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Fortnightly

Fortnightly - June 27, 2007

TOP STORIES

Answers Corp's WikiAnswers Ranked Second Largest Q&A Site

Turkey's Foreign Trade Share of GNP Doubled In the Last 14 Years

Jordanian & Chinese Firms To Set Up Car Manufacturing Plant

Qatar Takes Lead in Global LNG Exports

Israel Marks 17th of Tammuz & Begins the “Three Weeks” Mourning Period

TABLE OF CONTENTS

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Knesset Approves Bank Fee Law
1.2 Fischer: Globalization Requires a Responsible Budget

2: ISRAEL MARKET & BUSINESS NEWS

2.1 Answers Corp's WikiAnswers Ranked Second Largest Q&A Site
2.2 N-Viro International Corporation Announces a Signed Agreement to Dispose Sludge in Israel
2.3 Zion Oil Announces Results of First Tested Formation in the Ma'anit #1 Well Workover
2.4 CruiseCam International Signs LOI to Support Israeli Licensing and Distribution
2.5 ICL Fertilizers Signs Agreements to Sell Additional Potash Quantities to Indian Customers
2.6 RGIS Gains Additional Strength in Middle East With ISICS Acquisition
2.7 Israeli Air Force Awards Pratt & Whitney Materials Management Agreement
2.8 Exanet Raises $18 Million in Round of Financing Led by Coral Capital Management
2.9 LivePerson to Acquire Kasamba
2.10 ICL to Acquire Supresta, the World's Largest Producer of Phosphorus Flame Retardants

3: REGIONAL PRIVATE SECTOR NEWS

3.1 Jordanian & Chinese Firms To Set Up Car Manufacturing Plant
3.2 GlobalOptions Group Expands Business in Middle East and Northern Africa
3.3 ILS to Launch 5th-Generation Satellite for Arabsat
3.4 Kuwait Oil Company Seeks Alberta Oil Sands Expertise
3.5 Bracewell & Giuliani LLP Opens Office in Dubai
3.6 Merrill Lynch Opens Offices in Dubai International Financial Center
3.7 Merrill Lynch Receives License To Operate in KSA
3.8 Alloptic Partners with Saudi Leader in Airport & Industrial Safety & Security Systems
3.9 Gap Expands International Presence with Franchise Agreements in Saudi Arabia & Turkey
3.10 WWE Signs Deals in Greece & Turkey
3.11 Cedar Point's SAFARI C(Cubed) to be Deployed by Cablenet in Cyprus

4: ISRAEL MACRO-DEVELOPMENTS

4.1 Intel & Teva Take On 85 Bedouin Engineers
4.2 Eleven Firms Qualify For Dead-Red Canal

5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Explosion in Popularity Of Credit Cards in The Middle East
5.2 Kuwait First in List of Investors In Jordan
5.3 GCC Healthcare Costs Soaring
5.4 Qatar Takes Lead in Global LNG Exports
5.5 UAE Preparing To Allow Limited Foreign Ownership of Local Companies
5.6 Minister Lubna Said UAE Inflation Reached 9.3% Last Year
5.7 Dubai-Korea Non-Oil Trade Reaches $1.859 Billion in 2006
5.8 Saudi Arabia's Annual Inflation Declines To 2.2% In First Quarter
5.9 Expatriates Remit $26.67 Billion from Saudi Arabia Annually
5.10 Saudi to Spend $51 Billion on Power Generation
5.11 Phoenicia Group & CapRock Communications Enter Strategic Alliance to Tap Libya VSAT Market
5.12 US House Panel Approves Package For Pakistan

6: TURKISH & CYPRIOT DEVELOPMENTS:

6.1 Turkey's Foreign Trade Share of GNP Doubled In the Last 14 Years
6.2 Turkey To Host Meeting Of World's Poor Countries
6.3 Turkey's Chance to Take Part in The $1.3 Trillion Drug Market
6.4 Turkey's Ministry of Finance Launches Five-Year Plan To Tackle Informal Economy

7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Israel Marks 17th of Tammuz & Begins the "Three Weeks" Mourning Period
7.2 Shimon Peres Elected Ninth President of The State Of Israel

*REGIONAL:

7.3 Saudis Send $1.3 Billion Up In Smoke

8.1 Frost & Sullivan Observes Israel Biomed Industry Growing Fast
8.2 Pluristem's PLX Cells Demonstrate Potential to Treat Parkinson's Disease
8.3 Can-Fite Proceeds with Development of Third Drug
8.4 Oramed Signs With Encorium Group To Commence Investigational New Drug Application
8.5 OrSense Receives European CE Mark Approval for Continuous Non-Invasive Glucose Monitoring System
8.6 Boston Scientific Announces Agreement to Acquire Remon Medical Technologies

9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Answers.com Wins CNET Webware 100 Award for Reference
9.2 ECI Telecom Doubles the Capacity and Extends the Reach of its Multi-Degree ROADM Platform
9.3 Denmark's First National Wireless Broadband Network Built Using Alvarion's BreezeACCESS
9.4 Huawei Name Optibase Bid Winner for IPTV Encoder Systems
9.5 Emery Selects ECI Telecom to Build an Advanced ROADM Network for Utah Fiber Network
9.6 QUALCOMM and Siano Sign FLO Chip Agreement
9.7 GigaSpaces & Microsoft Deliver High-Volume, Low-Latency Analytics Solutions for Capital Markets
9.8 Minerva Networks & Integra5 to Provide Converged IPTV & Communications Services Solution
9.9 Elbit Systems Skylark-II UAV Wins Frost & Sullivan 'Best Innovative Product Award'
9.10 Interphase & Surf Complete I-TDM Interoperability Enabling Multi-Media Solution Delivery
9.11 Schema & LATTIS Offer a Complete and Cost Effective Solution to Leased Line Optimization
9.12 WorldMate Turns BlackBerry 8830 World Edition & Curve 8300 Devices into Personal Travel Assistants
9.13 RED-C and JDSU to Expand Collaboration, Signing a Strategic Supply Agreement
9.14 BeInSync's New Online Backup Service Provides Enterprise-Grade Protection to Consumers & Businesses
9.15 Gilat Partners with CJSC Global-Teleport, Russia's Leading Satellite Service Provider
9.16 ECI Telecom Doubles the Capacity & Extends the Reach of its Multi-Degree ROADM Platform
9.17 fring Brings VoIP Choice to Windows Mobile
9.18 New JVC LCD TVs With MaxxAudio Deliver Home Theater-Quality Sound
9.19 Elettronica and Elbit Systems Electro-Optics Elop Generating a Joint Laser-Based DIRCM Product
9.20 TTI Telecom Launches FaM Analyzer

10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's CPI Unchanged in May
10.2 State Of Economy Index Dispels Slowdown Fears
10.3 Israel's GDP Per Capita Reaches $18,620
10.4 Israel's Exports Remain Strong Despite Dollar's Depreciation
10.5 Foreign Investment Amounts to $1 Billion in May

In Depth

11.1 ISRAEL: Maintaining a Thriving Economy in the Shadow of Terror
11.2 ISRAEL: The Peril of Underestimating Risks
11.3 Persian Gulf: Currency Union - Disunited They Stand
11.4 Kuwait: Setting Sail
11.5 Oman: Fuelling The Future
11.6 Oman: Reconstruction Costs
11.7 Fitch Revises Egypt's Outlook to Positive
11.8 Egypt: Parliamentary Elections
11.9 IMF Executive Board Concludes 2007 Article IV Consultation with Turkey
11.10 Turkey: The Istan-Bull Paradox
11.11 Cyprus Politics: Euro Leverage

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Knesset Approves Bank Fee Law

On 26 June, the Knesset plenum approved the bank fee regulation law. The law will come into effect within a year, but the Banking Supervisor's authority to supervise fees comes into effect immediately. The law, which will apply to both private and business customers of the banks, gives the Bank of Israel Banking Supervision Department sweeping authority over bank fees. The new law mandates that the number of bank fees to be reduced, but does not mention a figure. The law also stipulates that banks may not collect two fees for the same service. The bank fee regulation law resembles the original proposal by the Bank of Israel, which gives the Banking Supervision Department full authority to supervise and establish the list of bank fees. The law will come into effect within a year, although the Banking Supervision Department's authority to supervise fees will be immediate. The Economics Committee decided that the Banking Supervision Department will be authorized to set the list of bank fees within three months, but can ask for a postponement of up to another three months. After the Banking Supervision Department sets the list of bank fees, the banks will have six months to consolidate fees and set new tariffs. The list is expected to number roughly 90 fees, instead of the current 350. The Economics Committee also set a fine of $357,000 for banks that violate the new law. (Various26.06)

1.2 Fischer: Globalization Requires a Responsible Budget

"Globalization places a market discipline on macroeconomic policy... It demands to let the markets function, and intervene only in extreme circumstances of crisis or market failure, and here in Israel we are far from such cases," Governor of the Bank of Israel Prof. Fischer told the Annual Capital Markets Conference held by Deloitte Brightman Almagor and TheMarker in Tel Aviv on 13 June. Fischer added that globalization also demanded "a responsible budget framework. This discipline should be maintained too when drawing up the government budget for 2008 and for the years after, and maintaining price stability and supporting financial stability. In this field, the responsibility is that of the Bank of Israel."

As for supervision of the financial system, Fischer said, "The new reality in the capital market places new challenges for the regulators. In the first stage, it is important that the various regulatory authorities work closely together, particularly in the fields of banking and insurance, in light of the developments in these fields. There is currently a good level of coordination between the Supervisor of Banks, the Supervisor of Insurance and Capital Markets, and the Israel Securities Authority and a document of understanding between the three is being drawn up. It is also advisable to cooperate with regulatory authorities abroad."

Fischer called for a further reduction in government intervention in the capital market. As for taxes, he noted, "As part of the income tax reforms, many distortions in the field of tax were removed, concerning investors and various assets. There still remains a difference in taxation between indexed interest rate and unindexed interest rates, and capital gains from indexed and unindexed assets, a distinction that should be removed in the near future." Fischer concluded his speech by saying, "The Israeli capital market has developed impressively in the past 20 years and this has been a central contributor to the strength and soundness of the economy even during times of recent shocks. The Israeli capital market as an integral part of the global capital market, is also one of the engines that have brought the economy to a path of sustainable growth, which is a pivotal objective of macroeconomic policy. Achieving this goal will provide the economy with the necessary sources for dealing with both the economy and society in Israel." (Globes 13.06)

2: ISRAEL MARKET & BUSINESS NEWS

2.1 Answers Corp's WikiAnswers Ranked Second Largest Q&A Site

Answers Corporation, creators of Answers.com, announced that its WikiAnswers site has surpassed the 500,000 question count, and grown its community to over 200,000 members. WikiAnswers is a UGC (User Generated Content) site, a dynamic and growing platform for a community of users asking questions and providing answers. As opposed to many Q&A sites, WikiAnswers uses a "wiki" format to provide each question with a single answer that can be edited, tweaked and improved over time. According to Hitwise, a leading competitive intelligence service, WikiAnswers has become the second largest Q&A site on the web, after Yahoo! Answers, according to data from a custom category of leading Q&A-only websites. Answers Corporation (http://www.answers.com) of New York and Jerusalem, Israel operates the award-winning Answers.com information portal, delivering comprehensive content on over forum topics spanning health, finance, entertainment, business and more. (Answers.com26.06)

2.2 N-Viro International Corporation Announces a Signed Agreement to Dispose Sludge in Israel

Toledo, Ohio's N-Viro International Corp. has entered into a contract with an Israeli firm, Dan-Viro, to operate a state-of-the-art N-Viro designed and patented biosolids stabilization plant (BSP) at Israel's main wastewater treatment plant in Tel Aviv, Israel. Israeli-based Dan-Viro will initially treat a portion of Tel Aviv's biosolids under a recently signed contract. Dan-Viro is a consortium made up of Israeli companies with extensive experience in wastewater treatment and agricultural use of soil amendments. Due to their efforts, coupled with N-Viro's proven biosolids treatment process, N-Viro anticipates the BSP will be a permanent component of Tel Aviv's biosolids management program. N-Viro International Corporation develops and licenses its technology to municipalities and private companies. (N-Viro15.06)

2.3 Zion Oil Announces Results of First Tested Formation in the Ma'anit #1 Well Workover

Zion Oil & Gas of Dallas, Texas and Caesarea, Israel today that its geological and engineering team have completed its analysis of the test results of the first of four zones in the upper Triassic which had been identified as potentially productive. They were selected for testing during the remedial workover and completion operations on the Company's Ma'anit #1 well. The results of the tests indicated that the tested zone is non-productive. Based on this result, it was determined to re-evaluate the well's future, considering the well's mechanical condition and the presence of positive indications of hydrocarbons deeper in the Triassic and closer to the determined hydrocarbon source rock. The Company's technical team is currently evaluating the findings, in order to optimize operations on the next well, the Ma'anit-Rehoboth #2, so that the difficulties encountered in the Ma'anit #1 wildcat well will be avoided and the next well's full potential exploited. The team is preparing recommendations for the company's consideration. When the Company reaches a decision on these matters, an announcement will be made. Zion Oil & Gas explores for oil and gas in Israel, onshore between Tel Aviv and Haifa. In 2005, Zion drilled an exploratory well on its 98,100 acre Ma'anit-Joseph License to a total depth of 15,842 feet. In the event of a commercial discovery, following recovery of certain exploratory costs, Zion intends to donate 6% of its gross revenues from its Israeli petroleum rights to two charitable trusts to be established by Zion, one in Israel and one in the U.S. (Zion18.06)

2.4 CruiseCam International Signs LOI to Support Israeli Licensing and Distribution

Farmington Hills, Michigan's CruiseCam International, a leading developer of vehicle video integrated technology for law enforcement and motor sports application, has signed a letter of intent with Israeli-based distributor Yitzhak Kohavi to pursue an exclusive product service and supply agreement between the parties to produce and supply Mobile Video Recording Systems and subcomponents for the following Israeli market segments: law enforcement and military, public transportation and consumer sectors. As part of the proposal, both parties will work to establish a plan for licensing, distribution and product placement in Israel for Cruisecam's mobile video recording systems and subcomponents, tailored to particular market segments, within the next ninety-days. CruiseCam International, through its two operating subsidiaries, develops and markets integrated, "in-car" camera mount and recording systems for law enforcement, consumer, commercial and transportation applications, as well as for competition racing cars. (Cruisecam18.06)

2.5 ICL Fertilizers Signs Agreements to Sell Additional Potash Quantities to Indian Customers

Tel Aviv's Israel Chemicals announced that ICL Fertilizers, one of its core business segments, has signed new potash supply agreements with two major customers in India. The contracts represent an expansion of the purchase commitments previously made by these customers. The agreements call for the purchase of approximately 1.1 million tons of potash (including options) from ICL Fertilizers during an eleven month period from July 2007 to May 2008. This compares with 900 thousand tons purchased by these customers from ICL under previous contracts. The contracts were signed with a price increase of $50 per ton compared to the previous contracts. The value of the contracts is approximately $300m compared to approximately $200m in the previous contracts. ICL is one of the world's leading fertilizer and specialty chemicals companies. ICL produces approximately a third of the world's bromine and approximately 10% of its potash. ICL is comprised of three core segments: ICL Fertilizers, ICL Industrial Products and ICL Performance Products. Its major production activities are located in Israel, Europe, the US, South America and China, and are supported by major global marketing and logistics networks. ICL benefits from exclusive concessions to extract minerals from Israel's Dead Sea, a vast source of high-quality and low-cost potash, bromine, magnesium chloride and sodium chloride. ICL also mines phosphate rock from Israel's Negev Desert and potash and salt from its mines in Spain and the UK. ICL's (Israel Chemicals Ltd.) shares are traded on the Tel Aviv Stock Exchange (ICL19.06).

2.6 RGIS Gains Additional Strength in Middle East With ISICS Acquisition

Auburn Hills, Michigan's RGIS acquired ISICS Software Systems, the largest inventory company in Israel. This acquisition is part of the RGIS global growth strategy. RGIS established a presence in Israel in 2001 and that this acquisition will accelerate the development in Middle Eastern markets. The goal is to expand RGIS' ability to serve existing customers as well as new customers. ISICS was founded in 1999 and is based in Tel Aviv. They perform inventory services to Israel's leading retail and pharmacy chains. RGIS is the world leader in inventory and retail services with annual revenue of more than $600m. (RGIS18.06)

2.7 Israeli Air Force Awards Pratt & Whitney Materials Management Agreement

Pratt & Whitney, a United Technologies Corp. company, and the Government of Israel - Ministry of Defense on behalf of the Israeli Air Force (IAF), signed an agreement for a Materials Management Program (MMP) to support the IAF's F100-PW-229 powered F-15 and F-16 front line fighters as part of the just-in-time contract between the parties. This marks the first Pratt & Whitney MMP agreement with the Israeli Air Force. Pratt & Whitney's military aftermarket services business offers customized maintenance, material, and fleet management programs that ensure readiness. Pratt & Whitney is the world's only OEMRO business that blends the capabilities of their Original Equipment Manufacturer (OEM) with the flexibility of our Maintenance, Repair & Overhaul (MRO), providing valuable innovative solutions for our products and competitors' products. Pratt & Whitney is a world leader in the design, manufacture and service of aircraft engines, space propulsion systems and industrial gas turbines. United Technologies, based in Hartford, Conn., is a diversified company providing high technology products and services to the global aerospace and commercial building industries. (Pratt & Whitney 21.06)

2.8 Exanet Raises $18 Million in Round of Financing Led by Coral Capital Management

Ra'anana, Israel's Exanet (http://www.exanet.com) announced that it has secured $18m in its recent oversubscribed round of financing. Exanet's current investors include Evergreen Venture Partners, Intel Capital, Microdent, Kodak Polychrome Graphics, CSK Fund (Hitachi) and others. The latest round was led by US fund Coral Capital Management and included QVT Fund, a multi-strategy hedge fund, as well as existing investors. Exanet's clustered NAS solution delivers a new data storage paradigm to address the trends that are driving the future of data centers: virtualization, standardized hardware, and applications demanding the most extreme standards of performance, capacity and high availability. Exanet's software-based open architecture delivers the best price/performance in the industry, dramatically increased utilization and, for the first time, offers a no end-of-life storage solution. Exanet has been adopted by customers ranging from traditional enterprises such as manufacturing and graphic arts to next generation ventures, including telecom, active archiving, digital broadcasting, video surveillance and storage service providers. (Exanet25.06)

2.9 LivePerson to Acquire Kasamba

Headquartered in New York City, LivePerson, a provider of online conversion solutions, announced an agreement to acquire Israel-based Kasamba (http://www.kasamba.com), a leader in live expert advice delivered online via real-time chat to consumers. Under the terms of the agreement, LivePerson will acquire the outstanding common stock of Kasamba and assume all of its outstanding options for total consideration of approximately $40m, comprised of $9m in cash and approximately $31m in stock. The acquisition of Kasamba, combined with the recently announced launch of LivePersonalShoppers.com, will accelerate LivePerson's expansion into the direct-to-consumer market. This purchase underscores LivePerson's commitment to expand its global presence by offering a personalized, human experience to the millions of consumers who are looking for live help online and want expert advice in real time. Kasamba's thousands of experts sell their knowledge via real-time chat to the more than 1 million monthly visitors to Kasamba.com. Kasamba has experts in dozens of categories, including personal counseling and coaching, computer services, education and tutoring, health, business and finance. Currently, Kasamba's business model is based on receiving a portion of the gross expert fees. (LivePerson 25.06)

2.10 ICL to Acquire Supresta, the World's Largest Producer of Phosphorus Flame Retardants

Israel Chemicals, a multinational Israel based fertilizer and specialty chemicals company, announced that it has entered into a definitive agreement to acquire U.S.-based Supresta, the world's largest producer of phosphorus-based flame retardants and other products made from phosphorus. The purchase price is $352m, subject to certain adjustments, mainly working capital. After the acquisition, Supresta will become part of the ICL Industrial Products segment, giving the segment annual revenues of approximately $1.1b. ICL intends to integrate Supresta into ICL Industrial Products to realize operating synergies, including synergies in the purchase of raw materials. The acquisition will diversify ICL Industrial Products' portfolio of flame retardants, enabling it to initiate sales to the polyurethane foam and engineering plastics markets, while also enhancing its geographic marketing reach. In addition, the acquisition will enhance ICL Industrial Products' R&D capabilities through the addition of organo-phosphorus technology and intellectual property towards the development of next-generation products based on phosphorus. ICL Industrial Products produces about a third of the world's elemental bromine and is a leading provider of bromine-based downstream products such as flame retardants, clear brines for the oil and gas exploration industries and water treatment biocides. It also produces magnesia and chlorine-based salts. ICL is one of the world's leading fertilizer and specialty chemicals companies. (ICL25.06)

3: REGIONAL PRIVATE SECTOR NEWS

3.1 Jordanian & Chinese Firms To Set Up Car Manufacturing Plant

On 19 June, Jordan's Ayass Motors signed an agreement with China's Hebei Zhongxing Automobile to set up the first private car assembly and manufacturing plant in Jordan, with a starting capital of $30m. Under the deal, Hebei Zhongxing Automobile and Ayass Motors will begin operating in 2008 with initial production capacity of 4,000 - 6,250 vehicles. Ayass added that annual production of four- and two-wheel-drive vehicles as well as pickups will rise to 12,000 and then to 24,000, targeting Arab and east European markets. The joint venture hopes to manufacture sedans and saloons at a later stage. Around 25% of car parts will be manufactured in Jordan, which will positively reflect on local industries. The plant, to be set up in Um Rasas, south of Amman, will increase its capital to $50m by the end of the project's fifth year, and later raise it to $230m. The Investment Promotion Corporation expects the venture to create more than 17,000 jobs. The deal was sealed on the sidelines of a two-day conference to mull ways of bolstering trade between Chinese businessmen and their Jordanian counterparts. (JT20.06)

3.2 GlobalOptions Group Expands Business in Middle East and Northern Africa

New York, New York's GlobalOptions Group announced that its James Lee Witt Associates unit (JLWA) has formed a multi-year agreement with Kuwait-based International Investors Group Holdings (IGH), to jointly provide emergency planning, crisis management, business continuity planning, training and exercises, and continuity of government services to governments and corporations throughout the Middle East and North Africa (MENA). With IIG's assistance, JLWA will expand their client base in the MENA region with a particular focus on the Gulf Cooperation Council states, comprised of Kuwait, Saudi Arabia, Qatar, United Arab Emirates, Bahrain and Oman. Additionally, JLWA and IIG will extend their scope of services to governments and businesses in Turkey, Syria, Egypt, Lebanon, Jordan, Iraq, Yemen, Sudan, Libya, Algeria, Tunisia and Morocco. GlobalOptions Group is a provider of high-end risk assessment and mitigation services to Fortune 1000 corporations, governmental organizations and high-profile individuals throughout the world. GlobalOptions Group's services currently include risk management and security, investigations and litigation support, and crisis management. (GlobalOptions 19.06)

3.3 ILS to Launch 5th-Generation Satellite for Arabsat

McLean, Virginia's International Launch Services (ILS) has been selected to launch a fifth-generation satellite for Arabsat. ILS will launch the satellite, either Arabsat-5A or BADR-5, in the 2009-2010 timeframe on a Proton Breeze M vehicle from the Baikonur Cosmodrome in Kazakhstan. ILS partner Khrunichev State Research and Production Space Center builds the Proton in Russia. A consortium of EADS Astrium and Thales Alenia Space is building the satellites and is responsible for delivering the satellites in orbit. EADS Astrium will supply the Eurostar E3000 platforms and integrate the satellites. Thales Alenia Space will design and build the communications payloads. ILS has carried out 40 commercial launches on Proton since the joint venture with Khrunichev was formed in 1993. The Proton vehicle is Russia's premier heavy-lift launcher, and has carried out many historic missions in its 42 years of service. Arabsat-5A will have a launch mass of 4,800 kg. The multi-payload satellite will replace Arabsat-2B, which is reaching the end of its service life. Arabsat-5A will provide additional capacity for a comprehensive range of satellite communications services over sub-Saharan Africa, North Africa and the Middle East, and beyond. Backed by the 21-member countries of the Arab League, and with its 30-year heritage of continuous operations, Arabsat offers the Arab world an unrivalled range of satellite-based communications services such as direct-to-home television and radio, telephony, internet and direct broadband access, as well as the provision of VSATs and other interactive services. (ILS17.06)

3.4 Kuwait Oil Company Seeks Alberta Oil Sands Expertise

State-owned Kuwait Oil Co. is looking to enlist the knowledge and expertise of Calgary-based firms to help in the development of its heavy oil reserves with a goal of producing a total of 900,000 bpd by 2020. Output from the proposed development will be on par with Saudi Aramco's Manifa offshore project - billed as the single-largest heavy oil venture in the world. On offer for oil-service firms are term-contracts to assist KOC in the application of new drilling technologies, the provision of rigs, geosciences and sub-surface know-how, compressors and submersible pumps and trained and experienced manpower. Of the total projected heavy oil capacity addition, 78% or nearly 700,000 bpd will be produced from the Lower Fares formation in the north of the country. The remaining volumes will be sourced from the Umm Gudair and Burgan fields in the west and southwest and from KOC's share of production from the Neutral Zone divided equally between Saudi Arabia and Kuwait. The heavy oil has an API (American Petroleum Institute) level of 12-to-17 and is at depths of 700 feet. It is early stages, but they may drill a total of 20,000 wells and also install multiple-sections of in-field pipelines. The KOC official added that a pilot project is due to be tendered soon, with a capacity to produce 50,000 bpd by 2011. Production will be ramped up in stages to 250,000 bpd by 2015 and 900,000 by 2020. (Calgary Herald 15.06)

3.5 Bracewell & Giuliani LLP Opens Office in Dubai

Bracewell & Giuliani LLP announced the opening of its office in Dubai, United Arab Emirates today. The Dubai office will be led by a former senior United States diplomat in residence there. The Dubai office will advise clients on doing business in Dubai and in the other member-states of the United Arab Emirates, including operations in the new Dubai International Financial Centre (DIFC), and on local labor law, commercial and corporate law, arbitration, licensing, litigation, energy and environmental matters in the Arabian Gulf region. Bracewell & Giuliani LLP is among the United States' most prominent law firms. With over lawyers in New York, Connecticut, Texas, Washington DC, Dubai, Kazakhstan and London, they are distinctively positioned to serve clients concentrated in the energy and financial services sectors worldwide. In 2005, former New York City mayor Rudolph W. Giuliani joined the firm as a senior partner. (Bracewell & Giuliani 25.06)

3.6 Merrill Lynch Opens Offices in Dubai International Financial Center

On 20 June, Merrill Lynch officially opened its new regional headquarters at the Dubai International Financial Center (DIFC). Merrill Lynch was awarded a full banking license by the Dubai Financial Services Authority (DFSA) in January 2007. Merrill Lynch's presence in Dubai spans some 35 years. Merrill Lynch has had a presence in the Middle East for over 45 years and has held a license from the DIFC with regards to its Global Private Client business since 2005. In September of last year, Merrill Lynch also announced that it had launched the Dubai Investible Index (DII), the first investible index designed to track stocks listed on the Dubai International Financial Exchange. In May 2007, Merrill Lynch announced it had launched its Direct Market Access platform on the Dubai International Financial Exchange (DIFX) and had received membership of the Dubai Mercantile Exchange this month. Additionally this year, the firm announced a partnership with the Arab International Women's Forum. Established in 2001 as the first not-for-profit organization of its kind, AIWF has brought together Arab and international business and professional women from over 40 countries, showcasing their development, promoting cultural diversity and creating greater public awareness of women's success and prospects in the Arab world. (Merrill Lynch 20.06)

3.7 Merrill Lynch Receives License To Operate in KSA

Merrill Lynch announced it has received a banking license from the Capital Markets Authority to operate in the Kingdom of Saudi Arabia. The license will allow Merrill Lynch to offer its domestic and global clients a full suite of global markets, investment banking products and wealth management solutions, including M&A advisory, structured finance, equity and debt capital market solutions. Merrill Lynch is one of the world's leading wealth management, capital markets and advisory companies, with offices in 37 countries and territories and total client assets of approximately $1.6 trillion. As an investment bank, it is a leading global trader and underwriter of securities and derivatives across a broad range of asset classes and serves as a strategic advisor to corporations, governments, institutions and individuals worldwide. (Al Bawaba 19.06)

3.8 Alloptic Partners with Saudi Leader in Airport & Industrial Safety & Security Systems

Livermore, California's Alloptic, a global leader in the development of Passive Optical Network (PON) technology, is partnering with Saudi Arabia's SOFAB Industries to provide optical communications access equipment for security and Smart City applications. SOFAB, a recognized global leader in security applications for air and sea ports, border crossing, and industrial and government complexes, will utilize Alloptic's GEPON access solution to expand their solutions portfolio in the GCC countries of the Middle East and throughout Asia. SOFAB Industries, established in 1948, is based in Jeddah, KSA and is a part of the Shamsan Alsohaibi Group, the premier supplier of industrial and electrical solutions in the region. SOFAB is the group's Division for Marketing, Distribution and Sales, encompassing a range of security, industrial, and telecommunications sectors throughout the Middle East and Asia. (Alloptic14.06)

3.9 Gap Expands International Presence with Franchise Agreements in Saudi Arabia & Turkey

San Francisco, California's Gap Inc. announced separate franchise agreements with retailers in Saudi Arabia and Turkey to introduce the Gap and Banana Republic brands to those markets. Over the next five years, Gap Inc.'s franchise partners - Fawaz Alhokair Group (Saudi Arabia) and Fiba Holding A.S. (Turkey) - plan to open a combined total of approximately 90 Gap stores and 20 Banana Republic stores throughout Saudi Arabia and Turkey. The first Gap stores will open in each country by the end of this year, and the first Banana Republic stores are expected to open in each country by spring 2008. All stores are expected to be open by 2012. Gap Inc. will leverage each franchise partner's local operational expertise, and will provide access to Gap and Banana Republic's clothing and accessories. In addition, each partner will hold exclusive rights to operate Gap and Banana Republic stores in their respective countries, will purchase merchandise from Gap Inc. or suppliers designated by Gap Inc., and must adhere to Gap Inc.'s quality standards to preserve the reputation of the Gap and Banana Republic brands. This announcement follows previously-announced franchise agreements to open Gap and Banana Republic stores in Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates. (Gap13.06)

3.10 WWE Signs Deals in Greece & Turkey

Stamford, Connecticut based World Wrestling Entertainment announced new breakthrough TV deals in Greece and Turkey. The deals, across Free and Pay TV represent 196 hours of original WWE programming to key new markets. In Greece, Multichoice Hellas will broadcast "WWE RAW" on Supersport, the only premium 24-hour sports television service available in Greece. Supersport is available terrestrially and via satellite on Nova, a DTH satellite service owned and operated by Multichoice Hellas. In Turkey, Digiturk, the largest and only digital DTH satellite network operator, will broadcast "WWE RAW" on S'NEK. Digiturk offers 128 television, radio and interactive channels, including access to premium blockbuster movies and sports exhibitions. World Wrestling Entertainment is an integrated media and entertainment company. (WWE21.06)

3.11 Cedar Point's SAFARI C(Cubed) to be Deployed by Cablenet in Cyprus

Derry, New Hampshire's Cedar Point Communications, a leader in integrated VoIP switching technologies for the service provider and enterprise telecommunications industries, and Cablenet Communication Systems, the leading cable system operator in Cyprus, announced that Cablenet has selected Cedar Point's SAFARI C(Cubed) Media Switching System for its launch of VoIP services. Cablenet, Cedar Point's third announced customer in the EMEA market, plans to use SAFARI C(Cubed) to offer high-quality, highly-reliable voice services throughout its market area, with an initial focus on residential subscribers. Cablenet anticipates passing 80,000 homes with voice services by the end of 2007 and 150,000 homes by the end of 2008. The company is targeting 50,000 voice subscribers with the next three years. B.A.S.E. Technologies, a Cedar Point reseller and support partner for the EMEA market, assisted Cedar Point in the completion of the agreement. (Cedar Point 21.06)

4: ISRAEL MACRO-DEVELOPMENTS

4.1 Intel & Teva Take On 85 Bedouin Engineers

Globes reported that 85 Bedouin engineers will be hired by Teva Pharmaceutical Industries and Intel Corporation. Intel recently reported a shortfall of 800 air conditioning and chemical engineers for its new fab due to open next year in Kiryat Gat. Under a special program, costing an estimated $1.2m and jointly promoted by the Office of the Vice Premier and the Ministry of Industry, Trade & Labor, 85 Bedouin engineers, 19 of them women, have been receiving specialist training in air conditioning systems and chemistry, with the aim of finding them work in high-tech companies, such as Teva and Intel. The engineers have been training in their respective specialties at a vocational training college in Beer Sheva for the past eighteen months. They have also been receiving extra tuition in math and English in order to improve their ability to work with global markets. The engineers have qualified for full scholarships for their entire period of training, with each participant receiving cost reimbursements and transportation to and from their respective villages in the Negev. (Globes 25.06)

4.2 Eleven Firms Qualify For Dead-Red Canal

Eleven firms have qualified to submit a feasibility study to build a canal which would save the slowly evaporating Dead Sea by replenishing it with water from the Red Sea. The 25-year project to build a canal linking the two seas would also solve a severe water shortage in Israel, Jordan and the Palestinian territories. Jordanian Minister of Water and Irrigation Alem announced that the 11 firms would be invited to carry out a technical and environmental feasibility study for the Red Sea-Dead Sea Canal. At the end of this month, the World Bank will ask these firms to submit their offers. The firms have until 15 September to present their projects. He did not identify the companies. Once the proposals are in hand, representatives from Israel, Jordan and the Palestinian Authority will meet in Paris with the World Bank to examine the offers and announce two winners. Israel, Jordan and the Palestinian Authority agreed in December to launch a feasibility study for the massive project, which has been on the drawing board for years but has stalled amid regional tensions. The Dead Sea is the world's lowest and most saline body of water. Its level has been dropping by a meter annually. France, the Netherlands, Japan and the United States have committed $9m to finance the two-year study estimated to cost around $15.5m. It will be managed by the World Bank. Once desalination plants are in place, it would eventually ease the region's acute water shortage by providing up to 850 million cubic meters of freshwater to Jordan, Israel and the Palestinian territories. As one of the 10 most water impoverished countries in the world, Jordan's water deficit exceeds 500 million cubic meters a year. (AFP26.06)

5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Explosion in Popularity Of Credit Cards in The Middle East

The total number of credit cards in the Middle East and North Africa (MENA) region jumped by 24% in 2006 to 6.23 million, according to new research from Lafferty Group, a UK-based retail banking and cards research house. Lafferty Group forecasts that the number of credit cards in circulation will rise by a further 51% by 2008, dwarfing growth in most other regions of the world. Of the 12 markets analyzed by Lafferty Group, Jordan saw the highest growth, with credit card numbers jumping by 61% to almost 275,000. Tunisia had the second highest growth, up 55% to 55,000. The credit cards industry is very profitable to banks in the MENA region. Lafferty Group calculates that the total pre-tax profit of the credit card industry in the region was $300m in 2006. It estimates that this figure will grow by 22% between 2006 and 2008. Countries within the Gulf Cooperation Council (GCC) are the most attractive to credit card issuers, because of the wealth of their inhabitants and their propensity to spend on credit cards. The five GCC markets alone generated $235m in pre-tax profits last year. Countries in North Africa and the Levant region are less profitable, but still highly attractive with strong long-term growth potential. According to Lafferty Group's analysis, Saudi Arabia is the most profitable market in the region, both in terms of overall profitability and profit per card, at $107m and $95, respectively. At the other end of the scale was Morocco in terms of overall profits, at $4m, and Egypt in terms of profit per card, at $20. (Mena Report 18.06)

5.2 Kuwait First in List of Investors In Jordan

At $6b, Kuwait ranks first among other countries investing in the Jordan's various economic sectors. The Kuwait Jordan Holding Company, which was launched in 2004 during a visit by King Abdullah to Kuwait, with a capital totaling $122m, announced recently that it was conducting studies to establish a tourist resort and a commercial centre at the Dead Sea at a cost reaching up to $200m. The company, the largest Kuwaiti investor group in the country so far, will also build a $230m cement factory and a slaughter- house at an estimated cost of $30m. In January 2003, MTC, another Kuwaiti business group, closed a $420m deal and acquired most of Fastlink company in Jordan. Other Kuwaiti investments include those launched in the Aqaba Special Economic Zone through the National Real Estate Company at a capital of over $113m. Kuwait's Sultan Center also contributed to the rise of the Kuwaiti investments in the Kingdom through the purchase of Safeway supermarket. Alshaya is another Kuwait investor that contributed to the building of Starbuck's cafes in the Kingdom. Among recent Kuwaiti investors is Noor Financial Investment which is part of the consortium that has recently won a tender for expanding Queen Alia International Airport. So far, a total of $217.4m worth of Kuwaiti investments have benefited from the Jordan Investment Promotion Law. The law offers tax exemptions and other benefits to foreign investments. This is in addition to other Kuwaiti investments in the sectors of construction, tourism, services, banking and insurance. (Petra17.06)

5.3 GCC Healthcare Costs Soaring

The direct healthcare costs in the GCC region are expected to increase fivefold by 2025 to $60b from $12b now, with health risk factors, ageing, population growth and medical inflation contributing to the cost escalation. The GCC Healthcare 2025 report by McKinsey & Co Inc on Healthcare in the GCC – Challenges and Opportunities also cited the cost burden on cardiology will rise from $1.5b now to $15b by 2025. By 2025, cardiology will make for 24% of the healthcare costs followed by infectious diseases, maternal and perinatal conditions, digestive diseases, genitourinal disorders, cancer and other diseases. The number of outpatient and inpatient visits is expected to grow 350% in the UAE, Saudi Arabia and Kuwait; 260% in Bahrain; and 310% in Oman. However, the GCC region has a shortage of nursing staff with only 4.2 nurses per 1,000 population in the UAE; 3 per 1,000 in Saudi Arabia; 4.3 in Bahrain; and 3.5 in Oman. The GCC average of 4 nurses per 1,000 people is nearly half of that in OECD countries, which have an average of 9.4. Of the nursing staff, only 3% are nationals in the UAE while the figures are higher in Bahrain (60%) and Oman (56%). Governments in the region are making concerted efforts to address the challenges and implement a holistic healthcare system, according to McKinsey & Co. The Ministries of Health are increasingly focusing on policy making. The private sector will also have an increasing role in healthcare delivery. (TradeArabia 19.06)

5.4 Qatar Takes Lead in Global LNG Exports

Qatar has reportedly surpassed Malaysia and Indonesia to become the world's biggest exporter of liquefied natural gas last year, according to Italian oil and gas company Eni. The Middle Eastern country supplied 15% of global LNG exports in 2006 and its market share is to get bigger as new projects come onstream, according to Eni's seventh World Oil and Gas Review. Qatar exported 31.09b cubic meters of LNG last year, compared to 29.57 bcm by Indonesia and 28.04 bcm from Malaysia, Eni said. Algeria was in fourth place with 24.19 bcm out of a total global figure of 210.52 bcm. LNG is natural gas cooled into liquid form so that it can be shipped to anywhere in the world on specially designed tankers. (Eni20.06)

5.5 UAE Preparing To Allow Limited Foreign Ownership of Local Companies

The United Arab Emirates is preparing a law that would open the economy to greater foreign ownership, ending decades of restrictions that ensured local corporate dominance. Sheikha Lubna al-Qasimi, the economy and planning minister, said a long-awaited companies' law would open some areas within the services sector to full foreign ownership. The law would also allow greater foreign participation in other areas, crucially in the fast-growing financial services industry, where outside investors are limited to minority stakes. The UAE has been successful in attracting foreign investment. However, business surveys by groups such as the World Bank have identified the UAE's legal requirements for a local partner as an impediment to higher levels of investment. The draft law is expected to go to the cabinet for approval by the end of the summer, and could come into effect by the end of the year, Sheikha Lubna said. Foreign investors can own 49% of most businesses in the UAE. Some financial services, such as insurance, are capped lower at 25%. Foreign investors can only retain full control by operating in government-run free zones, most of which are located in Dubai. The UAE in 2005 attracted about $12n, or about a third of the $34b in foreign investment across the Middle East. But talks over a US-UAE free-trade agreement faltered earlier this year, with US trade officials citing "investment issues", such as ownership and access to each others' markets, as being behind the failure to reach agreement. (FT11.06)

5.6 Minister Lubna Said UAE Inflation Reached 9.3% Last Year

Inflation in the UAE last year was 9.3%, aggravated by high house rents, a weak US dollar and the fuel price rise of 2005, Minister of Economy Shaikha Lubna Al Qasimi said on 20 June. The rapid population increase has stretched local supplies of consumer goods and housing. The population increased from 2.4 million in 1995 to 4.1 million in 2005. The number of residential and commercial units increased 95% to 789,646 in the same period. But a rush by non-residents to buy homes, taking advantage of the new freehold ownership laws, reduced the number of available housing units in the rental market. The ministry said the increase in petroleum product prices by 31.5% in 2005 had a direct impact on the inflation index. Shaikha Lubna said the government is keen to check inflation growth through a number of measures, including consumer protection and by encouraging market competition. UAE Central Bank Governor Sultan Bin Nasser Al Suwaidi early this month ruled out any change in the dirham-dollar peg in "the foreseeable future." (GN20.06)

5.7 Dubai-Korea Non-Oil Trade Reaches $1.859 Billion in 2006

Non-oil trade between Dubai and South Korea registered a healthy 8.75% expansion during 2006 compared to the year before, testifying to the long and distinguished economic relations between the two sides. According to data compiled by the Statistics Department of Dubai World, Dubai-South Korea non-oil trade last year was valued at $1.859b, compared to $1.71b during 2005. Of this, Dubai's exports to Korea increased by 21.75% – from $41m to $50.3m. It was the highest export growth rate recorded for Dubai in bilateral trade with the Far Eastern nation. Re-exports recorded a rise of 5.31% – from $4.6m to $17.83m during 2005-06. Imports from South Korea, grew 8.46% during the same period, reaching $1.788b last year compared to $1.65b in the previous year. The Statistics Department said that the expanding trade was a natural result of the dynamism that distinguishes economic relations between the UAE and South Korea, which overall jumped almost 100% over the past three years. South Korean companies are engaged in massive projects in Dubai and the rest of the UAE. (Mena Report 02.06)

The Saudi Arabian Monetary Agency (Sama) announced that Saudi Arabia's annual inflation rate fell to 2.2% in Q1/07, its first decline in several months. The report showed that in February the inflation stood at 3% compared to 2.98% in January due mainly to rises in prices of food and beverages. Inflation has historically been very low in Saudi Arabia. Since the end of the first oil boom in the 1970s, annual inflation has exceeded 1% in only three years — 1990, 1991 and 1995. For the first two of these years, prices were pushed up by the first Gulf war. Inflation jumped in 1995 as concerns about a widening budget deficit stemming from low oil prices led the government to sharply increase the domestic retail price of fuel, electricity and various related products. Inflation is concentrated in three main areas - poor domestic growing conditions and higher charges for some imported products increased food prices, sharply high gold prices lifted the cost of jewelry and rents had begun to rise by the end of the year. Inflation had begun to emerge in Saudi Arabia after more than a decade in which overall prices barely moved. It was due to a boom fuelled by record oil revenues and a slide against other currencies. The annual consumer inflation climbed to 2.9% in December 2006, up from 1.2% in December 2005 and 0.6% at the end of 2004, lifting the average for the year to 2.3%, the highest since 1995. Excluding a one-time gasoline price cut, annual inflation was running at 4.3% in December. The fall of the riyal against the currencies of most of Saudi Arabia's main sources of imports will add to inflation this year by raising the domestic price of goods from these countries. Since the end of 2005 the riyal has slipped against currencies of seven of the Kingdom's eight largest sources of imports (which account for around 75% of the total). It has fallen by 11% against euro, the currency of Saudi Arabia's largest supplier of imports. (Sama17.06)

5.9 Expatriates Remit $26.67 Billion from Saudi Arabia Annually

According to statistics recently published in Saudi Arabia, seven million expatriate workers in the Kingdom send home roughly $26.67b, an average of $4,000 per worker each year. But some economic analysts believe that the figure is exaggerated. They cite a report released earlier this year by the Arab Monetary Fund which said expatriate workers in Saudi Arabia have sent home about $14b in 2006, ranking the kingdom second only to the US. Remittances from Saudi Arabia represented more than half of those made by foreign workers in the GCC states, according to one report. The Riyadh Chamber of Commerce and industry (RCCI) reacted by saying that the increase of foreign workers remittances are attributed to the involving of workers in activities other than their main jobs or the jobs they were recruited for. Researchers in foreign worker affairs in Saudi Arabia believe that commercial cover-up is the key factor behind the increase in worker remittances. They said that there are many foreign workers who are illegally involved in businesses in the name of Saudis. The Saudi Ministry of Commerce launches ongoing campaigns to eliminate commercial cover-up and illegal business operations by foreign workers. Economists noted that in order to put an end to commercial cover-up, Saudi Arabia needs to employee only Saudis in certain businesses, rationalize recruitment of foreign workers, unite the recruitment agencies and give the commercial cover-up committees the authority to close down any suspected businesses. They said that providing foreign workers opportunities to invest their savings in Saudi Arabia will ensure that the money remains in the domestic economy. (TradeArabia24.06)

5.10 Saudi to Spend $51 Billion on Power Generation

On 20 June, the Saudi Electricity Company (SEC) said it would invest $51b to increase generating capacity by 60% by 2015 to meet surging power demand. The company would invest around $1.86b a year of its own cash and raise the rest in either loans or Islamic bonds. The first Islamic bonds, or sukuk, will be sold this year to raise at least $500,000 riyals. Saudi Electricity expects private producers to account for as much as 30% of the capacity rise. Though SEC did not say what fuels the new plants would use, they did dismiss coal. With record oil revenues driving economic growth, the Saudi demand for power is growing at 7% a year. The company needs to increase to 54,000 megawatts by 2015 from 34,000mw at the end of 2006. The firm has added 1,500mw this year, and plans to add 2,000mw in 2008 and 6,000mw in the following two years. SEC will grant private operators build-operate-own (BOO) contracts for a 1,600mw power plant in the Red Sea city of Rabigh in 2008 and for a 2,500mw plant in the capital Riyadh which is expected to start production in 2009, Al Barrak said. Another BOO contract will soon be finalized for a 1,000mw power plant in Ras Al Zour, where state-owned mining firm Maaden is leading a large industrial project. To avoid blackouts like those last year, the company is urging industrial users to change working hours to non-peak periods. (TradeArabia21.06)

5.11 Phoenicia Group & CapRock Communications Enter Strategic Alliance to Tap Libya VSAT Market

Phoenicia Group, a leading U.S.-Libyan diversified business and consultancy group, announced a strategic alliance with CapRock Communications to provide end-to-end VSAT connectivity products and solutions to the oil and gas industry in Libya. The partnership agreement, signed in mid-June between Phoenicia Group affiliate Al-Waha IT & Telecommunications and Houston-based CapRock Communications, comprises the deployment of onshore and offshore VSAT terminals to support exploration programs of oil and gas majors prospecting in the country, and will include 24X7 network monitoring, technical support, and provisioning. Phoenicia Group, through its affiliate Al-Waha IT & Telecommunications, is the sole licensed private satellite Internet and telecommunications provider in Libya and offers military, government, and corporate clients in Libya a range of services, including VSAT, IT Consultancy, Disaster Management, VHF&HF, Microwave, Security, Wireless, and VOIP solutions. Satellite internet uptake in Libya is on the rise, due to limited and expensive internet connectivity and infrastructure, download bandwidth restrictions on broadband internet connections, and slow speeds. It is closely regulated by the GPTC, the government telecommunications body, which heavily fines companies using VSATs installed by unlicensed parties, and which offers its own newly-launched VSAT service, based on the aging DVB-RCS and Nera technology. International companies and expatriates in Libya should be wary to practice due diligence and be wary of unlicensed parties who claim they offer satellite Internet and telecommunications services, as contracting with unlicensed parties results in fines and other legal consequences. GPC Decision 196/2004, an executive decree by Libya's General People's Committee, makes it illegal for unlicensed foreign or local companies to offer VSAT and communications solutions in Libya. (Phoenicia Group 19.06)

5.12 US House Panel Approves Package For Pakistan

A US House of Representatives Committee has approved a bill to finance foreign aid for next year that also includes a $752m package for Pakistan. The foreign aid bill for fiscal 2008, beginning October 1, will now advance to approval stage by the two chambers of US Congress. It will now go to the full House for passage and the Senate will pass its own version and the two are to be eventually reconciled. The approved package for Pakistan totals $752.1m, including assistance in economic and military fields. The bill approved by the House Appropriations Committee also includes assistance for other countries. Pakistan is a major ally in the US-led fight against terrorism, having played a key role in combating terrorists along Pakistan-Afghanistan border. The two countries agreed on a five-year assistance package in the year 2003 during Pakistani President Musharraf's visit to the United States when President Bush pledged wide-ranging relations with the key South Asian ally. The United States also announced recently to extend cooperation for economic development in Pakistan's federally administered tribal areas. (BR13.06)

6: TURKISH & CYPRIOT DEVELOPMENTS:

6.1 Turkey's Foreign Trade Share of GNP Doubled In the Last 14 Years

Between 1992 and 2005 the share of foreign trade of Turkey's Gross National Product (GNP) increased by 193%. Today the most pressing issue for Turkish foreign trade is increasing foreign debt. Turkey's foreign trade share of its GNP, which was 15.9% in 1992, increased to 30.7% in 2005.

The most important export markets for Turkey are OECD countries and the member states of the European Union. Germany, the United States, Italy, the United Kingdom and France are among the most important trade partners of Turkey. The most significant export sectors are textile and ready made clothing in addition to iron and steel, machine production, agriculture, mining, automotive and electronics. Decreasing value of euro in 2000 and increasing oil prices have negatively affected exporters. However, Turkey exports in 2000 increased by 4.4% to $27.8b. After the economic crisis of February 2001, companies inclined toward exporting more and total numbers increased by 12.8% to $31.3b. In 2006, exports increased by 16.3% to $85.5b compared to the previous year. By the end of April 2007, Turkey's yearly exports increased to $91.6b.

Decreasing unit labor cost, increasing labor productivity and accelerating production are the most important factors for Turkey's increasing export volume. However, one factor that increases the numbers of exports is that imported goods are being used to produce exported goods. Hence, the profitability of Turkish exports is considerably low when compared to the export revenues because the country's production of export goods is dependent on imports.

Data from the Turkish Statistical Institute (TUIK) indicate that Turkey's imports decreased to $41.3b due to the economic crisis in 2001. However, by 2006, the volume of the imports increased to $138.2b. By the end of April, the annual figure for exports was $143.8b. As imports increased more than the exports, Turkey's foreign trade deficit kept on increasing each year. As a result of the export increasing policies, foreign trade deficit for April was lower than in Q1/07, with $52.24b. The percentage of the exports, when compared to imports, stood at 63.7%.

According to estimates, Turkey's foreign trade volume will exceed $250b by 2008. Turkey, being the 24th largest exporter worldwide according to the 2003 figures, became an open economy as a result of the liberal economy policies of the 1980s. The major causes of the situation were the subsidization of exports, permitting free circulation of foreign capital and the removal of controls on foreign currency and exchanges. In 1995, Turkey became a member of the World Trade Organization (WTO) and a year later signed a Customs Union Agreement with the EU. As a result of these developments, Turkey started to converge with the global economy. In April 2007, Turkey's foreign trade reached the highest volume in the past six years with $235.44b. (Various20.06)

6.2 Turkey To Host Meeting Of World's Poor Countries

Turkey, which is exerting efforts to secure temporary membership in the UN Security Council in 2009-2010, will try to prove its commitment and potential to contribute to efforts to resolve global problems by hosting a meeting of the ministers of 50 the Least Developed Countries (LDCs) this July. The ministers of some 50 LDCs will hold a meeting in Istanbul on July 9-11 to reach a common platform for combating problems of fostering economic growth. Representatives from the United Nations Development Program (UNDP) will also participate in the talks. The ministerial meeting will basically discuss the possible ways and means to reach a consensus on various issues concerning benefiting from international trade negotiations and addressing the problems that are hindering the development processes of the LDCs. Agriculture, improvements in trade and ways to attract foreign investment will be high on the agenda of the meeting, whose general theme is globalization and development. The meeting will try to draw attention to the marginalization of LDCs in the global economy, highlight the need for beneficial integration of LDCs in the global economy as a prerequisite for sustainable development and promote cooperation between LDCs and developing countries - in particular with Turkey. (Zaman20.06)

6.3 Turkey's Chance to Take Part in The $1.3 Trillion Drug Market

With global sales of pharmaceuticals expected to double to $1.3 trillion by 2020, Turkey is forecast to offer one of the largest markets of all countries. Ageing populations, rising levels of obesity and a surge in demand from emerging markets will drive the increase, according to a PricewaterhouseCoopers (PwC) report. Turkey will be among the top ten countries in the global pharmaceutical market in 2020, according to PwC's "Pharmaceutical sector in 2020: Vision: ‘What kind of a path will you follow." It stated that seven emerging economies - Brazil, China, India, Indonesia, Mexico, Russia and Turkey - could account for one-fifth of global drug revenues by 2020, up from just 8% in 2004. Turkey is to become the most preferred address for many pharmaceutical giants that are looking for lower production and Research and Development (R&D) costs. However, Turkey has some homework to do in order to not miss out on the opportunity knocking on the door. Intellectual property rights reforms are needed along with transparency in government reimbursement of prescription drug purchases to consumers. Licensing processes also need to be shortened. The Turkish market, already with a volume of $9.9b, is a point of focus for pharmaceutical companies. Last year 14 out of the country's 20 pharmaceutical giants, mostly generic drug manufacturers, became part of the foreign capital via company mergers and acquisitions. However, foreign companies are still hesitant to make R&D investments in Turkey. That is due to Turkey's slowness in allowing pharmaceuticals to enter the market. The licensing process in Turkey takes nearly three years, while it only takes six months in Europe. Further, the limited time to procure a patent may run out during that waiting period, which means that the company would bear the risk of making no profit. Investors are also discouraged by the fact that they do not know whether their products will be included in the government prescription drug reimbursements or not. All foreign investors are waiting for an extensive revision of pharmaceutical policies in order to take a more active role in Turkey's pharmaceutical market. (Various13.06)

6.4 Turkey's Ministry of Finance Launches Five-Year Plan To Tackle Informal Economy

Turkey's Ministry of Finance has prepared a 5-year plan to lower the informal economy by 2% each year. Applying the 15 steps planned by the ministry will help to decrease informal economy. The steps include, among others, establishing a documentation system, reducing tax rates, and widening tax base by limiting exemptions and dispensations as much as possible. These steps also include limiting the cash economy, decreasing bureaucratic transactions, beginning to use risk-based audit system and reevaluating reconciliation establishments. The strategy plan of the Ministry of Finance, which covers years between 2008 and 2012, identifies unregistered economy as disguised economy. Informal economic activities reduce public income, form an unfair tax system and create unfair competition circumstances. They also lead to incorrect statistics, direct the sources to unproductive areas and cause degeneration of moral values, said the ministry. The Audit Coordination Board will direct the "The Fight Against Unregistered Economy" project (KADEM). Within the framework of the project informal economy and the amounts involved in it will be identified. Unregistered business ratings of each sector will then be compared with the informal economy of the country. After confirming the current state, the precautions will begin to be implemented in order to tackle the problem. Unregistered ratings have fallen from 33.1% in 1998 to 25.5%. (REFERANS19.06)

7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Israel Marks 17th of Tammuz & Begins the "Three Weeks" Mourning Period

On Tuesday, 3 July, Israel and world Jewry will mark the sunrise to sunset fast of the 17th of Tammuz. That day is a particularly difficult date in Jewish history. In the First Temple Era, the priests in stopped offering the daily sacrifice on this day due to the shortage of sheep during the Babylonian siege. The next year (586 BCE), the walls of Jerusalem were breached after many months of siege by Nebuchadnezzar and his Babylonian forces. On the same day during the Jewish Great Revolt against Roman rule in 70 CE, Titus also breached the walls of Jerusalem. From that day for the following three weeks, a semi-mourning period is observed in commemoration of the destruction of the Holy Temple in Jerusalem and other calamities that befell the Jewish people. The "Three Weeks" end on the 24 hour fast day observed on the 9th of Av (24 July). During the Three Weeks, various aspects of mourning are observed. Observant Jews minimize joy and celebration. For example, no weddings are held, one refrains from listening to music, public celebrations are avoided, especially those which involve singing, dancing and live musical accompaniment.

7.2 Shimon Peres Elected Ninth President of The State Of Israel

On 13 June, Vice Premier Shimon Peres was elected Israel's ninth president, capping a six-decade political career in which he has held most every senior government post. He will be sworn into office on 15 July for a seven-year term, replacing President Katsav. With the announcement of his election for president, Peres ceased to be a Knesset member, after 48 consecutive years and is no longer vice premier. Peres won 86 votes in a second-round ballot, after his two rivals in the race threw their support to him. In the first round, he fell three votes shy of the 61 needed to clinch the presidency. After his election, Peres went to the Western Wall and then to the home of Shas leader Rabbi Ovadia Yosef, who had prevented his election in 2000 and made it happen on 13 June. Peres thanked Yosef for Shas' support. Peres - born Szymon Perski on August 2, 1923 – later visited the grave of Ben-Gurion. Until Peres enters office in a month's time, Dalia Itzik will continue serving as acting president. Despite Peres' record as a Nobel laureate, former prime minister, defense minister, protégé of Ben-Gurion and founder of Israel's nuclear program, much of his political legacy was still riding on the vote, following a string of electoral defeats going back decades. Peres is also responsible for the Oslo accords, which brought the PLO from Tunis into Judea, Samaria and the Gaza Strip.

*REGIONAL:

7.3 Saudis Send $1.3 Billion Up In Smoke

Around six million people in Saudi Arabia spend $1.3b annually on cigarettes, smoking around 15 billion cigarettes each year. According to recent WHO statistics, some 22% of Saudis smoke cigarettes. Of these smokers, 25% of them suffering from diabetes and 15 to 20% suffer from high blood pressure. A single Saudi on an average smokes 2,130 cigarettes in a year. About 50% of Saudis suffer from high cholesterol levels in blood and 36% from obesity. The supervisor of the Anti-Smoking Program at the Saudi Health Ministry estimates there is a staggering 600,000 Saudi women smokers, with many of these being teenagers. The Kingdom is also ranked 23rd among the largest tobacco consuming countries in the world, the report said. (TradeArabia 16.06)

8: ISRAEL LIFE SCIENCE NEWS

8.1 Frost & Sullivan Observes Israel Biomed Industry Growing Fast

In a recently released report on Israel's biomedical industry, Frost & Sullivan observed that "Israel has developed a large biomedical industry (medical devices, pharmaceuticals, and biotechnology) and it is a global leader in terms of innovation. This can be seen in the huge number of patents registered in Israel, the largest number of patents per capita in world for medical devices, and the fourth largest number in biopharmaceuticals. Israel is one of the top 20 countries in spending per capita in the field." Frost & Sullivan adds that the past decade has been especially fertile for Israel's biomedical industry. During this period, 80% of the currently operating life sciences companies in Israel were founded. The medical devices sector is especially thriving, accounting for 54% of the life sciences industry and attracting the bulk of biomedical venture capital investment. From an international perspective, Israel's biomedical industry is young: 20% of companies are still in the clinical trials stage. Frost & Sullivan says that most of Israel's pharmaceuticals industry is in generics, lead by Teva Pharmaceutical Industries. The report counted more than 100 other pharmaceutical companies. Spending on drugs amounts to $300m annually, with 60% of products imported. (Globes 14.06)

8.2 Pluristem's PLX Cells Demonstrate Potential to Treat Parkinson's Disease

Pluristem Life Systems announced that Pluristem's PLacenta eXpanded (PLX) cells have been demonstrated in vitro to have properties that the Company believes gives these cells the potential to treat Parkinson's Disease (PD). PLX cells are Pluristem's placental-derived mesenchymal stem cells (MSCs) that have been expanded in the Company's proprietary PluriX 3-D bioreactor. The in vitro assay demonstrated that Pluristem's PLX cells can be differentiated into dopaminergic neurons. These neurons were found to have properties favorable to cells, which are known to be helpful in treating PD. These properties include the expression of tyrosine hydroxylase, and the finding of elevated nurr1 mRNA levels. Additionally, these neurons were found to secrete favorable neurotrophic factors such as GDNF, BDNF, IGF-1, and astrocytes markers such as S-100-b, GLUL, and GFAP.

Haifa, Israel's Pluristem Life Systems (http://www.pluristem.com) is dedicated to the commercialization of non-personalized (allogeneic) stem cell therapy products for the treatment of numerous severe degenerative, malignant and autoimmune disorders. The Company's first planned product, PLX-I, targets a $2b market and is intended to resolve the global shortfall of matched tissue for bone marrow transplantation (BMT) by improving the engraftment of hematopoietic stem cells (HSCs) contained in umbilical cord blood (CB). Pluristem's products are derived from mesenchymal stem cells (MSCs) obtained from the placenta and expanded in the Company's proprietary PluriX 3D bioreactor that imitates the natural microstructure of bone marrow and does not require supplemental growth factors, cytokines or other exogenous materials. Pluristem believes the resultant expanded cells, termed PLX cells, are multipotent and able to differentiate into a variety of cell types as well as being immune-privileged to protect the recipient from immunological reactions that often accompanies transplantation. (Pluristem 14.06)

8.3 Can-Fite Proceeds with Development of Third Drug

Can-Fite BioPharma proceeds with the development of its third drug CF502; this is in addition to CF101, which is currently in clinical trials and CF102, which is in preclinical phases. The chemical structure of CF502 differs from that of the Company's first two drugs CF101 and CF102, and is characterized by higher affinity and selectivity to the A3 adenosine receptor, which is targeted by the Can-Fite's drugs. The drug attacks inflammatory cells and leads to programmed cell death (apoptosis) and suppression of the inflammatory process. Can-Fite is using human cells to investigate the effects and mechanism of action of CF502. The Company is currently finalizing the development of CF502 synthesis process, before entering preclinical and clinical development phases. Can-Fite will present in-vitro data showing that CF502 specifically targets inflammatory cells and does not affect healthy cells, and will also present the drug's molecular mechanism of action. In addition in vivo data showing marked anti-inflammatory effects of CF502 will be reported. The Company will also present new data on the expression of A3 adenosine receptor in various autoimmune diseases. High expression of this receptor is directly correlated with response of inflammatory cells to this drug. Petah Tikva, Israel's Can-Fite Biopharma (http://www.canfite.com) is a public company traded on the Tel Aviv Stock Exchange. The Company, which commenced business activity in 2000, focuses on the development of molecule-based drugs that inhibit the development of cancer or inflammatory cells. (Can-Fite14.06)

8.4 Oramed Signs With Encorium Group To Commence Investigational New Drug Application

Oramed Pharmaceuticals and Wayne, Pennsylvania's Encorium Group, an international full service contract research organization (CRO) that provides comprehensive clinical and drug development solutions for pharmaceutical, biotechnology and medical device companies announced an agreement that is intended to expedite the development of Oramed's lead product for treatment of diabetes mellitus. Encorium Group has extensive worldwide experience in the drug/biologics development process for a multitude of agents and disease conditions and specifically in diabetes, including preclinical to post-marketing support studies. This agreement engages Encorium Group to assist Oramed in the design, implementation, advancement, and oversight of a sound scientific and regulatory strategic plan for the filing and ultimate approval of Oramed's oral insulin product on a worldwide basis. The initial focus of this combined effort between Oramed and Encorium Group is to assemble the information required for the opening of an investigational new drug application (IND) and its subsequent filing with the FDA. Jerusalem, Israel's Oramed Pharmaceuticals' (http://www.oramedpharma.com) is an Israeli based company focused on the development of oral delivery solutions based on proprietary technology. Diabetes is one of the most rapidly growing diseases in the world and is one that requires constant and often unpleasant monitoring and drug therapy regimen. Oramed is currently developing an orally ingestible soft gel insulin capsule for the treatment of diabetes. The Company is also pursuing the development of oral delivery solutions for other drugs and vaccines. (Oramed Pharmaceuticals 19.06)

8.5 OrSense Receives European CE Mark Approval for Continuous Non-Invasive Glucose Monitoring System

Nes Ziona, Israel's OrSense (http://www.orsense.com) received European CE Mark (Conformite Europeene) approval for its NBM-200G, a non-invasive continuous monitor of blood glucose for people with diabetes. Blood-glucose monitoring plays a key role in the treatment of diabetes, where frequent measurements are essential for managing the disease. However, the usual invasive glucose measurement method, based on highly uncomfortable finger pricking, is not feasible for frequent implementation, calling for a non-invasive alternative. OrSense's non-invasive blood glucose measurement device is therefore poised to provide a dramatic improvement in the quality of care and quality of life of people with diabetes. The NBM-200G is based on OrSense's proprietary breakthrough technology that allows non-invasive measurement of analytes including glucose, hemoglobin, and oxygen saturation with very high sensitivity. The NBM-200G is operated by placing a ring-shaped probe around the patient's finger, which applies a gentle pressure to the finger, similar to that applied during non-invasive blood-pressure measurement and temporarily occludes the blood flow. During the occlusion, optical elements in the sensor perform a sensitive measurement of the light transmitted through the finger. This method, called Occlusion Spectroscopy, provides a quick, accurate and painless measurement of the patient's blood glucose. (OrSense20.06)

8.6 Boston Scientific Announces Agreement to Acquire Remon Medical Technologies

Boston Scientific Corporation signed a definitive agreement to acquire Remon Medical Technologies, a privately held company based in Caesarea, Israel. The acquisition is subject to customary closing conditions and completion of due diligence, and is expected to close over the summer. Terms of the acquisition were not disclosed. Remon Medical Technologies (http://www.remonmedical.com) is a development-stage company focused on creating communication technology for medical device applications. The company was founded in 1997 and entered into a co-development agreement with Guidant Corporation in 2004. Guidant Corporation was acquired by Boston Scientific on April 21, 2006. Remon's technology uses wireless communications to exchange energy and data with minute devices placed deep inside the body. These devices monitor a variety of physiological parameters, stimulate tissues and organs or activate other devices, creating therapeutic responses. Remon's technology platform potentially offers broad applications for patient management, post-operative monitoring, nerve and tissue stimulation, local drug delivery, and drug development. Boston Scientific is a worldwide developer, manufacturer and marketer of medical devices whose products are used in a broad range of interventional medical specialties. (Boston Scientific 25.06)

9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Answers.com Wins CNET Webware 100 Award for Reference

Answers Corporation announced that Answers.com has received one of the Webware 100 Awards for Reference by CNET Webware. The finalists for the Webware 100 Awards were selected by the editors of Webware.com, a CNET site, but the ultimate winners were picked by the site's users. The Webware 100 Awards recognize the best Web 2.0 sites, services and applications leading the next wave of innovation. Since its launch in January 2005, Answers.com has become one of the leading information portals on the Internet. Answers.com's collection of over forum answers is drawn from 180 titles from brand-name publishers, as well as original content created by Answers.com's own editorial team, community-contributed articles from Wikipedia, and user-generated questions & answers from Answers.com's industry-leading WikiAnswers (http://wiki.answers.com). The site offers useful answers in such categories as business, health, travel, technology, science, entertainment, arts, history and many more. Answers Corporation (http://www.answers.com) of New York and Jerusalem, Israel operates the award-winning Answers.com information portal, delivering comprehensive content on over forum topics spanning health, finance, entertainment, business and more. (Answers.com19.06)

9.2 ECI Telecom Doubles the Capacity and Extends the Reach of its Multi-Degree ROADM Platform

ECI Telecom has significantly enhanced its XDM Multi-Service Transport Platform (MSTP) by combining the flexibility and cost-effectiveness of metro and regional systems with the reach and capacity usually offered by long-haul DWDM (Dense Wavelength Division Multiplexing) systems. With demands for increased capacity and network connectivity rising, customers are seeking converged platforms to deliver new services. ECI has been at the forefront of packet-optical convergence research and development, enabling the delivery of a multitude of data services from a single platform for metro/regional and long haul networking needs. With this enhanced feature set, ECI continues to show leadership in the metro/regional ROADM space, while strengthening our offering in the once again attractive long haul market. Highlights of this new XDM feature set include doubling the total channel capacity, representing a total throughput of 800 Gbps per single fiber pair, as well as extending the overall reach to 2,000 Km, primarily by introducing a new set of very long reach transponders, and very high power fiber amplifiers. The improved capacity and reach provide greater savings by eliminating the need for multiple systems, higher reliability by eliminating inter-system cabling, improved service agility for on-demand expansion and content sharing across regions as multi-degree ROADMs allow simple provisioning, and overall higher Quality of Experience (QoE). Petah Tikva, Israel's ECI Telecom (http://www.ecitele.com) delivers innovative communications platforms to carriers and service providers worldwide. ECI provides efficient platforms and solutions that enable customers to rapidly deploy cost-effective, revenue-generating services. (ECI19.06)

9.3 Denmark's First National Wireless Broadband Network Built Using Alvarion's BreezeACCESS

Alvarion announced that Butlernetworks, a full solutions provider, has deployed its BreezeACCESS VL platform for building the first national wireless broadband network in Denmark. Using Alvarion's VL system, the Danish carrier is providing high-quality data to small and medium businesses as well as large corporate end-customers in Denmark. Working together with its long-term local partner, UpGrade Communication AB, Butlernetworks has already connected over 1000 businesses, offering broadband services to 50 partners including ISPs, system integrators and operators. Leveraging the network, BreezeACCESS VL also enables technicians to access information and file reports from the field, thereby saving time and improving quality of service (QoS) immensely. With BreezeACCESS VL's advanced features such as non-line-of-sight operation, extended reach of more than 30 kilometers, high capacity of up to 54 Mbps, encryption and QoS, triple-play services can be offered to both business and residential subscribers. Operating in the 5 GHz bands, VL supports great flexibility in frequency planning with its 20 MHz channel spacing, automatic clear channel selection (ACCS) and built-in spectrum analyzer, which monitors and avoids noise on any given channel. With more than 3 million units deployed in 150 countries, Tel Aviv, Israel's Alvarion (http://www.alvarion.com) is the world's leading provider of innovative wireless broadband network solutions enabling Personal Broadband to improve lifestyles and productivity with portable and mobile data, VoIP, video and other services. (Alvarion 18.06)

9.4 Huawei Name Optibase Bid Winner for IPTV Encoder Systems

Shenzhen, China's Huawei Technologies, a leader in providing next generation telecommunications network solutions for operators around the world, and Optibase announced an alliance to provide integrated TV over IP services. Huawei selected Optibase's Media Gateway (MGW) platforms to provide advanced MPEG-4/H.264 encoding and streaming as part of their IPTV offering, thus giving their customers a competitive edge. Optibase's MGW streamers let service-providers stream high quality TV over broadband IP or ATM networks such as xDSL and FTTx. The MGW product line offers high-density, modular platforms that encode, transcode, transmit and recast broadcast quality HD and SD MPEG-4/H.264 and MPEG-2 video channels in real-time. Herzliya, Israel's Optibase (http://www.optibase.com) provides professional encoding, decoding, video server upload and streaming solutions for telecom operators, service providers, broadcasters and content creators. The company's platforms enable the creation, broadband streaming and playback of high quality digital video. Optibase's breadth of product offerings are used in applications, such as: video over DSL/Fiber networks, post production for the broadcast and cables industries, archiving; high-end surveillance, distance learning; and business television. (Optibase 18.06)

9.5 Emery Selects ECI Telecom to Build an Advanced ROADM Network for Utah Fiber Network

ECI Telecom announced that Emery Telecommunications & Video (ETV), a subsidiary of Emery Telcom and a member of Utah Fiber Networks, has selected ECI Telecom's XDM All-Range ROADM and Converged Multi-Service Transport Platform (MSTP) for a statewide fiber transport network. ETV's upgraded infrastructure will facilitate the deployment of advanced data and video services throughout the region. By deploying Multi-Degree ROADMs (Reconfigurable Optical Add Drop Multiplexers), ETV improves the availability and reliability of broadband data and video services for residential and business subscribers, educational institutes and government agencies. This solution provides ETV with the flexibility necessary to modify and scale its optical, Ethernet and SONET infrastructure, so it can quickly and cost-effectively respond to local demand in real time. ETV is leveraging the XDM's integrated platform with Ethernet and SONET functionality in a 10-degree ROADM DWDM system, to support 40, 10-Gbps wavelengths over a 300-mile network, delivering a powerful and flexible metro/regional ROADM solution.

Petah Tikva, Israel's ECI Telecom (http://www.ecitele.com) delivers innovative communications platforms to carriers and service providers worldwide. ECI provides efficient platforms and solutions that enable customers to rapidly deploy cost-effective, revenue-generating services. ECI provides scalable broadband access, transport and data networking infrastructure that provides the foundation for the communications of tomorrow, including next-generation voice, IPTV, mobility and other business solutions. (ECI18.06)

9.6 QUALCOMM and Siano Sign FLO Chip Agreement

San Diego, California's QUALCOMM, a leading developer and innovator of advanced wireless technologies and data solutions, and Siano Mobile Silicon have signed a royalty-free agreement that enables Siano to use QUALCOMM's patented technologies to design, manufacture and sell certain semiconductor chip products that implement FLO technology. This license agreement paves the way for Siano to develop a multi-standard MDTV receiver chip supporting FLO, in addition to other standards. FLO technology, a broadcast innovation and key component of the MediaFLO System, is a globally-recognized air-interface technology with multiple technical specifications ratified by the Telecommunications Industry Association (TIA). Furthermore, the International Telecommunication Union (ITU-R), recently recognized FLO as an ITU-R recommended technology for the broadcasting of multimedia and data applications for mobile reception on handheld devices. The FLO air interface is designed to increase capacity and coverage and reduce cost for multimedia content delivery to mobile handsets. Netanya, Israel's Siano Mobile Silicon (http://www.siano-ms.com) provides integrated silicon receivers for the mobile digital TV (MDTV) market. Tailored specifically for handheld and mobile devices, the company's all-CMOS multi-standard solution overcomes formidable engineering challenges such as mobility reception, hand-offs, power consumption, form factor and small antenna. (QUALCOMM 18.06)

9.7 GigaSpaces & Microsoft Deliver High-Volume, Low-Latency Analytics Solutions for Capital Markets

GigaSpaces Technologies is working with Microsoft Corp. to deliver an analytics solution that allows financial services organizations to process high volumes of transactional data in extremely short processing times. The combined solution delivers real-time trading data in front-office applications based on Microsoft technologies, including Office Excel 2007. It combines the latest Microsoft technologies-Excel 2007, Excel Services, User Defined Functions (UDF) and Windows Compute Cluster Server (CCS) 2003-with GigaSpaces' eXtreme Application Platform (XAP) and Enterprise Data Grid to deliver superior usability, performance and scalability. The solution addresses two fundamental challenges grid users in capital markets are facing today. First, it allows organizations to move large volumes of data to compute nodes with low-latency performance, and, second, it eliminates the disconnect between the front office and the data grid. In addition, GigaSpaces' platform provides a highly scalable application architecture that enables organizations to keep pace with rapid growth.

Herzliya, Israel's GigaSpaces (http://www.gigaspaces.com) provides a single infrastructure software platform for application scalability and performance. GigaSpaces' unique approach enables developers to write their business logic as if writing to a single computer and then seamlessly scale out the application linearly anywhere, and on-demand. It is targeted at applications characterized by high-volume transaction and data processing and low transaction latency requirements and provides an alternative to Web Services for implementing high performance and scalable service-oriented architectures. (GigaSpaces 18.06)

9.8 Minerva Networks & Integra5 to Provide Converged IPTV & Communications Services Solution

Santa Clara, California's Minerva Networks, the leading provider of open IPTV service delivery platforms and applications, and Integra5 announced a partnership to fully integrate Minerva's iTVManager and Integra5's i5 Converged Services Platform (i5 CSP). The combined solution will enable IPTV operators to deliver an expanded portfolio of converged quad play applications and services. The i5 CSP allows service providers to efficiently deliver real-time converged communications and content across multiple devices, including TVs and PCs, using i5 or third-party applications. Minerva's iTVManager is a comprehensive IPTV software platform that enables carriers to deliver broadcast-quality television and compelling and personalized multimedia services over broadband networks. Together, the i5 CSP and iTVManager will provide a pre-integrated, end-to-end solution to IPTV operators so they can quickly and easily deploy high-value, blended, quad play applications. Integra5's i5 CSP provides end users the ability to create and manage a single identity that transcends devices and services. The network-based platform recognizes incoming calls, voicemails, SMS text messages, and other messaging and communications content, creates the display information and sends the information to the appropriate devices.

Integra5 (http://www.integra5.com) is the global leader in blending triple and quad play bundles into converged services. Featuring patented and patent-pending technologies, the company's i5 Converged Services Platform (i5 CSP) blends voice, video, data and mobile services into new communications and content applications for delivery across TVs, PCs and other devices. The i5 CSP works in today's cable and IPTV networks and can be seamlessly integrated into future IMS environments. Integra5 is headquartered in Burlington, Mass., and has an additional research and development office in Rehovot, Israel. (Minerva18.06)

9.9 Elbit Systems Skylark-II UAV Wins Frost & Sullivan 'Best Innovative Product Award'

Elbit Systems announced that the prestigious business research and consulting firm Frost & Sullivan has presented its "Best Innovative Product Award for 2007 in the Aviation & Defense Category" to Skylark-II, a close-range tactical UAV system developed and produced by Elbit Systems. Frost & Sullivan cited the Skylark-II system as a market trend-setter, defining and leading the UAV market. The Skylark-II's unique system capabilities enable it to perform the same missions that previously only larger and more expensive UAV systems could perform. Elbit Systems ongoing leadership in the UAV field was another factor in Frost & Sullivan's decision to present this award. The Skylark-II is a new, improved model of the Skylark-I UAV system that is in widespread operational use worldwide, including in the Israel Defense Forces (IDF). The Skylark-II is capable of carrying out covert surveillance flights day and night, in all weather conditions at mission ranges exceeding 50 kilometers.

Haifa, Israel's Elbit Systems (http://www.elbit.co.il) is an international defense electronics company engaged in a wide range of defense-related programs throughout the world. The Elbit Systems Group, which includes the company and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence, surveillance and reconnaissance ("C4ISR"), advanced electro-optic and space technologies, EW suites, airborne warning systems, ELINT systems, data links and military communications systems and equipment. (Elbit Systems 17.06)

9.10 Interphase & Surf Complete I-TDM Interoperability Enabling Multi-Media Solution Delivery

Interphase Corporation and Surf Communication Solutions announced successful integration of I-TDM functionality between the Interphase Advanced Mezzanine Card iSPAN 3639 communications controller and the Surf AMC DSP multimedia processing farm. This integration enables customers to develop media gateways, media servers and mobile gateway applications for converged networks on AdvancedTCA (ATCA), MicroTCA and IBM BladeCenter platforms. The integrated solution utilizes I-TDM technology, which creates a flexible, scaleable and robust solution for the telecommunications market. The fully integrated subsystem solution features the Interphase iSPAN 3639 Multiprotocol T1/E1/J1 AMC Communications Controller together with the SurfRider/AMC multimedia processing DSP resource board. The Surf multimedia processing solution utilizes Texas Instruments (TI) state-of-the-art TMS320C64xTM DSP generation to deliver ultra-dense processing at low operating costs and a ‘swap-in/swap-out' flexibility. Plano, Texas' Interphase Corporation is a leading provider of robust building blocks, highly integrated subsystems and innovative gateway appliances for the converged communications network. Yokneam, Israel's SURF Communication Solutions (http://www.surf-com.com) develops a suite of hardware and software products that drives a wide variety of applications whose common goal is high-capacity distribution of voice and video. These applications are predominantly developed by media gateway, media server and IMS equipment manufacturers in the telecommunication infrastructure field. (Interphase 14.06)

9.11 Schema & LATTIS Offer a Complete and Cost Effective Solution to Leased Line Optimization

Schema announced its partnership with Glastonbury, Connecticut's LATTIS, the leading tariff pricing database viewed worldwide as the industry standard for pricing private line telecommunications circuits. Schema's Hubbing Optimizer is part of Schema's Prima suite of products for Transport Network Optimization, that helps operators aggregate and groom their leased line networks; define efficient traffic, diversity and hubbing strategies; and develop network restoration plans. The integration between the Hubbing Optimizer and LATTIS tariff pricing database via the SLL adaptor enables operators to utilize the added value provided by both companies at minimal cost, allowing for an effective and productive deployment process, saving on operational expenses by rerouting traffic to significantly minimize leased line costs. Herzliya, Israel's Schema (http://www.schema.com) is a global provider of industry-leading network optimization and performance software solutions for telecom operators. Schema's innovative solutions increase network performance and efficiency, reduce costs and improve network visibility across voice and data networks. Schema's solutions are deployed and benchmarked by leading wireless operators worldwide. (Schema19.06)

9.12 WorldMate Turns BlackBerry 8830 World Edition & Curve 8300 Devices into Personal Travel Assistants

MobiMate announced the release of WorldMate Professional Edition for the new BlackBerry 8830 World Edition and BlackBerry Curve 8300. WorldMate Professional Edition is the most powerful mobile travel service for globetrotting executives, offering travel information on their devices in real-time for a smooth, efficient on-the-road experience. WorldMate Professional Edition is a comprehensive suite of content and application services serving business travelers' needs directly from their mobile phones. The service includes features that provide instant updates and scheduling information on everything from flight schedules and status to weather forecasts and world clocks. These features are packaged as a complete mobile application, now available on BlackBerry 8830, BlackBerry Curve 8300 as well as previous BlackBerry models. MobiMate has been a BlackBerry Alliance Member since 2005, forming a partnership that has made the WorldMate Professional Edition product franchise one of the longest-standing and best-selling applications for BlackBerry. Lod, Israel's MobiMate (http://www.mobimate.com) is the clear leader in providing mobile travel-related services with WorldMate, the best-selling mobile travel software. MobiMate's unique approach to the mobile Internet drove its design of a combination of user-friendly software, valuable content and services from recognized sources, and an online service to deliver it all to a user's device. (MobiMate19.06)

9.13 RED-C and JDSU to Expand Collaboration, Signing a Strategic Supply Agreement

Milpitas, California's JDSU, a leading enabler of broadband and optical innovation, and RED-C Optical Networks announced the execution of a strategic supply agreement, which is aimed at strengthening cooperation and business relations between the two companies. Pursuant to the supply agreement, RED-C has selected JDSU to be its main supplier for a broad line of optical components to be incorporated in RED-C optical amplifiers and subsystems. Tel Aviv, Israel's RED-C Optical Networks (http://www.red-c.com) is a leading provider of integrated optical subsystems based on state-of-the-art optical amplification technology. RED-C's product line is comprised of a broad range of EDFAs, Raman amplifier modules, integrated subsystems and network elements. RED-C's integrated platform enables to incorporate the entire range of its optical amplifiers, with complementary optical devices into synchronized, interconnected, cost-effective subsystems. (RED-C19.06)

9.14 BeInSync's New Online Backup Service Provides Enterprise-Grade Protection to Consumers & Businesses

BeInSync announced its BeInSync 3.0 online backup service offers Continuous Data Protection (CDP) functionality. The backup service immediately and automatically backs up any user files as soon as they have been created or changed, and generates snapshots of the user information so users can restore any lost or damaged file. Traditional CDP solutions are generally available for larger enterprises and are priced at tens of thousands of dollars, whereas BeInSync provides similar protection for a fraction of the cost. BeInSync provides consumers and businesses an all-in-one solution to sync, share, access and backup any type of digital content, including business documents, photos, videos and music. BeInSync's online backup service leverages Amazon's leading storage infrastructure, providing the most powerful, reliable and secure service on the market today. Tel Aviv, Israel's BeInSync (http://www.BeInSync.com) redefines the way consumers and businesses access, share and protect their documents, photos, videos and music. With over four million downloads, BeInSync offers users complete freedom when dealing with their digital content, by allowing them to sync, share, access and back it up seamlessly. Based on patent-pending secure private peer-to-peer (P2P) technology, BeInSync creates private data networks that make it easy to stay connected and always in sync with colleagues, friends, remote files and computers. (BeInSync19.06)

9.15 Gilat Partners with CJSC Global-Teleport, Russia's Leading Satellite Service Provider

Gilat Satellite Networks announced the recent initiation of operations for Closed Joint Stock Company (CJSC) Global-Teleport's latest SkyEdge Hub in Pavlovsk-Passad (near Moscow). CJSC Global-Teleport already has two other operational Gilat SkyEdge hubs located in Khabarovsk and in Novosibirsk. The three hubs enable Global-Teleport to provide services to customers across the entire Russian Federation. CJSC Global-Teleport is the largest provider of satellite services for federal government telecommunications projects in Russia. Gilat's advanced VSAT technology enables CJSC Global-Teleport to meet the complex requirements of major operators in Russia such as the need to fulfill Universal Service Obligations (USOs) bringing telephony and internet services to citizens in very remote regions of the country. Gilat's ability to support both mesh and star topologies on the same network has been a major requirement for Russia's operators. In addition to USO projects, CJSC Global-Teleport's SkyEdge networks support a variety of other government projects including the FGUP "Russian Post," Ministry of Education projects and more. Petah Tikva, Israel's Gilat Satellite Networks (http://www.gilat.com) is a leading provider of products and services for satellite-based communications networks. The Company operates under three business units: (i) Gilat Network Systems ("GNS"), which is a provider of network systems and associated professional services to service providers and operators worldwide; (ii) Spacenet Inc., which provides managed services in North America for businesses and governments through its Connexstar service brand and for consumers through its StarBand service brand; (iii) Spacenet Rural Communications, which offers rural telephony and Internet access solutions to remote areas primarily in Latin America. (Gilat19.06)

9.16 ECI Telecom Doubles the Capacity & Extends the Reach of its Multi-Degree ROADM Platform

9.17 fring Brings VoIP Choice to Windows Mobile

fring announced that it has further expanded its mVoIP (mobile VoIP) community by adding all Windows Mobile 5.0 and 6.0 series devices to its list of compatible handsets. Now fringsters can choose to communicate for free between fring, Skype, Google Talk, MSN Messenger, hundreds of SIP providers and twitter on about 300 Windows Mobile phones and pocket PCs in addition to 20+ Nokia devices over any 3G, GPRS or Wi-Fi Internet connection. With fring, many Wi-Fi enabled but SIM-less Windows Mobile PDAs now effectively function as open VoIP phones. Like all fring supported devices, internet access is leveraged to make VoIP phone calls, hold multiple live chat sessions and also make VoIP enabled PSTN phone calls through SkypeOut or hundreds of SIP-based applications like GizmoProject, SIPNET, VoipCheap, VoipStunt and FWD, among others. fring is a free, downloadable mobile phone application that offers real mobile independence to roam freely between wireless networks (GPRS, 3G, Wi-Fi) and enjoy the benefits of multiple IM and SIP providers from one integrated contact list. fring is also enhanced with real-time contact availability (presence) to help users choose the best call provider before dialing, based on the recipient's availability, reception quality and call cost, among other factors. fring saves mobile phone users money by utilizing free Wi-Fi internet access or fixed Internet data plans over 3G or GPRS, instead of costly mobile airtime (GSM) minutes. Received via SMS from a friend or downloaded from the fring website within about a minute, fring is PC and operator independent, and does not require any proprietary hardware or air-time. Israel's fring (http://www.fring.com) is a mobile Voice over Internet Protocol (mVoIP) application that allows users to make free calls and live chat over cellular data networks or a Wi-Fi connection. Optimized for 3G over mobile phone networks with GPRS and Wi-Fi roaming, fring provides a continuous call connection. It is 100% free with no subscription costs; consumers communicate over Wi-Fi or simply pay for the data they use under their existing line rental agreement. (fring21.06)

9.18 New JVC LCD TVs With MaxxAudio Deliver Home Theater-Quality Sound

Waves Audio announced that JVC's latest generation of LCD televisions will be the industry's first to use their MaxxAudio technologies. MaxxAudio is a suite of psycho-acoustic technologies that compensates for the limitations of small speakers. MaxxAudio is the first solution for televisions that enables them to deliver high quality sound without the cost and complexity of additional components. In fact, the extraordinary audio quality of JVC's new LCD TVs is comparable to that of complete moderately priced home theater systems. Tel-Aviv, Israel's Waves (http://www.waves.com) is the world's leading developer and provider of professional digital audio processing tools. Waves technologies are used to improve sound quality in the creation of hit records, major motion pictures, popular gaming and multimedia titles the world over. With more than a decade of leadership in the development of psycho-acoustic algorithms, Waves now offers a variety of solutions under the Maxx brand. Manufacturers of consumer electronics are dramatically improving performance and reducing system costs using Maxx technologies. (Waves Audio20.06)

9.19 Elettronica and Elbit Systems Electro-Optics Elop Generating a Joint Laser-Based DIRCM Product

Elbit Systems announced that its subsidiary Elbit Systems Electro-Optics Elop Ltd. (Elop) and Italy's Elettronica S.p.A. (Elettronica) have agreed to cooperate and complete the joint development of advanced DIRCM (Direct Infra-Red Counter-Measures) systems intended to protect helicopters and wide-bodied aircraft from low altitude attack by shoulder-mounted heat-seeking missiles. The agreement builds on the abundant experience of both companies in infra-red countermeasures. Elettronica was an early pioneer in the field, which it explored beginning in the 1980s. Serving as the Israel Government's Center for Excellence for Electro-Optics Applications, Elop provides advanced electro-optic digital technologies for both military and space applications. DIRCM systems are intended primarily to protect helicopters, and larger fixed-wing aircraft during their take-off and landing phases, against the so-called portable heat-seeking missiles. These arms, beyond their combat applications, are considered to pose a potential terrorist risk for civilian aviation as well. Elettronica and Elop will jointly offer defense solutions based on "MUSIC", the world's most advanced laser-based DIRCM protection system, integrating fiber laser technology with a small, highly dynamic turret to provide effective, reliable and affordable protection under all operational conditions. The system can operate with most types of Missile Approach Warning Systems (MAWS) and can be integrated into Defensive Aids Sub Systems (DASS).

Elbit Systems (http://elbit.co.il) is an international defense electronics company engaged in a wide range of defense-related programs throughout the world. The Elbit Systems Group, which includes the company and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computes, intelligence surveillance and reconnaissance (C4ISR), advanced electro-optics and space technologies, EW suites, airborne warning systems, ELINT systems, data links and military communications systems and equipment. (Elbit Systems 21.06)

9.20 TTI Telecom Launches FaM Analyzer

TTI Team Telecom International has launched the Netrac FaM Analyzer. This new product provides valuable insight into the impact of operations on business processes and business-level objectives. FaM Analyzer also marks another advance in TTI Telecom's innovation in collaboration between Fault and Performance Management. FaM Analyzer is the most recent product launched within TTI Telecom's Fault Management product family. Utilizing TTI Telecom's unique integration of fault and performance management products, it analyzes network operations efficiency and produces a wide range of KQIs such as reliability KQIs (e.g. MTBF, MTTR, failure rate, etc.), business process KQIs (e.g. alarm acknowledgment timers, correlation rate, etc.) and availability KQIs, as well as various alarm KPIs. FaM Analyzer enables service providers to easily identify process gaps, network anomalies, and individual operator performance. Netrac provides a unified network view integrating fault, performance and service management for a holistic view of service assurance based on all available information sources, including those provided by network resources, application servers, and active monitoring probes. The integration of Netrac FaM and PMM product lines enable service providers to detect and fix problems minimizing adverse impacts on customer service. Petah Tikva, Israel's TTI Team Telecom International (http://www.tti-telecom.com) is a leading provider of next generation Operations Support Systems (OSS) to communications service providers worldwide. The Company's Netrac-branded portfolio delivers an automated, proactive and customer-centric approach to service assurance and network management. (TTI Telecom25.06)

10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's CPI Unchanged in May

The Central Bureau of Statistics announced on 15 May that Israel's Consumer Price Index (CPI) remained unchanged at 99.4 points in May, contrary to market estimates which had predicted that it would fall by 0.2%. The sharp 17.3% rise in prices of fruits was the factor that dispelled earlier forecasts. This item alone contributed 0.2% to the May figure for the CPI. Another contributing factor to the unchanged figure for the May CPI was the 4.2% rise in fuel. This item also contributed 0.2% to the CPI. Two other items also rose: culture and entertainment by 1.8%, and cosmetics and personal hygiene products by 1.7%. Two key items fell in May: household electricity by 5.9%, and cars by 1%. Since the beginning of the year, inflation has risen by 0.3%, although excluding the housing item, it rose by 0.9%. Inflation in the past twelve months fell by 1.3%. (CBS15.06)

10.2 State Of Economy Index Dispels Slowdown Fears

On 21 June, the Bank of Israel announced that the composite State of the Economy Index rose by 0.7% in May, indicating a continued rise in economic activity. The index has now risen 1.6% over the last three months. The current rise in the index reflected in a rise in all its components, particularly the indices of goods and services exports, which corrected the fall in these indices in April. Export of goods jumped by 8.4% in May after dropping 8.6% the month before. The export of services rose 8.1% after dropping 3.4% in April. The index from previous months was also revised upward as a result of changes in categorizations by the Central Bureau of Statistics that took effect in January of this year. The figures indicate that Israel's economy is continuing to expand, and is not sliding toward a slowdown. (BoI21.06)

10.3 Israel's GDP Per Capita Reaches $18,620

Even though Israel's GDP has grown by more than 18% since 2003, GDP per capita is among the lowest among developed countries. Bank of Israel figures indicate that Israel's GDP per capita has reached $18,620 this year, below both Singapore and Ireland, which were on par with Israel ten years ago. High-tech industries are still Israel's top exporters and generators of growth. They account for half of total exports, while the share of low technology industries has fallen to 7%. (BoI14.06)

10.4 Israel's Exports Remain Strong Despite Dollar's Depreciation

The shekel's appreciation against the dollar has not yet hurt Israel's exports. The Central Bureau of Statistics announced that exports of goods, excluding diamonds, rose by an annualized 14% in March-May 2007, in trend figures. The shekel's appreciation has boosted imports (excluding diamonds, ships, planes and energy products), which rose by an annualized 16.3% in March-May. Israel's trade deficit narrowed to $2.7b in January-May, when exports totaled $18.3b and imports totaled $21b. The trade deficit in May was $400m, when exports totaled $4.2b and imports totaled $4.6b. Agricultural exports totaled $733m in January-May and diamond exports totaled $4.6b. (CBS14.06)

10.5 Foreign Investment Amounts to $1 Billion in May

The Bank of Israel reports that foreign direct and portfolio investment totaled $1.03b in May 2007. Foreign investment in Tel Aviv Stock Exchange (TASE) stocks and bonds totaled $411m, although net investment in TASE-listed stocks fell by $172m. Foreign direct investment totaled $617m. The Bank of Israel added that exchange-rate risk - as measured by the implied volatility of NIS/$ options - rose by 1.4% to a high rate of 8%, a level not seen since the Second Gulf War and the months thereafter in 2003. This rise ran contrary to the trend in other emerging markets. The greatest rise took place in short-term options, causing the time structure of the implied volatility to drop steeply, reflecting greater short-term than long-term uncertainty. The actual volatility of the NIS/$ exchange rate also rose sharply, which can be explained by the rise in the implied volatility as early as in April." (BoI13.06)

In Depth

11.1 ISRAEL: Maintaining a Thriving Economy in the Shadow of Terror

Professor Zvi Eckstein, Deputy Governor of the Bank of Israel, released the following Jerusalem Issue Brief.

An Economic Perspective on Zionist History

Data on the Israeli economy is available since 1922. Per capita GDP has grown from NIS 3,000 in 1922 to just below NIS 80,000 in 2006 (in constant 2000 prices). Thus, despite terror and war, the Israeli economy has prospered and has one of the highest per capita growth rates in the Western world, together with Japan, among all the states established between 1948 and 1974.

The 1973 war caused a major change in Israel's macroeconomic picture, with the defense budget growing to about 25% of GDP, and total government expenditure rising to 65-70% of GDP. The Israeli economy has struggled with this burden for a long time.

The Cost of Terror

Almost every decline in the Israeli economy has correlated with defense problems. This can be seen in the effects that the terror-ridden years of 2000-2005 had on the economy. Running an economy with the threat of terror is part of life in Israel. When fear was substantial, it affected local as well as foreign investment decisions. GDP declined, and defense expenditure, including the cost of building the security fence to deal with the new threats, rose substantially.

The 1990s was a decade of sustained growth. The first half of the decade saw the beginning of the peace process and the collapse of the then Palestinian war against Israel and was a period with a large influx of immigrants. With a high rate of terror in 2003, private consumption declined significantly. In times of terror and fear, there was a major decrease in GDP and in private consumption activity. It is estimated that without the terror in 2000-2003, Israeli per capita GDP and private consumption would have been much higher than they were in the first half of 2003.

In 2003, the government took several actions to stabilize the macro-economy which, together with monetary stability, enabled the economy to reach a growth rate of 5% and achieve a stable budgetary framework. Public expenditure declined from 65-70% of the GDP to 47% - below the EU average and similar to the level in the Netherlands and the UK, but higher than the United States.

Before the Second Lebanon War, the economy was producing a budget surplus and growing at a level of 6% in annual terms. During the 3rd quarter of 2006, there was a decrease in the GDP growth rate, but after the war, in the 4th quarter, it was higher than 7%. Industrial managers and other employers in the north of Israel understood the importance of exports and of the continuance of economic activity, and worked day and night, during and after the war, to fill orders from abroad.

The success of the Israeli army and political activities in reducing terror in Israel's urban centers - together with changes in policies to stabilize the macro-economy - was essential factors in moving the economy onto a new path.

Economic Indicators

Israel's total government expenditure is getting closer to international standards. It is very important this year to keep expenditure low in order to reduce the public sector debt. The public sector debt in the early and mid-1980s was around 160% of the GDP. Decreasing this ratio to around 60% is a key goal for sustained growth. If the forecast 5% growth rate for 2007 is realized, this debt is expected to be around 85% of the GDP.

Most studies show that if there is more stability and sustained peace in the area, such that defense expenditure can go down even more and people see the economy as stable, the Israeli economy could maintain a higher growth rate.

The short-term interest rate is the main monetary tool to reach the annual inflation rate target of 1-3%. Inflation targets exist in most of the countries which are Israel's key trading partners. Inflation in the last twelve months was below the target - almost at minus 1%. The exchange rate had the largest impact on the development of the Consumer Price Index during 2006. Prices in the Israeli economy are highly sensitive to changes in the dollar exchange rate because prices of services and non-tradable goods such as housing, and lawyers' and accountants' fees, are still indexed to the U.S. dollar, even though the U.S. dollar is dropping relative to the shekel and the euro.

One key pillar for the stability of the economy is the huge change in the nature of exports and imports. Since 2000, total exports have equaled imports. 2006 was the third consecutive year in which the goods and services account was in surplus, and in 2007 it is also expected to be in surplus. In addition, Israel's current account surplus has risen steeply, with more foreign currency coming in and more foreigners seeing the country as attractive for investment.

Israel has an income tax rate close to the EU average at high income levels. It is lower than Sweden and Norway, but higher than the U.S. Income tax has been reduced substantially since 2003. By international comparison, the income tax rate is relatively low for the average income level of most workers, and close to the European level in the upper income levels. Total tax revenues have increased substantially in recent years.

Reforms Still Needed

The economy looks good, but even without the desired peace it could be excellent. To be excellent, some reforms need to be implemented. Israel's biggest weakness, compared to other countries, is in the labor market, and especially in the participation rate of men. In most countries, about 92% of men aged 25-55 are working or looking for work. In Israel it is about 83%. Israel should maintain policies that encourage people to go to work.

One of the causes for the low participation is the entrance of low-skilled foreign workers from the poorest areas of the world such as Thailand, the Philippines and China. No other industrial country has Chinese construction workers who pay thousands of dollars to get work. That pushes the wages of low-skilled individuals in Israel down, such as in construction. Many countries bring in seasonal workers for the agricultural sector, but no other developed country has a high rate of legal low-skilled foreign workers in agriculture, as in Israel. There are nearly 200,000 legal and illegal foreign workers in Israel (most of them work in construction and agriculture or as personal long-term care-givers).

High-tech in Israel is among the most developed sectors, which attracts people from all over the world. Many Israeli high-tech companies were extremely successful and this helps the economy to grow, but it affects only a segment of the population. In fact, the traditional sectors - construction, agriculture, food production, and others - have much lower productivity per worker than in other developed countries. The implementation of new technologies has been neglected in those sectors.

Development in the peripheral areas has been neglected, particularly in the Arab sector, which needs to move from a village environment to an urban one with urban occupations and urban standards of living. The traditional family structure in these villages, which has to a great extent been ignored by the Israeli political system, has resulted in a real problem and created a bottleneck for the development of the economy.

In 1983, most economic activity was in the hands of the government. Nowadays, the capital market is larger and more competitive, more companies are involved in it and the economy is more open. The amount of direct foreign investment in Israel has been substantial. The Israeli economy is open and diversified, and direct government involvement in financial activity has been substantially reduced, which is a positive trend. Israel should open up even more by improving and regulating the financial sectors and by adopting international standards.

Prof. Zvi Eckstein is the Deputy Governor of the Bank of Israel. This Jerusalem Issue Brief is based on Prof. Eckstein's presentation at the Institute for Contemporary Affairs in Jerusalem on March 26, 2007. The Jerusalem Issue Brief (http://www.jcpa.org) is issued by the Institute for Contemporary Affairs, founded jointly at the Jerusalem Center for Public Affairs with the Wechsler Family Foundation. (JIB19.06)

Morgan Stanley's (http://www.morganstanley.com) Serhan Cevik observed that the correction in financial markets is a sign of normalization. After the sell-off in the US bond market that pushed yields sharply higher around the world, financial markets have stabilized, thanks to the abundance of liquidity and the strength of economic fundamentals. However, the adjustment in expectations (and especially in the long end of the yield curve) may not be over, considering the fact that just a few weeks ago the US bond market was pricing the start of monetary easing over the course of this year. With the US economy holding up much better than expectations and the rest of the world growing at a rapid pace, the focus has moved, once again, onto underlying inflation risks and the direction of interest rates. Like other emerging markets, Israel, too, has come under pressure, experiencing corrections in the exchange rate and bond prices. The shekel, for example, depreciated as much as 7.2% against the dollar and the 10-year bond yield differential widened from flat to 46 bp vis-à-vis the US. However, following the global stabilization pattern, the shekel is now 2% stronger and the yield differential is a mere 10 bp wider than the tightest reading. Although we still believe in the shekel's fundamental strength, interest rates in Israel are not in synch with strengthening domestic demand and emerging inflationary pressures.

The shekel's appreciation is no longer enough to curb inflation pressures. The consumer price index was unchanged last month, a bit lower than our projection for a 0.1% increase but higher than the consensus estimate for a 0.2% decline. As a result, the year-on-year inflation rate remained at -1.3%, still dramatically lower than 3.5% a year ago. But we all know that the overwhelming factor driving inflation from above the central bank's target range into deflationary territory has been the shekel's appreciation that pushed exchange rate-linked prices lower. The housing sector, for instance, with its long-standing habit of dollar-based contracts, posted a 1.6% drop so far this year and 5.3% over the past 12 months, contributing to the wave of deflation. However, as we have long argued, this is just a technical phenomenon, not ‘real' deflation stemming from economic weakness. Indeed, if we look beyond the headline figure, there are clear signs of higher inflation in the Israeli economy - hidden behind the veil of currency appreciation. According to the Bank of Israel's calculations, the annual inflation rate of CPI components influenced by exchange rate movements was -4.6%, whereas ‘domestic' prices unaffected by the shekel's appreciation recorded a 4% increase. Moreover, the behavior of dollar-denominated prices has also started becoming inflationary. For example, housing prices declined by 1.6% in the first five months, while the shekel appreciated by 4.7% against the dollar. In other words, even dollar-based prices are now on the rise - an unsurprising development, in our view, given the strength of domestic demand.

The narrowing output gap will become one of the key factors determining inflation. After expanding at an annualized rate of 6.3% in the first quarter, Israel's economy shows no sign of slowdown. If anything, it is highly likely to record even stronger readings in the remainder of the year, as domestic demand gains momentum. One of the leading engines of growth is private consumption, and the consumer confidence index increased by 5 points in May to the highest level in the past five years, thanks largely to sustained improvements in the labor market. The unemployment rate already declined from 10.9% in 2003 to 7.7% this year — the lowest reading in the past ten years, while real wage growth accelerated to 2.9% in the first quarter. Therefore, it was not surprising to see a sustained increase in consumer spending (reaching an annualized rate of 11.8% in the first three months of the year). It may be early to flag an episode of overheating, but the Israeli economy is certainly expanding at a rate that keeps narrowing the output gap, especially as we witness a slowdown in productivity growth.

Interest rates at current levels underestimate inflation risks, in our view. Although fundamental improvements should keep supporting the shekel's valuation (below 4.10 against the dollar), the deflationary power of currency appreciation is coming to an end and ‘domestic' factors will become far more influential over inflation dynamics. As a consequence, with the stabilization of the exchange rate and above-potential growth in domestic demand, we expect a steady increase in inflation. Considering the lagged transmission of monetary easing — 200bp since last October — the risks to growth and inflation are on the upside. This is why we think that interest rates at current levels underestimate inflation risks (arising from domestic factors as well as global developments like higher energy and food prices). In addition, thanks to technical (but temporary) deflation, Israel has decoupled from the rest of the world, as the difference between domestic and market capitalization-weighted world interest rates declined from 160bp in May 2006 to -80bp this month. We are not obsessed with interest rate differentials, but pricing perfection not just in economics but also in geopolitical affairs sets the stage for higher volatility. (MS19.06)

11.3 Persian Gulf: Currency Union - Disunited They Stand

Morgan Stanley's (http://www.morganstanley.com) Serhan Cevik noted that with deepening cracks, currency union in the Gulf looks like becoming an unattainable aspiration. On the surface, the six countries of the Gulf Cooperation Council - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates - represent an ideal group for a common exchange rate regime and monetary unification. However, turning the idea of the ‘United States of Petrodollars' into reality is proving to be easier said than done, even as these countries keep enjoying enormous gains from the global commodity boom. Officially, there is (as yet) no change in the launch date - January 2010 - for the common GCC currency, and indeed central bank authorities are working around the clock to finalize the (draft) proposal by the end of this month. "Nevertheless, we see deep-reaching cracks throughout the region that may well delay (if not shelve altogether) the planned monetary union beyond 2010. The first fracture occurred when Oman opted out of monetary union, admitting its unwillingness to meet the convergence criteria. Then, Kuwait moved ahead, in a unilateral fashion, with de-pegging its currency from the US dollar - a common feature of all GCC economies that is supposed to be the exchange rate platform prior to the launch of the new regime. In our view, these developments highlight the extent of fault lines challenging the establishment of a viable currency union.

Kuwait's move to abolish the dollar peg could become the trigger for a comprehensive adjustment. Kuwait's decision to remove its exchange rate peg to the dollar and revalue its currency is an important policy shift, in our view, even though we think that the adoption of a new peg to an undisclosed currency basket is not enough to bring necessary adjustments. Until Kuwait's (marginal) move, GCC authorities had not focused on economic imbalances and had dismissed the case for currency revaluation. This is why we think that Kuwait's decision to drop the dollar peg, coupled with Oman's resistance to the convergence criteria, may encourage other GCC countries to push forward in a more comprehensive manner. Indeed, although Kuwait's unilateral move to abolish its dollar peg is a sign of policy divergences - coming just a couple of years before the planned monetary union - it could also become the trigger for a region-wide adjustment initiative. After all, we think that the enormous increase in export revenues alone - raising the region's cumulative current account surplus from 5.4% of GDP in 2002 to 24.6% last year - justifies the revaluation of GCC currencies. However, macroeconomic imbalances have moved beyond exchange rate misalignments and broadened throughout the Gulf region.

High and variable inflation rates present an immediate threat to monetary unification. Other GCC members have so far refused to follow Kuwait's first steps in dealing with currency misalignments, but that does not mean the problem doesn't exist. Abundant liquidity and expansionary economic policies have fuelled economies with inflationary consequences, just like a perfect ‘Dutch disease' script. The average inflation rate has already increased from 0.1% from 1998 to 2002 to 4.5% at the end of last year. Although official price indices - underestimating inflation because of measurement errors and administered prices - give a misleading picture, the inflation problem is spreading out every passing month. In Qatar, for example, consumer price inflation surged from 3.2% at the end of 2003 to 11.6% in 2006 and then to 15% in the first quarter of this year. Fiscal and monetary expansion may be at the heart of the problem, but we should not ignore the role of undervalued currencies. Despite the massive oil windfall, GCC currencies pegged to the dollar have depreciated and become a source of imported inflation. In short, we think that the abundance of petrodollar liquidity, accommodative economic policies and undervalued currencies create a dangerous triangle threatening the sustainability of convergence criteria for the planned monetary union and, more importantly, economic development in the longer term.

Correcting currency misalignments would help in uniting the GCC and addressing global imbalances. On our assessment, the GCC does not meet the preconditions for monetary integration and still faces structural shortcomings that are likely to challenge the sustainability of currency union in the long run. However, we think that Gulf countries can also turn these bottlenecks into an opening for structural progress and economic diversification. Of course, the first building block of any kind of structural adjustment program must be macroeconomic stability, and this is why we hope that the authorities focus on the immediate threat of inflation. Across the region, inflation is on the rise, reaching as much as 15% in the case of Qatar and 13.5% in the United Arab Emirates. The abundance of petrodollar liquidity and the resulting spending boom may be the original culprits, but undervalued exchange rates are also exacerbating inflationary pressures. Therefore, since these countries lack financial depth and sophistication to effectively sterilize excess liquidity, we think that anti-inflation strategies must utilize the revaluation of currencies to normalize inflation dynamics. In our view, correcting exchange rate misalignments would help in uniting the GCC and addressing global imbalances. (MS15.06)

Back to Top

11.4 Kuwait: Setting Sail

The Oxford Business Group reported that in a bid to boost Kuwait's port and shipping facilities, the ministry of public works signed a deal with a Chinese consortium to start the first phase of the multibillion-dollar Boubyan Island development project. Minister of Public Works Moussa al-Sarraf inked the $410m agreement on 5 June with a three-company consortium led by China Harbor Engineering Company, a state-owned company with projects across Asia and Africa. The company beat 42 other bidders for the design-build contract. The first phase of the overall project is meant to increase accessibility to the island's port and is scheduled to take around 42 months. It will focus on the initial construction and development of the port's infrastructure, including a 36-km three-lane bridge with the Kuwait mainland.

The deal is part of a $4.6bn proposal to revitalize the island northeast of Kuwait City, which is a component of a larger $86bn plan to develop the northern region of the country. The port project, according to a report by the Kuwait Fund for Arab Economic Development, will cost around $1bn in total and will consist of a free trade zone, intermodal storage area and oil depot. Industry analysts, in conversations with OBG, said that while the government is covering the construction costs of the port, management of the port, once operational, would likely be assigned to a private sector company that will allow the public to own shares.

Thanks to its central location at the mouth of waterways to Iraq and Iran, the port has the potential to serve as a major deep-sea staging area for regional shipping and transportation activities. It will provide easy access to the Iraqi city of Umm Qasr and, if everything proceeds according to plan, rail links to Iraq, Iran and Saudi Arabia.

Originally, the ports project was due to open by 2009 but delays over the build-operate-transfer scheme have pushed back completion dates by at least a year. The first three-container berths, originally due to come online next year, have been postponed until late 2009, with the following five berths similarly delayed. The full development of the port will be executed in five phases over the next 16 years and, once finished, will have a planned capacity of 3.5m twenty-foot equivalent units (TEUs).

However, Boubyan Port is not the only maritime project making waves in Kuwait right now, as Kuwait's other major commercial ports are also reporting record growth. Kuwait's existing container terminals at Shuwaikh and Shuaiba have been booming, due to the rapid expansion of the local economy and their strategic location for Iraq-bound freight. According to the most recent statistics from the Kuwait Port Authority (KPA), port capacity has more than doubled since 2000 to over 750,000 TEUs. That growth is expected to continue in 2007, with first quarter results for both terminals already showing a 15% growth in container transit over 2006 and a 19% increase in TEUs over 2006.

The facilities at Kuwait's ports historically have not been among the most developed in the region, often suffering from excessive bureaucracy and insufficient infrastructure. Customs delays are still commonplace and there are generally only three gantry cranes operational at any one time. As a result, shipping is often rerouted to neighboring Gulf states.

However, KPA has been working to boost the efficiency and capacity of the Shuwaikh Port to 2m TEUs, and has been investing heavily in hardware. The port currently handles around 80% of Kuwait's freight traffic. According to Ted Malone, manager of container operator Gulftainer Kuwait, "New gantry cranes and yard equipment, redevelopment of stacking areas, and installation of enhanced computer systems are all in the pipeline, in addition to the deepening and widening of the approach channel to allow larger ships to use the terminals." Shuaiba Port will also see further investment in its infrastructure, with an additional four post-Panamax gantry cranes to be added over the coming years. KGL Ports International, who operates the container terminal at Shuaiba, has announced an additional $60m worth of capital to modernize the facility. (OBG19.06)

11.5 Oman: Fuelling The Future

With the clock ticking on the life expectancy of the Middle East's fossil fuel reserves, a private firm in Oman is planning to produce biofuel from plant cellulose that derives from the sultanate's abundant date palm groves. On June 22, the Oman Green Energy Company (OGEC) announced plans to invest an initial $28.65m in a biofuel production facility at the industrial centre of Sohar, on the Gulf of Oman, that will initially turn out 900,000 tons of ethanol annually. With further investments - the company is hoping European backers will buy into the development - output could be increased to 4.8m tons a year.

Though the scheme is a radical one, with cellulose from date palms never before having been used as a raw material for ethanol, initial experiments carried out by OGEC showed the process to be viable. Announcing the project, OGEC's CEO Mohammed Saif al-Harthy said the plant would be the first of its kind in the Arab world. "Once in operation, not only will it be one of the country's largest employers, but it will also significantly contribute to the economy, boosting the agriculture sector, besides considerably reducing pollution," al-Harthy said in an interview with regional media.

Under the project's schedule, the processing plant will be up and running by the end of 2007 or in early 2008, with OGEC planning to start collecting raw material from the middle of this August. The equipment for the project is to be imported from Brazil, one of the world's leaders in biofuel.

At first, OGEC plans to extract cellulose from around 80,000 mature trees. It is looking to establish further plantations with up to 10m additional date palms to expand its resource base in the future. Among the many attractions of the project is that the date palm grows widely in Oman, does not require as much water as many other crops used for ethanol production and is a renewable resource.

Unlike other biofuel production methods, which involve the crushing or processing of plants such as sugarcane or other species of trees, the OGEC process involves extracting cellulose from date palms without damaging the trees. Not only does this method reduce the drain on nutrients from the soil but the trees themselves will remain productive, with farmers being able to harvest the usual crop of dates for which Oman is famous along with the cellulose. Though final authorization for the processing plant has to be issued by environmental agencies, planning permission has been granted and Omani officials are said to be strongly supporting the project.

As far as the government is concerned, one of the most appealing aspects of the project is that it is expected to provide employment for some 4000 Omanis, many of them in rural areas, who will be involved in the extraction process. There will also be 50 people working at the Sohar factory, processing the raw material. All those involved in the project will receive five months of training.

OGEC does not intend to limit its ambitions to producing ethanol, the company having far broader plans in the pipeline. According to al-Harthy, OGEC will have a chain of up to 100 filling stations across the sultanate by 2010, when the Sohar plant comes fully on line. There is also good potential for exporting ethanol, as Dubai is building a power station that will be fuelled by ethanol. Al-Harthy held out high prospects for the project, saying that the facility at Sohar was expected to turn a profit in its first full year of operation, with earnings expected to go up sharply as production increases. "Our cost of production, according to detailed studies we conducted, will be $200 per ton against the average worldwide price for the finished product of $450 a ton," he said. "Hence, on an initial production of 900,000 tons annually, we are looking at a profit of $225m in the first year."

Though OGEC hopes that its initiative will inspire more Omanis to take a serious look at alternative fuels and to use the locally produced ethanol in their vehicles, pick up of biofuel in the sultanate and beyond is expected to take time. At least 80% of the plant's output will be exported, with Europe, China and India considered as prime markets. (OBG26.06)

11.6 Oman: Reconstruction Costs

As efforts following the devastation of Cyclone Gonu are shifting from rescue and emergency services to rebuilding, the financial cost of the early June storm is beginning to be tallied up. On June 16, the ministry of national economy said an early estimate of the cost of the storm damage is between $3.2bn and $3.9bn. Of this, up to $2.58bn is for damage to Oman's infrastructure, with transport, utilities and communications all hard hit.

One sector likely to be strongly affected is the construction industry, through direct disruption to supplies caused by the storm itself and by the longer-term necessity to divert materials for reconstruction work, particularly for vital infrastructure links. Much of the construction sector's resources will have to be allocated to this effort in a rapid program of rebuilding to help the economy return to full productivity. In turn, the construction industry needs the infrastructure to be in place in order to operate.

Such is the case for the sultanate's leading cement producer. Though reporting little storm damage itself, Oman Cement reported it lost $1m in profits due to the disruption to its gas supplies. The losses, which represent around 2% of the company's estimated profits for the 2007 financial year, will be hard to make up as Oman Cement's facilities were already running at full capacity. The cutting of major road links has also affected the delivery of raw materials and the supply of products to clients.

Soumya Dasgupta, sales manager of Muscat Readymix, said in an interview with a local newspaper on June 17 that the company was able to meet only between 50 and 60% of its orders. "At present, we are receiving only around 20% of our cement demand from Oman Cement, and even this is supplied after delays of two to three days per load," he said. The sultanate's other main cement producer, Raysut Cement, has attempted to bridge the gap by doubling output at its Salalah facility, lifting production to around 3200 tons a day.

Cement, the primary building block in most construction projects, was already in short supply in Oman due to the country's construction boom, with additional supplies having to be imported to make up the shortfall in domestic production. The increased demand for building materials was reflected on the Muscat stock exchange, which itself was out of action for the best part of a week due to cuts in electricity. Shares in Raysut Cement climbed 2.57% on June 14 while Oman Cable Industries, which supplies electrical and communications cabling, much in demand after damage to power phone links, also saw its share price rise by a similar amount.

Omani media reported that a number of the sultanate's premier infrastructure projects, including work at the Seeb Airport interchange and construction on the dual carriageway for the Amerat-Qurayat highway, suffered extensive storm damage. According to Sanjay Raina, the director of projects in the Middle East for the India-based Nagarjuna Construction Company, which is building the highway, the damage was significant. More than six months of continuous day-and-night work has literally gone down the drain, Raina said in an interview with local media on June 13.

Demand for building supplies will escalate even further once a full assessment of damage done to private property is completed. Economy ministry officials on June 17 began the task of surveying the first of up to 70,000 storm-damaged houses.

Yet another drain on the sultanate's long-term cement supplies will be the construction of a series of new dams to mitigate the effects of future storms. Three dams and a large canal are to be constructed across the Wadi Adai in Muscat to control floodwaters and to cope with the runoff caused by extreme rainfall such as that brought by Gonu. Work on the Wadi Adai flood limitation project, which will have a budget of $62m, is scheduled to begin as soon as plans have been finalized. The government has also announced it will build another nine dams in outlying regions hit by the storm and upgrade another to help reduce the impact of flooding.

Though the government is expected to keep a tight rein on the price of building supplies, massive competition for commodities such as cement, and the necessity of importing material from an already tight regional market, will probably push up costs and add to Oman's recovery bill. As the country's focus shifts, at least for now, from development to reconstruction, many projects may either be put on the backburner or suffer major delays from their planned completion dates. (OBG19.06)

11.7 Fitch Revises Egypt's Outlook to Positive

On 18 June, Fitch Ratings (http://www.fitchratings.com) revised the Outlook on the Arab Republic of Egypt's Long-term foreign currency Issuer Default rating (IDR) to Positive from Stable, while affirming the rating at 'BB+'. The agency has also affirmed the Long-term local currency IDR at 'BBB' with a Stable Outlook, the Short-term foreign currency IDR at 'B' and Country Ceiling at 'BB+'.

"Egypt's creditworthiness is improving gradually, thanks to ongoing economic reforms which address many of the areas that still weigh on Egypt's ratings," said Richard Fox, Head of Fitch's Middle East and Africa Sovereign rating team. "The budget deficit and debt ratio will fall appreciably this year and have clearly turned a corner; banking system restructuring is nearing completion; and further reforms are planned to improve the business environment. Growing confidence in the policy framework has brought increased investment and accelerated economic growth. A current account surplus, coupled with strong capital inflows, has increased reserves and helped Egypt attain net external creditor status last year - unusual in the 'BB' rating category."

The general government budget deficit is estimated to have fallen close to 6% of GDP in fiscal year 2006/7 (July to June) and the gross debt ratio will fall to near 80% of GDP, compared with over 9% and 90% respectively in 2005/6. The net debt ratio should also fall after three years at 70%. Notwithstanding this sharp improvement, however, public finances remain a relative weakness in Egypt's credit profile and explain the continuing Stable Outlook on Egypt's local currency IDR. Further progress is needed to bring these ratios closer to peer group medians. Fitch notes the important reduction in energy subsidies of about 2% of GDP last year. The establishment of a single treasury account and the re-organization of financial relations between the Treasury, Social Insurance Funds and the National Investment Bank will bring continuing improvements to public finances. Pension reform, further tax reform and improved public spending efficiency will also strengthen public finances.

Egypt's balance of payments continues to perform strongly. The current account remains in surplus, with strong across-the-board growth of external receipts. Reserves have continued to rise, spurred by FDI of 9% of GDP last year - half of it in greenfield non-oil sectors. The current account surplus is, nevertheless, dwindling due to rapid import growth and a deficit is in prospect for 2008. However, it will remain well covered by FDI. The structure of Egypt's sovereign external debt, meanwhile - mainly bilateral and concessional - supports the rating. The debt service ratio and external liquidity both compare well to peers.

GDP will grow around 7% this year, unemployment is falling and the investment ratio is rising. Reforms are raising the efficiency of investment and Fitch will be looking for further improvement in the business environment, which remains relatively weak, to sustain high growth rates and rising per capita incomes. Completion of banking sector restructuring and supervisory reforms is also important to support investment and growth. Inflation, boosted to double digits by a number of one-off factors last year, is high relative to peers but has fallen to 10% and should return to single digits this year. Completion of reforms to the monetary policy framework, including an eventual move to inflation targeting, will make an important contribution to improving the macroeconomic policy framework.

Political risks weigh on the rating but are not unique at this or higher rating levels. Per capita income, though rising, remains relatively low in peer group terms and the government is making greater efforts to ensure the benefits of faster growth are more evenly distributed. The tourist sector has proved resilient to sporadic terrorist attacks. The government is reasserting political control after the more open elections in 2005. This is not without risks, as evidenced by periodic domestic disturbances. Fitch, nevertheless, expects economic and structural reforms to continue unimpeded.

A move to investment grade will depend on evidence that current high growth rates can be sustained, which in turn will require further strengthening of the policy framework, improvement in the business environment and further reductions in fiscal ratios and inflation on a sustained basis. Reversion to a Stable Outlook could be prompted by political or economic shocks that threaten the outlook for growth or the implementation of reforms. (Fitch Ratings18.06)

The June 11 elections for the Shura Council, Egypt's upper house of parliament, have been widely criticized by local and international media as well as human rights groups with allegations of vote rigging, ballot stuffing and violence at the forefront of these reports. The ruling National Democratic Party (NDP) now has significant majorities in both the upper and lower houses of parliament.

The NDP won 69 of 71 seats in the mid-term elections on June 11. The winners did not include any candidates from the Muslim Brotherhood, the only significant opposition group, which fielded 19 candidates. One seat went to a candidate from leftist opposition Tagmuh Party and the other to an independent. Eleven candidates won uncontested. In a runoff a week later for the 17 seats where no candidate won a majority, the NDP won an additional 15 seats and the remaining two went to NDP-sympathetic independents.

This was the first parliamentary vote to take place under recent changes to the constitution that stipulate that elections are done in one day under the supervision of the newly formed Supreme Elections Commission. Previously, elections took place over several days and polling stations were monitored by judges. On the morning of the elections, a government official told OBG, "The police and authorities are still getting used to this system and problems are sure to arise. To deal with these we have established a hotline which can be called to report any irregularities... We aim to announce these problems during press conferences throughout the day and deal with them as soon as possible."

Nevertheless, opposition groups and non-governmental organizations have condemned the elections. At a press conference in Cairo, Jamal Tag Eddin, a member of the Egyptian Bar Association's board said the elections were the worst in Egyptian history. Sean McCormack, spokesman for the US State Department also expressed deep concern over allegations of irregularities and criticized the constitutional changes that seek to reduce the role of the judiciary in elections. Hafez Abu Saeda, secretary-general of the Egyptian Organization for Human Rights said, "The scale of violations, which marred the election and the vote-counting processes, are to be blamed on the Supreme Elections Commission, which failed its first test."

In an exclusive interview with OBG, Abdel Monem Said Aly, director of the Al-Ahram Centre for Political and Strategic Studies, said he did not believe that a return to judicial supervision was the answer. He said, "The old judge for every box idea paralyzed the judicial system. It politicized the judges... and caused the judges to lose their own function of judging the elections."

He said he was not surprised to see the Muslim Brotherhood pushed out of the process and attributed the one-sided results to the boycott of the elections by the main secular opposition parties and the general public apathy to the significance of the elections. The image of the Shura Council as a weak council is prevailing, he said. He explained that the official government figures of a 31% voter turnout were probably made up given that the 2005 elections for the People's Council, the lower house of parliament, which normally attract the greatest public vote, had only a 26% polling rate.

Said Aly said that Egypt would become more democratic only if all of the political parties made concessions. Egypt's future is dependent on three moves: that the NDP forget to be an elite Arabist union and become a true political party working on behalf of business, that the Muslim Brotherhood stop mixing religion with politics and that the liberals learn to talk to the street.

While this process has not yet started, he said there are reasons to be positive about the future. Said Aly said he believed a new generation of more democratic leaders from the NDP and the MB would come to the fore in the next five years, that the Egyptian middle classes would grow and become more politically aware and the country's media would become more sophisticated and more capable of producing high-quality political journalism. Said Aly told OBG he was counting on these three elements to provide a more democratic future. (OBG21.06)

11.9 IMF Executive Board Concludes 2007 Article IV Consultation with Turkey

On May 18, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Turkey.

Background

Turkey has experienced an impressive economic revival in recent years. Sound economic policies anchored to Fund arrangements, as well as political stability and favorable external conditions, have resulted in average annual growth of 7% since 2002. Private consumption and investment have been the main drivers, fueled by declining real interest rates, surging capital inflows, rapid credit expansion, and rising productivity. Meanwhile, inflation has dropped dramatically over the past five years.

The real economy has undergone significant modernization, becoming less reliant on traditional sectors and more open to trade and foreign investment. Exports have continued to gain market shares, as the effects of an appreciating currency have been largely offset by productivity gains. Slack in the labor market has kept labor costs in check.

Balance sheets have also strengthened. Public debt ratios have come down considerably, and the composition of debt has improved. Bank balance sheets have also become more robust.

These positive outcomes have been driven, in large part, by disciplined policies and advances in structural reforms. On the macroeconomic side, adherence to the 6.5% of GNP primary surplus target combined with monetary policy restraint by an independent central bank have helped bring down inflation, strengthen confidence, and ease real interest rates. The floating exchange rate has been an effective shock absorber and has provided good incentives for managing currency risks. On the structural side, bank recapitalization and enhanced supervision, tax reforms, and privatization have restarted private credit growth, promoted FDI, and spurred competitiveness.

Still, the Turkish economy faces a number of macroeconomic challenges. In particular, the economy's dependence on large capital inflows exposes Turkey to swings in investor sentiment (as witnessed during recent periods of market turbulence). Also, inflation well above target (due to a series of supply shocks, currency depreciation, and inertia in expectations) continues to require tight monetary policy. In order to sustain and build on recent improvements in growth, a number of structural challenges need to be tackled. These include a low employment rate, still limited financial intermediation, a large informal sector, and potential bottlenecks in electricity supply.

Executive Board Assessment

Turkey's macroeconomic performance in recent years has been impressive, combining strong growth with a sustained reduction of inflation. This owed much to the authorities' disciplined macroeconomic policies, strengthened economic institutions, and structural reforms, in a context of favorable external conditions, political stability, and firm commitment to Fund arrangements. Directors considered, however, that Turkey needs to manage vulnerabilities carefully and address structural challenges to increase the economy's growth potential and resilience to shocks.

Directors welcomed the significant progress made in addressing the large imbalances inherited from the 2001 crisis. They called on the authorities to build on this progress by further reducing public debt and bringing inflation to the low single digits. They observed that new vulnerabilities have arisen as a byproduct of the recent strong performance. In particular, large capital inflows fuel lira appreciation and a widening current account deficit, exposing Turkey to sudden shifts in market sentiment. This calls for maintaining fiscal and monetary discipline and preserving the floating exchange rate as a useful shock absorber. It also puts a premium on continuing to build buffers in balance sheets and improve financing structures. In this regard, Directors supported the authorities' plan to increase gradually and predictably the level of international reserves.

Directors agreed that a tight fiscal policy has been key to achieving the primary fiscal surpluses and the recent economic successes, but considered that too much reliance may have been placed on revenue increases and investment restraint. Going forward, fiscal discipline-possibly underpinned by a fiscal rule-will continue to be needed to reduce debt, support disinflation, and buttress market confidence. Tight control over current spending will facilitate efforts to ease the heavy tax burden, especially on labor and financial transactions. Noting the spending overruns in early 2007, Directors welcomed the plans to bring the fiscal position back on track, and encouraged the authorities to adhere closely to them in order to achieve the 2007 primary surplus target of 6.7% of GNP.

Directors supported the measures to increase fiscal transparency and the reform of personal income taxation. They called for further fiscal reforms to contain nondiscretionary spending. Revised social security legislation that preserves the savings targeted in the 2006 reform law should be adopted as soon as possible. Social services efficiency should be improved, and civil service pay rationalized. Continued reforms to improve tax collection will be essential to create fiscal space. In that connection, Directors called for continued efforts to reduce fragmentation in tax administration and make the large taxpayer unit fully effective.

Directors underscored the importance of achieving a low single-digit inflation rate to reduce still-high real interest rates. They endorsed the central bank's tight monetary stance, and its intention to defer interest rate cuts until inflation is firmly on a path toward the 4% target. Directors emphasized that preserving central bank independence will be essential for the success of inflation targeting.

Directors stressed the need to deepen financial intermediation while preserving the soundness of the financial system. They commended the authorities for adopting the mortgage law and beginning the privatization of Halkbank. To ensure that rapid credit growth does not compromise bank soundness, they called for stepping up supervisory oversight, tightening provisioning requirements further, and improving the timeliness of corporate balance sheet data.

Directors considered that removing impediments to employment creation and labor productivity growth is crucial for enhancing the economy's growth potential, with an easing of labor regulation a priority. Reductions in labor taxes are needed, provided that they do not compromise the debt reduction objective. Directors encouraged the authorities to advance the privatization program. Restructuring the energy sector, by privatizing electricity distribution companies and allowing better cost-recovery pricing, will be particularly important. (IMF12.06)

Morgan Stanley's (http://www.morganstanley.com) Serhan Cevik observed that Turkey is in a period of uncertainty, but markets are paying little attention to this. "Over the past five years, despite a long list of geopolitical and financial shocks, we have maintained a constructive assessment of Turkey's economic normalization and valued its institutional convergence towards Europe no less than fiscal consolidation and disinflation. Indeed, the sustainability of macroeconomic gains depends critically on institutional predictability and credibility, as much as on prudent policies. Unfortunately, recent events have sparked significant institutional and political uncertainty, making us uneasy about the country's prospects for the first time in years. However, financial markets have so far presented a curious response to the re-emergence of long-forgotten institutional and political risks. Dismissing the events following the military's venture into politics, the lira has become stronger, and interest rates keep declining. Turkey has, of course, become less vulnerable to ‘fat tail' events, thanks to economic normalization and structural progress, but that is still not enough to explain the prevailing sense of enthusiasm in financial markets. In our view, the paradox of higher institutional/political uncertainty and rising asset prices is largely a result of global liquidity and the lure of carry trades.

The abundance of global liquidity has an overwhelming influence on Turkish markets. Notwithstanding our concerns about institutional and political challenges, we still believe that the economy is strong enough to absorb shocks and grow at a robust pace. The latest indicators - ranging from export growth to disinflation - confirm our assessment. Nonetheless, the decisive factor for international investors is still the abundance of global liquidity and the resulting attraction of high interest rates. Channeling ‘excess' liquidity in low-yielding currencies into higher-yielding markets is not surprising in today's liquidity-driven world, as even central banks and sovereign wealth funds accumulate risky assets; however, the unprecedented extent of capital flows creates valuation and policy dilemmas in developing countries.

Foreign holdings of equity and domestic debt have reached an all-time high in Turkey. Markets may undergo occasional abrupt fluctuations, but volatility (measured by the CBOE index) dropped from an average of 20.1 between 1990 and 2002 to 12.8 so far this year. In our view, the feedback channel between the moderation of volatility and risk appetite has supported leveraged bets, especially on higher-yielding currencies. Turkey, for example, is such a point of attraction in the sea of global liquidity. Foreign holdings of equity and domestic debt surged from $15.1b in 2003 to $54.6b at the end of 2005 and then $59b in April 2006, just before the global volatility shock. After a brief period of adjustment, higher interest rates, coupled with strong economic fundamentals, have attracted even more foreign capital into Turkish markets. Although the lira's sudden depreciation last year altered the behavior of residents (who then accumulated $30b in foreign currency-denominated instruments), foreign investors have become even more enthusiastic. According to the latest data, foreign holdings of equity and domestic debt increased to $81.5b, especially as non-residents accumulated 21b Turkish lira in domestic debt since last summer. As a result, non-residents own more than 70% of free float in the equity market and 37% of non-bank holdings of domestic government debt.

Changes in global risk appetite remain a risk, but the lira is unlikely to weaken dramatically. With the strength of global risk appetite, cross-border capital movements have kept credit spreads low, boosting markets like Turkey that offer higher returns. Of course, even though the quality of external financing has improved in recent years, Turkey is still exposed to liquidity-driven portfolio flows and thus vulnerable to the unwinding of carry trades. However, the lira's downside is limited, in our opinion, for four key reasons: (1) the Turkish economy stands on a stronger footing; (2) residents already have long dollar positions; (3) interest rate differentials limit the extent of carry erosion; and (4) tight liquidity conditions in the domestic money markets provide reasonable support. Even so, we do realize that monetary variables cannot shield against the deepening of political uncertainty, which could suddenly corral the Istan-bull. (MS14.06)

The EU is just weeks from a final decision on whether Cyprus will be allowed to adopt the euro on January 1st 2008 as planned. For many, the decision is a purely technical one, and as such will be waived through without regard for the stalled talks on the island's re-unification. But it is a lost opportunity - and probably the last in the any time soon - for EU member states to pressure Greek Cyprus into agreeing a deal with the unrecognized Turkish Republic of Northern Cyprus (TRNC).

In early June, the European Commission backed the euro adoption date, saying that Cyprus had achieved a "high degree of sustainable economic convergence" and had met all the Maastricht criteria. EU heads of government will discuss the issue at their next European Council summit on June 21st-22nd; after consulting the European Parliament, a final decision will be made by EU finance ministers on July 10th. Approval is usually viewed as a "rubber-stamping" exercise. The EU commissioner for economic affairs, Joaquin Almunia, said on May 16th that he was "absolutely sure" that Cyprus would adopt the euro in January 2008. Despite much speculation to the contrary, Germany too indicated that it would not stand in the way of Cyprus's euro ambitions.

Reviving Unification

Cypriot media had been rife with reports that Germany might have threatened to use its veto as a means to force through agreement on the unification. In mid-May, for example, a German journalist had asked Mr. Almunia if allowing Cyprus to adopt the euro was not sending "the wrong signal", while in April, the German finance minister, Peer Steinbruck, reportedly suggested that political considerations would be taken into account for Cyprus.

One such concern was the refusal by Greek Cypriots to countenance a deal allowing the unrecognized TRNC to have direct trade access with EU member states. Direct trade has been on the table since mid-2004, after Turkish Cypriots had voted in favor of a UN unification plan and Greeks had rejected it. Germany, as the current EU president, has worked hard to persuade Greek Cypriots to make concessions. The issue has also been complicated by Turkish attempts to tie the question into the implementation of the so-called "Ankara Protocol" - related to its own EU membership application - which requires Turkish ports to open up to Cypriot air and sea traffic. An agreement last July to restart technical talks has gone nowhere. A Greek Cypriot offer allowing Turkish Cypriot trade through the internationally recognized port of Larnaca in the south, instead of the unrecognized port of Famagusta in the Turkish north, was not acceptable to the TRNC. It is quite possible that the Larnaca option was offered in the knowledge that the TRNC would surely reject it, which it duly did.

No Deal

Without outside pressure on Greek Cyprus, however, no deal on trade, let alone unification, seems likely in the foreseeable future. Turkey is under no pressure to implement the Ankara protocol before 2009, and Greek Cypriots show no sign of compromise (and certainly not before their own presidential election due next February).

Even if the EU were to take a tougher stance, it is unclear on what grounds it might veto euro-area entry: some have suggested money-laundering in northern Cyprus. But this seems highly unlikely. According to Protocol 10 of Cyprus's EU accession treaty, the application of the acquis communautaire (the body of EU law) has been suspended in the areas in which the government of the Republic of Cyprus does not exercise effective control, namely in the Turkish Cypriot zone. In any case, the European Commission has already clearly stated that in the case of reunification, these areas would automatically shift to the euro, and that the adaptation of the laws and other issues would need to be "worked out as part of the reunification process".

The odds are that Cyprus will adopt the euro as planned. But in giving the Nicosia government the green light without extracting political concessions, the EU will have made the same miscalculation as when it extended EU membership in 2004 without a clear commitment from Greek Cyprus to end the divisions on the island. (EIU06.06)

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- Israeli Shekel conversions done at a rate of NIS 4.20 = $1.00
- Turkish Lira conversions done at a rate of NTL 1.5 = $1.00
- Cypriot Pound conversions done at a rate of C£ 1.00 = $1.60
- Jordanian Dinar conversions done at a rate of JD 1.00 = $1.41
- UAE Dirham conversions done at a rate of Dh 3.70 = $1.00
- Omani Rial conversions done at a rate of OR 0.385 = $1.00
- Pakistani Rupee conversions done at a rate of Rs 60 = $1.00

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

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