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TOP STORIES
TABLE OF CONTENTS:
1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS
1.1 Fischer to Be Appointed for Additional Terms as Bank of Israel Governor
1.2 Israel Approves Largest-Ever Arab Economic Plan
1.3 Bank of Israel Raises Interest Rate 0.25%
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2: ISRAEL MARKET & BUSINESS NEWS
2.1 Israel Chemicals Signs $370 Million India Potash Contract
2.2 Gilat Announces Agreement To Acquire Raysat Antenna Systems
2.3 Deere Completes Purchase of Israeli Cotton Picker Business
2.4 Israeli Technology Spurs Impressive Increase in Export of Passover Foods
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3: REGIONAL PRIVATE SECTOR NEWS
3.1 Mead Johnson & Almarai Form Pediatric Nutrition Joint Venture in GCC
3.2 NexCen Brands Announces Further Expansion of its Franchised Brands in the Middle East
3.3 Abu Dhabi Urban Planning Council Develops Urban Street Design Manual with Otak International
3.4 Gymboree to Open First Mid East Store
3.5 Destination Maternity Announces Second Store Opening in Dubai
3.6 Wilson Wins Interiors Job for 19 Saudi Hotels
3.7 DFine Signs Distribution Agreements in Saudi Arabia
3.8 Electro-Motive Diesel Shares Saudi Arabia's Improvement & Expansion of Its Rail Infrastructure
3.9 Tex-Mex Heads to Turkey as Credit Thaw Fuels Restaurant Growth
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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS
4.1 Israel Weighs 'Garbage Power'
4.2 Turkey to Invest $20 Billion In Renewable Energy In 5 Years
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5: ARAB STATE & PAKISTANI DEVELOPMENTS
5.1 Jordan & South Korea Sign $130 Million Nuclear Deal
5.2 GCC Unemployment Forecast To Hit 10.5% in 2010
5.3 Kuwait Food and Drink Report Q2 2010
5.4 Bahraini Inflation Slips To 1.7% Y-O-Y
5.5 Qatar Seeking Role To Develop Gas Fields In Russia
5.6 German Rail Operator Signs UAE Agreement
5.7 Dubai Government Reveals Highlights Of Debt Restructuring Plan
5.8 Suez Canal Revenue Falls 16.7%
5.9 Morocco Long-Term Foreign Currency Rating Raised To 'BBB-' On Improving Economic Flexibility
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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS
6.1 Turkey Closing The Gap With European Economies Turkey
6.2 Turkey Remains Fifth Biggest Market for EU
6.3 Bulgaria Finance Ministry Claims Progress In EU-Inspired Reforms
6.4 Bulgaria Government Reverses Vat Hike Decision
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7: GENERAL NEWS AND INTEREST
*ISRAEL:
7.1 Yom HaShoah - Holocaust Martyrs' & Heroes' Remembrance Day 2010
*REGIONAL:
7.2 Allawi Wins Iraq Vote
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8: ISRAEL LIFE SCIENCE NEWS
8.1 Teva To Acquire ratiopharm
8.2 Teva Announces Tentative Approval of Generic Argatroban Injection
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9: ISRAEL PRODUCT & TECHNOLOGY NEWS
9.1 Civcom Introduces First Integrated 40Gbps 300PIN Tunable Transponder with DCM & EDFA
9.2 Alvarion's BreezeMAX Extreme 5000 Wins Prestigious Award at Security Industry Association
9.3 D-Link Chooses BroadLight's BL2348 System-on-Chip for GPON Residential Gateways
9.4 BlueOrca Tech and n-Trance Global Sign OEM agreement
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10: ISRAEL ECONOMIC STATISTICS
10.1 Statistics for Israel's Arab Citizens
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11: In Depth
11.1 ISRAEL: IVC's 2009 Exits Report - Summary
11.2 LEBANON: Banking on Stability
11.3 BAHRAIN: Port Power
11.4 UAE: Recent Announcements on Dubai World
11.5 SAUDI ARABIA: Health Care Balance
11.6 EGYPT: Growth Impetus
11.7 EGYPT: Food and Drink Report Q1 2010
11.8 LIBYA: Fitch Affirms Libya at 'BBB+'; Outlook Stable Ratings
11.9 LIBYA: British Trade Mission in Libya Sees the 'Centre of a Boom'
11.10 ALGERIA: Political Crises but Few Alternatives
11.11 TUNISIA: Growth Industry
11.12 TURKEY: Fiscally Sound without the IMF
11.13 TURKEY: Debts and Doubts Delay Kirkuk-Cehyan Renewal
11.14 TURKEY: Food and Drink Report Q2 2010
11.15 GREECE: IMF to the Rescue for Greek Troubles
11.16 GREECE: Fitch Says Clarity on Greek Financing Strategy Would Underline Euro Area Support Ratings
11.17 GREECE: Food and Drink Report Q2 2010
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1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS
1.1 Fischer to Be Appointed for Additional Terms as Bank of Israel Governor
Bank of Israel Governor Stanley Fischer will serve a second five-year term. On 17 March, Prime Minister Benjamin Netanyahu announced that he would ask the Finance Ministry to approve the appointment. Prime Minister Netanyahu told Fischer that there is no one better for the job. Fischer agreed to the appointment after the Knesset voted in favor of a new Bank of Israel Law that he made contingent on agreeing to a second term. The law, which passed its second and third readings on 16 March, sets a series of checks and balances on the bank and the governor. The law currently governing the bank was passed in 1954.
Fischer took the position of Governor of the Bank of Israel in 2005 after being nominated by Prime Minister Sharon and backed by then-Finance Minister Binyamin Netanyahu. Fischer was already intimately familiar with Israel's economy, having advised U.S. Secretary of State Shultz on Israel's economy in 1983, and drafting an economic stabilization package for Israel at the World Bank in 1985. Before coming to work in Israel, he had been a professor at MIT and an executive at Citigroup Inc. (Various17.03)
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1.2 Israel Approves Largest-Ever Arab Economic Plan
On 21 March, the Netanyahu government approved the largest-ever economic development plan for Israeli Arabs. Nearly $215 million in new money was allocated by the government ministers for the program, which aims to strengthen the Arab-Israeli economy. The plan, signed by Prime Minister Netanyahu and Minister for Minority Affairs Braverman, will invest the funds in 10 selected towns during the next five years. The towns that were selected to take part in the project are Nazareth, Shfaram, Sakhnin, Umm al-Fahm, Qalansuwa, Maghar, Tamra, Tira, Kfar Kassem and Rahat. Over 300,000 citizens live in these towns, constituting approximately 25% of Israel's minority population. The program will be expanded to more communities. The program reportedly includes building and expanding industrial areas, providing professional and academic instruction, increasing tourism, upgrading security and improving transportation and day care. As part of the plan, some $60 million will be invested in occupational development, which will also include investments in local economic infrastructures and upgrading transportation networks in and outside of the towns. Some $27 million will go toward preparing public land plots for construction and an additional $85 million will be invested into private plots. Another $40 million will be used to promote anti violence programs in the selected towns. (Various22.03)
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1.3 Bank of Israel Raises Interest Rate 0.25%
On 28 March, the Bank of Israel raised its interest rate for April by 25 basis points to 1.5%. The bank described the decision as "part of the gradual process of returning interest to a more ‘normal' level, intended to return inflation to within the target range and to keep it there, and to contribute to the further recovery of economic activity, while supporting financial stability." The decision comes against a background of economic growth that continues to strengthen, inflation expectations at the high end of the government's price stability target range, and rising asset prices. However, even after this rise, monetary policy remains expansionist. The bank was evidently aware of the difficulty raising rates when most central banks have not yet done so, and said, "Interest rates of the central banks of the leading advanced economies are very low, and are expected to remain so during the coming months. Nonetheless, some of them are continuing to reduce their use of special instruments of monetary accommodation, and other central banks are starting to increase their interest rates." (Globes 28.03)
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2: ISRAEL MARKET & BUSINESS NEWS
2.1 Israel Chemicals Signs $370 Million India Potash Contract
Israel Chemicals signed a $370 million contract with India for the delivery of one millions tons of potash at $370 per ton. Deliveries will begin in April and continue through March 2011. The price per ton in the contract is the same as in other recent spot contracts, such as the contract between Canada's potash export consortium Canpotex and India signed in February. Although the price is well below the $460 per ton in last year's potash contracts with India, it is $20 per ton higher than in contracts signed earlier this year with China. The contract is CIF; Israel Chemicals will bear the marine transportation and insurance costs, although Israel's proximity to India means that the company will save about $25 per ton for transportation. The importance in the contact is not in the price, but in the size. Israel Chemicals contracted to sell one million tons of potash to India, compared with its contract for 575,000 with China and 800,000 tons in its previous contract with India. Despite the lower price per ton, compared with the previous Indian contract, the total dollar value is about the same.
ICL (http://www.icl-group.com) is one of the world's leading fertilizer and specialty chemical companies. With exclusive concessions to extract high quality, low cost minerals from Israel's Dead Sea and rights to mine the Negev Desert, ICL is a major producer of potash, compound potash and phosphate fertilizers, food grade phosphoric acid, elemental bromine, magnesium and a major player in specialty chemical high margin niche markets. (ICL 18.03)
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2.2 Gilat Announces Agreement To Acquire Raysat Antenna Systems
Gilat Satellite Networks has entered into a definitive agreement to acquire Raysat Antenna Systems, (RAS), a leading provider of Satcom On The Move antenna solutions. The consideration for the acquisition is $25 million in cash and is expected to be completed within four to six months. Upon completion of the acquisition, RAS' U.S. operation will operate under Spacenet Integrated Government Solutions (SIGS), a U.S.-based subsidiary of Gilat, focused on meeting the needs of the government satellite communications market. RAS's international business will operate as a separate entity belonging to Gilat's worldwide operations and will continue to be managed by its current management. The acquisition is not expected to have a significant effect on Gilat's 2010 outlook with respect to earnings. The closing of the transaction is subject to certain regulatory approvals and other customary closing conditions. The acquisition of RAS represents a milestone in Gilat's previously announced strategy to expand its business in the DoD and other defense markets. RAS is a market leader in providing low profile and light-weight antennas and complete system solutions to the rapidly growing Satcom On The Move market. Low profile antennas are critical in meeting the stringent requirements of the U.S. DoD and other government and military markets around the globe.
RAS products are modem agnostic and can work in a variety of network architectures.
Petah Tikva's Gilat Satellite Networks (http://www.gilat.com) is a leading provider of products and services for satellite-based communications networks. The Company operates under three business units: (i) Gilat Network Systems, a provider of network systems and associated professional services to service providers and operators worldwide; (ii) Spacenet Inc., a provider of managed services in North America to the business and government segments; and (iii) Spacenet Rural Communications, a provider of rural telephony and Internet access solutions to remote areas primarily in Latin America. (Gilat 17.03)
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2.3 Deere Completes Purchase of Israeli Cotton Picker Business
Moline, Illinois' Deere & Company has completed the purchase of certain assets and customer relationships of BHC Manufacturing, which is located near Beit Hashita, Israel. BHC, which employs approximately 100 people, is a manufacturer of cotton picker repair parts for all makes of equipment and a supplier of cotton picker row units for other equipment manufacturers. Deere stated in December that the acquisition will expand its products and services in the company's already successful cotton picker business. Terms of the transaction were not made public. John Deere (Deere & Company) is a world leader in providing advanced products and services for agriculture, forestry, construction, lawn and turf care, landscaping and irrigation. (Deere & Company 29.03)
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2.4 Israeli Technology Spurs Impressive Increase in Export of Passover Foods
Israeli food manufacturers are benefiting from an unprecedented increase in demand for their Passover products from Jewish communities in the US and Europe. The manufacturers introduced many new products this year largely due to advances in technology, which allows them to use ingredients to mimic tastes and flavors of year-round products without using leavening agents. Demand for foods which carry the stricter Mehadrin kosher certification is also rising from Brazil to Australia and from Canada to Austria. Israel is considered the second largest exporter of these goods after the United States. The Israel Export Institute reports that matzah exports in the past few years averaged $9 million a year while wine sales totaled $7.75 million, but industry sources are predicting a 15% increase this year.
Taaman, Israel's leading exporter of Mehadrin products, is reporting a 23.5% growth in sales primarily to the east coast of the US, the UK, and France. Sales are expected to continue the upward trend due to increased demand from the Orthodox Jews with significantly larger families. Taaman is exporting everything from basic foodstuffs to snack foods and sweets, all kosher for Passover. Of Tov has increased its export capabilities to cope with an increasing demand from abroad. Some 200 tons of poultry products were sent to supermarkets in the US and Western Europe. Turkish coffee from Landver was sent to the US ahead of the holiday. Some nine tons of kosher for Passover coffee has been specially prepared for export. The deal is said to be worth more than $100,000. The company said the distribution is being handled by Osem-US. Amongst the new and innovative products developed by Israeli manufacturers was Mama Ofe's 'breaded' chicken breasts and chicken stars for children. People who eat kitniot (legumes) on Passover can still enjoy their salty snacks as both Bisli and Bamba are out with Passover versions. Then there is the rich selection of sweets which this year includes the usual cakes and macaroons but many bakeries offer unique delicacies such as Florentines, Hazelnut meringues and pies. (KosherToday 22.03)
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3: REGIONAL PRIVATE SECTOR NEWS
3.1 Mead Johnson & Almarai Form Pediatric Nutrition Joint Venture in GCC
Glenview, Illinois' Mead Johnson Nutrition Company, the global market leader in the infant formula category, and Almarai Company, the leading food and beverage company in the Persian Gulf region, have agreed to form a pediatric nutrition joint venture. Almarai is a trusted brand across the Gulf Cooperation Council (GCC), with market leadership in dairy, juices and baked goods. The largest integrated dairy foods company in the world, Almarai has particularly strong marketplace presence and distribution coverage in KSA and the other member countries of the GCC – Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates. Mead Johnson is a global leader in infant and child nutrition, integrating advanced nutritional science with marketing expertise. The company has an extensive portfolio of highest quality products with high levels of consumer awareness and loyalty. It has also earned a strong reputation of trust and expertise in the health care community. Almarai and Mead Johnson will each hold a 50% interest in the joint venture, and both bring significant strengths to the enterprise. Almarai offers its extraordinary knowledge of the local market, excellent dairy supply, and an extensive distribution network. Mead Johnson provides deep understanding of the pediatric nutrition industry, well-known and trusted products, a talented professional sales force, and cutting-edge capabilities in manufacturing, R&D and innovation. Additionally, both companies have tremendously well-known brands that are synonymous with quality, leading to the decision that the products to be sold by the joint venture will be co-marketed under the Mead Johnson "Enfa" and Almarai brands. (Mead Johnson 30.03)
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3.2 NexCen Brands Announces Further Expansion of its Franchised Brands in the Middle East
NexCen Brands has signed an agreement with existing master developer, DRH Group Inc. for the development of four Marble Slab Creamery stores in Egypt, a new market for NexCens franchised brands, over a five-year term. The agreement also calls for the development of 10 Great American Cookies stores in Saudi Arabia and three Great American Cookies stores in Kuwait over a 10-year term. Under separate franchise agreements, DRH Group currently operates Marble Slab Creamery stores in the United Arab Emirates, Bahrain and Kuwait and a Great American Cookies store in Bahrain. NY's NexCen Brands is a strategic brand management company with a focus on franchising. It owns a portfolio of franchise brands that includes two retail franchise concepts: TAF and Shoebox New York, as well as five quick service restaurant (QSR) franchise concepts: Great American Cookies, MaggieMoo's, Marble Slab Creamery, Pretzelmaker and Pretzel Time. The brands are managed by NexCen Franchise Management, Inc., a subsidiary of NexCen Brands. (NexCen 08.03)
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3.3 Abu Dhabi Urban Planning Council Develops Urban Street Design Manual with Otak International
The Abu Dhabi Urban Planning Council (UPC), the agency responsible for Abu Dhabi's urban environment, has unveiled the Urban Street Design Manual for the Emirate of Abu Dhabi. The manual, developed in association with Otak International, the Abu Dhabi-based arm of Portland, Oregon's award-winning design firm, Otak, Inc., is the design guide for all urban streets in the Emirate. Otak International was appointed by the UPC in 2009 to provide assistance for research and the subsequent formulation of the Urban Street Design Manual. The key objective of the manual is to address the changing street use priorities and reflect the fundamental principles of the far-reaching "Plan Capital 2030," which envisions transforming Abu Dhabi into a leading example of a walkable, sustainable Arab city. The completed manual puts pedestrians first and defines a street design process for enhancing street network connectivity and capacity. It creates a new street typology system and recommends streetscape enhancements, native, drought-tolerant landscaping and "shadeways" that will encourage walking, bicycling and enhanced access to transit. A team of planning experts from the UPC and Otak International worked on the formulation of this manual. Otak International has been working in Abu Dhabi since 2005, blending the local expertise of a regional firm with the diverse capabilities of a 29-year-old company. (Otak 29.03)
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3.4 Gymboree to Open First Mid East Store
Children's clothing brand Gymboree will open its first stores in Dubai's newly-launched Mirdif City Center in the third quarter of this year. The fashion chain will join US brands American Eagle Outfitters and home furnishing store Pottery Barn in opening its first Middle Eastern store in Dubai's newest mall. Gymboree announced the deal with Lebanese retail giant Azadea Group Holding to franchise its stores across the Middle East, its first entry into the region.
Lebanon retail giant Azadea Group Holding has signed a deal with US children's clothing seller Gymboree to franchise its stores across the Middle East. The multi-year deal between US-based Gymboree and Azadea G, the fashion arm of Azadea Group, marks the chain's first entry into the Middle East. The first stores are expected to open in Dubai later this year. Beirut-based Azadea Group operates 350 stores across the Middle East, with a retail portfolio that spans more than 30 international brands and includes Mango, Pull and Bear, Maxmara and Stradivarius. Gymboree, which sells clothes and accessories for newborns to 12-year-olds, operates more than 630 retail stores in its primary markets of the US and Canada, as well as more than 600 ‘Play and Music' centers targeted at babies and children up to the age of five. (AB11.03)
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3.5 Destination Maternity Announces Second Store Opening in Dubai
Philadelphia's Destination Maternity Corporation, the world's leading maternity apparel retailer, announced the opening of Destination Maternity in the Dubai Mall in Dubai, United Arab Emirates. Destination Maternity is the home of leading maternity brands Motherhood Maternity and A Pea in the Pod (including its premier luxury line, A Pea in the Pod Collection). It is a one-stop shop for the most extraordinary selection of maternity fashion, accessories and everything imaginable for the pregnant woman. This is the fourth store Destination Maternity Corporation has opened through its franchisee, Multi Trend, a member of the Al Homaizi Group. Destination Maternity and Multi Trend opened an A Pea in the Pod store in July 2009 in the 360 Mall in South Surra, Kuwait, a Motherhood Maternity store in November 2009 in the Al Bairaq Mall in Fintas, Kuwait, and a Destination Maternity in the Mirdiff City Center in Dubai, United Arab Emirates in March 2010. Under a multi-year franchise agreement, Destination Maternity has partnered with Multi Trend to operate branded retail locations and market merchandise under the Company's Destination Maternity, Motherhood Maternity, A Pea in the Pod, and Edamame The Maternity Spa® brands in six key markets in the Middle East: the United Arab Emirates, Saudi Arabia, Kuwait, Qatar, Bahrain and Oman. (Destination Maternity 30.03)
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3.6 Wilson Wins Interiors Job for 19 Saudi Hotels
Dallas-based Wilson Associates has been chosen to design 19 hotels coming up simultaneously in Mecca. The hotels are part of a $6 billion redevelopment in Makkah, which sees more than 65,000 pilgrims from around the globe coming to the Grand Mosque every day. To meet growing demand for quality accommodation from pilgrims, 26 hotels are being built at once by Jabal Omar Development Company, which has selected Wilson Associates to create the interiors for all but seven of them. Wilson won't disclose the size of the contract, but industry estimates place it between $15 million and $20 million. The firm will design more than 10,500 rooms in 25 towers, ranging from 20 to 48 stories, all with views of the city and surrounding holy sites. It will also design 17 grand lobbies and 40 food and beverage outlets. The hotel brands involved are Conrad, Westin, Sheraton, Marriott, Hilton, Radisson Blu, Mercure and Novotel. The design firm has worked on 59 Middle Eastern properties in 15 years. Wilson Associates recently opened its first Middle East office in Abu Dhabi, where it is designing two wings in the new Presidential Palace development. (TradeArabia 18.03)
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3.7 DFine Signs Distribution Agreements in Saudi Arabia
San Jose, California's DFine, Inc., a developer of minimally invasive solutions for treating vertebral compression fractures, announced that a distribution agreement was signed for Saudi Arabia by DFine GmbH, a subsidiary of DFine Inc. DFine is now commercially available in seven countries within Europe and the Middle East. In 2009, distribution agreements in Austria, UK, Greece and Turkey were completed to supplement the company's direct organization in Germany and expand commercialization efforts throughout Europe. (DFine 29.03)
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3.8 Electro-Motive Diesel Shares Saudi Arabia's Improvement & Expansion of Its Rail Infrastructure
LaGrange, Illinois' Electro-Motive Diesel signed a Memorandum Of Understanding (MOU) with the Mohawarean Group to form a joint venture organization in order to anticipate the future expansion of locomotives in Saudi Arabia as well as other countries of the GCC. They seek to support this regional expansion with Saudi Arabia as EMD's Center of Excellence in the region. As an example of EMD's leading role in the Kingdom, the Company is cementing its commitment to Saudi Arabia by producing 25 new high power SD70ACS diesel electric locomotives for the Saudi Railways Company (SAR). These units are specifically designated for use on the North – South line. They will carry minerals on over 1482km of newly constructed track, and are capable of dealing with some of the harshest desert environments including 300 km across the Nofud desert. Delivery of the SD70ACS locomotives is scheduled to begin during the 2nd Quarter of 2010. As the fleet of diesel electric locomotives in the GCC region is expected to expand, EMD is developing a Service Center with Mohawarean Group to provide world-class aftermarket support for the existing fleet as well as future fleet expansion. Electro-Motive is taking the lead in providing technical expertise to the JV to bring this type of service support that could be utilized by other regions in the GCC. Founded in 1922, Electro-Motive Diesel is one of two U.S. original equipment manufacturers of diesel-electric locomotives. EMD designs, manufactures and sells diesel-electric locomotives for all commercial railroad applications and has sold its products in more than 70 countries worldwide. (EMD 18.03)
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3.9 Tex-Mex Heads to Turkey as Credit Thaw Fuels Restaurant Growth
FOCUS Brands, the owner of Carvel ice cream and Cinnabon, will add 50 locations this year to its fastest growing chain, Moe's Southwest Grill, and expand into Turkey as the global recession recedes. Atlanta-based FOCUS has signed a franchise agreement to add 40 Moe's restaurants in Turkey over seven years, marking the brand's first foray outside the U.S. and Canada. The first of the Turkey locations will open in Istanbul's Sapphire Tower in September. Moe's, which serves "Homewrecker" burritos and quesadillas made to order with hand-chopped pico de gallo, will sell more franchise agreements in Q1/2010 than it did all of last year. Sales at freestanding consumer foodservice establishments globally fell 1.5% to $1.68 trillion in 2009 and are expected to rebound by 0.2% this year, Euromonitor estimated. Sales at foodservice outlets in travel centers, such as airports and train stations, grew an estimated 1.1% to $138 billion in 2009 and may grow 3.3% this year. Moe's, which operates 409 locations in 34 states and Canada, is seeing customers return. Sales in stores open at least 14 months have grown about 4.5% this year over the same period last year. Same-store sales fell 2.3% in 2009. Moe's predicts total sales will grow 3.5% to $334 million in 2010 after about a 1% gain last year.
The Turkish expansion calls for 2 more Moe's locations in 2011, four in 2012 and the balance of 40 by 2016. A key goal early on will be establishing consistent local suppliers that can meet Moe's standards. The first store, at least, will be supplied by container shipments from the U.S. (Businessweek19.03)
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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS
4.1 Israel Weighs 'Garbage Power'
The Israel Electric Corporation (IEC) and the Ministry of Environmental Protection are considering creating electricity using technologies that harness the power of garbage. The two bodies have turned to experts in the field to help weigh the pros and cons. The technologies in question make use of RDF, or refuse-derived fuel. The fuel is created by taking municipal solid waste – garbage – shredding it, treating it and then using it alongside other fuels in power plants. Original "garbage power" technologies used dehydrated RDF, but a newer method calls to steam-treat waste in order to reduce the quantity of pollutants. IEC officials are researching the technologies currently available to create and use RDF, the cost of using RDF, the technologies available to treat RDF to reduce pollution and their costs, the amount of space needed to build a plant that uses RDF, and more. The Electric Corporation managers plan to use RDF only if they can find a way to use the fuel without releasing various environmentally harmful chemicals. They are looking into the possibility of using agricultural refuse as well as municipal waste. As part of its search for environmentally-friendly power, the IEC is planning to revise its tariff system to make it financially easier to bring new technologies into the market. Five Israel facilities currently use refuse-derived fuel. These facilities currently produce only 10 MW, but by 2010, Israel could be producing 210 MW with RDF technology. (IsraelNN29.03)
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4.2 Turkey to Invest $20 Billion In Renewable Energy In 5 Years
On 27 March, the Turkish Energy and Natural Resources Minister Taner Yildiz said that Turkey would make investments worth $20 billion in the renewable energy within five years. Replying to questions of reporters, Yildiz said that they had talks with officials from Islamic Development Bank and bank officials said they could provide loans for energy investments in Turkey. "We held talks with countries in the south of Mediterranean region on investments in the sector of energy. Other countries proposed that Turkey should plan investments to be made in the region," he said. The loans that will be granted by Islamic Development Bank will be of great importance." (AA27.03)
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5: ARAB STATE & PAKISTANI DEVELOPMENTS
5.1 Jordan & South Korea Sign $130 Million Nuclear Deal
Jordan announced it has signed a $130 million agreement with a South Korean consortium to build the kingdom's first nuclear research reactor. The consortium, led by state-run Korean Atomic Energy Research Institute and Daewoo Engineering and Construction Co., will build a 5 MW reactor, a radioactive isotope manufacturing facility and a nuclear training centre. Petra announced on 30 March that the reactor will be fully commissioned within five years and a nuclear power plant will be built by 2017. Construction is to start later this year near the northern city of Irbid. Resource-barren Jordan is developing a peaceful nuclear program with US support. It says alternative energy sources are needed to generate electricity and desalinate water. (Petra 30.03)
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5.2 GCC Unemployment Forecast To Hit 10.5% in 2010
The unemployment rate in the GCC is forecast to rise to 10.5% this year, according to the 'GCC Unemployment: Sustainable Economies' report published by recruitment company TalentRepublic.net. It revealed that the unemployment rate in the GCC reached 8.8% in 2009 and is expected to increase to 10.5% this year. The report added that government led initiatives are needed to encourage entrepreneurship and provide small-scale investment opportunities for unemployed citizens and fresh graduates. It also called for the government to encourage private educational institutions to implement training schemes to help unemployed citizens and new graduates gain access to the jobs market. The report said GCC governments should introduce finance initiatives to encourage unemployed citizens to develop their entrepreneurial ambitions. It also stressed the need for governments to highlight key sectors where there are job opportunities, such as solar energy, education and healthcare.
Earlier this month, Sultan Sooud Al Qassemi, chairman of the Young Arab Leaders UAE Chapter, said that research showing that 61% of Arab youth in the UAE would prefer to work in the government sector is "a disaster" and the government cannot absorb that many Emiratis. The second annual Arab Youth Survey, which was carried out in October last year and involved face-to-face interviews with 2,000 Arab youths in nine countries, found that 46% of young Arabs would prefer to get a job in the government sector. In the UAE, the rate was even higher, with 61% saying they hoped for a job in the government sector and only 31% preferring to go into the private sector. (GN21.03)
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5.3 Kuwait Food and Drink Report Q2 2010
Research and Markets (http://www.researchandmarkets.com) "Kuwait Food and Drink Report Q2 2010" forecasts a tentative recovery in 2010, despite Kuwait's export oriented economy coming under strain in 2009 as depressed global sentiment weighed down energy export revenues. Driven by public sector spending, the authors expect GDP growth to come in at 2% in 2010, which will be welcomed by Kuwait's fairly dynamic food processing industry. On the back of the anticipated economic recovery, the authors expect headline food consumption in Kuwait to increase 3.8% to $2.51b in 2010. While consumer sentiment is likely to remain some way off the period leading up to the global downturn when the trend towards premiumization was at its sharpest, the improving state of the consumer will nonetheless be welcomed by leading Kuwaiti food and drink companies like Americana (Kuwait Food Company). Operating assets across the food, drink and food services industries, Americana is a major regional player with an annual turnover close to $2bn. Unsurprisingly given Kuwait's high disposable income profile and the similarity in consumer tastes and preferences to most of the wider Gulf region, Kuwait possesses a well-developed dairy industry that leverages off the spending power of the population and wide consumption of dairy products (estimated at more than 50 kilograms per capita annually).
Leading industry players include Kuwait Danish Dairy and Kuwait Dairy Corporation, both of whom are vertically integrated with exposure to segments ranging form fresh milk to ice cream. However, their ability to pursue major expansion regionally is hamstrung somewhat by the sheer weight of competition with Saudi Arabia in particular possessing a notably strong dairy industry. While the small size of the Kuwaiti market caps the long-term volume and value growth opportunities on offer, premiumization opportunities across all segments of the food industry should continue to present themselves over the forecast period to 2014. Beyond 2010, between 2011 and 2014, the authors expect modest growth in headline food consumption at 9.2% to KWD0.8bn. (R&M 19.03)
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5.4 Bahraini Inflation Slips To 1.7% Y-O-Y
Bahraini inflation slipped to a y-o-y increase of 1.7% in February 2010, compared to a y-o-y increase of 1.8% in January 2010 and a 4.7% increase in February 2009, the Bahraini Central Informatics Organization announced. All sub-indices registered increases on a monthly basis, with the exception of the clothing and footwear, transportations, and miscellaneous goods and services sub-indexes which declined by -0.6%, -0.2%, and -3.7%, respectively, compared to their January levels when they witnessed increases of 1.0%, 0.2%, and 3.4% compared to December 2009 prices. Furnishing, alcoholic beverages and tobacco, and food and non-alcoholic beverages sub-indexes inched up m-o-m by 0.1%, 0.9%, and 2.5% respectively. The remaining sub-indexes saw no change in their monthly levels including: housing, healthcare, communication, recreation, education and restaurants. All sectors saw y-o-y positive growth, except for the housing sector which recorded no change and communication and recreation which declined by -5.1% and -0.2%, respectively. Alcoholic beverages and tobacco saw the largest y-o-y increase in prices, going up by 10%, followed by the education sub-index, up by 7.8%. Restaurants, furnishing, food and beverages, healthcare, transportation, and clothing and footwear came after, increasing by 6.2%, 3.1%, 3.0%, 1.9%, 1.9% and 0.2%, respectively. (Beltone 24.03)
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5.5 Qatar Seeking Role To Develop Gas Fields In Russia
Qatar is seeking a role in the development of gas fields in the Russian Arctic in a move that could strengthen ties between the two pivotal members of a body holding nearly 70% of the world's proven gas reserves. Russian Prime Minister Putin said on 23 March that the Gas Exporting Countries Forum, based in Qatar and chaired by a Russian, should play a role in governing global gas markets. Qatar, the world's largest exporter of liquefied natural gas (LNG), in turn expressed interest in developing gas fields on Yamal, a peninsula jutting into the Arctic Ocean with enough gas in the ground to satisfy world demand for five years. State-run Russian gas export monopoly Gazprom said it had discussed the "high potential" for deals with state oil firm Qatar Petroleum in LNG, as well as pipeline gas supplies to Europe and the Asia-Pacific region. Russia, Qatar and Iran form the backbone of the 11-member Gas Exporting Countries Forum. Of the three, Iran is not yet a major gas exporter but has ambitious plans to develop reserves second only to Russia's. (AB24.03)
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5.6 German Rail Operator Signs UAE Agreement
German national rail operator Deutsche Bahn has moved closer to a deal worth billions of euros to build a rail network in the UAE, the company said after it signed an agreement on 28 March. The memorandum of understanding, signed in UAE capital Abu Dhabi, lays out a strategic partnership between the rail giant and UAE-based Al Masaood Group for the planning, construction and operation of rail systems. German transport minister Ramsauer, Bahn Chief Executive Grube and Al Masaood Group Chairman al-Masaood were present at the signing, which Bahn hopes will lead to contracts in the near future. Bahn is already involved in a $22.66 billion project in Qatar. (AB 28.03)
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5.7 Dubai Government Reveals Highlights Of Debt Restructuring Plan
Following talks with Dubai World creditors, on 24 March the Dubai Supreme Fiscal Committee released a statement giving highlights of its expected debt restructuring and support plan. Dubai World and Nakheel announced proposals for the restructuring of their liabilities that would put both companies on a sound financial footing and allow them to realize the full potential of their underlying businesses. The Government of Dubai, acting through the Dubai Financial Support Fund (DFSF), will support these proposals with significant financial resources, including a commitment to fund up to $9.5 billion in new funding over the business plan period. This will be funded by $5.7 billion remaining from the loan previously made available from the Government of Abu Dhabi and from internal Dubai Government resources. The $9.5 billion covers the Dubai World and Nakheel restructuring proposals. In this proposal, the Government is offering to recapitalize Dubai World through the equitization of the Government's $8.9 billion claim and a commitment to fund up to $1.5 billion in new funds. This restructuring will allow Dubai World to focus on its core holdings and to manage and realize full value from its assets. The Dubai government, as shareholder, will work closely with Nakheel so that any future projects are carefully planned and evaluated. The government indicated that Dubai World and Nakheel will discuss these proposals in detail with their creditors. The restructuring process is expected to take several months to implement. The Tribunal process remains available to protect the companies, their creditors and other stakeholders.
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5.8 Suez Canal Revenue Falls 16.7%
Revenue from Egypt's Suez Canal declined 16.7% to $2.262 billion in the period from July to December 2009, Egypt's central bank announced. Revenue was $2.715 billion in the same period a year ago. The canal is a vital source of foreign currency in Egypt, along with tourism, oil and gas exports and remittances from Egyptians living abroad. The fiscal year in Egypt starts in July. (GN 18.03)
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5.9 Morocco Long-Term Foreign Currency Rating Raised To 'BBB-' On Improving Economic Flexibility
On 23 March, Standard & Poor's Ratings Services (http://www.standardandpoors.com) raised its long-term foreign currency sovereign credit rating on the Kingdom of Morocco to 'BBB-' from 'BB+', and its long-term local currency sovereign credit rating to 'BBB+' from 'BBB'. Standard & Poor's also raised its short-term foreign currency sovereign credit rating on Morocco to 'A-3' from 'B' and its short-term local currency sovereign credit rating to 'A-2' from A-3'. The outlook on the long-term ratings is stable. Standard & Poor's raised its transfer and convertibility assessment for Morocco to 'BBB+' from 'BBB'. At the same time, Standard & Poor's affirmed the 'BBB-' foreign currency issue ratings on the Kingdom's foreign currency commercial debt, and withdrew its recovery rating of '2' on the debt issued by Morocco; such ratings are only assigned to the foreign currency debt issued by speculative-grade issuers. "The upgrade reflects our view of the Moroccan government's improved economic policy flexibility as a result of its track record in reducing the country's fiscal and external debt burdens over the past decade," said Standard & Poor's credit analyst Veronique Paillat-Chayrigues.
Once a key credit weakness, Morocco's general government debt indicators have converged with the 'BBB' median more rapidly than we had previously expected, while the external balance sheet continues to compare favorably with those of 'BBB' rated sovereigns. "We also factor in the high political stability and the government's momentum for its reform program, including large public works, which has raised Morocco's trend growth prospects, and contributed to improving gradually the country's still weak social indicators," said Ms. Paillat-Chayrigues. The stable outlook balances Morocco's progress in modernizing its economy while strengthening its public finances, against the weaknesses of its economic structure. Further improvements in Morocco's credit-standing would likely follow a more rapid convergence of living standards with those of other 'BBB' rated sovereigns. Conversely, should recent high credit growth lead to unexpected problems in the banking sector, or should external liquidity deteriorate significantly, downward pressure on the ratings could emerge. (S&P 23.03)
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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS
6.1 Turkey Closing The Gap With European Economies Turkey
According to the International Monetary Fund's (IMF) World Economic Outlook report dated October 2009, Turkey's GDP valued at PPP was $188.8 million in 1985. This figure reached $330.3 billion in 1992 and rose to $869.1 billion last year, representing a 163.12% increase in the space of 17 years. During the same period, Spain's GDP valued at PPP rose by 125.74%, while this figure was 115.08% for the UK, 89.64% for France, 81.6% for Russia, 71.4% for Germany and 66.06% for Italy. The IMF expects Turkey's GDP valued at PPP to increase further to $1.13 trillion in 2014, with its share in the overall European economy reaching 4.88%. The size of the Turkish economy currently amounts for 4.55% of the European economy overall, up from 3.4% in 1992. The IMF data show that while Germany's economy was 5.49 times the size of Turkey's 25 years ago, this figure declined to 4.96 times in 1992. Currently Europe's biggest economy, Germany is 3.23 times the size of the Turkish economy, and this figure is expected to decrease to 1.92 times by 2014, according to IMF forecasts. Germany's GDP valued at PPP was $1.04 trillion in 1985 and rose to $1.64 trillion in 1992 and $2.81 trillion in 2009. The IMF expects this figure to reach $3.29 trillion by 2014. (Zaman 30.03)
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6.2 Turkey Remains Fifth Biggest Market for EU
On 19 March Eurostat announced that Turkey remained in the fifth place in 2009 on a list of the largest markets in the European Union. The country was also the seventh largest trade partner for the Union. Eurostat said Turkey's imports from the EU countries dropped 19% in 2009 to €43.9 billion as the country's exports to the EU dropped by 22% to €36.1 billion. Trade volume between the candidate country and EU fell to €80 billion from €100 billion in 2008. The United States was the biggest trade partner for the EU with €204.5 billion. Turkey followed, Japan which came sixth on the EU's list of trade partners with business worth of €55.8 billion. (WB19.03)
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6.3 Bulgaria Finance Ministry Claims Progress In EU-Inspired Reforms
Over 90% of the reform measures of Bulgaria's Finance Ministry are said to be progressing as scheduled. This is the conclusion of a report of Bulgaria's Finance Minister Djankov on the execution of the National Reform Program for the period 2008-2010. The program contains 127 measures initiated in response to four specific recommendations made by the European Commission in its monitoring reports on Bulgaria under the Cooperation and Verification Mechanism; 11 measures have already been fully implemented. The reform measures in question have to do with the improvement of Bulgaria's administrative capacity, especially in the fields of state government and regulation and the judicial system; maintaining strict fiscal policies, improving the quality and efficiency of public spending; tying salary increases to growth of labor productivity; boosting competition; overcoming internal and regional imbalances. Six of the reform measures pertain to building infrastructure including in the field of IT and communications. (SMN 26.03)
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6.4 Bulgaria Government Reverses Vat Hike Decision
Bulgaria's center-right government has dropped plans to increase the value-added tax by 2% to 22%. The anti-crisis measures, which are to be implemented, will bring to the state budget BGN 1,6 B, which means the country can afford to keep VAT unchanged at 20%. Officials did not rule out a 1% increase should the government fail to collect the sum. The government planned to increase the value added tax to 22%, introduce a new tax on luxury goods and cut public servants wages in a bid to help fight the economic crisis and keep down the fiscal deficit. It was part of a package of new measures, which also include floating minority stakes in state-owned companies and a possible bond issue. The government is still expected to agree with the trade unions and the union of employers a final package of nearly 50 steps to combat the crisis. Representatives from all business sectors have cautioned that the hike in the value-added tax in Bulgaria should be a last-ditch measure, introduced only together with an overhaul in government expenditure. Bulgaria has the lowest personal and corporate income tax in the EU at 10%, which was introduced at the beginning of 2008, replacing the previous system, which combined several different tax rates - between 20 and 24%, depending on income. After coming into office, the new Bulgarian government announced it plans to keep unchanged the flat income tax rate and cut VAT from the current 20% to 18% in 2010 and by a further 2% by the end of the term of Prime Minister Borisov's administration. (SMN 30.030)
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7: GENERAL NEWS AND INTEREST
*ISRAEL:
7.1 Yom HaShoah - Holocaust Martyrs' & Heroes' Remembrance Day 2010
Israel will mark Holocaust Martyrs' & Heroes' Remembrance Day (Yom HaZikaron HaShoah ve-laGvura in Hebrew) beginning on Saturday evening, 10 April and Sunday, 11 April. Holocaust Remembrance Day (Yom HaShoah) is a national day of commemorating the six million Jews murdered in the Holocaust. It is a solemn day, beginning at sunset on Hebrew date of 27 Nisan and ending the following evening. The internationally recognized date comes from the Hebrew calendar and corresponds to the 27th day of Nisan on that calendar. It marks the anniversary of the 1943 Warsaw ghetto uprising.
Places of entertainment are closed and memorial ceremonies are held throughout the country. The central ceremonies, in the evening and the following morning, are held at Yad Vashem and are broadcast nationally on television. Marking the start of the day, in the presence of the President and the Prime Minister, dignitaries, survivors, children of survivors and their families, gather together with the general public to take part in the memorial ceremony at Yad Vashem in which six torches, representing the six million murdered Jews, are lit. The following morning at 10:00, the ceremony at Yad Vashem begins with the sounding of a siren for two minutes throughout the entire country. For the duration of the sounding, work is halted, people walking in the streets stop, cars pull off to the side of the road and everybody stands at silent attention in reverence to the victims of the Holocaust. Afterward, there is a central ceremony at Yad Vashem, while other sites of remembrance in Israel, such as the Ghetto Fighters' Kibbutz and Kibbutz Yad Mordechai, also host memorial ceremonies, as do schools, military bases, municipalities and places of work. Throughout the day, both the television and radio broadcast programs about the Holocaust.
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*REGIONAL:
7.2 Allawi Wins Iraq Vote
Former U.S.-backed prime minister Ayad Allawi and his secular, anti-Iranian coalition narrowly won Iraq's parliamentary elections in final returns on 26 March, edging out the bloc of Prime Minister Nouri al-Al-Maliki, who angrily vowed to challenge the results. The cross-sectarian Iraqiya bloc headed by Allawi took 91 seats with the State of Law coalition led by Shi'ite Prime Minister Nuri Al-Maliki close behind at 89 seats, a result that highlighted Iraq's sectarian gulf following a vote Iraqis hoped would stabilize their country after years of war. The results released represented a 100% preliminary count of the votes, but the final results must be certified by a court. No coalition is close to the 163 seats needed to control the 325-seat parliament. Allawi, a secular Shi'ite who served as prime minister in 2004 - 5 and was once highly critical of Shi'ite neighbor Iran for meddling in Iraq, said in brief comments on television that he would extend "hands and heart" to all groups. A coalition including anti-American cleric Muqtada al-Sadr finished a strong third and could end up playing the role of kingmaker. Kurdish parties also could be crucial in determining who will rule the oil-rich Arab nation of 28 million people.
Nearly three weeks after the 7 March ballot, the preliminary results showed Al-Maliki taking ethnically and religiously diverse Baghdad and predominantly Shi'ite southern provinces, while Allawi dominated largely Sunni northern and western regions. The Iraqi National Alliance (INA), a Shi'ite bloc with close ties to Iran, was in third place with 70 seats, and the Kurdish alliance, a union of two powerful parties in Iraq's semi-autonomous Kurdish north, finished with 43 seats. The INA is negotiating a merger with Al-Maliki's State of Law. Al-Maliki said he was on the way to forming the biggest bloc in parliament.
Al-Maliki and his supporters had previously called for a recount, saying there had been instances of vote rigging and fraud. But election officials had refused, and international observers have said the election was fair and credible. But any attempt to sideline Allawi in what could be weeks or months of perilous negotiations to form a new government could lead to resentment among Sunnis shunted to the political wilderness when Iraq's majority Shi'ites rose to power following the 2003 U.S.-led invasion that ousted Saddam Hussein. Sectarian violence exploded after the last parliamentary vote in 2005 as politicians took more than five months to agree a government. (Various 27.03)
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8: ISRAEL LIFE SCIENCE NEWS
8.1 Teva To Acquire ratiopharm
Teva Pharmaceutical Industries entered into a definitive agreement to acquire ratiopharm, Germany's second largest generics producer and the sixth largest generic drug company worldwide, for an enterprise value of €3.625 billion. The transaction is subject to certain conditions including relevant regulatory approvals. On a pro forma basis, the combined company would have had 2009 revenues of $16.2 billion. Teva expects to complete the transaction by year-end 2010. The acquisition will position Teva as the leading generic pharmaceutical company in Europe, increasing its European business from sales of $3.3 billion in 2009 to joint pro forma sales of $5.2 billion. ratiopharm's robust portfolio includes 500 molecules in over 10,000 presentation forms covering all major therapeutic areas marketed in 26 countries. ratiopharm also has valuable know-how in biosimilars, consisting of a number of products in advanced stages of development and a well-established sales and marketing team. ratiopharm reported worldwide 2009 revenues of €1.6 billion. The combined entity will have 40,000 employees worldwide, of which 18,000 will be based in Europe. The German headquarters site for the combined entity will be located in Ulm, ratiopharm's current headquarters.
Following the acquisition, Teva will improve its market position in Germany, the world's second largest generic drug market valued at approximately $8.8 billion (including sales to hospitals and OTC), to become the number two player in this market. The combined entity will have a strong European footprint, holding the leading market position in 10 European markets, including key markets such as the UK, Hungary, Italy, Spain, Portugal and the Netherlands as well as a top three ranking in 17 countries, including Germany, Poland, France and the Czech Republic. In addition, the transaction will nearly double Teva's sales in Canada. Teva Pharmaceutical Industries (http://www.tevapharm.com), headquartered in Israel, is among the top 15 pharmaceutical companies in the world and is the leading generic pharmaceutical company. The company develops, manufactures and markets generic and innovative pharmaceuticals and active pharmaceutical ingredients. (Teva 18.03)
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8.2 Teva Announces Tentative Approval of Generic Argatroban Injection
Teva Pharmaceutical Industries announced that the U.S. Food and Drug Administration (FDA) has granted tentative approval for the Company's Abbreviated New Drug Application (ANDA) to market a generic version of the anticoagulant, Argatroban injection, 100mg/mL. On Feb. 12, 2010, a bench trial in an ongoing patent litigation was completed in the U.S. District Court for the Southern District of New York. Teva Pharmaceutical Industries (http://www.tevapharm.com), headquartered in Israel, is among the top 15 pharmaceutical companies in the world and is the leading generic pharmaceutical company. The company develops, manufactures and markets generic and innovative pharmaceuticals and active pharmaceutical ingredients. Over 80% of Teva's sales are in North America and Western Europe. (Teva28.03)
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9: ISRAEL PRODUCT & TECHNOLOGY NEWS
9.1 Civcom Introduces First Integrated 40Gbps 300PIN Tunable Transponder with DCM & EDFA
Civcom announced the availability of a new DPSK tunable 40G transponder as the latest complement to its 10Gbps Free Light family of tunable NRZ and RZ transponders. Civcom's 40Gbps 300PIN TRX module will be made available in two different packages: Small Form Factor (5" x 5") featuring standard DPSK modulation format and optional integration with an EDFA, and Standard MSA size (7" x 5") featuring integrated tunable DCM and EDFA functionality Civcom's TRX DPSK module increases dispersion tolerance from the standard ±40ps/nm to as high as ±640ps/nm. The introduction of integrated EDFA increases the dynamic range to 20dB. The transponder module, which is compatible with the 300PIN MSA standards and I2C standards, uses a widely tunable laser covering the entire C-Band. Petach Tikva's Civcom (http://www.civcom.com), acquired by Padtec of Brazil in February 2008, is a pioneer in the development and manufacturing of cost-saving dynamic Opto-electronic components and modules, specializing in the field of 10Gbps and 40Gbps Telecom applications. Founded in 2000, Civcom leads the way in the field of dispersion tolerance transmission providing solutions for some of the most progressive tunable transponders. Civcom's Free-Light and Free-Path line of products consists of Civcom's 300PIN MSA widely tunable 10Gbps and 40Gbps transponders, and most advanced dispersion compensation technologies. (Civcom 18.03)
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9.2 Alvarion's BreezeMAX Extreme 5000 Wins Prestigious Award at Security Industry Association
Alvarion announced that the Security Industry Association (SIA) honored company's BreezeMAX Extreme 5000 wireless broadband solution with the Best in Public Safety Solutions award at the 2010 New Product Showcase at ISC West in Las Vegas. Alvarion is an exhibitor at ISC West 2010. Alvarion's BreezeMAX Extreme 5000 is the first WiMAX 802.16e solution commercially available at the 5 GHz license-exempt frequency band. This best-of-breed base station offers advanced air-protocol capabilities with superior performance that lowers the cost of high-bandwidth, carrier-class broadband connectivity for a variety of applications resulting in an improved business case. Alvarion's wireless broadband products use advance technologies to increase power efficiency and reduce product foot print thus minimizing the environmental impact of its solutions and improving operators' business case with lower total cost of ownership. Tel Aviv's Alvarion (http://www.alvarion.com) is a global leader in 4G wireless communications with the industry's most extensive customer base with hundreds of commercial WiMAX deployments. Alvarion's industry leading solutions enable true open 4G and vertical applications for service providers and enterprises. Through an OPEN WiMAX strategy, superior IP and OFDMA know-how and ability to deploy large scale end-to-end turnkey networks, Alvarion is delivering the true 4G broadband experience today. (Alvarion 25.03)
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9.3 D-Link Chooses BroadLight's BL2348 System-on-Chip for GPON Residential Gateways
BroadLight announced that D-Link has selected its BL2348 GPON Residential Gateway (RG) SoC for a new line of high-performance CPE devices. D-Link, the global leading networking solution provider, is extending GPON technology into the product portfolios and has achieved high level of interoperability for the emerging GPON markets like Russia. Ramat Gan's BroadLight (http://www.broadlight.com) is a fabless semiconductor company supplying semiconductor devices and solutions to equipment vendors for FTTH applications around the globe. Its technology spans from optical access to home networking which enables the delivery of highly integrated, low-cost, end-to-end (E2E) solutions from the central office to the customer premise. As a result, BroadLight is the leader in GPON semiconductor devices and software and is currently powering all of the world's largest PON deployments. (BroadLight 25.03)
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9.4 BlueOrca Tech and n-Trance Global Sign OEM agreement
Vancouver, BC's BlueOrca Tech has entered in to an OEM agreement with n-Trance Global for their n-Tegrity line of products, including biometric security devices, the n-Integrity software suite and the n-Trance Global secure VOIP device. These and other products will marketed under the BlueOrca Tech brand in North America and in selected markets globally. BlueOrca specializes in letting its customers secure, carry and connect their digital assets reliably and easily. Unlike the industry's slow giants, Tel Aviv's n-Trance (http://ntrance-global.com) is fast and effective in development of solutions answering immediate market needs, constantly moving few steps ahead of competitors. Company's products and solutions can satisfy needs and necessities of every concerned user; should it be home user, SOHO/SMB, governmental institution or corporate IT specialist. Their products received several awards and extremely high appreciation from the IT industry professional reviewers and journalists. (BlueOrca 30.03)
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10: ISRAEL ECONOMIC STATISTICS
10.1 Statistics for Israel's Arab Citizens
In March the Central Bureau of Statistics released data pertaining to Israel's Arab citizens.
At the end of 2008, the Arab population in Israel numbered 1.488 million people – 20% of the total population. By 2030 it is expected to number 2.362 million (24%). In this period, the Arab population increased by 2.6% people, mostly (94%) due to natural increase. By comparison, the population of Egypt grew by 2.2% and that of Jordan – by 2.4%.
As a result of high fertility, the Arab population is very young. Its median age is 20; for Moslems it is 19, for Druze – 24, and for Christians – 30. The median age of the Jewish population is 31. In the Arab population there are 1,035 men per 1,000 women, compared with 970 men per 1,000 women in the Jewish population.
An Israeli Arab family has 4.8 persons on average, compared with 3.5 in a Jewish family; 34% of the Arab families have 6 or more persons, compared with 9% of the Jewish families. The average number of persons in a Moslem family is 5, in a Druze family – 4.6 and in a Christian family – 4.
In 2008 life expectancy of Arab men was 75.9, and of Arab women – 79.7. In the last two decades the difference between life expectancy of Arabs and Jews increased. Infant mortality rate (per 1,000 live births) of the Arab population in Israel decreased from 41 in 1970 to 6.5 in 2008. In Syria it was 15 in 2007, in Jordan – 18, in Lebanon – 26 and in Egypt – 30.
The median number of years of schooling of the Arab population increased from less than 9 in the late 1980s to 12 in 2008. The gender gap in educational attainment has overturned – among younger persons women are more educated than men.
The proportion of Arab men aged 15+ in the labor force (62%) is almost identical to that of Jewish men. However, the proportion among Arab women (21%) is much lower than that of Jewish women (57%). In 2001, the rates were lower – 60% for Arab men and 18% for Arab women. 54% of the Arabs participating in the labor force are 15 - 34 years old, compared to 39% of the Jews.
In 2008 the average gross hourly income of Arab wage earners was NIS 29.9 – NIS 29.6 for men and NIS 31 for women. Women's wages is higher mainly as a result of the higher level of education of Arab women in the labor force relative to men.
On average, the income of Arab wage earners was 61% the amount earned by Jewish wage earners (58% for men and 72% for woman). In 2003 the ratio was 69%. Some 79% of the total income of Arab households derives from work (78% in Jewish households), 17% - from National Insurance allowances and subsidies (9%), and the rest – from other sources. In Arab households, the largest expenditure is for food, and in Jewish households – for housing. (CBS March 2010)
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11: In Depth
11.1 ISRAEL: IVC's 2009 Exits Report - Summary
In 2009, M&A proceeds involving Israeli companies that were either acquired or merged, totaled $2.54 billion, 7% below 2008 levels ($2.74 billion), and 33% lower than proceeds in 2007 ($3.79 billion). The top ten deals in 2009 yielded $2.02 billion, 80% of the total for the year. Four deals exceeded the $200 million mark and five deals exceeded the $100 million mark.
Sixty-three Israeli companies were acquired or merged in 2009, a 28% drop from an average of 87 companies in the previous three years (82 in 2008, 87 in 2007 and 94 in 2006). However, average deal size in 2009 was $40 million, an increase of 21% from $33 million in 2008. VC-backed deals (28) totaled $1.55 billion, an increase of 3% compared to (35) $1.5 billion in 2008.
According to Koby Simana, IVC CEO, "Notwithstanding the increase in average deal size, 2009 was successful for buyers due to a sharp decrease in company valuations." "Moreover" noted Simana, "We expect considerable M&A activity in 2010, providing attractive deals for companies eager to capitalize on the many current opportunities. From the standpoint of investors in high-tech companies, M&A deals will be welcome, even at moderate valuations, in order to receive an immediate payback."
The most noteworthy M&A deals of 2009 were Siemens' $418 million acquisition of Solel; Medtronic's acquisition of Ventor, estimated at $325 million; and IBM's $225 million acquisition of Guardium.
Israeli companies have also been acquirers of foreign companies, transacting 15 deals in 2009 for a total of $380 million. This is a sharp decrease from 2008, which saw the completion of 39 deals valued at $9.5 billion (including Teva's acquisition of Barr Pharmaceuticals for $7.46 billion). The most active acquirer among Israeli companies in 2009 was Frutarom Industries, a producer of flavors and fine ingredients, which acquired three foreign companies for a total of $37 million.
Worldwide technology IPO markets were weak in 2009, as in 2008. Only one IPO was made by an Israeli high-tech company during 2009. D-Pharm, a clinical stage biopharmaceutical company, raised $22 million on the Tel Aviv Stock Exchange. No IPOs were made in 2008. In the last decade high-tech companies raised some $17 billion from investors, compared to over $48 billion of capital received through M&A or IPO exits (a dollar ratio of three to one).
IVC Research Center is Israel's leading research center providing business leaders with an unmatched wealth of data on Israeli high-tech, venture capital and private equity industries. IVC products and services are used regularly by high-tech companies, venture capital funds, private investors, financial investors and institutions, as well as public entities such as the Central Bureau of Statistics, the Bank of Israel and the Office of the Chief Scientist.
IVC owns and operates the IVC Online Database (http://www.ivc-online.com) containing over 8,000 Israeli high-tech companies, venture capital funds, investment companies, angels and technology incubators, as well as news updates and lots more. Among IVC products and publications are the IVC Quarterly Survey, which examines capital raising trends by Israeli high-tech companies, and the most comprehensive guide to Israeli high technology and venture capital – the IVC 2010 Yearbook, due to be published in April. (IVC 22.03)
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11.2 LEBANON: Banking on Stability
By most measures, Lebanon's banks are is a solid position, enjoying high levels of deposits and a strong flow of inbound capital while operating in an economy that expanded rapidly last year and is expected to do so again in 2010. However, analysts warn that a number of factors could yet rock the boat.
With the coalition government of Prime Minister Saad Hariri apparently working in harmony, and the economy predicted by the Ministry of Finance to grow by up to 8% this year, Lebanon's banks have prospered. Furthermore, the sector's deposit base has hovered around the $100bn mark, fuelling recent reports on the bright future of the country's banks.
In its latest study of the Lebanese banking sector, issued in mid-March, ratings agency Moody's said the credit outlook for the industry was stable, thanks to the buoyant performance of the local economy last year, the reduction of tension in the domestic political sphere and relative stability in the region. Similarly, a report issued by Commerzbank at the end of February said that the country's ability to resist financial shocks and the accumulation of capital flows had boosted market confidence and exchange rate stability.
Though the banking sector is riding the crest of a wave there remains potential for troubled waters. The outlook for Lebanon's banks could weaken quickly should the political situation deteriorate and result in a resumption of serious acts of aggression, Moody's warned. Despite its steady credit outlook for the Lebanese banking sector, political risk remains high as long as the country continues to be the theatre for proxy conflicts, said the report, authored by Stathis Kyriakides, an assistant vice-president and analyst at Moody's. Lebanon has been a theatre for proxy conflicts over the past 40 years and the banking system survived even if the economy collapsed. Stability would certainly help maintain a climate that has made Lebanon's banks very attractive to depositors, both local and foreign, as noted by Moody's.
"The stability of the Lebanese banking sector reflects, to a significant extent, its remarkable success in attracting a constantly large stream of foreign funding from the Lebanese diaspora and Gulf investors," said Kyriakides. "Indeed, bank deposits have displayed a notable resilience to political shock throughout the country's turbulent recent history."
Though a mark of success and resilience, the banking sector's ability to attract funding can also pose difficulties. Many of Lebanon's banks have a problem that lenders in some other countries would be delighted to have to deal with - having too much cash in hand. According to central bank figures, more than $1.5bn is flowing into Lebanese bank vaults every month, drawn by the 7% interest rate on deposits in the local currency and the fixed exchange rate. To try and soak up some of this excess liquidity, and thus keep inflation in check, the central bank resumed selling certificates of deposit at the beginning of March, having stopped in June last year, and also sought to take some of the heat out of the money market by lowering its overnight lending rate from 3.25% to 2.75%.
"We have an objective of keeping inflation at 4% and we want to absorb excess liquidity that could cause an increase in prices," the central bank governor, Riad Salameh, told international media on March 2. "We want also to prevent speculation, especially in real estate, as too much liquidity could cause that." Salameh said the central bank has started issuing certificates of deposit after the Ministry of Finance announced that it would temporarily stop selling treasury bills as it had sufficient funds to meet its short-term fiscal needs.
While Lebanon's banks may be cashed up and operating from a solid base, that is not to say there is not room for improvement, according to some. There was a need for Lebanon's banks to upgrade the level of services they provided to private customers, in particular ensuring that consumer rights were protected, Fadi Abboud, the tourism minister, told a conference discussing the relationship between consumers and financial institutions on March 15. "This will positively contribute to the economic development in the country and the citizen will be considered a partner in the banks' success," said Abboud. "The improvement in banks' services will be a key driver in the economic development and the creation of job opportunities in Lebanon."
The finance minister, Raya Hassan, also used the conference to call for reforms in the way banks operated. Hassan said there was a need to improve financial institutions' transparency and relations with their clients. "Transparency should be improved in the contracts signed between banks and consumers in a way that protects the citizens' interests," she said. Having been criticized for reducing loan activity during the economic crisis, instead preferring to focus on building up reserves and funding state debt, Lebanon's banks may indeed need to brush up on the human touch. However, it appears they do not need tuition in wealth management, with their success at gathering liquidity showing they have graduated top of the class. (OBG 30.03)
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11.3 BAHRAIN: Port Power
Bahrain's showcase ship-handling facility, the new Khalifa Bin Salman Port (KBSP), appears to be meeting the expectations of the government and its operator, fast becoming integral to the Kingdom's drive of developing into a major transport hub. Built at a cost of some $365m, the KBSP started operations in April 2009, though it was not formally opened until December, and has begun to rack up some impressive results.
According to figures released by the General Organization of Sea Ports (GOP) in mid-March, since the port began operations there has been an average increase of 14.9% per month in the number of vessels using the facility, with 62 vessels berthing in January, a new record. Hassan Al Majed, GOP's director-general, says the most recent results showed that the KBSP had already begun to solidify its prominence among the shipping hubs of the region. "KBSP's performance continues to improve month-on-month, both in terms of commercial and operational activities," he said.
With the global economy starting to pick up, movements at the KBSP are expected to increase still further, maintaining or even bettering the trend over the first year of its operations.
The new port has quadrupled the capacity of the 50-year old Mina Salman Port, which it replaced. Though the old facility served the country well, and helped establish Bahrain's credentials as a reliable maritime cargo centre, by the early 2000s Mina Salman's productivity was being compromised by progress. With ships getting steadily larger, and much deeper drafts than when the port was first built, Mina Salman was restricted in its ship-handling capacity, a fate less likely to befall the KBSP.
Indeed, while the port is about to mark its first full year of operations, work is continuing to increase its ship-handling capacity, with dredging being carried out to deepen the main approach channel. In mid-March, the Ministry of Works (MoW) announced that the first stage had been completed, deepening the route from 12 meters to 15 meters, a project that involved moving some 4.6m tonnes of material.
According to Ghazi Al Saleh, the director of strategic projects at the MoW, the deepening of the approach channel will boost the port's capacity and its contribution to the economic master plan. Covering an area of 110 ha at a site in the north-east of the island, the port is only minutes away from Bahrain International Airport. Significantly, it will also be connected to the mainline rail link that is to be constructed as part of the wider expansion of the Kingdom's transport system.
As far as the aspirations of Bahrain to become a leading shipping and logistics centre in the Gulf, the most important element of this expansion process will be the building of the causeway linking the Kingdom with Qatar. The 40-km causeway will provide Bahrain with a broad gauge rail connection with the mainland, alongside a second road link tying Bahrain to Saudi Arabia. Scheduled to be completed in 2015, the causeway will increase the KBSP's potential to reach wider markets, greatly adding to the port's capacity to trans-ship cargos to and from land-based transport modes.
Though designed primarily as a container-handling port, with a capacity to shift more than 1.1m twenty-foot equivalent units (TEUs) a year, the KBSP also has facilities to accommodate passenger ships, general break-bulk and roll-on/roll-off cargo vessels, giving it a versatility many of its regional rivals lack. Rivals are certainly not lacking, with most of the countries around the Gulf investing heavily in maritime transport centers. One that stands out in particular is Abu Dhabi's Halifax Port, set to start moving cargo in 2012. With an initial capacity to handle 2m TEUs a year, along with up to 800,000 tonnes of general cargo, the Abu Dhabi port will have twice the capacity of the KBSP.
Though not the largest port in the region, KBSP is still well positioned to challenge its larger rivals, thanks to its strategic location in the middle of the Gulf and the high-speed land links it will enjoy in the coming years. (OBG 29.03)
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11.4 UAE: Recent Announcements on Dubai World
On 30 March Mohamed Jaber wrote for Morgan Stanley (http://www.morganstanley.com) that on March 25, a series of official announcements were made in Dubai concerning the Dubai World debt-restructuring process. The announcement highlighted the government's serious commitment to honor the debt obligations of its strategic related entities (GREs). However, although the announcements pointed to a potential full repayment of principal to creditors, a formal agreement with them has yet to be reached. Moreover, significant uncertainty continues to exist regarding the Dubai government's future funding sources and concerning the ability of its related entities to meet their upcoming debt obligations. In the continued absence of any explicit, or implicit, support from the government of Abu Dhabi, it is not clear whether this proposal simply postpones dealing with Dubai's debt challenges instead of providing a long-term solution. We therefore believe that the immediate impact of the announcements on Dubai's sovereign credit will likely be neutral, while the near-term impact, in the absence of further announcements, may be negative, in our view.
How Much New Funds Were Committed?
The Dubai Financial Support Fund (FSF) has committed up to $9.5 billion in new funds to support the debt-restructuring process. Of this money, $8 billion will go to Nakheel, while $1.5 billion will be committed to its parent company, Dubai World (DW). Of these funds, $5.7 billion had already been provided by the Abu Dhabi government last year. As such, the net new injection of cash would amount to $3.8 billion. No clear indication was given as to the source of these funds except for the fact that they would come from the government's internal resources and would be deployed as necessary. It is not clear at this point how these funds will be distributed among creditors.
The government also indicated that it will swap into equity $10.1 billion of its claims on DW and Nakheel. These are claims that were not previously included in our calculations of DW's outstanding debt. Pending confirmation, we believe that they include: (i) the $4.1 billion of the Nakheel 2009 bonds back in December; and (ii) the $2.45 billion extended by the FSF to DW during 2009 to help it meet its financial obligations. We are not sure whether the balance of $3.55 billion has gone towards meeting other working capital needs or if it has been offset against the estimated $7.5-9.5 billion in bilateral loans that were part of the debt-restructuring exercise.
Will These Funds Be Sufficient?
There is little clarity as to how the $9.5 billion will be disbursed. What we currently do know is that the government intends to pay the upcoming Nakheel 2010 and 2011 bonds out of these funds. We also assume that the payment of 40% of Nakheel's trade liabilities (discussed below) will also be paid out of these funds (these liabilities stood at about $7.8 billion as of June 2009, although it is not clear if some of these were financed through government debt since then). Based on these assumptions, there will be about $4.6 billion remaining to meet DW's other debt obligations.
These funds will likely not be sufficient, hence the continued need for debt rescheduling. We believe that the remaining $4.6 billion will not be enough to meet DW's and Nakheel's upcoming working capital needs and repay the $6 billion of syndicated loans that will be coming due over the next two years. We estimate that Nakheel and DW have disclosed loans of about $2.2 billion maturing in 2010 and $3.8 billion maturing in 2011.
These exclude the Nakheel 2010 and 2011 bonds and the trade liabilities cited above. They also exclude the estimated $7.5-9.5 billion in bilateral loans, part of which may have already been financed by the government. In sum, we believe that there will be a need to reschedule some Dubai World debt. But this does not necessarily solve the problem. It simply pushes it further in time in the hope that future increases in government revenues and GRE earnings would permit the servicing of this debt without external support.
What Does This Announcement Mean for Creditors?
Dubai World and Nakheel have indicated their intention to repay their creditors, but the repayment terms seem to differ by type of creditor. DW indicated that its creditors will receive their principal in full through the issuance of new debt with maturities of 5-8 years. However, the terms of this new debt were not made public, nor have they been approved by the creditors. We estimate that the disclosed portion of DW's debt, excluding bilateral loans and trade liabilities, currently stands at around $5.5 billion. Moreover, Nakheel stated that all its creditors will be repaid in full, but the terms of repayment seem to differ by type of creditor:
• Trade creditors holding more than $136,000 in debt will receive the remainder of their money in cash (40%) and tradable securities (60%). This is tantamount to the securitization of Nakheel's trade liabilities. If these securities end up trading at a discount, their original holders, the trade creditors, would have to sell them at less than par, thereby taking a market-determined haircut.
• Bond holders on the other hand will be paid in full, if there is sufficient support for the debt-restructuring proposal. Interestingly, unlike the announcements regarding the repayment of other debts, the repayment of the Nakheel 2010 and 2011 bonds was specifically mentioned in the initial statement by the Dubai government's Supreme Fiscal Committee. This does not come as a surprise to us, as we had previously argued that the large ownership of these bonds by national banks (80% according to the IMF) and their relatively small redemption value ($1.8 billion) may provide a significant incentive for the government to make good on these bonds.
• Bank creditors may fall somewhere in between the two brackets above, although it is still too early to tell. We are only in the initial stages of a restructuring process that may, according to the government, take several months to complete. To be sure, the equitization of the government's claims is a positive sign as it allays previous creditor fears of having their claims made subordinate to sovereign claims. However, although the government has indicated that all creditors would be paid in full, the repayment terms are likely to be subject to intense negotiations. An implicit haircut, through below the market interest rate on any rolled over debt for example, cannot be ruled out. This said, bank creditors may resist taking a significant haircut if bond holders are paid in full.
How Much Debt Remains at the Dubai Inc Level?
Excluding bilateral loans, we estimate that total disclosed debt owed by the Dubai government and its GREs currently stands at about $91 billion. We estimate that a further $19 billion in bilateral loans are owed by the GREs. Of the disclosed debt, $10.3 billion matures in 2010. This includes $3.5 billion in loans owed by Dubai International Capital (the financial arm of Dubai Holding). An extra $19.9 billion also matures in 2011. Some of these claims are on revenue-generating entities that may not find it prohibitive to roll over their debts when they come due. However, it is difficult to rule out the need for additional government assistance and it is not clear at this stage where the funding for such assistance would come from. Although the debt issue may have been temporarily tackled at the Dubai World level, significant liabilities still need to be met at the Dubai Inc. level.
What Critical Issues Remain Unanswered?
There are two main issues that were not addressed in the 29 March announcements:
The first relates to possibility that the Dubai government could offer a sovereign guarantee to bank creditors, in return for more favorable restructuring terms. When asked during a follow-up conference call, the authorities did not confirm nor deny the possibility of offering such a guarantee. They indicated that this will be determined during negotiations with bank creditors. Nevertheless, we remain skeptical about the Dubai government's ability to provide any meaningful guarantees, given its relatively small economic size. We need to keep in mind that the Dubai government's annual budget does not exceed $11 billion and that it is currently already in deficit. The Dubai government does have recourse to valuable assets in the form of profitable companies with global brand names. It could choose to unlock some of the value in these companies through IPOs, debt-to-equity swaps or outright privatization. However, the current announcements shed no light on the feasibility of such options.
The second issue relates to the availability of future support from the government of Abu Dhabi. The announcement does not shed any light on the availability of such support, which in our opinion remains critical to the assessment of Dubai's ability to meet its future debt obligations. So far, the Dubai government has benefited from significant funding from Abu Dhabi at subsidized rates. Should the Dubai government, or any of its GREs, decide to tap the market on their own in the near future, they are very likely to face more stringent terms. In turn, this would increase the government's debt-servicing burden and further weaken its financial position. As such, the availability of an explicit Abu Dhabi backing is critical if Dubai is to be able to roll over its future debt on favorable terms, in our view. (MS30.03)
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11.5 SAUDI ARABIA: Health Care Balance
The Oxford Business Group (http://www.oxfordbusinessgroup.com) states that Saudi Arabia's health care sector has seen a dramatic change in recent years. With the introduction of compulsory health insurance for expatriates working in the private sector, the business landscape has shifted for pharmaceutical companies, insurers and health care providers, all of whom are still looking for long-term balance in the market.
The Kingdom has the largest health care sector in the Middle East and the government plans to increase medical spending even more this year. The 2010 State Budget set aside $16.3b for health and social affairs, accounting for 11.3% of total spending. The figure represents a 51% increase over the 2009 budget, which stood at $10.7b for health and social affairs, 8.5% of total spending.
According to the Saudi Arabia Budget Report published by Banquet Saudi France, the bulk of the increase appears to cover the cost of staffing the large and growing number of hospitals and medical centers the Kingdom is building as it continues with plans to modernize the system. Up to 92 hospitals could be added over the coming years.
Compulsory medical insurance for expatriates, first introduced in the Kingdom in 2006, was part of the health care reform plan. The first stage of the phased introduction covered all workplaces with more than 500 people. This was followed by the next stage, introduced in H2/07, which mandated all workplaces with fewer than 500 employees to also adopt the policy. Now, all companies with fewer than 500 employees that are renewing business licenses must provide proof that expatriate medical insurance is available for all staff. This policy was a major shift in the Saudi market, although the main players in the industry - pharmaceutical companies, insurers and health care providers - are still at odds as to who benefits the most in the new landscape.
The pharmaceutical industry is currently booming in the Kingdom, with annual sales estimated to be in the region of $1.3b and no signs of a slowdown. Compulsory health insurance for expats is one of the main drivers of growth in pharmaceuticals, so much so, that producers cannot keep up with demand. "Local production is behind demand, especially in generics, and insurance reform means even more demand is coming," Aiman Hamadallah, the chief financial officer at Saudi Import Company (Banaja), told OBG. Generics account for around 20% of the market in Saudi Arabia, compared to about 40% in mature markets in the West.
There are, however, concerns among some players in the industry that the balance of power may be swinging too far in the direction of insurance companies as the volume of insured clients and the resulting purchasing power continues to increase.
Indeed, health insurance gross written premiums (GWP) increased 57% to $1.2b in 2008, the last year for which full figures are available, compared to $826m in 2007, according to the Saudi Insurance Market Survey Report 2008 from the Saudi Arabian Monetary Agency's (SAMA) Insurance Supervision Department. Health insurance represented 44% of the total insurance market in 2008, up from 36% in 2007.
However, insurance companies do not see the situation from the same perspective, having had to adjust their business models and practices to comply with international regulations introduced by SAMA while competition heats up. "The margins on medical insurance are slim and competition is tough," said one insurance executive OBG spoke with.
SAMA issued "The Law on Supervision of Cooperative Insurance Companies" and its implementing regulations in 2004, introducing rules such as compliance with sharia, minimum capital requirements of $26.7m for direct insurers and $53.4m for reinsurers; and a stipulation that GWP must not exceed 10 times a company's paid-up capital. Insurance companies were given a grace period until March 11, 2008, to register for a license with SAMA.
Health care providers contend that since the introduction of mandatory expatriate health insurance they are caught in a squeeze between the insurance industry and pharmaceutical companies. According to Dr. Mamoun Al Najjar, the chief executive of Saudi German Hospital Jeddah, "The structure of the industry has changed. Now, the major payers are the insurance companies and they are pushing pharmaceutical companies and hospitals to lower their prices." Mutasim Lairize, the managing director of Magahi Hospitals and Centres, sums up the situation, "Health insurance reform has increased demand for services in private hospitals, but on the downside, margins have been squeezed."
The introduction of mandatory health insurance for expats, and insurance reform in general, has certainly shaken up the health care market in Saudi Arabia, providing a great amount of potential for pharmaceutical companies, insurers and health care providers. "Health insurance reform has led to the growth of insurance companies and the consolidation of hospitals, but the balance in the industry still needs to be found," concludes Dr Wael Kaawach, the chief executive officer of Health Care Development Holding Company. (OBG 17.03)
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11.6 EGYPT: Growth Impetus
One of the potential winners of the global financial crisis, Egypt has maintained a relatively high level of income from Suez Canal and tourism receipts, spurring a GDP growth rate of nearly 5%. However, on the back of a massive stimulus spending package in 2009, the country is looking to take advantage of low global interest rates and sell government debt.
At the start of March, the Egyptian Finance Ministry announced plans to issue between $1bn and $1.5bn in Eurobonds within the next two months. Morgan Stanley and HSBC Holding have reportedly been hired to manage the issue. "We plan to test the outer limits of maturities. We are testing 20 to 30 years," the finance minister, Youssef Boutros-Ghali, told international press. In its last visit to international markets in 2001, the country sold five- and 10-year Eurobonds worth $1.5bn.
The announcement of the Eurobonds sale comes on the heels of an IMF Consultation Mission report, released in February, which called Egypt "resilient to the crisis" but recommended that the country take measures towards reducing its deficit, which is expected to reach 8.4% this fiscal year. After averaging around 7% in recent years, Egypt's real GDP growth decelerated to 4.7% in 2009, but is expected to exceed 5% in 2010. The government has targeted halving the deficit within five years, which the IMF believes is not fast enough to achieve private sector growth. According to its report, "A tightening of 1.5% to 2% of GDP would provide an upfront signal to investors that progress towards the medium-term objective is well under way."
However, the country is instead aiming for a 0.5% deficit reduction in the next fiscal year. "Our economy has recovered but not fully recovered, so I want to make sure that we are on a self-sustaining momentum before I start really cutting down on the budget deficit," Boutros-Ghali said. "The IMF always says reduce the budget deficit no matter what happens or what the circumstances are. Our problem now is creating jobs."
One of the most tangible effects of the crisis has been a rising unemployment rate, which reached an official rate of 9.4% in the fourth quarter of 2009. To combat this, the government initiated a slew of construction projects using stimulus money, which has totaled $2.7bn since the onset of the crisis.
However, the education system has not had enough time to respond to the demands of the labor market. "There is a shortage of skilled labor in Egypt, compared to an excess of semi-skilled university graduates who need extensive training to become eligible for the Egyptian labor market," local investment bank Beltone Financial wrote in a research note in February 2010.
At the start of 2010, the government announced another $2.05bn stimulus package to try and strengthen economic expansion, despite the IMF's recommendation to reduce spending and "shift back towards fiscal consolidation and other growth-oriented reforms". The majority of the $2.05bn will go to labor-intensive sewage and water-treatment projects, including a clean-up of the Nile, while the rest of the money is targeted at family aid, road improvement and housing construction.
One potential hazard of excessive stimulus spending is inflation, which rose 13.6% year-on-year in January, compared to 13.3% in December. A proposed reduction in energy subsidies, for which Egypt has paid up to $12bn annually, will heighten the impact of rising prices for the population. As a result, the government will have to raise interest rates if inflation does not ease up, having slashed them six times over the course of 2009 to encourage lending. Provided that inflation does not get out of control, Egypt is well-positioned to exit the global financial crisis in better shape than it went in, with an abundance of much-needed infrastructure development, but the government will have to keep an eye on a growing deficit. (OBG 22.03)
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11.7 EGYPT: Food and Drink Report Q1 2010
Research and Markets (http://www.researchandmarkets.com) "Egypt Food and Drink Report Q1 2010" notes that although Egypt remains placed fifth in BMI's Q1/10 Food & Drink Business Environment Ratings for the Middle East, out of eight key markets, its potential as the most promising regional fast-moving consumer goods (FMCG) market is unmatched. Unlike our low-key outlook for the majority of states in the Middle East, Egypt is forecast to enjoy strong food consumption growth through to 2014 (of 39% in local currency terms), which reinforces its appeal to investors seeking to launch products in an emerging market with high volume potential. While regional companies will probably continue to be the biggest investors in Egypt, the country's trade agreements with markets across the Middle East and sub-Saharan Africa and impending preferential access to the European Union (EU) could bring a number of non-regional investors into play.
Over the long term, the likely spread of mass grocery retail (MGR) beyond obvious urban centers and greater investment into the country's food processing sector will contribute to a more dynamic food consumption growth outlook. Although per capita consumption will remain low in comparison with some other Middle Eastern markets for the foreseeable future, this should provide a point of entry for discount players, such as Germanys Metro. In fact, Metro recently revealing that it will establish 12 of its cash & carry outlets (under the Makro banner) in Egypt by 2012. French hypermarket operator Carrefour, which has a considerable local experience, has also announced expansion in the country, as we expect the hypermarket format to post the strongest five-year growth within the MGR industry.
Meanwhile, both regional and local food and drinks industry investors continue to show considerable interest in Egypt. For example, in November 2009, having already spent big in 2009, the ambitious Saudi dairy giant Almarai set its sights on taking a 50% share of the promising Egyptian dairy market by 2013. Earlier in 2009, Almarai acquired leading domestic dairy company International Company for Agro- Industrial Projects (Beyti), through its regional International Dairy and Juice Ltd (IDJ) joint venture (JV) with PepsiCo. Around the same time, Egypt's state-owned Food Industries Holding Company (FIHC) announced plans to invest $88m during FY09/10, mostly in the sugar industry. However, not all food and drinks sectors show promise. According to reports in local newspapers Business Today, the crackdown on pig farms that followed the outbreak of swine flu has decimated the industry. In fact, pork is not likely to be widely available for at least three years to come, as most of the 500,000 animals have been slaughtered to stop the spread of the virus. Similarly, given Islam being the prevailing religion, Egypt's alcoholic drinks industry, in common with the wider Middle East region, will continue to lack dynamism. To a large degree, the industry has to rely on niche domestic pockets and tourism, which has in 2009 been negatively impacted by the economic crisis. Therefore, between 2009 and 2014, BMI expects alcoholic drinks volume sales to increase by just 3.72%, while value sales are forecast to grow by a modest 13.6% in local currency. (R&M 25.03)
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11.8 LIBYA: Fitch Affirms Libya at 'BBB+'; Outlook Stable Ratings
On 30 March Fitch Ratings (http://www.fitchratings.com) affirmed Libya's Long-term foreign and local currency IDRs at 'BBB+' respectively, with Stable Outlooks. The Short-term foreign currency IDR is affirmed at 'F2' and the Country Ceiling is affirmed at 'BBB+'.
"A strong sovereign balance sheet anchors the ratings and mitigates high dependence on oil revenue, while economic reforms continue apace," says Charles Seville, Director in Fitch's Sovereign and International Public Finance group. However, the agency notes that economic reforms are at an early stage and that Libya has structural weaknesses compared with other more established emerging markets.
The public finances adjusted successfully to a 40% fall in oil revenue in 2009. The government limited growth in spending to 2%, well below the average in previous years. The budget recorded a small surplus, when all investment and oil income is included, and sovereign foreign assets continued to accumulate. The 2010 budget is more expansionary but Fitch forecasts the fiscal surplus to rise owing to higher average oil prices.
The sovereign's net external creditor position is on a par with more highly-rated Saudi Arabia ('AA-'/Stable) and China ('A+'/Stable). Sovereign net foreign assets of $139bn (190% of 2009 GDP) would be enough to fund the 2010 budget three times over. The government has no debt and has not borrowed abroad. However, unlike these countries, it is at a much earlier stage of transition to a market economy, with all that entails in terms of respect for property rights and a credit culture.
Since relations with the EU and US were normalized, the government has kept up the pace of economic reform. In 2009 two further commercial banks were part-privatized. The General People's Congress (GPC) meeting in January 2010 approved plans to cut tax rates and revised the foreign investment and commercial codes to stimulate private investment. The economic reform program is designed to diversify the economy, create jobs and raise living standards. Tangible results would be positive for the ratings.
The GPC also approved a draft statute for the Libyan Investment Authority (LIA), the sovereign wealth fund established in 2007. The statute, which will shortly be passed into law, will mandate it to invest exclusively abroad. The LIA has disclosed the size and breakdown of LIA assets to Fitch. The agency understands these to have been independently audited. Although the LIA has yet to publish details, transparency nevertheless exceeds that of most GCC countries' sovereign wealth funds.
Longer-term structural weaknesses, which are being addressed, include the lack of development of the private sector and the financial system. There is no government debt market and bank credit to the private sector is just 10% of GDP. Per capita income estimated at $10,802 in 2009 is above the 'BBB' median but well below the 'A' median of $17,002. The ratings also reflect Fitch's concerns over political and institutional factors, such as the consistency and predictability of decision-making, and the way the political system would adapt to a change of leadership. (Fitch 30.03)
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11.9 LIBYA: British Trade Mission in Libya Sees the 'Centre of a Boom'
A February UK trade mission to Tripoli found that Libya is changing at a breathtaking speed. Old buildings are being demolished, rubble cleared away in no time, and construction of new towers, hotels, schools, hospitals are going ahead at full throttle. As a result of carefully-planned economic reform and budget expenditure, legal and administrative changes, and government support of the newly-emerging private sector, the country is booming.
Business confidence is at an all time high, and foreign investors from all parts of the world are competing with each other to do business in Libya. With no foreign debt and a healthy capital surplus, the rate of growth was in excess of 7% in 2006.
In the tourism sector, the Intercontinental and Sheraton hotels are in construction. The Radisson in Tripoli is being renovated and retail shopping centers and brands such as Carrefour are looking to open up in Libya. Libya plans to invest $120 billion in housing, infrastructure, electricity, training and human resources in the next five years. A new airport with a capacity to serve 20 million passengers is planned. A new Olympic Village targeting preparation of the future Olympic athletes from Libya is being designed by a UK firm WS Atkins International.
Ernst & Young has recently become one of the big four professional firms to have wholly-owned offices in all the Middle East and North African countries. Trowers and Hamlins are giving valuable advice in corporate governance and legal regulatory framework.
Countless business prospects exist in the oil and gas technology and services, education and training, medical equipment, hospital supplies and management, aviation, computers and software services, telecommunications, waste and water treatment, agricultural services and farm machinery, agricultural commodities, food products, white goods, and tourism.
The boom is there, but foreign companies wishing to invest or do business in Libya should still be wary of certain issues in doing business with Libya. Firstly, and most importantly foreign firms need to identify a reliable local partner. At times, the partner may only be in name, but this is one of the ways in which the government is trying to get the Libyans to become involved and trained. Secondly, utmost care is needed in establishing payment procedures. Letter of Credit is the form of payment which is recommended. Needless to say, getting the LC documents right is the key to preventing running into problems.
With a population of only 6.5 million people, Libyans were very tribal and would immediately be aware if one were courting a lot of companies for their business. One would be advised to choose one partner and be loyal to him, he said. Businesspeople should put a smile on their face, be prepared to drink lots of tea and remember that it is your personality, not your business card which is important. (BI-ME 04.03)
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11.10 ALGERIA: Political Crises but Few Alternatives
Mr. Mahmoud Belhimer writes for the Carnegie Arab Reform Bulletin (http://www.carnegieendowment.org/arb) that less than a year after President Abdelaziz Bouteflika's election to a third term on 14 April 2009, Algeria is once again in political crisis. Demonstrations are disrupting vital sectors such as education and health care, while corruption becomes increasingly pervasive. This situation is not at all what Bouteflika and his supporters promised back in November 2008, when the constitution was amended to remove term limits and enable the president to stay in the office he has held since 1999. It is clear now that their true intention was to consolidate the existing political order taking advantage of the improvement in Algeria's financial situation brought about by an exceptional rise in global oil and gas prices. This inflow of hydrocarbon revenue was used to meet pressing social demands and boost investment in infrastructure.
Regime consolidation is not necessarily equivalent, however, to stability for the country at large. Economic reforms have yet to produce prosperity for most Algerians. The government has expended $120 billion between 2004 and 2009 according to official figures on housing, railroads, and highways as well as higher base salaries for government workers. It is planning to spend an additional $ 150 billion for 2009-2015. Yet this spending has seemingly done nothing to reduce the unemployment rate and build up productive enterprises. Political reforms introduced in the wake of the unrest of October 1988, with the declared goal of building a pluralistic democracy with broad political participation, have instead created a de facto one-party system. The regime is still the principal actor, with three parties - the National Liberation Front, the National Rally for Democracy, and the (moderately Islamic) Movement of Society for Peace - allied with the presidency and monopolizing political life.
In this regard Algeria is not different from most Arab countries, which have carried out incomplete political reforms under domestic and international pressures, altering their political systems superficially without changing their essence. Many countries have constitutions providing for pluralism, political parties, civil society organizations, and regular elections, but the traditional ruling elite still manages these cosmetic changes and holds real power aloof from any institutional or popular oversight.
But what is next for Algeria? Do the powers that be within the regime have options on hand to overcome the current crisis and set the stage for a post-Bouteflika era? These are pressing questions, particularly in light of rumors about the president's ill health.
Certainly Bouteflika has been nowhere to be seen recently as the issue of corruption has commanded public attention and also factored into the hidden struggle for power among members of the country's ruling elite. His silence about accusations of rampant corruption in institutions including the state-owned oil company SONATRACH, the lifeline of the Algerian economy, has put his government's credibility at stake. Minister of Energy Chakib Khalil (who is close to the president) and Minister of Public Works Amar Ghoul are accused of accepting bribes, a scandal that diminishes the power of the president's clique, allowing the other main power broker in Algeria - the army - to gain ground. Corruption also was a factor in the murder of national security director Ali Tounsi, killed in his office on 25 February by a subordinate who was under investigation for taking bribes.
The army has traditionally played a prominent role in Algerian politics and took charge as the de facto ruler of the country during the bloody fight against terrorism in the 1990s. Since taking power in 1999, Bouteflika has tried to build up the presidency's strength and give it broad decision-making powers. Because he has avoided creating government institutions that would create a set of checks and balances, influence has remained concentrated in the hands of the army and the president.
Some observers believe that the retirement and passing away of some of the military leadership's core from the 1990s will alter the face of the military establishment and lead it to intervene more in politics. The political leaders will also change. Bouteflika's successor is likely to be from a new generation, as those who derived their legitimacy from the Algerian Revolution are largely leaving the scene. One notable exception is former Prime Minister Mouloud Hamrouche, who fought in the revolution at a young age. He is known for his reformist platform, and was a presidential candidate in 1999. Hamrouche stipulates, however, that he would need the explicit consent of the "decision-makers" (meaning the army) to his reformist agenda, and particularly to political and economic liberalization. Another reform-oriented hopeful is Ahmad Benbitour, a technocrat well-versed in economic affairs who was Bouteflika's prime minister from 1999 to 2000, and who would also insist on sweeping domestic changes.
Current Prime Minister Ahmed Ouyahia is the name most often raised, however, as the likely future president. A compliant technocrat who has headed the government three times, Ouyahia has the blessing of the "decision-makers." His weakness in the eyes of the public is that he has defended a number of unpopular policies, such as dissolving state-owned economic institutions and firing workers or arresting officials on bribery charges only to have them acquitted.
Whoever eventually follows Bouteflika, the next president will not succeed in establishing true stability and prosperity if he maintains the approach of keeping power in the hands of a few and preventing popular political participation and government accountability. Extensive economic reforms are needed to alleviate the country's dependence on volatile oil income - currently 97% of national revenue - generate jobs and improve living conditions for an increasingly disenchanted population. The continuation of politics as usual will delay the emergence of a government capable of tackling these problems and therefore perpetuate Algeria's vulnerability.
Mahmoud Belhimer is an Algerian journalist and writer. (CARB 17.03)
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11.11 TUNISIA: Growth Industry
Tunisia is looking to expand its agriculture sector, including the organic farming segment, as part of a program to improve domestic food security, increase rural earnings and further develop its already profitable export trade in agricultural produce. As cited by the Oxford Business Group, agriculture is one of the foundation stones of the Tunisian economy, contributing 23% of GDP in 2009, according to figures released by the Ministry of Agriculture, Water Resources and Fisheries in late January. While the overall economy posted growth of 3.1% last year, the agriculture sector doubled this rate of expansion by some estimates, increasing by 6% despite a slight fall in the value of olive production.
One of the leaders in the industry's budding growth has been organic farming, a form of agriculture that relies on crop rotation and biological pest control, excluding or strictly limiting the use of synthetic fertilizers and pesticides. This segment has been identified by the government as having high export potential. As part of its efforts to tap into the lucrative international organic food products market, over the past decade Tunisia has been steadily increasing the amount of cultivated land being farmed using approved natural methods.
As a result, Tunisia has become a major player in the organic farming industry, ranked second in Africa and 24th globally in terms of organic production, with the sector set to climb further up the ladder. In recent years, there has been a sharp increase in the production of organic crops, with Tunisia's total output rising to 170,000 tonnes in 2008, compared to just 9000 tonnes in 2002. Revenue from exports has also shot up, climbing to €33.5m from the 2003 figure of €1.7m.
This increase in output has been reflected in the amount of land under cultivation, which has risen from just 300 ha in 1999 to 285,000 a decade later. As part of the 2009-14 Presidential Program, the latest five-year state development plan, this coverage is projected to increase by more than 40%, with the total land planted for organic produce to reach 500,000 ha by the end of the program's term.
Tunisia's organic farming sector covers a wide and expanding range of products, with 115,000 ha of land currently planted with olive trees; a further 6000 ha dedicated for organic fruit trees, a similar area turned over for growing medicinal and aromatic plants; and 1000 ha of palm trees, with forests and grain crops accounting for much of the remaining 163,000 ha of land under cultivation.
Parallel to on-the-ground efforts, measures also are being put in place to strengthen the marketing of Tunisian products. In order to better promote its organic foodstuffs on the domestic and overseas markets, Tunisia's Agricultural Investment Promotion Agency (APIA) has recommended that a dedicated Tunisian brand label be developed to create an international profile. Under the proposal, some 50 products will be labeled over a three-year period with a Tunisia brand, which will serve as a guarantee of quality for overseas buyers, according to a recently tabled report by the agency.
APIA figures also showed that investments in the sector increased last year, with €204m being ploughed into the industry, up 12.6% on 2008 spending. While some is being spent on new equipment, land improvements and training, sizeable investments are also being made to boost the provision of one of the most basic elements in farming: water.
As part of this drive, the government has stepped up efforts to improve irrigation services. With relatively limited rainfall in some regions, and drought at times disrupting production, President Zine El Abidine Ben Ali has ordered officials to expand the country's irrigation grid and strengthen water resource protection.
Currently, Tunisia has some 405,000 ha of land under cultivation, much of which is dedicated to the organic segment. The value-added component of irrigated land and the obvious improved levels of resource utilization were highlighted in a report carried by the state media agency, which showed that while irrigated land accounts for just 8% of the total area planted for crops, irrigated farming contributed 37% of agricultural production, 10% of exports and 27% of jobs in the industry.
Among the steps being taken to improve irrigation best practices involves the state providing subsidies to those regions that adopt water-efficient drip irrigation. Another scheme under consideration utilizes recycled wastewater from urban areas for use in the agriculture sector. These and other projects are expected to both encourage the wider use of irrigation in agriculture and a shift to organic farming, which is well suited to such methods.
If the government's efforts are able to ensure a guaranteed flow of water for the agriculture industry, the returns could be significant. With consumers, especially in Tunisia's main markets in Europe, becoming increasingly conscious of issues such as additives, preservatives and chemicals in foods, organic farming represents a high-value and growing sector, one from which Tunisia is well placed to reap a rich harvest. (OBG 26.03)
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11.12 TURKEY: Fiscally Sound without the IMF
Tevfik Aksoy writes for Morgan Stanley (http://www.morganstanley.com) that as the Turkish government decided not to pursue a new Stand-By Arrangement with the IMF, the focus is likely to concentrate on the fiscal performance, at least until a formal fiscal rule is put in place. Especially considering that 2011 will be the year of general elections, the fiscal picture and the associated debt dynamics will likely be under scrutiny.
Following the better-than-anticipated fiscal performance in 2009, thanks to the rise in tax revenues towards the end of the year, 2010 started with an equally strong footing. In comparison to the revised official forecast of 6.6% of GDP, we forecast that the budget might yield a deficit of 5.5%. In fact, this is the same figure that the Turkish Treasury is expecting. While the deficit seems large in comparison to the previous years, it is still one of the lowest in the CEEMEA region and clearly better in relation to the deficits posted by most developed economies.
Starting 2010, the improved tax revenues as well as reasonable expansion in non-interest expenditures led to an overall improvement in the fiscal picture in the first two months of the year. On a cumulative basis covering the January-February period, tax revenues rose by 21%Y in nominal terms, which is associated with a real increase of 10%Y. Thanks to a 15%Y rise in overall revenues and merely 11% expansion in non-interest expenditures (i.e., flat in real terms), the primary surplus - defined as the budget balance excluding interest outlays - had been strong. In comparison to the same period of the previous year, the primary surplus rose by 61%Y (46%Y in real terms), which was partially a reflection of the dismal picture of 2009. While there had been a noticeable improvement in the primary surplus so far this year, in absolute terms it is nowhere near the performance achieved in 2006 and 2008. This is partially due to the slow growth as well as the lack of substantial inflows on privatization and/or asset sales. At any rate, in IMF-defined terms, these items would not enter the primary surplus calculation and hence it could be ignored to some extent. According to the official program, the total public sector primary balance (IMF definition) will yield a deficit of 0.3% of GDP in 2010, which would turn to a surplus of 0.4% in 2011 and 1% in 2012. While the IMF definition might not matter much at this juncture, a strong primary surplus would be key to maintain and, in fact, improve the debt dynamics.
With the overall deficit and the primary surplus likely to turn out to be better than envisaged in the Medium-Term Plan announced late in 2009, the debt to GDP realization might also be slightly lower than the initial forecasts. One of the reasons for this expectation is the stronger-than-anticipated growth: for instance, the official real GDP growth rate for 2010 stands at 3.5%, which we expect to reach 4% and reflect partially on tax revenues, which might lower the rise in the debt. Also, with somewhat higher nominal GDP, the denominator effect might also help the overall ratio. In fact, the Turkish Treasury now expects 2009 to rise to around 46% of GDP instead of the initial estimate of 47.3%, a view we share. Looking forward, it would not be surprising to see debt to GDP stabilizing at around 47% against our previous forecast of 49%. This is clearly based on the assumption that the government adheres to the fiscal policy outlined by the Medium-Term Plan and delivers the necessary primary surplus in 2011 and 2012. The main risk here seems to the possible rise in spending towards end-2010 and/or early 2011 that might result in a setback in government finances. Despite the good fiscal track record of Turkey during 2003-06, the general elections in 2007 saw the commencement of the deterioration that led to a 5-year low in primary surplus. A similar spending increase took place in late 2008 and early 2009 ahead of the local elections, but the overall weakness of the economy made it difficult to assess the true source of the weak performance - that is, whether the weak fiscal results had been a combination of a sharp fall in revenues but also a noticeable rise in non-interest expenditures.
In order to allay concerns regarding fiscal policy, especially without the monitoring by the IMF, we believe that a Fiscal Rule would serve the purpose best. The government had been working on the details of a Fiscal Rule and the parameters for some time, which we expect to be finalized soon. According to government officials' remarks and the Medium-Term Plan, the related legislation is expected to be finalized in H1/10 and the budget for 2011 to be set according to the guidelines set forth by the fiscal rule. With nearly 80 countries employing some form of a fiscal rule with a varying level of success (generally good), we believe that Turkey has the potential to demonstrate good performance. This would be true especially if the necessary enforcement and control mechanisms are set in a convincing and satisfactory fashion.
One of the immediate consequences of the fiscal performance, especially that of the primary balance, is the breathing space that it provides to the Treasury in terms of debt issuance. In December 2009, the Turkish Treasury announced a financing program that envisaged a debt rollover rate of some 99.5%, which would indicate a marginal decline in comparison to the rate realized in 2009.
As the revenue performance improved and some non-recurring revenues (such as asset sales and privatization) picked up pace, the Turkish Treasury had been able to gradually lower the debt rollover ratio in recent months. Following a 103.8% rate in January, the ratio declined to 99% in February and approximately 80% in March.
According to the provisional borrowing program set for April and May, the rollover ratio is projected to ease to 60.6%, which would be a significantly low figure. One word of caution here is that the debt rollover ratio covers the overall debt issuance and payments, which includes the bonds held by public sector institutions. Hence, the rollover rate specific to the ‘market' is likely to be higher. This means that an interest rate decline based on lower issuance might not be that obvious, in our view.
Lastly, one of the main underlying improvements in terms of borrowing had been the extension of the maturity of issuance. One of the most problematic aspects of the Turkish economy had been the short maturity of debt instruments, which had been exposing the budget to additional costs associated with changes in interest rates. This had been on an improving trend in recent years with gradual extension of duration of debt. With the extension of the yield curve into the 10-year sector, the average maturity of borrowing had reached an all-time high of 37 months as of March.
In conclusion, we are encouraged by the improvement in the fiscal position in recent months and maintain our constructive view that the government will be able to pass the legislation on the Fiscal Rule in the coming months. If the current policy stance is maintained and the government manages to minimize the deterioration in fiscal accounts ahead of the general elections, we would expect the debt dynamics to improve and Turkey's sovereign rating could see further upward revisions in 2011 (most likely post-elections). Meanwhile, in the short term, any positive development in the primary balance as well as performance on the privatization/asset sale front would keep the domestic debt rollover ratio relatively low. That would clearly take the pressure off yields, which had been one of the main risk factors for 2010, in our view. In late 2009 and early 2010, one of the key themes or drivers of growth in 2010 would be considered as the crowding-out of the private sector and the over-dominance of public sector borrowing to leave little room for credit expansion. While the theme broadly remains intact, the conditions have been on an improving trend for sure. (MS 30.03)
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11.13 TURKEY: Debts and Doubts Delay Kirkuk-Cehyan Renewal
Oilprice (http://www.oilprice.com) reported that the delay in the renewal of the agreement for the operation of the Kirkuk-Ceyhan oil pipeline has served as a reminder of the many obstacles that still have to be overcome if the line is ever to fulfill its potential, both as an export route for Iraq and as a source of transit revenue for Turkey.
Talks between Iraq and Turkey over the renewal of the agreement stalled recently. Although Turkish Energy Minister Taner Yildiz publicly predicted that the impasse could be overcome within "a week to ten days", privately Turkish officials were less optimistic. They claimed that Iraqi officials were insisting that the new agreement should include a clause which would protect any oil transported through the pipeline against court sequestration orders. Turkish officials maintain that such a guarantee would violate international law.
The Kirkuk-Ceyhan pipeline has been operating well below capacity for nearly 20 years. First commissioned in 1976, the pipeline runs for 620 miles (990 kilometers) from Kirkuk and nearby oilfields in northern Iraq to the port of Ceyhan on Turkey's eastern Mediterranean coast. In 1987, a second pipeline was added, running parallel to the first. The twin pipelines currently have a combined capacity of 1.5 million barrels/day (b/d) of crude oil.
Turkey paid for the construction of the approximately 400 miles (640 kilometers) of pipeline running across its territory in the expectation that transit revenue would prove to be a lucrative source of foreign exchange. Under a 20 year agreement signed in 1985, Iraq agreed to pump a minimum of 700,000 b/d along the pipeline. The agreement was extended for a further five years in 2005.
However, damage inflicted by US-led allied bombing during the 1991 Gulf War was followed by UN sanctions, which only began to be eased in 1997. The twin pipeline is built above the ground and, in recent years, has been proved an easy target both for insurgents in Iraq and for the Kurdistan Workers' Party (PKK), which has been waging a 26 year-old insurgency of its own for greater rights for Turkey's Kurdish minority. The introduction in 2007 of additional security measures has reduced the number of attacks on the pipeline, but they still occur.
Damage as a result of sabotage has exacerbated the already poor state of repair of the pipeline. In 2009, throughput averaged 480,000 b/d, considerably below both the pipeline's capacity and the minimum guaranteed to Turkey. In February 2010, the Kirkuk-Ceyhan pipeline carried an average of 455,000 b/d, approximately 22% of Iraq's total exports of 2.07 million b/d.
However, although Iraq remains publicly committed to increasing the throughput - and has even discussed expanding the capacity - of the Kirkuk-Ceyhan pipeline, in practice it has focused more on plans to improving its facilities around Basra and Khor al-Amaya in anticipation of a rise in exports from its southern oil fields.
In the run-up to the beginning of negotiations over the renewal of the Kirkuk-Ceyhan agreement, Turkish officials had indicated that they would raise the issue of the Iraqi government's future plans, particularly whether it was willing to increase the throughput and perhaps even increase the capacity of the pipeline. Turkish officials had suggested that they would also discuss improving security along the pipeline, and had warned that they could also push for higher transit fees unless Iraq delivered on its guaranteed minimum throughput.
The Iraqi demand that the new agreement should include guarantees against sequestration appears to have taken the Turkish officials by surprise. But the demand was based on experience rather than hypothesis. In July 2007, pumping was temporarily interrupted after a Turkish court ordered that oil from the pipeline should be used to pay $50 million of a $100 million debt incurred by the Iraqi state during the time of President Saddam Hussein.
The court ruled that the oil was an asset of the Iraqi state and, as it was being pumped across Turkish territory, creditors were within their rights to file a case with a Turkish court for its seizure. Although the case was subsequently resolved and oil once again began to flow along the pipeline, it has created a legal precedent; and raised the possibility that more cases may be filed with Turkish courts for the seizure of oil arriving at Ceyhan in payment both for debts incurred by the Saddam regime and as compensation for damages and losses incurred as a result of its actions.
Privately, Turkish officials remain adamant that including any guarantees against the sequestration of the oil in the new agreement for the Kirkuk-Ceyhan pipeline would be in breach of international law and maintain that they are confident of signing a new accord with the Iraqis. But, for the moment at least, it is unclear how the issue is going to be resolved. (Oilprice 26.03)
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11.14 TURKEY: Food and Drink Report Q2 2010
Research and Markets (http://www.researchandmarkets.com) "Turkey Food and Drink Report Q2 2010" noted that following the economic slump of 2009, the Turkish economy is showing strong signs of recovery, with real GDP growth forecast to rise back to 3.7% in 2010. As discussed in the recently published Turkey Food & Drink Report for Q2/09, this economic recovery is already being reflected in the country's mass grocery retail (MGR) sector, with a number of major expansions announced by industry leaders this quarter. We expect Turkey's MGR industry to reassume its position as one of the world's most promising in 2010 after being inevitably restrained by the economic downturn in 2009. The industry is likely to be boosted by the anticipated pickup in headline retail sales and promising growth is forecast across all core formats, boosted by a string of recently announced expansions. One retailer that has been particularly aggressively pursuing expansions is Carrefoursa, the joint venture between the French multinational retailer Carrefour and Turkish conglomerate Sabanci Holding. In October 2009 the retailer announced plans to launch 200 stores in Turkey in 2010. About 100 of the stores will be launched under the Dia hard discount banner with the rest being split between the higher value hypermarket and supermarket segments. This was followed by an announcement in early January 2010 of plans to launch 100 new express stores and four hypermarkets in Turkey in 2010.
With the opening of each new outlet involving an investment of $700,000, it is clear that Turkey remains a priority market for Carrefour, despite speculations that the retailer plans on exiting a number of emerging markets. Although Carrefour already leads the hypermarket segment with a store footprint above 20, this store format contributes considerably less to overall MGR sales than the supermarket format. In fact, looking at our forecasts for individual store formats, we can see a major shift taking place. We are currently forecasting hypermarkets to experience a very strong growth rate of 146.7% between 2009 and 2014, while discount store sales are forecast to increase by 153.2% over the same period, but from a lower starting point. Nevertheless, by the end of our forecast period, sales in discount stores are expected to outstrip hypermarket sales, with discount sales expected to reach TRY11.2bn while hypermarkets sales are expected to reach TRY9.3bn.
Clearly, discount stores are becoming an increasingly important store format, which is unsurprising given consumer price sensitivity beyond the core urban centers and the still low regional penetration of modern retail. The leading operator in this format is domestic player BIM Birlesik Magazalar, which comfortably beats the discount operations of Migros Turk (under the Sok banner) and Carrefour (Dia banner). Operating over 2,500 stores, BIM has more than three-times as many discount stores as either rival. This focus exclusively on the discount segment has allowed BIM to increase its store footprint by more than 75% since 2006. Having announced in November that Q3/09 sales increased 22% year-on-year (y-o-y) to TRY1.4bn ($962mn) as well as a 122% y-o-y earnings uptick to TRY55.7mn, BIM also has the finances in place to continue with rapid expansions and give international retailers a run for their money. (R&M 24.03)
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11.15 GREECE: IMF to the Rescue for Greek Troubles
On 26 March, Der Spiegel (http://www.spiegel.de/international) reported, European leaders put the International Monetary Fund on standby to help aid debt-stricken Greece, shrugging off the European Central Bank, or ECB's, plea that Europe solve the crisis on its own. Leaders of the 16-nation euro region endorsed a Franco-German proposal for a mix of IMF and bilateral loans at market interest rates, while voicing confidence that Greece will not need outside help to cut Europe's biggest budget deficit.
"Europe has shown it is capable of dealing with an important issue and at the same time take action for the stability of the euro and for a country struggling with difficulties," German Chancellor Angela Merkel said before the final session of a European Union summit in Brussels. "The Brussels agreement wipes out the risk of default, the refinancing risk and raises the credibility of the government's austerity plan," Petros Christodoulou, head of the Athens-based Greek debt agency, said Friday in a statement.
The extra borrowing cost that investors demand to buy Greek demand over comparable German securities fell 10 basis points to 303 basis points, or 3.03%. The spread has risen from 273 basis points on Feb. 11 when the EU vowed "determined and coordinated action" to staunch the crisis. "It's a stopgap plan," said Klaus Baader, co-chief euro-area economist at Societe Generale in London. "It really only meets Greek expectations halfway. It will help get bond yields down, but won't be enough to satisfy the markets."
Trichet retracts from criticism
After objecting to a possible IMF intrusion on the $12 trillion euro-region economy, the ECB endorsed the package, with President Jean-Claude Trichet saying European governments will remain in control of the process. Trichet, who told France's Public Senat television earlier that surrendering control to the IMF would be "very, very bad," held his own press conference after the summit to tone down the criticism. "I never said the IMF intervention would be this and that," Trichet said. "I wanted to preserve the responsibility of the governments of the euro area. That is my compass. And I think that is respected."
Under the accord brokered by German Chancellor Angela Merkel and French President Nicolas Sarkozy, each euro-region country would provide non-subsidized loans to Greece based on its stake in the ECB, a statement said. Europe would provide more than half the loans and the IMF the rest, which would only be triggered if Greece runs out of fund-raising options. "The objective of this mechanism will not be to provide financing at average euro-area interest rates, but to set incentives to return to market financing as soon as possible," the statement said. The size of the loans and interest rates were left unclear, and the EU did not spell out what would force it to step in.
"The definition of the emergency case is very fuzzy," Juergen Michels, chief euro-area economist at Citigroup in London, said in a note to investors. "As all euro area countries will have to agree unanimously on the activation of the facility, the activation of the fund is very uncertain."
Asserting her clout as head of the EU's largest economy, Merkel pushed for the IMF to be brought in amid mounting opposition in Germany to putting taxpayers' funds at risk. Counterparts, including Sarkozy, said Europe should show its credibility by fixing the crisis on its own with loans to Greece.
Painful austerity measures
The Greek government is counting on wage cuts and tax increases to shave the deficit to 8.7% of gross domestic product this year from 12.7% in 2009, the highest in the euro's 11-year history. Greece needs to sell roughly €10 billion of bonds in the coming weeks. Some €8.2 billion of debt will mature on April 20 and €8.5 billion on May 19. At the same time, approximately €3.9 billion of bills will mature in April.
The Goldman Sachs Group said Greece may ultimately receive aid from the IMF worth roughly €20 billion over 18 months. French daily Le Figaro, meanwhile, reported the aid would total €22 billion, citing German officials.
The budget deficits of all 16 euro nations are forecast to exceed the EU's limit of 3% of GDP this year after the worst recession since World War II. While the euro's German-designed "stability pact" foresees financial penalties for countries that go over the limits, no country has been sanctioned since the currency debuted in 1999.
Merkel has left open the possibility of pushing wayward countries out of the euro and sought a rewrite of European treaties to impose more fiscal rectitude but all 27 EU countries would have to back such an overhaul. The EU's latest treaty, in force since December, took eight years to negotiate and ratify. Merkel opposed making a firm aid commitment, calling the contingency plan "a last resort in a situation where Greece isn't able to get money." Asked what would trigger the European loans, EU President Herman van Rompuy told reporters: "All of this – we'll work it out later." (Der Spiegel 26.03)
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11.16 GREECE: Fitch Says Clarity on Greek Financing Strategy Would Underline Euro Area Support Ratings
On 29 March Fitch (http://www.fitchratings.com) commented that the statement by Euro Area Heads of State and Government on 25 March was significant in clarifying the willingness of Greece's Euro Area partners to act as a 'lender of last resort' and to support an IMF program if required. In Fitch's judgment, the Statement was positive for Greece's credit profile by enhancing its near-term financing options and flexibility as well as reaffirming the support of Euro Area Member States for economic and fiscal reform in Greece. Nonetheless, the rating Outlook remains Negative because of continued uncertainty over the medium-term economic and fiscal adjustment as well as the continuing lack of clarify over the fiscal financing strategy.
While the 25 March Statement is significant in signaling the willingness of Euro Area governments to act as a lender of last resort to Greece, Fitch notes that the mechanism through which such support would be provided in a timely fashion remains opaque and would be policy conditional and on 'non-concessional' terms. Thus while the Statement is important, it does not in itself materially lessen the risks associated with the implementation of Greece's fiscal consolidation program and requirement on the Greek government to raise substantial funds in the coming weeks as well as over the medium-term.
Given that the Greek government faces relatively large near-term financing needs to cover more than €20b of maturing debt in April and May as well as the on-going budget deficit, it is encouraging that the authorities have moved swiftly to raise funds in the market with a €5bn 7-year bond issue today. However, further debt issues will be required to fully meet near-term funding needs.
Fitch currently rates Greece's Long-term foreign currency and local currency Issuer Default Ratings (IDRs) at 'BBB+'. The Outlooks for both ratings are Negative. (Fitch Ratings 29.03)
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11.17 GREECE: Food and Drink Report Q2 2010
Research and Markets (http://www.researchandmarkets.com) "Greece Food and Drink Report Q2 2010" notes that despite Greece falling into recession in 2009, it expects the country to be one of the quickest to recover as the global economic situation picks up. Unlike some of its peers in Western Europe, Greece is not reeling from the bursting of a house price bubble; they expect the expansion of domestic demand to continue to outstrip the eurozone average over the next five years, as the economy modernizes and the GDP per capita catches up with other Western European states. This view looks to be shared by Belgium based grocery retailer Delhaize which in October 2009 announced that it is to acquire Greek retailer Koryfi through its local unit Alfa-Beta. The move continues Delhaize's record of investment in Greece, which over the last five years has proven to be one of the firm's most dynamic markets.
Between 2003 and 2008 Alfa-Beta's revenues climbed by 57% driven by new store openings and increased sales at existing stores. This partly thanks to Greece's rapid economic expansion, with GDP growth averaging 4.1% over the period. In 2009 Delhaize purchased the 35% stake in Alfa-Beta that it did not already own and the acquisition of Koryfi suggests that it will continue to invest heavily in the Greek market. The deal is worth €8.8mn and gives Delhaize control over 11 stores and a distribution centre. Delhaize has indicated that the acquisition will strengthen its activities in Thrace, an area of northeastern Greece where it currently has almost no presence. The firm has a stated strategy of reinforcing its presence in existing or adjacent markets through fill-in acquisitions; with a large proportion of the mass grocery retail (MGR) sector accounted for by small chains operating under 25 stores, this strategy should be relatively straightforward to implement and facilitate rapid expansion.
Alfa-Beta is currently the country's second largest retailer, generating just under half the revenues of market leader Carrefour. However, with Carrefour's attentions currently focused elsewhere (with the revitalization of its French network a particular priority) there may never be a better time for Delhaize to close the gap. Both firms are likely to benefit from the changes in Greek consumer behavior. In the past, growth in the MGR market has been curbed by a preference for fresh produce, prepared at home and sourced locally. However, the development of Greece's economy has led to changes in food consumption, with longer working hours and more women in the workplace meaning that Greek consumers are increasingly opting for added-value convenience items. (R&M 19.03)
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- Israeli Shekel conversions done at a rate of NIS 3.70 = $1.00
- Turkish Lira conversions done at a rate of NTL 1.60 = $1.00
- Euro conversions done at a rate of € 1.00 = $1.40
- Jordanian Dinar conversions done at a rate of JD 1.00 = $1.41
- UAE Dirham conversions done at a rate of Dh 3.67 = $1.00
- Omani Rial conversions done at a rate of OR 0.385 = $1.00
- Pakistani Rupee conversions done at a rate of Rs 82 = $1.00
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