• Cottage Cheese Protest Becomes Inquiry into Dairy Prices
• AT&T Opens International Innovation Center in Israel
• General Electric to Set Up New Israeli R&D Center
• US Firm Wins Design Role For $5.5 Billion Qatar Project
• Algeria & US Launch Biotech Partnership
• Yissum Presents a Virtual Cane for the Visually Impaired
• Arab Middle East: Closing the Jobs Gap
• MOROCCO: Defying Expectations In Tourism

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TABLE OF CONTENTS:

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Cottage Cheese Protest Becomes Inquiry into Dairy Prices
1.2 Knesset Committee Approves Cancellation of Telecom Exit Fees

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 Ness Technologies to be Acquired by an Affiliate of CVCI
2.2 AT&T Opens International Innovation Center in Israel
2.3 General Electric to Set Up New Israeli R&D Center
2.4 US Recognizes Israeli Security Clearance
2.5 Israel Ranks Highest For Time Spent On Social Networking Sites
2.6 Ormat Wins Largest Ever Geothermal Deal
2.7 ATP Provides Update on Offshore Israel Deepwater Licenses

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Over 30 Hotels Added To Mideast New-Build Pipeline
3.2 Blue Sky Network Expands in MENA
3.3 Qatar's Pharmaceutical Market Set for 12% Growth to 2015
3.4 US Firm Wins Design Role For $5.5 Billion Qatar Project
3.5 New Zealand's Burgerfuel Eyes Middle East Expansion
3.6 US-Based Aquatech Wins $82 Million RAK Water Project
3.7 Dairy Queen Opens First Locations in Saudi Arabia
3.8 Bulgarian Medicines Market Doubled For Last 5 Years
3.9 Great Wall JV to Produce EU's Cheapest Cars In Bulgaria

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 IAI Sets Up €43 Million Wind Turbine Joint Venture
4.2 Egypt to Increase Reliance On Renewable Energy & Provide Industry Incentives

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Lebanon's Economy Exhales Over New Government While Analysts Urge Caution
5.2 Bahrain Buys $200 Million Worth of US Arms During 2010
5.3 Qatar's Inflation Seen Rising To 3.3% In 2011
5.4 Qatar to Increase LPG Exports 29% in 2011
5.5 UAE's Inflation Climbs To A Three-Month High In May
5.6 UAE Ministry of Economy to Launch Strategic Investment Initiative in Late 2011
5.7 Dubai Car Imports Rebound To $5.4 Billion In 2010
5.8 Saudi Arabia's Annual Inflation Slows to 4.6% in May 2011
5.9 Saudi Arabia Building its Wheat Reserves
5.10 Egypt's Cabinet Approves 2011 - 12 Budget & Cancels Capital Gains Tax
5.11 Egypt's Urban Headline Annual Inflation Drops to 11.87%
5.12 Egypt Announces Its First International Wheat Tender In Four Months
5.13 Egyptian Unemployment Stabilizes at 11.9% in May 2011
5.14 Egypt Power Report Q1 2011 - Gas Has Been the Dominant Fuel
5.15 Egypt Waits Until August To Decide To Import Wheat From Russia
5.16 Algeria & US Launch Biotech Partnership

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Turkey's Current Account Deficit Widened To $7.7 Billion In April
6.2 Foreign Capital Inflows Into Turkey Remain Strong
6.3 Cyprus Tourism Arrivals up 3.7% in May
6.4 Bulgaria's Annual Inflation Rate Reaches 5.6%
6.5 Bulgaria's New Car Market Starts To Improve in First Quarter
6.6 Bulgarian Grants Chevron Massive Shale Gas Exploration Concession

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Israeli Organ Donations Set New Record
7.2 Laylat ul Isra wal Mi'raj Observed

*REGIONAL:

7.3 Lebanon's New Cabinet Formed
7.4 UAE Plans Big Rise in Voters in September Elections
7.5 King Mohammed VI Sends Landmark Constitutional Changes to Moroccan People for a Vote
7.6 Erdogan's Party Wins Third Term
7.7 Greek Government Passes Crucial Votes

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8: ISRAEL LIFE SCIENCE NEWS

8.1 EarlySense Wireless Network Option of Monitoring Solution Approved
8.2 IceCure Jumps on US Patent Approval For Breast Tumor Device
8.3 BiondVax Announces Positive Phase IIa Results for Universal Flu Vaccine
8.4 Cerus & Ilex Distribution Agreements for the INTERCEPT Blood System in Israel
8.5 Yissum Presents a Virtual Cane for the Visually Impaired

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 SolarEdge Wins Over 15MW of PV Power Optimizer System Orders from Germany
9.2 Hebrew University and eTeacher Group Add Yiddish to its Online Program
9.3 Visual Software Systems Launches VisualBee SaaS to Enhance PowerPoint Presentations
9.4 CNSX Markets Selects Mellanox 10GbE to Accelerate Trading & Market Data Distribution
9.5 ComAbility Joins the Wireless Broadband Alliance (WBA)
9.6 Optibase Releases Ocaster Reflector/Recaster Platform with KLV Metadata Support
9.7 Wavion Introduces the World's First Beamforming 802.11n Outdoor Wi-Fi Gear
9.8 TowerJazz & Tecnopolis del Sur Assist with R&D in Argentina
9.9 Neebula Systems Extends Support to Cloud and Virtual Environments
9.10 BroadLight Announces the New Helios Embedded Processor Line
9.11 Jordan Valley Multiple System Repeat Order for its Thin Films Metrology Systems
9.12 Altair Demonstrates its LTE Chipset Speeds & Service for China Mobile Executives
9.13 Meta Network Launches Industry-Leading Mobile Performance Network
9.14 Cimatron to Demonstrate Ultra-Fast Material Removal and the SuperBox Accelerator
9.15 Elisra to Supply Personal Search & Rescue Locator Beacons to French Ministry of Defense

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's CPI Increases 0.5% in June
10.2 Israel's Trade Deficit Grows To $6.2 Billion
10.3 Israel's Big Four Arms Companies Had $7.2 Billion in Export Sales in 2010
10.4 Crimes Cost Israel NIS 15 Billion in 2010
10.5 OECD Ranks Israel 3rd in Milk Prices

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11: IN DEPTH

11.1 Arab Middle East: Closing the Jobs Gap
11.2 LEBANON: Balanced Banking
11.3 QATAR: Building Momentum
11.4 SAUDI ARABIA: On the Move
11.5 EGYPT: IMF Outlines $3 Billion Support Plan for Egypt
11.6 TUNISIA: Signs of Improvement
11.7 ALGERIA: Spending Hike
11.8 ALGERIA: Increasing Internet Use
11.9 MOROCCO: Defying Expectations In Tourism
11.10 TURKEY: Political Stability and Sustainable Growth Key for Turkey Rating Outlook
11.11 TURKEY: The Justice & Development Party in the Turkish Elections: A Limited Triumph

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1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Cottage Cheese Protest Becomes Inquiry into Dairy Prices

Israel's great cottage cheese protest, which began as a simple protest on Facebook, escalated into a Knesset debate and is now an inquiry into the rising prices of dairy products. On 20 June, Minister of Industry & Trade Simhon (Independence) directed that a committee be formed to examine the implications of the rise in dairy prices on all its aspects, including the issue of importing products, price controls and competition. The committee was formed on instructions from Prime Minister Netanyahu. Earlier on 20 June, a Knesset committee voted on a request to ask the State Comptroller to investigate Israel's cottage cheese prices. The rise in cottage cheese prices has been a hot issue in the forefront of recent news. The Facebook protest page, which exhorts customers to stop purchasing cottage cheese as of July 1, has continued to grow and more than 90,000 people have declared support for the boycott.

On 21 June, the Dairy Manufacturer's Association issued a statement saying that instead of opening the gates to imported dairy products to encourage competition, as the government threatened, it would even welcome back the price controls that it had formerly fought against. (IsraelNN 21.06)

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1.2 Knesset Committee Approves Cancellation of Telecom Exit Fees

After a stormy debate, on 19 June the Knesset Economics Committee approved the cancellation of exit fee for new telecom subscribers and the reduction of exit fees for current subscribers. Telecom companies will no longer be allowed to add a cancellation fee clause in contracts for new subscribers. Cancellation fees for cellular phones were only recently reduced to 8% of the value of the monthly bill for every month remaining on a commitment. The committee was asked to approve such a measure for the entire telecom sector. According to the amendment to the law, customers of landline companies and Internet service providers as well as cellular providers can now pay a reduced exit fine of 8% of their average monthly bill. (Globes19.06)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 Ness Technologies to be Acquired by an Affiliate of CVCI

Ness Technologies announced that the company has entered into a definitive merger agreement under which an affiliate of Citi Venture Capital International (CVCI), a global private equity investment fund, will acquire the company in an all-cash transaction valued at approximately $307 million. Under the terms of the agreement, Ness stockholders will receive $7.75 per share in cash for each share of common stock they hold, representing a premium of 17.6% over the closing price of the company's shares on the Nasdaq Global Select Market on June 9, 2011, the last trading day prior to today's announcement, or 22.2% over the average closing price of the company's shares over the 30 trading days prior to June 10, 2011. The company's Board of Directors, acting upon the unanimous recommendation of a Special Committee of disinterested members of the company's Board of Directors, approved the transaction as being in the best interests of Ness Technologies and its stockholders and recommends that the company's stockholders approve the transaction.

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. With about 6,900 employees, Ness has operations in North America, Europe, Israel and India, has customers in over 20 countries, and partners with numerous software and hardware vendors worldwide. (Ness 10.06)

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2.2 AT&T Opens International Innovation Center in Israel

On 15 June, AT&T opened its latest AT&T Foundry innovation center in Ra'anana, Israel, together with Amdocs. The facility is a collaborative environment where AT&T and technology providers work with start-ups and developers to get the latest innovations and services into the hands of AT&T customers more quickly than ever before. The Ra'anana center is the second permanent AT&T Foundry facility to open worldwide. It replaces a temporary facility where dozens of collaborative projects have been underway since AT&T and Amdocs announced plans to collaborate last July. A permanent center hosted by Alcatel-Lucent opened in Plano, Texas, in February. AT&T Foundry development tracks include mHealth, HTML5, new ways to deliver rich media, advanced check-in and location-based applications, and APIs – application programming interfaces that make network services easily available to developers. Projects at the Ra'anana center are enabling integrated mobile and wired broadband capabilities crossing multiple screens, including smartphones, PCs, televisions and emerging devices. (AT&T 16.06)

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2.3 General Electric to Set Up New Israeli R&D Center

General Electric will open its a multidisciplinary R&D center in Israel, its eighth R&D center in the country, at an investment of $3-5 million. The R&D center will engage in research in medical devices, water and clean energy. The R&D center will be set up in Haifa, near the center of GE subsidiary GE Healthcare, which has hundreds of employees who work on medical imaging systems. GE currently has 450 employees at seven centers in Israel, out of the company's total global workforce of 30,000. The other Israeli centers focus on specific products, while the new R&D center in Haifa will conduct more basic and general research. GE will hire 12 researchers when the new R&D center is opened. One of GE's goals in setting up the new center is to establish partnerships with Israeli high-tech companies and academia. The research team will focus on renewable energy, energy storage, smart grid, and energy efficiency technologies. It will also work on water monitoring, purification, wastewater treatment, brackish water and seawater desalination technology; and in healthcare, on non-invasive medical devices, advanced diagnostic tools, and medical navigation and guidance systems. The R&D center's researchers will collaborate with GE Capital's life sciences and energy funds, which invest in innovative technologies. (Globes 13.06)

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2.4 US Recognizes Israeli Security Clearance

There has been a turning point in defense relations between Israel and the US as the US administration has decided to recognize security clearances given by Israeli authorities to employees in the defense industry. This refers to Israeli employees who were born in countries automatically defined as a security risk in the US. Until now such employees were not allowed to be part of US projects handled by Israeli companies. Employees born in Russia, Arab countries, Iran and other countries not considered friendly to the US, who work in managerial or engineering jobs in Israeli defense companies, are well aware of the fact that they are not permitted to work on projects relating to US weapons or technologies, unless they have received specific clearance from the US authorities. From the point of view of Israeli companies obtaining such a clearance for their employees was an onerous task involving hiring US lawyers. Except in rare instances, Israeli defense companies have foregone this option and simply avoided employing personnel born in the "wrong" countries on US projects, even if they were the most suitable employees for the job and they had high security clearance from the Israeli authorities. Similar restrictions were also applied to the defense industries of other countries like Canada and the UK. (Globes15.06)

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2.5 Israel Ranks Highest For Time Spent On Social Networking Sites

The average Israeli spends almost 11 hours a month surfing social networks such as Facebook and Twitter, more than any other country in the world, a new poll has found. The global poll, conducted by the digital market intelligence firm Comscore, found that during the month of April Israelis spent 10.7 hours performing online social networking, the most recorded in the world. In fact, however, the poll may actually have underestimated Israeli media consumers because it refers to the entire population of Israel, many of whom do not hold social network accounts. Israel is also among the states with the highest relative number of social network users, the poll found, ranking second place with 90% of internet users owning a profile on such a site.

After Israel, the countries with the highest number of hours were Russia, with 10.3 hours of social networking per visitor per month, followed by Argentina, Philippines and Turkey with 8.4, 7.9 and 7.8 hours respectively. According to results from the TIM survey from April, weekly exposure of Facebook use in Israel grew 5.1%, bringing it up to 73% (second after Google's 89%.). According to comScore, Israel ranks 37th in the world with respect to the number of users on Facebook, with 3.4 million users, which is 46% of its population. The US has the highest number of users with 150 million, which is 48% of its population. Indonesia is ranked second with 38 million users, accounting for 15.7% of its population. After that come Britain, Turkey and India. (Various 09.06)

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2.6 Ormat Wins Largest Ever Geothermal Deal

Ormat Technologies received the largest product order in the company's history. The Supply contract and the Engineering, Procurement and Construction, (EPC) contract, signed by two of its subsidiaries with Mighty River Power Limited (Mighty River Power) of New Zealand, are for the first stage of the Ngatamariki geothermal project valued at a total of approximately $130 million. The new power plant is to be constructed on the Ngatamariki Geothermal Field in New Zealand. Construction of the power plant is expected to be completed within 24 months from the contract date. The Ngatamariki geothermal project is a follow-on contract with Mighty River Power and its Maori Trust partner. New Zealand government-owned Mighty River Power is one of the most experienced geothermal operators in the world. Geothermal energy accounted for a third of its total electricity generation in the first quarter and the Ngatamariki geothermal project is due to boost that proportion to 43% by 2013. (Ormat 08.6)

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2.7 ATP Provides Update on Offshore Israel Deepwater Licenses

ATP Oil & Gas Corporation and its wholly-owned subsidiary ATP East Med have acquired the Shimshon, Daniel East and Daniel West licenses in offshore Israel and the Israeli government has approved these licenses. Based on the acquired licenses, ATP through ATP East Med anticipates spending between $3 and $5 million in 2011 in offshore Israel for acquisition costs, seismic and preliminary exploration plans. Lockwood & Associates considers the calculated assessment of the total geological and geophysical exploration probability of success of 20% to be reasonable. Lockwood said its high estimate was for 3.4 TCF, the low estimate was 1.5 TCF and its best estimate was 2.3 TCF. ATP East Med, as operator of the licenses, has assumed the drilling contract with Transocean Drilling Israel for the Sedco Express drilling unit at the Shimshon location where it anticipates initial drilling during Q2/12. ATP expects to spend between $24 and $29 million during 2012 related to the initial exploratory well on the Shimshon license for its 40% working interest. ATP Oil & Gas Corporation (ATP) is engaged in the development and production of oil and natural gas in the offshore Gulf of Mexico, Mediterranean Sea and the North Sea. ATP established itself as a deepwater operator in the Gulf of Mexico Garden Banks area with the subsea Ladybug wells in 2000. (ATP 13.06)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Over 30 Hotels Added To Mideast New-Build Pipeline

More than 30 new properties have been added to the Middle East/Africa hotel development pipeline in May, latest data from STR Global has revealed. The pipeline now comprises 474 hotels totaling 128,344 rooms, according to the May 2011 STR Global Construction Pipeline Report. This compares to 443 hotels totaling 122,775 rooms in April which itself was 11 hotels more than in March. Among the countries in the region, Qatar showed the largest expected room growth (84.4%) if all 7,002 rooms in the total active pipeline open. Other countries with large expected room growth include: Oman (67.7% growth with 4,211 rooms in the total active pipeline); the UAE (59.5% with 50,908 rooms); Bahrain (55.3% with 3,557 rooms); and Algeria (51.6% with 1,744 rooms). Last month, Saudi's Jabal Omar Development Company signed deals with Hilton Worldwide, Marriott International and Hyatt International to operate a slew of hotels at its $5.5b project in Mecca. The three hotel chains will operate 12 properties at the mega development, which will house 37 hotel towers up to 48-storeys tall and provide accommodation for 45,000. Middle East hotel rates continued to lead the global market in April, with revenues per available room (RevPAR) at $147 during the month, despite the political turmoil in the region. Hotel occupancy in the Middle East increased 2.3% to 69.1% while rates outpaced those in Europe ($94), Asia Pacific ($93) and the Americas ($63), the companies said in a joint report. (AB 18.6)

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3.2 Blue Sky Network Expands in MENA

La Jolla, California's Blue Sky Network, a leading, global provider of satellite tracking and communication solutions for land, sea and aviation, announced the addition of Hamza Mohammed as Director of Business Development for Middle East and Africa (MEA). Based in Kuwait, Mr. Mohammed brings more than a decade of experience to Blue Sky Network, and has spent the bulk of his career providing satellite communications and tracking solutions in MEA where GSM coverage is limited and satellite solutions are required for tracking and communicating. (Blue Sky 13.06)

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3.3 Qatar's Pharmaceutical Market Set for 12% Growth to 2015

Qatar's pharmaceutical market is forecast to become a billion dollar industry in 2019, according to a new report by Business Monitor International. The sector was valued at QR1.43bn ($392m) in 2010 but is expected to see compound annual growth rate (CAGR) of 12.6% to reach $709m by 2015, BMI said. BMI analysts said the growth will be driven by expansion of the wider economy, for which growth in real terms is expected to remain above five% a year over the next 10 years. Qatar's size means that it will remain reliant on pharmaceutical imports and as such, the government has been moving to improve the functioning of this market. In February, the Qatar Advisory Council approved legislation proposed by the Supreme Council of Health that allows for the deregulation of pharmaceutical imports to encourage free market competition. It added that it believed Qatar was a favorable proposition for drug makers but the small overall market would continue to deter anything more than a sales and marketing presence from the large multinationals, which run the majority of their operations from the region's larger economies such as the UAE. The GCC currently imports 90% of its pharmaceutical needs. The pharmaceutical market in GCC countries and Yemen exceeded $6bn and is expected to reach around $10bn by 2020. (AB 15.06)

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3.4 US Firm Wins Design Role For $5.5 Billion Qatar Project

Qatar master developer Msheireb Properties, formerly known as Dohaland, the appointment of a lead consultant for phases 2 and 3 of its $5.5bn project to transform the center of Doha. Under two separate agreements, global design consultant Gensler will undertake the design of the Retail Galleria in phase 2 in addition to undertaking lead consultant duties in phases 2 and 3. Gensler will execute all detailed design works for buildings designed by a total of six architectural firms through to the construction documentation stage. In phase 2, Gensler will work on the design of 10 mixed use buildings including 68,500 sq m of retail, while it will oversee work on 14 buildings in phase 3 including a hotel and a mosque. The $5.5bn Msheireb scheme will transform a 31-hectare site in the center of Doha, recreating a way of living that is rooted in Qatari culture. Due for completion in 2016, the mixed-use scheme will see Msheireb Properties construct more than 100 buildings to offer housing, workspace, cultural and community facilities, while preserving key heritage buildings. The award of contract to Gensler follows the earlier appointment of Burns & McDonnell as lead consultant for phases 1A, 1B and 1C. (AB 12.06)

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3.5 New Zealand's Burgerfuel Eyes Middle East Expansion

BurgerFuel, the New Zealand fast food chain with branches in the UAE and Saudi Arabia, has seven outlets under construction in the Middle East in a bid to grow its market share. The listed burger chain signed a franchise deal for Iraq in May, after solid trading in the Middle East helped the company to a modest profit of $27,209 for the year to 31 March 2011. The company now plans to launch a further seven stories during the 2012 financial year, including an outlet in Kurdistan. The company opened its first UAE outlet in Dubai shortly after the onset global economic crisis, a move that probably cost the company two years in terms of its ability to expand. In November last year, the company announced it would close a company-owned store in Sydney and focus on the Middle East. BurgerFuel Middle East saw a 394% increase in sales in the UAE and Saudi Arabia to NZ$4.08m in the last fiscal year. (AB 19.06)

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3.6 US-Based Aquatech Wins $82 Million RAK Water Project

The UAE's Federal Electricity and Water Authority (FEWA) has signed a contract with US-based Aquatech to provide a desalination facility in a contract worth $82m. The project, located at Ghalilah, will provide drinking water for Ras Al Khaimah. The project will include civil works, buildings, balance of plant, and electrical and mechanical installation. In addition to the core reverse osmosis plant, the scope of supply consists of the seawater intake, dissolved air flotation, ultrafiltration, and post treatment packages. Aquatech beat more than 10 other bidders for the contract, which is valued at over $82m and is scheduled to be operational in late 2013. The contract win bolsters the company's list of major projects in desalination and water reuse in the Middle East. Aquatech has thermal and membrane based desalination plants throughout the GCC including Oman, Qatar, Kuwait and Saudi Arabia. It is also among the first companies in the region to work with the oil and gas industry to recycle and reuse wastewater. Aquatech has recently completed a landmark oil field water reuse project in Oman and is currently executing one of the region's first petrochemical wastewater reuse projects in Kuwait. (AB 13.06)

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3.7 Dairy Queen Opens First Locations in Saudi Arabia

Dairy Queen, owned by Berkshire Hathaway, has opened its first three locations in Riyadh, Saudi Arabia, one of which is the largest and only two-story DQ Grill & Chill restaurant in the world. These openings mark the DQ system's presence in 16 countries outside the U.S. and Canada. All three of the new DQ Grill & Chill restaurants are owned and operated by franchisee Al Safwa Food Group, a retail holding group previously involved in the Saudi Arabia casual dining segment. Al Safwa Food Group is slated to open five DQ Grill & Chill locations this year and a total of 32 locations throughout Saudi Arabia by 2015. The Dairy Queen system also has locations in the Middle Eastern countries of Bahrain, Oman and Qatar. (DQ 16.06)

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3.8 Bulgarian Medicines Market Doubled For Last 5 Years

Bulgarians have bought medicines worth some BGN 2 Billion for 2010. This is double the amount for 2005 and marks a 14% growth with respect to 2009. On average, every Bulgarian has spent some BGN 300 on pharmaceuticals for last year. Prof. Danchev from the Medical University in Sofia commented that this trend is due both to the greater availability of various drugs, as well as to greater morbidity for some diseases. According to the data, in 2010 Bulgarians have spent on average BGN 50 for non-prescription drugs, chiefly anti-flu and cold medicines, as well as vitamins and mineral supplements. The drugs most purchased among the group issued with prescription have been those against ulcers, diarrhea, heart disease and cancer. Some 20 to 30% of medicines purchased by Bulgarians are nevertheless estimated to have remained unused by them. (SMN 13.06)

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3.9 Great Wall JV to Produce EU's Cheapest Cars In Bulgaria

Voleex C10 sedan, Hover H5 SUV and Steed pickup are the three different vehicle models, which Chinese car maker Great Wall Motor Co and Bulgarian company Litex Motors will produce in the town of Lovech, Northern Bulgaria, at very competitive prices. The companies are to roll off their first vehicles by the end of the year amid expectations for a furor not least because of their low prices. Even though the price list has not been officially announced, unconfirmed reports say Voleex C10, a small supermini-class hatchback, will be tagged at BGN 12 500, VAT included, making it the cheapest car not only in Bulgaria, but across the whole of Europe. The other two models of the Chinese-Bulgarian joint venture will also break price records for a large SUV and pickup. Prices for the Great Wall Hover will start from BGN 25,000 and for Steed, from BGN 20 000, VAT excluded.

Great Wall Motor Company, one of China's biggest automotive manufacturers, signed a joint venture (JV) deal with Bulgarian diversified holding company Litex Commerce in the presence of Chinese Vice President Xi Jinping and Bulgarian Prime Minister Boyko Borisov at the end of 2009. The plant will have an annual production capacity of 50,000 units and assemble four different models – a sports utility vehicle (SUV), a pickup and two passenger car models, which are expected to be sold in European Union countries. (SMN 13.06)

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 IAI Sets Up €43 Million Wind Turbine Joint Venture

Israel Aerospace Industries will set up a €43m joint venture with a foreign company to develop, manufacture, set up, and license wind turbines for the production of electricity. Each turbine will have three megawatt capacity, and can be installed on land or at sea. IAI and its partner, whose name the company did not disclose, will own the joint venture in equal shares, and they will share profits from any future sales. The partner will transfer all its intellectual property rights for the wind turbines to the joint venture. The companies will set up two wind farms as a pilot program to test the turbines, after a three-year development program. IAI said that its partner is a leading infrastructures mechanical equipment manufacturer. IAI plans to enter the renewable energy business, where it has never operated before, in the coming years. The company is also developing next-generation land warfare systems. Sources at the company believe that these programs will generate substantial revenue for the company, which until now focused on aerospace products for the military and civilian markets. IAI decided to speed up its renewable energy program because of the slump in demand for executive jets, which began with outbreak of the global economic crisis in 2008, and has not yet recovered. IAI's executive jets business has accumulated heavy losses and the company has transferred employees to other divisions. (Globes 14.06)

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4.2 Egypt to Increase Reliance On Renewable Energy & Provide Industry Incentives

Egypt's wind power capacity may reach 3,040 MW by 2016 as the country seeks to increase its reliance on renewable energy sources, Electricity & Energy Minister Younes said. Egypt decided to exempt imported components used in the renewable energy industry from duties as part of a wider plan to encourage investment in the field. Egypt currently generates 550 MW of power from wind energy. It plans to generate 20% of its energy needs from renewable sources by 2020, of which 12% would come from wind power, according to the ministry. (Beltone 21.06)

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Lebanon's Economy Exhales Over New Government While Analysts Urge Caution

After trudging through nearly five months of political vacuum, the economy was relieved of a burden on 13 June when stalled Cabinet formation efforts finally arrived at conclusive agreement. Political uncertainty that had clouded Lebanese business since the collapse of then-Prime Minister Saad Hariri's Cabinet this January finally appeared to fade, signaling the start of much-needed economic recovery. Business has contracted by as much as 30% since the start of the crisis, according to some reports, and growth in some of Lebanon's most productive sectors has reached a virtual standstill. All this flies in the face of economic projections announced in late 2010, which put Lebanon's GDP growth in 2011 at around 6%. Trade associations, labor unions and various civil society groups were up in arms during this period, urging politicians to put aside differences and fill in a power vacuum that had staved off foreign investment and brought about steep declines in consumer confidence. Still, when Prime Minister Mikati's government finally took shape, analysts and businesspersons began to raise questions about what the economic future (though decidedly brighter than the period of political vacuum) held in store. (TDS 14.06)

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5.2 Bahrain Buys $200 Million Worth of US Arms During 2010

The US government approved $200 million in military sales from American firms to Bahrain last year, according to a State Department report. The annual report, which provides totals of US-authorized arms sale agreements between American defense firms and foreign governments, showed a $112 million rise in licensed defense sales to Bahrain between the 2009 and 2010 fiscal years. The US had approved $88 million in military exports to Bahrain in 2009. Much of the flow of military hardware to Bahrain was for aircraft and military electronics, but the US also licensed $760,000 in exports of rifles, shotguns and assault weapons in 2010. (TradeArabia 12/06)

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5.3 Qatar's Inflation Seen Rising To 3.3% In 2011

Inflation in Qatar is projected to hit 3.3% this year and 2.2% in 2012 amid increasing transport and food costs. Meanwhile rents will show signs of stabilization in the same period. After two years of deflation, consumer prices in Qatar are forecast to record an increase in 2011-12. The overall Consumer Price Index (CPI), which measures price movements, is forecast to average 110.4 in 2011, from 106.9 in 2010. The CPI is made up of eight components, of which housing and transport and communication account for more than 50%. Transport and communication was already on the rise, with an average inflation of 5% in the first four months of 2011. Food and beverage prices surged by an average of 3.5% during the first four months of 2011. The housing CPI recorded a decline of 5.2% in the first four months of 2011, compared to a decline of 14.4% during the corresponding period in 2010. (AB 14.06)

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5.4 Qatar to Increase LPG Exports 29% in 2011

Qatar will increase exports of Liquefied Petroleum Gas (LPG) to 11 million tonnes in 2011 from 8.5 million tonnes in 2010, a 29% y-o-y increase. The CEO of Qatar International Petroleum Marketing Company said that Qatar is one of the largest producers of LPG in the Middle East. Qatar extracts LPG from natural gas and, therefore, its production increases in alignment with the growth of processing and exporting gas. It is to become the largest source of condensates in the Middle East in 2011, where exports will rise to 400,000 bpd from 360,000 bpd in 2010. (QIPM 12.06)

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5.5 UAE's Inflation Climbs To A Three-Month High In May

Inflation in the UAE climbed to a three-month high of 1.4% on an annual basis in May and edged up from the previous month as food prices continued to soar. Consumer price growth floated around 1% for most of 2010 after debt troubles at Dubai state-owned firms knocked the economy. Inflation has remained low this year, at 1.1% in April, as banks remain hesitant to lend despite inflows of deposits to the OPEC member, seen as a relatively safe haven after unrest rocked nearby Bahrain, Oman and Yemen. On the month, living costs rose 0.2% in May after five monthly declines in a row, data from the National Bureau of Statistics showed.

Food costs, which account for 14% of consumer expenses in the $298 billion UAE economy, jumped 1.3% month-on-month in May, the same pace as in the previous month. Concerned about the regional turmoil, the UAE government has promised to spend $1.6 billion on infrastructure in less developed northern emirates, raise military pensions by 70% and subsidize bread and rice. It also called on retailers to offer discounts of up to 50% in the Muslim holy month of Ramadan, which begins in August, when food prices usually surge as families enjoy more elaborate evening meals after the daylight fasting. In May, the UAE said it planned to combat rising global commodity prices by fixing the cost of about 400 foodstuffs and household products at 70 outlets. Housing prices, the largest basket item with a 39% share, fell 0.1% on a monthly basis in May in a sixth consecutive decline as the property sector remains weak. Transport costs rose 0.1%, slightly slower than in April. In March, the UAE's central bank governor said inflation was not a worry, adding that consumer price growth should range around very low single-digit rates. (AB 18.06)

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5.6 UAE Ministry of Economy to Launch Strategic Investment Initiative in Late 2011

The UAE Ministry of Economy will launch a strategic investment initiative in November 2011 that seeks to enhance the investment environment by highlighting opportunities in the country. The initiative comes in line with the strategic directions of the Ministry for 2011 - 2013 to enhance the investment environment and the competitiveness of the national economy by targeting international markets and attracting large investment projects to the UAE. In the first phase, the initiative aims to target markets such as Argentina, Brazil, Turkey, Germany, India, China and South Korea. The areas that fall within the investment map also include: aluminum industry; automotive; aviation; information technology; telecommunications; financial services; electronics; engineering and industrial technology; healthcare; petrochemical industry; education and knowledge industry, and the pharmaceutical industry. (Beltone 21.06)

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5.7 Dubai Car Imports Rebound To $5.4 Billion In 2010

Dubai's car imports rose by 33% in 2010 to a total value of $5.4b as sales rebounded from the slump of the previous year. The Dubai Chamber of Commerce & Industry study also said re-exports recorded a growth of 11%, back to the pre-global financial crisis level of AED9b. The report showed that between 2005 and 2010, Dubai's total car and bus imports reached a value of AED124b. Japan was the largest supplier of car imports with 44% of the total during the six-year review period, while the US contributed 17%, Germany 13%, South Korea 8% and the UK supplied 6% of the total. Together, the five countries supplied 87% of the total vehicle imports into Dubai. Following a spike in imports in 2007 and 2008, the global slowdown in 2009 saw a 63% slump, with supplies from the UK hardest hit. A recovery was seen from the major sources in 2010, except in Germany, where the level of imports remained comparable to the previous year, the study added. The largest growth of 72% was registered in imports from South Korea, while imports from Japan recovered by 39%, the US by 19%, and the UK by 46%. The report said that Iraq was Dubai's largest re-export market for cars and buses, with value continuously increasing after a slight dip in 2006. According to the report, imports from Japan were significantly down from March, when the country was hit by an earthquake and tsunami. (AB 19.06)

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5.8 Saudi Arabia's Annual Inflation Slows to 4.6% in May 2011

Saudi annual inflation slowed to a 16-month low of 4.6% in May 2011, mainly due to a monthly drop in food costs, data by the Central Department of Statistics showed. Monthly inflation was unchanged at 0.4% in May 2011. Pundits still believe that the slowdown in inflation is temporary, as the expected increase in money supply should put pressure on inflation, going forward. Moreover, the upcoming month of Ramadan (beginning of August 2011) will increase pressures stemming from food prices, as demand for food increases during the month of Ramadan. (Beltone 12.06)

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5.9 Saudi Arabia Building its Wheat Reserves

Saudi Arabia's state grains buyer has purchased 360,000 tonnes of wheat from the United States and Europe at $358.91 per tonne, as it looks to build strategic reserves. The wheat will arrive in Saudi Arabia on six ships during September and October 2011, with three going to Jeddah Islamic port and three to King Abdulaziz port in Dammam. Saudi Arabia expects about 2 million tonnes of wheat imports in 2011, unchanged from 2010, and aims to double its reserves to one year's consumption by 2014, its Minister of Agriculture said recently. The world's top oil exporter, which has emerged as a major buyer of wheat, wants to build reserves of basic commodities such as wheat, rice, oils and sugar to protect itself against the impact of a spike in global food prices, and to support its rapidly growing population. (Beltone 21.6)

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5.10 Egypt's Cabinet Approves 2011 - 12 Budget & Cancels Capital Gains Tax

Egypt's Cabinet approved the Ministry of Finance's proposed budget for FY11/12 that starts in July 2011. The Cabinet canceled a proposed 10% tax on company dividend payments, mergers and acquisitions, and asset revaluations, El Simman added. (Beltone 09.06)

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5.11 Egypt's Urban Headline Annual Inflation Drops to 11.87%

Egypt's urban headline inflation dropped to 11.87% y-o-y in May 2011, as Egypt's statistics agency CAPMAS announced. Annual headline inflation had increased to 12.1% in April 2011, on higher food prices. Headline inflation also eased considerably on a monthly basis in May 2011, falling from 1.25% in April 2011 to 0.2% monthly inflation in May 2011. The monthly fall in inflation is due to a monthly contraction in food prices, falling by 0.5% m-o-m in May 2011 after increasing by 2.6% m-o-m in April 2011. Anti-government protests fuelled by soaring prices, unemployment and demands for democratic reforms brought much of Egypt's economy to a standstill for nearly three weeks until Mubarak resigned on February 11. Food and beverage prices, which have a 44% weighting in the basket Egypt uses to measure inflation, fell 0.5% in May from a month earlier, driving the slowdown in the overall figure, analysts said. That compares to a 2.6% jump in April from March. (Various 09.06)

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5.12 Egypt Announces Its First International Wheat Tender In Four Months

Egypt's General Authority for Supply Commodities (GASC), which is Egypt's main wheat buyer, stepped back into the world market on 13 June for the first time in four months to buy an unspecified amount of wheat from top global suppliers, but excluded Russia. GASC announced a tender to buy wheat from the United States, Canada, Australia, France, Germany and Argentina for shipments on 11 – 20 July. However, GASC did not seek offers from Russia, formerly its top wheat supplier, although Russia plans to return to the export market on 1 July after a nearly 11-month grain export ban imposed last August. GASC wants to be cautious in its Russian wheat purchases after Egypt struggles to replace more than 500,000 tonnes in purchases post the export ban. (14.06)

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5.13 Egyptian Unemployment Stabilizes at 11.9% in May 2011

The unemployment stabilized at 11.9% in May 2011, according to Minister of Manpower & Immigration El Boraei. CAPMAS released last month an unemployment rate of 11.9% as of March 2011. Some 45% of the unemployed are under 26 years of age, of which 80% hold higher education degrees. El Boraei disclosed that the percentage of people living under poverty line (less than $2/day) reached 42%. (Beltone 15.06)

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5.14 Egypt Power Report Q1 2011 - Gas Has Been the Dominant Fuel

Research and Markets http://www.researchandmarkets.com "Egypt Power Report Q1 2011" forecasts that the country will account for 11.91% of the Middle East and Africa (MEA)'s regional power generation by 2015, struggling to cope with demand unless capacity is expanded significantly. BMI's MEA power generation estimate for 2010 is 1,222 terawatt hours (TWh), representing an increase of 4.0% over the previous year (where markets were depressed by the economic slowdown). BMI is forecasting an increase in regional generation to 1,518TWh by 2015, representing a rise of 24.2% between 2010 and the end of the period. MEA thermal power generation in 2010 is estimated by BMI at 1,140TWh, accounting for 93.3% of the total electricity supplied in the region. BMI's forecast for 2015 is 1,378TWh, implying 20.8% growth in 2010-2015 that reduces slightly the market share of thermal generation to 90.8% - thanks in part to environmental concerns that should be promoting renewables, hydro-electricity and nuclear generation. Egypt's thermal generation in 2010 will have been an estimated 122TWh, or 10.68% of the regional total.

By 2015, the country is expected to account for 10.60% of regional thermal generation. Gas will have been the dominant fuel in Egypt in 2010, accounting for an estimated 50.2% of primary energy demand (PED), followed by oil at 42.5% and hydro with a 4.3% share. Regional energy demand is forecast to reach 1,117mn tonnes of oil equivalent (toe) by 2015, representing 20.8% growth over the period since 2010. Egypt's estimated 2010 market share of 8.75% is set to rise to 9.11% by 2015. Egypt's estimated 15.5TWh of hydro generation in 2010 is forecast to reach 23.0TWh by 2015, with its share of the MEA hydro market easing from an estimated 41.43% to 41.06% over the period. (R&M 16.06)

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5.15 Egypt Waits Until August To Decide To Import Wheat From Russia

Egypt will wait until Russia's harvest starts in August to decide whether to resume buying the grain from Russia, Bloomberg reported. Yields, prices and a proposed duty on Russian grain exports will govern the decision by the General Authority for Supply Commodities, Egypt's state wheat buyer said. Russia, which supplied Egypt with more than half of its imported wheat in the marketing year through June 2010, had halted all cereal exports in August 2010 because of a severe drought. The ban will expire as scheduled on July 1st 2011, Russia's government said last month. In 2010, the Russians failed to ship some quantities that were agreed upon even before the ban came into effect. Now Egypt is wary of the Russians. The measure prompted Egypt to drop Russia from the list of countries approved as a source of imported wheat. Egypt is trying to diversify its sources of grain imports and when it is comfortable with the Russian supply, it could start to import from Russia again. (Beltone 21.06)

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5.16 Algeria & US Launch Biotech Partnership

Algeria and the United States are planning to carry out joint research and development in the fields of biotechnology and pharmaceuticals. The goal is to make Algeria the North African leader in the pharmaceutical industry. The first-ever Algerian-American Health Forum closed in Algiers on 9 June with an agreement to create an international biotechnology and drug manufacturing hub in Algeria. Smail Chikhoune, president of the US-Algeria Business Council, said he hoped that a bridge would be built between Algeria and the US so that American know-how could be passed on to Algerian companies. To implement the project, however, the Americans are hoping for a relaxation of Algerian laws on investment, which they deemed "protectionist". The Deputy Chief of Mission at the US Embassy in Algiers mentioned in particular the issue of drug registration, which currently takes more than two years.

At present, oil and gas account for 97% of trade between Algeria and the United States, according to the Council of Algerian-American Affairs. If hydrocarbons are excluded, Algeria's exports to its biggest customer are worth $500 million per year. The volume of trade between Algeria and the United States in 2010 was nearly $16 billion. Medical imports rose from $500 million in 2000 to $1.85 billion in 2008. Algeria imports 70% of its drugs, and authorities hope the new partnership can reduce that figure. (Magharebia 13.06)

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Turkey's Current Account Deficit Widened To $7.7 Billion In April

Turkey's current-account deficit widened in April from a year earlier, underlining the most pressing economic weakness facing Prime Minister Erdogan as he starts his third term in office. The deficit widened to $7.7 billion from $4.4 billion in the same month of 2010, the state statistics agency in Ankara said. It was the second-biggest gap since records began in 1984, after the record $9.8 billion in March. (Hurriyet 13.06)

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6.2 Foreign Capital Inflows Into Turkey Remain Strong

Despite record-low interest rates, international capital inflows to Turkey remain strong - a total of $684 million in foreign capital entered the country in April. Net foreign capital inflows between January and April stood at $4.7 billion, corresponding to an annual rise of 12.6%, according to Treasury data. The amount of foreign capital entering Turkey was at $470 million in January, $691 million in February and $2.8 billion in March. Wealthy Gulf Arabs seeking a safe place to store their cash in March chose Turkey, according to various press reports in May, accounting for the month's spike in capital inflow. Property purchases account for around $300 million of the April figure, while the remaining $384 million went to other areas of the economy. Foreign direct capital in the first four months of the year totaled $6 billion, while $1.77 billion exited the economy in the same period. More than $4.32 billion of the capital that entered Turkey in the period went toward “activities of financial intermediary institutions,” while $536 million involved the energy sector. In April alone, 277 foreign-capital companies were established in Turkey, while 55 companies involving some foreign capital were created. In the first four months of the year, a total of 1,211 foreign-capital companies were founded, according to the data. (Hurriyet 16.06)

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6.3 Cyprus Tourism Arrivals up 3.7% in May

Tourism arrivals to Cyprus continued to climb in May, rising by 3.7% over the same month of the previous year to reach 267,487, compared with 258,014 in May 2010. There was another sharp increase in arrivals from Russia, which rose by 47.4% to reach 40,772, from 27,668 in May 2010. Arrivals from Greece also showed a healthy increase, with arrivals up by 14.2% to 12,016 from 10,524 in May 2010. Arrivals from the UK, which accounts for just under half of all tourists, were down by 5.8% year on year after a leap of 29.1% in April that might have been related to the long royal wedding holiday. A bumper April all arrivals means that for the period January - May 2011 arrivals of tourists increased by 11.7% to 672,951, from 602,678 in the corresponding period of 2010. Tourism revenue in the first five months has also performed strongly, rising by 23.7% year on year to €29.8m. (FM 20.06)

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6.4 Bulgaria's Annual Inflation Rate Reaches 5.6%

Bulgaria's annual inflation rate reached 5.6% in March 2011, according to the country's National Statistical Institute's consumer price index (CPI). The consumer price index in March 2011 compared to February 2011 was 100.6%, i.e. the monthly inflation was 0.6%. The inflation rate since the beginning of the year (March 2011 compared to December 2010) was 2.4%. The annual average inflation, measured by CPI, in the last 12 months (April 2010 - March 2011) compared to the previous 12 months (April 2009 - March 2010) was 3.5%. The harmonized index of consumer prices (HICP) in March 2011 compared to March 2010, i.e. the annual inflation, was 4.6%, while the monthly inflation in March 2011 compared to February 2011 was 0.4%. The inflation rate since the beginning of the year (March 2011 compared to December 2010) was 1.4%. The annual average inflation, measured by HICP, in the last 12 months (April 2010 - March 2011) compared to the previous 12 months (April 2009 - March 2010) was 3.7%. The consumer price index (CPI) is the official measure of inflation in Bulgaria. The Harmonized Index of Consumer Prices (HICP) is the comparable measure of inflation across EU member states. HICP is one of the criterions of price stability and for readiness of Bulgaria to join the euro-zone. (SMN 13.04)

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6.5 Bulgaria's New Car Market Starts To Improve in First Quarter

The market of new cars in Bulgaria has registered a modest but nonetheless tangible year-on-year growth in the first quarter of 2011. A total of 4,638 new cars were sold in Bulgaria in January-March 2011 vs. 3,956 sales in the same period of 2010, a growth of 17%, according to data of the Association of Car Importers. In March, a total of 1,816 new cars were sold, compared to 1,358 in February and 1,464 in January. Bulgaria's all time record first quarter in terms of new car sales was in 2008 when a total of 15 224 new cars were sold in the country, just months before the economy got into a depression and the market collapsed. The total number of vehicles, including cars, trucks, buses, and motorcycles, sold in the first quarter of the year is 4,888 vs. 4,116 in Q1/10. The most popular brand in Q1/11 in Bulgaria was Volkswagen with 567 new car sales, followed by Toyota with 427 sold vehicles. Ford is third with 414 sales, Peugeot comes in fourth with 369 sales, followed by Dacia with 357 and Skoda with 302. Mercedes is the leader in the sales of new buses and trucks – a total of 45 in the first quarter. Peugeot has the lead in the sales of new motorcycles – 42, or 67% of all motorcycles sold in Bulgaria in this period. (SMN 13.04)

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6.6 Bulgarian Grants Chevron Massive Shale Gas Exploration Concession

Bulgaria's Cabinet has formally decided to award a large-scale concession for shale gas exploration to US energy giant Chevron. The decision was formalized by the Borisov government on 15 June, following the May 2011 announcement by Bulgarian Economy, Energy & Tourism Minister Traikov that Chevron landed the shale gas exploration concession with a whopping offer of €30m, snatching it from British company BNK Petroleum, which remained second in the tender. The exploration plot is in northeastern Bulgaria and the Bulgarian government had set a minimum price of only €200,000 for the five year. Traikov himself has expressed his satisfaction that Chevron's €30m will be poured directly into Bulgaria's state budget. According to the estimates of the bidders, the deposit contains between 300 billion and 1 trillion cubic meters of shale gas. In Traikov's words, Bulgaria's shale gas deposits should be able to guarantee its domestic consumption of natural gas for the next 1000 years. Under Bulgarian government concession, Chevron is supposed to draft a working program for its exploration worth €50m. In order to start the exploration of the shale gas deposits, Chevron will have to pay the Bulgarian state €30m, and all risks remain for the US corporation – including whether sufficient quantities of shale gas will be discovered or whether a potential extraction will received a positive environmental assessment. (SMN 16.06)

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Israeli Organ Donations Set New Record

The National Transplant and Organ Donations Center in Israel said on 12 June that the first half of 2011 recorded a 54% rise in organ donations, and set a new record of organ transplants. Between January and May of 2011, 105 lives were saved due to organ donation – 75% of all transplant performed in 2010, which saw a total of 143 organ transplants. Despite the increase in organ donations, there are still over 1,000 patients on the NTC waiting lists. (Ynet 16.06)

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7.2 Laylat ul Isra wal Mi'raj Observed

This coming 28 June, the Islamic holiday of Laylat ul Isra wal Mi'raj will be observed. Arabic for the “Night of the Journey and Ascension,” it usually falls on 27 Rajab. It is the night when Muhammad was, according to hadith, taken to “the furthest mosque” (location not specified) on a Buraq (a beast resembling a human faced horse with wings) and ascended to the highest level of the heavens. It is said that he negotiated with God about the number of prayers, which started at fifty a day, but on his way down he met Moses, who asked him to ask for a reduction in the number because the requirement was difficult for Muhammad's people. Muhammad returned to God and several times asked for, and was granted a reduction of five prayers, until the number was reduced to five in total, with the blessing that if they were properly performed, the performers would be credited with fifty prayers instead of five. Unlike other holidays, Isra Mi'raj is not celebrated by all Muslims. No special prayers are associated with this holiday. But the ones who do celebrate get together in mosques or at one another's homes and listen to the story of Muhammad's journey. Food, especially sweets, is shared in honor of the night.

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*REGIONAL:

7.3 Lebanon's New Cabinet Formed

On 13 June, Lebanon's Prime Minister Najib Mikati formed a new government dominated by the Hezbollah-led March 8 alliance, ending a political deadlock that has left the divided country in a power vacuum for five months. Mikati unveiled the 30-member Cabinet after more than four months of tough bargaining and backstage bickering involving the March 8 alliance, President Michel Sleiman and Mikati over who would get which portfolios. Although Hezbollah and its March 8 allies have a majority in the new Cabinet – 18 seats – Mikati sought to reassure the Lebanese and the world that his government would not place Lebanon at odds with the world community. He said it was significant that more than one-third – 12 – of the Cabinet ministers were appointed by him, the president and Progressive Socialist Party leader Walid Jumblatt, thus ensuring Hezbollah and its allies could not control the government. Syria supports the Hezbollah-led March 8 coalition which backed Mikati to form a new government in January to replace Hariri's toppled Cabinet.

Political wrangling, including competition for sensitive posts, had held up the formation of the government for months and had more than once prompted Mikati to threaten to form a de facto government or a Cabinet of technocrats. Breaking with tradition, the new Cabinet includes five Shiite ministers instead of the normal six ministers in a 30-member government, while the Sunnis got seven portfolios, an extra seat. Berri ceded a Shiite Cabinet seat at the last minute to help break the deadlock over the representation of the former Sunni opposition by Faisal Karami, son of former Prime Minister Omar Karami. Only seven ministers from the outgoing Cabinet were reappointed in the new government, with some retaining their portfolios.

The government faces major challenges, including the worsening economic crisis, public debt estimated at more than $52 billion, and sharp political divisions between the March 8 and March 14 camps over the explosive issues of Hezbollah's weapons and the U.N.-backed Special Tribunal for Lebanon, which is probing the 2005 assassination of former Prime Minister Rafik Hariri. Although the new Cabinet is viewed as one-sided because it excluded the March 14 parties who have decided to boycott it, Mikati pledged that his government would work for all the Lebanese without discrimination. (TDS 14.06)

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7.4 UAE Plans Big Rise in Voters in September Elections

The UAE plans a sharp increase in the number of voters in elections to a largely advisory council due in September. The elections are part of a gradual increase in popular participation in UAE politics, though both voters and candidates will be handpicked by the seven emirates rulers, Minister of State for Foreign Affairs Gargash said. The number of Emiratis allowed to vote in the 24 September elections for the Federal National Council will jump to 80,000 from fewer than 7,000 in the 2006 election, the first one held in the UAE. The UAE has so far been insulated from the mass pro-democracy protests that have swept the Arab world, thanks to rapid economic development that has a rising standard of living. Half the members of the 40-seat council will be chosen by voters and half appointed by the rulers of the seven emirates. The council has a largely advisory role, and some former members have called for it to have a larger say, complaining that their advice was not always heeded. It can only suggest changes to bills drafted by government ministries. The federation of seven emirates has a population estimated at around 5 million, of which one fifth are Emirati nationals and the rest expatriates. In the first elections, in 2006, 6,595 people, 1,162 of them women, voted for half the council's members. As will happen this year, the voters and candidates were handpicked by the seven rulers. (AB 15.06)

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7.5 King Mohammed VI Sends Landmark Constitutional Changes to Moroccan People for a Vote

On 17 June, in an address to the people of Morocco, King Mohammed VI outlined constitutional amendments that establish the Moroccan Kingdom as a constitutional monarchy and a parliamentary system with sovereignty vested in the people. The reforms strengthen Morocco's governing institutions - in particular a Prime Minister as Head of Government, Parliament and an independent Judiciary. It will also guarantee freedom from illegal searches or detention, privacy for communications, and the right to trial and a lawyer for anyone arrested by the authorities. Equality of all citizens regardless of sex, origin, language, religion or creed is guaranteed. Amazigh, for the first time, will be recognized as an official language following Arabic, the traditional official language. The national referendum to approve the amendments will be held on 1 July. (MACP 17.06)

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7.6 Erdogan's Party Wins Third Term

Turkish Prime Minister Recep Tayyip Erdogan won a third term in parliamentary elections. However, the Justice and Development Party (AKP) had not won a two-thirds majority in parliament, a shortcoming that would force it to seek support for constitutional change from other political groups. Erdogan's party had won 50% of the votes, according to TRT, the state-run television. It said the Republican People's Party (CHP), the main opposition group, had 26% of the vote. Another opposition party, the Nationalist Action Party (MHP), had 13% of the vote, signaling it would stay in parliament by crossing a 10% vote threshold designed to keep out smaller parties. According to the tally, the ruling party had won 326 seats in the 550-seat parliament, a comfortable majority that would ensure the continuation of its single-party rule. It had 331 seats in the outgoing parliament. Lawmakers serve four-year terms. About 50 million Turks, or two-thirds of the population, were eligible to vote.

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7.7 Greek Government Passes Crucial Votes

Prime Minister Papandreou won the vote of confidence with all 155 representatives of the Socialist party supporting his government, significantly above the absolute majority of 151 votes required by Greece's 300-seat Parliament. The vote was conducted by roll call following several hours of fiery debate that resulted in several opposition lawmakers briefly walking out of Parliament in protest at comments by Deputy Prime Minister Pangalos. In a sign that Mr. Papandreou had managed to rally Socialist lawmakers following a week of political turmoil, all 155 ruling party MPs voted yes, with 143 from the opposition voting against, with two abstentions. The vote averts early elections and a stalled government that many feared could throw Greece into default on its loans and the rest of the euro zone into a financial panic rivaling the one that followed the Lehman Brothers bankruptcy in 2008.

Greece's new finance minister, Evangelos Venizelos, pledged that Parliament would shortly pass the unpopular austerity measures. In the cabinet reshuffle on 17 June, Mr. Papandreou replaced the former finance minister, George Papaconstantinou, who has been the face of the government's negotiations with its international lenders, with Evangelos Venizelos, a Socialist party veteran with the clout to get the party in line behind measures that have often gone against traditional Socialist positions. However, tensions remain inside the party.

In a related development, the Council of State deemed that the memorandum - Greece's agreement with its creditors to implement reforms in exchange for emergency funding - was constitutional. The court threw out appeals by the Athens Bar Association, the civil servants' union ADEDY and GSEE, which represents workers in the private sector. Also, the Alliance of Liberals and Democrats for Europe - known as the ALDE group - adopted a proposal for an alternative to the Greek government's austerity program made by former Foreign Minister Bakoyannis, who leads the centrist Democratic Alliance party. Bakoyannis's proposal does not focus on public sector spending cuts and tax increases but foresees the creation of a national investment fund that would be partly financed by revenue from the privatization of state assets. (ekathimerini 21.06)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 EarlySense Wireless Network Option of Monitoring Solution Approved

EarlySense, which is currently bringing to market the most advanced, contact-free, patient monitoring solution for hospitals and nursing homes, has received FDA clearance and CE approval for the new wireless (Wifi) communications component of its solution. The Wifi system wirelessly connects the bedside unit of the solution to the Central Display System at the nurses' station. EarlySense's contact-free patient monitoring system, which was FDA cleared and CE approved in 2010, automatically and continuously monitors a patient's vital signs and movement, from the moment the patient enters the bed, using a contact-free sensor that is placed under the mattress. The system records and documents the cardiac, respiratory, and motion parameters for a full hospital unit. It alerts staff when significant changes in a patient's condition take place, as well as when a patient needs turning to avoid pressure ulcers or is leaving the bed and is in danger of falling. Nurses are informed of patient status changes on the patient's bed side monitor, at the nurse's station, on their mobile phones and on a large screen display mounted in a prominent spot on the wall in the department.

Ramat Gan's EarlySense http://www.earlysense.com flagship product is an automatic, continuous, contact-free, patient monitoring solution that follows and documents a patient's vital signs and movement. There are no leads or cuffs to connect to the patient, who has complete freedom of movement and is not burdened by any irritating attachments. (EarlySense 13.06)

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8.2 IceCure Jumps on US Patent Approval For Breast Tumor Device

IceCure has received another patent from the US Patent and Trademark Office for the company's minimally invasive device for the cryoablation treatment of fibroadenoma (benign breast tumors) - IceSense3. The patent is valid through May 2030. The treatment applies the liquid phase of nitrogen to freeze the tumor and the gaseous phase to heat and thaw the needle to release it at the end of the procedure without the need of electrical current. IceCure already has US seven patents for its cyroablation system. IceCure Medical http://www.icecure-medical.com is a publicly traded medical device company, focusing on minimally invasive, office-based, cryoablation solutions for treating women's tumors. The company was founded in 2006 with main offices in Caesarea, Israel and U.S. headquarters in Cleveland, Ohio. (Globes 14.06)

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8.3 BiondVax Announces Positive Phase IIa Results for Universal Flu Vaccine

BiondVax Pharmaceuticals announced positive results from its first Phase II clinical trial of the Multimeric-001 Universal Influenza Vaccine. The vaccine was found to be safe and well tolerated, and induced robust immune responses, successfully meeting both the primary safety and immunogenicity endpoints, as well as additional secondary immunogenicity endpoints. It was also found that the Multimeric-001, when used in conjunction with a commercially available strain-dependent seasonal influenza vaccine (trivalent inactivated vaccine, or TIV), enhances the performance of the TIV by increasing the rates of Hemagglutination Inhibition (HI) seroconversion to influenza strains both included, and not-included, in the TIV itself. This Phase IIa trial was a randomized, double-blind, placebo-controlled study in 200 healthy volunteers conducted at two clinical research centers in Israel - the Hadassah University Hospital in Jerusalem and the Tel Aviv Sourasky Medical Center.

Ness Ziona's BiondVax Pharmaceuticals http://www.biondvax.com, a publicly-traded company, is developing a proprietary, innovative Universal Influenza Vaccine, the Multimeric-001 vaccine, designed to provide multi-season and multi-strain protection against all human influenza virus strains, including both seasonal influenza strains as well as pandemic influenza strains, such as Swine flu and Avian flu. BiondVax's innovative technology utilizes a unique, proprietary combination of conserved epitopes from influenza virus proteins to activate the immune system for a cross-protecting and long-lasting effect. (BiondVax 16.06)

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8.4 Cerus & Ilex Distribution Agreements for the INTERCEPT Blood System in Israel

Concord, California's Cerus Corporation has entered into agreements with Ilex Biotech Limited to distribute Cerus' INTERCEPT Blood System for platelets and plasma in Israel. The INTERCEPT Blood System is designed to provide increased protection from a broad range of transfusion-transmitted pathogens, including bacteria and emerging pathogens such as the dengue and chikungunya viruses. Under the terms of the agreements, Ilex will promote the sales, deployment and support of the INTERCEPT platelet system in Israel. Approximately 75,000 platelet units and 175,000 plasma units are collected annually in these markets.

The Ilex Group http://www.ilexmedical.com has been leading the way in the field of in-vitro diagnostics since 1977. Publicly traded on the Tel Aviv Stock Exchange since 1995, the Ilex Group is the largest supplier of in vitro diagnostic equipment, reagents, laboratory management software, blood bank diagnostic kits, and diagnostic support services to the healthcare establishment in Israel and a rapidly-expanding player in emerging markets like Africa, Turkey, Eastern Europe, Russia and CIS. (Cerus 09.06)

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8.5 Yissum Presents a Virtual Cane for the Visually Impaired

Yissum Research Development Company, the technology transfer company of the Hebrew University of Jerusalem, presented a virtual cane that will significantly improve the orientation and mobility of sight-impaired people. This new device can assist blind people in estimating the distance and height of various obstacles. The invention was registered as a patent by Yissum, which is now seeking strategic partners for further development.

Dr. Amedi from the Institute for Medical Research Israel-Canada (IMRIC) and at Edmond and Lily Safra Center for Brain Sciences (ELSC) at The Hebrew University of Jerusalem and his team recently developed a device to help in spatial navigation for the blind. The invention, which functions as a virtual flashlight, can replace or augment the classic white cane. The virtual cane emits a focused beam towards surrounding objects, and transmits the information to the user via a gentle vibration, similar to a cell phone vibration. The cane incorporates several sensors that estimate the distance between the user and the object it is pointed at. This allows the blind person to assess the height and distance of various objects, reconstruct an accurate image of the surroundings and navigate safely. The virtual cane is extremely small, easy to carry, accurate, can function for up to 12 hours and is easy to charge. Using the device is highly intuitive and can be learnt within a few minutes.

Yissum Research Development Company of the Hebrew University of Jerusalem http://www.yissum.co.il was founded in 1964 to protect and commercialize the Hebrew University's intellectual property. Ranked among the top technology transfer companies in the world, Yissum has registered over 7,000 patents covering 2,023 inventions; has licensed out 530 technologies and has spun-off 72 companies. (Yissum 21.06)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 SolarEdge Wins Over 15MW of PV Power Optimizer System Orders from Germany

The demand for SolarEdge PV power optimizers in Germany rose with over 15MW of orders placed by the second day of Intersolar Europe tradeshow. Distribution and installation of these systems, maximizing the energy yield of residential and commercial PV sites in Germany, will be carried out by the leading PV integrators Hofbrueckl Solar, EME Energie Management Eberlein and SolConTec International, as part of the intensifying partnership between SolarEdge and these companies. The SolarEdge power optimizers maximize return on investment throughout a solar photovoltaic system's lifecycle. Module-level MPPT ensures optimal energy yield, preventing power loss due to mismatch, shading and uneven module aging. Real-time, remote module-level PV monitoring automatically detects and diagnoses underperforming modules, while reducing maintenance and operation costs. Moreover, the power optimizers' built-in SafeDC feature automatically switches off each module's DC voltage during installation, maintenance and fire-fighting, making the system particularly safe for technical personnel and roof owners.

SolarEdge http://www.solaredge.com brings revolutionary design flexibility to any photovoltaic installation, eliminating known design constraints. SolarEdge supports the parallel connection of strings of different lengths, across multiple facets, and combining modules of different type, while automatically maintaining a constant string voltage, regardless of string length or temperature. All these lead to optimal site space utilization and high PV inverter efficiency. (SolarEdge 10.06)

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9.2 Hebrew University and eTeacher Group Add Yiddish to its Online Program

The Hebrew University of Jerusalem and eTeacher Group announced that it is adding Yiddish to its growing curriculum of languages for students around the world. The virtual classes in Yiddish language are conducted online in small groups (6 – 8 students) via live video conferencing technology. Students can see the teacher through a web cam and can talk with the teacher and other class members using a complimentary headset and microphone provided by eTeacher upon registration. Lesson material is presented via a multimedia application on each student's computer screen. The beginners' Yiddish course provides basic communication, comprehension and conversational skills while the advanced Yiddish course expands students' command of the language through experiencing Yiddish texts. An understanding of the Hebrew alphabet is a prerequisite for the course. Hebrew University, in collaboration with eTeacher, is offering these courses for academic credit points. In accordance with the University's academic requirements, the program includes obligatory attendance, paper submissions and examinations.

The Hebrew University is a renowned world center for the study of the Bible, Semitic linguistics and Yiddish. In the last two generations this center has formulated new methods for the research and teaching of these languages. Its new program is based on this long history of research of these fields and the methods produced to investigate and teach them.

Ramat Gan's eTeacher http://eteachergroup.com, the world's foremost online language academy, was established in 2000. The hallmarks of its language courses are live online instruction, flexible hours, and the convenience of learning from home or office. Since 2001, thousands of eTeacher graduates, from over a hundred countries, have acquired a new language. eTeacher is a portfolio company of Pamoja Capital, a Swiss private investment firm that believes in creating value through long-term, socially responsible global investments in various fields, including education. (eTeacher 09.06)

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9.3 Visual Software Systems Launches VisualBee SaaS to Enhance PowerPoint Presentations

Visual Software Systems announced the launch of VisualBee, a plug-in solution that visually enhances PowerPoint™ presentations. VisualBee designs presentations that will effectively communicate, engage and connect a targeted audience. Microsoft reports that there are an estimated 400 million Office PowerPoint users around the world and 30 million presentations performed every day. The VisualBee solution employs a highly sophisticated algorithm to perform text and slide object analysis to enhance each slide in a PowerPoint presentation and create a professionally designed template. VisualBee's algorithm matches user-generated content and incorporates design and graphics to match the business objectives of the presentation. VisualBee sources its design engine via the company's gallery of tens of thousands of proprietary images and graphic designs. Tel Aviv's Visual Software Systems http://www.visualbee.com develops design automation software for business and consumer use. VisualBee, the company's flagship product visually enhances PowerPoint presentations so that users can focus on developing their messages rather than the design aspect of creating a presentation. (VSS 13.06)

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9.4 CNSX Markets Selects Mellanox 10GbE to Accelerate Trading & Market Data Distribution

Mellanox Technologies announced that Toronto-based CNSX Markets has purchased Mellanox Vantage 6024 24-port 10GbE switches to accelerate market data distribution, and they will be rolled out to support other parts of the Canadian stock market's operations. CNSX Markets operates two trading venues: the Canadian National Stock Exchange, a listed market for venture capital stocks, and Pure Trading, a high-capacity/low latency system for stocks listed on other Canadian stock exchanges. Given the extremely competitive nature of global financial markets, and growing demand for high-frequency trading, it is important for CNSX Markets to provide the fastest possible trade execution times and efficiently manage the inbound and outbound flows of orders and market information. The Canadian market plans to use Mellanox Ethernet and InfiniBand solutions to complement a trading infrastructure that offers the lowest possible latency. The Mellanox Vantage 6024 switch is a low latency, high performance Layer 2/3 top-of-rack switch, and enables new levels of efficiency, scalability and real-time application performance, while also consolidating multiple/redundant network tiers and significantly reducing infrastructure expenses. With 24 ports of 10GbE line-rate connectivity and power consumption as low as 115 Watts (4.8 Watts/port), the Mellanox Vantage 6024 switch features an impressive Layer two and three protocol stack, enabling the most robust and advanced 10GbE fabric.

Yokneam's Mellanox Technologies http://www.mellanox.com is a leading supplier of end-to-end InfiniBand and Ethernet connectivity solutions and services for servers and storage. Mellanox products optimize data center performance and deliver industry-leading bandwidth, scalability, power conservation and cost-effectiveness while converging multiple legacy network technologies into one future-proof architecture. (Mellanox 13.06)

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9.5 ComAbility Joins the Wireless Broadband Alliance (WBA)

ComAbility joined recently the Wireless Broadband Alliance (WBA), an industry group that promotes enhanced Wi-Fi experience and simplified roaming worldwide. The WBA was founded in 2003 by telecommunication operators looking to increase interoperability across networks and devices by developing common technical and commercial frameworks for wireless technology. ComAbility is already in cooperation with Tier-1 Service Providers worldwide to improve the Wi-Fi service and user experience. Through its neXus suite for smart Wi-Fi management, ComAbility offers a comprehensive set of advanced subscriber and policy management capabilities, allowing service providers to effectively manage and control their broadband data services over large-scale Wi-Fi networks.

Herzliya's ComAbility http://www.comability.com offers subscriber management & policy management solutions for wireless, mobile and wireline providers worldwide. ComAbility's award winning neXus suite is deployed at Tier-1 accounts worldwide, and includes an advanced set of control services for Wi-Fi. It allows streamlining of the end to end cycle, from subscribers and service plans creation, activation and management, to access control, broadband data charging and policy enforcement. neXus is a carrier-grade suite designed for easy deployment across different network technologies and is ready for integration with other core-network and back-office systems. (ComAbility 13.06)

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9.6 Optibase Releases Ocaster Reflector/Recaster Platform with KLV Metadata Support

VITEC, a leading provider of advanced video solutions, announced the release of the next generation Optibase Ocaster platform. The new release adds full military encryption and embedded MISB-compliant CoT and KLV support to the rich feature set of the high performance, multi-stream MPEG Reflector/Recaster. Optibase Ocaster LAN-to-LAN reflection system efficiently bridges enterprise and military LANs by converting multiple multicast video traffic to unicast streams, and unicast streams back to multicast, for network-efficient transmission of IPTV content between sites. The new release adds full support for AES-128 and 256-bit encrypted video and embedded Cursor-on Target (CoT) and Key-Length-Value (KLV) synchronous and asynchronous metadata and additional forms of embedded information including closed captioning without affecting speed or performance. Optibase Ocaster enables sharing of private sessions or secure content by duplicating a single video stream to multiple unicast/multicast destinations around the world. It uses industry standard MPEG protocols that support playback options on all MPEG-compliant devices. The Optibase Ocaster is fully interoperable with third-party MPEG-2 and MPEG-4 H.264 standard definition and high definition IPTV encoders, making it the optimal solution for real-time processing of any IP stream.

Herzliya's Optibase http://www.optibase.com product line consists of video compression and streaming solutions, specializing in video encoding, decoding, streaming and distribution of live and on-demand video for federal and state government agencies, enterprise organizations and the world's leading Telco and broadcast service providers. With a collection of innovative, professional-grade products, Optibase product line enables its customers to take full advantage of video distribution over their IP network, ensuring superb video quality in a scale of bit-rates for simple and effective video streaming to desktops, set-top-boxes and on-demand applications. (Optibase 13.06)

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9.7 Wavion Introduces the World's First Beamforming 802.11n Outdoor Wi-Fi Gear

Wavion announced the WBSn (Wavion Base Station based on 802.11n standard) product family, the world's first Wi-Fi system to deliver Gigabit capacity and 450 Mbps speeds outdoors. The WBSn family was designed specifically for mobile operators that need to offload mobile data traffic from their congested networks and for service providers that target challenging metro and campus environments. It combines spatially adaptive two-way Beamforming technology, the IEEE 802.11n standard and the latest 3x3:3 Multiple Input Multiple Output (MIMO) with three spatial data streams technology to deliver the highest range and capacity of any outdoor Wi-Fi system on the market today. WBSn further supports SIM based authentication, accounting and a built-in Access Controller, intended to enable seamless user authentication and easy service provisioning integration.

Yokneam's Wavion http://www.wavionnetworks.com is a technology leader in outdoor Wi-Fi applications for metro and rural areas with deployments in more than 70 countries. The company's two-way digital Beamforming and powerful Interference Immunity Suite are the first and only technology to resolve the significant performance, penetration and profitability challenges facing large-scale metro and rural deployments. (Wavion 13.06)

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9.8 TowerJazz & Tecnopolis del Sur Assist with R&D in Argentina

TowerJazz announced a signed agreement with Public and Private Consortium Tecnopolis del Sur (Tecnopolis del Sur) to help foster research and technological development in Argentina to enable product competitiveness in the international market. The terms of the agreement include training of the R&D groups of Tecnopolis del Sur by TowerJazz on process design kits and technology, and TowerJazz will provide discounted multi-project wafers (MPW) space in its Migdal HaEmek, Israel and Newport Beach, California fabs. In exchange, Tecnopolis del Sur will grant TowerJazz the right to use its facilities in Bahía Blanca, Argentina helping TowerJazz enter into a new region and expand its global reach into South America. This program will be using the broad spectrum of technologies that TowerJazz offers including: power management, RF CMOS and Silicon Germanium (SiGe).

Tower Semiconductor http://www.towerjazz.com, the global specialty foundry leader, and its fully owned U.S. subsidiary Jazz Semiconductor, operate collectively under the brand name TowerJazz, manufacturing integrated circuits with geometries ranging from 1.0 to 0.13-micron. TowerJazz provides industry leading design enablement tools to allow complex designs to be achieved quickly and more accurately and offers a broad range of customizable process technologies including SiGe, BiCMOS, Mixed-Signal and RFCMOS, CMOS Image Sensor, Power Management (BCD), and Non-Volatile Memory (NVM) as well as MEMS capabilities. (TowerJazz 13.06)

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9.9 Neebula Systems Extends Support to Cloud and Virtual Environments

Neebula Systems http://www.neebula.com released ServiceWatch 2.0. Neebula, which was recently named "Cool Vendor" by Gartner, a leading analyst firm, continues to evolve and maintain its unique offering as the only product aimed to manage applications and business services in the cloud era. ServiceWatch accurately discovers the application topology of a business service with all the infrastructuredependencies and updates this topology in real-time as changes occur. In addition ServiceWatch automatically generates an impact model to assess the impact of any encountered event on the business service availability. As changes occur, ServiceWatch detects them and then correlates changes to problems. Neebula was founded in 2009 to resolve the IT management challenges that are caused by virtualization and cloud computing. Neebula's mission is to provide a new generation of Business Service Management (BSM) tools that are built by design to support real-time dynamic environments. Neebula's BSM software utilizes a unique service modeling technology that automates the process of service modeling and keeps the model up to date in real-time dynamic environments. (Neebula 13.06)

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9.10 BroadLight Announces the New Helios Embedded Processor Line

BroadLight announced the release of its Helios embedded processor line of products. BroadLight's Helios line features highly integrated single-chip solutions that can be widely applied by networking CPE's for the access market. Based on BroadLight's innovative fiber grade architecture in combination with its 40nm technology, the Helios line offers a high performance and flexible multi-core processor to the market for applications including: Ethernet Access Gateways, VoIP-enabled access, business CPE's, security appliances and integrated wireless business routers. As a complement to the market's leading Alto GPON product line, the new Helios products will provide BroadLight customers with a unified hardware and software platform, to develop a significantly broader variety of carrier grade access products and technologies. The Helios product line is available in production quantities now. BroadLight has customers shipping solutions into carrier class routers as well as securing additional customer design wins to date. Herzliya Pituah's BroadLight http://www.broadlight.com is a leading provider of highly integrated networking and embedded processors enabling fiber grade quality of service delivery for central office and customer premise equipment. BroadLight's fiber grade architecture powers equipment vendors serving telecommunication operators' fiber access, fixed mobile networks and connected digital homes worldwide. (BroadLight 176.06)

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9.11 Jordan Valley Multiple System Repeat Order for its Thin Films Metrology Systems

Jordan Valley Semiconductors announced the delivery of a follow-on order of its JVX7200 and JVX6200 thin-film metrology systems for a major foundry in the Far East. The JVX7200 metrology platform, winner of SEMI's 2010 "Best of West" award, is installed in several advanced logic fabs, targeting complex SiGe and Si:C metrology for both R&D and production control. The JVX7200 platform combines two absolute measurement techniques: Fast HRXRD (High-Resolution X-Ray Diffraction) and fast XRR (X-Ray Reflectance). The fast-HRXRD channel measure SiGe stack composition, strain and relaxation while the small spot fast-XRR provides thickness and density of complex SiGe stacks. Recently introduced, the JVX7200's "VEGA" XRR channel is the first sub-mm spot XRR, which enables on-product measurement with improved precision & repeatability. The JVX6200 metrology platform combine XRR and XRF channels targeting applications such as high-k/metal gate silicide, ONO, SiON, Cu seed/barriers and others.

Migdal HaEmek's Jordan Valley Semiconductors (JVS - http://www.jvsemi.com), the leader in X-ray and VUV metrology solutions for the semiconductor industry, develops, manufactures and sells fully automated metrology tools for advanced technology nodes based on non-contacting and non-destructive tools. The company offers the semiconductor industry the most comprehensive portfolio of advanced metrology tools, based on technologies such as XRR, XRF, WAXRD, SAXS, HRXRD and VUV. (JVS 16.06)

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9.12 Altair Demonstrates its LTE Chipset Speeds & Service for China Mobile Executives

Altair Semiconductor announced that its TD-LTE chipset, integrated in a USB dongle developed by AsiaTelco Technologies, achieved download speeds of more than 50Mbps and upload speeds of more than 18Mbps in a live over-the-air demonstration requested by executives from China Mobile. As part of the executive demonstration, Altair's chipset provided high speed broadband internet service for meeting participants. Altair, which is shipping one of the first commercial TDD/FDD LTE chipsets in the market today, has established a strong leadership position in the emerging TD-LTE market. The company's chipset has already demonstrated the highest performance of any other TD-LTE solution in India and Japan, and prior to the demo at the NGMN meeting, has completed several months of rigorous testing with China Mobile.

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. The company's products provide device manufacturers integrating 4G LTE technology into their products with a highly power-optimized, robust and cost-effective solution. 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 15.06)

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9.13 Meta Network Launches Industry-Leading Mobile Performance Network

Meta Network announced the launch of its mobile advertising service platform, Meta Mobile Network. The launch marks the continued expansion of the company's proven advertising network. With the launch of its mobile advertising services, Meta Network will bring its vast experience in the online advertising world to the mobile sector, offering its clients even more visibility in the international ad market. Addressing the increasing growth of end users accessing ads on their smart phones and other mobile devices as well as the rising demand for mobile-based advertising, Meta Network will expand its dedicated client service now into the world of mobile. Meta Network's mobile solution, which enables clients' ads to be seen on mobile devices including WAP and mobile apps among others, offers advertisers an opportunity to reach their audience on a global scale, and can be targeted into a number of verticals including News, Sports, Shopping and Entertainment among several others. The platform now gives advertisers more digital solutions than ever before. Each particular advertisement can lead to a number of actions including bringing a user to a landing page, click-to-call, text, play video, etc. Additionally, the ads are all based on performance, therefore they not only involve CPC, but also include CPA and CPL formats giving advertisers who are now considering the advantages of mobile ad campaigns more confidence and comfortable to enter mobile advertising than ever before.

Ra'anana's Meta Network http://www.MetaNetwork.com is a proven global ad network with worldwide presence for digital advertising campaigns. Launched in 2007, Meta Network is has established itself as a leading ad network in six continents. The company helps publishers monetize 100% of their traffic instantly and optimizes bottom line results for advertisers with the highest quality inventory. Backed by years of experience for both publishers and advertisers, the team incorporates its unique expertise into their daily work of maintaining the most effective and result-driven ad-network. (Meta Network 15.06)

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9.14 Cimatron to Demonstrate Ultra-Fast Material Removal and the SuperBox Accelerator

Cimatron Limited http://www.cimatron.com showcased the latest versions of its software solutions at Technologia Israel. The Cimatron Group, one of the seven largest global CAD/CAM suppliers, offers specialized solutions for mold and die makers, as well as solutions for 2.5-5 Axis production milling and turning. New versions of Cimatron's two main product lines, CimatronE 10.0 and GibbsCAM 2011, were shown at the exhibition. Also at the show, a 3-Axis milling machine powered by GibbsCAM demonstrated VoluMill- ultra high performance material removal technology. GibbsCAM VoluMill generates toolpaths optimized for volumetric material removal, based upon desirable material removal rates, by using continuous tangential motion, specialized contour ramping and adaptive feed rates to achieve the highest feeds and speeds possible. By leveling tool load, maintaining constant machine-tool motion and using high-speed-repositioning, the software produces more efficient toolpaths, extends tool life and significantly reduces cycle times. With over 28 years of experience and more than 40,000 installations worldwide, Givat Shmuel's Cimatron is a leading provider of integrated, CAD/CAM software solutions for mold, tool and die makers as well as manufacturers of discrete parts. Cimatron is committed to providing comprehensive, cost-effective solutions that streamline manufacturing cycles and ultimately shorten product delivery time. (Cimatron 14.06)

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9.15 Elisra to Supply Personal Search & Rescue Locator Beacons to French Ministry of Defense

Elbit Systems' subsidiary Elisra Electronic Systems was awarded a contract valued at approximately €5m to supply hundreds of units of its AN/PRC-684 Personal Locator Beacon (formerly SPLB) to the French MoD, equipping the French Air Force, Army, Navy and DGA (Direction generale de l'armement ). The project will be performed within 24 months. The French company INEO Defense is the project's prime contractor. The contract award followed a tender in which Elisra competed with several world-renowned manufacturers of Search and Rescue (SAR) beacons. The AN/PRC-684 is one of the few PLBSs in the market to offer voice functions. The AN/PRC-684 has an integral voice transceiver featuring multichannel VHF/UHF capabilities, an advanced over-the-horizon Cospas-Sarsat Personal Locator Beacon (PLB) intended for non-combat SAR missions, when training or flying over friendly territory. Carried in the aircrew's emergency vest, the system is designed to provide a variety of modes of activation using an internal G-switch that automatically activates the beacon upon aircrew bailout, while a lanyard-actuated switch provides for additional mechanical and manual activation options.

Haifa's Elbit Systems http://www.elbitsystems.com is an international defense electronics company engaged in a wide range of programs throughout the world. The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance ("C4ISR"), unmanned aircraft systems ("UAS"), advanced electro-optics, electro-optic space systems, EW suites, airborne warning systems, ELINT systems, data links and military communications systems and radios. (Elbit Systems 19.06)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's CPI Increases 0.5% in June

Israel's Consumer Price Index (CPI) rose 0.5% in June to 103.6 points, the Central Bureau of Statistics announced on 15 June. The rise is in line with analysts' estimates. Over the past twelve months (July 2010 to June 2011) inflation has been running at an annual rate of 4.1%. The CPI has risen 1.8% so far this year. The CPI excluding housing rose 0.2% to 103.0 in June. The housing item itself rose 1.1% in June, making the largest contribution to the general index. Fuel prices rose 2.7%, fresh fruit prices rose 3.9% and clothing and footwear prices rose 2.8%. Conversely, prices of fresh vegetables fell 8%, and automobile prices fell 3%. (CBS 15.06)

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10.2 Israel's Trade Deficit Grows To $6.2 Billion

The Central Bureau of Statistics announced that Israel's trade deficit almost tripled to $6.2 billion in January-May 2011 from $2.2 billion in the corresponding months of 2010. The trade deficit for May rose to an all-time high of $1.89 billion from $790 million in May 2010. The trade deficit, excluding planes, ships, and diamonds rose to an all-time high of $1.5 billion in May. Imports of goods totaled $6.8 billion and exports of goods totaled $5.3 billion. The increase in the trade deficit was due to a sharp increase in imports, including electronics, combined with a slowdown in exports, including industrial exports. Fuel imports in May were lower than in April. Imports in May rose for the seventh consecutive month. Imports in January-May were 15% higher than in the corresponding months of last year. Exports in May were 3.5% lower than in April. Industrial exports, Israel's growth engine, fell by a similar amount. Imports of investment goods were 10% higher in May than in April, mainly due to higher imports of mobile devices. Imports of investment goods were 22.5% higher than in the corresponding months of last year. (CBS 13.06)

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10.3 Israel's Big Four Arms Companies Had $7.2 Billion in Export Sales in 2010

The Defense Industries Report for 2010 released by the Ministry of Defense said sales by Israeli defense companies in 2010 totaled $9.6 billion, 3% more than in 2009. Most of the sales are accounted for by Israel's four biggest defense companies, Israel Aerospace Industries (IAI), Elbit Systems, Rafael and Israel Military Industries (IMI). Their aggregate sales were $8.2 billion. In 2010, these companies had an aggregate orders backlog of $18.8 billion, 9% more than in 2009. The report also shows that export sales by Israeli companies in 2010 totaled $7.2 billion. According to the report, Israel's defense industry directly employs some 43,000 people, with average sales per employee reaching NIS 233,000 in 2010. Due to the activity of these companies, another 140,000 people are employed, giving a total output estimated at $25 billion.

IAI has the largest orders backlog, amounting to $8.9 billion in 2010. It is followed by Elbit Systems, with a backlog of $5.4 billion, followed by Rafael, with $3.5 billion and IMI, which has a backlog of $1 billion, after improving its performance slightly in comparison with 2009. The smaller companies had total sales of $1.4 billion in 2010 and 90% of their output was for export. The leading company in this group is Plasan of Kibbutz Sasa, which makes armor components for combat vehicles, and which had sales of $780 million last year. It is followed by UAV company Aeronautics of Yavne, with sales of $160 million, IWI, which makes rifles and sub-machine guns, and had sales of $120 million, and jet engine component maker Bet Shemesh Engines, with sales of $51.6 million. (Globes 15.06)

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10.4 Crimes Cost Israel NIS 15 Billion in 2010

A new report published by the Ministry of Public Security revealed that in 2010, the financial toll crime took on Israel amounted to roughly $4.4 billion. A review of the financial damage caused to the state by criminal acts and activity over the past decade came to some $46.4 billion. The financial toll is calculated according to how much criminal acts cost the State, in ratio to its GNP. Despite these figures, the Ministry noted an overall improvement of 2.4% compared to the financial damage suffered by the state in 2009. These figures relate to direct financial damage, i.e. the financial toll it took on civilians. When the cost of the state's effort to fight crime is added, it reaches $14.7 billion. The ministry's calculations also made allowances to include unreported crimes and the residual damage by reported crimes.

The report found that in 2010, violent crimes carried a financial toll on civilians amounting to some $850 million annually – a 12% rise compared to 2009. On average, murders are the most financially damaging to the State with NIS 2.2 million, sexual-based offenses are next with NIS 37,700, and low-class violent crimes cost the State an average of NIS 28,600 a case. Property crimes cost authorities about NIS 9,500 a case, while the average fraud case costs about NIS 6,500. Still it is these crimes that are responsible for most of the over financial damage, as they make up over 50% of the overall financial damage suffered by the State every year. (Ynet 12.06)

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10.5 OECD Ranks Israel 3rd in Milk Prices

Israel is the third most expensive country in the world in the prices of dairy products, according to a comparative price survey conducted by the Organization for Economic Co-operation and Development (OECD), which Israel was accepted into last year. The survey reveals that the price level of a dairy products basket in Israel is 44% higher than the OECD average. Only two countries, Norway and Japan, are more expensive than Israel. The dairy products basket in Israel is 100% more expensive compared to Eastern European countries, and 50% more expensive compared to Holland, Sweden and the United States. The prices of dairy products in Israel are 30% higher than in Switzerland.

Israel is expensive in meat products as well, ranking 15th in the world. A meat products' basket is 17% more expensive in Israel compared to the OECD average and 55% more expensive compared to the US. On the other hand, fruits and vegetables are cheaper in Israel: A fruit and vegetable basket costs 13% less in Israel compared to the OECD average. In terms of overall food cost, Israel is ranked 12th in the world.

Israeli restaurants stand out in their high prices as well. Israel is the ninth most expensive country in restaurant prices. A meal in an Israeli restaurant is 30% more expensive than the OECD average and 60% more expensive than in the US. Israel is also very expensive in the prices of private vehicles. In only two other countries, Denmark and Norway, private cars cost more than in Israel. Israel ranks 17th in the cost of communication services. A communication package in Israel is 25% cheaper than in Spain and France. The OECD figures reflect a comparative price survey conducted in 55 developed and semi-developed countries at the end of 2008 updated in late 2010. (Ynet 21.06)

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11: IN DEPTH

11.1 Arab Middle East: Closing the Jobs Gap

The IMF wrote in June 2011 that since the Tunisian street vendor Mohamed Bouazizi's death from self-immolation in January, the world's attention has been drawn to the spreading unrest in the Middle East. Bouazizi's dramatic suicide and the ensuing turmoil served as a wake-up call to policymakers, who didn't foresee such an abrupt end to the status quo.

In hindsight, it's clear that many Middle Eastern societies were resting atop massive fault lines. While the unrest in these countries stemmed partly from political repression, unsustainable economic issues, such as high youth unemployment, were also simmering below the surface.

Labor market data for the region are scarce, but available statistics covering six countries - Egypt, Jordan, Lebanon, Morocco, Syria and Tunisia - indicate that average unemployment has remained around 12% for the past two decades. In 2008, despite faster growth for eight consecutive years, unemployment rates for these countries averaged 11%, the highest regional rate in the world. At 48%, the percentage of people in the job market (the combined labor force participation rate) is much lower in these countries than in any other region.

High unemployment in these countries, together with low labor force participation rates, has resulted in very low ratios of employment to working-age population. With less than 45% of working-age people actually employed, this regional rate is the lowest for any region in the world.

Unemployment in the region is largely a youth phenomenon. Young people, ages 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 average unemployment rate among youth in these nations was 27% in 2008, higher than in any other region in the world. In contrast to most of the world, joblessness in many Middle Eastern countries tends to increase with schooling: the unemployment rate among those with college degrees exceeds 15% in Egypt, Jordan and Tunisia.

Such levels of unemployment imply substantial social and economic costs. In part because of the paucity of job prospects at home, people have left these countries in large numbers, with the estimated number of migrant workers abroad equivalent to about 16% of the combined labor force present in these six countries. But workers from Egypt, Jordan, Lebanon, Morocco, Syria and Tunisia are now facing reduced prospects abroad given the sharply higher unemployment in advanced economies and a trend toward the nationalization of the labor force in the Gulf Cooperation Council countries. With greater competitive pressure from other emerging markets, the region increasingly cannot afford the status quo.

Looking ahead, the region faces a daunting challenge. To provide jobs for those now jobless as well as new entrants to the labor force, these countries have to increase employment by an estimated 18½ million full-time positions over the period 2008–20. Even this, however, would leave the ratio of employment to working-age population at about 49% - lower than that currently observed in any other region.

Underlying causes

Why is unemployment so persistently high in these six countries?

In part, the answer lies in demographics. Over the past decade, the combined labor force of Egypt, Jordan, Lebanon, Morocco, Syria and Tunisia has grown at an average annual rate of 2.7%, faster than in any other region of the world, save Africa. The labor force growth is expected to slow gradually over the next decade, but will continue to outpace most other regions. Approximately 10 million new entrants are expected to join the labor force in the coming decade, compared with 13 million in the previous decade. Demographic pressures, in other words, are not expected to let up anytime soon.

There is also a serious mismatch between the skills young people possess and those that firms seek. While these Middle Eastern countries are educating a growing portion of their youth, firms regularly cite the lack of suitable skills among job applicants as a constraint to hiring, and unemployment rates are highest among the most educated. This suggests that education systems are failing to produce graduates with marketable job skills.

Overly stringent hiring and firing regulations in most of the region also play a role. In Egypt, for example, severance payments for established employees (including the cost of advance notice requirements) amount to 132 weeks' worth of their final salaries. In Syria and Morocco, these payments are equivalent to 80 weeks and 85 weeks, respectively (World Bank, 2008) - much higher than the average 38.6 weeks in the East Asia and Pacific Region and 25.8 weeks in the developed world. With such a high cost of firing, firms are discouraged from hiring in the first place.

Finally, there is the problem of a bloated public sector, which lures job seekers with its greater job security, higher wages and more generous benefits. The dominant role of the public sector as an employer in the region has distorted labor market outcomes and diverted resources from a potentially more dynamic private sector. Government hiring practices have typically inflated wage expectations and placed a premium on diplomas over actual skills, influencing education choices and contributing to skill mismatches. (IMF June 2011)

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11.2 LEBANON: Balanced Banking

Economic growth in Lebanon has been forecast to slow in 2011, but the country's banking sector remains sound and showed some signs of growth earlier this year. Data reveal that the Lebanese economy has weakened in recent months, most likely the result of turmoil across parts of the Middle East and political instability at home. The tourism industry, one of the mainstays of the economy, has seen overseas arrivals fall by up to 13% this year, while hotel occupancy rates in Beirut have dropped below 50%, according to a Standard Chartered Bank report issued in late May.

Real estate sales are down 21% for the first four months of 2011 compared to the same trimester last year, the Directorate of Real Estate at the Finance Ministry reported in May, while there has also been a decline in foreign trade, with both imports and exports falling after last year's boom, when GDP grew by 7.5%.

As the economy has weakened, the central bank, the Finance Ministry and agencies such as the International Monetary Fund (IMF) have lowered their expectations for growth, with most forecasts putting GDP expansion at around 2.5%.

The banking sector nonetheless expanded in the first quarter of this year, at least by certain measurements. According to the central bank, aggregate domestic assets increased by 2.8% during the first three months of the year. A report issued by Bank Audi in early May said that this $3.6b increase was well down on the $4.7b rise in the first quarter of last year. Despite a $1.1b fall in deposits in January – the month in which the national unity cabinet led by Saad Hariri collapsed – there was a $941m increase in deposits for the quarter. Lending by banks was also up, although the 4.3% increase for the quarter – corresponding to a total of $1.5b – was below that of a year before.

Bank Audi further cautioned that future results were contingent upon certain political events. “The economic outlook for the year ahead actually depends on the consecutive outcome of the forthcoming domestic political milestones and regional security milestones with what this would entail in terms of spillover effects on private consumer and investor confidence over the foreseeable future,” the report said.

Bank Audi has not been alone in voicing concern over the effects of ongoing instability on the economy. In late May, the governor of the central bank, Riad Salameh, said that, although the banking sector and monetary system remained sound, efforts should be made to protect the advances made and not allow the economy to slip back into the doldrums. “Preserving the monetary and economic achievements is the responsibility of all sides and we have witnessed over the past six months a decline in economic indicators. This should induce us to cooperate to curb this drop and reverse this trend,” he said.

Some of Lebanon's lenders may experience a very direct impact on their profits due to the wave of unrest in the Middle East, with those operating in countries such as Syria, Egypt and Jordan more exposed than banks that have stayed closer to home in their activities. According to Saad Azhari, the chairman of Blom Bank, the slowing of economic activity in these countries due to political instability will affect growth and profits, although he told media that the bank had protected itself by having adopted “stringent lending and liquidity measures to protect it from the adverse economic circumstances”.

The regional turmoil will also have an impact domestically, Azhari told the Daily Star, as “lower economic activity in Lebanon due to reduced exports, tourists and remittances from the Arab world … in turn translates to lower banking activities and profits and affects all banks”.

Over the years Lebanon's banks have shown themselves to be remarkably resilient, and thanks to the stringent regulatory regime enacted by the central bank, easily rode out the global financial crisis. However, with unrest close to home, Lebanon's lenders are finding it harder to promote themselves as a safe haven for overseas investors to park their funds.

While there is little chance of the Lebanese banking sector falling into difficulties any time soon, thanks to their high reserves and relatively low levels of non-performing loans, it is likely that wariness about the policies of the newly formed government and ongoing political strife and social unrest abroad will prompt a more cautious approach by banks in the near future. (OBG 20.06)

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11.3 QATAR: Building Momentum

Qatar's already busy construction industry is about to step up a gear, and it is not just the major undertaking of hosting the 2022 World Cup football tournament that is going to spur growth. A massive state investment program to expand the nation's infrastructure and private sector spending on residential and commercial properties are also tipped to build momentum in the sector.

According to Craig Plumb, head of research at Jones Lang LaSalle for the Middle East and North Africa (MENA), Qatar is responsible for 19% of all construction-related investments in the region, a total that will only rise as the investment taps are turned on for the World Cup building program. “The upcoming World Cup in Qatar will lead to significant infrastructure and construction contracts being awarded in Qatar to facilitate the event, and also to develop the wider city offering and economic base to ensure sustainable levels of demand after the event,” Plumb said in comments published by the Gulf News on May 21.

Qatar is planning to invest at least $53b in new projects between now and 2015, with the construction sector poised to expand by an average of 12% a year, according to a report issued by research firm Ventures Middle East in late April. The scale of investment will increase further in the following seven years leading up to the staging of the World Cup, with another $100b or so of investments in the pipeline. In total, Qatar intends to spend some $160b over the coming 11 years on infrastructure and other construction projects, Sheikh Abdulrahman bin Khalifa, the Minister of Municipality and Urban Planning, said on May 2.

Though it is the World Cup that tends to get star billing when Qatar's construction sector is mentioned, the planned expenditure for the event is just a fraction of the total investment budget referred to by the minister. The budget allocated for the development of a national rail network, including a light rail system for Doha, is $35b, dwarfing the $4b cost of the nine new football stadiums to be built for the games. Throw in the $23b New Doha International Airport, along with heavy investments in ports, roads and highways – part of the government's plans to upgrade logistics capacity to keep pace with domestic growth. Also, the World Cup outlays come to be seen as what they are: just one part of a far larger economic and social development scheme.

While the building activity will see benefits flow through the economy, there could also be pitfalls. One concern over the construction boom is its potential to fuel inflation. A sharply increased demand for materials and labor could push up costs in the sector and beyond, bringing a ripple effect for inflation similar to that seen prior to the global financial crisis in 2008, a year in which Qatar's consumer price index hit an annualized rate of 15%.

Qatar's building plans will be impacted by its neighbors, who are similarly investing heavily in new projects, with Saudi Arabia and the UAE in particular pouring billions into infrastructure, residential and commercial developments. This heightened activity, with Saudi Arabia alone looking to invest up to $200b in new or already announced projects, will add to the competition for supplies and could well inflate costs further.

However, demand-side pressures could be in part balanced out by the scaling back on construction projects elsewhere in the region, such as has occurred in the commercial and residential segments in Dubai. This possible slowdown is likely to be short-term, with some projects in countries such as Egypt already being resumed now that stability has returned.

Local materials producers, such as the Qatar National Cement Company are looking to increase their output to meet the requirements for building supplies – with the firm's general manager Mohamed Al Sulaiti saying in early May new capacity could be added to cope with demand. However, the sheer scale of the government's infrastructure program means that there will be a sharp rise in imports of materials.

All of this will provide international builders and suppliers with a gilt-edged opportunity, with Qatar and some of its wealthy neighbors competing for their goods and services. With the 2022 World Cup imposing some very hard deadlines for transport, hospitality and infrastructure projects to be completed the opportunities are immense, but the pressure will certainly be on in terms of performance. (OBG 13.06)

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11.4 SAUDI ARABIA: On the Move

Saudi Arabia is embarking on a massive program to boost its logistics and cargo-moving capacity as part of a much larger scheme to broaden the base of the economy and pave the way for future expansion.

The Kingdom has coastline along two of the world's busiest and most important maritime transport lanes: the Red Sea, which is linked at its north-western end by the Suez Canal to the Mediterranean, and the Gulf, through which much of the region's oil and gas exports are shipped. To make the most of this geographical advantage, and to help meet the increased transport needs of its expanding economy, Saudi Arabia is upgrading facilities at a number of its main ports, while developing at least two new cargo centers along the Red Sea coast. The schedule for port expansion was stepped up as part of the government's $384b investment program, announced last August.

While ports will be one of the main beneficiaries of the government's infrastructure investment program, the expansion of seaborne cargo-handling capacity will also be vital. The state investment plans call for the construction of up to 500,000 housing units; a vast network of highways and the expansion of the national rail system; and a large number of new state buildings, including hospitals, schools and universities. In addition, the coming years will see extensive investments by both the government and the private sector as part of a long-term effort to diversify the economy, with funds being directed into enterprises in the manufacturing, commercial and services industries. This scheme will require millions of tonnes of materials, much of which will need to be imported, necessitating an increase in the size of existing ports as well as the development of new ones.

Of the new projects, the port at King Abdullah Economic City (KAEC) is among the largest. It will be the centerpiece for a new city of some 2m people being built 120 km to the north of Jeddah on the Red Sea. A joint venture between Dubai developer Emaar Properties and Saudi investors, KAEC has been affected to a degree by the global economic crisis, with investor pick-up slower than originally hoped. In light of this, the Saudi government has moved to hasten the pace of activity, offering the venture a $1.3b loan at the end of May, with analysts taking the move as a sign of confidence in the project, as well as an indicator of the importance attached to it.

Though some of the developments on land have progressed less quickly than planned, work on the port itself is on schedule, with cargo-handling operations due to commence in 2013. In late May, officials announced that the first phase of dredging the harbor, including clearing the entry channel to the port and the turning basin, had been completed, with some 3m m3 of material removed. Stage two, which involves further dredging and the construction of berths, cargo storage areas and administrative buildings, is already under way.

According to Fahd Al Rasheed, the managing director and CEO of Emaar, the Economic City and member of the board of the Ports Development Company, the port's proximity to Saudi Arabia's industrial heartland will be a major selling point for investors. In its initial stage, the port will have more than 1000 meters of conventional berthing space and 10 container berths, giving it the capacity to handle some 5m containers a year, a figure that will rise in later years as demand grows.

The planned increase in overall capacity will help offset a continued rise in demand, with Saudi Arabia's existing ports moving just over 154m tonnes of freight in 2010, 8% up on the previous year, according to the Saudi Ports Authority. The first quarter of this year saw cargo volume continue to climb, with a 4.2% rise over the same period in 2010.

By far the Kingdom's largest port, the Jeddah Islamic Port, which handles more than 70% of the country's container freight and one-third of the total, is also in line for a further expansion, with this coming after its capacity was doubled with the opening of a new terminal last year. Plans are in the works to expand its cargo facilities by up to 50%, with the longer-term target of increasing capacity from 6.5m to 13m containers by 2020.

While the Kingdom's large-scale port expansion is in part driven by its ambitions to be a leading regional logistics center, Saudi Arabia also has to provide for the needs of a rapidly expanding population, which is projected to top 40m by 2020, up from around 27m at present. The recent decision to scale back production in its heavily subsidized agricultural sector, including phasing out domestic wheat production completely, will also translate into growing import volumes. As well as a point of departure for its own diversifying exports, with import volumes likely to continue to rise, Saudi Arabia's ports will increasingly be the nation's lifeline to the world. (OBG 17.06)

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11.5 EGYPT: IMF Outlines $3 Billion Support Plan for Egypt

Egypt has reached agreement with International Monetary Fund (IMF) on a draft 12-month $3 billion financing package to support the country's program of economic reforms at a crucial period as the country transitions to democracy. The proposed one year stand-by arrangement, announced in Cairo on 5 June, contains measures aimed at supporting economic recovery, generating jobs and assisting low-income households, while maintaining economic stability. It will help Egypt lay the foundation for a more-inclusive economic program that encourages private sector-led growth. Egypt is the first recipient of IMF financial assistance in the Middle East and North Africa since the Arab Spring movement began earlier this year. At a Group of Eight summit last month in Deauville, France, the IMF announced that it could make available as much as $35 billion in financial assistance to the region over the next few years. The authorities' economic program sets out a revamped budget for the next fiscal year, which begins on 1 July. This new budget makes possible additional spending for job creation and protection of the poor, while limiting the widening of the deficit.

Egypt's budget deficit has widened in recent months, owing to extraordinary spending measures taken by the government as a result of the protests. This larger deficit will be financed in part through foreign grants and loans from bilateral and multilateral development partners, including the IMF. This strategy ensures that sufficient domestic resources remain available for credit to the private sector, and helps reduce borrowing costs and lengthen the maturity profile of the public debt. Expenditure in the new budget will focus on human capital and social investment, as well as labor-intensive public works to generate job-intensive growth. On the revenue side, the budget includes a number of tax reforms to generate resources for additional social spending and enhance fairness through a moderate increase in the progressivity of the tax system. These reforms will complement efforts to strengthen tax administration and improve compliance.

The government's plan also foresees a number of fundamental structural reforms, including the transition to a VAT-like consumption tax and reform of the highly inequitable and costly system of subsidies, which are needed to improve the efficiency of public spending and help reduce the fiscal deficit in the medium term.

The World Bank has pledged $4.5 billion in support to Egypt over the next two years to address budget and reserve shortfalls and to finance reforms that strengthen its credit and investment prospects. In recent weeks, Saudi Arabia, Qatar, the United States and others have also promised large amounts of assistance to the country. (IMF 15.06)

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11.6 TUNISIA: Signs of Improvement

Following GDP growth of around 3% in 2010, the consensus view on Tunisia is that 2011 is likely to see a slight decline, to just over 1%, as a result of domestic and regional political upheaval. However, recent developments provide grounds for optimism, including credit outlook rating improvements and the strong performance of exports in the first four months of the year.

GDP growth in the last quarter of 2010 stood at 3.1%, according to the National Institute of Statistics (NIS), bringing the total for the year as a whole to 3%. By sector, manufacturing grew by 8.5% in 2010, driven partly by a 6% rise in textiles, its largest segment, while services increased by 5.4%, including 4.3% growth in tourism (hotels and restaurants), an expansion of 5% in the financial services, and 13.5% growth in postal and telecoms. Agriculture and fisheries fared less well, contracting by 8.7%, according to NIS data.

However, 2011 is shaping up in far different fashion. In addition to problems caused by the political unrest earlier in the year, such as a downturn in tourist arrivals, Tunisia's economy has also been hit by the conflict in neighboring Libya, which is a trading partner and major tourism source market. In March the African Development Bank (ADB) published a briefing on the situation in Tunisia that provided three scenarios for economic growth in the year ahead.

According to its middle scenario GDP will grow 1.1% – roughly in line with government's own forecasts of 1% and the IMF's forecast of 1.25%. The prediction is based on a 20% year-on-year (y-o-y) fall in tourism receipts as a result of January's upheaval. Under this scenario the current account deficit will expand to 7.6% of GDP, from an estimated 4.7% in 2010, as a result of factors such as lower tourism receipts. Recent spikes in international wheat prices are also likely to put pressure on the trade and current account deficits, given Tunisia's high per capita wheat consumption, as well as on the fiscal deficit (the government subsidizes bread production), which the ADB's middle scenario forecasts to reach 5.2%, from an estimated 2.6% in 2010.

However, the economy may perform better than the consensus outlook. The most optimistic of the three scenarios sees growth in 2011 reaching 3.6%, followed by 4.2% in 2012. This is dependent on a sustained return to normality, the rapid recovery of the tourism sector (to 95% of tourism receipts taken in 2010), strong foreign direct investment (FDI) and a targeted stimulus package.

In the worst scenario, however, the ADB forecasts a contraction of 2.5% in 2011, in the event of prolonged political and social instability. In the bank's view, this situation could result in sharp declines in both public and private investment and a substantial hike in public sector hiring, leading to a growing fiscal deficit, an increasing current account imbalance and a rise in inflationary pressure.

While noting serious challenges including political and security issues, pressure on the economy and the underlying problem of widespread youth unemployment, the ADB briefing points out that the return of general calm to most of the country and popular support for the interim government's actions during the first two months of its political transition are grounds for “cautious optimism”. It also notes that improvements in transparency and the business environment, as well as a potentially more liberal economic regime, could support a significant improvement in growth in the longer term.

Other observers appear to share such optimism. For example, following several credit rating downgrades at the height of the political unrest in January, in mid-March Standard & Poor's removed Tunisia from its negative credit watch list, upgrading its outlook to stable.

In addition, some recently released data support increasing positivity about Tunisia's prospects. Exports rose by 11.1% y-o-y in the first four months of 2011 to €4.09b. Consumer goods exports increased by 14%. Exports outpaced import growth of 5.1% – to €5.29b – thus reducing the trade deficit by 11.3%. FDI fell by 24.5% y-o-y from €299m in the first four months of 2010 to €226m, according to the Foreign Investment Promotion Agency. However, some sectors have bucked the trend. For example, FDI in the services sector shot up 15% y-o-y in the first quarter of 2011, to €31.3m, thanks in part to significant investment in telecoms.

To assure the stability of the economy going forward, the current transitional government is seeking $25b of investment, loans and aid over the coming five years. Under the so-called Jasmine Plan, the government will also establish a state-run fund to invest in major infrastructure projects, as well as another aimed at supporting local businesses.

There appears to be strong international willingness to provide aid to ensure the country's democratic transition proceeds smoothly, with a group of influential international economists calling on the G8 to provide similar sums to those requested by the government and US President Obama in late May, and asking the IMF and the World Bank to present a plan to stabilize Tunisia's economy. (OBG 14.06)

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11.7 ALGERIA: Spending Hike

Buoyed by rising oil and gas prices and keen to stave off socioeconomic discontent, the Algerian government has passed a law raising spending in the 2011 budget by 25%. The extra spending will raise concerns about the deficit and inflation, but signs of a bumper harvest that will reduce the need to import costly wheat from abroad and should help counteract such pressures.

The Algerian cabinet in early May approved a draft law – the supplementary finance law, (loi de finances complémentaire, LFC) – amending the government budget for 2011. The law includes measures to keep the price of basic goods affordable, pay for additional civil servants and salary increases for government worker, stimulate economic activity in priority areas of the country and among small and medium-sized enterprises (SMEs), reduce unemployment through training programs and improve the country's infrastructure and housing provision.

The government frequently amends its budget mid-year to reflect changes in the price of hydrocarbons, which account for the bulk of government income, though this year's changes came earlier than usual, possibly spurred in part by recent socioeconomic discontent and protest. In line with rises in oil prices early in the year, the LFC increases government expenditure by around 25%, from €64b to €80.5b. The hike will see government spending rise to a total of 70% of GDP.

The state plans to use a large proportion of the additional funds to enhance subsidies for basic items, such as cooking oil, sugar and wheat, to support the purchasing power of Algerians. Under the LFC subsidies for such goods will increase by 170% on 2010 levels, taking them to €2.6b. The law also extends exemptions from import duties and value-added tax for cooking oil and sugar in order to make prices more palatable to consumers, following protests over the cost of such goods in January.

The extra funds will also cover pay rises for government workers and help meet the costs of plans to recruit an extra 60,000 civil servants this year. The law will also provide €1.3b for youth training initiatives to reduce unemployment, and increase funding for housing projects by €8.7b, with government plans to build an additional 400,000 housing units.

The budget also includes various fiscal measures to support the growth of SMEs, particularly those in priority areas of the country that the government regards as under-developed. Among measures these are steps to reduce social security payments for businesses operating in the southern and high plateau areas of the country. Small companies qualifying as “micro-enterprises” and enterprises created to bring informal economic activities into the formal, taxed economy will also receive significant incentives, including a tax exemption for their first two years of operation and further tax breaks of 70%, 50% and 25%, respectively, in the subsequent three years of operation.

The increase in spending combined with reductions in government income through various tax breaks will raise the nominal fiscal deficit accounted for in the budget to 33.9%, which on first sight suggests unsustainable spending levels. However, in reality the deficit will only be a tiny fraction of this figure, as the budget calculations are based on an average oil price of $37 a barrel, around half of levels seen in 2011 so far. The government will also be able to draw from the country's oil stabilization fund to cover the deficit. Set up to help balance the budget in the face of volatile oil prices, the fund may be drawn on as long as it maintains a minimum balance of €7.15b. As of early May the fund stood at €38.6b, leaving the government significant room to maneuver.

A less illusory potential risk involved in pumping such a large amount of money into the economy through salary increases and other spending programs is inflation, which has hovered around 3.7% in recent months. Adding to such pressures are rising international wheat prices, which have almost doubled over the past year and saw large increases in mid-May.

Algerian per capita wheat consumption stands at around 210 kg, more than 2.5 times that of the US and almost double that in EU countries, making Algeria the world's seventh-largest importer of wheat. After several worrying weeks, rains towards the end of April saw the government lift drought warnings and should boost local grain production, reducing reliance on expensive imports. Furthermore, additional spending on subsidies to keep prices down, while waiving taxes on key goods should also help to counteract inflationary pressures. The budget envisions an inflation rate of 4% for 2011 as a whole. (OBG 09.06)

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11.8 ALGERIA: Increasing Internet Use

Algeria's broadband capacity is set to nearly double this year, which, along with ambitious plans to roll out new last-mile connections, increase access to e-services and expand mobile internet connectivity, should prompt an increase in internet use and subscriptions.

According to the latest figures from the UN's International Telecommunications Union, there were 4.1m internet users in Algeria in 2009, a penetration rate of 12%. Numbers are rapidly increasing: ASDL subscriptions grew to 830,000 at the end of February 2011, bringing the penetration rate to 10%, the Post and Telecommunications Regulatory Authority reported in March. This represents growth of more than 18% on 2009 levels, when subscriptions stood at 700,000, a figure more than double the 300,000 in 2008.

Plans to increase broadband capacity are already in the works at the country's largest telecoms provider. The director-general of the state-run telecoms and internet provider Algérie Télécom, M'hamed Debouz, announced in March several new projects to extend broadband capacity, including an increase in the number of installed high-speed internet lines from 1.8m to 6m by 2014 and a roll out of 500,000 multi-service access node lines this year alone.

Debouz also said that total national internet capacity will more than double from the current 45.9 gigabytes per second (GBps) to 100 GBps at the end of 2011, when a 500-km underwater cable linking Oran to Valencia in Spain that the firm is laying with a Spanish partner is due to be completed. This will represent a 400% increase on capacity in 2009, when it stood at 20 GBps.

Following such upgrades, the company has plans to offer new broadband packages with speeds of up to eight megabytes per second (MBps) to domestic customers and 20 MBps to businesses, Debouz added. To support such targets, the company is rolling out new fibre optic cables. In February it announced plans to install 228 km of such cable in Tebessa in eastern Algeria, almost doubling the length of fibre optic cable in the province to 446 km.

One way in which Algérie Télécom has recently been encouraging ASDL uptake is through its “Sehelli” promotion, an amnesty program for customers whose fixed-line connections have lapsed due to non-payment by making it easier for them to reactivate the lines and offering them an ASDL connection and a wireless router in return for the first repayment. The program enabled the company to recoup approximately AD400m (€3.9m) in unpaid bills over the course of four months to March this year.

The advent of 3G mobile services in Algeria should also give a large boost to internet availability and use, in particular for mobile phone penetration rates, which are vastly higher than fixed-line installation rates. Joseph Ged, the CEO of Wataniya Telecom Algérie (WTA) said in March that the company hoped to apply for a 3G license in the course of the coming year. There are currently no 3G operators in the country, with several proposed launches of the service having been delayed in the past. WTA operates the country's Nedjma mobile phone service, the second-largest network in terms of subscribers, with a claimed market share of 30%.

Ged said the company intends to spend some €105m on its mobile network in 2011 and that it was willing to make major investments to establish a 3G network. Ned also announced plans to float Wataniya on the stock market, which would raise funds for such investments.

However, events may overtake WTA's plans. Cherif Ben Mehrez, a spokesperson for the Ministry of Post, Information Technology and Telecommunications' e-Algeria project, speaking later in March, said the government planned to skip rolling out 3G services altogether and move straight to the launch of a 4G network instead. According to Mehrez, a 4G service could be launched by the end of 2011, though this seems optimistic given the issues that have delayed the launch of 3G services in Algeria and the fact that the technology has yet to be rolled out on a large commercial scale elsewhere in the world.

One factor that has slowed the uptake of internet services in Algeria has been a lack of content, particularly in the domain of e-services. The relatively minimalist online profiles of most Algerian firms is an indicator of the under-developed nature of internet usage in the country, and finding Algerian internet sites that accept electronic payment is difficult, limiting opportunities for online transactions. However, according to Abderahmane Benkhalfa of the of the Association of Banks and Financial Establishments, speaking to local newspaper Tout Sur l'Algerie in April, the government is working with banks to make electronic payment systems widely available in the country by 2013. This step, coupled with mobile internet services and the future rollout of next generation networks, should see Algeria's internet use rise rapidly in the next few years. (OBG 14.06)

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11.9 MOROCCO: Defying Expectations In Tourism

The Moroccan tourism industry posted strong growth in 2010, and figures for early 2011 point to another bumper year. Confidence remains high despite the April bombing of a café in Marrakech – the effect of which appears to have been limited – and ongoing regional instability, and the government continues to roll out ambitious plans for the decade ahead.

Visitor numbers have increased every year in the past decade, and tourist arrivals to Morocco reached 9.3m for the year as a whole in 2010, up a strong 11.5% on 2009 figures of 8.34m, according to the Ministry of Tourism. Nights spent in the country were also well up, by 11% year-on-year (y-o-y), as were room occupation rates, from 41% in 2009 to 44% last year. The bottom-line indicator for the sector, tourism receipts, grew by a healthy 6% on the previous year, to Dh56.2bn (€4.96bn), although it is worth pointing out that revenues declined in 2009 amidst the lingering effects of the global economic slowdown.

This year is also off to a strong start, with all major indicators again showing healthy growth. Despite a dip in March, tourist arrivals increased 6% y-o-y in the first quarter of 2011, to 1.83m. Arrivals in April were up 18% y-o-y, to 784,000. Nights spent in hotels in the first quarter also grew, from 3.76m in first-quarter 2010 to 4.01m in first-quarter 2011, a y-o-y rise of 7%, which helped boost occupancy rates by two percentage points, to 41%. Total tourism receipts for January, February and March increased by 6.7% y-o-y, to Dh11.1bn (€980.2m).

Although the April 28th bombing in Marrakech, Morocco's biggest destination in terms of room nights, happened relatively recently, as of late May only 22,000 nights worth of bookings in Marrakech for May, June and July, or 5% of the total for the three-month period, had been cancelled, local media reported. French tour operators also reported little in the way of cancellations following the bombing. Local business representatives regard this number as relatively small and encouraging, having feared a significantly worse effect.

Furthermore, the Moroccan tourism sector recovered quickly after the only previous major terrorist attack in the country, the May 2003 Casablanca bombings – arrival numbers for 2003 as a whole increased 15% on 2002. It was the same in other regional markets in the mid-2000s such as Turkey and Egypt, despite the sustained campaigns of attacks against the industry, giving cause for optimism that any effect in Morocco will similarly be short-lived. Tourism minister Yassir Znagui in May told media he believed that a strong 8% increase on tourism receipts for the year as a whole is possible based on results registered to date.

This optimism is bolstered by the increasing diversity in the sector's offering. While Morocco in the past may have been better associated with budget travellers and backpacking, the luxury and golf tourism market in the country continues to expand. For example, French hospitality company Accor opened its 147-room Sofitel Essaouira Mogador Golf and Spa property near Essaouira on the Atlantic coast in March, bringing its total number of hotels in the kingdom to 30. The resort also contains 28 villas and is part of the Mogador eco-resort, which will feature two 18-hole golf courses designed by Gary Player. At the other end of the market, Accor also opened a second Ibis-brand property in Tangier in January.

Similarly, Spanish hotel chain RIU opened two properties in the country in May, comprising a 462-room resort in Agadir and a 54-room boutique golf hotel in Marrakech that is part of the company's RIU Grand Palace range of luxury properties. The openings bring the number of RIU hotels in Morocco to six, with plans to open another – the RIU Palace Agadir – towards the end of the year.

Despite ongoing success and expansion in the market, the government is leaving nothing to chance and is continuing with its Tourism 2020 plan, following on from the success of the previous Tourism 2010 initiative. The plan envisages Dh177bn (€15.62bn) worth of investment in the sector between now and 2020, of which the government will provide Dh32bn (€2.8bn), including a Dh15bn (€1.32bn) state-backed tourism development fund.

The initiative includes plans to open facilities in every region of the country in order to train 132,000 young people to work in the sector, to construct at least two new major museums, to renovate numerous historical monuments, to open several new beach resorts – notably at Aghroud, north of the established resort town of Agadir – and to provide at least another 200,000 tourism beds in the sector, doubling current capacity. Through these measures the government aims to more than double arrivals numbers, to 20m, and to raise annual tourism receipts to Dh140bn (€12.36bn), generating an additional 470,000 jobs in the industry by 2020. (OBG 16.06)

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11.10 TURKEY: Political Stability and Sustainable Growth Key for Turkey Rating Outlook

On 13 June, Fitch Ratings http://www.fitchratings.com said that the Justice and Development (AK) Party's victory in parliamentary elections in Turkey on 12 June provides it with an opportunity to lead the modernizing of the constitution but that this process should not distract Turkish policymakers from standing ready to take measures to cool down the economy, which is showing some signs of overheating.

"The anticipated preparation of a new constitution has the potential to create significant political uncertainty, as it may well raise profound and controversial issues related to the division of power, secularism, religion, nationalism and ethnic minority rights," says Ed Parker, Fitch's Head of EMEA Sovereign Ratings.

"In addition to political stability, a potential upgrade of Turkey's sovereign ratings from 'BB+' to investment grade would depend on securing sustainable growth consistent with macroeconomic stability. The latest trajectory of the current account deficit, inflation and bank credit growth means the jury remains out on this," added Parker.

As widely expected, near final election results show the AKP won the parliamentary election, receiving 50% of the vote (compared with 47% in 2007) followed by the Republican People's Party (CHP) with 26%, the Nationalist Action Party (MHP) with 13% and independent candidates, mostly from Kurdish Peace and Democracy Party (BDP) 7%. The results imply the AKP will gain 326 out of the 550 seats, representing an absolute majority that will give them a strong hand in passing budgets and economic reforms.

However, it is below the 330 seat threshold required to frame a referendum on changing the constitution (let alone the two-thirds majority of 367 seats required for parliament to approve changes in the constitution directly). AKP leaders have promised to amend the constitution, which was largely written by the military after the 1980 coup. Although all the main parties support the goal of changing the constitution, they do not agree on the substance of what should replace it. The need for AKP to consult and strike a deal with other parties may ultimately lead to a more balanced and widely accepted constitution, but the process of approving it and the strategy of the main parties is uncertain.

A history of political instability, including some extreme events as recently as 2007 and 2008, means political risk weighs on Turkey's sovereign ratings. The country ranks below the 'B' range median on the World Bank's Governance Indicator for "political stability". Fitch's assessment of political risk will continue to be an important element of its rating judgment and it will watch to see whether the anticipated process of reforming the constitution is likely to be managed in a manner consistent with political stability, which would support upward pressures on the rating.

When Fitch revised the Outlook on Turkey's 'BB+' ratings to Positive from Stable on 24 November 2010, it commented that: "Robust economic growth consistent with disinflation and broad macroeconomic balance (this does not necessarily preclude a sizeable CAD) would put upward pressure on the rating...[However] significant macroeconomic or financial instability (or signs of overheating) - for example emanating from inflation or balance of payments shocks...could lead to negative rating action."

The Turkish economy is growing rapidly and above potential. GDP growth was 9.2% in Q410 yoy. Although industrial production has eased in recent months, growth still averaged 12.6% yoy in the first four months of 2011, and the economy needs a slowdown in demand not supply. The current account deficit has leapt to $60.5bn in the 12-months to March 2011, up from $24.9bn in the 12-months to March 2010, and is predominantly financed by short-term and portfolio debt inflows. Fitch forecasts the 2011 current account deficit at $64bn (8.3% of GDP) in 2011, narrowing to 7.4% in 2012. Moreover, consumer price inflation was 7.2% in May, and looks set to exceed the central bank (CBRT) end-year inflation target of 5.5% by a significant margin. Bank credit growth has accelerated to 36% yoy in April 2011.

Against this background, the CBRT has maintained its one-week repo policy interest rate at 6.25% - negative in real terms - and has placed the onus of slowing the economy on less orthodox prudential policy measures such as reserve requirements, reflecting concerns that higher interest rates would attract more "hot money" capital inflows. The effectiveness of this policy remains to be seen.

The Turkish public finances are continuing to perform strongly and support sovereign creditworthiness, buoyed by the booming economy. Fitch estimates the general government deficit (excluding privatization receipts) declined from 5.8% in 2009 to 3.3% of GDP in 2010, and could fall to around 2% this year. The EU-defined general government debt to GDP ratio fell to 41.6% of GDP at end-2010, from 45.5% at end-2009. Nevertheless, Fitch would view post-election fiscal policy tightening measures as beneficial in helping to take some of the heat out of the economy and providing support to the CBRT. (Fitch 13.06)

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11.11 TURKEY: The Justice & Development Party in the Turkish Elections: A Limited Triumph

Gallia Lindenstrauss wrote in 14 June in the INSS Insight http://www.inss.org.il that the success by Turkish Prime Minister Erdogan and the Justice and Development Party (AKP) in gaining more votes than in the previous elections, as well as the latest poll conducted by the Pew Institute charting the Turkish public's optimism about the country's future, indicates that the current elections were a vote of confidence in Erdogan. The Turks trust he will be able to continue to promote Turkey's economy, develop its infrastructures and – to the displeasure of some but to the joy of many – allow a greater place for religion in the daily life and politics of Turkey. Even many of those who voted for opposition parties are secretly happy that Erdogan will continue to serve as prime minister and that governmental stability will be maintained. Voting for the opposition parties was, for many, not an attempt to topple Erdogan but only to rein in his power.

The results of the elections in Turkey show that more than in the past, votes were concentrated among the large political parties, so that all have reason to be pleased. The percentage of votes for the ruling party, the AKP, rose somewhat (from almost 47 % in the 2007 elections to almost 50%) and the percentage of votes for the main opposition party, the Republican People's Party (CHP), also grew (from almost 21% to 26%). While the Nationalist Movement Party (MHP), the second largest opposition party, suffered a slight decline (from about 14% to 13%), it did manage to pass the high Turkish threshold (10%) for representation in parliament.

A more in-depth examination, however, reveals a certain disappointment in the AKP, because despite the increase in its percentage of votes it lost a number of seats in parliament (from 331 of the 550 seats in the 2007 elections to 326 seats in 2011) due to the particularities of the Turkish electoral system. The CHP won 135 seats, the MHP – 53 seats, and independent candidates (all of Kurdish origin) – 36 seats. This means that the AKP will have to join forces with at least one of the opposition parties if it wants to adopt a new constitution as it promised during the election campaign. Absent a two-thirds majority, the parliament cannot pass a new constitution; in order to put such a proposal to a referendum, at least 330 votes are necessary. To be sure, there is far reaching agreement within the opposition that Turkey indeed needs a new constitution, and it seems appropriate that a new constitution be enacted on the basis of a broad parliamentary consensus and a national referendum. However, the opposition is opposed to one of the central reforms proposed by Erdogan in the new constitution – changing the form of government in Turkey to a presidential one. Erdogan is interested in this change because party regulations dictate that this is the last term he can serve as prime minister. If the AKP succeeds in clearing the parliamentary hurdle, its chances of passing a new constitution by referendum are good. For example, the previous referendum on reforms in the constitution, which took place in September 2010, passed with a 58% majority, i.e., a higher percentage of votes that the AKP won in previous and in recent elections.

The Turkish elections focused primarily on internal issues, but it seems that for now foreign affairs challenges will figure most prominently on the new government's agenda. The revolutions in the Islamic world are, at least in the short term, diametrically opposed to the Turkish vision of promoting stability in the Middle East for the sake of economic prosperity. The unrest and its regional aftershocks will necessarily demand a period of reorganization, which by definition is a sensitive time prone to more than usual violence and thus susceptible to economic slowdowns. The “Arab spring,” which has already destabilized several regimes in the Middle East, especially that of Bashar al-Assad in Syria, has put Turkey in an uncomfortable position. The Turks are very worried about the ongoing Syrian instability and the newly-created refugee problem. While the Turks have a shelf plan for establishing a buffer zone within Syria or on the Turkish-Syrian border where the refugees are already beginning to mass, the exodus is nonetheless expected to create a security and economic burden on Turkey. This is not a problem the Turks cannot handle or one that would necessarily lead to instability in Turkey, but it will affect the areas that are already suffering from a weak economic base and security problems, i.e., the southeastern part of the country.

Furthermore, the expected departure of the next flotilla to the Gaza Strip and the forthcoming publication of the findings of the UN committee to investigate the events of the previous one are liable to develop into another crisis with Israel. One may assume that Turkey is not interested in such a crisis, as the region is already unstable enough and Turkish-Israeli relations are in any case at a nadir. While most Turks support the government position, whereby Israel must apologize for the flotilla events and pay damages, it was possible during the election campaign to hear criticism of the government's handling of the flotilla from the Republican People's Party. Also, judging by the election results, it does not seem that the flotilla events brought many new voters to Erdogan's side. The fruits of American efforts to apply pressure on Turkey to stop the second flotilla from sailing were apparent in a June 7 statement made by Turkish Foreign Minister Ahmet Davutoglu to the effect that it is necessary to wait and see how the opening of the Rafah crossing with Egypt will affect the situation in the Gaza Strip before dispatching another flotilla. In general, one could say that the “Arab spring” has generated a certain narrowing of the gap between Turkey and the United States. Indeed, the two nations are now conducting frequent – at times even daily – consultations on developments in the region.

The Turkish election results, then, symbolize continuity rather than change of the fundamental parameters of the Turkish ruling system. While they represent another victory for the ruling party, they are not the stunning triumph the AKP had hoped for. Moreover, it is the “Arab spring,” which is already prompting Turkey to conduct a more cautious policy than in the past and with greater coordination with the United States, that at least in the near future will have the more profound effect on Turkish foreign affairs. (INSS 14.06)

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