasystems' facilities worldwide, including the latest advanced technologies for laser direct imaging (LDI), automated optical inspection (AOI), inkjet legend printing, automated optical repair (AOR) and CAM/Engineering software. Yavne's Orbotech http://www.orbotech.com has been at the cutting edge of the electronics industry supply chain, as an innovator of enabling technologies used in the manufacture of the world's most sophisticated consumer and industrial products, for over 30 years. The Company is a leading provider of yield-enhancing and production solutions, primarily for manufacturers of printed circuit boards and flat panel displays; and today, virtually every electronic device is produced using Orbotech technology. The Company also applies its core expertise and resources in other advanced technology areas, including character recognition for check and forms processing and solar photovoltaic manufacturing. (Orbotech 12.01)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel Visited by 3.4 Million Tourists in 2011

More than 3 million tourists came to Israel last year, the vast majority of them staying for at least one night, making 2011 the second most voluminous year for incoming tourism. The Central Bureau of Statistics announced on 9 January that Israel's popularity as a tourist destination remained relatively steady, dropping just 2% from the record levels of 2010. Last December, 263,000 tourists arrived, compared with the previous December's 269,000. Some 540,000 tourists arrived in Israel for day visits in 2011, mostly from Russia, Poland and the Ukraine. A significant number of these opted to arrive on a cruise ship. Despite regional geo-political unrest and economics in 2011, the Israeli economy saw record tourism-related revenues of $9.1 billion over the past year – a 2% increase from the previous year. (Israel Hayom 10.01)

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11: IN DEPTH

11.1 ISRAEL: Defense and Security Report Q1 2012

While the Arab Spring has raised hopes for a new more democratic and more peaceful Middle East for many in Israel, the overthrow of the country's erstwhile ally in Egypt and disruption of the region's balance of power has led to unease over the future of the country's security situation. In spite of these concerns and a number of high-profile incidents, the number of active conflict points has actually dropped since 2008. Nevertheless, Israel continues to exist in a fragile and dangerous environment with few regional allies and as a result the country's defense industry will continue to be relied upon in order to maintain everyday life in the country. Because of this experience, Israel is at the forefront of much of the world's counter-terrorism and surveillance equipment.

Israel is a major importer of surface ships and warplanes. Indigenous production focuses on component manufacture and the country provides other countries with an array of technologically-advanced weapons and detection systems. Close political and economic ties with the US, by far the world's largest spender in the defense sector, has opened the door to a number of strategic partnerships between US and Israeli companies providing wide access to the US market.

Israeli companies have announced a number of major contract wins in 2011. In May 2011, General Dynamics agreed to buy components for US Army M1A2 Abrams tanks and Stryker armored personnel carriers from Israeli companies as part of a $150m reciprocal procurement agreement with Israel. In exchange, General Dynamics will build the Israeli-designed Leopard armored personnel carrier for the Israeli Defense Force. In August 2011, it was reported that Rafael Advanced Defense Systems and US-based Raytheon would jointly market Rafael's Iron Dome rocket interception system in the US. The system is used in by the IDF to intercept rockets fired from the Gaza Strip.

Economic growth in the state had expanded at a healthy rate on the back of higher consumer confidence and a more supportive external environment and this has is seen spending on defense growing too. However, it had dropped to below 6% of GDP and now, by mid-2011, it shows signs of deceleration. BMI maintains its 2011 and 2012 real GDP growth forecasts of 4.8% and 4.5%.

The biggest risk to BMI's GDP forecast is how investors react to the Arab Spring. Investors may take a step back until the future of Israel's relations with its neighbors, particularly Egypt, Syria and Lebanon, gain further clarity. Investors will particularly be watching the evolving relationship with Egypt, as Egypt's role in containing Hamas in the Gaza Strip has been essential to Israeli security.

If a newly elected Egyptian government takes a pro-Palestinian position the effect on Israeli security will be pronounced. An uncertain security situation is nothing new for Israeli investors; nevertheless, the country is entering a new era along with the rest of the region and investors' risk appetite may well be tempered by rising uncertainty.

Politically, BMI's view is that the Israeli coalition government that came to power at the start of 2011 has become more conservative in its domestic policy position and more hawkish in its foreign policy stance. The Arab spring and a series of domestic protests in recent months have raised uncertainties over the security situation in these countries. The Netanyahu government has responded to these events with hardline rhetoric, but also signs of increased engagement. Israel has vociferously opposed Mahmoud Abbas' attempt to gain statehood for Palestine at the UN, but at the same time orchestrated one of the most significant prisoner exchange programs in the history of Israel-Palestine relations that saw the release of Israeli sergeant Gilad Shalit in exchange for the scheduled release of 1,027 imprisoned Palestinian terrorists. (BMI 13.01)

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11.2 LEBANON: Year in Review 2011

The Oxford Business Group said that Lebanon has headed into 2012 much in the same way that it entered 2011, with a degree of political and social uncertainty, while events beyond the country's borders also threaten to eat into hard-won economic gains. Yet this is a country that for decades has defied all economic logic and many financial indicators belie fears of a downturn.

The year began with the political sphere in disarray. The March 14-led government was brought down after it vowed to continue cooperating with a UN-backed investigation into the 2005 assassination of former Prime Minister Rafik Hariri and 22 other people. The Special Tribunal for Lebanon (STL) has indicted four members of the pro-Islamist group Hezbollah over their alleged involvement in the bombing, allegations that the group strongly denies.

Though the government headed by then-Prime Minister Saad Hariri – son of Rafiq Hariri – was forced out of office in mid-January, it was not until June that Najib Mikati was able to fulfill the mandate issued to him by President Michel Suleiman in late January to form a new administration. That new government comprised a potentially uneasy mix of Hezbollah, the Free Patriotic Movement, the Progressive Socialist Party and other blocs supporting the March 8 coalition.

Though that unease has manifested itself on a number of occasions, with various factions at odds over privatization, planned wage increases and Mikati's decision in December to provide Lebanon's share of the budget to the STL, Lebanon still had a government and a prime minister as the year came to a close.

However, that government will have to face growing public dissatisfaction over some of its policies, particularly those dealing with wage increases. Labor organizations have rejected increases to the basic wage and improvements to benefits proposed by the government as insufficient, while employer groups have called the pay raises excessive.

A range of labor organizations, including the union that represents teachers and the umbrella group the General Labor Confederation, called for strike action in December, after the cabinet scaled back planned wage increases announced in October. In late December, the cabinet hiked the minimum wage from $332 to $576.

The government justified the level of the pay increases by saying the national economy could not bear the weight of the higher outlays, while central bank governor Riad Salameh warned on 12 December that the increases would add 2% to inflation.

Despite these concerns, consumer inflation was running at 3.5% in the end of October, according to data issued by the Central Administration of Statistics (CAS), well below the 6% year-end level forecast by the central bank in June. However, consumer advocacy groups and other non-governmental organizations have queried the accuracy of the CAS' figures, citing higher-than-announced increases in food and other basic commodities as factors in pushing inflation well above the central bank's projected ceiling, which was briefly reached mid-year before prices began to ease.

The economy is also likely to suffer due to the continued unrest in neighboring Syria, where the protests against President Bashar Al Assad and the subsequent crackdown on opponents of the regime have led to international sanctions being imposed on Damascus. These will likely hit Lebanon, as Syria remains one of its leading trading partners and also sits astride a number of key trade routes to Turkey and the Middle East, all of which have been disrupted. Should tensions in Syria escalate further, Lebanon could find itself on the sidelines of a civil war and even greater trade turmoil.

International ratings agency Moody's in December cited instability in Syria as a prime reason for revising its outlook for Lebanon's banking sector from stable to negative, though it emphasized that the banking system's liquidity buffers and resilient depositor base will likely be maintained, thereby mitigating some of the downside risks.

A potential war in a neighboring country is a sore threat to Lebanon's tourism industry, which is already in the doldrums after a poor 2011, with arrivals and hotel bookings well down from the record highs of 2010. While there was some pick-up in the last months of 2011, numbers fell 25% year-on-year between January and September, a downturn attributed to the weakening European economy and growing political unrest across the region.

While tensions may be rising, so too is state revenue. In early December, the Finance Ministry announced there had been a 10.2% increase in revenue for the first eight months of the year, while the budget had posted a primary surplus of $1.5bn in that term, a result mainly attributed to earnings from the telecommunications sector. The total fiscal balance registered a deficit of $1.39b between January and September, compared to a shortfall of $2.04b in the same period in 2010, the ministry said in a statement.

These improvements may have prompted Barclays Capital to forecast an increase in Lebanon's economic outlook for next year, with the investment bank predicting in early December that real GDP would rise by 3.6% in 2012 – double its estimate for 2011. However, Barclays did warn that the escalation of sanctions on Syria could intensify downside risks to growth prospects and seriously affect the Lebanese economy, while the government's increased outlays could harm fiscal discipline.

Though the outlook for 2012 may appear troubling, Lebanon's economy has a reputation for not only surviving but actually prospering when many of its neighbors are encountering difficulties. As long as the direst predictions of open conflict in Syria and a full-blown recession in Europe do not come to pass, Lebanon should continue to make economic progress. (OBG 05.01)

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11.3 JORDAN: Defense and Security Report 2012

In 2011, BMI estimated that defense spending fell by 1.12% in Jordanian dinar terms, to JOD1.01b. This fall is viewed as temporary, however, and in fact only represents a fall to 5.46% of GDP being spent on defense – still a very significant figure comparatively to global terms. BMI sees a growth of around 8.3% in defense spending through 2012, which will increase to 10% in 2015, before dropping slightly to 8.7% in 2016. Constant $ change, however, is more relaxed, with a return to growth in 2012 of 3.8% following a 6.3% contraction in 2011. This budget is subsidized heavily by much of the rest of the world, with transfers often being labeled as gifts or being recognized as part of a package of aid. In particular, the GCC (particularly Saudi Arabia), as well as the US, have given large grants to the Hashemite kingdom in 2011, and this has had a noticeable effect on the finances of the state.

With Middle East defense spending expected to reach record levels by the end of the forecast period, with overall budgets expected to be $80.0b by 2015, as reported by Gulfweb, a news agency, Jordan's position as the third-largest spender in the region seems likely to be maintained.

However, top-level economic growth is expected to be much slower in the coming year than it has been in the recent past, with an official predicted 3% growth in 2011, stated by Faris Abdul Hamid Sharaf, the former central banker, in October 2011. This is notably slower than the 7% that was experienced through much of the last decade, and as such will have a notable effect on the spending policies of the Kingdom, and even this 3% may now be unlikely. In this case, a series of much more serious belt-tightening may be underway.

Defense spending in Jordan may often, however, represent more than just an acquisition of arms and capabilities – it can also be seen as a way to increase the legitimacy of the regime, as it both creates a more effective deterrent in the relationship with Israel, as well as offering the King the opportunity to give his main support base, the East Bankers, a privileged position in society in relation to the Palestinian population. This has the effect of not necessarily increasing capacity directly in line with investment. While the Jordanian armed forces are seen as some of the more effective in the Middle East Region, there is also the wide-spread perception that they are bloated in terms of personnel, possibly to the point of limiting funds for further procurement in the near future.

Since the tail end of 2010, the advent of the Arab Spring has put many readings of Jordanian politics and regime security into a totally different light – that of the possibility of imminent change based on widespread grassroots political movement. However, there is little to suggest that there will be a replica of Tunisia or Egypt in Jordan – with much firmer American support, as well as a more fragmented society under King Abdullah II than either of the supposed analogues. There is still a widespread taboo concerning talking bad of the King – and while this may be weakening, it certainly seems that there will need to be a serious ‘watershed' moment for this belief to be realized in any meaningful way. This should in no way become the dominant narrative to any understanding of regime security in Jordan, however.

There is certainly ongoing economic discontent due to high poverty and unemployment, and a growing anti-US stance among the Jordanian public, in opposition to the government's pro-US policy. These were elements that were obvious in other Arab autocracies in the past two years, and as these revolutions were also largely unexpected, it would be unwise to totally discount any changes in the coming forecast period. (BMI 17.01)

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11.4 ARABIAN GULF: Tough Year Seen for Region's Contractors as Margins Shrink

Contractors in the Middle East will see increasingly tight profit margins in 2012 as competition for deals heats up amid a slowdown in construction in some markets, Fitch Ratings said. Multibillion-dollar government spending plans in Qatar and Saudi Arabia will help to bolster the regional market, but contractor margins will continue to slide. "With the recently increasing competition, contractors have started to go for lower margins and Fitch expects this to remain the case over the next few years," said Bashar Al Natoor, director of the agency's EMEA team in Dubai. "In Saudi Arabia and Qatar, infrastructure spending continues to be strong but with lower margins."

In the UAE, once the region's building hub, Abu Dhabi has reined in its spend on construction projects in recent months, alarming contractors who had banked on the oil-rich emirate to offset the collapse of Dubai's real estate market.

The UAE's property boom ended in 2008, with home prices in the Dubai emirate plunging by about 60 percent, forcing many developers to abandon projects. More than half of the projects in Gulf country were scrapped or cancelled as project finance dried up.

Citigroup said last month that the value of projects scrapped or on hold in the Gulf state soared to $958b in the 12 months to October, signaling a recovery may be some way off. "A sharper-than-anticipated slowdown in the construction sector in Abu Dhabi could have some implications for contractors operating in the UAE," Fitch said. "The Dubai construction market will also remain fragile in the medium-term."

Contractors in the UAE market have increasingly looked across the region to bolster their order books as domestic revenues dwindle. This has ramped up competition for deals in markets such as Saudi Arabia and Qatar, forcing contractors to reduce their costs. "A decline in project tenders across EMEA will increase competitive pressures," said Fitch. "Contracting is inherently about managing project risk and completing on budget. Balancing this risk/reward conundrum in an increasingly thin margin business will be a key challenge for management in 2012." Contractors in the Middle East will see increasingly tight profit margins in 2012 as competition for deals heats up amid a slowdown in construction in some markets, Fitch Ratings said. Contractors in the Middle East will see increasingly tight profit margins in 2012 as competition for deals heats up amid a slowdown in construction in some markets, Fitch Ratings said.

Multibillion-dollar government spending plans in Qatar and Saudi Arabia will help to bolster the regional market, but contractor margins will continued to slide, the agency said. "With the recently increasing competition, contractors have started to go for lower margins and Fitch expects this to remain the case over the next few years," said Bashar Al Natoor, director of the agency's EMEA team in Dubai. "In Saudi Arabia and Qatar, infrastructure spending continues to be strong but with lower margins."

In the UAE, once the region's building hub, Abu Dhabi has reined in its spend on construction projects in recent months, alarming contractors who had banked on the oil-rich emirate to offset the collapse of Dubai's real estate market.

The UAE's property boom ended in 2008, with home prices in the Dubai emirate plunging by about 60 percent, forcing many developers to abandon projects. More than half of the projects in Gulf country were scrapped or cancelled as project finance dried up. Citigroup said last month that the value of projects scrapped or on hold in the Gulf state soared to $958b in the 12 months to October, signaling a recovery may be some way off. "A sharper-than-anticipated slowdown in the construction sector in Abu Dhabi could have some implications for contractors operating in the UAE," Fitch said. "The Dubai construction market will also remain fragile in the medium-term."

Contractors in the UAE market have increasingly looked across the region to bolster their order books as domestic revenues dwindle. This has ramped up competition for deals in markets such as Saudi Arabia and Qatar, forcing contractors to reduce their costs.

"A decline in project tenders across EMEA will increase competitive pressures," said Fitch. "Contracting is inherently about managing project risk and completing on budget. Balancing this risk/reward conundrum in an increasingly thin margin business will be a key challenge for management in 2012." (AB 05.01)

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11.5 KUWAIT: Year in Review 2011

Kuwait can look back on 2011 as a year characterized by higher than expected oil revenues and developmental progress despite domestic political wrangling and turmoil in the global market, according to the Oxford Business Group.

As OPEC's third largest producer, pumping around 2.9m barrels of oil per day, Kuwait benefitted from rising demand bolstered by the loss of Libyan exports to conflict as well as global supply concerns. Crude oil prices increased 10% in 2011 after climbing 15% in 2010, with Brent-oil futures for February settling at $108.09 a barrel on the London-based ICE Futures Europe exchange in the same month.

Confidence in oil prices was reflected in an exceptional budget for 2011-12, announced in January of last year, with projected spending of $69.5b, a 19% jump from the previous year. Though seen as ambitious, last month monitoring firms reported that a budget surplus in the first six months of FY2011-12 would reach at least $31.9b. The 2011-12 budget was based on a conservative oil price of $60 per barrel.

One focus has been so-called mega-projects, on which the government has planned an outlay of $132.6b by 2014. Kuwait's Supreme Petroleum Council (SPC) in June approved two long-stalled oil initiatives worth more than $28.7b. The newspaper Al Jarida said the SPC approved the building of a new refinery and the upgrading of two of three existing refineries to raise output and produce cleaner products.

In November, the Ministry of Public Works confirmed that another 300 projects were under way at an annual cost of $1.8b, as part of the State Development Strategy, according to the Kuwait News Agency (KUNA). In an interview with KUNA, Fadhel Safar, the minister of public works and the minister of state for municipal affairs, explained that planned initiatives included "several mega and vital projects, such as construction of a passenger terminal at the airport, securing treated water for diverse usage, Mubarak Al Kabeer Port and developing the islands of Boubyan and Failaka".

However, market research firms have stressed the need to tackle the debts of investment companies to get vast infrastructure development plans back on track. Bloomberg reported in December that about 10% of bank lending in Kuwait is to investment companies, some of which have defaulted since the onset of the global financial crisis, hampering the $125b development plan. "Kuwait's government has announced an extensive investment program for the next four years, but bureaucracy and legacy exposures of distressed investment companies may subdue the economic recovery," wrote a team of analysts at Moody's Investors Service in a July report.

However, the political processes were also hampered in 2011 by disputes in parliament, with opposition lawmakers protesting in November against the rule of Sheikh Nasser Al Mohammed Al Sabah, who later that month resigned as prime minister. Former defense minister Sheikh Jaber Al Mubarak Al Hamad Al Sabah was quickly selected for the post, and he has pledged to "serve Kuwait's higher interests, and push the national action for the sake of comprehensive development to achieve prosperity," according to regional media.

The political tensions are believed to have had an impact on the Kuwait Stock Exchange (KSE), with many investors awaiting the outcome of parliamentary elections in February 2012. The KSE price fell by 16.14% by the end of September 2011, reaching 5833.10 points, with regional political events and the eurozone crisis cited as major contributing factors. In terms of year-to-date performance up to September 2011, the index declined by 19.28%.

However, the KSE did benefit from stability in the banking sector, with profits or slight dips reported by most banks and international ratings agencies giving a boost to two major lenders in December alone.

While Fitch affirmed the Industrial Bank of Kuwait with a long-term issuer default rating of "A+" with a stable outlook, Standard & Poor's raised its long- and short-term counterparty credit ratings on Kuwait-based Gulf Bank. The latter saw an 8% year-on-year (y-o-y) rise in third quarter profits to $32.6m, with the National Bank of Kuwait (NBK) reporting a third-quarter net profit of $283m, compared with a forecast of $267.7m.

The central bank was unable, however, to lower inflation in 2011, with the rate edging up an annual average of 4.7%, according to November projections by the NBK. The Central Statistical Office (CSO) had reported a month earlier a rise of 150 points in the consumer's price index for September 2011, compared to 143.5 points in September of 2010. Figures from October showed food prices rose 9% y-o-y; clothing, 4%; and education and health services, 3.4%; according to the CSO.

The rise in prices has not dampened growth in real estate, with KUNA reporting in November the sector's third-quarter performance had bucked fluctuation trends in the KSE. Sales activity in the real estate sector rose by $215m in October, a 43.8% y-o-y increase over last September. (OBG 16.01)

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11.6 KUWAIT: Defense and Security Report Q1 2012

Business Monitor International's Kuwait Defense and Security Report provides industry professionals and strategists, corporate analysts, defense and security associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Kuwait's defense and security industry.

Over the last quarter, Kuwait shifted slightly further away from its status as being one of the countries in the region most insulated from large-scale unrest and moved nearer towards being a country exposed to the escalating political upheaval in the Middle East region. In terms of the nation's external defense and security issues, tensions have flared up with Iraq once more as the two countries develop their respective new ports. Twenty-one years since Iraq occupied Kuwait and declared the small country the 19th Iraqi province, it is Iraq that is now concerned by what it sees as Kuwaiti impingement on its territorial rights. With armed forces being deployed on Bubiyan Island, the location of the new Kuwaiti port, and Iraqi militants threatening to strike, BMI notes that the glut of new Gulf port developments is beginning to rock the region's sometimes-fragile balance.

On the domestic front, political unrest continues to heighten in the form of protest rallies, which are increasing in both frequency and size. On September 21, a protest rally was conducted by nearly 2,000 Kuwaitis outside parliament in Kuwait City to show their dissent against alleged corruption in the government. The march was held after a report by al-Qabas newspaper in August that several banks in the country are attempting to deal with suspiciously large deposits by some parliamentary members and their families. BMI sees a growing possibility that anti-government discontent in Kuwait could translate into increased political instability. Recent actions by the government demonstrate the extent of its concern over underlying political tensions. If controversy over a corruption scandal escalates further over the coming weeks, there is an increasing chance that the Emir may accede to opposition demands for a dissolution of parliament.

The Kuwait Parliament is by its nature unstable. Members of Parliament are elected in districts. However, the Prime Minister is appointed by the Emir. In Parliament on June 23 a no-confidence vote occurred against the Prime Minister. While Prime Minister Sheikh Nasser al-Mohammad al-Sabah survived this vote, the instability added hope and fervor to the protests on the streets. Kuwait's Emir Sheikh Sabah al- Ahmad al-Sabah has warned against any unrest and security threats in the country, saying there will be zero tolerance and BMI notes that this may prove to be a potential flash point going forward. At this stage, however, the government has not used any violence to stem protests. On a structural basis, however, Kuwait can be considered to be pretty secure in the region. Unemployment is not an issue and can boast a generous welfare system, and the lion's share of the population are employed by the government.

A large scale US military presence in Kuwait, which supports the US' operations in Iraq, serves as something of a symbol of security and stability for the country. Recent US Department of Defense contract awards and budgetary allocations indicate a substantial increase in the resources funneled from the Pentagon into Middle East operations in Kuwait, suggesting an expanding role for US military forces in the region. Indeed it appears that Camp Arifjan and Ali Al Salem Air Base, both located in Kuwait, are being readied to offer more self-sustaining capabilities, as opposed to being utilized as temporary transit hubs for both equipment and military personnel from combat zones in the surrounding region.

Moreover, in the context of increasing US military operations in Pakistan and Yemen, and a perpetual operational focus on containment of the regional supremacy that is Iran, Kuwait would seem to serve as a geographically logical center for sustained military coordination in the absence of US troop presence in Iraq and Afghanistan. The recent build-up of uncertainty across the Middle East in 2011 only cements the interests of the US in retaining an active presence in the region. While one can only speculate on the overarching operational goals, it is evident that withdrawal from Iraq, and possibly Afghanistan, is not an indication of an American draw-down from the region.

High energy prices underpin Kuwait's economy and ability to undertake large scale arms purchases. Its status as a key crude supplier to energy-hungry China is likely to become an increasingly important position in this respect over the coming years. What is more, Kuwait's balance sheet is in good order: it remains on track to post a large budget surplus this for 2011. The government's fiscal position will benefit heavily from the spike in global energy prices, though BMI expects that increased revenues will be offset to a great extent by rising public spending. BMI forecasts Kuwait's budget surplus to come in at 21.7% of GDP this fiscal year (beginning April 1, 2011). (BMI 13.01)

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11.7 BAHRAIN: Year in Review 2011

Looking to better times in 2012 after a challenging 12 months that saw Bahrain's economy lose some of its momentum, the Kingdom is seeing signs that several key sectors are moving quickly to recover lost ground in the New Year. For Bahrain, 2011 will likely be remembered for the protests that broke out in mid-February and resurfaced at times throughout the year. The demonstrations weakened business sentiment and investor confidence, both crucial to the island Kingdom's economic success. The government has launched a package of reforms and increased spending on housing and social measures in response.

While final figures have yet to be compiled, Bahrain's economic performance may fall short of expectations held at the beginning of 2011, when hopes were that GDP would top the 4% increase from the previous year. Though some of the momentum lost in the early months of 2011 was regained, with GDP increasing by 2.4% year-on-year in the third quarter (well up on the 1.1% posted in the second three-month term), Bahrain's economy will likely post modest growth for 2011 overall, having contracted by 1.3% in the opening quarter of the year, at the height of the protests. In late November, the Ministry of Finance predicted GDP would expand by between 1.6 and 1.7% in 2011, building to 4.5% in 2012.

Other state officials are even more confident that this year will see a strong performance, with the heads of the Economic Development Board and the Bahrain Development Bank both predicting GDP will expand by 5% in 2012. While not all analysts are as upbeat over prospects for the Kingdom's economy in 2012, most do expect a return to solid growth, as long as oil prices remain steady.

Bahrain's push is being helped by oil's strong performance, with international prices hovering around the $100 per barrel mark as 2011 ended, up some 8% from trading prices at the beginning of last year. Better still, after years of gradual production decline, the Kingdom is again raising output, thanks to enhanced extraction methods and a stepping up of the program to drill new wells.

According Abdul Hussain bin Ali Mirza, the minister of energy, at the end of December, production hit 271,300 barrels per day (bpd) in November, well in excess of projected flow. With this increased output set to flow into 2012, Bahrain will be better placed to fund planned capital works projects and social development schemes.

The government's cause will also be helped by low inflation. Throughout 2011, inflation remained in check, coming in at less than 1% for much of the year – less than half the 2010 total – though it peaked at 0.9% in October. While consumer inflation may edge up in 2012, partly as a result of wage increases and higher payments to families granted by the state, it is expected that any rise in the cost of living will be moderate in 2012.

Indicators that the economy is gaining momentum include bank lending again on the up, helping to support local businesses and boost growth. Lending increased by 12.9% over the first 10 months of 2011, after rising by a modest 3.5% between January and June.

Data issued by the central bank shows that the flow of business loans increased by 11% to $10.9b up to the end of October, while there was a 21% lift in personal loans, which totaled $5.6b. Higher personal spending should boost consumption in the coming year, while higher borrowing by the business community reflects improved sentiment and a perceived need to fund expansion.

One challenge that Bahrain faces is the possible loss of business to rival Gulf states, especially Dubai, which has long sought to replace the Kingdom as the region's financial hub. Key to Bahrain's economic performance in 2012 will be how swiftly investor and business confidence can be fully restored. (OBG 16.01)

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11.8 QATAR: Year in Review 2011

Having ended 2011 on a high, with its economy growing at break-neck speed, inflation under control and a stepped-up program of infrastructure investments being rolled out, Qatar is well placed to continue similar growth this year. The Oxford Business Group feels that despite the specter of recession hanging heavy in the air in Europe, and a scaling back of expectations in some major Asian economies, the country may find that in 2012 many of its achievements are consolidated rather than eclipsed.

Final figures have yet to be collated, but by any standards 2011 was a stellar year for the Qatari economy, with GDP rising by between 15% and 19%, according to various estimates, with even the low end of the scale being a faster rate than any other country in the world.

However, a recent report released by the International Monetary Fund (IMF) said that, while the outlook for the country's economy is positive, the real GDP growth rate is projected to moderate to 6% this year, a third of what the fund estimated the 2011 rate to be. This slowdown is not a result of any structural weaknesses in the Qatari economy, the IMF said in its report issued in mid-December, but was instead due to the country having completed its latest cycle on expansion for its hydrocarbons industry, which has now reached the production levels set for it under Doha's long-term economic development plans.

The IMF is actually more upbeat than Qatari officials, with state agencies having predicted GDP would expand by a more modest 5.1%, following on from an estimated 15% in 2011. Importantly, for the government's program to diversify the economy away from a dependence on energy, the outlook for the oil and gas sector is increasingly positive. While the hydrocarbons component of the economy will expand, with growth estimated at around 3% next year, the non-hydrocarbons sector is forecast to grow by up to 9%.

Much of this predicted growth is set to come from investments in infrastructure and social services facilities, with plans having been announced that up to $150bn will be spent on such developments in the next five years or so. While some of this money will be directed towards the requirements of hosting the 2022 FIFA World Cup, a large slice will be allocated to strengthen Qatar's transport and logistics backbone. These investments will be a driving force for the economy for some years to come.

While the growth rate is expected to ease, prices could be set to rise. Heading into 2012, Qatari officials will no doubt be keeping a close eye on inflation, with consumer prices tipped by the IMF to rise by around 4%. With the economy still booming, and wages and disposable capital on the rise, growing demand could fuel price increases if there are any bottlenecks in the supply chain, or if the flow of liquidity is not in balance. If inflation does heat up to the rate expected this year, it will be double the 2% that price rises were running at as 2011 came to a close.

It was not all good news for the Qatari economy in 2011. Qatar's capital markets suffered something of a setback late in the year, when the application by the country's stock exchange to be granted emerging market status was turned down by the Swiss-based firm MSCI, which determines classifications. A revised status would have helped the bourse attract increased overseas investment and help stimulate domestic activity, which has slowed in recent years, with trading volumes in 2011 below that of 2009, despite the broader economy's strong performance.

Currently, the Qatar exchange has frontier status, though MSCI has made it clear it is open to reviewing its decision when the country's market implements further reforms, especially those that are aimed at safeguarding investors. According to MSCI, in a statement issued mid-December, Qatar's bid was hampered by the limitations on foreign holdings in locally traded stocks, with an easing of restrictions needed before any upgrade could be made.

There were also suggestions that the economy could come under pressure if some of its major export markets slipped into recession, a development that, despite Qatar having little control over, would affect demand for gas and oil. This demand remained strong throughout 2011, despite the sluggish performance of many European countries, with the thriving Asian economies taking up any slack.

Yet this situation could change in the new year, with some forecasts that the Asian tigers, too, could see declining growth, while many European economies could shift gears from sluggish to reverse. A result of this could be a fall in energy demand and consequently in prices, which would impact Qatar's revenue stream. However, strong fiscal reserves, and a broad based export market, with gas sales to an extended network of clients worldwide, should see Qatar easily ride out any downturn in the global economy in the coming year and position itself to take advantage of the recovery when it comes. (OBG 09.01)

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11.9 UAE: Abu Dhabi May Rescue More Developers

Abu Dhabi, which spent $9.8 billion bailing out its biggest developer in 2011, will probably do as again as property companies in the United Arab Emirates face a stalled market and deadlines to repay debt. Abu Dhabi, holder of 7% of the world's proven oil reserves, contributed to a $20 billion financial rescue of neighboring Dubai in 2009 and bailed out developer Aldar PJSC twice last year. While the sheikhdom's cash will help property companies stay solvent, many will struggle to revive profit as Dubai's real-estate slump stretches into its fourth year and Abu Dhabi puts large parts of its redevelopment plan on hold. The companies most likely to need state help will be developers that relied on selling properties before they were built to fund construction, which is most of them. Businesses with the best prospects are those with contracts in Saudi Arabia, Qatar and Kuwait, he said. Real-estate values have fallen more than 60% in Dubai and 45% in Abu Dhabi from 2008 peaks after the global credit crisis caused banks to curtail lending and speculators left the market. Developers completing contracts are supplying thousands of homes and offices at a time when demand is dropping.

Both Dubai and Abu Dhabi have been striving to become less dependent on oil revenue by developing homes, hotels, offices and tourist attractions through a combination of state-owned and publicly traded companies that raised funds from investors, international debt markets and buyers prepaying for homes. Abu Dhabi and the U.A.E. federal government increased their financing role after the credit crisis caused lending in the region to dry up. Moody's Investors Service highlighted Abu Dhabi's record of support in Dubai and said the emirate is likely to continue backing its neighbor by rolling over the Dubai Financial Support Fund due to mature in 2014. Moody's expressed concern about the timeliness of further aid after a Nakheel Islamic bond was repaid at the last minute following the 2009 bailout.

UAE developers face debt-repayment deadlines this year. Aldar has 2.2 billion dirhams due and Nakheel PJSC, builder of Dubai's palm-shaped islands, needs to repay AED5.8 billion. Union Properties PJSC (UPP) has AED429 million maturing this year, according to data compiled by Bloomberg. Abu Dhabi's $4.6 billion bailout of Aldar on December 29, the second of the year, helped ease concerns about the company's borrowings, Moody's said in a note that day.

Dubai Holding Commercial Operations Group LLC has $500 million of debt maturing in 2012, Moody's said. The company's Dubai Properties Group unit suspended construction on a Tiger Woods-designed golf resort last year, citing a unfavorable luxury property market.

For Aldar, a return to profit wasn't enough to avert a bailout as a debt deadline loomed. The company in November reported third-quarter profit of AED144 million compared with a year-earlier loss of AED731 million. "In Aldar's case, there was a clear need for debt relief and a liquidity injection," Kamal said. "In other cases, the government backing has been less direct but equally supportive."

One example is a decision by Abu Dhabi's Urban Planning Council to award contracts for 7,500 homes, he said. Sorouh Real Estate, the emirate's second-largest developer, along with smaller private builders such as Tamouh Investments, Royal Development Co. and Al Qudra Real Estate received contracts totaling AED13.5 billion.

Aldar, 18.9% owned by Abu Dhabi before the bailouts, is a special case because the company carried out much of the government's infrastructure work and built tourist attractions, Rasmala's Zayed said. "If there are other bailouts, I don't see anything on the scale of Aldar," he said.

Emaar Properties PJSC, Dubai's biggest developer, reported a 34% decline in third-quarter net income as apartment sales dropped by 86%. Nakheel reported first-half profit of AED526 million in December without giving comparative figures. The company, which received $8.6 billion after Abu Dhabi bailed out Dubai, wrote down the value of properties by AED78.6 billion since 2008.

Abu Dhabi isn't only helping developers. Investment arm Mubadala Development Co. agreed in March to provide AED3.1 billion to National Central Cooling Co., an air conditioning company known as Tabreed, as part of a recapitalization.

Abu Dhabi, the richest and largest of the seven emirates that make up the UAE, plans to invest $500 billion in industry, tourism and culture to increase non-oil revenue to 64% of the economy from an average of 41% from 2005 to 2007. In 2005, the sheikhdom opened its property market to foreign buyers and began building homes, offices, malls, hotels and tourist attractions on Saadiyat Island, Yas Island, Al Reem Island, Al Raha Beach and the city center.

Since the global credit crunch, UAE developers suspended or canceled around $500 billion worth of projects, twice as much as in the other five Gulf Cooperation Council countries, Arqaam's Kamal estimates. In Abu Dhabi, developments valued at about $30 billion have been put on hold, including branches of the Louvre and Guggenheim museums, the MGM Grand Abu Dhabi hotel and the zero-carbon headquarters of renewable energy company Masdar. "The emphasis right now seems to be on addressing financial problems at entities and nursing them back to health," said Giyas Gokkent, group chief economist at National Bank of Abu Dhabi PJSC.

Kamal said residential values are likely to drop another 10%-15% as 20,000 homes are completed in Abu Dhabi and another 25,000 in Dubai. He said a similar number of properties is scheduled for completion in both markets in 2013. Although Abu Dhabi's government hasn't announced any changes to its development blueprint, called Vision 2030, since it was first published in 2008, a substantial proportion of the projects expected under the plan are now on hold while a review of their economic viability is underway, Kamal said. "The 2030 plan will go ahead by and large, but within that there will be a refocus," Gokkent said. "The fundamental question is the profitability of various entities and whether it makes sense to go into a particular activity."

The plan foresees the population growing to as much as 5 million by 2030 from an estimated 1.6 million in 2008. The government may revive some of the suspended projects if it considers them essential in the long term. Profitability may not be the only factor in deciding whether to restart work.

"Some projects will probably never make any money but are deemed important for Abu Dhabi to attract investment or to diversify the economy," Zayed said. "In Dubai, building the palm was never going to be economically viable, but it did put Dubai on the map and helped it attract investments." Abu Dhabi's Urban Planning Council didn't respond to questions on whether the 2030 plan is on track when contacted by Bloomberg. Calls and e-mails to Abu Dhabi's Department of Finance weren't returned. "Projects that are real estate related or those deemed not an immediate priority may be phased in over time, given that this is a long-term plan," Gokkent said. (BI-ME 10.01)

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11.10 OMAN: Year in Review 2011

With forecasts predicting solid economic growth in 2011 and a political system that remained stable in spite of unrest rocking much of the Middle East, the Oxford Business Group says Oman looks set to see increased investor interest in the coming years. GDP reached $57.67b in 2010, amounting to a 23.44% increase over the 2009 figure. This was particularly encouraging going into 2011, showing the Sultanate had recovered from the 22.6% year-on-year loss it suffered in 2009. The trend is set to continue, with forecasts from October predicting 5.6% growth for 2011.

The Sultanate has also been successful in attracting foreign direct investment (FDI) in recent years. According to the Omani government's "Foreign Investment Report 2005-09", FDI increased from $4.13b in 2005 to $13.14b in 2009, the latest year for which government information is available.

Oman's economy has long been dependent on hydrocarbons, and activities in that sector accounted for 46.45% of GDP in 2010. However, economic diversification was the focus in 2011. The government has acknowledged the need to continue moving towards a knowledge-based, service-oriented economy. The eighth five-year development plan, which serves as an economic blueprint for the 2011-15 period, was introduced in January of last year. Given the country's relatively young population – 22% of Omanis are between the ages of 15 and 24 – the plan places significant focus on employing locals, particularly in the private sector.

Omanis made up 16% of the private-sector workforce in 2010, an issue the government hopes to address by promoting education and training initiatives, as well as through the development of small and medium-sized enterprises.

The government has also been pushing an Omanization policy, which maintains that Omanis must account for a set minimum percentage of employees in a company on a sector by sector basis. In 2011 the government raised the minimums for companies in the insurance sector from 45% to 65%, and for finance institutions from 75% to 80%. These requirements must be met by the end of 2012.

The eighth five-year plan also emphasizes developing several non-hydrocarbons sectors, including industry, tourism and agriculture. Indeed, industry expansion – particularly in the metals segment – has been a highlight of 2011. Oman has a strong record as an exporter of minerals and quarried goods.

It significantly increased its output in the segment throughout the last decade, having produced $29.8m worth of mined and quarried goods in 2008, according to a UN Economic and Social Commission for Western Asia report from March 2011. Aluminum mining and production has been an especially important development.

Sohar Aluminium, which became the Sultanate's first aluminum producer when it began operations in 2008, also announced plans in 2011 for a $3b upgrade to its facilities. The company saw several successes during 2011: it produced its millionth tonne of aluminum in August and in November hosted more than 400 guests at the Arab Aluminium Conference (ARABAL), the most significant annual event for the region's aluminum producers.

Jindal Steel & Power, the Indian firm that purchased Shadeed Iron & Steel, hit the ground running in 2011 after its new direct reduction unit came on-line in December 2010, three months ahead of schedule. With a capacity of 1.5m tonnes per annum (tpa), the unit produces hot briquetted iron and hot direct reduced iron. The firm was still on a roll in August, when it announced it had raised $475m to implement a two-part expansion of the Jindal Shadeed Iron & Steel Plant in Sohar.

Further successes were seen in the banking sector, with Sultan Qaboos bin Said Al Said issuing a decree in early May allowing for the establishment of Islamic financial institutions in the country. As the Sultanate had been the only Gulf country without Islamic banks, many financial institutions were eagerly awaiting the chance to offer sharia-compliant services.

Further expansion is forecast in other sectors, with tourism a particular area of focus. Revenue in the sector is expected to increase by more than 70% over the coming decade, to $7.5b, up from an expected $4.4b in 2011, according to the World Travel & Tourism Council. With Muscat chosen as the Arab Tourism Capital for 2012 by the Arab Tourism Ministers Council, it is likely the sector will show a further revenue boost in the coming year, particularly given its relative stability in a time of regional unrest.

While growth has been targeted – and is expected – in many sectors, the government will still face certain difficulties in the coming years, and its efforts may be hampered by ongoing political unrest. Encouraging greater numbers of Omanis toward the private sector for work continues to pose a challenge, as could inflation, which reached 5.3% in August.

The latter problem, however, is being addressed by the central bank through several measures and the IMF predicts inflation will sink to 3.3% in 2012. In spite of these challenges, Oman has laid out a solid economic plan for the coming years and will likely continue to attract FDI with its increasingly favorable business environment and economic resilience. (OBG 16.01)

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11.11 EGYPT: Egypt Can't Replicate the Turkish Model: But It Can Learn From It

On 12 January, Sebem Gumuscu wrote in Sada http://carnegieendowment.org/sada/ that in Egypt, a number of younger and more moderate Islamists have pointed to Turkey's ruling Justice and Development Party (AKP) as a source of inspiration, citing legal reform, successful economic management, and electoral victories as models to be emulated. In some policy quarters, Turkey has even been presented as an overall model for the Arab world—a characterization which derives largely from its seemingly unique ability to couple secular democracy with a predominantly Muslim society. But those who talk of "the Turkish model" misunderstand that country's transformation; the coexistence of Islam and democracy have come to pass in Turkey not from the AKP's development of institutional and political structures that accommodated both Islamic and democratic principles, but rather because Islamists themselves came to accept the secular-democratic framework of the Turkish state.

This transformation primarily resulted from Turkey's neoliberal transition in the eighties which would eventually lead to the emergence of a new class within Islamist constituencies—one that would became the force of ideological moderation. Economic liberalization created an organized class of powerful and devout businessmen from the provincial bourgeoisie who advocated greater political pragmatism and stability in addition to closer relations with the EU as a major trade partner. These moderate Islamists broke away and established the AKP in 2001.

As a conservative party representing neoliberal interests, the AKP has worked to downsize the state, establish greater political and economic stability and construct friendly relations with the outside world. The party has not only increased its support in secular businesses and the middle classes, but also rendered the idea of a powerful state—which commands the economy as well as the lives of Muslims through Islamic principles—an obsolete one. For the most part, the AKP has maintained the basic constitutional and institutional structure of the Turkish state, but has enacted constitutional amendments for EU harmonization and curtailed the power of the military. In other words, Islam and democracy have become compatible in Turkey under neoliberalism.

Observers who credit other factors with this transformation—such as Turkey's culture of secularism, pressures from the military, or its geographical proximity to the European Union—ignore the fact that Turkish Islamism hitherto had successfully resisted these influences which had been established long before the Islamism's heyday in Turkey. Organized political Islam in Turkey resisted the transforming impact of secular democratic practices as well as pressure from the military and the broader establishment while remaining staunchly anti-western (anti-EU and anti-NATO) for close to three decades.

Conversely, Egypt's neoliberalism has mainly benefitted Mubarak regime cronies and failed to trickle down to smaller enterprises. There is no strong business constituency within the Islamist movement to insist on neoliberal reforms, a smaller state or political pragmatism. The movement is dominated instead by professionals (doctors, engineers, teachers and lawyers) who prefer a strong and expansive state as a source of employment, social security, and public goods. While the Freedom and Justice Party (FJP) established by the Muslim Brotherhood supports private enterprise, such support should not be mistaken for support for neoliberalism. A closer look at FJP's platform reveals that it reserves a substantial role for the state in production, planning, price regulation, social security and job generation. Demands for greater social justice for wage earners and calls for an elimination of unemployment among the educated occupy an important place in the platform. The economic system that the FJP envisions is much closer to corporatism oriented towards import substitution and export promotion than it is to a neoliberal economy with a small state and free trade.

Further economic reform is unlikely to generate the pragmatism that Turkish-model advocates envision for Egypt in the near future. Even if a new class of Islamists should flourish, as it did in Turkey, its ability to have an impact similar to the AKP will depend entirely on Islamist movements becoming full-fledged political parties. Unlike their Turkish counterpart, the Muslim Brotherhood is first and foremost a religious society; economic, political and cultural objectives are secondary to religious proselytization. The FJP relies on the existing rank and file of the Brotherhood for support in elections, and though the members of the Brotherhood fulfill the function of party organizers, they are recruited primarily by the Brotherhood in the name of da'wa (invitation to Islam). From there, they are organized according to a strict hierarchy and mobilized in the name of Islam rather than in terms of political or economic interests. The structure of the party reinforces religious priorities, undermines internal accountability and casts a shadow of Muslim Brotherhood control over the FJP. The Brotherhood's decision—accepted by the main body of the party itself—not to nominate a presidential candidate under the FJP is another demonstration of its subordination of the political to the religious. Unless the FJP evolves into an independent political organization accountable to its own constituency and oriented towards that constituency's political interests, it can hardly become answerable to the Egyptian people.

In short, there is no "Turkish model" of an Islamist democracy; rather, there are Muslims in a secular-democratic state working within a neoliberal framework. Structural and institutional factors in Turkey are historically unique and it is highly unlikely that we will see a similar process unfold in Egypt. Under Islamist leadership, Egypt will seek another framework and one that will require the Islamist movement to separate its political and religious functions and allow for the political party to represent the aggregated interests of a voting demographic. Because of this, the task of Islamists in Egypt will be more difficult than that of their Turkish counterparts: they must shed deeply ingrained habits of hierarchy and proselytization to build a democratic system with unique institutions.

Sebem Gumuscu is a political scientist specialized in Islamic political movements at Sabanci University in Istanbul. (Sada 12.01)

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11.12 TUNISIA: Looking forward

In spite of the economic turbulence brought about by Tunisia's dramatic political transition earlier this year, there is growing room for cautious optimism that 2012 will bring a period of recovery for its somewhat shaken economy.

The first month of the revolution is said to have cost the Tunisian economy more than $2b, and in the following months, uncertainty dominated the country's business environment. Foreign capital inflows dropped and visitor numbers fell precipitously. However, with an improved political outlook thanks to successful elections in October, interest in the country is growing again.

Indeed, there are signs of renewed interest from investors, particularly from the North African republic's larger bilateral partners. At a recent Tunisia Partnerships Forum, for example, hosted by the US State Department in mid-November, Noureddine Zekri, the director-general of the Foreign Investment Promotion Agency (FIPA), noted that while the corruption and lack of transparency under the former regime had limited investment from the UK, US, France and Scandinavia, Tunisia was now working hard to eradicate these problems and to create a healthier business environment for foreign investors.

This followed on from a visit by assistant United States trade representative for Europe and the Middle East Daniel Mullaney and assistant United States trade representative for services and investment Christine Bliss to Tunisia in October, to re-launch discussions under the 2002 bilateral Trade and Investment Framework Agreement (TIFA).

Negotiations under the TIFA have focused on strengthening bilateral capital flows and trade volumes in tourism, retail franchising, ICT and alternative energy. Also pending authorization is the Tunisia-American Enterprise Fund, which will provide seed money for private sector growth. The fund will support investors and help Tunisians launch SMEs, which should provide longer-term growth prospects.

More crucially, Tunisia's single-biggest trade and investment partner, the European Union, is also looking to provide increased funds to help underwrite the country's medium and long-term growth prospects. As part of the Deauville partnership with the country, the European Investment Bank (EIB) committed a €140m loan promoting economic development in the country. The funds will go towards financing a large-scale industrial project by the Tunisian Chemicals Group in the phosphates industry, which makes up more than 2.6% of the country's GDP, providing valuable additional export revenues.

As a result, thanks in large part to the improvement of inbound capital and additional financing, the World Bank expects the pace of economic activity in Tunisia to quicken, rising to 5% in 2013. The country's 2012 economic draft budget predicts investment will increase by 18.4%, with the creation of 75,000 new jobs. The budget also identifies industry and construction as growing sectors. The Central Bank of Tunisia predicts a 4.5% growth rate for 2012, up from 1% in 2011.

It is possible, however, that another facet of Europe will do more to affect Tunisia's economy as some concern had been expressed over potential fall-out from the economic crisis there. Exports to Europe provide Tunisia with 20% of its workforce – almost 320,000 jobs, and EU trading partners make up 80% of Tunisian foreign exchange, so the implications for the Tunisian economy are clear.

Indeed, lower growth prospects in the country's main trading partner has already resulted in less demand for Tunisian products, according to local media. Growth rates for Tunisian exports to EU countries fell from 20.9% in the first half of 2011 to 15% in October 2011.

The past year has not been an easy one for Tunisia. However, with the elections having passed smoothly, and steadily increasing interest from investors, the focus can now be shifted to the implementation of a new and promising economic program for 2012. (OBG 13.01)

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11.13 MOROCCO: Year in Review 2011

Morocco's economy continued to perform strongly in the third quarter of 2011, with GDP growth slightly lower than in previous quarters but still strongly outpacing its European neighbors to the north, reports the Oxford Business Group. Inflation was also down on recent months to very low levels.

The International Monetary Fund (IMF) has forecast further healthy expansion in 2012, saying that average GDP growth could reach as much as 6% in the medium term. The leading party in the country's new coalition government, the Justice and Development Party (PJD), is targeting 7% growth. Challenges for 2012 include tackling the country's rising subsidy bill and fiscal deficit (which the PJD hopes to do in part by widening the tax base) and keeping growth on track in the face of economic problems in the EU, Morocco's largest trading partner.

The Moroccan High Planning Commission estimates economic growth in the third quarter of 2011 stood at 4.1%, slightly below the first and second quarters when growth stood at 4.9% and 4.2%, respectively. The fall in growth reflected a comparative slowdown in the non-agricultural economy, which the commission estimated to have fallen from an expansion of 4.7% in the first quarter to 4.2% in the second and third quarters, and in the mining and tourism industries in particular.

There are also signs of a second consecutive quarterly contraction in the construction and public works sector, though based on survey results the High Planning Commission expects a steady end to the year for the industry. Moroccan GDP growth in 2011, which the IMF expects to be among the region's highest at 4.5-5%, was helped by plentiful rainfall that boosted the 2010-11 agricultural season. Moroccan agriculture accounts for between 13% and 17% of GDP and remains highly dependent on rainfall, which can therefore have a significant impact on overall economic growth. The Moroccan Finance Ministry also expects GDP growth for 2011 as a whole to be roughly 5%.

The strong agricultural season has also helped push down inflation by reducing the need for food imports at a time of high global food prices. This helped reduced the annual inflation rate from a peak of 2.2% in August to 0.8% in September and a loss of 0.4% in October. The High Planning Commission expects inflation to stand at 1.1% for the year as a whole, while the IMF expects a slightly higher rate of around 1.5%. Unemployment levels increased slightly in the third quarter to 9.1%, compared to 8.7% in the previous quarter and 9% in the same period of 2010.

The IMF currently predicts 2012 GDP growth should be about 4.5-5%, the same as 2011. Early indications for the 2011-12 agricultural seasons are promising, with rainfall levels in September to November slightly below those of the same period in the previous year but still above the 30-year average. However, much will depend on the level and timing of rainfall in early 2012.

According to the IMF's latest Article IV Consultation Staff report on Morocco, published in December, the domestic economy has performed well since the 2008 financial crisis, something it attributes to "several years of sound macroeconomic policies and political reforms", though it notes the slowdown in Europe – by far Morocco's most important export and tourism source market – could negatively affect further growth prospects. It also said there was room in the government budget for wage increases and additional spending in order to maintain subsidies for basic goods at a time of high oil prices. The report further called on the government to take steps towards a more targeted subsidy regime in 2012, noting increased spending could expand the budget deficit to as much as 6% of GDP.

Tackling the deficit is a top priority for Morocco's new government, formed in the wake of the PJD's election victory on 25 November. Abdelilah Benkirane, the new prime minister, said shortly after the elections that the PJD intended to adopt the budget being worked on by the outgoing administration, albeit with several changes. The party aims to eventually increase average annual GDP growth to 7%, lower the national unemployment rate by 2% and reduce the budget deficit to 3% of GDP. In order to achieve the latter target, the party aims to reform the country's subsidy system and to widen the tax base by, for example, raising taxes on luxury goods and empty properties.

It also hopes the tax raise on empty properties will discourage real estate speculation and encourage more efficient housing allocation. In order to strengthen small businesses, the party intends to reduce some other taxes, such as those on small farmers and very small enterprises, and aims to attract more private investment in large-scale development projects by removing bureaucratic impediments. With such ambitious structural plans underway, Morocco is well placed to ride out 2012, continuing the growth it saw in 2011 and avoiding the threat of a slowdown from Europe. (OBG 15.01)

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11.14 TURKEY: Year in Review 2011

In a sign that the country has performed well in the face of debt crisis affecting its neighbors in the EU, the Turkish government announced in January that the economy expanded 8% in 2011, with the construction, manufacturing and retail sectors leading the way. Fears of a hard landing still remain, given Turkey's chronic current account deficit and its recent struggles with inflation, but a burgeoning domestic economy, combined with political stability and a healthy fiscal position, have enabled the country to post decent macroeconomic data.

Stronger-than-expected Q3/11 growth of 8.2% led JP Morgan to revise its yearly growth estimates to 8.2%, above its early predictions of 7%. However, the fallout from the eurozone crisis is expected to dramatically slow the economy. The IMF is the most pessimistic of forecasters, projecting 2% growth for 2012, while the government is anticipating that figure to top 4%. JP Morgan, hewing more closely to the IMF's outlook, originally predicted 2.2% growth, before adjusting it to 2.5% on the strength of Q3/11 figures.

Galloping inflation has replaced the current account deficit as the top concern for the Turkish economy. Inflation rose sharply in November to hit 9.5%, the highest Turkey has seen for over a year and a half. Major culprits included rising food prices, steeper taxes on goods like tobacco, automobiles and mobile phones, and higher import taxes.

But the weakening lira, which has lost 24% of its value since October 2010, dropping from TL1.44 to TL1.88 to the dollar in December, has been the largest contributor, causing the central bank governor, Erdem Basci, to name inflation the greatest problem for Turkey's economy. In December, Basci expressed hope that the bank's increase of the overnight borrowing rate to 12.5% would slow the rise of prices.

The central bank itself has received a mixture of accolades and criticism for its unique monetary policy, which holds the "policy" repo rate at 5.75% while enforcing an overnight rate of 12.5%. Analysts have held this policy accountable for the unusually strong connection between lira depreciation and inflation, necessitating occasional central bank intervention into foreign exchange markets. The bank is expected to use $20b in foreign exchange to hold the lira's value below TL1.90 to the dollar, although this would significantly eat into Turkey's forex reserves.

One outcome of the lira's weakness has been a reduction in the current account deficit, which narrowed for the first time in two years recently due to a slowdown in output and an increase in exports spurred by a weaker currency. The current account deficit stood at $5.2b in November, compared with $6b in the same month of 2010. The deficit is expected to continue to decline into 2012.

Export growth was a robust 10.8%, no doubt aided by a weak currency that made Turkish goods cheaper. An analysis by JP Morgan, meanwhile, predicts that the annual current account deficit peaked at $78.6b in October, and expects it to fall to $61.4b in 2012.

Sectoral highlights for 2011 included construction, which grew at 8.5%, driven by a 15.5% expansion of the residential subsector. Turkish construction companies suffered from the fallout of the Arab Spring, with some $23b in contracts in Libya jeopardized by the civil war that began in March. Still, firms are looking hopefully at their prospects in the Middle East, and negotiations have begun with Libya for the resumption of work there.

On the domestic front, meanwhile, attention is shifting to Turkey's ambitious infrastructural plans, which should drive growth in the sector for the next five years. Work is underway on the Gebze-Orhangazi-Izmir Highway Project, which will cut the driving time from Istanbul to Izmir from 8 to 3.5 hours, with the completion of a 1.7-km bridge across the Izmit Gulf. Other major projects include a third Bosporus bridge for Istanbul, and a new canal project, which aims to build a second waterway from the Black Sea to the Marmara Sea to reduce congestion on the Bosporus and allow greater throughput of oil and gas tankers from the Black Sea.

Turkey benefitted in 2011 from its status as an island of stability in a sea of economic and political turmoil. The uncertainty surrounding the Arab Spring drove tourists to visit stable Istanbul and its Aegean cousins, even as Turkey's growing soft power drew in increasing numbers of Arabs themselves. Meanwhile, Europe's stagnation has pushed investment towards more promising candidates, although these inflows to Turkey will be endangered if investors fear the Eurozone crisis will have strong effects.

Negotiating a soft landing will require Turkey's monetary and fiscal policymakers to strike a careful balance — maintaining growth while containing inflation, and propping up the lira while working to avoid a balance of payments crisis. Indeed, if Turkey can meet these challenges, it looks to have a healthy future. (OBG 17.01)

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