TOP STORIES

• MITL Signs R&D Agreement with New York State
• Crate and Barrel Announces UAE Expansion Agreement
• UBS Raises Israel Growth Estimates
• Bulgaria Speeds Up Efforts to Join Eurozone
• Alpha Impact Offers Sensual Man Pheromones Cologne
• State of Economy Index Rise Underscores Recovery
• PERSIAN GULF: GCC Rail Projects Steam Ahead
• TURKEY: Medium-Term Program - it is Home-Made
  

TABLE OF CONTENTS:

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Finance Ministry Approves Stronger Securities Authority Sanctions
1.2 Government Extends Exporter Aid Program
1.3 MITL Signs R&D Agreement with New York State

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 UNDT Enters Agreement for Distribution of Biological Weapon Detection Equipment in Israel
2.2 RiT Technologies Regains Compliance With NASDAQ Bid Price Rule

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Louis Vuitton Eyes Lebanon Expansion
3.2 AES Begins Commercial Operation of New Jordanian Facility
3.3 Acxiom Acquires DMS as Entry Point into Middle East Market
3.4 Crate and Barrel Announces UAE Expansion Agreement
3.5 Positron Announces Pulse CDCC Sale to Pakistan Institute

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4: ISRAEL MACRO-DEVELOPMENTS

4.1 UBS Raises Israel Growth Estimates

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Jordan First Half GDP Rises 3% in Real Terms
5.2 Government of Canada Tables Text of Canada-Jordan Free Trade Agreement
5.3 Jordan Signs 5 Grant Agreements with the US
5.4 Jordan's Unemployment Rate Rises To 14%
5.5 Kuwait Cabinet Establishes New Islamic Bank
5.6 Economic Crisis Drives 17,000 Expatriates Out of Kuwait
5.7 Bahrain's Economy to Grow 3% In 2009
5.8 UAE Inflation Rises Slightly In July
5.9 Central Bank Says Omani Economic Growth Between 1%-2%
5.10 Research & Markets Finds Saudi Housing Sector Promising
5.11 Egypt's First Solar Energy Unit To Operate In 2010
5.12 Algeria Agribusiness Report for Q4 2009

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Bulgaria Speeds Up Efforts to Join Eurozone
6.2 Bulgaria 2010 State Budget to Stress Highways, Education & Ecology

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 On Eve of 5770 Israel's Population Stands at 7.5 Million
7.2 Sukkot Observed
7.3 Simchat Torah Celebrated
7.4 Israelis' Life Expectancy Is Rising

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*REGIONAL:

7.5 Turkish Opposition Furious Over Alleged Alphabet Changes
7.6 Greek Elections to be Held on 4 October

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Alpha Impact Offers Sensual Man Pheromones Cologne
8.2 Pluristem Doses First US Patient With Placenta-Derived Stem Cell Product PLX-PAD
8.3 Makhteshim-Agan & Cibus Agree to Co-develop Proprietary Crop Protection Traits

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Chi-Tech Adopts IBM's Israel Developed High Speed Messaging Technology
9.2 Mobile Star Corp. Files Additional Patent Applications to Expand International Protection
9.3 HaWi & SolarEdge Announce Sales and Distribution Partnership
9.4 Oshkosh & Plasan Awarded Contract for Additional 352 M-ATV Armor Kits
9.5 New Lucid HYDRA-Powered MSI Big Bang Gaming Motherboard to Make Multi GPU History
9.6 Jordan Valley Delivers JVX6200 XRR Metrology Tool to a Leading-Edge HDD Manufacturer
9.7 Kryon Systems Launches Beta of the Next Generation of Help and Execution Tools
9.8 ClickSoftware's New ServiceOptimization Suite Version 8.0 Keeps Service Levels Ahead
9.9 Anti-spam & URL Filtering Solutions from Commtouch Selected by DeepNines

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10: ISRAEL ECONOMIC STATISTICS

10.1 State of Economy Index Rise Underscores Recovery
10.2 Israel's GDP Growth Confirms Recession End
10.3 August Saw Record Demand for Workers

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11: In Depth

11.1 ISRAEL: BoI on Hold - So Is ILS Appreciation (for Now)
11.2 ARAB MIDDLE EAST: Mideast Seen Leading Air Traffic Growth To 2028
11.3 ARAB WORLD: FDI Inflows to the Arab World Down 6.3%
11.4 PERSIAN GULF: GCC Rail Projects Steam Ahead
11.5 PERSIAN GULF: Realism Enters Persian Gulf's Real Estate Market
11.6 UAE: Fitch Affirms Abu Dhabi at 'AA'; Outlook Stable
11.7 UAE: Dubai World Shaken
11.8 UAE: Abu Dhabi - Powering the Future
11.9 ALGERIA: Pharmaceuticals & Healthcare Report for Q4 2009
11.10 MOROCCO: Pharmaceuticals & Healthcare Report - Updated Q4/09 Edition
11.11 TURKEY: Medium-Term Program - it is Home-Made
11.12 TURKEY: Pharmaceuticals & Healthcare Report Q4 2009
11.13 BULGARIA: Statement by the IMF Mission to Bulgaria

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1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Finance Ministry Approves Stronger Securities Authority Sanctions

Israel Securities Authority chairman Goshen has finally achieved one of his key goals after two years. The Ministry of Finance recently approved the draft supplementary enforcement law, after years of delay and difficulties in cooperation between the Ministry of Justice, Ministry of Finance and the Securities Authority. The law will permit the Securities Authority to impose fines of up to NIS 1 million on individuals, limit the employment of managers of public companies, and claw back illegally accumulated money for non-criminal offenses. The law will not come into effect immediately. The Securities Authority predicts that several months to a year will pass until the ministerial committee for legislation and then the Knesset pass the bill. Currently, the Securities Authority's main means of enforcement is criminal proceedings, which is a lengthy and costly process, in which the offense does not always justify a criminal indictment. The Securities Authority can also levy civil fines in certain, easily verifiable cases.

In effect, for cases that are not defined as criminal violations - i.e. no criminal intent - there is no proper enforcement procedure, which affects the Securities Authority's deterrent power. The new law will only require negligent conduct, without criminal intent, which will render the legal process faster and more efficient. The administrative procedure also requires full transparency, i.e. every investigation into an individual or company under the new law will be published, even if no indictment results. (Globes 21.09)

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1.2 Government Extends Exporter Aid Program

The Ministry of Industry, Trade & Labor recently agreed with the Ministry of Finance to extend the exporter aid program, which was due to expire at the end of 2009, until the end of 2010. Israeli companies that exported less that $10 million in the year preceding their application are eligible for the program. They will receive advice on hedging against foreign exchange fluctuations, changes in prices of commodities and raw materials, interest rates, and other risks. An exporter wanting to participate in the program will submit an application, which a Ministry of Industry team will review, and send its recommendation to the program committee for discussion, and possible approval. (Globes 24.09)

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1.3 MITL Signs R&D Agreement with New York State

On 16 September, Minister of Industry, Trade & Labor Ben-Eliezer and New York Governor Paterson signed a memorandum for an industrial R&D cooperation agreement between Israel and New York State. This is the first agreement of its kind ever made by New York State and the second of its kind by Israel with a US state. The Office of the Chief Scientist will run the joint program. Two teams will be set up to apply and operate the program. The agreement sets out various objectives, including the strengthening of knowledge and technology ties between Israel and New York State, for the broadening of bilateral commercial relations, and help for ventures to obtain financing. (Globes 16.09)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 UNDT Enters Agreement for Distribution of Biological Weapon Detection Equipment in Israel

Beverly Hills' Universal Detection Technology, a developer of early-warning monitoring technologies to protect people from bioterrorism and other infectious health threats and provider of counter-terrorism consulting and training services, has signed a distribution agreement with M.D. Peled Consulting & Engineering Services (Israel) Ltd, an Israeli supplier of security technology systems. Under the new agreement, M.D. Peled will market and distribute Universal Detection Technology's Bio-Weapon Detection Systems to government and private sector users in Israel. M.D. Peled will distribute UNDT's five agent handheld biodetection kits, which recently received certification by the Department of Homeland Security under the SAFETY Act. (UDT21.09)

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2.2 RiT Technologies Regains Compliance With NASDAQ Bid Price Rule

RiT Technologies announced that the NASDAQ Hearings Panel, following the Company's regaining of compliance with the minimum bid price requirement of $1.00 per share, has determined to continue the listing of RiT shares on the NASDAQ Capital Market. To achieve compliance, the Company affected a one-for-eight reverse share split of its outstanding Ordinary Shares on August 24, 2009, decreasing the number of its authorized Ordinary Shares to 4,997,471.2 and the number of its Ordinary Shares outstanding to approximately 2,604,428. For a period of 20 trading days, the Company's NASDAQ symbol was changed to RITTD and returned to RITT on September 22, 2009.

Tel Aviv's RiT (http://www.rittech.com) is a leading provider of intelligent solutions for infrastructure management, asset management, environment and security, and network utilization. RiT Enterprise solutions address datacenters, communication rooms and workspace environments, ensuring maximum utilization, reliability, decreased downtime, physical security, automated deployment, asset tracking, and troubleshooting. RiT Environment and Security solutions enable companies to effectively control their datacenters, communications rooms and remote physical sites and facilities in real-time, comprehensively and accurately. RiT Carrier solutions provide carriers with the full array of network mapping, testing and bandwidth qualification capabilities needed for access network installation and service provisioning. RiT's field-tested solutions are delivering value in thousands of installations for top-tier enterprises and operators throughout the world. (RiT23.09)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Louis Vuitton Eyes Lebanon Expansion

French fashion brand Louis Vuitton, which will open its flagship Middle East store in Dubai in October, is in the 'final stages' of a planned expansion into Lebanon. The company was also looking into Egypt, Jordan and in Syria as possible markets. The next market where there are opportunities is clearly Lebanon, which has been resilient to the crisis and has already shown to be a strong market for luxury. Louis Vuitton, whose wares are designed by Marc Jacobs and advertised by singer Madonna in glossy magazines, is part of luxury giant LVMH. The parent company derived about 30% of its sales from emerging markets in the second quarter, with China contributing the most. (BI-ME16.09)

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3.2 AES Begins Commercial Operation of New Jordanian Facility

Arlington, Virginia's AES Corporation announced the start of commercial operations of a new facility at Amman East, a 380 MW combined cycle gas plant in Jordan. The Amman East combined cycle gas plant is the first independent power producer in Jordan and increases the country's electricity generation capacity by 18%. Amman East is also one of the most efficient generation facilities in Jordan. The AES Corporation is a Fortune 500 global power company with generation and distribution businesses. (AES17.09)

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3.3 Acxiom Acquires DMS as Entry Point into Middle East Market

Little Rock, Arkansas' Acxiom Corporation announced a strategic expansion into the Middle East-North Africa (MENA) market with the acquisition of DMS (Direct Marketing Services) in Saudi Arabia and the United Arab Emirates. The new Acxiom MENA organization will serve global and regional clientele from offices in Jeddah and Dubai. The operation will be led by DMS Managing Director Yousef Hamidaddin, who becomes CEO of Acxiom MENA. Alaa Al-Shroogi of Dubai will serve as president. Working in partnership with the Saudi Post, DMS has been a pioneer in the Middle East's direct mail industry and has expanded its offerings to become a full-service direct marketing agency. DMS recently became a member of the Universal Postal Union Direct Mail Advisory Board. (Acxiom23.09)

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3.4 Crate and Barrel Announces UAE Expansion Agreement

Northbrook, Illinois' Home furnishings retailer Crate and Barrel entered into a franchise agreement with noted franchise specialist Al Tayer Group to open stores in the Middle East in 2010. Initial plans call for Crate and Barrel stores in Dubai's Mall of the Emirates and Mirdif City Centre. The stores will be managed and operated by Al Tayer Trends, Al Tayer Group's lifestyle retail company. Al Tayer Group is a diversified regional business established in 1979 with its headquarters in Dubai, UAE. Since its inception, the Group has grown rapidly and currently operates in 12 countries in the Middle East and beyond, with over 7500 employees of 88 nationalities. It has built leading operations in multiple sectors, including retail, automotive, distribution, engineering & contracting and services. Al Tayer Trends is an Al Tayer Group company building new frontiers in lifestyle retail across the Middle East. It operates over 95 stores in Bahrain, Kuwait, Oman, Qatar and the UAE. (Crate and Barrel29.09)

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3.5 Positron Announces Pulse CDCC Sale to Pakistan Institute

Indianapolis' Positron Corporation, a molecular imaging solutions company focused on Nuclear Cardiology, announced the sale of a Pulse CDCC camera to CPE Institute Of Cardiology in Multan, Pakistan. The Pulse CDCC, a compact digital cardiac camera (SPECT camera), with a robust cardiac specific, imaging software package designed to ensure effortless interpretation for today's most challenging clinical cases. In the past 6 months, Positron has seen an increase in the global demand of nuclear cardiology and imaging devices. There has been great interest from Asia and the Middle East in SPECT imaging, in specific Positron's Pulse CDCC camera. (Positron23.09)

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4: ISRAEL MACRO-DEVELOPMENTS

4.1 UBS Raises Israel Growth Estimates

UBS has joined Morgan Stanley and Barclays Capital in projecting positive growth for the Israeli economy this year. In an updated review, UBS economist Reinhard Cluse has raised his growth estimate from -0.8% to 0.3% for 2009, and from 2.7% to 3% for 2010. He describes the recession in Israel as having been short and mild. The economy grew at a rate of 1% in the second quarter, and thus technically emerged from recession. Cluse's growth estimate for 2010 is the most aggressive yet published, but he notes that "this is above consensus, but still below Israel's medium-term growth potential, which we estimate at around 4%." Cluse believes that the Bank of Israel will continue to reduce its involvement in the market, and will switch to a policy of monetary tightening. Like most foreign institutions with a bullish position on the shekel, UBS too estimates that economic growth and the current account surplus will continue to support an appreciation of the shekel against the US dollar. The Bank of Israel sees a $6.9 billion current account surplus this year. Cluse sees shekel-dollar exchange rates of 3.80/$ at the end of 2009, and 3.50/$ at the end of 2010. On fiscal policy, Cluse writes, "The high public-sector debt stock remains a major blemish in Israel's macro picture. Yet, conservative fiscal policy in recent years has helped to cut the debt stock from 100% of GDP in 2003 to 78% of GDP in 2008. This has given the government room to boost deficit spending substantially this year without spreading panic in the bond market. Obviously, the markets remain convinced that public finances will not spiral out of control and that, after a rise of two to three years, the debt ratio will decline again over the medium term." (Globes 21.09)

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Jordan First Half GDP Rises 3% in Real Terms

Jordan's gross domestic product expanded by 3% in H1/09 compared to the same period last year, the statistics department said on 23 September. The Department of Statistics (DOS) said GDP growth in the second quarter was 2.8% year-on-year, slowing down from 3.2% in the first quarter of the year as the global economic downturn hit domestic demand. Second quarter growth was highest in agriculture which posted a 14% rise compared with the same period last year, followed by construction rising 13.25% and transport and telecommunications up by 4.45%. Among the sectors most hit were mining and financial services and real estate, which fell 9.6% and 1.6% respectively. A slowdown in the economies of trading partners in the Gulf region and a decline in remittances and reduced foreign investments had lowered Jordan's estimates of growth in gross domestic product to about 35 in 2009 from 5.6% for 2008. The 3% real growth forecast this year that is close to IMF estimates is almost half the levels that averaged 6% annually in the last few years, officials say. (BI-ME24.09)

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5.2 Government of Canada Tables Text of Canada-Jordan Free Trade Agreement

The texts of the Canada-Jordan Free Trade Agreement (FTA) and several parallel agreements were tabled in the Canadian Parliament on 15 September 2009. For 21 sitting days in Parliament, the agreements will be open for review and debate. Following this time, the government has the stated intention of introducing laws that would bring these agreements into force. These agreements were signed in June 2009. In addition to the FTA, the texts of the Canada-Jordan Labour Cooperation Agreement (LCA), the Canada-Jordan Agreement on the Environment (AE), and the Canada-Jordan Foreign Investment Promotion and Protection Agreement (FIPA) have also been tabled. In 2008, two-way merchandise trade between Canada and Jordan was valued at C$92-million. Important Canadian exports to Jordan include paper and paperboard, copper products, pulse crops, machinery and wood pulp. The FTA will eliminate all non-agricultural tariffs and most agricultural tariffs, in addition to commitments to reduce non-tariff barriers. Tariffs on certain Canadian exports in the 10-30% range will be eliminated immediately. Exports that will benefit from this treatment include pulse crops, frozen French fries, animal feed, various prepared foods, and certain forest products and machinery. The FTA will also eliminate most tariffs on goods imported from Jordan. In 2008, imports from Jordan were valued at C$15-million. The leading types of imported products were apparel (both knit and woven), fertilizer and agricultural products (particularly vegetables). As a goods-only agreement, the FTA will not lessen barriers imposed on the services trade between the two nations. However, there are protections provided for investments in the Canada-Jordan FIPA, as well as certain reciprocal rights related to air services. (Blakes Bulletin 15.09)

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5.3 Jordan Signs 5 Grant Agreements with the US

On 28 September, Jordan signed five grant agreements with the United States Agency for International Development (USAID), earmarking $411.4m in economic assistance to Jordan for 2009. The grant agreements represent the second tranche of the US financial assistance program to the Kingdom for 2009. The first tranche of economic assistance in the amount of $100m was signed in February this year and included $70m in cash transfer to support the budget. It is worth noting here that in addition to these grant agreements, $2.1m was allocated to support Jordan's health sector that is managed directly by USAID Washington, bringing the total US economic assistance to Jordan for 2009 to $513.5m. This total Economic Assistance amount includes $150m in Supplemental Economic Assistance that was appropriated for Jordan in 2009 and $363m in Regular Economic Assistance for 2009. The agreements were signed by Minister of Planning and International Cooperation Suhair Al-Ali and the US Ambassador to Jordan Robert Beecroft and the USAID Mission Director Jay Knott. (Petra28.09)

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5.4 Jordan's Unemployment Rate Rises To 14%

The unemployment rate in the Hashemite Kingdom jumped to 14% during Q3/09 compared to 13% for the second quarter, according to a Department of Statistics (DoS) report. The report indicated that the unemployment rate among males was 10.7%, while it was 28% for females. Around 19.6% of the unemployed were university graduates with bachelor degree and higher. Some 1% of the jobless were illiterate and 43% had their education less than secondary education while the remaining 56% were high school graduates or higher, the report said. The survey carried out by the DoS covered about 13 thousand families in all governorates of the Kingdom. (Petra15.09)

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5.5 Kuwait Cabinet Establishes New Islamic Bank

Kuwait's cabinet approved a draft decree to set up a new Islamic lender with a capital of $349 million in capital. Warba Bank will be a shareholding company, 24% owned by the Kuwait Investment Authority and the remaining 76% will be offered to all Kuwaitis 'as bonus shares,' as announced by the Kuwaiti government. The Cabinet's decision on the establishment of Warba Bank is effective and does not need the approval of the National Assembly, said Commerce and Industry Minister Al-Haroun. The Kuwaiti government has the right to establish shareholding companies. The decision of the Cabinet on the establishment of the bank came after both the Finance and Commerce ministries conducted studies on the issue, Al-Haroun added. (BI-ME 15.09)

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5.6 Economic Crisis Drives 17,000 Expatriates Out of Kuwait

About 17,000 expatriate workers have cancelled their residence permits and left Kuwait in the first half of 2009 due to the impact of the global economic crisis. Sources in the Kuwaiti Ministry of Social Affairs & Labor said that more than 70% of the affected workers were Asians, who make up the majority of the foreign workforce in the oil-rich emirate. The figure does not include foreign workers who may have resigned or been dismissed from government jobs or domestic service since the Ministry of Social Affairs & Labor is responsible only for employees in the private sector. The real number of foreign workers affected by the crisis was likely to be much higher since many of those dismissed decide to stay on to look for other opportunities, in some cases illegally. Under Kuwaiti law, no foreigner can live in the country without a valid residence permit, which is dependent on employment. Foreigners who lose their job also lose their residence permit unless their employers grant them a grace period to find another opening. In most cases, employers ask foreigners to cancel their residence permits before paying their end-of-service indemnity.

The number of foreign workers in Kuwait dropped by 20,000 to 1.75 million at the end of last year, according to official figures, in the first drop since the Iraqi invasion of 1990. The Public Authority for Civil Information said the expatriate population rose a mere 0.4% to 2.35 million at the end of 2008, its lowest annual growth since the 1991 Gulf war in which a US-led coalition expelled the Iraqi invasion force. The number of expatriates in Kuwait rose by 8.5% in 2007. 2004 saw the largest annual increase at more than 11%. Like its Gulf neighbors, oil-dependent Kuwait has been hit by the global economic slowdown as oil revenues, which make up more than 94% of public income, have dropped sharply. The crisis has also hit the emirate's stock market and financial sector, with several leading investment companies defaulting on their debts. Bank profits have dropped sharply. Kuwait's 1.087 million citizens make up only 31.6% of the emirate's population. Among expatriates, Asians number 1.33 million, Arabs 971,000 and Europeans, Americans and Australians 35,000. (BI-ME24.09)

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5.7 Bahrain's Economy to Grow 3% In 2009

Bahrain's central bank chief said on 28 September that the kingdom's economy will grow by 3% this year. Speaking to reporters on the sidelines of an Arab central bankers meeting in Abu Dhabi, Rasheed al-Maraj said "even 3% is a decent number in terms of the global environment." The predicted growth of is less than half the 2008 rate. The Ministry of Finance expects a budget deficit of $1.8 billion this year. The central bank governor also said it had advised commercial banks to raise their provisions to the two troubled Saudi firms, Saad Group and Ahmad Hamad Algosaibi & Bros. (BI-ME28.09)

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5.8 UAE Inflation Rises Slightly In July

Inflation in the UAE edged up in July but remained at one of its lowest levels following a sharp fall in rents and food prices, according to a report. Official Economic Ministry figures revealed that the consumer price index (CPI) rose by about 0.39% in July over the previous month despite a decline in seven groups making up the CPI. The UAE's inflation stood at only 0.03% in June compared with the previous month while it averaged 2.96% in the first seven months of 2009 compared with the same period of 2008. In July, there was an increase of 0.84% in the food and beverage index and nearly 0.77% rise in rents. There was also an increase of 1.92% in home supply and 0.27% in culture, according to the UAE-based daily. The report showed there was a decline of 0.07% in the liquor and tobacco index and 0.14% in clothes and footwear, 1.10% in health services, 0.46% in transport, 0.01% in communications, 0.26% in restaurants and hotels, and 0.60% in other groups. Last month, investment bank EFG-Hermes said that UAE is likely to see negative inflation this year due to falling house prices. (AB24.09)

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5.9 Central Bank Says Omani Economic Growth Between 1%-2%

The head of Oman's central bank said on 28 September that the sultanate may gain from some of its foreign reserve holdings but warned that growth may still be affected by falling oil prices. Speaking to reporters on the sidelines of an Arab central bankers meeting in Abu Dhabi Hamood Al Zadjali, said Oman might have a gain because they have some part of the reserves in euros and sterling. The central bank head said economic growth in Oman would be somewhere between 1% - 2% depending on oil prices, though he warned that inflation can hit 8% in 2009. (BI-ME28.09)

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5.10 Research & Markets Finds Saudi Housing Sector Promising

Research and Markets (http://www.researchandmarkets.com announced the addition of the "Saudi Arabia Housing Sector Outlook" report to their offering. Saudi Arabia has emerged as one of the favored destinations for real estate developers to tap unexplored opportunities in housing construction sector. At present the kingdom is facing massive shortage of housing units because of huge demand-supply gap. Rising population coupled with declining household size has been fuelling the demand of housing units in the country. Saudi housing construction industry is poised for tremendous growth ahead in the backdrop of several factors. As per data from the Ministry of Economy and Planning's 8th Development Plan (2005-2009), there is shortage of nearly 730,000 housing units in the kingdom besides the unmet housing demand of 270,000 housing units by the end of 7th Development Plan. We expect this demand to double by 2015, driven by changing industry landscape and favorable policy framework. The demand levels within the industry will remain intact due to massive shortage in affordable housing segment. In fact we have found that housing construction industry is expected to overtake other sectors in terms of contribution to GDP growth in the coming few years. The forecast given in this report is not based on a complex economic model, but is intended as a rough guide to the direction in which the market is likely to move. The forecast is based on the correlation between past market growth and growth in base drivers, such as household size, disposable personal income, GDP growth and long-term interest rates, competitive structure, government support, contribution by housing financing industries and growing industrialization. (R&M23.09)

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5.11 Egypt's First Solar Energy Unit To Operate In 2010

Egypt's first solar power station will operate at full capacity in 2010. Minister of Electricity Younes announced that the station, located just south of Cairo in Koraymat, would have a capacity of 140 megawatts. The power station is part of a larger facility that also includes three non-solar units and is expected to generate 2,900 megawatts once it comes on-stream. Younes said the project was already connected to the national electricity distribution grid, adding that 99% of Egypt's population was connected to the grid, the highest rate in Africa. Egypt aims to generate 20% of its power from renewable sources by 2020. Officials say Egypt's combined oil and gas reserves will last the country for roughly three more decades. (DNE29.09)

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5.12 Algeria Agribusiness Report for Q4 2009

Research and Markets (http://www.researchandmarkets.com) announced the addition of the "Algeria Agribusiness Report Q4 2009" report to their offering. Algeria is the second largest country in Africa and one of the largest in the world, with a population of 34mn, of which a quarter of the population is employed within the agricultural sector. As the government has strove to diversify the economy away from an overwhelming reliance on the services and energy sectors, this drive has become more and more difficult, owing to various separate, yet mutually exacerbating factors; some external, some domestic. Continuing the positive 16.58% growth recorded from 2004-2008, we foresee milk production continuing to flourish through to 2013. The low prices currently hindering dairy farmers across the globe is having little effect in Algeria; the country produces only for domestic consumption and local demand shows little sign of waning. This underpins our assertion that y-o-y growth will be recorded in each and every year of the forecast period starting in 2009. However, the dairy processing subsector, despite the growing popularity of such products within households, is failing to keep pace with the development of the whole milk industry. This will result in a widening deficit as imports continue to flood the economy. The adoption of modern technology and processes largely hold the keys to improving the outlook of processed dairy goods, as well as effective marketing and distribution channels. The major caveats to growth in Algeria, aside from poor climatic and agronomic fundamentals, are likely to be felt mainly by the scattered smallholder farms. Credit is often disbursed in accordance with titled holdings, something which small farms are often prevented from owning. As such, most of the productivity growth that will be achieved during the course of the outlook will increasingly be attributable to larger producers, as the industry landscape becomes more consolidated. Consequently, we have a mixed outlook on Algeria over the course of our forecast. Overall, the country will remain a net importer, although with improved productivity in some staple foodstuffs. (R&M21.09)

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Bulgaria Speeds Up Efforts to Join Eurozone

Bulgaria's new center-right government has accelerated efforts to join the eurozone and aims to adopt the single currency by 2013 during its mandate, Finance Minister Simeon Djankov said recently. Djankov said he had launched informal talks about joining the pre-euro ERM-2 waiting room. The cabinet of the GERB party, which won July general elections, is working to apply for ERM-2 entry in November, he said. High inflation and a current account deficit of over 20% of GDP in the past several years have hindered the Balkan country's efforts to join the ERM-2 mechanism so far. Rampant corruption and organized crime, which the previous Socialist-led government failed to tackle, were also among the reasons for keeping the EU's poorest nation away from the euro, EU diplomats have said. (Reuters16.09)

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6.2 Bulgaria 2010 State Budget to Stress Highways, Education & Ecology

The top priorities in Bulgaria's draft 2010 State Budget bill are the construction of highways, education and environment. This was announced by Finance Minister Djankov, who said he was going to table the budget bill to the Parliament shortly. In his words, the 2010 state budget would be about BGN 6-8 smaller because of the economic crisis, and that it will probably be even smaller for the following year because the government expects the economy would shrink further by 2% in 2010. The infrastructure construction, education and environment are the only sectors whose share of the state budget will not be smaller in 2010 than it was in 2009, the Minister said. (SMN28.09)

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 On Eve of 5770 Israel's Population Stands at 7.5 Million

On 16 September the Central Bureau of Statistics announced that Israel's population on the eve of the Jewish New Year 5770 was 7,465,500. This figure includes 5,634,300 Jews (75.5%), 1,513,200 Arabs (20.3%) and 318,000 "others" (4.2%). For the sixth consecutive year, the annual growth rate of the population was 1.8%, with the Jewish population growing by 1.7% and the Arab population growing by 2.6%. Israel's population is relatively young. Children aged 0-14 comprise 28.4% of the population compared with an average of 17% in other Western countries. Only 9.7% of Israelis are over 65, compared with 15% in other Western countries. The ratio of males to females is nearly equal (979 men to every 1,000 women) until the age of 38, when the ratio of women to men starts increasing.

In the Jewish population, there is a clear trend of people marrying when they are older. Among Israeli Jews aged 25-29, 62% of men are still single and 42% of women. The median age for a first marriage is 27.3 for men and 24.3 for women. In 2008 the percentage of the population of Israel who were born in the country increased to 3.9 million (70.7% of the Jewish population). About half of the Jewish population continues to live in the center of the country (28% in the central region and 21% in Tel Aviv). Less than 10% of the Jewish population lives in the northern region. Once again 2008 saw negative migration from Jerusalem with 4,200 people leaving the city and for the first time since the end of the 1990s there was also negative migration in Greater Tel Aviv with 5,700 people moving away. (Globes 16.09)

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7.2 Sukkot Observed

The Jewish festival of Sukkot begins at sunset on Friday, 2 October until nightfall on 9 October 2008. The holiday begins on the Hebrew date of 15 Tishrei, the fifth day after Yom Kippur. The word "Sukkot" means "booths" and refers to the temporary dwellings that Jews are commanded to live in during this holiday. The commandment to "dwell" in a sukkah can be fulfilled by simply eating all of one's meals there or by actually living in the sukkah as much as possible, including sleeping in it. The holiday commemorates the forty-year period during which the children of Israel were wandering in the desert, living in temporary shelters. There are intermediate days during the week, which begins and ends with a holiday, referred to as Chol Ha-Mo'ed.

Another observance related to Sukkot involves what are known as the Four Species (arba minim in Hebrew) or the lulav and etrog. Jews are commanded to take these four plants and use them to "rejoice before the L-rd." The four species in question are an etrog (a citrus fruit native to Israel), a palm branch (in Hebrew, lulav), two willow branches (arava) and three myrtle branches (hadas). The six branches are bound together and referred to collectively as the lulav. The etrog is held separately. With these four species in hand, one recites a blessing and waves the species in all six directions (east, south, west, north, up and down, symbolizing the fact that G-d is everywhere).

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7.3 Simchat Torah Celebrated

On the evening of 9 October and the 10th, the Jewish holiday of Simchat Torah is observed. The day after the seventh day of Sukkot is the holiday Shemini Atzeret. In Israel, Shemini Atzeret is also the holiday of Simchat Torah. Simchat Torah means "Rejoicing in the Torah." This holiday marks the completion of the annual cycle of weekly Torah readings. Each week in synagogue Jews publicly read a few chapters from the Torah, starting with Genesis Ch. 1 and working around to Deuteronomy 34. On Simchat Torah, Jews read the last Torah portion and then proceed immediately to the first chapter of Genesis, demonstrating that the Torah is a never ending circle. This completion of the readings is a time of great celebration. There are processions around the synagogue carrying Torah scrolls and plenty of high-spirited singing and dancing in the synagogue with the Torahs. Shemini Atzeret and Simchat Torah are holidays on which work is not permitted. The close of Simchat Torah ends the Jewish fall holiday period.

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7.4 Israelis' Life Expectancy Is Rising

The Central Bureau of Statistic's 2009 Annual Report found that Israelis' life expectancy is increasing. The life expectancy for men reached 79.1 years in 2008, four months longer than in 2007, while the life expectancy for women rose by six months to 83. Israel is running counter to the aging trend prevalent in the Western world as fertility rates stay above Western average. The average number of children in an Israeli family is 2.96, compared with 1.4 in Spain, Italy and Denmark, 1.8% in France and Ireland and 2 in the US. 2008 saw 156,923 children born in Israel, 3.5% more than in 2007. In addition, the gap in the average number of children of Jewish and Muslim women narrowed. The average number of children of a Jewish woman rose to 2.88 in 2008 from 2.80 in 2007, while the average number of children of a Muslim woman declined to 3.84 from 3.90 in 2007 and 3.97 in 2006. The average number of children of a Christian woman declined to 2.11 in 2008 from 2.13 in 2007. There was no change in the average number of children of a Druze woman, at 2.49. Cancer continued to be the main cause of mortality in 2008, accounting for 24.6% of all deaths. Heart attacks accounted for 18.4% of all deaths, followed by vascular diseases at 6.3% and diabetes at 6.1%. external causes - i.e. not health related causes - caused 4.7% of all deaths in 2008. (CBS16.09)

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*REGIONAL:

7.5 Turkish Opposition Furious Over Alleged Alphabet Changes

An alleged Turkish government plan to add the letters Q, W and X to the Turkish alphabet as part of the recently launched Kurdish move was harshly criticized by the opposition. The Education Ministry is reportedly working on a project to add Kurdish courses, but to do so these three letters have to be introduced to the official alphabet. "It's impossible to include such letters in the alphabet according to our Constitution and existing laws," the deputy parliamentary group leader of the Republican People's Party, or CHP, told reporters. As of yet, there is no publicized plan submitted by the government outlining what will be done in regard to the Kurdish move. (Hurriyet 16.09)

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7.6 Greek Elections to be Held on 4 October

Greek's early parliamentary elections will be held on 4 October. Seeking a fresh mandate, Prime Minister Karamanlis announced this decision on 2 September. Prime Minister Karamanlis said on 28 September that he has no plans to quit the New Democracy party if they should lose the upcoming election, while several high-ranking ministers denied they had any interest in succeeding him. Speculation is mounting that Karamanlis will step aside should ND lose by a large margin but he denied this in what was his last televised interview of the campaign. Karamanlis also rejected the suggestion that he would step down and seek a nomination as president of Greece next March. Both Foreign Minister Bakoyannis and Health Minister Avramopoulos, tipped as possible successors to Karamanlis, said that they are not interested in challenging Karamanlis.

The prime minister said that there was no way he would work with the ultra-right-wing LAOS party to form a coalition government if Sunday's results allowed for it. He did, however, leave the door open to a coalition with PASOK. PASOK leader Papandreou was also in a conciliatory mood, saying that he would seek consensus between political parties if he is elected prime minister on Sunday. Papandreou continued to call for the electorate to give his party the parliamentary majority it needs to form a government on its own but said that he would extend "an invitation of unity" to the other parties if PASOK gets into office.

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Alpha Impact Offers Sensual Man Pheromones Cologne

Alpha Impact Pheromones has launched Sensual Man, the "atomic bomb" of pheromone fragrances. The powerful product is the first eau de toilette that combines human pheromones and sensual aromatherapy. Sensual Man includes two seductive ingredients - Rhodiola Extract and Persian Rose - designed to destroy a woman's defenses and magically enhance a man's sexual attraction. Rhodiola Extract, also known as Golden Root, helps to increase stamina, fight fatigue and reduce stress. This rare herb not only makes men feel good and more relaxed, but it increases their masculine energy. Persian Rose is used in aromatherapy to enhance sensuality and sexual energy, while helping women calm the nerves. It functions like a Trojan horse and helps women relax and "get in the mood."

Based in Caesarea, Alpha Impact Pheromones (http://www.alpha-impact.com) is the second-largest brand of pheromones-based fragrances in the world (outside the United States). It is the fastest-growing fragrance brand in more than 47 countries. Alpha Impact is an innovative company that developed the first pheromone bar soap and after shave product. It also sells six different scents of pheromone oil extracts and two Natural Player body mist sprays. Backed by global cosmetic company Paloma, Alpha Impact markets pheromone-based products worldwide online and in retail outlets. (Alpha Impact 22.09)

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8.2 Pluristem Doses First US Patient With Placenta-Derived Stem Cell Product PLX-PAD

Pluristem Therapeutics announced the dosing of the first patient in the U.S. with its placenta-derived stem cell product, PLX-PAD, the Company's leading candidate, in a Phase I clinical trial for the treatment of critical limb ischemia (CLI), the end-stage of peripheral artery disease (PAD). The patient was dosed at the Center for Therapeutic Angiogenesis in Birmingham, Ala., one of the clinical sites participating in this trial. Duke University Medical Center in Durham, North Carolina, is also screening patients for the trial. The initiation of this study follows the approval of the Company's Investigational New Drug (IND) application to begin clinical trials with PLX-PAD by the U.S. Food & Drug Administration (FDA). The Phase I study is designed to evaluate the safety of PLX-PAD in patients with CLI. A total of up to 12 adults with the disease will be included in this dose escalating trial in the U.S.

Haifa's Pluristem Therapeutics (http://www.pluristem.com) is a clinical development bio-therapeutics company dedicated to the commercialization of unrelated donor-patient (allogeneic) cell therapy products for the treatment of several severe degenerative, ischemic and autoimmune disorders. Pluristem's first product, PLX-PAD (for the treatment of Peripheral Artery Disease), a "First-In-Human" placental-derived mesenchymal-like stromal cell product, has received both the FDA and Paul Erlich Institute (PEI) clearance and is being investigated in Phase I clinical trials. The Company is developing a pipeline of products derived from human placenta, a non-controversial, non-embryonic, adult stem cell source. The (PLacental eXpanded) cell products are stored off-the-shelf, ready-to-use, and require no histocompatibility matching. (Pluristem23.09)

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8.3 Makhteshim-Agan & Cibus Agree to Co-develop Proprietary Crop Protection Traits

Makhteshim-Agan (MAI) and Cibus Global (CIBUS) signed Strategic Development Alliance and Strategic Equity Alliance agreements. Under these agreements, MAI will invest up to $37 million over five years, based on certain milestones, in a Joint Venture with CIBUS to develop proprietary crop traits in five major crops with a European focus. Separately, in another agreement, MAI has entered into a Strategic Equity Alliance with CIBUS that allows MAI to gradually acquire up to 50.1% of CIBUS equity. Under the terms of the Strategic Development Alliance, CIBUS committed to developing proprietary performance enhancement traits for the Joint Venture that include both performance enhancement traits as well as crop protection product tolerance to a spectrum of crop protection products that MAI markets. These traits will be commercialized in high-performance seed lines in cooperation with leading seed companies and will allow MAI to participate in capturing the value of trait based crop protection. The MAI and CIBUS Joint Venture will develop these traits using the proprietary Rapid Trait Development System (RTDS) technology developed by CIBUS, which enables much faster and efficient trait development than traditional plant breeding techniques. By utilizing the cell's own gene repair system to specifically modify a gene sequence, RTDS technology imitates a biological process that frequently occurs in nature. This directed mutagenesis procedure effects a precise change in the genetic sequence while the rest of the genome is left unaltered. By using RTDS technology there is no integration of foreign genetic material, nor is any foreign genetic material left in the plant. In addition to yielding significant economic advantages to farmers growing these important crops, MAI and CIBUS believe that the newly developed traits will enable more efficient and environmentally responsible usage of agricultural crop inputs over the crop production cycle.

Israel's Makhteshim-Agan (http://www.ma-industries.com) is a world-leading manufacturer and distributor of branded off-patent crop protection products. The Company is characterized by its know how, high-level technological-chemical abilities, expertise in product registration, observance of strict standards of environmental protection, stringent quality control and an global marketing and distribution channels. (Cibus Global21.09)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Chi-Tech Adopts IBM's Israel Developed High Speed Messaging Technology

IBM signed an agreement with Chi-X Global Technology, whereby Chi-Tech will adopt IBM's high speed messaging technology in its exchange and market center trading technology platform. The agreement enables Chi-Tech to integrate IBM WebSphere MQ Low Latency Messaging as part of the matching platform it provides to clients around the world. It also allows the company to include the IBM messaging technology in platforms deployed for the regional Chi-X market centers. IBM's WebSphere MQ Low Latency Messaging is a high speed messaging transport optimized for today's high volume, low-latency requirements of financial marketplaces and participant firms. The technology was developed in IBM's labs in Haifa, Israel as part of the company's market-leading R&D program. Version 2.2 offers industry-leading messaging performance of up to 90 million messages per second. In tests using IBM's new shared memory transport, latency as low as one microsecond has been demonstrated on IBM's new BladeCenter HS22. (IBM16.09)

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9.2 Mobile Star Corp. Files Additional Patent Applications to Expand International Protection

Mobile Star Corp. has filed additional patent applications for its proprietary entertainment vending technology in the United States, Canada, Israel and the European Union. Mobile Star has previously filed for international patent protection under the Patent Cooperation Treaty (PCT), and has received approval to apply for national patent protection. Last year, Mobile Star filed for patent protection in the United States, where the technology is patent pending. Mobile Star plans to begin marketing the technology to consumers in 2010. Even Yehuda's Mobile Star (http://the-mobilestar.com) is currently completing development of an entertainment vending machine that provides a personal karaoke experience. The free-standing booth enables an individual to digitally record his or her voice singing to hundreds of songs. The unit then publishes a computerized disc featuring the singer's voice and the selected background music. The technology utilizes a proprietary digital-media software platform, and professional-grade hardware to dramatically improve sound quality and imitate the acoustics of a hall. (Mobile Star16.09)

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9.3 HaWi & SolarEdge Announce Sales and Distribution Partnership

HaWi Energietechnik AG, a European leader in solar power system planning and distribution and SolarEdge Technologies have announced a strategic partnership in which HaWi will offer the SolarEdge innovative power harvesting solution to its customers. HaWi is headquartered in Germany, and has additional offices in Italy, Spain, France, Greece and soon Israel. The announcement follows over six months of cooperation during which the SolarEdge solution was tested by HaWi in comparison to traditional inverters, under a variety of real-life conditions. The SolarEdge solution is unique in offering not only a module-embedded PowerBox for optimized module-level Maximum Power Point Tracking, but also a simplified, highly reliable inverter, and built-in module-level monitoring. The SolarEdge inverter maintains fixed string voltage, thus removing string sizing limitations. The result is a highly beneficial system: energy generation is increased, maximum flexibility is achieved due to the removal of design constraints, exceptional safety mechanism overcomes DC voltage hazards and an online monitoring portal provides unparalleled fault detection and management. This enables SolarEdge to offer an optimal end-to-end solution at a competitive price offering.

Herzliya's SolarEdge (http://www.solaredge.com) is a provider of smart, holistic PV power harvesting and monitoring solutions for maximum energy at a lower cost per watt. The company works with industry-leading partners to embed its active electronic solution directly into PV panels. Unlike centralized architectures that cannot optimize the power of each panel, only SolarEdge performs MPPT per panel while communicating across existing power lines for granular visibility and control. As a result, the SolarEdge systemic approach provides more power from any given installation, eliminates design constraints, provides complete visibility, solves all safety issues and provides anti-theft, all while reducing the cost of energy. (SolarEdge21.09)

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9.4 Oshkosh & Plasan Awarded Contract for Additional 352 M-ATV Armor Kits

Plasan has won yet another contract for the delivery of 352 armor kits for the U.S. Army's MRAP All-Terrain Vehicle (M-ATV) as sub-contractor to Oshkosh Defense. This increase follows earlier announcements of 3,000 unit increase in the $1.05 billion contract awarded by U.S. Department of Defense to a team led by Wisconsin-based Oshkosh Corporation to produce M-ATVs for deployment in Afghanistan. Plasan North America and its local sub-contractors have made advance preparations to comply with strict composite specifications and a tight delivery schedule. Through the application of the modular Kitted Hull concept, developed by Plasan, all armor parts and components are sent to the vehicle's manufacturer where they are applied to the vehicle at the assembly line, thus improving efficiency and reliability. Plasan's production capabilities are complemented by a comprehensive supply chain that encompasses suppliers of materials, equipment and solutions throughout the U.S. This extensive network enables the production capacity the necessary flexibility to expand or reduce production volumes according to demand.

Kibbutz Sasa's Plasan (http://www.plasansasa.com) provides customized survivability solutions for tactical wheeled vehicles, aircraft, naval platforms, civilian armored vehicles and personal protection. A recognized global leader and industry veteran, Plasan's survivability solutions offer the optimal combination of protection, payload, and cost by combining in-house R&D, design, prototyping and manufacturing capabilities. Plasan combines innovative survivability engineering and design with advanced armor materials development. Its unique development process is based on continuous interaction between the R&D and the Design & Prototyping departments. During this process, Plasan combines computer-generated analysis and simulations with real-time calibration and ballistic test data. The effective combination of test and simulation data enables improved simulation accuracy and performance, resulting in the optimal survivability solution. (Plasan 21.09)

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9.5 New Lucid HYDRA-Powered MSI Big Bang Gaming Motherboard to Make Multi GPU History

Complicated multi-GPU motherboards are now a thing of the past. LucidLogix Technologies (Lucid) and Taiwan's MSI have made multi-GPU history demonstrating the first-ever motherboard to allow ATI and NVIDIA GPUs to reside on a single board and share processing power for ultimate system tweak-ability and optimal gaming performance. Called the MSI Big Bang Gaming Motherboard, the Intel P55-based system uses the new Lucid HYDRA 200 real-time distributed processing engine to serve as an intelligent graphic load balancer that allows custom combinations of GPUs. As a result, the motherboard makes it simple for users to pop in whatever graphics cards they wish, achieving full-speed graphics power without the pain of difficult setup. To date, swapping or adding graphic cards to motherboards has required finding and choosing a compatible GPU within the same brand. With the Lucid HYDRA supporting any GPU, re-use choices are unlimited – within a brand line or between brands.

LucidLogix Technologies (http://www.lucidlogix.com) is reinventing multi-core graphics with its HYDRA real-time distributed processing engine that will improve visual computing for both business and gaming applications. Lucid is a fabless SoC provider headquartered in Kfar Netter, Israel. Its innovations are protected by more than 60 patents and patents pending, and it is backed by leading venture providers Rho Ventures, Giza Venture Capital, Genesis Partners and Intel Capital. (LucidLogix23.09)

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9.6 Jordan Valley Delivers JVX6200 XRR Metrology Tool to a Leading-Edge HDD Manufacturer

Jordan Valley Semiconductors announced the delivery of its JVX6200 XRR (X-Ray Reflectometry) metrology tool to a leading-edge HDD (Hard Disk Drive) vendor, used for quality control of its HDD head manufacturing process. A key advantage of the XRR metrology is its capability to simultaneously measure production stacks of >15 layers of mixed opaque and/or transparent nano layers films and report the thickness, density and roughness of each individual layer. Jordan Valley's XRR technology is fast, production worthy and non-destructive and has proven to be an excellent replacement for extremely expensive destructive testing. Jordan Valley's JVX6200 X-ray metrology tool is a multi channel, high throughput and small footprint, fully automated metrology tool, in use at many advanced production fabs worldwide. The JVX6200 is used for advanced process control at the front end of line (FEOL) and back-end of line (BEOL), WLP (Wafer level packaging), MRAM and other new applications in fabs worldwide. The JVX6200 X-Ray Reflectometry (XRR) is a non-contact, non-destructive, surface-sensitive technique that delivers precise and accurate characterization of thin films and multi-layer stacks. The XRR technique measures layer thickness, density and roughness by analyzing the interference patterns of X-rays reflecting off the layers surfaces and interfaces.

Migdal Ha'Emek's Jordan Valley Semiconductors (http://www.jvsemi.com) is a worldwide leader in the development, manufacturing and supplying thin films metrology tools for most advanced semiconductor manufacturing processes. They offer a comprehensive family of solutions based on advanced X-Ray Reflectometry (XRR), X-Ray Fluorescence (XRF) and High Resolution X-Ray Diffractometry (HRXRD). These tools are fully automated, production ready and ideal for both blanket and patterned wafers. (Jordan Valley22.09)

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9.7 Kryon Systems Launches Beta of the Next Generation of Help and Execution Tools

Kryon Systems unveiled a software platform that presents the next generation of help and execution tools. Leo (Learn, Evolve, Operate), provides more than answers to users' questions; it actually executes. Leo performs the action for the user in real time upon request, saving the user the process of reading and following a long list of instructions usually found in the help menu. Organizations will be able to optimize the use of applications by their employees, thus saving time and money. Employees will be able to use new applications quickly or expand their knowledge of existing software. Tel Aviv's Kryon Systems (http://www.kryonsystems.com) was founded in 2008 and is dedicated to the development and marketing of the innovative Leo software solution. Kryon Systems' flagship product - Leo (Learn, Evolve, Operate) is its proprietary software. Leo is the next generation of help and execution tools. It provides more than answers to users' questions; it actually executes, i.e. it carries out the task required in a step-by-step, interactive manner. (Kryon Systems22.09)

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9.8 ClickSoftware's New ServiceOptimization Suite Version 8.0 Keeps Service Levels Ahead

ClickSoftware Technologies announced the general availability of its latest version of its ServiceOptimization Suite featuring a new infrastructure that provides higher scalability and enables companies to rapidly modify and create services to stay ahead of the competition. ClickSoftware ServiceOptimization Suite 8.0 automates field service forecasting, planning, scheduling, dispatch and service business analytics. ServiceOptimization Suite 8.0's advanced .NET and new Web services-based compliant Service Oriented Architecture (SOA) adds a robust, agile foundation to support the suite's powerful application functionality. Version 8.0 also helps customers integrate functionality into their ClickSoftware infrastructures with a Web Services Definition Language (WSDL) that supports standard and custom Web services, and Standard Objects Access Protocol (SOAP) messaging support. Among its many advantages, ServiceOptimization Suite 8.0's SOA, .NET and Web services infrastructure supports fast, easy integration with advanced geographical information systems (GIS) from a variety of market vendors including ClickSoftware partners MapInfo and PTV. ClickSoftware's enhanced GIS integration platform offers customers the low-cost option of using their existing mapping, routing and geocoding applications with the ServiceOptimization application.

Petah Tikva's ClickSoftware (http://www.clicksoftware.com) is the leading provider of workforce management and service optimization solutions that create business value for service operations through higher levels of productivity, customer satisfaction and cost effectiveness. Combining educational, implementation and support services with best practices and its industry-leading solutions, ClickSoftware drives service decision making across all levels of the organization. (ClickSoftware22.09)

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9.9 Anti-spam & URL Filtering Solutions from Commtouch Selected by DeepNines

Commtouch announced that network security company DeepNines has selected its Anti-Spam and GlobalView URL filtering technologies for integration into DeepNines' Secure Web Gateway products. The integration of Commtouch technology will further enable organizations to protect, control and manage Web applications and traffic. Commtouch technology utilizes a unique cloud-based approach that automatically analyzes billions of Internet transactions in real-time to identify new email and web-based threats as they are initiated. By incorporating the Commtouch technologies, DeepNines customers will have a real-time, proactive anti-spam and URL filtering solution. DeepNines Secure Web Gateway enables organizations to easily protect, control and manage Web applications and traffic with complete in-line visibility across all ports, protocols and user identities. Secure Web Gateway integrates intrusion prevention, firewall, proxy blocking, bandwidth management, content inspection and application control into a single platform with all of these elements working together seamlessly to provide complete network protection and control.

Netanya's Commtouch (http://www.commtouch.com) provides proven messaging and Web security technology to more than 100 security companies and service providers for integration into their solutions. Commtouch's patented Recurrent Pattern Detection (RPD) and GlobalView technologies are founded on a unique cloud-based approach, and work together in a comprehensive feedback loop to protect effectively in all languages and formats. (Commtouch29.09)

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10: ISRAEL ECONOMIC STATISTICS

10.1 State of Economy Index Rise Underscores Recovery

The Bank of Israel's Composite State of the Economy Index rose by 1.3% in August 2009, underscoring the country's ongoing recovery from the recession. At the same time, the Central Bureau of Statistics today published weak macroeconomic figures that show, among other things, a drop in industrial output. The State of the Economy Index has risen for the fourth consecutive month. The index's exports of goods and services component had the strongest gain in August, but both industrial output and trade and services proceeds in July fell. The Bank of Israel also revised the State of the Economy Index for July from 1.2% to 1.1% and for June to 0.7% from 0.6%. The Central Bureau of Statistics reported that industrial output was 2.8% lower in July than in June (seasonally adjusted figures) and the number of manufacturing employees fell by a further 0.6%, continuing the slide since the beginning of the year. The drop in output was in all manufacturing sectors. Work hours fell by 2% in July compared with June. Equally worrying, trade and services proceeds fell by a seasonally adjusted 3.3% in July compared with June. Computer services proceeds fell by 8%, business services proceeds by 6%, and financial and insurance services proceeds by more than 10%. Retail trade fell by 1.2% including a 1% drop in food sales. (Globes22.09)

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10.2 Israel's GDP Growth Confirms Recession End

The Central Bureau of Statistics announced on 16 September that Israel's GDP rose by an annualized 1% in Q2/09, although it contracted by 1.8% in H1/09. The figures are the same as the initial estimate released a month earlier. The Central Bureau of Statistics figures indicate that the recession is over, in terms of the definition of recession as two consecutive quarters of GDP contraction. Israel's GDP shrank by an annualized 1.6% in Q4/08 and by 3.3% in Q1/09. GDP growth in Q2/09 was driven by all sectors, including a 26.4% increase in the export of goods and services, public consumption (excluding defense imports) rose by 21%, private consumption rose by 5.6% and investment in fixed assets rose by 2%. Israel's GDP is expected to growth by 0.1% in 2009, compared with the average of a 4% contraction by OECD countries for the same year. For 2009 as a whole, business product is forecast to fall by 0.7% from 2008, exports will fall by 10.5% and investment in fixed assets will decline by 9.6%. Housing starts are forecast to increase by 4.7%, public consumption will grow by 1% and private consumption will grow by 0.5%. (CBS16.09)

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10.3 August Saw Record Demand for Workers

The number of requests for workers at the Israel National Employment Service reached an all-time high of 25,300 in August 2009. The number of unemployed fell by 0.1% to 211,600. The number of layoffs per month has eased since January: down 23% from 19,700 in January to 15,100 in August. The number of layoffs peaked at 19,900 in March. Analysis of the layoff, newly unemployed and unemployment numbers for August points to signs of economic recovery. All the figures indicate a decline. The number of newly unemployed fell from 24,000 at the beginning of the year to 22,000 in August, in trend figures. In original data - that is, figures not adjusted for seasonal factors, effects of holidays, and actual number of work days in a month - the number of jobseekers rose to 236,900 in August 2009 from 198,000 in August 2008, and 236,400 in July 2009. (Globes 21.09)

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11: In Depth

11.1 ISRAEL: BoI on Hold - So Is ILS Appreciation (for Now)

Morgan Stanley's (http://www.morganstanley.com) Tevfik Aksoy writes that the Bank of Israel (BoI) kept the policy rate on hold: The policy rate had been kept unchanged at 0.75% and in line with Morgan Stanley expectations. The market expectations were split almost equally between an on-hold decision and a 25bp hike. The fact that the BoI had been broadly absent from the FX market (in terms of interventions) in recent days might have been taken as a clue that there would not be a follow-through of the surprise hike of August. Prior to the previous rate decision, there had been heavy involvement of the BoI in the FX market, which had been taken as a sign that a rate hike was imminent.

No change in bias: According to the statement accompanying the rate decision, the BoI seems to be sticking to the view that the current level of policy rate is commensurate with the goal of pulling inflation down inside the targeted level (1-3% band) while maintaining financial stability. The BoI believes that the 0.75% level of the policy rate would be supporting the recovery in real activity. In comparison to the previous statement, we see no change in stance. The factors that led the BoI to keep the interest rate on hold were based on the inflation outlook, pace of recovery in real activity and the view regarding global interest rates.

On inflation, the BoI seems optimistic and we agree: According to the BoI, the temporary effects of the recent tax hikes resulted in a rise in inflation and, once they are accounted for, the figure actually declines to the mid-point of the target range (i.e., around 2%). The BoI expects inflation to return to within the target range as the temporary effects of the tax hikes dissipate. The BoI added that the recent appreciation of the currency had some moderating impact on inflation. While we broadly agree with the BoI statements, we also think that one of the reasons why inflation expectations had been declining was that there seems to be a consensus that the BoI will be tightening in the coming months and a good part of 2010.

Recovery is expected to continue and numbers support this thesis, but a cautious stance is preserved: The BoI stated that the faster-than-expected recovery in Israel and world output growth was an indication of recovery from recession. While the economy is expected to grow in the coming period, the BoI points to continued uncertainty, especially due to the reliance on the global recovery.

Lastly, the BoI mentions that the leading central banks in the world are expected to keep interest rates low in the coming months: This statement might be taken as a hint that the BoI might be watching for changes in policy rate spread differentials. However, given the fact that the leading central banks were expected to keep rates unchanged for a long time in August, the decision to hold might not have much to do with the BoI decision-making process at this juncture.

We expect tightening: Looking forward, we maintain our view that the BoI rate decisions will be based on the upcoming data at the national and the international level. Since the last rate decision, the macroeconomic data gave mixed signals. For instance, there had been a noticeable improvement in inflation and inflation expectations while the state-of-the-economy index points to a further upside in growth. Exports (and imports) also displayed a turnaround in growth and support the view that growth is underway. On the flip-side, there are no pressures coming from the labor market, with unemployment remaining at high levels. We expect one or two more hikes of 25bp (each) from the BoI this year and a 150bp tightening in 2010, taking the policy rate to 2.75% at the end of 2010. (MS29.09)

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11.2 ARAB MIDDLE EAST: Mideast Seen Leading Air Traffic Growth To 2028

International air passenger traffic in the Middle East is predicted to grow by 6.6% over the next decade, making it the fastest growing region in the world. The latest Global Market Forecast from manufacturer Airbus of global passenger aircraft demand also said the number of planes serving the region would almost triple by 2028. Middle East airlines are also expected to take about 6% of the world's new aircraft deliveries over the next 20 years, the report added. The region's carriers are set to take delivery of 730 planes by 2018 with a further 689 on order up until 2028.

The UAE will be the Middle East's biggest customer, driven by Emirates and Etihad's expansion plans, with an estimated $98.2bn of orders over the next two decades, making it the seventh biggest in the world behind the United States which is set to spend more than $450bn on passenger planes. As well as international travel, the Airbus report identifies potential growth in the Middle East domestic market. Several indicators in the region show that the domestic market is about to boom. One of the top priorities for the Middle Eastern air transport industry is to sustain the liberalization momentum achieved since the open skies initiatives signed in 2004. It added that the region's youthful population would continue to drive growth in the domestic market as they "increasingly seek to benefit from opportunities the region can offer, both economically and in terms of leisure activities".

The report predicted that the fleet serving the region would almost triple by 2028 to a total of 1,790 aircraft in service while passenger traffic is expected to grow at an annual rate of 6.6% over the next decade and by 6% until 2028. "While domestic and intra-regional markets in the region will continue to grow at an impressive rate...the intercontinental network will grow more quickly, as new routes are added by the region's airlines and their operations expand," Airbus said. In particular, the Middle East is likely to figure prominently in the delivery of very large aircraft, such as the A380, the report added.

The region is expected to take a total of 189 larger planes by 2028, equating to 14% of the global deliveries. Dubai-based Emirates has placed firm orders for 58 A380s, the single largest order of any airline. According to the Airbus report, Dubai International Airport will be in the top four in the world for handling the superjumbo aircraft by 2028, behind Hong Kong, Heathrow and Beijing.

Globally, some 25,000 new passenger and freighter aircraft valued at $3.1 trillion will be delivered from 2009 to 2028, according to Airbus. Emerging economies, evolving airline networks, expansion of low cost carriers and the increasing number of mega-cities as well as traffic growth and the replacement of older less efficient aircraft with more eco-efficient airliners are factors driving demand for new aircraft, the plane maker said. (AB23.09)

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11.3 ARAB WORLD: FDI Inflows to the Arab World Down 6.3%

The Global Arab Network (http://www.english.globalarabnetwork.com) reported that foreign Direct Investment (FDI) inflows to the Arab World fell 6.3% to $60 billion in 2008 from $64bn in the previous year, said an international study.

The United Nations Economic and Social Commission for Western Asia (ESCWA) released its annual report on Foreign Direct Investment (FDI) inflows to the ESCWA region, which covers 14 Arab countries, showing that the current financial and economic crisis has negatively impacted FDI flows to the ESCWA region during 2008 and has lowered them from $64 billion in 2007 to around $60 billion in 2008 - a decrease of nearly 6.3%.

ESCWA experts expect the FDI inflows to the region to further decline in 2009 as a result of the global economic slowdown and its severe impact on transnational corporations, which has in turn led to delays in the implementation of a number of investment projects in several ESCWA member countries. It is noteworthy that transnational corporations are the main contributor to worldwide FDI flows.

The report identified three countries that captured the lion's share of total FDI flows to the ESCWA region in 2008; which are in decreasing order Saudi Arabia, the United Arab Emirates and Egypt. They accounted for nearly 76% of FDI flows to the region. The performance of these countries is mainly attributed to their successful endeavors to ameliorate their business environment and to their overall investment-friendly climate. Moreover, the privatization of some of the State-owned enterprises in Egypt has accelerated FDI inflows to that country. Further, the opening of a number of sectors to foreign investors, such as that of construction, has led to more FDI flows to the United Arab Emirates.

In 2008, FDI to Saudi Arabia amounted to $22.5 billion, down from $24.3 billion a year earlier, a 6.5% decline. Foreign investments in the Kingdom mainly targeted the real estate sector (21% of FDI), petrochemicals (16%) and the mining industry (10%). In 2008, the United Arab Emirates attracted nearly $13.7 billion of FDI, a decrease of 3.2% compared to 2007. FDI inflows to Egypt amounted to $9.5 billion in 2008, down from $11.6 billion in 2007, a drop of 18%. The oil sector attracted around 57% of incoming FDI in Egypt during 2008. FDI flows in 2008 also slumped in such other ESCWA member countries as Kuwait, Oman and Yemen.

Meanwhile, five ESCWA countries saw an increase of incoming FDI during 2008. These are Bahrain, Jordan, Lebanon Sudan and the Syrian Arab Republic. During that year, Lebanon and the Syrian Arab Republic witnessed an unprecedented boost in FDI inflows, registering an increase of 32% and 43%, respectively. FDI flows to Lebanon and Syria amounted to $3.6 billion and $1.3 billion, respectively. Arab investments accounted for nearly 90% of total FDI in Lebanon in 2008, with Saudi Arabia representing 70% of total FDI and Kuwait 22%. The sectoral distribution of FDI in Lebanon reveals that services captured the bulk of FDI, with the real estate sector representing 56% of total FDI, the banking sector 20% and the tourism sector 13%.

The report pointed out that FDI flows to the ESCWA region have been concentrated in three main areas: petrochemicals, financial services and the real estate. The European Union (EU), notably the United Kingdom and France, is the main sending region of FDI flows to ESCWA member countries. The EU is followed by Japan and the United States.

As noticed in the report, there is no evidence that FDI has helped increasing the transfer of technology to ESCWA member countries, nor did it boost the region's exports. In other words, the benefits of FDI inflows to the region are still not completely reaped. Indeed, little cooperation took place between foreign and local investors, whether in terms of joint ventures between foreign and local firms or in the form of capacity building targeting the enhancement of technical expertise of local workers and the competitiveness of domestic firms. In this regard, the report outlines the meager share of FDI inflows targeting research and development (R&D) in the ESCWA region. In fact, little has been done in terms of investing in research centers and R&D in the region, which deprived member countries from the benefits of research.

The report highlighted several deficiencies still hampering the business and investment environments in ESCWA member countries. Most notable among these are time-consuming procedures for obtaining licenses and implementing contracts, and the lack and/or incompetence of commercial courts to settle disputes between foreign investors and local parties. These impediments deter foreign investors from increasing their assets in many ESCWA member countries and deprive the latter from tapping into gains inherent to FDI.

The report concludes with a number of recommendations to ESCWA member countries. Paramount among them is the one urging member states to reconsider their investment policies in order to re-orient FDI towards more strategic sectors such as agriculture and the agro business industry. Investing in these sectors would help the region dealing with the long-lasting food security crisis in the region. In addition, the report encourages the region's sovereign wealth funds to increase their investments in the region, notably in the fields of agriculture and industry. (Global Arab Network 21.09)

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11.4 PERSIAN GULF: GCC Rail Projects Steam Ahead

Following the launch of the Dubai Metro, attention is turning to the various rail projects across the Persian Gulf with a possible pan-Gulf network to connect the major cities of the region. While the Metro is one of the most significant passenger transport projects, there are others that would bring about changes in passenger as well as freight transport across the GCC. The Dubai Metro is the first of many rail systems that will connect the GCC countries and possibly the whole region. A proper rail network will help reinforce the region's position as a major global energy and trading hub. A solution to the city of traffic jams, the Dubai Metro was launched within four years at a cost of Dh28 billion. The mass transit network, stretching over 75 km, will carry 1.8 million passengers per day by 2020, according to Roads and Transport Authority estimates.

Last summer the UAE capital announced plans for an integrated mass transit system connecting the developments under construction in the suburbs. Earlier this month, the Abu Dhabi Executive Council said that it is reviewing bids for the 131-kilometre metro rail system. The Abu Dhabi Metro is expected to partially start in 2015. The entire transport system will include a network of underground metro lines, trams and high-speed rail, part of the Abu Dhabi Surface Transport Masterplan that will help hundreds of thousands of residents to commute among growing neighborhoods. The country's plans to connect the emirates with their respective railway projects are also reaching their final stages, according to the National Transport Authority.

The Persian Gulf's 36 million residents are restricted to either travel by cars, buses or air. A proper rail network would accelerate cross-border travel, trade and tourism, analysts say. "The GCC countries now should look beyond the existing mode of transport and ease travel restrictions to facilitate cross-border tourism that will help more movement across the region," said an analyst, requesting anonymity. "By and by, we expect Saudi authorities to ease visa restrictions - a major obstacle before these projects take off. The Gulf region should also look at the possibility of issuing a Schengen-type single visa that will allow foreign tourists to enter the region through one city and travel around as in Europe."

While the Dubai Metro might lead among light rail systems, a majority of heavy rail projects are in various stages of planning in Saudi Arabia and other GCC countries. In a country where projects might be less creative and swift than in neighboring UAE, Saudi projects are unparalleled in size in the region. When individual projects are completed, the governments will work toward connecting the numerous rail systems to complete the network throughout the Gulf.

The GCC network will include one rail line of 1,970 km connecting all GCC countries and Qatar via a bridge. The second line, of 1,984 km, will stretch between Kuwait, Saudi Arabia, the UAE and end in Oman. Last year GCC transport ministers approved a feasibility study for the $12 billion GCC railway. Under the wider plan, the network would extend from the GCC countries to Jordan, Syria and Turkey. The next move would be a more extensive system linking up with systems providing access to Europe and Asia via Turkey.

Four projects running on track:

Dubai: The largest of the Gulf countries, Saudi Arabia has already begun work on four different railway projects. Of these, the focus will be on Landbridge, the 1,000 kilometer East-West Railway project, running from Jeddah and Damman and bridging gap between the Red Sea and Arabian Gulf. "Strategically the most important railway project in the GCC is the Saudi Landbridge, as this could ultimately have a major impact on regional trade patterns, with the potential to move goods between the Red Sea and the Gulf in less than 48 hours.

The Landbridge has been held up by financing constraints, however, and it now looks like being a 100% government project, whereas it was originally conceived as a private sector development," said David Butter, regional director, Middle East and North Africa/ Viewswires Editor, Middle East, at Economist Intelligence Unit. He said that the Landbridge would provide competition for air transport on internal Saudi routes, "but I don't see much scope for cross-border railway transport in the GCC."

The project will consist of two tracks, the first of which will cover 449 kilometers and handle only passengers, while the second will stretch over 556 kilometers and be devoted exclusively to freight. On completion, it is estimated to transport some 300 million passengers per year and one billion tonnes per year. Analysts expect the cost to exceed 10 billion Saudi riyals (Dh9.79 billion).

Saudi Rail Organization recently issued tenders for the first construction contract on the 500 kilometers Haramain high-speed rail link between Makkah and Madinah. The $7 billion (Dh25.74 billion) project is aimed at providing transport for Umrah and Hajj pilgrims travelling between the two cities and Jeddah. The train will reach speeds of up to 300 kilometers an hour. "On the passenger front, I would see the Makkah-Jeddah-Madinah railway as the most promising project, because of potential passenger numbers, alongside the Dubai and Abu Dhabi light railways," Butter said.

Foster and Partners and Buro Happold are currently designing the project's four stations, under a joint venture. Mouzhan Majidi, chief executive of Foster and Partners, said, "The Haramain High-speed Rail project represents a major investment in sustainable public transport by the Kingdom of Saudi Arabia, with potentially far-reaching social and economic consequences." The other of the Kingdom's rail projects is the North-South Railway Project (NSR). Its planning stage began in 2005 and is expected to complete by next year.

Persian Gulf: Regional plans

Meanwhile, other GCC countries are also planning rail projects.

Oman: Last year, the authorities appointed consultants to conduct a feasibility study of a 200-kilometre railway network that will begin in Sohar to connect Birka in north Muscat, and then extending to Duqum.

Kuwait: The country has put forth plans of a $132 billion model city in the northern part of the country, which will include a railway system. With an investment of more than $11 billion t in the construction of the railway, the line will connect Kuwait to the GCC rail network.

Qatar: The country will also see a series of national railway projects over the next 10 years. Qatari Diar Real Estate Investment Company, in partnership with Germany's Deutsche Bahn, has developed a conceptual design for the a national railway system for the country. This will include a line alongside the east coast, connecting Ras Laffan and Mesaieed, a high-speed link from Doha to Bahrain across the Qatar-Bahrain Causeway, a freight link connecting to the GCC railway network. A Doha metro light rail network within the city is also planned. Additionally, the city of Lusail, will see a Light Rail Transit within the development by Lusail Real Estate Development Company.

Bahrain: Earlier this year, the authorities said they expect the study for the $8 billion railway project to be completed by late next year. The network will be 184 kilometers and will be developed in phases by 2030. The network will include light rail trains, monorails, trams and other systems. (Railway Technology, MEED, Oxford Business Group 23.09)

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11.5 PERSIAN GULF: Realism Enters Persian Gulf's Real Estate Market

Preliminary details from the most accurate and up-to-date analysis yet of the impact of the global slowdown on the real estate industry in the Arabian Gulf were published ahead of next month's Cityscape Dubai. The study was carried out for the Cityscape organizers by research house Proleads and forms part of the "Cityscape Intelligence Focus On Dubai Report." The study is based on data with a claimed accuracy of 90% and takes the pulse of more than 3,000 projects valued in excess of $1.5 trillion in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

The study – accurate to mid September 2009 – not unnaturally confirms the UAE as the hardest hit in the region. Nevertheless, it also shows the UAE retains an extraordinary level of construction activity across all sectors. The total value of UAE projects in the study comes to around $900 billion.

A breakdown of the preliminary Proleads study of UAE projects shows:

• In commercial, a total of 340 projects are under construction or in bidding process with147 cancelled or on hold.
• In hospitality, 288 projects are in construction or bidding with 118 cancelled or on hold.
• In residential, 495 projects are in construction or bidding with 217 cancelled or on hold.
• In retail, 249 projects are in construction or bidding with 84 on hold and no cancellations.

Across the rest of the Arabian Gulf, in the four sectors of commercial, hospitality, residential and retail, the impact of the economic downturn has been decidedly less marked and further illustrates that the region continues to be a global hotspot for real estate projects:

• In Saudi Arabia, with total projects worth more than $387 billion, 442 are in construction or bidding with 106 cancelled or on hold.
• In Kuwait, with total projects worth more than $114 billion, 90 are in construction or bidding with 18 cancelled or on hold.
• In Qatar, with total projects worth more than $42 billion, 124 are in construction or in bidding with seven cancelled or on hold.
• In Oman, with total projects worth more than $38 billion, 95 are in construction or in bidding with eight on hold and no cancellations.
• In Bahrain, with total projects worth more than $36 billion, 148 are in construction or bidding and 54 cancelled or on hold. (BI-ME 16.09)
  

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11.6 UAE: Fitch Affirms Abu Dhabi at 'AA'; Outlook Stable

On 16 September 2009: Fitch Ratings affirmed Abu Dhabi's Long-term foreign currency Issuer Default Rating (IDR) at 'AA' with a Stable Outlook. The Long-term local currency IDR is also affirmed at 'AA', with a Stable Outlook and the Short-term foreign currency IDR at 'F1+'. The UAE Country Ceiling, which applies to Abu Dhabi, is affirmed at 'AA+'.

"Abu Dhabi's strong balance sheet enables it to weather most conceivable shocks," says Charles Seville, Associate Director in the Sovereign group at Fitch. Over the past 12 months, the emirate has seen a fall in oil prices and a sharp drop in global equity prices, which has affected returns at its sovereign wealth fund, the Abu Dhabi Investment Authority (ADIA). Both shocks have been partially retraced over the past six months.

Investment losses at ADIA during 2008 were, Fitch estimates, in line with diversified global funds such as the California State Employees Retirement System (Calpers) and Norway's Government Pension Fund, which lost around 20%. Losses outweighed new investment inflows during a year of rising oil prices. Fitch estimates that external assets will have recovered some ground in 2009. The government has confirmed to Fitch that its assets were still worth at least 200% of GDP in 2008, making Abu Dhabi's sovereign net foreign asset position one of the strongest of any rated country. It is stronger than that of Saudi Arabia ('AA-'/Outlook Stable) and comparable to Kuwait's ('AA'/Outlook Stable).

Oil income will fall in 2009 on lower average oil prices. At Fitch's assumption of $55/b for Brent in 2009, the general government (central government plus estimated investment income) will be close to breaking even, while the dividend of ADNOC, the national oil company, will continue to be paid direct to ADIA, adding to government non-reserve external assets.

External liabilities are on the increase. The sovereign has only $4bn of direct external debt outstanding (having issued $3bn in eurobonds in April 2009 and $1bn in August 2007), but contingent liabilities have grown. State-owned companies are borrowing to support acquisitions and the strategic development plans of Abu Dhabi. With a variety of quasi-sovereign entities borrowing, the risk grows that one may eventually have to call upon the sovereign to help it service debts. Wholly or partly state-owned companies (excluding banks) have borrowed in excess of $18bn on external bond and loan markets so far in 2009, some of it refinancing. Fully state-owned enterprises owe $20.1bn as of June 2009 according to official sources. Total external debt of Abu Dhabi, not including banks, is estimated at $56bn (40% of GDP) in 2008, below Kuwait's and the 'AA' median but above Saudi Arabia's.

Federal government debts, which were equivalent to 17% of UAE GDP at the end of 2008, are also regarded as contingent liabilities on Abu Dhabi, given the close relationship between the two. The federal government derives the largest part of its funding from Abu Dhabi.

The debts of other emirates fall into the category of potential contingent liabilities. The large refinancing needs of government-related entities in Dubai have brought the issue of inter-emirate support centre stage. Abu Dhabi is under no obligation to prevent other emirates from defaulting on their debts, and Fitch regards a direct bilateral transfer as unlikely. Support for Dubai has so far come via the Central Bank of the UAE (CBUAE). In March, the CBUAE bought a $10bn Dubai government bond, reportedly using international reserves. The funding of a further $10bn remains unclear.

Transparency is lower than in the majority of 'AA'-rated sovereigns. Fitch has been given official guidance over the assets and liabilities of Abu Dhabi but does not have a complete picture. The mechanism for support of other emirates and the federal government is also not fully transparent. Checks and balances on executive power are less developed than in most of the peer group. (Fitch16.09)

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11.7 UAE: Dubai World Shaken

The Economist Intelligence Unit reports that Dubai World, the most heavily indebted of the emirate's government-related conglomerates, has taken steps to bolster its financial position with the creation of two new senior executive positions and changes to the board of its international private equity arm. This comes after months of speculation about a possible reorganization of Dubai World's assets as part of the broader effort to meet the challenge of servicing Dubai's debts, which is being supported by the federal government of the UAE and by Abu Dhabi. Thus far, Dubai World has managed to hold its ground, but a major test is looming with the maturity in December of $3.5bn in sukuk (Islamic securities) issued by Nakheel, its real estate arm.

Dubai World on 18 September - a Friday, the Islamic day of rest and prayer, and on the eve of the Eid holiday marking the end of the holy month of Ramadan - announced the creation of posts of group chief executive officer (CEO) and group chief operating officer (COO), in a move that appears to diminish the role of the chairman, Sultan Ahmed bin Sulayem, one of the most powerful figures in Dubai's entwined business and political arenas. The CEO is Jamal Majid bin Thaniah, the vice chairman and the chief executive of the holding company that owns Dubai World's ports and free zone interests. He has been given responsibility for overseeing the restructuring of the group. The COO is Maryam Sharaf, who had been the group's chief financial officer since July 2006. She will be in charge of overall investment and operational management.

The changes at the group level came one day after announcements affecting Istithmar World, the private equity subsidiary, and Nakheel, amid strong media interest that had been prompted by a report by Bloomberg news agency claiming that Istithmar was facing severe difficulties. The Bloomberg report, datelined New York and based principally on anonymous sources, said that Istithmar was to halt fresh investments and that it or its assets could be sold. The report also speculated about the future of its chief executive, David Jackson, following the announcement earlier this month of the departure of two co-chief investment officers. Following publication of the article, Dubai World issued a statement that reports that Mr. Jackson had left the company were incorrect; it did not comment directly on the suggestions about an investment freeze and restructuring plans, but said that Istithmar is "actively" managing a portfolio of investments worldwide and that it will continue to be a "key subsidiary" of Dubai World into the future. On September 17th Dubai World announced that it was shifting some of Nakheel's international hotel assets to Istithmar, and a number of Nakheel executives were also reassigned to the private equity firm.

Leveraged

Istithmar World is reckoned to have made investments worth about $25bn in total while building up its portfolio since its inception in 2003, according to a sovereign wealth fund database cited by Bloomberg. The company itself lists the assets in its portfolio, but does not furnish financial details. It is thought that a large portion of these acquisitions was financed through borrowing, as was common practice among equity funds during this period. Assets include stakes in firms that have been hit hard by the global financial crisis, such as the Bahrain-based Arcapita (a fellow equity fund) and GLG Partners, a New York-based hedge-fund investor, as well as assets in the recession-blighted high-end retail and leisure market, notably the Barney's New York store chain.

It clearly makes sense for Dubai World to quash any suggestion that it is contemplating a fire-sale of Istithmar's assets, as this would drive down the prices that it could expect to get. At the same time, however, creditors will want to see some evidence that Istithmar is takings steps to generate cash flow through some orderly exits from its investments. The news of the changes to the Istithmar management team has been generally well received by financial analysts in the Gulf. It is as yet not clear what the implications will be for Nakheel, but creditors are likely to be encouraged by the signs that Dubai World is applying itself seriously to the task of restructuring its business.

Spotlight on Bin Sulayem

Dubai World is largely the creation of Sultan Ahmed bin Sulayem, a former customs official who rose to his position as chairman of the group after taking charge of Dubai's first free zone and then being given responsibility for Dubai Ports Authority, which has since, in the guise of DP World, become one of the top four global port operators. The port company, which is listed on the NASDAQ Dubai, provides the financial bedrock of Dubai World, and despite the shrinkage in world trade levels it is still producing significant revenue and profit for the group. In the first half of 2009 it earned total revenue of $1.38bn, a relatively modest 13% year-on-year drop compared with 2008. It made a net profit of $188m for the period, compared with $287m in January-June last year.

For the past few months Dubai World has been holding discussions about the possible sale of part of its 77% stake in DP World to a private-equity fund, widely reported to be Abraaj Capital, a Dubai-based firm that appears to be riding out the financial crisis well. On September 15th DP World issued a statement to the NASDAQ Dubai clarifying that Dubai World had advised it that these discussions had ceased (which resulted in an immediate rise in the port company's share price).

The more problematic parts of the Dubai World business include the massive real estate and leisure investments undertaken in both Dubai - notably Nakheel's Palm and The World developments - and abroad, including the $9bn Las Vegas CityCenter complex undertaken as a 50:50 partnership with MGM Mirage. Mr. Bin Sulayem has resisted moves to include Dubai World in the broader reorganization of the emirate's government-related entities, which has included a consolidation of several real estate firms. Dubai's corporations are being shored up by a $20bn support fund (of which $10bn has so far been raised, entirely from the Central Bank).

How big is Dubai World's debt?

According to tallies produced by banks and rating agencies at the end of last year, the total debt of Dubai and its government-related entities stood at about $80bn, roughly the same as the emirate's 2008 GDP. About one-third of this was reckoned to be accounted for by Dubai World. In August Dubai World made a statement of its aggregate financial position. It said that its assets were worth about $100bn, while its liabilities amount to just under $60bn, indicating a high level of solvency. The $60bn figure has subsequently been widely cited as an indicator of Dubai World's debt, leading many commentators to conclude that the $80bn estimate for the emirate's total debt must be too low. However, by no means all of a company's liabilities can be classified as debt - DP World's accounts, for example show loans and borrowings of $7.7bn as of end-June 2009 out of total liabilities (excluding equity) of $11bn. There may nevertheless be grounds for an upward adjustment in the previous estimates of the total debt of Dubai World and of the emirate on the assumption that a more thorough internal audit has been conducted as part of the allocations from the Dubai support fund. (EIU18.09)

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11.8 UAE: Abu Dhabi - Powering the Future

As Abu Dhabi's leadership visited Washington to solidify US support for their nuclear power plans, government officials in the emirate delayed the tendering of the project in order to give bidders more time. Abu Dhabi's Crown Prince Sheikh Mohamed bin Zayed Al Nahyan travelled to the American capital to meet with senior US officials, including President Barack Obama and the secretary of state, Hillary Clinton.

The UAE needs the green light from the US in order to use American companies and technology in its plans to build a series of nuclear power reactors. Following positive feedback from Washington, the "123 agreement", named after Section 123 of the US Atomic Energy Act, is expected to pass through Congress around mid-October, unless the unlikely event of Congressional action blocks it. Given that there is already American participation in the bidding process via a consortia including General Electric, it stands to reason to expect American support, especially given the gloomy economic situation in the US.

The winner of the contract to build and operate the planned series of nuclear power stations was supposed to be announced on Wednesday the 16th of September. However, it was leaked to local press that government officials are taking extra time in order to allow all three bidders to continue with the process. A diplomatic source close to the deal told local press, "It'll take a long time because they continue to have three candidates." The decision to hold off was based on the fact that the three bidding consortia of firms - from France, South Korea, Japan and the US - were so closely matched. Each bid's application is being judged on the skills they bring to the table, these include technology, cost-efficiency and deliverability.

From the government's perspective it would appear the delay is actually good news. Robust competition amongst the bidders usually results in the state client receiving value for money. A little over 12 months ago, it would have been a very different story. Contractors held all the cards as clients struggled against perennial shortages of experienced builders, soaring costs and a lack of manpower. Nowadays, though, the capital is in the fortunate position to maximize the value of any contracting deals by taking advantage of falling material and engineering costs, as well as getting the most out of eager contractors.

By the same token, the global economic slowdown has actually acted as an impetus for financially robust governments, such as Abu Dhabi, to ramp up power production while it is cost efficient to do so. Another reason for the emirate, however, is its burgeoning population. According to Abu Dhabi's Department of Economic Development, between 2002 and 2007 the emirate's population grew at an average annual rate of 4.8%. This number leapt even further for the years 2005-08, with growth figures averaging 6-7%. Owing to this rapid population growth an increasing strain has been put on energy supply.

Annual peak demand for electricity in the UAE is likely to rise to more than 40,000 MW by 2020, a cumulative annual growth rate of about 9% from 2007. Current capacity committed to domestic electricity generation can only match about 50% of that amount, creating understandable concern over shortages. It is for this reason that the atomic strategy, which is the largest construction contract in the history of the country, worth $41bn, is on the cards.

Policymakers see nuclear power as the solution. When the project is finished in 2017 it is expected that nuclear power will generate up to one-third of the country's electricity requirements. Before of any of that can happen, though, Sheikh Khalifa bin Zayed Al Nahyan, the president of the UAE, is expected to announce his approval of a new law that will endorse the country's nuclear regulatory body officially. (OBG25.09)

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11.9 ALGERIA: Pharmaceuticals & Healthcare Report for Q4 2009

Research and Markets (http://www.researchandmarkets.com) announced the addition of the "Algeria Pharmaceuticals and Healthcare Report Q4 2009" subscription to their offering.

In this Q4/09 Business Environment Rankings matrix for the 17 key countries of the Middle East and Africa (MEA) region, Algeria remains in a lowly 14th position. While its considerable population size (over 34mn and growing) and the substantial potential for healthcare investment provide some draws, low per-capita spending and wide-ranging deficiencies in its regulatory and pricing and reimbursement environment will continue to hamper major improvements in the country's score. The country remains among the bottom ten markets of the 71 countries surveyed by BMI globally. Nevertheless, depending on the wider economic climate, Algeria's pharmaceutical expenditure should increase over the coming five years, from $2.35bn in 2008 to reach $2.94bn in 2013, growing at a compound annual growth rate (CAGR) of 5.62% in local currency terms.

The government has indicated its commitment to the improvement of its population's health, outlining a program through to 2025 which includes the expansion of hospital beds. While this situation will provide substantial opportunities to foreign players - most of which operate in the country through imports or local partnerships - they may be discouraged by the ban on imports of drugs that can be made locally, especially as the list of such drugs is to be extended from the start of 2010. Even though this will put the brakes on Algeria's bid for World Trade Organization (WTO) membership, the government is keen to protect the local drug industry, which is mostly engaged in the manufacture of generics.

In fact, Algeria's generics market is relatively advanced, having been stimulated by the government's encouragement, lax intellectual property (IP) laws and the fact that public expenditure represents some 80% of total healthcare spending. In 2008, the country's generics market was valued at an estimated $0.89bn, accounting for just over 38% of the total market by value, and up to two-thirds by volume terms. The requirement that generics account for 45% of all imports will support generics development over the longer term, especially as the longer-term target is the figure of 70%. Additionally, promoters of generics and local industry recently suggested that the social security should issue rebates to those using generic drugs. If implemented, the proposals have the potential to increase the penetration of generics to higher than forecast over the coming years, although low prices of such products will depress value growth.

In July 2009, the government reported that it would import 65mn swine influenza vaccines, with the Minister of Health adding that all of the seven cases of the virus diagnosed in the country were visitors from abroad. The vaccine for the A (H1N1) virus will be available free of charge, with Algeria judged by the government to be well-prepared for this eventuality. However, local press did not make it clear from where the vaccine would be imported, with many European countries recently announcing that they are likely to fast-track human trials for swine flu vaccine. (R&M28.09)

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11.10 MOROCCO: Pharmaceuticals & Healthcare Report - Updated Q4/09 Edition

Research and Markets (http://www.researchandmarkets.com) has announced the addition of the "Morocco Pharmaceuticals and Healthcare Report Q4 2009" report to their offering.

The publisher expects the drug market in Morocco to increase in value from $1.38bn in 2008 to $1.88bn in 2013, representing a compound annual growth rate (CAGR) of 5.5% in US dollar terms. The strong development of the sector is linked to an expanding economy and a growing middle class, both of which will underpin increased drug spending. The global financial crisis has not hit Morocco with the same force experienced in other countries in the world, which bodes well for pharmaceutical sector, while stable levels of inflation mean that real growth rates will be over 7% in both 2008 and 2009. The main risk to this scenario revolves around whether current levels of health expenditure are sustainable. With life expectancy growing in Morocco, the number of elderly people dependent on social security is increasing and could reach 5.8mn by 2030. Meanwhile, high drug prices and a lack of generic penetration are having an inflationary impact on health spending. However, BMI believes that while the economy continues to expand rapidly, many of these problems will remain in the background. Despite the global economic downturn, Morocco's High Planning Commission (HCP) has said that the country is likely to register economic growth of 5.3% in 2009. Although the publisher feels these figures for economic growth are quite optimistic, BMI maintains a positive forecast of 2.4% real GDP growth in Morocco in 2009.

The main health concern in Morocco in Q409, as in much of the world at the moment, is the threat of the swine flu pandemic. As a result, the government has been aggressively investing in its bio-defense capabilities. As reported by AP, Morocco has allocated $107.5mn to combat the threat of swine flu. Out of this total, $73.4mn has been put aside to purchase 4mn doses of Swiss drug maker Roche's anti-flu medicine Tamiflu (oseltamivir), which is used to treat the H1N1virus. Meanwhile, $2.52mn is to be used to purchase protective masks. According to latest estimates, there have been 35 cases of swine flu in Morocco, of which 28 people have been released. Governments in the Maghreb region have responded in differing ways to the threat of the pandemic. Algeria has created a special crisis unit comprising of experts from the health, defense, interior and transport ministries in order to monitor cases of swine flu. All passengers arriving from countries where the condition has been reported are receiving special treatment in order to prevent the pathogen spreading. In addition millions of respiratory masks have been distributed to doctors and border agents.

Meanwhile, in Morocco the emphasis has been placed on undertaking clinical and biological checks at all entry points, which has included fever detection kits at international airports. According to Health Minister Yasmina Baddou, sufficient quantities of vaccine are at hand while ambulances have been placed on-call to treat any breakouts.

In BMI's Business Environment Rankings for the Middle East and North Africa Region, Morocco remains in 12th place as despite the strong growth potential in its drug market, per-capita spending remains low at just $43.7 in 2008. (R&M28.09)

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11.11 TURKEY: Medium-Term Program - it is Home-Made

Morgan Stanley's (http://www.morganstanley.com) Tevfik Aksoy wrote that the new 3-year Medium-Term Program: Numbers look internally consistent and achievable, in our view. Turkey's long-awaited Medium-Term Program (MTP) has been made public by the Deputy PM and State Minister Ali Babacan. In comparison to previous MTPs, especially the most recent one published earlier in the year, we believe that Turkey's new program portrays a more consistent and achievable set of forecasts. In our view, this marks a positive step forward and raises the credibility of the figures noticeably.

However, we see some blanks to be filled in: The forecasts and overall framework do not fully explain how the government will achieve its goals, in our view. Moreover, we see a heavy reliance on a cyclical improvement in growth and associated rise in revenues. In addition, the program does not include contingency plans for a possible extension of the global downturn, which could be important, given the lack of clarity regarding the future of Turkey's relationship with the IMF.

Agreement with the IMF: However, Mr. Babacan indicated that the IMF would be analyzing the MTP and that the discussions going forward would be based on the main premise of the government's program. Provided the government finds acceptable any potential additional measures or the timing of any fiscal adjustment proposed by the IMF, then it seems to be ready to move forward. Mr. Babacan added that borrowing from the IMF would be cheaper and that any additional factor to increase the credibility of the MTP would be beneficial. Hence, our take is that the government is still willing to pursue a stand-by program but only if it materializes on Turkey's own terms. That makes us preserve our cautious optimism regarding a possible deal in the near term as the new framework signals a very slow adjustment on the fiscal side (and debt dynamics), which also relies heavily on a cyclical improvement in revenues.

Much better than the previous version: Looking at the details of the revisions in the forecasts and the internal consistency of the numbers, we notice the following:

• The new forecasts appear much more realistic. The economy is expected to contract by 6% in 2009 and grow by 3.5% in 2010. These are very much in line with our forecasts, and the government's 2009 figure is more pessimistic than our -5.2%Y. In 2010, we have exactly the same growth rate, while for 2011 our GDP growth forecast is slightly higher than the official figure at 4.2%. The framework seems to be based on the expectation that a gradual pick-up in global growth will materialize in the coming years, and the base year effects, as well as lower domestic borrowing costs, could spur growth.

• The unemployment and the current account forecasts are all realistic, in our view, while inflation forecasts, which are taken as-is from the central bank projections, seem optimistic. We expect similar patterns in unemployment and the current account, but we believe that inflation will be hitting a plateau and will increase slightly in 2010 on the back of the pick-up in growth and commodity prices. That said, this aspect of the program is not a significant pillar.

• Perhaps most importantly, the fiscal projections point to a rather less ambitious stance. The forecasts for the central government deficit suggest that the projected 6.6% (of GDP) figure will improve modestly to 4.9% in 2010 and 4% in 2011. This is a rather slow adjustment and, from the brief mention of the nature of the process, we understand that the improvement will be based on a pick-up in tax revenues associated with the improvement in growth and slightly lower interest expenses. Non-interest expenditures are projected to rise in 2010 to 34.3% of GDP from 33.6% in 2009. Spending is expected to be cut back to 33% in 2012.

• The primary balance (i.e., budget deficit excluding interest outlays) is projected at -2.1% in 2009 and expected to improve to -0.3% next year, only to post a slight surplus of 0.4% in 2011. This, in our view, demonstrates a very gradual adjustment and not only results in a longer period to stabilize debt to GDP but could also open the program to risks of internal and external exogenous shock. That is, in the event of an unexpected decline in growth, a sudden currency depreciation and/or rise in real interest rates, debt to GDP will continue to rise much faster than in the authorities' base case assumptions. This is not to say that the base case program should be designed to address these possible shock scenarios, but we believe that it is something the IMF could stress if a stand-by arrangement gets underway. Especially in comparison to the extremely tight fiscal policy of 2002-07, the picture on the primary surplus front looks rather weak. A counter argument would be that overall debt to GDP had improved substantially and that Turkey does not need to tighten as much but, as previous experience suggests, tight fiscal policy can actually be expansionary.

• As a result of the slow adjustment process, debt to GDP, which stood at 39.5% of GDP in 2008, will rise to 47.3% in 2009 and 49% in 2010. In 2012, the government expects debt to GDP to improve to 47.8%. In comparison to most developed markets, as well as those under the emerging classification, debt to GDP is clearly lower, and this seems to be giving the government a level of comfort. While there is merit to this view, the short nature of the maturity of the domestic debt, the presence of the crowding-out effects and rapid re-pricing of debt makes the ratio look less comfortable than it suggests. Also, in an environment of scarce global credit, clearly a stable (if not declining) debt to GDP outlook would be much more preferable.

Establishing a fiscal rule framework: We were encouraged by the government's intention to institutionalize a fiscal rule framework. According to the MTP, a fiscal rule would be put in place by 1Q10, and the budget of 2011 will be based on this. On the positive side, this will allay concerns regarding the deviations from the expenditure targets and limit surprises on the borrowing (issuance) front. On the negative side, the rule will be put in place nearly five quarters from now, and this gives little comfort regarding fiscal implementation in 2010.

Overall, we perceive the MTP as a consistent and achievable framework with forecasts broadly in line with ours. However, we still believe that there are some blanks that need to be filled in, especially in the fiscal area, to smooth the road to fiscal adjustment. While there is little to infer regarding future relations with the IMF, we still believe that the government is open to the idea, and unless the IMF pushes for dramatic changes in the overall picture, a stand-by arrangement strikes us as plausible. If the two sides cannot reach an agreement, we still believe that the MTB would be implemented; however, in this case, the reaction of market participants and analysts might be simply along the lines of ‘seeing is believing'. (MS18.09)

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11.12 TURKEY: Pharmaceuticals & Healthcare Report Q4 2009

Research and Markets (http://www.researchandmarkets.com) has announced the addition of the "Turkey Pharmaceuticals and Healthcare Report Q4 2009" report to their offering.

In this regional Pharmaceutical & Healthcare Business Environment Rankings (BER) for Q409, Turkey's score dropped relative to the previous two quarters. Although this coincides with a cumulative decrease in scores across the region, largely as a result of the financial downturn, Turkey slipped two places in the quarter, to fifth. However, its potential draws - including its large population and the rising penetration of health insurance - are considered more attractive than those of the more advanced markets of Hungary and Slovenia, for example. In the 2008-2013 period, BMI forecasts a compound annual growth rate (CAGR) of 8.68% in local currency terms, reflecting Turkey's status as a high potential market. The market, at consumer prices, was worth $11.2bn in 2008, and is likely to reach $18.8bn in 2013, also supported by the improving intellectual property (IP) climate.

In fact, while Turkey is listed under the Priority Watch List section of the Pharmaceutical Research and Manufacturers of America (PhRMA) Special 301 Report 2009 submission to the United States Trade Representative (USTR), the report does not mention counterfeiting. It appears that the recent creation of the Ministry of Health's medicine monitoring system has been judged as a strong commitment to tackling this issue. However, in July 2009, the subject of trade in fake medicines resurfaced, with an expert speaking at the Association of Research-Based Pharmaceutical Companies (AIFD) conference stating that Turkey is the fourth-leading country globally in terms of 2008 arrests for counterfeiting. In the period between the start of 2006 and the end of 2008, authorities confiscated fake medicines worth in excess of TRY212mn, with estimates suggesting that counterfeits represent 10% of the market.

Other challenges facing companies active in - or those considering entry into - the Turkish pharmaceutical market include the possible introduction of co-payments for healthcare, in addition to measures designed to reduce the public drugs bill. In the meantime, according to reports in local press, some 20% of the population continues to be uninsured, with this figure rising to 30% within the poorest of working age. Given the tightening financial situation, authorities are examining potential savings from modifying the current Green Card program provided to the poor, especially in the face of the number of the recently highlighted fraudulent and erroneous claims.

Nevertheless, foreign drugmakers continue to express interest in the Turkish market. In July 2009, Pfizer was rumored to be interested in the take-over of Turkish generics specialist Abdi Ibrahim. Pfizer is also in the process of purchasing another US-based pharmaceutical major, Wyeth, which markets a range of OTC and prescription medicines in the country. In the same month, Hungarian drugmaker Egis reported that it should post increased revenue growth in 2010 as a result of focusing on export markets, particularly Turkey. On the other hand, foreign-owned Turkish drugmaker Deva Holding recently inaugurated a new research and development (R&D) facility. The centre will focus on the development of drugs for the treatment of oncology, central nervous system and respiratory diseases, given the high price such medicines can fetch on foreign markets. Deva also announced plants to redirect its export strategy towards the developed markets of Western Europe and the US. (R&M29.09)

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11.13 BULGARIA: Statement by the IMF Mission to Bulgaria

A mission of the International Monetary Fund (IMF) visited Sofia from September 10–21, 2009. The mission was invited by the new government to assess the fiscal situation. There were no discussions about a possible Fund program. At the conclusion of the visit, Mr. Bakker made the following statement:

"The impact of the global economic and financial crisis on the Bulgarian economy has been significant. Domestic demand has been hit by a sharp drop in capital inflows, which has led to a near-halt of credit growth, while exports have been affected by the recession in Bulgaria's trading partners. As a result, the economy is now in a recession. Real GDP in the second quarter of 2009 was 4.9% lower than a year ago. Exports and manufacturing production have declined sharply, but imports have dropped even more, and the current account deficit has halved. Inflation has declined from almost 15% in June 2008, to 1.3% in August. The mission now projects that real GDP will decline by 6.5% this year and by 2.5% in 2010.

"Bulgaria started the downturn with considerable public sector buffers, including a large fiscal surplus and sizeable reserves in the fiscal reserve account. These buffers were important given its large private sector vulnerabilities - after year of large capital inflows, private sector external debt had increased to around 100% of GDP.

"Before the downturn, Bulgaria could combine fiscal surpluses with high expenditure growth, as revenue grew very rapidly—the result of the capital-inflows financing domestic demand boom. This revenue boom is now over, and if expenditure growth would not slow, the fiscal surplus could soon turn into a large deficit. During the first seven months of 2009, fiscal policy had not adjusted to the new economic environment. Revenue declined 10% from a year earlier, but spending was 24% higher. As a result, the 6.3% fiscal surplus of the first seven months of 2008 turned into a small deficit (0.6% of GDP). Without corrective measures, the 2009 fiscal deficit could have increased to more than 3.5% of GDP.

"The new government is committed to address these emerging fiscal imbalances, and aims to balance the budgets in both 2009 and 2010 through a package consisting of both revenue and expenditure measures. On the revenue side, it plans to raise revenue compliance, by tighter onsite controls, the linking of the information systems of the National Revenue Agency and the customs agency, and the restructuring of both agencies. Other measures under discussion include an increase in the minimum threshold for social security contributions and increases in excises on tobacco, electricity and fuel for 2010 and 2011. These revenue gains will be partly offset by a reduction in the social security contribution rate. On the expenditure side, for the remainder of the year, the government aims at compressing maintenance and capital spending. For 2010, it plans to cut further slack in the provision of public services, downsize and optimize the public administration, freeze public wages, contain pension growth depending on economic development, reduce nationally financed public investment, and shift financing of public investment towards higher absorption of EU funds. These expenditure savings will be partially offset by an increase in pensions, particularly for widowers and those over 75 years.

"The renewed focus on fiscal discipline is welcome and necessary. Given its large private sector vulnerabilities, and the constraints imposed by the currency board, Bulgaria can ill afford to run large fiscal deficits. In the current economic climate, balancing the budget will be very challenging. On the revenue side, there are risks that the gains from increased tax compliance may fall short of expectations, while on the expenditure site, the envisaged cuts will require strong spending discipline. Given these risks, it is well possible that a small fiscal deficit could emerge in 2009, and a deficit of 2% of GDP in 2010, and higher deficits are possible if the economy were to contract more than expected.

"These risks call for vigorous implementation of the planned measures. To make the fiscal adjustment sustainable, expenditures will need to be reduced permanently. This could best be achieved by targeted cuts rather than across the board spending reductions. Enhanced administrative capacity will help in creating an appropriate environment for businesses and boost potential growth, while raising the absorption of EU funds. Plans to cut the social security contribution rate in 2010 and over the medium term should be considered only within the framework of a comprehensive pension reform, aiming at ensuring the sustainability of the pension system.

"The continued good health of the financial system is critical to an economic recovery. The capital adequacy ratio of the banking system is high (17.6% as of end-June 2009). Published statistics indicate that the banking sector on average remained profitable during the first half of 2009, despite the rise in provisioning for non-performing loans. Recent stress tests by the Bulgarian National Bank suggest that banks' currently strong capital buffers would cushion the system against further deterioration in asset quality.

"As the Bulgarian economy emerges from the recession, it will need to shift to a new growth pattern relying more on the tradable sectors. Wage growth will also need to be moderated. According to official statistics, public sector wages in the second quarter were 17% higher than a year ago, and private sector wages 14.3% higher.

"In sum, the global economic crisis has hit Bulgaria hard. In the near term, fiscal discipline needs to be restored in a difficult economic environment, and in the longer term structural reforms are key to steering the economy towards a more sustainable growth pattern. We welcome the commitments of the new government." (IMF21.09)

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