• Netanyahu Looks To 8% Growth Target
• Answers.com Ranks in Deloitte Israel Technology Fast 50
• Israel & Mexico Update Free-Trade Agreement
• Inflation in Saudi Arabia to Exceed 4% in 2008
• Greek Economic Outlook Remains Strong
• MIDDLE EAST: IMF Sees Continued Positive Near-Term Economic Outlook

TABLE OF CONTENTS:

1.1 Netanyahu Looks To 8% Growth Target
1.2 Cabinet Okays Increased Funding For the Elderly
1.3 Consumer Protection Bill for Car Buyers in Israel

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2.1 Answers.com Ranks in Deloitte Israel Technology Fast 50
2.2 Exent Technologies Files Preliminary Prospectus for an Initial Public Offering
2.3 CopperGate Communications Opens Representative Office in China
2.4 Fat Content of Israeli Milk on the Increase
2.5 Zion Oil & Gas Submits Permian Report for Planned Well
2.6 Deloitte Names Jordan Valley Semiconductors to List of Fastest Growing Israeli Technology Companies
2.7 Deloitte Honors NextNine as One of Israel's 50 Fastest Growing Technology Companies
2.8 Mellanox Ranked 146th Fastest Growing Company in North America by Deloitte

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3.1 Daon Powers Qatar's National ID Program
3.2 Orascom Wins Solar Power Plant Deal
3.3 Nutritional Specialties Signs Distribution Agreement for Expansion in Turkey
3.4 Pioneer Announces Three New Discoveries & Production Outlook for Tunisia

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4.1 Israel & Mexico Update Free-Trade Agreement
4.2 Israel & Turkey Advance Infrastructure Corridor Talks
4.3 EU-Israel R&D Budget €1 Billion
4.4 Israeli Banks Near Bottom of OECD

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5.1 Al-Ali Urges World Bank & US to Increase Aid to Jordan
5.2 Number of Russian Tourists Visiting Jordan Increases by 109.6%
5.3 Amman Exchange Becomes Full Member of World Federation of Exchanges
5.4 Jordan Buys Back Debt Owed To Paris Club At 11% Discount
5.5 Egypt to Supply Jordan with Extra Quantities Of Gas Soon
5.6 Qatar Will Keep Bidding For Olympics Until It Wins
5.7 UAE's DFSA Signs MoU with US Banking Supervisors
5.8 UAE's Rising Inflation Could Boost Private Labels
5.9 Dubai to Turn Green in 2008
5.10 Inflation in Saudi Arabia to Exceed 4% in 2008
5.11 Saudi Arabia Establishes $533 Million Medical Firm
5.12 Egypt to Build Several Nuclear Power Plants
5.13 Algeria Ranks Eighth In List of Foreign Investors in USA
5.14 Tunisia & Morocco Have Highest Customs Taxes in World
5.15 Moody's Issues Annual Report on Tunisia
5.16 US Wants Pakistan Economically Sound, Strong Country

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6.1 IMF Comments on Turkey's Performance
6.2 S&P Says Turkey's Approval Of Incursion Into Northern Iraq Has No Immediate Impact On Ratings
6.3 Turkey's 2008 Privatization Proceed Is Expected To Be Around $11.8 Billion
6.4 Greece's Inflation Rate Rises by 2.9% in September
6.5 Greece's Ruling ND Faces Rifts Over Key Reforms
6.6 Greek Economic Outlook Remains Strong
6.7 Olympic Sale in Trouble
6.8 Eurostat Approves Partial Revision of Greece's GDP Data
6.9 Black Economy in Cyprus Seen at 4.2% of GDP
6.10 Cyprus Seeks to Cut Betting Tax to Raise Revenues

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7.1 Jordan Changed to Winter Time on 25 October
7.2 USAID Sends Second Emergency Response Team to Greece to Assess Wildfire Damage
7.3 Coca-Cola to Aid Restoration of Hellenic Olympic Committee Site in Ancient Olympia

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8.1 CollPlant to Scale up Proprietary Transgenic Tobacco Plant System for Type I Human Collagen
8.2 Fraunhofer Institute Study Using Pluristem's PLX Cells Shows Promise Stroke Treatment
8.3 Can-Fite to Conduct Phase IIb Trial of CF101 for Treatment of Rheumatoid Arthritis
8.4 Explay Announces Partnership with US Medical Imaging Company Luminetx
8.5 Glycominds & Fox Chase Cancer Center Collaboration to Discover New Cancer Detection Tests
8.6 BioLineRx Announces Positive Results From Phase 2a Interim Trial Analysis of BL-1020 for Schizophrenia
8.7 Foamix Acquires Rights to Dual Chamber Aerosol Foam Technology

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9.1 CopperGate Ships over 2 Million HomePNA 3.1 Chipsets
9.2 Silicom Achieves Another Design Win with a WAN Optimization Company
9.3 Russia's North-West Telecom Expands its Gilat Broadband Satellite Network
9.4 VocalTec Communications Announces 18 New Service Provider Wins in Russia & CIS Since 2006
9.5 Orca Interactive First to Bring Content Discovery to IPTV with COMPASS
9.6 MTS Received Another Purchase Order to Deliver Convergent Billing Solution to a GSM Carrier in Africa
9.7 Personeta Partners with GruppoInIT to Deliver Converged Communication Solutions
9.8 Voltaire Introduces High Performance Storage Router for Unified Fabrics
9.9 RADVISION & Clique Deliver End-to-End Video Solution
9.10 RADVISION & BEA Partner to Jointly Deliver Interactive Mobile Video Services
9.11 Tower Semiconductor Launches New Power Management Platform
9.12 Horizon Rolls Out Single Chip Native 1080/60p High Definition Dual Channel Decoder SoCs

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10.1 State of Economy Index Rises – Though At Slower Pace
10.2 Israel's Unemployment Reached 7.8% in August

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11.1 MIDDLE EAST ECONOMY: FDI in Full Spate
11.2 MIDDLE EAST: IMF Sees Continued Positive Near-Term Economic Outlook
11.3 ISRAEL: Supreme Court Orders Rabbinate to Authorize Heter Produce
11.4 JORDAN: Moody's Says Outlook on Banks Stable
11.5 LEBANON: Better Governance Practices
11.6 KUWAIT: Refining the Bids
11.7 BAHRAIN: Going Private
11.8 QATAR: LNG Demand Outstrips Supply
11.9 UAE: IMF Forecasts Slower Growth in 2007
11.10 UAE: Northern Emirates Island Building
11.11 ABU DHABI: Go West
11.12 ABU DHABI: Focus on Education
11.13 OMAN: Scientific Approach
11.14 SAUDI ARABIA: IMF Executive Board Concludes 2007 Article IV Consultation
11.15 SAUDI ARABIA: Relying on Investments
11.16 SAUDI ARABIA: Water Contracts
11.17 EGYPT: Race to Privatize
11.18 TURKEY: IMF Staff Mission Notes Tempered Progress
11.19 Turkey: Fiscal Constitution
11.20 TURKEY: Reducing the Primary Surplus

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1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Netanyahu Looks To 8% Growth Target

"The Likud will continue the economic revolution, setting a growth target of 8%," said Likud leader MK Benjamin Netanyahu. He made the comment at a press conference called to launch his party's new agenda, entitled "A Green Likud." Netanyahu added that he would aim to achieve a balance between the need for economic growth and environmental, health and quality of life issues. Netanyahu also said the Likud will take steps to reduce the country's dependence on oil. (Globes 21.10)

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1.2 Cabinet Okays Increased Funding For the Elderly

The government has approved a cut of $6.25m or 0.85% of all ministerial budgets to finance the increase in benefits to needy Holocaust survivors and the elderly. The cuts will also apply to the Ministry of Defense and Ministry of Education, which were not affected by the previous round of cuts. The Education Ministry budget will be cut by NIS $6.5m and defense expenditure will be cut by $7.5m. Last week, Prime Minister Olmert, Minister of Finance Bar-On and Minister of Welfare Herzog presented the government's aid package for the impoverished elderly, including Holocaust survivors. The package calls for the provision of an extra $375m in benefits. (Globes 29.10)

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1.3 Consumer Protection Bill for Car Buyers in Israel

The Knesset has approved on first reading a bill that would make used car dealers responsible for defects that were not disclosed at the time of purchase. Under the bill, car buyers would be able to invalidate the purchase of a car if significant information about the vehicle had been withheld. Likud Knesset Member Erdan sponsored the bill, which must pass a committee hearing and two more votes in the Knesset. His proposed law would require car dealers to disclose all information about the vehicle from the time it was first registered. (INN26.10)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 Answers.com Ranks in Deloitte Israel Technology Fast 50

Answers Corporation announced that Answers.com was named Number 25 on the 2007 Deloitte Israel Technology Fast 50, a ranking of the 50 fastest growing technology companies in Israel. "We're pleased by the recognition of this award," said Bob Rosenschein, Chairman and CEO. "In such an exciting and competitive time, we've worked hard to innovate our product offerings, and our approach to monetization and financial growth." Answers Corporation (http://www.answers.com) operates the award-winning Answers.com answer engine, delivering comprehensive content on over four million topics spanning health, finance, entertainment, business and more. Content includes over 180 licensed titles from leading publishers such as Houghton Mifflin Company, Barron's, Encyclopedia Britannica, All Media Guide and others; original articles written by Answers.com's editorial team; and user-generated questions & answers from Answers.com's industry-leading WikiAnswers (http://wiki.answers.com). Answers.com can be launched directly from within Internet Explorer 7, Firefox and Opera browsers, and its service is integrated into sites like The New York Public Libraries' homeworkNYC.org, The New York Times, CBSNews.com and others. (Answers29.10)

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2.2 Exent Technologies Files Preliminary Prospectus for an Initial Public Offering

Exent Technologies has filed a preliminary prospectus with the securities regulatory authorities in each of the provinces of Canada in connection with a proposed initial public offering of common shares of Exent. The proceeds of the offering will be used to pursue research and development activities designed to expand and support Exent's product lines and services; for expanding its sales and marketing activities, increasing its market coverage, expanding geographically and entering new markets; for intellectual property related activities (including licensing and acquisition of intellectual property) and for working capital and general corporate purposes, including acquisitions of complementary businesses, products and technologies. The offering is being underwritten by a syndicate of underwriters led by GMP Securities L.P., and including Canaccord Capital Corporation, Genuity Capital Markets G.P. and Raymond James Ltd. Exent has applied to list its common shares on Toronto Stock Exchange (TSX). Exent has not received conditional approval for listing from TSX and there is no assurance that such listing will be obtained.

Petah Tikva, Israel's Exent (http://www.exent.com) is a global leader in developing and marketing software products and services that enable the broadband-based delivery of video games known as Games-on-Demand. Games-on-Demand services are designed to monetize the extensive catalogue of video games that are no longer likely to generate significant revenue through retail sales channels. This is achieved by a broadband-based distribution of video games to end-users through paid subscriptions and through free, ad-supported offerings. (Exent26.10)

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2.3 CopperGate Communications Opens Representative Office in China

CopperGate Communications, a leading provider of chipset solutions that enables distribution of high-speed IP data throughout the home and to apartments in multi-dwelling units over existing wires, has opened a representative office in China. The office will provide local and prompt support for the rapidly growing demand for its CopperStream chipset solution and the significant design activity in that region. CopperGate's chipsets are integrated into products shipping today from leading equipment manufacturers in the region. The CopperStream chipset, which has been in volume production for over three years, is shipping today integrated into a rapidly growing number of products targeted at cable service providers. Those products enable low cost, high performance access for the provisioning of triple-play services such as IPTV / VoD, broadband internet access and VoIP to apartments in MDUs. CopperGate's chipsets are also integrated into residential gateways, set-top boxes, Fiber ONTs, Ethernet bridges, and other equipment being deployed today in high volume by major service providers worldwide to distribute IPTV within the home. Tel Aviv, Israel's CopperGate Communications (http://www.copper-gate.com) develops chipsets designed to revolutionize home networking and networked entertainment, and multi-dwelling unit (MDU) broadband access. CopperGate is the leading provider of standards-based technology for distributing high speed IP data throughout the home over existing wires. (CopperGate 25.10)

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2.4 Fat Content of Israeli Milk on The Increase

The Israel Dairy Board announced that the concentration of fat in milk produced by the Israeli cow has been on the rise. Over time the increase is marked: From the early 1990s the fat content of milk has increased by 20%, or 1.2% a year on average. In parallel, the concentration of protein has also been rising by an average of 0.6% a year. During 2006 consumption of dairy per capita in Israel shot up by 4.6%, due mainly to a spike in the local appetite for hard yellow cheeses and yogurt, says the board, which thinks that the local consumption of dairy per capita will have grown by about 1.5% this year. (Various30.10)

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2.5 Zion Oil & Gas Submits Permian Report for Planned Well

Zion Oil & Gas of Dallas, Texas and Caesarea, Israel, announced that the company's geological team recently completed a year-long study of the deep Permian horizons on the company's Joseph and Asher-Menashe Licenses. The resulting 'Permian Report' identified a Permian drilling prospect on the Ma'anit structure on Zion's Joseph License. On October 29, 2007, Zion submitted the Permian Report to the Israeli Petroleum Commissioner. The Report is a 43-page technical geological report and prospect presentation, in which the Company analyzes the hydrocarbon potential in drilling the planned Ma'anit-Rehoboth #2 well to Permian targets, in addition to the Triassic targets drilled in Zion's Ma'anit #1 well. In the Report, Zion notes and analyzes the striking similarity between the late Permian Arqov formation in Israel, into which Zion plans to drill the planned Ma'anit-Rehoboth #2 well, and the late Permian Khuff formation in the Persian Gulf region. The Khuff formation is the main reservoir for the prolific off-shore gas bearing North Field in Qatar and South Pars field in Iran. Zion Oil & Gas explores for oil and gas in Israel in areas located on-shore between Haifa and Tel Aviv. It currently holds two petroleum exploration licenses, the Joseph and the Asher-Menashe Licenses, between Netanya on the south and Haifa on the north covering a total of approximately 162,000 acres. (Zion29.10)

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2.6 Deloitte Names Jordan Valley Semiconductors to List of Fastest Growing Israeli Technology Companies

Jordan Valley Semiconductors has been named to the 2007 Deloitte Technology Fast 50 as one of the fastest-growing technology companies in Israel. To determine the fastest growing companies, Deloitte reviewed fiscal year revenues over five years (2002-2006), calculated the revenue growth percentage over those five years, and compared the growth of technology companies. Jordan Valley's selection to the Deloitte Technology Fast 50 follows the announcement last week that Intel Capital was the sole investor in an $11m round of funding in the company. Migdal Ha'Emek, Israel's Jordan Valley Semiconductors (http://www.jvsemi.com) provides semiconductor metrology solutions for thin films based on novel, rapid, non-contacting, and non-destructive x-ray technology. They offer a comprehensive family of solutions based on advanced X-Ray Reflectivity (XRR), X-Ray Fluorescence (XRF), and Small Angle X-Ray Scattering (SAXS) technologies. These tools are fully automated, production ready, and ideal for both blanket and patterned wafers. Jordan Valley's x-ray technology enables accurate and precise characterization of all film types — including single layers and multilayer stacks, high k and low k materials, metals and dielectrics, amorphous, poly-crystal and single crystal films. (JVS29.10)

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2.7 Deloitte Honors NextNine as One of Israel's 50 Fastest Growing Technology Companies

Reinforcing its position as the leading global provider of unified remote support automation solutions, NextNine (http://www.NextNine.com) announced its placement on the 2007 Deloitte Israel Technology Fast 50, a ranking of the 50 fastest growing technology companies in Israel. Making this list is an accomplishment for NextNine, whose NextNine Service Automation (NSA) Platform is utilized by industry leaders including Motorola, GE Healthcare, Invensys, Allscripts, Comverse and airwide solutions. Important to note, is that over the past three years, enterprises have realized the benefits that proactive, preventive support provides to their businesses, and as such, are now demanding it from their vendors and support providers. The NextNine Service Automation platform represents a direct response to this demand. NextNine products and solutions lend their expertise to a range of industries including Telecom and Broadband, Financial Information Systems, Healthcare Information Systems, VoIP, Industrial Automation and Enterprise Software and Hardware. Tel Aviv's NextNine, founded in 1998, is the leading global provider of innovative remote support automation solutions. The NextNine Service Automation platform enables technical support organizations to automate support processes and deliver remote monitoring remote diagnostics, self-healing and more. (NextNine29.10)

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2.8 Mellanox Ranked 146th Fastest Growing Company in North America by Deloitte

Mellanox Technologies is ranked Number 146 on Deloitte's 2007 Technology Fast 500, a ranking of the 500 fastest growing technology, media, telecommunications and life sciences companies in North America. Rankings are based on percentage of fiscal year revenue growth over five years, from 2002–2006. Mellanox grew 1,113% during this period. The Fast 500 ranks the fastest growing technology, media, telecommunications and life sciences companies in North America. Headquartered in Santa Clara, California and Yokneam, Israel, Mellanox Technologies (http://www.mellanox.com) is a leading supplier of semiconductor-based, high-performance, InfiniBand and Ethernet connectivity products that facilitate data transmission between servers, communications infrastructure equipment and storage systems. The company's products are an integral part of a total solution focused on computing, storage and communication applications used in enterprise data centers, high-performance computing and embedded systems. (Mellanox 23.10)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Daon Powers Qatar's National ID Program

Washington DC's Daon, a global provider of identity assurance software and services, announced that its software is being used to power a new national identification program in the State of Qatar. The new biometric system which replaces an existing program was opened to the public on Sunday, October 7, with all national ID cards issued since that date utilizing the Daon solution. Qatar is one of many nations whose citizens are issued a national ID card, which serves as easy and secure proof of identity and residency and also provides access to various services and benefits. With the increasing risk of identity theft and the growing need to better manage citizen security, the Government of Qatar sought to increase the level of trust in the identity of individuals who present these ID cards. The addition of biometric identifiers on the ID cards was selected to provide that additional level of trust. Following a rigorous selection process to identify a solution provider, Daon was selected in partnership with local integrators ProtechT and QPGI, to provide the National Biometric Infrastructure for the Qatar National Identification Project. (Daon 24.10)

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3.2 Orascom Wins Solar Power Plant Deal

Orascom Construction Industries (OCI) has signed a $109m contract to build a new solar power plant in Egypt. The contract was signed with the New and Renewable Energy Authority (NREA), a subsidiary of the Egyptian Ministry of Electricity. OCI will construct the 62 MW Integrated Solar Combined Cycle Power (ISCC) plant in Kuraymat. German Fichtner Solar has been chosen for the technology and engineering of the new plant. The scope of work under the contract includes all civil work in addition to two years worth of operation and maintenance for the plant. The contract also includes the engineering, procurement, construction, testing and commissioning of the solar field and service area for the ISCC plant. The Solar Island will consist of a parabolic trough solar field capable of generating 62MW of solar heat at a temperature of 393°C. The Solar Island will also include the related instrumentation and communication systems, the control room and the heat transfer fluid (HTF) system as well as the HTF inlet and outlet flanges of the Solar Heat Exchangers. The plant will also have a metrological station, special solar field equipment, an HTF area and an operation building. The project will be co-financed by the Global Environment Facility (GEF), through the International Bank for Reconstruction and Development (IBRD) and by the Egyptian Government through a loan provided by the National Bank of Egypt. (TradeArabia 23.10)

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3.3 Nutritional Specialties Signs Distribution Agreement for Expansion in Turkey

Scottsdale, Arizona's Baywood International announced that its wholly-owned subsidiary, Nutritional Specialties has signed an exclusive distribution agreement with SVG Dis Ticaret (SVG) to expand the existing distribution of its LifeTime brand of products into the Turkish market. SVG is an affiliated distribution company of Sunfarma / Genfarma, one of the leading companies for the importation and distribution of food supplements, dermo-cosmetic and selective cosmetic products in the Turkish market. SVG's selling network will span directly to over 700 pharmacies that will be supported by a dedicated team of 26 sales professionals. SVG is also in collaboration with wholesalers for the distribution of imported food supplement products. Through collaboration with these wholesalers, SVG can reach up to 7,500 pharmacies in all over to Turkey. Currently, there are approximately 22,000 pharmacies in Turkey. As part of SVG's valued-added distribution capabilities, they prepare a sales package consisting of a marketing plan, product displays, literature and training seminars for the pharmacists and their assistants. On behalf of the LifeTime brand, they will also invest in public relations, sales promotion and press coverage to enhance the products' visibility and the credibility in the market. Presently, there are approximately 45 products under the LifeTime brand that are registered and being sold into the Turkish market. (Baywood29.10)

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3.4 Pioneer Announces Three New Discoveries & Production Outlook for Tunisia

Dallas, Texas' Pioneer Natural Resources Company announced continued success in its development and expansion programs in Tunisia, including two new discoveries on the Pioneer-operated Jenein Nord Block with 100% success on seven wells since late 2006 and continued progress in constructing Jenein Nord production facilities with first production expected late Q4/07. Expectations for Pioneer's net production from Tunisia are for it to grow 80% in 2007 and at least 90% in 2008. Pioneer has a substantial acreage position in the Ghadames Basin of southern Tunisia with an interest in five blocks totaling 3.9 million acres. Since mid-July, Pioneer has drilled two new operated discoveries on the Jenein Nord Block, Angham and Methaq. Pioneer Natural Resources Company is a large independent oil and gas exploration and production company. (Pioneer18.10)

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4: ISRAEL MACRO-DEVELOPMENTS

4.1 Israel & Mexico Update Free-Trade Agreement

Minister of Industry, Trade & Labor Yishai and Mexican Minister of Economics Sojo Garza-Aldape have signed a memorandum confirming the final text of the Amendment to the Israel-Mexico Free-Trade Agreement of 2000. Ministry of Industry bilateral trade agreements division director Hirsch said that the amendment was aimed at solving a problem faced by many companies that want to transit goods made in either Israel or Mexico through a third country, such as the US. Until now, the transit of such goods required redefining the country of origin of the goods and the payment of customs, because the free-trade agreement required direct shipment of goods between Israel and Mexico as a condition for the customs exemption. The amendment allows for goods originating in Israel or Mexico to undergo minimal processing or storage in a third country before shipment to Israel or Mexico without this transit affecting the goods' duty-free exemption under the free-trade agreement. (Globes 24.10)

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4.2 Israel & Turkey Advance Infrastructure Corridor Talks

Minister of National Infrastructures Ben-Eliezer met Turkish Minister of Energy & Natural Resources Dr. Guler to discuss the proposed Israel-Turkey infrastructure corridor. Ben-Eliezer was shown a presentation prepared by Italian energy conglomerate ENI and Turkey's Calik Holding, which stated that the project was economically feasible. The preliminary feasibility study considered building the infrastructure corridor from the Turkish port of Ceyhan on Iskanderon Bay to Haifa, a distance of 460 kilometers. The study examined the laying of five undersea pipelines: one each for crude oil, natural gas, electricity, water, and communications. The study examined various alternatives for the delivery of energy products from Turkey to Israel, including 20-50 million tons of crude oil a year, 4-10 million cubic meters of natural gas a year, 4,200 megawatts of electricity, and 400-1,000 cubic meters of water a year. The oil pipeline would be a continuation of the Baku-Tbilisi-Ceyhan (BTC) pipeline, which brings Caspian Sea oil from Azerbaijan to the Mediterranean, or the Samsun-Ceyhan pipeline from the Black Sea. Ben-Eliezer and Guler agreed that the expert teams from their ministries would immediately prepare a framework agreement for a full feasibility study of the project. (Globes 28.10)

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4.3 EU-Israel R&D Budget €1 Billion

The EU Seventh Framework Program for Research and Development (2007-2013) includes a budget of €1b for joint projects between Israeli and European companies, out of a total budget of €53b. The figures were released for an Israel-European R&D Directorate(ISERD) conference sponsored by EU Ambassador to Israel. The conference will also give merit awards to the 119 Israeli grant winners. Grant winners include Azimuth Technologies (http://www.azimuth.co.il), BigBand Networks (http://www.bigbandnet.com), Elbit Systems (http://www.elbit.co.il), Radvision (http://www.radvision.com) and CogniFit (http://www.cognifit.com). Israeli universities won grants for 77 projects, and other recipients include Israel Nature and Natural Parks Protection Authority, Magan David Adom, and Soroka Medical Center. (Globes 28.10)

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4.4 Israeli Banks Near Bottom of OECD

Israel's banking system was ranked 19th among 23 OECD member states in 2005, the Bank of Israel reported on 21 October in comparative study of Israel with the OECD, using IMF financial soundness indicators (FSI). The Bank of Israel said the comparison according to 2005 data shows that the banking system in Israel needs to improve in order to reach the average among OECD countries in the two most important fields of banking stability: capital adequacy and nonperforming loans. It did note that the banking system in Israel has indeed improved in both these fields during 2006. Israeli banks' regulatory capital to risk-weighted assets was 10.7% in 2005 compared with the OECD average of 12.2%. Israelis banks were ranked 14th in terms of the proportion of nonperforming loans, and fourth in net exposure to the exchange rate, with a negligible exposure. (BoI21.10)

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Al-Ali Urges World Bank & US to Increase Aid to Jordan

Jordan urged the World Bank and the US government to increase aid to enable the Kingdom to implement development projects in different sectors and meet the challenges facing the national economy. As head of the Jordanian delegation to the International Monetary Fund (IMF) and the World Bank annual meetings in Washington DC, Planning and International Cooperation Minister Al-Ali held several meetings with senior officials from the World Bank and the US state and treasury departments. During her meetings, she discussed various forms of cooperation between Jordan's government and the government of the US, reiterating the Kingdom's commitment to reforms and sustainable growth. Al-Ali underlined the economic, social and political reforms that the Kingdom has recently undertaken and highlighted the achievements that have been made despite significant fiscal, political and social challenges that Jordan continues to face.

Central to Al-Ali's meetings with World Bank Group President Zoellick and other senior World Bank officials was Jordan's request to increase the amount of technical assistance, in particular providing value-added services such as risk management and sectoral reviews. The request was in line with the minister's Middle Income Country keynote presentation made to the Independent Evaluation Group at the annual World Bank meetings. During the presentation, Al-Ali presented Jordan's case as a middle income country that requires targeted and results-oriented assistance to accelerate growth, alleviate poverty, and speed up the delivery of the fruits of reform to larger segments of the population. (JT24.10)

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5.2 Number of Russian Tourists Visiting Jordan Increases by 109.6%

The number of Russian tourists visiting Jordan increased by 109.6% in the first nine months of this year compared to the same period of last year due to the success of media and tourism promotion campaigns, Minister of Tourism Dabbas said. The minister added that the number of Russian tourists visiting the Kingdom stood at 12,118 in the first nine months of 2006compared to 25,403 tourists in the same period of 2007. (Petra24.10)

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5.3 Amman Exchange Becomes Full Member of World Federation of Exchanges

In mid-October, the World Federation of Exchanges (WFE) accepted the Amman Stock Exchange (ASE) as a full member of the federation. During its annual meeting held in Shanghai, China, ASE Chairman Mohammad Horani thanked the federation for their confidence, and highlighted the developments accomplished by the Jordanian capital market in general, and by the ASE in particular. Amman Bourse Chief Executive Officer Tarif, who attended the meeting, indicated that the admission decision was taken in recognition of ASE efforts. The ASE has worked since its acceptance by the federation as an affiliate member in 2004 to fulfill the federation's requirements and to meet international standards, he said. Full membership in the federation will boost the bourse's position and increase investor confidence in the financial market. Established in 1961, the WFE has 58 members around the world which account for over 97% of the market value of the world's bourses. (Jordan Times 23.10)

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5.4 Jordan Buys Back Debt Owed To Paris Club At 11% Discount

Jordan announced on 18 October that the Paris Club of creditor countries has agreed to allow Amman to buy back some $2.153b in previously rescheduled debt at a discount rate of 11%. The agreement, signed in Paris on 17 October, underlines 'confidence' in Jordanian reforms and will boost the sustainability of domestic development efforts. Finance Minister Kasasbeh said the deal will reduce Jordan's debt service obligations, allowing increased investment in education, healthcare and other vital sectors. It will also improve Jordan's balance of payment position, international credit rating and international investors' confidence in the country's economy, said the Jordanian official. The face value of Jordan's total external debt stands at around $7.051b, or about 45% of GDP, down from over 84% in 2000 and 64% in 2004. This prepayment reflects the strong economic and financial performance of Jordan and the government's sound debt management strategy, the Paris Club said following two days of discussions between Jordan and the creditors. The Paris Club accepted the principle of a buyback of Jordan's debt at market value and said that it would then be up to each country to decide whether to accept the early repayment. Repayment is scheduled to take place between January 1 and March 31, 2008, after the conclusion of bilateral implementation agreements. (WB21.10)

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5.5 Egypt to Supply Jordan with Extra Quantities Of Gas Soon

Egypt will soon supply Jordan with additional quantities of natural gas after the two sides finalized negotiations over the prices for the industrial sector in the Kingdom, according to the Ministry of Energy & Mineral Resources. Late September, the two sides discussed the issue during a visit by King Abdullah to Cairo. The first phase of the new deal includes supplying Jordan with an additional 550 million cubic meters of gas a year for industry and the electricity sectors. A project to build the gas supply networks for houses and residential units in Amman, Zarqa and Aqaba will also kick off soon. The deal comes five months after local news reports claimed that Egyptian gas flow to the Kingdom was suspended after the supplier reneged on a pricing agreement. Officials from both sides dismissed these reports, with the Egyptian side insisting it was committed to the original agreement which stipulates that the price of gas Jordan imports from Egypt will remain without a hike till 2018. In 2004, Egypt agreed to supply Jordan with 2.3 billion cubic meters of gas a year at preferential prices for 15 years. But the industrial sector in the Kingdom was not included under the agreement. As result of the privatization program in Jordan, the private sector has been taking over many industrial projects. Hence, Jordan sought Egyptian cooperation in including the industries and the private sector in the agreement. Currently, 85% of the Kingdom's electricity is generated by Egyptian gas. Jordan, which imports almost all its energy needs, receives natural gas through a pipeline which passes through the Kingdom to Syria, and is later planned to reach other regional countries. Amman and Cairo signed the pipeline agreement in 2003. (JT26.10)

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5.6 Qatar Will Keep Bidding For Olympics Until It Wins

The head of Qatar's Olympic organizing committee has pledged to keep campaigning until Doha wins the right to host Olympic Games. Sheikh Saud bin Abdurrehman Al Thani, the QNOC Secretary-General, said that Qatar would not give up in case of an upset result. Qatar's keenness to stage the Olympic Games has been a hot topic for quite some time. Doha, a city with world-class sports facilities in abundance, officially announced its bid program during last year's Asian Games, which cost Qatar $2.7bn. Doha hosted athletes from 44 member states of the Olympic Council of Asia (OCA) and more than 10,000 athletes were seen in action over the two-week sports extravaganza. Qatar spent a little over $600m on a three-zone Asian Games Village, which was used to house athletes and officials of the Games. Qatar has plans to build 30-50 hotels in the next few years to have enough rooms to accommodate the guests. An Olympic Games host city needs at least 25,000 hotel rooms; Doha promises to have more than that by 2016. Qatar is currently busy expanding its road network following the introduction of a reliable public transport system. The Qatari capital, which will host the Asian Cup for football in 2011, has plans to build a new stadium, but underground. The 'laptop' stadium will be air-conditioned for spectators and can be used throughout the year. The new stadium, to be completed by 2009, will host the matches of the 2011 Asian Cup, the region's premier football tournament. The Khalifa Stadium, which hosted the opening and closing ceremonies of the Asian Games, will see its capacity raised from the existing 50,000. The Khalifa Tennis Complex, which will host the WTA Tour's season-ending championships from 2008 to 2010, will get at least 15 more courts to add to the tally of the existing 18. (Peninsula 25.10)

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5.7 UAE's DFSA Signs MoU with US Banking Supervisors

On 25 October, the Dubai Financial Services Authority (DFSA) entered into a memorandum of understanding with the United States Banking Supervisors. The signing at the Board of Governors of the Federal Reserve coincided with a visit of the Chief Executive of the DFSA to Washington, where the International Monetary Fund (IMF) held its annual meeting over. The four federal U.S. agencies principally responsible for banking supervision in the United States: the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS), have all joined as parties to a comprehensive statement of co-operation with the DFSA. This initiative adopts the model for information sharing developed by the Basel Committee on Banking Supervision and follows similar arrangements the DFSA has with other significant Banking Supervisors such as the UK Financial Services Authority (FSA) and Germany's Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin). (KT26.10)

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5.8 UAE's Rising Inflation Could Boost Private Labels

UAE spending on private-label goods will climb in line with the country's escalating inflation, say consumer behavior analysts at The Nielsen Company. According to the company's research, the private label industry's market share for fast-moving consumer goods (FMCG) will hit 15% in the UAE by 2011, fuelled by diminishing disposable income and increasing penetration of modern supermarkets, many of which run their own private-label products. UAE awareness of private labels is currently more than 80%, while 57% of residents say they have bought private-label items at some time. However, the actual market share of private-label goods is estimated at just 5%, says Nielsen. The company says the private label industry is still in its infancy owing to the relatively low importance consumers place on value-for-money when doing their grocery shopping, coupled with retailers' confidence that existing premium 'named' products are selling well. But this could all change as the UAE's 9.3% inflation rate, reported higher still by some economists, forces many consumers to be more prudent with their budget. The current scarcity of private labels on the shelves and the resulting low competition between brands, means prices are on average only 10-20% lower than the 'named' brand equivalent, compared to more than 40% in many developed markets. Research points towards supermarket and hypermarket retailers increasing their budget for private-label goods by 2009. If a budget retailer such as Aldi or Lidl enters the UAE, the market share for private labels would increase further and prices will drop, she added. (Various25.10)

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5.9 Dubai to Turn Green in 2008

All buildings in Dubai are to be constructed as per environment-friendly "green building" standards from January, Sheikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE, has instructed in his capacity as the Ruler of Dubai. Owners of residential, commercial and other buildings will have to implement the decision according to the highest international standards that are suitable for Dubai, to maintain a healthy city that follows the global benchmarks in sustainable development and clean environment. Minister of State for Cabinet Affairs Al Gergawi said the decision enhances Dubai's keen efforts towards contribution in international efforts to combat environmental challenges, such as the global initiative to control climate change and heat retention. The decision makes Dubai the first city in the Middle East and one of the first in the world to implement this method. Al Gergawi said the decision reflects Sheikh Mohammad's keenness to combat environmental challenges and is part of the Dubai Strategic Plan 2015, which includes the application of the best standards for safety, and quality. A green building is environment-friendly by abiding international standards to reduce its impact on the environment. It achieves this by increasing its efficiency and use of energy, water, and materials, and reducing impacts on human health and the environment, through better design, construction, operation and maintenance. (GN24.10)

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5.10 Inflation in Saudi Arabia to Exceed 4% in 2008

It was reported that inflation will average 4.2% in Saudi Arabia next year, up from 3.8% in 2007, as housing shortages and the weaker U.S. dollar fuel price increases. The growing number of foreign workers in the largest Arab economy will drive up rents, while the weakening dollar will make imported goods from Europe more expensive. Saudi Arabia chose not to follow the U.S. Federal Reserve when it cut its benchmark interest rate on Sept. 18, as it seeks to tackle record inflation in the kingdom. Consumer prices rose an annual 4.4% in August, compared with 3.8% in July. Imported inflation has increased due to the fact that most imports originate from Asian and EU countries, and the cost of imported goods increases when the U.S. dollar weakens. Rising inflation in Saudi Arabia and the kingdom's decision not to follow the Fed's rate cut has heightened investor speculation that it will drop the riyal's peg to the dollar. Saudi Arabia will maintain its peg to the dollar in the "short term.'' While a revaluation of the riyal would be positive in reducing imported inflation, the impact of this inflation on the economy is relatively benign. (KT30.10)

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5.11 Saudi Arabia Establishes $533 Millio Medical Firm

The Saudi Council of Ministers has announced the establishment of a $533m medical company dubbed the National Company for Unified Purchase of Medicines and Medical Appliances. The new company, which will sell 30% of its shares in an initial public offering (IPO) after three years, will be the sole supplier of medicines and medical appliances to government health institutions. It will also re-export medicines and medical appliances. Currently, about 10 Saudi companies capture 50% of the Kingdom's medicine market estimated to be worth more than $1.33b. The average annual growth rate of the market is calculated at 10%. Both Saudis and expatriates welcomed the move hoping that it will bring down the soaring prices of medicines and medical appliances in the country. They said that this will certainly improve health services in the Kingdom. Medicine importers in the Kingdom currently cater to the needs of 65% of private hospitals and polyclinics and 35% of government hospitals. There are 200 hospitals under the Ministry of Health. (MENAFN 04.10)

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5.12 Egypt to Build Several Nuclear Power Plants

Egyptian President Mubarak announced on 29 October that a program will soon be launched to build several nuclear power plants in the country. Mubarak said a decree would soon be issued establishing a supreme council on peaceful uses of nuclear energy, which will oversee Egypt's nuclear plant program. He said the use of nuclear power would enable Egypt to meet its energy needs and diversify sources, allowing the country's hydrocarbon reserves to last longer. Egypt intends to build three nuclear plants with aggregate capacity of 1,800 MW, or 600 MW each. The first plant is expected to go online in 2015-16. Russia earlier announced its intention to take part in a tender to build an atomic power plant in Egypt. (Novosti29.10)

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5.13 Algeria Ranks Eighth In List of Foreign Investors in USA

Algeria's investments in the USA will reach $43b, according to figures published by the Peterson Institute for International Economics. The amount, locked in an investment fund set up by the Algerian Government in 2000, ranks Algeria in eighth place in the list of foreign investors in the United States. Algeria ranks after the United Arab Emirates (between $500b and $875b), Singapore ($200-$430b), Norway ($380b), Kuwait ($174b), Russia ($122b), China ($66b) and Qatar ($50b). Algeria invests mainly in U.S. treasury bills, which are guaranteed low-risk bonds. (ANSAmed22.10).

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5.14 Tunisia & Morocco Have Highest Customs Taxes in World

Tunisia and Morocco are the two countries with highest customs duties in the world. The hardly constructive leadership was indicated by the 2006 data of the World Trade Organization (WTO). According to the data, Tunisia ranks first with average duties of 26.8% in the trade between countries members of the WTO. Morocco imposes average import duties of 24.5% followed by the Maldives and Sudan (20%). Another Mediterranean country ranks fifth: Algeria, with average duties of 18.7%. The duties imposed on farm products are very high in order to defend the respective national agriculture production: the average duty in Tunisia is 65%, while that in Morocco is 46%. The data pointed out that the countries with no import duties on goods are among the most dynamic with one of the most sustained economic growths: Singapore and Hong Kong. (ANSAmed20.10).

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5.15 Moody's Issues Annual Report on Tunisia

In its annual report on Tunisia, Moody's Investors Service says the growing strength and stability of the Tunisian economy has been a key factor underpinning the Baa2 government bond rating and stable outlook. The bond rating and Moody's assessment of a low risk of a payments moratorium in the event of a government bond default form the basis for Moody's A3 foreign currency country ceiling for bonds. Tunisia's strong rate of GDP growth is representative of a converging economy, a forward-looking and responsive economic policy, and is the result of domestic demand supported by a large middle class. The economy has been growing over the last decade by an annual average of 5% and Moody's expects acceleration this year to 5.5% of GDP. "Also, Tunisia's general government debt ratios are on a downward trend that is expected to continue in 2007. While Tunisia's structural fiscal expenditure is still high, she said, the government's fiscal deficit of over 3% deteriorated in 2005 and 2006 on account of higher subsidies due to oil prices. (Moody's26.10)

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5.16 US Wants Pakistan Economically Sound, Strong Country

United States Ambassador to Pakistan Petterson, terming Pakistan as an important ally of US, said the US wanted Pakistan to be economically strong and sound country. Speaking at a meeting of Karachi Chamber of Commerce and Industry (KCCI) she reiterated US resolve to develop strong and long-term economic relations with Pakistan. She said that US was supporting Pakistan in development of Economic Zones (ROZS). Peterson said that the US and Pakistan had cordial and economic relations, adding US was the biggest trading and economic partner of Pakistan. She said that Americans had made huge investment in oil and gas sectors, telecommunication and power development in Pakistan. Regarding improving living standards of people in Northern Areas, she said that the US had increased its finical assistance from $30m to $90m. She said that the US government was making efforts to improve Pakistan image in America. Regarding the law and order situation in Pakistan, she opined that the law and order situation in Pakistan was not as bad as projected by media. Giving example of Colombia and Guatemala and other countries, she said that law and order in many countries were worst than Pakistan. (BR25.10)

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6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS:

6.1 IMF Comments on Turkey's Performance

IMF stated that economic outlook for Turkey is positive, growth is accelerating and inflation is coming down and the current account deficit appears to be stabilizing below 8% GNP but criticized fiscal performance. IMF warned that the government would fall well short of its revised target for a primary surplus of 6.7% of GNP and is likely be around 4.25% due to rising trend in primary spending, weak performance of energy SEE's, lower expected tax revenues. IMF supported Turkey's primary surplus target of 5.5% of GNP for 2008 but noted that adequate safeguards needed to be developed. The IMF welcomed to the CBT's recent decision to cut interest rates but stated that going forward, a continued cautious and measured approach to interest rate decisions is desirable in light of remaining upward risks to inflation. The IMF also welcomed the authorities' intentions to implement important structural measures, like social security system by early next year, enhancing auditing capacity under the Revenue Administration for strengthening tax collection, privatizing Halkbank, and adopting measures to restore financial soundness to energy companies. In the coming period, IMF Staff is expected to visit Turkey and complete the 7th Review. (BGC24.10)

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6.2 S&P Says Turkey's Approval Of Incursion Into Northern Iraq Has No Immediate Impact On Ratings

Standard & Poor's Ratings Services said that parliamentary approval of incursions into Iraq will have no immediate impact on the ratings on the Republic of Turkey. Turkey's large external imbalances leave the country's financial markets vulnerable to swings in investor confidence. An incursion into Northern Iraq is likely to trigger such a crisis of confidence, particularly in the context of already strained U.S./Turkish relations. However, the resulting market volatility will be short-lived, and will have minimal lasting effect on Turkey's fundamentals, even if relations with the U.S. deteriorate further. Foreign direct investment into Turkey comes mainly from Europe and the Middle East and the share of exports destined for the U.S. stood at 4.3% in the 12 months to August 2007. Turkey's fundamentals are supported by prudent macroeconomic and fiscal policies, as well as strong progress on structural reform. (RatingsDirect 17.10)

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6.3 Turkey's 2008 Privatization Proceed Is Expected To Be Around $11.8 Billion

State Planning Organization revealed 2007 privatization realizations and 2008 expectations. Accordingly, the privatization proceeds for 2007 and 2008 are expected to be at $11.6bn and $11.8, respectively. The 2008 privatization program mainly concentrates on electricity distribution, sugar factories and highways. Meanwhile, SPO announced that some public institutions might be included in the privatization program of 2008. (BGC23.10)

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6.4 Greece's Inflation Rate Rises by 2.9% in September

Greece's annual inflation rate rose to 2.9% in September, compared with the same month last year, the National Statistics Service said on October 8. The statistics service said the country's harmonized inflation rate was also 2.9%. NSS said the consumer's price index rose 2% in September from August. The September rise reflected a 0.5% increase in petrol prices, after an 11.2% decline in petrol prices in September 2006. It is expected that the consumer price index to rise slightly in October because of higher heating and petrol prices in the country. (ANA12.10)

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6.5 Greece's Ruling ND Faces Rifts Over Key Reforms

Rumblings in Greece's ruling New Democracy's razor-thin 152-seat parliamentary majority may make the government's major reform pledges - from an overhaul of social insurance to privatizations of state-run companies - harder to achieve. A number of the politically costly reforms have already produced a backlash from ND parliamentarians, with the most prominent being MP Manolis' revolt against possible social insurance reforms that would harm labor interests. Manolis threatened to resign his parliamentary seat if the government adopts proposals to hike retirement ages and insurance contributions and slash pensions. If he resigns, Manolis would be replaced by the runner-up ND candidate, but the move would be a serious blow to the government. As a warning shot to the government, Manolis resigned his appointment to parliament's social affairs committee after his request to be appointed to the finance committee was rejected. Manolis does not reject all government pension initiatives, such as voluntary retirement schemes at companies like OTE, which ND hopes to apply to various state-run companies. But he insists that any retirement age hike is non-negotiable. This is why many believe ND will opt for a much more moderate insurance reform package, such as the mergers of several insurance funds and the elimination of many early retirement schemes that allow certain categories of workers to form a "privileged class". (Athens News 19.10)

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6.6 Greek Economic Outlook Remains Strong

The governor of Greece's central bank delivered an upbeat appraisal of the economy on 10 October, saying recent turmoil in international markets would have relatively little impact domestically. "The Greek economy, supported by strong demand both inside and outside the country, continues to develop in 2007 at a high level," Nicholas Garganas said, adding that the economy would outperform the European Union as a whole for the 12th year running. Garganas foresees growth of 4% this year, down from last year's 4.3%, due partly to a slowdown in housing construction. (AP12.10)

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6.7 Olympic Sale in Trouble

Greek Minister of Transport & Communication Hatzidakis is in talks with European Commissioner Barrot to try to resolve Olympic's woes. Plans for a quick sale this time around have so far failed to get off the ground but the government is having a series of top level meetings to try to resolve the issues The re-elected government is already having problems over legal issues related to the sale of Olympic Airlines (OA), a number of sources have said. But it is making a concerted effort to resolve the problems. Min. Hatzidakis is understood to be pushing for the European Commission (EC) to recognize a sum of over €500m owed to the airline by the state. This relates to a ruling earlier this year by a Greek court that found that the state owed OA the cost of moving from the old airport to Athens International. If recognized, this would bring to almost zero the amount Olympic owes the government. Barrot is understood to have requested to see the details of the figures behind the €500m ruling, while Hatzidakis insisted the ruling be accepted at face value, a source claiming knowledge of the matter said. Barrot also asked to see the Greek state's privatization plan, which it as yet has no copy of, it is understood.

OA owes over €650m in fines and unlawful state subsidies. A Luxembourg court recently reduced part of the sum by €30m, which gave the government hope that the total sum could be whittled down and a path could be found to privatize the airline. It is understood that there are further court cases coming up to challenge other aspects of the total sum. A sale could be difficult since, legally speaking, the buyer may have a liability to pay the aid. Moreover, the EC will not give up on insisting that the Greek state retrieve the aid, unless the company gets out of the market completely, he said. This is one reason why there has been talk about putting the airline into bankruptcy. This is not a solution the government wishes for and prefers to sell the carrier free of liabilities. (Athens News 12.10)

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6.8 Eurostat Approves Partial Revision of Greece's GDP Data

The European statistics agency approved an upward revision in Greece's national accounts data, increasing GDP figures by nearly 10% and shrinking the official debt and deficit, the government said on 8 October. Eurostat's decision partially vindicates the effort last year by Greece's statistics service to revise its national accounts data upward by 25.6%, to take into account the country's huge black market, estimated at a quarter of GDP. The increase (in the total size) of gross domestic product for the base year 2000 amounted to 9.6%. In absolute terms, the restatement of the year 2000 data means that the Greek economy produced €136b of goods and services that year. Under the previous statistics, total GDP in 2000 was only €124b. That implies that in successive years, up to and including 2007, Greece's overall economy is about 10% larger than previous data shows.

Previously, Greece used 1988 as its base year for estimating economic growth in successive years. But generally in statistics, the more out of date the base year is, the more inaccurate are estimates of successive years. The revision is both significant and controversial, because adjusting for a bigger economy means that Greece's deficit and debt figures, as a percentage of GDP, would shrink by corresponding amounts. Earlier this year, Greece emerged from under special budget supervision by the European Union for its past excess deficits, after cutting its budget gap from 7.9% of GDP in 2004 - under the old statistics - to a forecast 2.5% this year. Under the new figures the deficit would likely fall to roughly 2.3%. EU member states are obliged to keep their deficits below 3% of GDP. (AP/ ANA12.10)

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6.9 Black Economy in Cyprus Seen at 4.2% of GDP

The value of undeclared work or “black economy” in Cyprus during 2003 accounted for 4.2% of the country's Gross Domestic Product (GDP), according to the latest figures released in Brussels by the Eurobarometer, which also note that these figures are probably higher today because of illegal immigration. On the basis of the 2006 GDP, which was €14.4b, the 4.2% represents €600m, of which a substantial amount would have been channeled to pension funds and government coffers. According to Eurobarometer, the main cause of undeclared work in Cyprus lies in low salaries and absence of effective control by the authorities. The survey said that only 2% of Cypriots have said they worked in the past 12 months without declaring it and 35% have said they knew somebody who has worked without declaring it. Illegal immigrants are the most susceptible group to undeclared work, followed by the unemployed and persons providing free lance work. Low salaries, absence of control by the authorities and high contributions to the state are the main reasons that people do not declare their work, the survey said. (FM25.10)

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6.10 Cyprus Seeks to Cut Betting Tax to Raise Revenues

Cyprus plans to cut its betting tax to 10% from the present 25% in a bid to clamp down on illegal practices and enhance tax revenues. In 2006, betting tax revenues declined to $10.4m from $11.3m in 2005, coming largely from bets on horses and soccer. Illegal betting is considered to be responsible for the declining revenues. The proposed change provides that taxation will be paid not by the player but by the betting agent, based not on the amount of the bet but on the difference between (received betting) revenues and amounts paid (to winners). Representatives of gaming companies said the proposed change was a step in the right direction. The proposed legislation is an interim solution as the European Commission is to decide on Europe-wide rules. (Reuters30.10)

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7: GENERAL NEWS AND INTEREST

7.1 Jordan Changed to Winter Time on 25 October

On 25 October, Jordan switched to winter time. Clocks were set back by 60 minutes at midnight tonight, from 12 to 11pm, making Jordan two hours ahead of Greenwich Mean Time. The time difference with the US East Coast is now 6 hours. (Petra25.10)

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7.2 USAID Sends Second Emergency Response Team to Greece to Assess Wildfire Damage

The U.S. Agency for International Development (USAID), recently sent a second technical assistance team to Greece to work with Greek authorities in the ongoing response to the devastating fires in July and August. This Burned Area Emergency Response team is working alongside Greek counterparts in select areas identified by the Government of Greece, to demonstrate how the U.S. Forest Service implements erosion control measures in the immediate aftermath of devastating burns. The work of the U.S. team will reduce further natural resource damage and prevent additional loss of life and property from potential flooding and landslides. The USG team includes a hydrologist, soil scientist, geologist, cartographer, and documentation specialist. The USAID team is being coordinated by the U.S. Forest Service International Programs Disaster Assistance Support Program. Technical support for the team is coming from the U.S. Forest Service Remote Sensing Applications Center and U.S. Geological Survey EROS Data Center. To date, USAID has committed approximately $1.95m to assist with the recovery from the 2007 wildfires in Greece. In addition to the follow-up technical assistance team, USAID provided emergency funds to the Hellenic Red Cross, emergency relief commodities, and a $1.35 million support package for the Government of Greece, which includes personal protective equipment for firefighters as well as technical assistance through burned area stabilization support. This assistance is in response to the national state of emergency declaration on August 25 by the Government of Greece. (USAID 19.10)

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7.3 Coca-Cola to Aid Restoration of Hellenic Olympic Committee Site in Ancient Olympia

A donation of $2m from The Coca-Cola Company will help restore the forest area around the Pierre de Coubertin monument, a tribute to the founder of the modern Olympic Games. The site, on the grounds of Ancient Olympia where the Olympic Games were first held, was severely damaged by the forest fires that scorched Greece over the summer. The Coca-Cola Company is the longest continuous supporter of the Olympic Games in a partnership that dates to 1928. The president of The Coca-Cola Company's European Union Group met with the president of the Hellenic Olympic Committee, at the HOC offices in Athens to present the donation, confirming the Company's commitment to supporting Olympic ideals by helping to restore the affected area. Atlanta, Georgia's Coca-Cola Company is the world's largest beverage company. (Coca-Cola24.10)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 CollPlant to Scale up Proprietary Transgenic Tobacco Plant System for Type I Human Collagen

CollPlant recently inaugurated its state-of-the-art greenhouse representing a step increase in collagen biomaterials supply. The breakthrough scientific achievements of CollPlant coupled with the establishment of a 1000sqm greenhouse which houses thousands of the Company's human collagen producing transgenic tobacco plants, bring the Company closer to realizing its declared intention: to supply industry with large scale quantities of safe human recombinant collagen globally. The Company's scientific success places it in a unique position to meet the ever-increasing unmet demand for safe recombinant human collagen biomaterials. Until now, safety issues have driven many medical device manufacturers to reluctantly seek alternative biomaterials, which, in the absence of a safe collagen source, are forced to settle for inferior materials. CollPlant's plant-derived collagen uniquely responds to safety issues with an enhanced safety profile free of potential viral and other animal-derived hazards. Furthermore, CollPlant's collagen is similar to human collagen, the building block of most of our tissues, and thus should provide the added benefit of being non-immunogenic.

Kiryat Shmona, Israel's CollPlant (http://www.collplant.com) was created as part of Meytav, Technological Enterprises Innovation Center, a subsidiary of Biomedix. This is based on technology purchased from Yissum, the technology transfer company of the Hebrew University of Jerusalem. The CollPlant team has produced transgenic tobacco plants successfully co-expressing five different genes resulting in stable, triple helical collagen molecules. Vigorous testing of CollPlant's collagen demonstrates that it is similar to Type I collagen naturally present in human tissues. CollPlant

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8.2 Fraunhofer Institute Study Using Pluristem's PLX Cells Shows Promise Stroke Treatment

Pluristem Life Systems announced that results from Fraunhofer Institute's ongoing in vivo study, utilizing Pluristem's proprietary PLacenta eXpanded (PLX) cells in treating ischemic stroke, showed initial promise as a potential therapy to treat stroke victims. PLX cells are mesenchymal stem cells (MSCs) obtained from the placenta and expanded using Pluristem's proprietary 3D PluriX technology. Fraunhofer Institute's scientists systemically injected PLX cells into spontaneously hypertensive rats that had undergone middle cerebral artery occlusion, a commonly accepted ischemic stroke model. At the current stage, this animal trial shows a significant advantage in functional recovery over a control group that did not receive PLX cells.

Haifa, Israel's Pluristem Life Systems (http://www.pluristem.com) is dedicated to the commercialization of non-personalized (allogeneic) stem cell therapy products for the treatment of numerous severe degenerative, malignant and autoimmune disorders. The Company's first planned product, PLX-I, is intended to resolve the global shortfall of matched tissue for bone marrow transplantation (BMT) by improving the engraftment of hematopoietic stem cells (HSCs) contained in umbilical cord blood (CB). Pluristem's products are derived from mesenchymal stem cells (MSCs) obtained from the placenta and expanded in the Company's proprietary PluriX 3D bioreactor that imitates the natural microstructure of bone marrow and does not require supplemental growth factors, cytokines or other exogenous materials. (Pluristem 18.10)

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8.3 Can-Fite to Conduct Phase IIb Trial of CF101 for Treatment of Rheumatoid Arthritis

Can-Fite BioPharma will conduct in early 2008 a confirmatory Phase IIb trial as part of the ongoing development of CF101 for the treatment of Rheumatoid Arthritis (RA). In July, Can-Fite published the results of a Phase IIb study with CF101 in combination with Methotrexate (MTX) indicating that the ACR20 response, which was the primary efficacy end point of the study, showed no difference between the CF101-treated and placebo groups. However, a substantial difference in favor of CF101 was seen in the ACR50, the ACR70 and the EULAR “Good” response measures. Can-Fite intends to commence in Q1/08 an advanced trial similar to the previous one. This trial will include the two dose groups with the best results from the previous trial, in comparison to a control group, and patients will be treated for a period of 12 weeks. The trial will be conducted using a tablet formulation, which was lately developed by the company. Petah Tikva, Israel's Can-Fite BioPharma (http://www.canfite.com) is a public company traded on the Tel Aviv Stock Exchange. The Company was founded on the basis of scientific findings made by Prof. Fishman and focuses on the development of molecule-based drugs that bind to receptors of cancerous or inflammatory cells and inhibit their development. Can-Fite currently has two drugs in development, CF101 and CF102. The company is simultaneously conducting several clinical and preclinical trials with the two drugs for various indications. (Can-Fite BioPharma23.10)

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8.4 Explay Announces Partnership with US Medical Imaging Company Luminetx

Explay and Luminetx have signed a collaboration agreement for Explay to develop and commercialize an ultra small mobile projector that will be a key component in the future development of the latter's VeinViewer. Future Luminetx innovations will benefit from miniaturization and additional image enhancements provided by Explay technology. Luminetx's VeinViewer is the first and only patented technology to locate subcutaneous vasculature and project real-time images directly onto the surface of the skin. It provides clinicians with a safe, non-invasive adjunct technology for clinical treatments and procedures including, but not limited to, IV insertion, routine venipuncture (blood sampling) and PICC line insertion. Explay's ultra small mobile-projection technology produces an eye safe, always focused, speckle free quality image. Incorporating Explay's technology in future developments of the VeinViewer will enable a more flexible and mobile application of the existing system and will cater to the needs of a broader customer base, expanding its market reach.

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Herzliya, Israel's Explay (http://www.explay.co.il) specializes in the development of ultra small, mobile-projector engines, for a wide variety of consumer and vertical applications. Explay's projector engines produce an eye safe, always focused bright and speckle free image. The technology is a complete, customizable, optics and electronics solution that may either be packaged as a companion device or be embedded in handheld products such as mobile phones, portable media players and digital cameras. (Explay

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8.5 Glycominds & Fox Chase Cancer Center Collaboration to Discover New Cancer Detection Tests

Glycominds entered into a research agreement with Fox Chase Cancer Center (FCCC), an NCI designated cancer center to develop a new diagnostics blood test for breast cancer. Lod, Israel's Glycominds (http://www.glycominds.com) is a biodiagnostics company specialized in developing and commercializing glycan biomarkers, a new class of early diagnostic and prognostic tests based on complex sugar molecules for the detection and management of autoimmune diseases and cancer. The company's goal is to provide physicians with tools that improve treatment selection in autoimmune diseases and early detection of cancers. Glycominds lead product, IBDX, a blood test for early diagnosis of Inflammatory Bowel Disease (IBD) and the prognosis of Crohn's disease severity is commercialized in Israel and Europe, with a U.S. launch planned in early 2008. The Company's gMS Dx, a blood test for early diagnosis of Multiple Sclerosis (MS), and gMS PRO, a prognostic test for MS activity, are also expected to enter the market in 2008. Glycominds' other pipeline products include blood tests for the prediction of recurrent pregnancy loss based on hyper-coagulation caused by antiphoshpholipids syndrome (APS), and first-in-class screening tests for breast and colorectal cancers. (Glycominds25.10)

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8.6 BioLineRx Announces Positive Results From Phase 2a Interim Trial Analysis of BL-1020 for Schizophrenia

BioLineRx announced positive interim results from an ongoing Phase 2 trial of BL-1020, a GABA enhanced antipsychotic. The study is an open-label, multi-center, 6-week trial conducted in hospitalized patients with treatment resistant schizophrenia, in which BL-1020 showed statistically significant efficacy with minimal side effects. The assessment was part of a planned review by an Independent Safety Monitoring Board (ISMB) that reviewed the first 20 schizophrenic patients that completed 21 days of the study. BL-1020 is an orally available GABA enhanced antipsychotic clinical candidate for the treatment of schizophrenia. BL-1020 is being developed by BioLineRx under a worldwide exclusive license from Ramot at Tel Aviv University and Bar-Ilan Research and Development Company, the technology transfer arms of Tel Aviv University and Bar-Ilan University respectively.

Jerusalem, Israel's BioLineRx (http://www.biolinerx.com), is dedicated to building a robust pipeline of promising therapeutics for unmet medical needs. The Company's leading programs are for schizophrenia and treatment of damaged heart tissue post-myocardial infarction. Additional products under development include compounds for the treatment of cancer and CNS, cardiovascular, metabolic, infectious and autoimmune diseases. (BioLineRx 29.10)

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8.7 Foamix Acquires Rights to Dual Chamber Aerosol Foam Technology

Foamix has licensed the exclusive worldwide rights for a dual chamber aerosol device from Wella. With its brands in Hair Care and Cosmetics, Wella is part of The Procter and Gamble Group since 2003. According to the license agreement, Foamix has the exclusive rights to use the dual-chamber device for all topical and intra-vaginal drug products requiring prescription. The financial terms of the agreement were not disclosed. The device is protected by US Patent No. 6,305,578, EP 1075325 and JP 2000-600768; and Foamix has its own patent applications, covering a broad spectrum of foam vehicles and drugs that can be incorporated in this device. Headquartered in Ness Ziona, Israel, Foamix (http://www.foamix.co.il) is a specialty pharmaceutical company focused on the development of topical foam products for prescription, OTC and cosmetic applications. Foamix's state-of-the-art foams provide controlled delivery of a variety of active ingredients. Foamix is a privately held company, whose business model is based on partnering with leading pharma companies to develop products utilizing its proprietary foam technologies. (Foamix 29.10)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 CopperGate Ships over 2 Million HomePNA 3.1 Chipsets

CopperGate Communications announced that it has shipped over 2 Million HomePNA 3.1 CopperStream chipsets to OEM customers worldwide. The CopperStream chipset provides a complete HomePNA 3.1 home networking solution that operates over both coaxial cables and phone wires featuring guaranteed parameter-based quality of service (guaranteed QoS) to eliminate collisions between data streams and high user throughput to distribute multiple streams of high definition television (HDTV) as well standard definition television, VoIP and other multimedia data throughout the home. CopperStream chipsets are the first to comply with the ITU G.9954 home networking standard and feature powerful remote management and diagnostics capabilities. CopperGate's customers include leading IP set-top box, residential gateway, Ethernet bridge and ONT manufacturers. Headquartered in Tel Aviv, Israel, CopperGate Communications (http://www.copper-gate.com) develops chipsets designed to revolutionize home networking, networked entertainment, and multi-dwelling unit (MDU) broadband access. CopperGate is the leading provider of standards-based technology for distributing high speed IP data throughout the home over existing wires. (CopperGate23.10)

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9.2 Silicom Achieves Another Design Win with a WAN Optimization Company

Silicom has achieved a new Design Win for its Bypass adapters with an additional company in the WAN optimization market, and it has already received initial purchase orders. This brings the total number of players in the WAN Optimization market which use Silicom cards to seven. The Company will use the Silicom Bypass adapters in its appliance products. These appliances are designed to improve backup, replication and recovery between data centers and facilitates branch office server and storage centralization, by improving application performance across the Wide Area Network (WAN). Kfar Saba, Israel's Silicom (http://www.silicom.co.il) is an industry-leading provider of high-performance server/appliances networking solutions. The Company's flagship products include a variety of multi-port Gigabit Ethernet, copper and fiber-optic, server adapters and innovative BYPASS adapters designed to increase throughput and availability of server-based systems, WAN Optimization and security appliances and other mission-critical gateway applications. (Silicom24.10)

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9.3 Russia's North-West Telecom Expands its Gilat Broadband Satellite Network

Gilat Satellite Networks announced that North-West Telecom, one of Russia's largest telecommunications companies, is expanding its Gilat SkyEdge satellite network to bring telephony and broadband Internet services to a growing number of remote communities in North Western Russia. North-West Telecom originally deployed a SkyEdge VSAT network earlier this year to serve several hundred sites in the Arkhangelsk region. The network expansion will serve many more sites in the Murmansk, Karelia, Komi and Vologda regions and will comprise hundreds of SkyEdge Pro VSATs and more than 60 SkyEdge Gateways that provide high-speed mesh trunking and IP connectivity. North-West Telecom's deployment of the SkyEdge VSAT network fulfills a Universal Service Obligation (USO) to meet the modern telecommunications requirements of rural communities. The network is operated by Russia's leading satellite service provider, Global-Teleport, which will use its SkyEdge satellite hub station based near Moscow. Gilat has been working closely with Global-Teleport to develop several major communications networks in Russia. Petah Tikva, Israel Gilat Satellite Networks (http://www.gilat.com) is a leading provider of products and services for satellite-based communications networks. The Company operates under three business units: (i) Gilat Network Systems (GNS), which is a provider of network systems and associated professional services to service providers and operators worldwide; (ii) Spacenet Inc., which provides managed services in North America for businesses and governments through its Connexstar service brand and for consumers through its StarBand service brand; (iii) Spacenet Rural Communications, which offers rural telephony and internet access solutions to remote areas primarily in Latin America. (Gilat 24.10)

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9.4 VocalTec Communications Announces 18 New Service Provider Wins in Russia & CIS Since 2006

VocalTec Communications announced that its VoIP technology has been selected by 18 Service Providers in Russia and the Commonwealth of Independent States (CIS) since the Company entered these markets in 2006. These customers have selected VocalTec's Essentra solution suite to build their Next Generation Networks. Essentra offers the building blocks required when deploying a VoIP service based on a standards-based SIP architecture. Essentra is specifically designed to meet the needs of service providers in emerging markets, thereby enabling service providers to deploy and launch a complete VoIP service easily and cost-effectively. Supporting a variety of applications, including Class 4, NLD/ILD, wholesale, Class 5, IP-Centrex and more, Essentra is the ideal solution for both existing and Greenfield service providers wishing to provide their customers a packet-based voice service. Herzliya, Israel's VocalTec Communications (http://www.vocaltec.com) is a leading global provider of carrier-class multimedia and voice-over-IP solutions for communication service providers. A pioneer in VoIP technology since 1994, VocalTec provides proven trunking, peering, service delivery and access gateway solutions that enable flexible deployment of next-generation networks (NGNs). (VocalTec 24.10)

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9.5 Orca Interactive First to Bring Content Discovery to IPTV with COMPASS

Orca Interactive launched COMPASS, a groundbreaking and unprecedented Content Discovery solution designed to quickly and intuitively provide television viewers with the content of their choice. Powered by customized recommendation engines, COMPASS runs on Orca's advanced RiGHTv IPTV middleware platform to enable subscribers and operators to fully benefit from the content-rich television offerings available today. Orca's COMPASS provides subscribers with personalized recommendations, tailored to their individual preferences, while allowing operators to promote premium and niche content and ensure that customer satisfaction is achieved. Orca's innovative content discovery solution is designed to transform the viewing experience into a fun, easy and interactive one, based on a seamless subscriber user interface (SUI) featuring consistent language and visual cues. COMPASS's customized content offerings are derived from personal tastes, user profiles and content ratings enabled by both built-in and external recommendation engines. This flexibility is provided through an open architecture, complemented by efficient management tools to offer a dynamic blend of recommendations. COMPASS, which enables operators to separate on-demand and live content, is operable on multiple set-top boxes (STBs) and is accessible over any device – STB, PC or mobile.

Ra'anana, Israel's Orca Interactive (http://www.orcainteractive.com) is a market pioneer and innovation leader in providing IPTV middleware and applications, bringing the power of next generation interactive TV to help service providers and broadband network operators drive growth. Revolutionizing the way people consume television content, Orca Interactive's dynamic IP video and feature-rich multimedia solutions combine live TV, video on demand (VOD), personal video recording (PVR), home media and personalized services, including the latest in content discovery and user generated content, across a multi-device platform, and over the Internet through its unique WebTV solution. (Orca 24.10)

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9.6 MTS Received Another Purchase Order to Deliver Convergent Billing Solution to a GSM Carrier in Africa

MTS - Mer Telemanagement Solutions has signed another definitive agreement to provide a turn-key solution for convergent pre-paid, post-paid, and interconnect billing to a GSM carrier in Africa. MTS will deploy a full end to end convergence solution, managing pre-paid and post-paid retail agreements, as well as wholesale, interconnect and roaming settlements on a single platform. The implementation will include rating, billing, customer management, usage mediation, service provisioning, unified product catalogue, financial module (A/R), credit limit monitor, partner management, roaming data, and a broad set of reports. The implementation is planned to be completed within three calendar months. RA'ANANA, Israel's MTS (http://www.mtsint.com) is a worldwide provider of innovative solutions for Telecommunications Expense Management (TEM) used by Enterprises, and for Business Support Systems (BSS) used by Information and Telecommunication Service Providers. MTS' Telecommunications Expense Management (TEM) solutions assist and empower thousands of enterprises and organizations to make smarter choices with their telecom dollar at each stage of the service lifecycle including allocation of cost, proactive budget control, fraud detection, processing of payments, forecasting spending, and more. Their solutions support our clients on an ongoing basis with both sophisticated software applications and a variety of managed services relationship models. (MTS-MER 23.10)

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9.7 Personeta Partners with GruppoInIT to Deliver Converged Communication Solutions

Hod Hasharon, Israel's Personeta (http://www.personeta.com), the leading provider of converged solutions for businesses and consumers, announced that partner GruppoInIT, a leading Italian systems integrator, has adopted TappS NSC, Personeta's open service creation and delivery environment, for the ongoing development and deployment of customized service applications to European telecommunications companies. To date, GruppoInIT has leveraged Personeta's platform and technology to secure five long-term telecom customer engagements, including the development of a Premium One Number (PON) service for Karupa and Teleunit, two Italy-based providers of voice services. In addition, the firm relied on Personeta for the creation of prepaid phone service centers for Welcome Italia and Plexia, two other Italian telecom firms. Founded in 2000, Personeta is redefining the ways that service providers deliver converged solutions to businesses and consumers. In anticipation of the convergence of voice and data networks, and the ongoing transition of the telecommunications industry from legacy (IN) to next-generation (IP) technologies, Personeta created the world's first high-performance, converged service offering that seamlessly transmits multiple services over one integrated communications platform. (Personeta 29.10)

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9.8 Voltaire Introduces High Performance Storage Router for Unified Fabrics

Voltaire announced the expansion of its data center solutions portfolio with a new high performance storage router. The Voltaire SR4G High Performance Storage Router improves the performance of applications accessing Fiber Channel storage and simplifies connectivity of InfiniBand fabrics to existing Storage Area Networks (SANs) to eliminate I/O bottlenecks, reduce data center costs and improve storage flexibility. By providing seamless connectivity between 20 Gigabits/second InfiniBand and 4 Gigabits/second Fiber Channel, a single Voltaire SR4G High Performance Storage Router provides 1500 MB/second of storage throughput and enables a single server to gain up to a 200% improvement in throughput over a 4 Gigabits/second Fiber Channel connection. Storage intensive applications such as large databases, digital media and entertainment, and oil and gas exploration software can now use 20 Gigabits/second InfiniBand performance without leaving existing Fiber Channel storage behind. Headquartered in Herzliya, Israel, Voltaire (http://www.voltaire.com) designs and develops server and storage switching and software solutions that enable high-performance grid computing within the data center. Voltaire refers to its server and storage switching and software solutions as the Voltaire Grid Backbone. Voltaire's products leverage InfiniBand technology and include director-class switches, multi-service switches, fixed-port configuration switches, Ethernet and Fiber Channel routers and standards-based driver and management software. (Voltaire 29.10)

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9.9 RADVISION & Clique Deliver End-to-End Video Solution

RADVISION announced that it has joined forces with Princeton, NJ's Clique Communications, a leading provider of IP video communication solutions, to jointly develop a new video telephony client application for mobile devices. The mobile video client application, focused on delivering superior video quality and an enhanced user experience, is being developed using RADVISION's Multimedia Terminal Framework. By bundling RADVISION's SCOPIA Interactive Video Platform with the new Mobile Video Telephony (MVT) application, RADVISION is uniquely poised to deliver an end-to-end solution to mobile operators who want to drive revenue-generating interactive video services, such as video communities and conferencing, participation TV, Mobile surveillance and monitoring, video contact centers and more. Tel Aviv, Israel's RADVISION (http://www.radvision.com) is the industry's leading provider of market-proven products and technologies for unified visual communications over IP, 3G and IMS networks. With its complete set of standards-based video networking infrastructure and developer toolkits for voice, video, data and wireless communications, RADVISION is driving the unified communications evolution by combining the power of video, voice, data and wireless – for high definition video conferencing systems, innovative converged mobile services, and highly scalable video-enabled desktop platforms on IP, 3G and emerging next-generation IMS networks. (RADVISION 29.10)

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9.10 RADVISION & BEA Partner to Jointly Deliver Interactive Mobile Video Services

Tel Aviv, Israel's RADVISION (http://www.radvision.com), a leading provider of video network infrastructure and developer tools for unified visual communications over IP, 3G, and emerging next-generation IMS networks, announced that RADVISION and BEA Systems, a world leader in enterprise and communications infrastructure software, have begun a collaborative effort that includes development, joint sales and marketing to help service providers deliver converged revenue-generating services with a rich set of advanced video capabilities. These solutions integrate RADVISION's SCOPIA Interactive Video Platform with BEA WebLogic SIP Server, the converged Java EE-SIP-IMS application server component of the BEA WebLogic Communications Platform product family. The RADVISION-BEA partnership will offer a complete out-of-the-box advanced multimedia platform targeted for Service Providers and ASPs. It will be designed to help enable the rapid development and deployment of advanced interactive video services with presence and location server integration. This services platform will be based on the integration of RADVISION's SCOPIA Interactive Video Platform with BEA WebLogic SIP Server. Interactive video portals, mobile video conferencing, mobile communities, moderated video chats, participation TV, mobile video surveillance and monitoring, and video contact centers are just some examples of converged services that can be delivered to the market. (RADVISION 29.10)

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9.11 Tower Semiconductor Launches New Power Management Platform

Tower Semiconductor announced the availability of its new Power Management Platform. The new offering combines high-voltage, fast-switching devices onto the base of its 0.18-micron technology platform. The technology is produced in Tower's advanced Fab2 facility. The new offering is a fully integrated dual/triple gate 0.18um Power Management platform that supports a wide scale of voltages, including 5, 12, 25 and 42 Volts. The switching devices are implemented by high-current-drive LDMOS transistors, and deliver world-class performance of RDSON = 25 mOhms*mmsq, at 33 Volts BVdss. This performance, which is on an integrated, non-Epi technology, enables implementation of single chip multi-ampere power management integrated circuits. Such integration suits well a wide range of power management applications that require cost effective and sophisticated power switching. Migdal Ha'Emek, Israel's Tower Semiconductor (http://www.towersemi.com) is an independent specialty foundry that delivers customized solutions in a variety of advanced CMOS technologies, including digital CMOS, mixed-signal and RF (radio frequency) CMOS, CMOS image sensors, power management devices, and embedded non-volatile memory solutions. Tower's customer orientation is complemented by its uncompromising attention to quality and service. (Tower29.10)

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9.12 Horizon Rolls Out Single Chip Native 1080/60p High Definition Dual Channel Decoder SoCs

Horizon Semiconductors announced the immediate availability of industry's first single chip multi-standard native 1080/60p high definition decoders for triple-play/quad-play Cable, Satellite and IPTV Set-Top Box, Digital Video Recorders and Home Media Centers. The Hz4220 cable/IPTV & Hz3220 satellite SoCs integrate real time dual channel multi-standard native 1080/60p high definition decoder, audio processor, application CPU, 2D/3D graphics accelerator, display & de-interlacer processor, transport processor and a security processor into a single chip. Furthermore, the Hz4220 and Hz3220 embed a variety of advanced interfaces and security features targeted to meet the specific design characteristics of the Cable/IPTV and Satellite markets respectively. These highly integrated SoCs enable end-users to substantially benefit from the lower cost, smaller size and improved features, as well as superior viewing experience of next-generation STBs and media players. Herzliya, Israel's Horizon Semiconductors (http://www.horizonsemi.com) is a leading provider of highly integrated silicon solutions that enable secured video and audio compression & transmission for the consumer electronics and home entertainment markets. Using proprietary technologies and advanced design methodologies, Horizon designs, develops and supplies complete system-on-a-chip solutions and related hardware and software applications. (Horizon29.10)

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10: ISRAEL ECONOMIC STATISTICS

10.1 State of Economy Index Rises – Though At Slower Pace

On 23 October the Bank of Israel announced that the composite state-of-the-economy index rose by 0.3% in September 2007, indicating the continued expansion of economic activity. However, this reflects a slower pace than in the first half of the year. The moderation in the rise of the index this month was influenced mainly by the drop in the indices of goods imports and exports. The indices for July and August were revised downwards, following an adjustment of the manufacturing production index and of the goods exports index. The July index was revised down to 0.6, from the original 0.8, and the figure for August was revised to 0.3, as opposed to its original 0.7. The services exports index fell by 2.1% in September, after a rise of 6.1% in August. The goods exports index fell by 6.5% in September, further to the drop of 6.3% in August. The imports index went down by 6% in September, after falling 5.7% rise in August. (BoI23.10)

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10.2 Israel's Unemployment Reached 7.8% in August

The Central Bureau of Statistics announced on 23 October that the unemployment rate in August remained unchanged from July at 7.8%, or 225,000 people. The figures relate to people who have been actively seeking work in the four months prior to this announcement by registering with their local employment centers or contacting potential employers. The unemployment rate fell to 7.6% in Q2/07 from 7.7% in Q1/07. The unemployment rate for men remained unchanged from the previous quarter at 7% and the unemployment rate for women remained at 8.3%. (CBS23.10)

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In Depth

11.1 MIDDLE EAST ECONOMY: FDI in Full Spate

The Economist Intelligence Unit reported that the Egyptian government has recently been obliged to activate the overflow system at the Aswan dam for the first time in seven years in order to cope with an exceptionally high annual Nile flood. These flows have been matched by a surge of inward investment into Egypt, which climbed to $10bn in 2006, by some margin the highest tally in Africa, according to the latest World Investment Report issued by UNCTAD. Egypt's performance, which has entailed an almost fourfold increase in foreign direct investment (FDI) compared with 2004, has reflected a wider trend across the MENA region, with total inflows rising by almost two-thirds year on year, and with the region's share in total investment in the developing world increasing to 24%, compared with 14% last year and 9% in 2004. As well as attracting FDI, the region is also becoming an increasingly important source of investment outflows both within MENA and beyond.

Egyptian Allure

Until 2004 Egypt regularly understated the levels of foreign investment by excluding oil and gas. However, the 2006 figures were remarkable for the fall in the proportion of oil and gas in the total sectoral breakdown, to 21% from 60% the previous year. The figures were pushed up by several headline-grabbing deals, such as the award of a third mobile-phone license to Etisalat of the UAE and the completion of the first sale of a public-sector bank, but there were 51 "greenfield" FDI projects in Egypt last year, suggesting a wide diversity of activities. Tunisia's impressive tally in 2006 was also pushed by a telecoms investment originating from the UAE, this time involving Tecom, which acquired 51% of Tunisie Télécom for $2.25bn. North Africa as a whole (including Egypt and Sudan) drew in $23.2bn of FDI, accounting for almost one-quarter of the MENA total. There may be some tapering off of the totals in some of these countries owing to the effects of one-off deals in 2006. However, Egypt is continuing to attract significant investment into real estate, tourism, heavy industry, oil and gas and financial services - with another state-owned bank up for sale next year - and prospects for Algeria and Morocco are highly promising. Algeria's first bank privatization is set to be concluded in 2008, and there have been major recent investments in the country's petrochemical, transport and utilities sectors. Morocco's new container port and industrial zone outside Tangiers has also attracted investors' attention, notably with the recent announcement by the Renault Nissan Alliance of plans for a major car plant.

Saudi Surge

Elsewhere in the region, the bulk of the FDI flows in 2006 were concentrated in Turkey ($20.1bn), Saudi Arabia ($18.3bn), Israel ($14.3bn) and the UAE (estimated at $8.4bn). While the figures for both Israel and Turkey were inflated by large one-off deals, the strong flows of FDI into the two Gulf Arab states are part of a continuous trend. Investment in the UAE actually declined slightly, suggesting its absorptive capacity may be reaching its limits. UAE corporations are increasingly looking overseas for new opportunities, with UNCTAD logging more than 200 greenfield projects in the MENA region and Asia involving Emiratis investors last year. By contrast, UNCTAD has sharply revised upwards its figures for FDI into Saudi Arabia, with 97 greenfield projects recorded there last year. Rising project costs, particularly in the petrochemical and refining sectors, provide a partial explanation for the sharp increase in Saudi Arabia's FDI tally. However, it also reflects the efforts that the Saudi authorities have made over a number of years to improve the environment for foreign (and domestic) business. (EIU16.100)

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11.2 MIDDLE EAST: IMF Sees Continued Positive Near-Term Economic Outlook

On 29 October, the International Monetary Fund (IMF) released the October 2007 Regional Economic Outlook: Middle East and Central Asia (REO). The highlights of the report's main findings:

"The Middle East and Central Asia region is undergoing a remarkable transformation, driven by rapid GDP growth, which is set to outpace global growth for the eighth year in a row. Helped by continuing high oil and non-oil commodity prices, and despite increased uncertainties in global financial markets, growth in the region is projected to stay in the 6-7% range in 2008. All parts of the region are doing well, with growth in the Caucasus and Central Asia projected to be especially strong at 11%, the fourth year of double-digit growth. Unemployment remains a big concern, however, especially in the Maghreb countries (Algeria, Libya, Mauritania, Morocco & Tunisia.), where more moderate growth of 5-6% is expected.

"But inflation is on the rise in many countries. Fueled by strong demand growth, large external inflows, and generally accommodative monetary policies, average inflation in the region has picked up to 8-9%. For oil exporters, the increase has been particularly sharp, to nearly 10% in 2007, from 7% in 2006. In the context of pegged or heavily managed exchange rates, higher inflation is resulting in significant real exchange rate appreciation in many countries, as would be expected in response to rising oil prices. With no major changes in the policy stance envisaged, inflation is likely to ease only slightly in 2008.

"As oil producers have ramped up their spending, saving in the region has declined. With imports of investment and consumer goods increasing rapidly, oil exporters' current account surplus has dropped to about 17% of GDP, from 21% in 2006, even though oil prices remain at record highs. Higher private and public sector spending has contributed to this. In the Gulf Cooperation Council ((Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the U.A.E) countries, investment spending plans amount to at least $800 billion over the next five years, with major projects in the oil and gas sectors (funded largely by national oil companies), infrastructure (mainly under public-private partnerships), and real estate (financed primarily by the private sector).

"However, governments in oil-exporting countries, which receive a large share of oil revenues, continue to manage their resources prudently by running sizable fiscal surpluses, only a little below the peaks recorded in 2005-06. Their saving from fiscal oil revenue is projected at about 42% in 2007-08, down from about 45% in 2005-06.

"The recent global credit market turmoil has so far left the region's capital markets largely unscathed. Following the sharp equity market correction in 2006, most markets have stabilized or partially recovered their losses. The pace of initial public offerings (IPOs) has eased, but sukuk (Islamic bonds) issuance continues to grow. Signs of stress have, however, been evident in a tightening of liquidity and a widening of bond spreads of banks that have borrowed heavily from abroad, notably in Kazakhstan.

"While the outlook remains positive, downside risks from the global economy have increased. If the credit crunch continues, growth in developed economies could slow sharply, with substantial spillovers to other parts of the world. Further spikes in oil or food prices would add to inflationary pressures and pose a dilemma for policymakers attempting to forestall an economic slowdown. Such a scenario would test the region's resilience, which has been strengthened in recent years by sound macroeconomic policies, huge increases in official reserves and other foreign assets, and reductions in debt.

"Against this more uncertain background, the region faces important policy challenges to sustain its transformation and make greater headway in reducing poverty and unemployment. Chief among these are managing large foreign exchange inflows, solidifying fiscal and external sustainability in some countries, developing the financial sector, and promoting economic diversification, especially by creating conditions for a dynamic private sector.

"Historically high foreign exchange inflows in recent years have been a critical factor underlying the region's greatly improved performance. The challenge now is to maintain this progress, while limiting the inflation that has accompanied it. Oil exporters should continue with their spending plans, which are comfortably affordable and will still allow them to build their defenses—in the form of net foreign assets—against possible external shocks, including oil price declines. With pegged exchange rates in many of these countries, open and flexible goods and labor markets, as well as expanding absorptive capacity, are the best means to limit inflation. For non-oil exporters, tighter fiscal policies and, where currencies are not pegged, less resistance to nominal exchange rate appreciation would be helpful.

"Medium-term fiscal and external sustainability remains elusive in a few countries. In these countries, and in oil exporters facing declining oil revenues, fiscal reforms are a priority. Efforts to broaden tax bases and improve tax administration, complemented by spending restraint and elimination of subsidies, will help to set debt on a downward path while leaving more room for government spending to fight poverty.

"Financial sector reforms are a priority for all countries in the region. The agenda is different in each country, but includes steps to strengthen banking sector soundness, enhance competition, and deepen financial markets.

"Diversification is particularly important for countries facing rapidly declining oil reserves, and those that are vulnerable to fluctuating commodity prices. It will require further progress on a wide range of structural reforms to improve the business environment, boost productivity in the non-commodity sector, and encourage a dynamic private sector. The current strong macroeconomic environment provides an excellent opportunity to address these issues." (IMF29.10)

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11.3 ISRAEL: Supreme Court Orders Rabbinate to Authorize Heter Produce

The Supreme Court has ordered the Chief Rabbinate to authorize rabbis who will issue shemittah-year kosher certification. The Rabbinate had earlier determined that municipal rabbis - the Chief Rabbis of the various cities and localities - may determine their own individual policies regarding shemittah year produce. This led to a situation in which local rabbis who did not support the heter mechirah dispensation refused to issue Kashrut authorization to farmers, restaurants and other establishments that did.

In response, agricultural suppliers, the Flowers Council, and the Agriculturalists Union sued the Rabbinate in the Supreme Court, claiming that the sudden change in decades-long policy had caused them great damage. The suit specifically concerned the city of Herzliya, whose Chief Rabbi Yaakobovich announced last month that he would not honor the heter dispensation. He said at the time that the rabbinates in other cities, such as Jerusalem, Rehovot and Petah Tikva, were considering similar moves.

Shemittah Background

The shemittah or sabbatical year is a Biblically-ordained, year-long period during which Jews are forbidden to work the Land of Israel. It is observed once every seven years. Some 120 years ago, when Jews began to return to the Land of Israel en masse and in greater numbers after nearly two millennia of exile, they began farming the land for their livelihood. When the first shemittah year arrived, in 1889, leading rabbis ruled that the farm land could be sold to non-Jews for the shemittah year, and could be then farmed almost as usual - with the condition that major agricultural activities such as plowing be performed by non-Jews. This arrangement was known as the heter mechirah, literally, the "sale dispensation." Other leading rabbis did not accept it, however - setting the stage for a century-plus of disputes on this issue.

The Chief Rabbinate of Israel had long accepted the heter mechirah as its official policy, despite the many opponents the arrangement has amassed over the years. Now, however, the Chief Rabbinate has come under the control of more ultra-Orthodox rabbis, who have long opposed the heter and policies have changed accordingly.

It is widely agreed nowadays that though Israeli agriculture suffers during the shemittah year, the country's existence is not at stake as a result. The Chief Rabbinate has now decided that the time is ripe to shed its support for it. In a telephone poll of the 16 members of the Chief Rabbinate Council this past August, 12 members agreed that individual local rabbis could refuse to issue Kashrut authorizations to establishments that relied on the heter.

The Ruling & Religious-Zionist Response

The Supreme Court ruling, which was largely authored by Justice Elyakim Rubenstein, an observant Jew, stated that the Chief Rabbinate need not force any rabbi to act in opposition to his understanding of halakhah [Jewish Law], but it must provide rabbis who do support the heter in order to provide Kashrut for consumers who wish to abide by it.

The Tzohar Rabbis Organization - a religious-Zionist group - welcomed the ruling, but expressed disappointment that the Rabbinate had to wait for a Court edict before taking this action. The Tzohar rabbis are in the beginning stages of providing their own Kashrut certifications, based on acceptance of the heter, but they may stop this arrangement if the Chief Rabbinate takes over.

The Ruling in Detail

Justice Rubenstein wrote that the Supreme Court is not expressing a halakhic (Jewish legal) opinion, but is rather dealing with the administrative validity of Rabbinate decisions: "The approach of the Rabbinate ever since it was formed during the British Mandate, and of its predecessor during Ottoman rule, was to find a way to enable Jewish agriculture to survive during shemittah years... The Rabbinate's goal in recent decades was not to save Israel's economy... but rather to help and support Israel's agriculture and farmers."

The Rabbinate's new policy, however, does not meet the standards of administrative law, Rubinstein wrote: "Such a significant change, if necessary, must be made in a proper and serious manner, and must be reasonable and documented. I fear that this was not the case... For instance, it should not have been done by phone, and the farmers and Ministry of Agriculture were not given a chance to be heard."

Beinish Against Stringencies

Chief Justice Dorit Beinisch concurred. Essentially saying that the Rabbinate need not be so stringent, her written ruling attempted to explain why the Court can intervene in the Chief Rabbinate Council's decisions:

"The Chief Rabbinate Council is, in fact, authorized by law to issue Kashrut certifications, and has the authority to decide Kashrut issues according to Jewish Law - but the judgment it has been granted is not absolute. When it must decide its policy regarding Kashrut certification, its considerations must exclusively be those that clearly touch upon the heart of the Kashrut question. As long as Kashrut laws are not abrogated, it must always keep in mind the need to prevent the abrogation of elementary civil rights more than is clearly necessary for the maintenance of the Kashrut laws. When a Halakhic solution exists, the Chief Rabbinate is not authorized to expand and be more stringent beyond the Halakhic policies it has employed in the past, in a manner that worsens the harm to civil rights for a purpose other than the specific one for which it was given the authority in the first place." (INN25.10)

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11.4 JORDAN: Moody's Says Outlook on Banks Stable

Jordan banks' stable rating outlook is underpinned by durable franchises and satisfactory metrics, Moody's Investors Service (http://www.moodys.com) said in its new Banking System Outlook for the Hashemite Kingdom. However, Moody's also noted that the country's high credit growth is taking place amid a benign operating environment. Jordan's small, but resilient economy, continues to offer limited but improving opportunities for the banking sector. A relatively high number of banks including local commercial, foreign and Islamic banks are currently operating for a population of 5.5 million, with intensifying competition as each bank seeks to augment its market share.

The market nevertheless remains concentrated, with the top three banks accounting for a market share of slightly over 40 percent, which continues to leave plenty of scope for consolidation. Smaller banks may thus find it difficult to retain a sustainable franchise, and could form the basis for merger and acquisition activity. "The possible involvement of any of the rated banks in consolidation activity that could strengthen their local franchise without any significant detriment to their financial metrics could have a positive rating impact," Nondas Nicolaides, Moody's analyst and author of the report, said.

Moody's said that several improvements to the regulatory environment have been noted following preparations in line with the adoption of Basel II as of January 2008, mainly the enhancement of risk management systems and practices, which had lagged somewhat behind international standards (or were not actively in place for some institutions) and improved financial reporting in terms of transparency and disclosure. Furthermore, a compliance function was introduced in many banks and upgraded at others, while IT infrastructure has been greatly enhanced.

The report further said that GDP growth continued to be mainly driven by booming domestic demand, with consumption and investment fueled by rapid credit growth, rising property prices and inflows of private capital, mainly from the Gulf region. Credit continued to grow, with construction and consumer lending being the main contributors and the banks' aggregate loan portfolio showing good granularity.

The rating agency expects to see current loan growth rates sustained over the short- to medium- term, while foreign banks that recently penetrated the Jordanian market and which have more experience and more products available in consumer financing are beginning to add a new dimension in the retail lending landscape.

With regard to the significant increase in consumer lending - which helps diversify the banks' exposure - Moody's noted that this lending is relatively young and is yet to be tested. In addition, sensitive sectors such as construction and real estate present risks. However, the banks continue to be very liquid, even by international standards, while healthy capitalization levels provide a comfortable cushion for growth and for absorption of possible loan losses.

"The Jordanian banking system seems to have benefited so far (although perhaps temporarily) from the continuing instability in neighboring countries. Certain capital inflows reach Jordan in search of a safe haven, while part of the Iraqi trade finance activity is carried out through the banking system in Jordan, providing significant fee income to the banks involved," Moody's stated. "The rated banks' declining level of problematic exposures is a positive rating driver, and we also note the banks' improving core operating profits on the back of still wide margins," the report added. (Moody's24.10)

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11.5 LEBANON: Better Governance Practices

Efforts to improve governance in the public and private sectors are gaining growing support from both outside and inside Lebanon. This month Cyprus announced it had selected a good governance project in southern Lebanon as the destination for just over $1m in donations. The sum is the largest ever made by Cyprus' service for Development Cooperation and Humanitarian Aid. The project will also receive funds from the governments of Lebanon and the Netherlands as well as the United Nations Human Settlements Program (UN-HABITAT), which is responsible for implementing the project.

In addition to responding to immediate housing needs in the aftermath of the July 2006 Hezbollah initiated conflict and helping with the proper planning and implementation of a long-term reconstruction process, the project aims to prepare and empower municipal authorities, enhancing their administrative and governance capacity to respond to the challenge of the reconstruction process. Earlier this year the World Bank issued Governance Matters 2007, its report on worldwide governance indicators for the previous 10 years. Between 2005 and 2006 Lebanon registered an improvement in terms of regulatory quality but saw its rating dip year-on-year in all other categories.

The new project is not the only effort to improve governance standards. The Lebanese Transparency Association (LTA) is establishing a new institute to promote better corporate governance practices in Lebanon. The institute will receive support from the International Finance Corporation (IFC). The LTA's co-executive director, Badri El Meouchi, told OBG that the new institute would set up its own office before the end of 2007 and would be guided in its first five years by the LTA, before eventually becoming independent.

The institute will embark on a range of activities, beginning with two training courses, one for bank directors and one for directors of family-owned businesses. Another course will provide board members with training and certification from the Washington-based Institutional Shareholders Service. The institute will also take on consultancy work, including corporate governance assessments and reviews of companies. In the first year, two large Lebanese companies, the retailer ADMIC and the school network SABIS, have been selected for this process.

The LTA, established in 1999, is a non-governmental organization that aims to eliminate corruption and promote the concepts of transparency, accountability and democracy. Its projects focus on the public and private sectors, as well as youth outreach. The LTA is currently drafting a law on access to information, which it will eventually lobby for, El Meouchi told OBG. The LTA's initiatives are bearing fruit, according to El Meouchi, who believes that among Lebanon's private sector there is an increasing awareness of the importance of corporate governance.

In 2002 the LTA created a task force on corporate governance, the first of its private sector initiatives. The task force's early activities included a corporate survey, which revealed that 95% of companies are small- and medium-sized enterprises (SMEs) and 58% of those companies are family-owned. After the survey, the task force moved on to develop the Lebanese Code of Corporate Governance for SMEs and FOEs (family-owned enterprises), which was launched last year. This year the task force has conducted private sector workshops to promote the code. "We were surprised by the positive aspect of the workshops, that some companies accepted the code and agreed to be used as case studies," said El Meouchi.

After focusing on raising awareness, the LTA's new institute will play a key role in the practical implementation of corporate governance, according to El Meouchi. "The institute was the long-term goal of the task force and forms the logical next step," he told OBG. The benefits of corporate governance to businesses are many, said El Meouchi, and include improved access to capital and financial markets, better internal control and profit margins and reduced cost of credit. For shareholders, there is a greater security on investment and better information on corporate activities. There are also advantages to the economy.

"It pays to have corporate governance," said El Meouchi, citing studies showing that more than 84% of global investors would pay a premium for shares of a well-governed company. (OBG22.10)

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11.6 KUWAIT: Refining the Bids

As the seventh largest oil producer in the world, and tenth in terms of proven reserves, Kuwait is already a major player in the oil industry. When Al-Zour oil refinery comes on line, and if its plans to expand in China come into being, as reported by the Oxford Business Group, it will hold a very good hand indeed.

On September 30, the Kuwait National Petroleum Company (KNPC) announced it had short-listed 17 companies, cutting 13 firms from the list of potential bidders for the construction of the refinery, a $14bn project to be located in the Neutral Zone close to the border with Saudi Arabia. Rather than put all its eggs in one basket, Kuwait has decided to split up the tender into four sections. The first part of the tender covers crude distillation units, sulphur removal and units to treat naphtha, kerosene and diesel; the second hydrogen production and recovery, sulphur industrialization, and units to treat diesel; the third for the provision of storage tanks; and the last for the construction of marine export facilities.

If completed as scheduled in 2012, the Al-Zour facility will be the largest refinery in the Middle East, capable of processing 615,000 barrel per day (bpd), dwarfing the Ras Tanura plant in neighboring Saudi Arabia, which has a 550,000bpd capacity.

While the Al-Zour refinery will be the largest single project in the country, it will still only represent less than half of the country's refining capacity when it comes on line. At present, Kuwait can process 930,000 bpd through its Mina Abdullah, Mina Ahmadi and Shuaiba refineries. Though the aging Shuaiba, which has a capacity of 200,000 bpd, is to be decommissioned, upgrades to the other two facilities will see them account for 800,000 bpd of production. This, combined with the Al-Zour facility, will give Kuwait 1.415m bpd day of refining resources. KNPC has allocated $872M for the first stage of the upgrade process at the two refineries.

The Al-Zour project has a long history, having been on the drawing board for a number of years, well before the need to close the Shuaiba refinery became a matter of urgency following repeated shut downs due to equipment failures and at times spectacular, and occasionally fatal, accidents. The original tender for the project had been called last year, but was cancelled in February as none of the bidders came close to the then-projected budget, which had been set at half of the revised figure. The massive cost blowout had been caused, to a large extent, by the sharp rise in costs in refinery projects, combined with a shortage of both materials and brought on by a boom in refinery construction around the world.

There may be another fly in the ointment, with reports in the media that a potential dispute could arise between Kuwait and Saudi Arabia over some of the land earmarked for the refinery project. Saudi Arabian Chevron, the Saudi arm of US oil producer Chevron Corporation, holds a lease on some of the land KNPC intends to use for the project. Though not currently using the land in question, Saudi Arabian Chevron is active in the area, testing a scheme to increase yields from its wells using steam injection, a program it may want to extend into the leased zone if successful.

Sami Al Rushaid, KNPC's chief executive, said he believed the obstacle could be overcome. "I'm not in charge of this issue but I can say that I'm convinced we will hopefully find a solution," Al Rushaid told the media on September 27.

Kuwait is also looking to expand further afield. Kuwait Petroleum International (KPI), the international arm of the country's state-owned oil operations, has held initial talks with Chinese officials about buying a stake in a 1.9m barrel oil storage facility planned for the southern province of Guangdong to be built by China National Aviation Fuel Holdings (CNAF). If KPI's overtures are accepted, the project will further serve to boost Kuwait's presence in the lucrative Chinese market. Together with Chinese refiner Sinopec Corp, KPI is already involved in a $5bn development to build a refinery and petrochemical complex, to be located next to the CNAF storage facility. Having a piece of one of China's largest refineries and storage facilities would give Kuwait the inside running as the lead supplier to the Chinese market, a market that it currently supplies with just 2% of requirements. (OBG19.10)

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11.7 BAHRAIN: Going Private

Bahrain's government said it would step up its program of privatizing state-run commercial enterprises and services as part of its commitment to opening up the economy, boosting employment and attracting investment. The privatization program has moved forward on several fronts, Sheikh Mohammad bin Issa Al Khalifa, the chief executive of the Economic Development Board (EDB), told local media on September 30. He said a series of studies has been commissioned to determine the state operations best suited for sale to the private sector. Operations immediately under review include the post office, one of Bahrain's oldest state services, and petrol stations, he said, with new legislation expected to be drafted to further open up the tourism industry to private investors.

One of the objectives of the privatization process is to give Bahrainis a greater stake in the kingdom's economy, said Sheikh Mohammed. "Through its privatization program, the government seeks to benefit citizens and encourage them to own shares in privatized firms," he said. Bahrain first made privatization a state policy through a decree issued in October 2002 that set out the parameters of the privatization process and tasked the EDB and the ministry of finance and national economy with oversight of the program.

The scope of the decree covered most elements of the country's economy, taking in the tourism, communications, transport, oil and gas, service and manufacturing sectors, utilities, the ports and airport services, and postal services. The decree left the government's options open by adding the provision that any other services or production sector could be included in the program's remit. One of the driving forces behind the program was the pressing need to extend Bahrain's infrastructure and to develop land to meet the fast-moving economic development in the country, Sheikh Mohammad said.

It appears the government's policy is paying dividends. On October 10, APM Terminal, the Denmark-based company which won the privatization tender in 2006 to operate Mina Salman and the yet-to-be-completed Khalifa bin Salman Port for a term of 25 years, announced it was investing $62m in new equipment for the Bahrain Gateway facility at the new port. Due to enter service at the end of next year, the new port was part of the privatization package covering Bahrain's waterfront trade, which was auctioned off by the state.

The infrastructure being put in place at the Khalifa bin Salman Port will greatly increase cargo-handling capacity, allowing container vessels capable of carrying 6000 twenty foot equivalent units (TEUs) to be loaded or unloaded making it the only port in the region able to handle such ships.

In July last year, a consortium of the UK's International Power, Suez Energy of Belgium and Sumitomo of Japan paid $738m for the power station and desalination plant in Hidd, which represents one third of the kingdom's electricity generating capacity. Again, as part of its campaign to push for infrastructure development, the government stipulated in the sale agreement that the new owners build an additional desalination unit with a capacity of 270m liters a day, double the present output. Even Bahrain's famous national racecourse and the associated equestrian centre is in the process of being privatized, along with the attached land of 3.7m sq meters for development.

However, Bahrain's privatization process has at times met with opposition. On July 22, more than 250 post office employees staged a rally over the proposed privatization of the service, tentatively scheduled for next year. They were particularly concerned about possible job losses and erosion of workers' rights.

At the time, Sheikh Bader bin Khalifa Al Khalifa, Bahrain's assistant undersecretary for post, rejected suggestions the postal service would be downsized if sold off. He said new services and an expanding market would mean more staff would be needed, not less. "Once the postal service gets privatized, the capacity of workers will increase because in that time we will be working in more than one field," he said. "We can introduce financial services, transport and logistics and all these will need more employees."

By tying many of the country's privatization projects to infrastructure developments, the government is not only earning millions from the sale of various operations and ending the drain on the state's coffers to keep them running but it is also meeting at least some of the needs of the economy for new infrastructure - at no direct cost. (OBG19.10)

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11.8 QATAR: LNG Demand Outstrips Supply

With a constant rise in global demand for natural gas projected to continue unabated well into the future, the industry remains significant to the economy of Qatar. With an estimated 900trn cubic feet of natural gas reserves - more than 5% of the world's total and the third largest deposit in the world - liquefied natural gas (LNG) and its production has helped enable Qatar to rise in regional and global importance. Because of this, any causes for concern in areas that affect LNG production or potential problems related to this sector are important and are closely followed.

One area of concern is the rising cost of infrastructure. The most important infrastructure needed for LNG production and transportation is a plant with one or more LNG trains that act as independent gas liquefaction units. Also needed are terminals for loading the LNG onto specialized vessels for transportation and for receiving it at the other end for discharge and re-gasification. According to data compiled by an industry publication, the construction of LNG plant costs, on average, $1bn to $3bn, with receiving terminals costing $500m to $1bn and LNG vessels are around $200m to $300m.

However, these prices alone are not so important to many investors due to the nature of how deals are secured in the industry. The sector uses a value-chain system, which means that suppliers first confirm their buyers and a project will move forward only if it is deemed economically viable.

It is therefore necessary to take a closer look at other contributing factors.

The ease in transporting LNG has contributed to the overall rise in global demand. According to data published by an industry journal, demand surpassed overall trade for the first time in 2005. Because of this Qatar can now export LNG to areas that were not previously economically feasible. This has helped make it possible for Japan and South Korea to become two of the world's top three importers of LNG.

However, trade is continuing to increase, with growth at more than 6% in 2006; raising the total amount of trade to 189bn cu meters, up from 101bn cu meters a decade ago.

Another area of costs to consider is project contractors. As the number of LNG infrastructure-related projects increases, with many projects expected to come on line between 2012 and 2015, the demand for contractors has outstripped their supply. This has led to an increase in contractor pricing.

Other factors, such as sharp rises in materials and labor costs, have added to the cost of infrastructure projects. As investors usually have already allocated buyers and signed agreements, there is no room for extended talks and with so many projects on the horizon, contractors can afford to be choosy and demand higher prices. According to data compiled by Contax Group, a management consultancy on Middle Eastern energy, the project activity market is expected to swell to $450bn this year. With energy related projects expected to see continued growth, there is no sign the current lack of contractors or the high prices will change any time soon.

Over the past few decades, the general cost of production has fallen and new technology has made it possible for more players to become involved in the industry. However, the high cost of construction, continued higher prices of oil and an anticipated global shortage of LNG by 2012, noted by the US Energy Information Administration, have led Qatar, which is now the world's largest exporter of LNG, along with other significant exporters like Indonesia, to demand considerably higher long-term prices from consumers.

The BP Statistical Review of World Energy puts the 2006 rate of natural gas consumption at around 2500 metric tons oil equivalent. While this is a large number, it represents only 24% of current world consumption of all energy types, including oil, natural gas and coal, and it is third behind oil and coal. This shows there is significant room for growth in the natural gas and related LNG sector.

However, while the outlook for future demand is high, sector insiders have said there is still cause for concern. Many industry analysts said they believe consumers will be unwilling to pay significantly higher prices for LNG. The result of over-inflated prices could lead to a global slowdown in demand as large-scale buyers choose alternative fuel sources. If this happens, the industry could face a possible price collapse. Qatar will need to remain proactive in the industry to retain its place in the market and ensure its economic future. (OBG17.10)

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11.9 UAE: IMF Forecasts Slower Growth in 2007

On 29 October, the International Monetary Fund (IMF) projected in its Regional Economic Outlook for the region a deceleration in UAE's growth in 2007, warning that the country needed to accelerate the pace of structural reforms to maintain its robust growth. Although growth is projected to decelerate somewhat in 2007, the IMF added that it is likely to remain high at about 8%.

The projected deceleration reflects possible delays in construction and real estate projects owing to supply bottlenecks and rising costs. Over the medium term, however, the non-oil sector is expected to continue to grow at a relatively high rate of about 9%. The report said the UAE should accelerate the pace of structural reforms to maintain its robust growth. Earlier this year, the government announced plans for major strategic reforms aiming to further strengthen the economy's global competitiveness. Key reforms include the modernization of the laws and regulations governing financial markets, foreign investment, market competition, and labor markets. It also seeks to enhance government efficiency and improve coordination between the federal and emirate governments. These reforms, together with efforts to bring down inflation, would help sustain the current high growth with macroeconomic and financial stability. The report said the UAE has firmly established itself as a regional hub for international business and trade in the Middle East.

It observed that since 2003, the UAE has been growing at an impressive rate underpinned by rising oil revenues and a rapidly expanding non-oil sector. Its economy grew by 9.4% in 2006, with oil production rising by about 8% and most private sector activities growing at double-digit rates. The driving force behind the growth of non-oil sector has been the substantial investments undertaken by private and quasi-government companies, which are expected to reach around $300 billion over the next 5-10 years.

The IMF report said the country's external position remained favorable, with the 2006 current account surplus reaching $36 billion, or 22% of GDP, supported by high oil prices and strong performance of non-oil exports. The fiscal position has continued to strengthen, with the overall fiscal surplus increasing by about 9% around 29% of GDP in 2006, which allowed for further buildup of government investment assets abroad.

The report said the fast pace of economic expansion and the large inflow of expatriate workers have put strains on existing resources, leading to housing shortages that have fuelled inflation (9.3% in 2006) through sharp increases in rents. However, the increased supply of housing in 200708, together with the caps on rents introduced in Dubai and Abu Dhabi, is expected to dampen the pressure on consumer prices. Should inflation fail to decline as expected, further fiscal restraint would need to be considered to bring domestic demand growth in line with the economy's absorptive capacity. The success of these measures would require a higher degree of fiscal coordination between the emirates. (IMF29.10)

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11.10 UAE: Northern Emirates Island Building Unlike the islands being built off the coast in other parts of the United Arab Emirates (UAE), Sharjah is going in a new direction by building a series of canals inland from the ocean. Those canals will be filled with seawater to create the Nujoom Islands.

The project will be built over a 60 million square foot area on the north coast of Sharjah with the initial phase of construction expected to cost as much as $4.9bn. Under the current plan, the 10 islands separated by water channels and surrounded by a mainland will be built in three phases over a five-year period. Speaking at the Cityscape Dubai 2007 real estate exposition, Sheikh Abdullah Al Shakra, chairman of Al Hanoo Holding, the prime contractor for the project, announced the first phase is now nearly completed.

So far 97% of the canal digging has been completed and much care has been taken to ensure water circulation and tidal movements. This has been an issue for the original Palm Islands project, which has been plagued by sediment build-up in some areas and stagnant water in others. When completed, the water circulation system will be able to complete a full cycle every nine days, a standard better than the globally accepted average of 12 to 15 days, making the Nujoom Islands the most eco-friendly project of its type to date.

The developers hope to make the project an iconic tourist destination in the Gulf Cooperation Council (GCC) region. Only 40% of the land will be used for construction, with the remaining 60% demarcated for beaches, parks and transportation infrastructure, a unique selling point for the project.

Despite a large area of the islands being off limits to developers, there is still plenty of room for prime real estate to whet the appetite of investors. The islands will have 40 towers with residential and commercial space, 145 apartment buildings, four hotels, two resorts, 1400 villas, five yacht clubs and a large commercial centre as well as nine smaller commercial centers. Two entertainment complexes and six industrial areas are also planned. The project will also boast a comprehensive list of facilities to create a modern living environment to appeal to local and foreign investors including schools, hospitals and mosques. The integrated tourist city and residential districts will be built to accommodate around 40,000 residents. Meanwhile, once the project is completed, there will be 35km of waterfront property.

While everything seemed to be running to plan for the project, recent changes in the law regarding land-leasing rights have created some serious challenges for the developers. Until a few months ago, foreign buyers from outside the GCC could purchase a 25-year lease for the land on which the property sits, but the new law stipulates that foreign buyers are now required to renew their leases every five years.

As developments in the region increase in number, Sharjah finds itself in direct competition with other Northern Emirates like Ras Al Khaimah, which is offering freehold beachfront property and is arguably a quicker drive from downtown Dubai because of the current traffic congestion issues in Sharjah.

However, the proximity of the islands to Dubai should be one of the most attractive elements of the project for investors as the development is just 20km from the heart of the city. Even so, but the traffic issues need to be resolved for the short distance to be much of a selling point. Already the government is investing heavily in road infrastructure, linking the islands to all three of the major cities in the UAE with a series of expressways including the original Ettihad Road, the Emirates Road and a third expressway, which will be an extension of the Dubai ring road. (OBG24.10)

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11.11 ABU DHABI: Go West The Western Region of Abu Dhabi accounts for 80% of the emirate's landmass yet contains less than 8% of its population. The Oxford Business Group postulated that this vast region is expected to undergo significant changes in the coming years as part of a government initiative to turn it into a business and tourism destination.

Despite its low population, the Western Region is a major contributor to the economy of Abu Dhabi and the United Arab Emirates (UAE) as a whole. The region contains the largest oil fields and refineries in the UAE along with the majority of its gas fields. With its combined oil and agriculture activities, the region contributes 40% to the emirate's GDP. Mohamed Hamad Azzan Al Mazrouei, director general of the Western Region Development Council (WRDC), a government organization created in 2006, said he believes the region still has much untapped potential.

The inhabitants of the Western Region are spread across seven main towns, making it difficult for the government to service the sparsely populated region. To address this issue, the WRDC developed the TAMM initiative, creating a one-stop-shop providing local access to all government-related paperwork and services. In doing so, the WRDC hopes to improve the interaction between the government and citizens. There are currently four TAMM posts. Some people who live in remote parts of the region previously had to make a 400km round trip journey to the Western Region's centre of Madinat Zayed to take care of government business.

"Developing remote areas and providing a dignified quality of life with safety and stability for citizens are among the government's top priorities. This strategy aims to generate a boom in the Western Region through launching economic, tourism, educational, transport, utility, electricity, water, sewage and housing projects," said Sheikh Mohammed bin Zayed Al Nahyan, Abu Dhabi's crown prince. He stated that the projects will "generate a boom in the Western Region".

Creating employment opportunities is also a major concern for the region. Families from the area often move to more densely populated areas such as Abu Dhabi city in search of jobs. In an effort to create more employment opportunities, the council has taken steps to promote the region, to GCC and international financiers, as an investment destination for industrial development.

One such example can be seen by the investments in Al Ruwais, the center for the region's downstream oil and gas services, which have been spearheaded by the Abu Dhabi National Oil Company. Al Ruwais has developed into one of the most modern industrial areas in the Middle East. The local community is continuing to develop and grow, with the town's first mall currently under construction. Other projects underway include storm water works in Madinat Zayed, various buildings in Delma and new buildings for civil defense in Sir Bani Yas Island and Bu Hasa. There are water reservoir projects in Baynounah, Beda' Al Areedh, Liwa, Hadwaniyah, Beda' Yamrah, Ghameesat Qareen Al Aish as well as a desalination plant of 2m gallons capacity in Al Yasat Al Soghra Island.

Beyond infrastructure and industrial developments, the Abu Dhabi Tourism Authority and the WRDC are working to attract tourists to the region from the UAE and abroad, particularly at eco-tourism attractions that appeal to families. One of these is a $3bn eco-tourism project, Desert Islands, which will combine six nature reserves spread across eight islands, including Sir Bani Yas and Delma. When fully operational, the Desert Islands are expected to attract 250,000 visitors and generate $326m in tourism revenue annually, as well as create around 6500 jobs.

One recently started project is a luxury resort called Qasr Al Sarab near the oasis in the Liwa desert. The project, led by the Abu Dhabi Tourism Development and Investment Company, the investment and financial wing of emirate's tourism authority, is expected to include 150 hotel rooms and 60 villas. Project organizers have planned for the resort to have a spa designed like a traditional hamam, complete with water fountains and hanging gardens. (OBG30.10)

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11.12 ABU DHABI: Focus on Education

In accordance with the UAE government's focus on education, degree-level learning received a major boost in mid-October when the government announced a partnership with New York University (NYU) for the establishment of a satellite campus in the emirate. NYU will be the second foreign university to create a satellite campus in the emirate after Paris-Sorbonne University Abu Dhabi (PSUAD) was established in May 2006.

The announcement was made by Martin Lipton, chair of NYU's board of trustees; John Sexton, president of NYU and Khaldoon Al Mubarak, chairman of the emirate's executive affairs authority. NYU has been looking to establish a presence in the Gulf region for several months and these ambitions were discussed internally for over a year. However, until recently, it was unclear which country would host the new campus. As part of the agreement, the government of Abu Dhabi will provide the land, financing, construction and maintenance of the new campus, which is set to open in 2010. The administration of educational programs will be overseen by NYU's faculty in New York, and a portion of the professors in Abu Dhabi will be on rotation from the home campus.

NYU Abu Dhabi will be the first liberal arts campus established abroad by a major US research university. Classes will be taught in English and aim to attract over 2,000 students from the Middle East, Europe and South & Central Asia.

To help foster international partnerships and improve the educational landscape of the emirate, the UAE formed the Abu Dhabi Education Council (ADEC), chaired by Sheikh Mohammed bin Zayed Al Nahyan, in September 2005. The ADEC is an independent body responsible for improving and developing educational institutions within Abu Dhabi. As stated in the Policy Agenda 2007-2008, the government wishes to raise the quality of higher education in Abu Dhabi to meet international standards.

While addressing the United Nations, Sheikh Abdullah bin Zayed Al Nahyan, foreign minister of the United Arab Emirates (UAE), highlighted the partnership with Sorbonne University and the emirate's commitment to bringing the "experience of the world's most prestigious universities to the UAE."

In addition to the new deal with NYU and the already established PSUAD, which is wholly owned by the ADEC, the emirate has recently seen collaborations with other international institutions. INSEAD, a leading graduate business school with campuses in France and Singapore, opened its Abu Dhabi centre this year. The school has a strategic alliance with the US's Wharton School and has other research centers in Israel and India. The US-based Colorado School of Mines has an agreement to provide academic guidance to the Petroleum Institute, an engineering school financed by the National Oil Company and its international oil partners.

Foreign universities looking to enter the emirate are aiming to do more than meet the growing demand for higher education. They also hope to learn from the local environment. "The evolving global dynamic will bring about the emergence of a set of world centers of intellectual, cultural and educational strength," said Sexton, commenting on the importance of cross-cultural understanding. He said he believes that the new partnership will allow NYU to work with local scholars and researchers and will "educate" NYU. The PSUAD has also embraced the local culture and will now teach sharia (Islamic law) to enrolled law students. Graduates of the three-year course will be qualified to practice Islamic law in Abu Dhabi and France. (OBG17.10)

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11.13 OMAN: Scientific Approach

For more than a decade, the core policy of the government of Oman has been to diversify the country's economy. Now, as reported by the Oxford Business Group, under a newly unveiled draft strategy, that policy will be given a scientific approach.

The sultanate made a commitment to developing scientific research and technology as part of its Oman Vision 2020, the blueprint for the sustainable growth of the country laid out in 1995. The plan identified a close link between a country's per capita expenditure on research and development and per capita income and economic growth. It specified that scientific research and development were primary elements in strategies for economic diversification.

That commitment is currently being given form by Oman's Scientific Research Council (SRC), established in 2005, which is tasked with formulating a plan to advance research and technology in the sultanate and put in place a comprehensive national plan to ensure the strategy is followed and expanded. The draft of the strategy developed was discussed at a conference that opened in Muscat on October 21. The conference, which brought together more than 500 local, regional and international experts to discuss the draft and identify further strengths and weaknesses in Oman's plans to develop itself as a science, research and technology hub.

In particular, the strategy has identified a number of sectors that should be focused on for development. These include water, energy, downstream petrochemicals and agro-marine biotechnology research. The SRC set up teams of experts to study a wide range of fields, taking in cultural and social sciences, education, human resource, industry, energy, information technology, health, social services, bio and environmental resources. These are seen as crucial to developing the council's strategic approach and applying it to the identified sectors and other areas of the economy.

One of the recommendations made in the draft strategy was that Oman establish free research zones, similar to free economic and trade zones, to attract investment and serve as centers for scientific and technological development. It also called for a direct link between industry and academia to ensure a transfer of technology and increased funding to boost the quantity and quality of research and innovation.

David W Chapman of the University of Minnesota, one of the international advisors on the strategy, who said the draft reflected the government's commitment to economic diversity. "At a time when oil resources are declining, the higher education and research strategy represents an important step in establishing a knowledge-based Omani society that is less dependent on oil revenues and more dependent on the knowledge and skills of the Omani people," Chapman said in comments carried by local press on October 21.

One area where Oman has much catching up to do if it wants to become a scientific powerhouse is higher education. Musadik Malik, the vice-president of CRA International, the consultancy firm commissioned by the government to assist in drafting the strategy, told the conference that Oman has only one PhD program and that of the 1,016 PhDs in the sultanate, 70% are expatriates.

Malik urged Oman to focus on a limited number of research activities, rather than spreading itself too wide, and concentrate on attracting researchers. By doing so, he said Oman could develop support sectors that could help provide macro economic stability. In order to do this, a three-pronged approach would be adopted, said Malik. "Our aim is to expand the current research capacity by removing hurdles, aligning research capacity and resources to priority areas and designing long-term strategies for next generation research," he said.

According to Sayyid Shihab bin Tareq Al Said, adviser to Sultan Qaboos and chairman of the SRC, the strategy aims to take the best from a number of countries that have strongly developed research capacities and adapt them to Oman's special needs. He said the council looked at the research policies and organizational structures in other countries, with a view to applying aspects of their experience to the implementation of Oman's project. Though the strategy still has to be fleshed out, key points of the Omani economy have been identified that benefit from increased research and development. The seeds of a knowledge-based economy have been planted and the government appears to have the commitment to provide the funding and support to allow it to germinate. (OBG24.10)

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11.14 SAUDI ARABIA: IMF Executive Board Concludes 2007 Article IV Consultation

Background

Saudi Arabia's macroeconomic performance remained very strong in 2006. Although real GDP growth decelerated to 4.3% as oil production contracted by 1.5% in line with OPEC's decision to cut output, non-oil growth accelerated to 6.3%, supported by an expansionary fiscal policy and buoyant private sector activity. Despite higher import prices, average inflation remained at 2.2%, owing to the flexible and open labor market, open trade system, and administered prices for fuel and utilities. The Saudi authorities continue to support oil market stability through the implementation of an $80 billion investment program to increase oil production capacity to 12.5 million barrels per day (mbd) by end-2009, expand gas processing facilities, and increase oil refining capacity at home and abroad by 43% to reach 5.9 mbd. They are also actively considering additional investments aimed at expanding oil production capacity to 13.1 mbd by 2013.

In addition to the large investments in the oil and gas sectors, planned investments to be implemented under public-private partnerships, mostly in infrastructure, real estate developments, and hydrocarbon-based manufacturing industries, during 2007-12 are expected to reach $220 billion. These projects, as well as large fiscal expenditures to finance ambitious social programs and infrastructure investment, would help achieve the government's objectives to diversify the economy and raise the living standards of the population. Implementation of these home-grown policies would, as a byproduct, contribute to the reduction of global imbalances through higher imports of goods and services.

Driven by higher oil prices, the external and fiscal positions strengthened further in 2006. The external current account surplus reached a record level of $95.5 billion (27.4% of GDP) despite a 29% increase in imports of goods and non-factor services. The net foreign assets of the Saudi Arabian Monetary Agency (SAMA) increased by $70.9 billion, to reach $221.4 billion or 19.3 months of prospective imports of goods and services. The overall fiscal surplus of the central government increased further to reach 21.4% of GDP, notwithstanding the expansionary fiscal stance reflected in the rapidly rising expenditure and the widening of the non-oil fiscal deficit to about 50% of non-oil GDP. This large overall surplus enabled the authorities to reduce the central government's gross domestic debt by 11% to 27.9% of GDP.

Monetary expansion accelerated again in 2006, with broad money growing by 19.3%, mainly due to the increase in government expenditure. The net foreign assets of the banking system rose sharply, reflecting higher government deposits, the shortage of riyal-denominated assets, and a narrower or negative differential between the riyal and dollar interbank deposit rates. SAMA delayed adjusting its policy rate to the Fed Funds rate, thus resulting in a negative interest rate spread between the riyal and the dollar in the second half of the year, to prevent an economic slowdown in the midst of the stock market correction. Tightening of prudential measures and a fall in credit demand slowed down private sector credit growth to 9.2%. The riyal depreciated by 0.5% in real effective terms, reflecting the movement of the dollar against other major currencies and the low inflation in Saudi Arabia. Following a three-year bull run, the stock market index fell by more than 50% in 2006. The banking system remained sound due to the preemptive tightening of prudential measures. Both SAMA and the Capital Market Authority continue to expand their supervisory capacity to deal with the increased number of market participants.

Benefits of the structural reforms initiated in the late 1990s have spurred broad-based non-oil private sector growth, which has outpaced public and oil sector contributions to overall growth for the past 6 years and is expected to remain the engine of growth in the medium term. Non-oil exports increased by more than 20% per annum during 2000-06 and improvement in the business environment fueled investors' confidence, resulting in an increase in foreign direct investment from $0.2 billion in 2000 to $18.3 billion in 2006. The authorities recently initiated a National Industrial Cluster Development Program, with the aim of diversifying the economy and balancing regional growth. The authorities have relaxed the Saudiization targets for various sectors, aimed at creating private sector employment for Saudi nationals, in order to accommodate the growing demand for labor associated with the implementation of large investment projects.

The outlook for 2007 remains favorable. Real GDP growth is projected at 4.1% despite an expected additional small contraction in oil output to 9.1 mbd. Increased public expenditure, improved business climate, and continued investors' confidence are expected to help further accelerate non-oil growth to 6.6%. Since the growth of imports and non-factor services is expected to remain robust at 21%, the current account surplus is projected to decline to $69.4 billion or 19% of GDP, and SAMA's net foreign assets are projected to increase by $44 billion to reach $266 billion or 20 months of imports. The overall fiscal surplus is projected to decline, but will remain substantial at 15.7% of GDP, and public debt is envisaged to contract further to 21.7% of GDP. Inflation is expected to increase slightly to 3%.

Executive Board Assessment

Executive Directors commended the Saudi Arabian authorities on the continued strengthening of economic performance during the past year, underpinned by buoyant private sector activity, prudent economic policies, and a further increase in oil prices. High oil revenue contributed to increasing fiscal and external current account surpluses and a further buildup of SAMA's net foreign assets, while activity in the non-oil economy gained further momentum.

Directors noted that the economic outlook remains positive, grounded in the ongoing efforts to expand oil sector capacity and to further improve the climate for private sector investment and economic diversification. They noted that a sustained broad-based expansion of non-oil activity, through continued implementation of structural reforms, would be key to creating employment opportunities for the rapidly growing Saudi labor force over the medium term. Directors therefore welcomed the top priority that the authorities assign to job creation and strengthening education and training.

Directors commended the Saudi authorities for their intention to continue supporting oil market stability through a substantial planned expansion of crude oil production and refining capacity, despite rising costs. They observed that implementation of Saudi Aramco's ambitious $80 billion investment plan, in preparation for the future call on Saudi oil over the medium and long term, would support global oil market stability.

Directors noted that Saudi Arabia's economic policies have been consistent with its commitments in the context of the Multilateral Consultation process aimed at the reduction of global imbalances. While the authorities' investment policies are driven by domestic needs to meeting objectives of sustaining and diversifying economic growth, and increasing living standards of the population, implementation of these policies would, as a by product, contribute significantly to the reduction of global imbalances through higher imports of goods and services. Directors also commended the authorities for continuing to provide generous assistance to developing countries through bilateral aid and debt relief.

Directors noted that the recent fiscal surpluses have significantly enhanced Saudi Arabia's fiscal flexibility and long-term fiscal sustainability. They supported the use of fiscal revenues for promoting private sector growth, alleviating poverty, and meeting social needs. Efficient implementation of the spending plans over the medium term will require, however, a significant strengthening of public expenditure management. In this vein, Directors welcomed the authorities' decision to adopt the Government Finance Statistics Manual 2001 framework and encouraged them to accelerate the preparations for a medium-term fiscal framework. While broadly supporting the country's expenditure priorities, Directors encouraged the authorities to replace the petroleum product subsidies with targeted direct social assistance. Directors supported the planned investments under public-private partnerships, but noted the importance of managing properly the underlying contingent liabilities.

Directors observed that, despite higher import prices, inflation remains on the whole low, owing to the flexible labor market, an open trade system, and administered prices for fuels and utilities. They called for utilizing liquidity management instruments more effectively to contain the risk of inflation; and analyzing the factors underlying the shortage of financial instruments, with a view to eliminating impediments to their issuance. Directors commended the authorities for the planned implementation of Basel II principles by January 2008. Some Directors encouraged the authorities to phase out the ceilings and restrictions on bank lending. Regarding the stock market, Directors noted the significant gains made in strengthening capital market regulations, and urged the authorities to allow full access to the stock market by foreign investors to improve market depth and efficiency.

Directors noted the staff view that the Saudi riyal appears to be moderately undervalued at present. Many saw this as a transitional phenomenon reflecting the positive terms-of-trade shock. Several other Directors considered that the riyal is broadly in line with fundamentals. More generally, however, Directors acknowledged the margins of uncertainty in making such assessments, and pointed to the methodological difficulties in determining equilibrium exchange rates, particularly for an oil-exporting economy such as Saudi Arabia facing volatile oil prices. Further, they noted that any undervaluation of the real effective exchange rate can be expected to reverse in the near term as the external current account surplus declines in response to the authorities' expansionary fiscal stance and the investment programs that have been launched. Directors also considered that the current pegged exchange rate regime has served the economy well, although a few Directors were of the view that a more flexible exchange rate would help reduce fluctuations in the face of oil price volatility. Directors noted the authorities' decision to maintain the regime unchanged in the period leading to the monetary union of the Gulf Cooperation Council (GCC) while keeping an open mind about the choice of the exchange rate regime under the prospective monetary union.

Directors observed that, despite the significant gains made on key issues, achieving the GCC monetary union by 2010 would be increasingly challenging, and would require accelerating the implementation of the remaining important steps. In particular, efforts would need to be intensified to reach agreements on the nature and scope of the union's monetary authority, and the harmonization of key regulatory and supervisory frameworks and of statistical methodologies.

Directors encouraged the authorities to continue to design a package of "second generation" structural reforms for exploiting the growth potential created by the successful completion of the 1999 structural reform program and high oil prices. Directors noted that further liberalization and modernization of the legal and institutional framework will be critical for private sector activities, and urged the authorities to expeditiously approve and implement the mortgage, agency, and company laws. Directors also encouraged the authorities to closely monitor the tightening labor market conditions to ensure smooth implementation of investment projects. (IMF 23.100)

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11.15 SAUDI ARABIA: Relying on Investments

Saudi Arabia has been ranked number one in the Arab world in terms of foreign direct investment (FDI) in 2006, according to a report by the United Nations Conference on Trade and Development (UNCTAD). The kingdom attracted $18bn, an increase of 51%, in FDI in 2006 alone. Saudi Arabia dwarfed other Gulf countries, with the United Arab Emirates, which came second, managing $8bn, while Jordan attracted $3.1bn, followed by Bahrain with $2.9bn.

Most observers believe the instigating factors behind the increase are reform and market liberalization. Membership in the World Trade Organization (WTO), attained in 2005 after 12 years of negotiations, has given the kingdom's FDI inflow a huge boost, particularly with the introduction of new rules streamlining the investment process.

One such initiative was the introduction of a 30-day deadline for decisions on investment applications. Companies now benefit from a one-stop-shop application process under the direction of the Saudi Arabian General Investment Authority (SAGIA). The new foreign investment law, enacted in April 2000, allows foreign firms to own a majority stake in companies within the kingdom. The maximum income tax rate for foreign firms was reduced from 45% in April 2000 to today's rate of 20%. Additionally, requirements for obtaining business visas were changed to allow easier access for international businesspeople entering the country.

Meanwhile, news of the reform has been acknowledged internationally, with a recent World Bank report describing Saudi Arabia as the seventh-fastest reformer globally and the second-fastest in the region. "This year Saudi Arabia made bold business reforms, making it one of the world's leading reformers. Saudi Arabia is now the top-ranked economy in the Middle East," said Jamal Haider, co-author of the bank's Doing Business Report 2008.

FDI is considered an essential component for the future economic success of the kingdom, due to the country's changing demographics. With a population of 23.9m, the largest in the Gulf, 65.4% of Saudis are under 25 years of age. As such, Saudi Arabia needs FDI to upgrade its infrastructure and to meet the needs of its inhabitants.

Such a large youth population has resulted in high unemployment. Khan Zahid, chief economist at Riyadh Bank, acknowledged the hazard high unemployment can pose for a successful economy when he told the Oxford Business Group, "the key danger is that an overwhelming and growing number of Saudis will be left out of the economic pie, even as it grows."

The government's solution is "Saudiization", an effort to ensure the hiring of Saudi nationals and move businesses away from reliance on foreign workers. Saudi law requires that for any enterprise, domestic or foreign-owned, Saudi workers should account for no less than 75% of the workforce and should receive 50% of the total payroll.

According to the Central Department of Statistics and Information, the latest official data placed the number of unemployed Saudis in 2006 at 469,018, registering an unemployment rate of 12.02 % of the total Saudi labor force. However, unofficial estimates are often much higher, according to Zahid. "I have seen numbers as high as 20%," he said.

Despite its unemployment problems, Saudi Arabia is benefiting from high oil prices, high liquidity and budget surpluses. However, the need for substantial FDI has been recognized by SAGIA. The very nature of the Saudi economy, still dominated by technology-intensive oil, gas and petrochemicals production and exports, means FDI is an indispensable tool. Nevertheless, Zahid recognizes FDI is much more that an inward flow of capital. "FDI is not just for the money. It brings world-class businesses into your country, it brings new technology, global managerial expertise, and of course, economic prestige and clout."

SAGIA officials hope that this inflow of FDI and expertise will encourage other international companies to invest in the kingdom, allowing the government to achieve its goal of placing Saudi Arabia in the top 10 countries in terms of investment by 2010. "I think they can succeed. The country's investment needs are huge in infrastructure - roads, railways, public transportation, electricity, water... and in many other areas. As long as the government allows the private sector to participate, they can succeed," Zahid told OBG. (OBG23.10)

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11.16 SAUDI ARABIA: Water Contracts

Contracts to provide water facilities and operating services for three Saudi industrial cities were recently signed by Hashem Yamani, the minister of commerce and industry and chairman of the Saudi Organization for Industrial Estates and Technology Zones (SOIETZ). In April 2007, the minister of water and electricity, Abdullah Al Hussayen, announced $93.33bn was necessary for water projects within the kingdom over the next 20 years.

The Oxford Business Group reported that water management services contracts for the three industrial cities, which will be worth over $800m, are part of the government's policy to work with the private sector in meeting water demands in an efficient manner. The new water facilities will be executed in collaboration with the International Company for Water Distribution (Tawzea). Tawzea is a 50/50 joint venture between AmiWater, a subsidiary of the Saudi Arabian Amiantit Group specializing in water management projects, and the Saudi Industrial Services Co (SISCO). Tawzea won the contracts from SOIETZ, a government body that is responsible for developing and supervising industrial lands, to meet the water requirements for both the residential and industrial segments of the cities.

The contracts, which are on a rehabilitate, operate, transfer (ROT) and a build, operate, transfer (BOT) basis are to be carried out over 30 years. Assim Al-Hakeem, a spokesman for Amiantit, told local press, "The time period of 30 years for BOT projects isn't long at all, it is actually quite standard." He went on to explain the activities that will be met under the contracts. "Build, operate and transfer projects like these mean that Tawzea will be responsible for water delivery and desalination, ending in the removal of wastewater, which will require the time period allotted for the projects."

Construction on the industrial city projects will begin immediately while the water distribution system will be operational within the next five years, according to Tawzea. The contracts involve three structural and operational projects for the rehabilitation, management and maintenance of water supplies, sewage systems and irrigation in the industrial cities of Jeddah, Riyadh, and Al-Qasim. Yamani said at the contract signing ceremony that he will soon be signing water contracts for the industrial cities in Dammam and Al-Ahasa but declined to give further details.

Meanwhile, the Saudi power and water sector is a hotbed of activity. Samba Financial Group, Saudi Arabia's second-largest bank, ranks the utilities market, in which water plays a significant role, as the third most attractive area in which to invest. Water, gas and electricity combine to account for 1.15% of GDP and that share is expected to rise, thanks to a powerful drive for growth coming from industrial cities which are popping up around the country.

Marafiq, the power and water utility company for Jubail and Yanbu, is seeking tenders for an independent water and power project (IWPP). The proposed 1,700MW and 150,000 cubic meters per day IWPP will be in Yanbu Industrial City. Unquestionably, Yanbu is one of the fastest-growing locations in Saudi Arabia and benefits from a strong base of large industrial heavyweights such as Saudi Basic Industries Corporation (SABIC) and several Saudi Aramco-owned or affiliated plants. Marafiq plans to hold a 40% shareholding in the Yanbu BOT project, with the remaining 60% of shares being offered to pre-qualified developers. The project's commercial operation is expected no later than April 2012. (OBG17.10)

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11.17 EGYPT: Race to Privatize

The race for the privatization of Banque du Caire (BdC) is heating up, with major foreign banks looking to make bids on the country's third-largest state bank. However, the Oxford Business Group reports that the deal has not been without controversy, with the central bank preventing Egyptian businessmen from outside the sector to bid. On September 17, it was announced that JP Morgan had been chosen by the government as financial advisor for BdC. JP Morgan's role will be to value the bank and analyze the options for the privatization. The sale is expected to be finalized in six to eight months.

The 80% share of the bank, with 230 branches and a 6.3% market share in terms of assets, being put up for sale is projected to fetch a price of more than $1.6bn at auction. A further 15% share in BdC is likely to be floated on the Cairo and Alexandria Stock Exchanges as a public offering.

Steady privatization of the state's banking assets is in keeping with the government's ongoing liberalization program. In October last year, Bank of Alexandria, Egypt's fourth largest, was sold to Italy's Sanpaolo Bank for an unprecedented $1.613bn.

Questions have been raised about whether BdC's privatization can be as successful, given its recent past. The bank was subject to an abortive merger with state-owned Banque Misr last year, which drew attention to the bank's shortcomings in overstaffing and non-performing loans (NPLs), which are estimated at 73% of extant loans. Nonetheless, there is a great deal of enthusiasm for the privatization. Despite BdC's serious issues, it offers foreign banks a ready-made, extensive branch network, instant name recognition and the chance to move into a fast-growing banking market. Banks known to have shown interest in purchasing BdC include Mashreqbank, the third largest in Dubai, and the National Bank of Greece (NBG).

Mashreqbank is looking to increase its foothold in Egypt, after an on-off relationship with the country's banking sector in recent years. The bank withdrew from Egypt five years ago, only to make an unsuccessful bid to re-enter the market with Bank of Alexandria stock last year. Earlier this year, Mashreqbank finalized an agreement with the Egyptian authorities to open ten branches in the country, which it considers "a key growth market". Omar Bouhadiba, head of corporate and investment banking at Mashreqbank, told Dubai press that "when [the BdC privatization] happens, we will certainly be bidding." NBG has also announced ambitions to expand its presence in Egypt - it currently has only one branch in the country.

It was not just banks that have been drawn to the BdC stock. Several high-profile individuals have also shown interest. Orascom chairman Naguib Sawiris, Egypt's best-known businessman, had expressed the possibility of a bid and has asserted that he has the capital and know-how to buy and run it. Other individuals include Mohamed Shafiq Gabr, chairman of Artoc Group, Mohamed M Abu El Enein, chairman of Ceramica Cleopatra and Mohamed Farid Khamis, chairman of Oriental Weavers.

However, their ambitions may have been thwarted by the Central Bank of Egypt (CBE), which has said that a law forbidding any individual from holding more than a 10% stake in a bank must be upheld. The law is designed to prevent individual businessmen from dominating a bank and effectively means that banks can only be taken over by other banks and financial institutions.

Sawiris has contested the legislation, arguing that the law favors foreign banks over Egyptian investors and asserting that some private banks should be owned by nationals. "Will the government's current banking privatization scheme go into effect without creating an Egyptian-owned private bank?" he told local press. "It makes no sense why a bank should not be owned by Egyptian investors."

The CBE may be wary due to the lessons of history. In the past, banks owned by Egyptian families new to the banking sector have not always been successful. Several of the state-owned banks have incorporated former Egyptian-owned private banks that went bust. Market analysts have also questioned whether it would be wise for individuals and companies without the technical financial expertise of running a bank to acquire BdC.

"Owning a bank is completely different from owning a company," Hatem Alaa, banking analyst at HC Securities brokerage firm, told local press. "You could be a successful businessman but not a successful banker." However, all may not be lost for Sawiris and the other individual investors eyeing BdC, as they still have the option of forming a consortium with a bank. (OBG18.10)

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11.18 TURKEY: IMF Staff Mission Notes Tempered Progress

An International Monetary Fund (IMF) mission held discussions with the Turkish authorities in Ankara during October 8-17. Discussions continued during October 18-22 in Washington, D.C., in the context of the Annual Meetings of the IMF and the World Bank.

The IMF said recent economic developments in Turkey have been good, with growth rebalancing away from domestic to external demand and inflation easing thanks to the central bank's cautious monetary policy stance. Despite a weaker external backdrop, the removal of election uncertainty has boosted investor confidence and capital inflows.

The outlook for the Turkish economy remains positive overall. Next year, economic activity is expected to accelerate moderately to 5½%; inflation should continue declining gradually; and the current account deficit appears to be stabilizing below 8% of GNP - though oil prices and lira appreciation pose key risks.

However, fiscal performance has weakened considerably in 2007, making the policy mix less supportive of external adjustment, and disinflation more reliant on tight monetary policy. The primary surplus outturn in 2007 is now expected at around 4¼% of GNP - well below the government's target of 6.7% of GNP - as primary spending accelerated throughout the year, tax compliance weakened, and the financial position of energy companies deteriorated. Softer revenues resulting from weaker-than-expected consumption also contributed to the deterioration in this year's fiscal position.

Against this background, the IMF mission noted that the new government had a unique opportunity to strengthen macroeconomic policy implementation and reenergize reform. Discussions focused on the 2008 budget proposal and structural actions to safeguard the long-term fiscal position.

There was agreement with the authorities that the primary surplus anchor of 6½% of GNP had served Turkey well, by easing the debt burden, facilitating declines in inflation and real interest rates, and thus creating the conditions for private-sector led growth to flourish. At the same time, it was recognized that a lower primary surplus target on the order of 5½% of GNP would still be consistent with reducing the debt ratio quickly toward safer levels. Adherence to such a target would also achieve a significant tightening of fiscal policy relative to this year, thereby assisting disinflation and interest rate reductions. Moreover, there was agreement in principle that, going forward, fiscal policy will be anchored to a strong medium-term fiscal framework, with consideration being given to an explicit fiscal rule.

The mission, therefore, supported the authorities' intention to target a public sector primary surplus of 5½% of GNP in next year's budget. While welcoming the associated reduction in primary spending of ¾% of GNP relative to this year's expected outturn, the mission noted that adequate safeguards needed to be developed to ensure that the primary surplus target is achieved.

Turning to monetary policy, the mission welcomed the central bank's recent decisions to cut interest rates. Going forward, a continued cautious and measured approach to interest rate decisions is desirable in light of remaining upward risks to inflation.

The mission welcomed the authorities' intentions to implement important structural measures, in particular overhauling the social security system by early next year, tackling rising tax evasion by enhancing auditing capacity under the Revenue Administration, privatizing Halkbank, and adopting measures to restore financial soundness to energy companies (including by allowing full cost-recovery pricing). In the period ahead, IMF staff and the authorities will work together to finalize agreement on a strong package of policies that would enable the completion of the seventh program review. (IMF23.10)

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11.19 Turkey: Fiscal Constitution

Serhan Cevik of Morgan Stanley (http://www.morganstanley.com) observed that a liberal constitution can re-energize Turkey's institutional and economic development. These days Turks are talking about three issues — terrorism, the future of US relations and a new constitution. The first two are essentially linked and require a multi-layered approach reaching beyond military operations. On the other hand, we think that a liberal constitution can become an instrument of change, from politics to economics. Constitutionalism has a long history in Turkey, starting with an imperial decree in 1839 that recognized a list of civil rights. It was an incomplete attempt - trying to emulate the post-1789 developments in Europe, but still an important opening. After allowing some autonomous regions to adopt European-style constitutions, the Ottomans introduced their own Kanuni Esasi - the fundamental law - in 1876 and later amended it to limit the monarchial power. Of course, Turks had to wait until 1924 for a proper constitution establishing a parliamentary system and stronger civil rights. It was a dramatic move with the ultimate objective of liberal democracy, though it still reflected the Jacobin traditions. Unfortunately, instead of becoming more liberal, the constitutions written after military coups in 1960 and 1980 have made the regime inconsistent with Turkey's aspirations to become a liberal democracy and an EU member. The situation has never been as awkward as it is today - an open society with a globalized economy operating with an inward-looking, illiberal constitution. Therefore, a liberal, ‘market-friendly' constitution can re-energize institutional and economic development, in our view.

Institutional reforms have helped, normalizing political and economic landscapes. Turkey has already benefited from a range of institutional reforms undertaken so far to meet the conditions for EU membership. Take, for example, the surge in real GDP growth from an average of 3.6% in the 1990s to 7.4% in the past five years. We believe that institutional rationalization and macroeconomic normalization have set the stage for a staggering increase in private investment and productivity growth, pushing the trend growth rate of the economy higher. However, that does not mean there are no more institutional bottlenecks. In fact, while enjoying stronger growth, Turkey has struggled with anachronistic institutions that limit the extent of structural reforms. Every study shows how important the quality of institutions and governance is for economic development, and Turkey is certainly no exception. One of the key weaknesses that brought the country to the brink of bankruptcy in 2001, and remains a burden on the economy even today, is the fiscal regime. No one can doubt the extent of recent gains, reducing the budget deficit from 16.5% of GDP in 2001 to a mere 0.7% in 2006. As a result, public debt declined from 107.5% of GDP (or 90.4% in net terms) in 2001 to 58.5% (or below 40%) this year. However, Turkey's fiscal stance is still vulnerable to political cycles and results in higher risk premium than is justified by the inflation outlook.

Politically motivated decisions have limited the extent of fiscal consolidation. The state of public finances has deteriorated this year. To a certain degree, this is a result of lower tax revenues on the back of slower domestic demand growth, an increase in export rebates, the lira's appreciation, and tax arrears. Tax revenues increased by 9.5% year on year in the first nine months of the year, compared with a 15% target for the whole year. Even so, the problem is not just about a cyclical downturn in tax collection, but stems mainly from developments on the spending front. Moreover, although interest expenditures are up 13.7% compared to a year ago, it is in line with the increase projected in the budget. Therefore, the real problem is in non-interest expenditures, which surged by 21.2% in the first nine months of the year. This is faster than the 15% projection in the budget and way out of line with the central bank's 4% inflation target. The breakdown of primary expenditures leaves no doubt about what is behind fiscal deterioration. That is, politically motivated decisions and structural problems resulting in higher non-interest spending.

Turkey also needs a fiscal constitution - a set of rules for public finances - to ensure sustainability. A degree of fiscal slippage in an election year may be understandable, but what has happened in Turkey also highlights the underlying vulnerability that cannot be ‘fixed' by short-term measures like increasing administered prices or a temporary expenditure freeze. We do not question the need for immediate adjustments to bring fiscal performance closer to the original targets. For example, the much-delayed increase in electricity prices would be a step in the right direction. However, we also believe that what Turkey really needs is a fiscal constitution to ensure long-term sustainability and reduce the burden of a higher risk premium on the budget and economic activity in general. A set of clearly defined rules for the future direction of public finances would work just like the inflation-targeting regime for monetary policy, improving transparency and policy credibility. In our opinion, Turkey's graduation from the IMF program next spring presents an opportunity to adopt a fiscal constitution that limits the budget deficit and certain spending items (like the wage bill and subsidies) as a share of GDP and makes it more difficult to alter the taxation system. Fiscal prudence and transparency would in turn improve debt dynamics, lower the risk premium and support faster, non-inflationary economic growth. (MS25.10)

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11.20 TURKEY: Reducing the Primary Surplus The Oxford Business Group reported that Turkey's 2008 draft budget, which was submitted to parliament on October 17, triggered a largely positive response from local economists, with the primary surplus for 2008 lowered from previous years. Though not in keeping with the initial recommendations of the IMF, with whom Turkey has a three-year $10bn stand-by agreement that is due to expire in May 2008, the Fund officially endorsed the released target.

The pursuit of its tight fiscal policy approach since first coming to power in November 2002 has allowed the Justice and Development Party (AKP) to consider reducing the budget surplus, with the 2008 budget targeting a primary surplus of 5.5% of gross national product (GNP) instead of the 6.5% of previous years initially recommended by the IMF. But Turkey is hardly resorting to a slack policy - as illustrated by IMF endorsement - with a 4.3% of GNP primary surplus expected by the end of this year.

On October 23, the IMF stated, “The mission (IMF office in Turkey)...supported the authorities' intention to target a public sector primary surplus of 5.5% of GNP in next year's budget. While welcoming the associated reduction in primary spending of three quarters of a percentage point of GNP relative to this year's expected outturn, the mission noted that adequate safeguards needed to be developed to ensure that the primary surplus target is achieved.''

Such safeguards include tax hikes, more effective tax collection and social security reform - all of which are at the top of the government's agenda. Turkey's Minister of State Mehmet Simsek and Minister of Finance Kemal Unakitan have committed to an overhaul of the social security system along with greater enforcement of rising tax evasion. Enhancing the auditing capacity of the Revenue Administration will be key in this regard. The privatization of such entities as Halkbank, Turkey's electricity distribution and production units, sugar factories, highways and the remainder of Turk Telecom - of which 55% is owned by the Oger Telecoms Joint Venture Group - will also play an important role in increasing economic efficiency while injecting revenue into government coffers.

Both the Turkish government and the IMF agree that a reduction in the primary surplus should ease the public debt burden while allowing for a reduction in inflation and real interest rates, which in turn will provide the conditions for private-sector led growth. The government has made significant headway in decreasing its public debt.

As a result of fiscal policy implementation, net public debt fell to 45 % of GNP in 2006 and is expected to fall below 40% of GNP this year, Simsek said at the 2007 annual IMF board of governors meeting in Washington earlier this month. Analysts say that election-related government spending in the run up to the presidential and parliamentary votes helped account for the revision of the primary surplus. A 10% rise in spending is also on the cards next year, accompanied by economic growth of 5.5%, inflation at 4% and an ambitious spike in per capita income to $7000 from an estimated $5500 in 2007 through economic growth and investment. Public sector employees can also expect a 7.6% pay increase from the government.

Turkey's loan agreement with the IMF is in the meantime due to expire next May with a new agreement between the Fund and Turkish government yet to be revealed. An IMF mission is scheduled to arrive in Ankara in the coming days for discussions on the seventh review of the country's economic program. The debt stock owed by Turkey to the IMF is currently $8bn, meaning that the government has no reason to create a new stand-by agreement with the IMF. Economists expect relations with the Fund to continue - considering the size of the current account deficit and public debt - albeit in a weaker form. At the end of 2006 the central government's total debt was $245.5bn, according to government figures. By the end of September 2007 the government's outstanding debt stood at $282bn. Turkey's state planning organization expects Turkey's current account deficit to hit $36.4bn by year-end, with $39.2bn expected in 2008.

Positive projections on the economy cannot ignore significant risk factors. Noise from Ankara over the Kurdistan Workers' Party (PKK)'s continuous presence in northern Iraq and a potential incursion by the Turkish military followed by extended deployment could conceivably spoil investor appetite in the medium-term, increasing government military expenditure as well as reducing local demand and consumption. The shadow of the global credit crisis remains, even though Turkey has so far weathered the storm. In view of regional and global uncertainties, projections on Turkey's primary surplus may seem academic. (OBG25.10)

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- Turkish Lira conversions done at a rate of NTL 1.20 = $1.00
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