TOP STORIES

• Netanyahu Government Set to Approve 2-Year Budget
• Toe Fix Raises $300,000
• UAE Still the Main Hub For Re-Export Sales
• Turkish Steel Industry Faces Tough Challenges
• Israel's State of Economy Index Shows Continued Recovery
• SAUDI ARABIA: Retail Report Q1 2010
• GREECE: Greece Pharmaceuticals and Healthcare Report Q1 2010

TABLE OF CONTENTS:

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Netanyahu Government Set to Approve 2-Year Budget
1.2 Government Approves Transport Upgrade Plan

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 CA CEO Visits Israel After Only Two Weeks In The Job
2.2 Toe Fix Raises $300,000
2.3 TowerJazz Named 2009 Supplier of the Year by Skyworks Solutions
2.4 Morpho Detection's Advanced Technology Selected by Israeli Airports Authority (IAA)
2.5 Givatayim To Get Israel's Tallest Skyscraper
2.6 RADVISION's SCOPIA Elite MCU Receives 2009 Video Network Infrastructure Award

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Small Business Administration Signs MoU with Oman & Bahrain
3.2 Realty Executives International Awards Franchising Rights to Six Countries of the Gulf Region
3.3 UAE Leads Arab Importers of US Products
3.4 Atempo Signs MediaCast as Middle East Reseller
3.5 UAE Still the Main Hub For Re-Export Sales
3.6 UAE Diabetes Care Market Set To Grow Over 8% Through 2012
3.7 UAE's Futtaim to Open Carrefour Branch in Iraq
3.8 Chiquita Eyes More Juice Bars To Serve Dubai Metro
3.9 UAE Diabetes Market Growing
3.10 United Arab Emirates Tourism Report - Q1 2010
3.11 UAE F&B Operator Considers Mideast & India Expansion
3.12 Saudi Arabia Information Technology Report Q1 2010
3.13 Saudi's Herfy Plans 17 New Fast Food Restaurants
3.14 Egypt's Dina Farms in Deal to Purchase 850 US Cows
3.15 Turkish Steel Industry Faces Tough Challenges
3.16 Closure Systems International and Has Plastik Announce Strategic Partnership in Turkey
3.17 Olympic Air & Aegean Agree To Merge
3.18 Bulgarian Computer Market Slumps 20% In 2009
3.19 Flowserve Receives $31 Million Pump Order for Largest Bulgarian Oil Refinery
3.20 Bulgaria Customs Agency Debuts AS&E's Z Backscatter Van X-ray Inspection System

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 GreenRoad Secures Additional Financing To Accelerate Growth
4.2 Fast Company Names SolarEdge One of the World's 10 Most Innovative Companies in Energy for 2010

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Iran Threatens To Ban Airlines Over 'Arabian Gulf' Name
5.2 Investment in the Kurdistan Region of Iraq Surpasses $12 Billion
5.3 IMF Announces That Qatar Will Grow 18.5% in 2010
5.4 IMF Completes Article IV Consultation with the UAE
5.5 Moody's Says UAE Banks Could Absorb Dubai World Losses
5.6 World's Largest Airport Opens on 27 June in Dubai
5.7 Dubai White-Collar Jobs Down By 17%
5.8 Saudi to Double Technology Spending To $4.27 Billion
5.9 Egypt's January Inflation Rate Hits 7.39%
5.10 Egyptian Government Cleared for Israel Gas Exports
5.11 Egypt's Unemployment Rate Continues to Rise
5.12 Egypt's FDI Will Fail To Reach Targeted $10 billion
5.13 Egypt Will Not Lift Sales Tax Exemption on Imported Capital Goods

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Cyprus' Trade Deficit Reduced By €1.4 Billion In 2009
6.2 Bulgaria Finance Minister Says No Belene Nuclear Plant Without EU Investor

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Israel to Erect Red Army Memorial To Commemorate Crucial Role In Victory Over Nazis.
7.2 Israel's Wettest Winter in 5 Years Brings Kinneret Over Red Line

*REGIONAL:

7.3 Egyptian Presidential Hopeful Steps Up
7.4 Bulgaria Delays Tough Smoking Ban Till 2011

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Obecure Patents Cover Adjunctive Use of Betahistine to Mitigate Olanzapine Associated Weight Gain
8.2 BrainStorm Enters into Collaborative Agreement with Hadassah to Conduct Clinical Trials

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Voltaire Powers China's Top High-Performance Computers
9.2 VocalTec Receives $1 Million Order for its Class-5 Solution from Russian Tier-1 Operator
9.3 Commtouch to Broaden Support of Service Provider Offerings with Connector for Microsoft Exchange
9.4 RADVISION Awarded Patent for Video Conferencing via Instant Messaging
9.5 Silicom's 10Gbps External Intelligent Bypass Switch Selected by Major Solution Company
9.6 RiT Technologies Enhances Its Enterprise Offering With Active I Technology
9.7 Elbit Awarded $20 Million Follow-On Contract for Israeli Air Force's PFI "Snunit" Trainer Program
9.8 MTI Wireless Edge is Announcing a New Complete Product Line of Low Cost Dual Polarity Antennas
9.9 Wavion & BHU Partner to Provide Video Surveillance for "Peace City" Project in China
9.10 RED-C Introduces the Compact Variable Gain 70x90mm EDFA
9.11 Mellanox Enhances Virtualization ROI with Release of InfiniBand Drivers for VMware vSphere 4

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's State of Economy Index Shows Continued Recovery
10.2 Israel World's Third Strongest Housing Market

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11: In Depth

11.1 ISRAEL: Food & Drink Sales Expected To Rise to $19.27 Billion by 2014
11.2 IRAQ: Sunnis and Iraq's Elections: An Evolving Balance of Power
11.3 ARABIAN GULF: MEP Sector to Net $22.4 Billion Revenue
11.4 KUWAIT: Pharmaceuticals and Healthcare Report Q1 2010
11.5 KUWAIT: Buying In
11.6 KUWAIT: Moody's Outlook for Kuwaiti Banks Remains Negative
11.7 KUWAIT: Local IT Spending Is Expected To Reach Around $761 Million In 2010
11.8 UAE: Retail Sales to Grow To $150.52 Billion By 2014
11.9 UAE: Abu Dhabi - Entering A New Phase
11.10 UAE: Information Technology Report - the Updated Q1 2010 Edition
11.11 UAE: Ras Al Khaimah 'A/A-1' Ratings Affirmed
11.12 OMAN: Moody's Upgrades Oman's Sovereign Ratings
11.13 OMAN: Boost Continues
11.14 SAUDI ARABIA: Retail Report Q1 2010
11.15 EGYPT: 2010 Article IV Consultation Mission, Concluding Statement
11.16 EGYPT: Stimulus Pressure
11.17 EGYPT: Egypt's IT Spending To Increase From $1.3bn to $2.1bn By 2014
11.18 TUNISIA: Fitch Affirms Tunisia at 'BBB'; Outlook Stable
11.19 TUNISIA: Economy on Track
11.20 ALGERIA: IMF Executive Board Concludes 2009 Article IV Consultation
11.21 ALGERIA: Shop Happy
11.22 TURKEY: Retail Sales to Grow To More Than $452 Billion by 2014
11.23 GREECE: SPIEGEL Interview with Greek Prime Minister Papandreou
11.24 GREECE: Greek Corruption Booming, Says Transparency International
11.25 GREECE: Greece Pharmaceuticals and Healthcare Report Q1 2010

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1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Netanyahu Government Set to Approve 2-Year Budget

The government is set to approve a two-year budget for 2011-12 at the upcoming cabinet meeting on 4 March. As first reported by Globes, in view of recommendations by international organizations, including the OECD, Minister of Finance Steinitz is expected to submit the proposal to the cabinet. Political sources believe that, in view of the political quiet that Prime Minister Netanyahu acquired with the 2009-10 two-year budget, the cabinet will approve Steinitz's proposal for another two-year budget. There is no general decision at this time to make two-year budgets permanent, though the idea will be considered in future. The Knesset would also have to pass legislation for such a process. The cabinet is also due to discuss Steinitz's proposal to change the fiscal rules for increasing public spending by the government. The new fiscal rule redefines government spending as a function of the average GDP growth in preceding years, as well as a government move to reduce the debt-to-GDP ratio to 60%, as mandated in the EU Maastricht Treaty.

The current spending formula limited growth in government spending to 1.7%, similar to the population growth rate. The new formula will let the government increase its spending in 2011 by 2.6% compared with 2010. The Ministry of Finance says that the new formula will give it greater flexibility, even while it tries to lower Israel's debt-to-GDP ratio to 60%. (Globes 02.03)

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1.2 Government Approves Transport Upgrade Plan

After several hours of discussion, the Netanyahu government has approved the "Connect Israel" transport infrastructure plan by 19 votes to 4 with one abstention. The vote came after sharp differences of opinion between Minister of Finance Steinitz and Minister for Regional Development Shalom. Steinitz demanded cancellation of the Acre-Karmiel railway line, estimated to cost NIS 7 billion to build, for a total cut in the original plan of NIS 20 billion. Steinitz also demanded that the plan should be spread over fifteen years rather than ten. Shalom however insisted not only that the extra cut should be rejected, but that the Eilat-Kiryat Shmona line should also be budgeted for. The plan that emerged is for an investment of NIS 27 billion to build the Jezreel Valley line and the Acre-Karmiel line, the extension of Route 6 to Cabri, near Nahariya, and electrification of the new lines.

The main cuts in the Israel Transport plan are the NIS 6.5 billion Beer Sheva - Eilat railway, the NIS 3.2 billion Beer Sheva bypass railway, the NIS 4 billion Karmiel-Kiryat Shmona railway, and the NIS 3.5 billion Wadi Ara/Nahal Iron railway from Hadera to Afula. The NIS 4.5 billion Eastern Railway line paralleling Road 6 (the Cross-Israel Highway) has been deferred, as well as the NIS 3.2 billion Zevulun line from Yagur to Shlomi that parallels the present line from Haifa to Nahariya. The Ministry of Finance opposes rebuilding the Jezreel Valley line to Afula and proposes building a light railway from Acre to Karmiel. The ministry believes that railway lines should only be built in areas with severe traffic congestion, specifically in central Israel The Israel Transport plan will have a NIS 250 million budget in 2010, which be increased to NIS 3.25 billion in 2016-20. (Globes 24.02)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 CA CEO Visits Israel After Only Two Weeks In The Job

Globes reported that CA CEO William McCracken arrived in Israel on 17 February, just two weeks after being appointed to the job. An indication of Israel's importance to the software giant can be seen by recent visits by CA founder and vice chairman Russell Artzt, CA EVP strategy & corporate development Jacob Lam, and CA president and COO Michael Christenson. Two weeks ago, McCracken said that CA plans to invest $300 million a year in acquisitions, in order to strengthen its portfolio. Over the past decade, CA has acquired ten Israeli companies, the latest being Oblicore last month for $20 million. CA's Israeli development center has 200 employees. (Globes 18.02)

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2.2 Toe Fix Raises $300,000

Ingrown toenail treatment start-up Toe Fix Ltd. (Footplace) has raised $300,000 from CFC Investors Club and private investors. Haifa's Toe Fix (http://www.footplace.co.il) has developed a patented non-invasive device for the treatment of ingrown toenail, which provides gradual, painless correction of toenail deformities. The device is fitted onto the deformed nail and glued into place and then gradually pulls the ingrown toenail back to its natural position over a relatively short period of time. Toe Fix was founded in 2007 and prior to the current financing round the company had raised $350,000. (Globes 21.02)

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2.3 TowerJazz Named 2009 Supplier of the Year by Skyworks Solutions

TowerJazz has received the 2009 Supplier of the Year Award from Skyworks Solutions, an innovator of high reliability analog and mixed-signal semiconductors enabling a broad range of end markets. The award was granted to TowerJazz based on superior quality, cycle time, flexibility, customer service and cost improvements. In addition, for the second year in a row, TowerJazz received the Best Supplier Award for External Foundry for excellent quality, performance and solid alignment with Skyworks' supply chain requirements. Migdal Ha'Emek's Tower Semiconductor (http://www.towerjazz.com), the global specialty foundry leader and its fully owned U.S. subsidiary Jazz Semiconductor, operate collectively under the brand name TowerJazz, manufacturing integrated circuits with geometries ranging from 1.0 to 0.13-micron. TowerJazz provides industry leading design enablement tools to allow complex designs to be achieved quickly and more accurately and offers a broad range of customizable process technologies including SiGe, BiCMOS, Mixed-Signal and RFCMOS, CMOS Image Sensor, Power Management (BCD), and Non-Volatile Memory (NVM) as well as MEMS capabilities. (TowerJazz 18.02)

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2.4 Morpho Detection's Advanced Technology Selected by Israeli Airports Authority (IAA)

Newark, California's Morpho Detection, part of the Safran group's security business, announced a contract worth up to $50 million to supply the Israel Airports Authority (IAA) with its "System of Systems," the most advanced checked baggage explosives detection system (EDS) available. The Morpho Detection System of Systems consists of an X-ray Diffraction-based XRD 3500 EDS fully integrated with one or more CTX 9000 DSi Computed Tomography-based EDS. The use of orthogonal CT and XRD technologies delivers unparalleled levels of detection and allows airport security operators to enhance security, reduce cost and improve the passenger experience by dramatically reducing false alarms and resultant manual inspections of bags. (Sagem Securite 18.02)

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2.5 Givatayim To Get Israel's Tallest Skyscraper

The Tel Aviv Regional Planning and Building Commission has approved for deposit the Givatayim City Plan, which will include Israel's tallest skyscraper, a 70-storey building with 84,000 square meters of main space. Eurocom Global Real Estate won the Israel Land Administration (ILA) tender for the lot in early February. The lot is zoned for two mixed used buildings for offices, a hotel, residences and commercial space. As part of the policy to increase building rights, the Tel Aviv Regional Planning Commission has allowed consolidation of the building rights to the 10-dunam (2.5-acre) lot, which will make possible construction of the skyscraper. (Globes 23.02)

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2.6 RADVISION's SCOPIA Elite MCU Receives 2009 Video Network Infrastructure Award

RADVISION announced that industry analyst Telepresence (TP) and Videoconferencing (VC) Insight has named RADVISION's SCOPIA Elite MCU as a recipient of its Best Video Network Infrastructure Products of 2009 Awards. RADVISION launched the SCOPIA Elite MCU Series at InfoComm in June 2009. SCOPIA Elite is the industry's first standards-based MCU delivering the combination of 1080p, 720p and H.264 Scalable Video Coding (SVC). Utilizing the latest in DSP technology, SCOPIA Elite supports 1080p processing, telepresence connectivity, dynamic resource allocation and individual video layouts for each participant yielding uncompromised high definition support. SCOPIA Elite is the centerpiece of the company's new and comprehensive SCOPIA V7.0 next generation conferencing solution. The SCOPIA Elite MCU Series ranges from 10 to 30 ports of high definition (HD) Continuous Presence, providing a line of systems to suit a variety of applications and budgets. Each system can also deliver four times the capacity by utilizing SCOPIA Elite's X4 capacity option, maximizing capacity for mixed endpoint environments. If users connect at less than HD, the extra processing power is available for additional capacity. This flexible model with up to 120 ports per system offers significant value and a fast return on investment (ROI).

Tel Aviv'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 24.02)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Small Business Administration Signs MoU with Oman & Bahrain

In a step toward a new era of partnership between the United States and the countries of the Middle East and North Africa, the U.S. Small Business Administration signed Memorandums of Understanding (MOUs) with two Middle Eastern nations. The MOUs, which lay out broad frameworks of mutual engagement and support between the SBA and the governments of Oman and Bahrain, will be followed by detailed plans of action to promote entrepreneurship abroad and support good paying jobs in the U.S. SBA will provide training and support in access to capital, entrepreneurial development and government procurement to strengthen the competitiveness of small and medium enterprises in the region. The first agreement of this kind, the MOU between SBA and the Sultanate of Oman was signed on 16 February at the opening of the Oman SME Financing Conference. On 18 February, SBA and the Kingdom of Bahrain signed a similar agreement. The MOUs are the result of an agreement between the SBA and the State Department's Office of Middle East Partnership Initiative (MEPI) to support entrepreneurial development and provide technical assistance in the Middle East and North Africa. MEPI creates vibrant partnerships between the U.S. and the citizens of the Middle East and North Africa to foster development of pluralistic, participatory and prosperous societies throughout the region. (SBA18.02)

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3.2 Realty Executives International Awards Franchising Rights to Six Countries of the Gulf Region

Phoenix, Arizona's Realty Executives International announced franchising rights to six countries of the Arabian Gulf Region: United Arab Emirates (UAE), Saudi Arabia, Bahrain, Kuwait, Oman and Qatar. The agreement was fully executed on 21 January 2010. In a three-year, phased-growth plan, Franchise Owners Ahmed Alshaer and Eissa Alhateri plan to open 12 brokerage offices with approximately 100 Executives (real estate agents) by Q1/13. The first office will open this quarter in Saudi Arabia followed by a second office in Qatar. Offices in the UAE, Muscat and Oman are slated for 2011; offices in Manama, Bahrain and Kuwait are planned for 2012. Alshaer, formerly with Realogy for Gulf Council Countries, is currently working in collaboration with the UAE governments to build a standardized Multiple Listing Service (MLS) in an effort to streamline inventory listings similarly to the United States' MLS real estate model. (REI 02.03)

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3.3 UAE Leads Arab Importers of US Products

The UAE has emerged as the biggest importer of US goods in the Arab world last year. That is despite the trade value having declined by 16%, to $12.1 billion as the global downturn dampened demand for US vehicles, machinery and components. US car exports to the UAE declined by 57% while aerospace sales surged 19%, led by Boeing aircraft deliveries to Emirates Airline, Etihad Airways and flydubai, the budget airline. The UAE's 16% drop was in the top five as far as smallest percentage drops from 2008 to 2009. Only China, the UK and India were smaller. The UAE was the 19th-largest trading partner with the US last year, while Saudi Arabia was 20th, importing $10.8b of goods, a 13.5% decline from the year before. Israel came in 22nd with $9.5b. (The National 24.02)

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3.4 Atempo Signs MediaCast as Middle East Reseller

Palo Alto, California's Atempo, a leading provider of cross-platform data protection and archiving solutions, announced the addition of MediaCast, a leading technology provider to the Middle East broadcast, film and post-production communities, to its roster of certified partners. MediaCast will resell Atempo Digital Archive (ADA) to data-intensive environments across the media and entertainment industries. MediaCast has been successful in establishing a strong distribution and sales network for Avid, Digidesign and M-Audio products in UAE. MediaCast has established a strategic partnership with Apple and is an appointed Apple Authorized Reseller and Apple Solution Expert. MediaCast, headquartered in Dubai Media City, is a leading distributor and technology solution provider for digital media production. With more than a decade of rich experience, MediaCast (www.mediacastsys.com) caters to production houses and broadcasters throughout the Middle East by providing superior products and unparalleled professional service. (Atempo 25.02)

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3.5 UAE Still the Main Hub For Re-Export Sales

Although the re-export market has slowed down in the past 12 months, it still represents a significant percentage of overall transactions in the UAE. Nearly 30% of the products that enter the UAE are not meant for the domestic market, according to IDC. Based on IDC's estimate that the UAE IT market was worth around $4.1 billion in 2009, the value of re-export sales could be as much as $1.2 billion a year. Iran, Central Asia and Africa remain the primary destinations for products resold from the UAE, while CIS countries such as Kazakhstan have also come to account for a significant portion of the business. Despite a reduction in re-exports contributing to a 15% slump in UAE-based IT spending last year, IDC believes the UAE - and Dubai in particular - is still highly competitive as a trading hub due to its proximity to key markets. That said, sub-distributors and re-exporters in Dubai have expressed fears in the past that business could be jeopardized should vendors ever begin to construct proper in-country distribution channels in under-developed markets. (ITP 19.01)

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3.6 UAE Diabetes Care Market Set To Grow Over 8% Through 2012

Diabetes is one of the fastest growing lifestyle and debilitating diseases in the Middle East region. At present, one out of every five person in the UAE is suffering from diabetes. The concern becomes a bit serious as diabetes is associated with several other chronic diseases like cardiovascular diseases. This has put an extra burden on the country's healthcare spending to allocate more funds for diagnosis, care and prevention. According to a new research report "Diabetes Market in UAE" the UAE diabetes care market is projected to grow at a CAGR of more than 8% during 2010-2012. The report studied the UAE diabetes market by segmenting it into - insulin and non-insulin market. It has found that although insulin care products have a smaller share in the market by volume, they contribute maximum to the total market sales. Each of these two segments have been thoroughly studied and analyzed in the report. Moreover, the report provides an overview of patient profile in the country which will help clients to identify the future demand scenario. The prevalence of diabetes in the UAE has reached an epidemic level and some serious steps need to be taken by the government to spread awareness among people about its social, economic and personal effects, reveals the report. The demand for blood glucose meters and other medical devices will increase at a rapid pace and will introduce major changes in the current market scenario. (BI-ME 22.02)

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3.7 UAE's Futtaim to Open Carrefour Branch in Iraq

The UAE company that operates the Carrefour franchise in the Middle East is looking to open its first store in Iraq as part of a wider expansion plan in the region. Majid Al Futtaim (MAF) Retail manages a joint venture in the Middle East with France's Carrefour, the world's second-biggest retailer by revenue after Wal-Mart Stores. In the past three years, the joint venture opened 14 hypermarkets, bringing its total to 37 in the Middle East. MAF is now turning to countries such as Iraq, Yemen, Oman, Egypt, Iran, Saudi Arabia, Libya and Lebanon to open new Carrefour stores in a bid to tap growing consumer appetite in the Middle East and North Africa. MAF will open the store in Irbil, one of Iraq's largest cities, probably towards the end of 2010. Northern, predominantly Kurdish, Iraq has emerged relatively unscathed from the violence that affected the rest of the country. MAF, owned by billionaire UAE businessman Majid Al Futtaim, traditionally enters markets with Carrefour as anchor tenant of its malls and recently opened a local version, under a different brand name, of the hypermarket in Iran's capital Tehran. MAF is part of Majid Al Futtaim group, the company known for building an indoor ski slope in the Gulf's trade and tourism hub Dubai. MAF has also announced plans to develop projects in Syria, Egypt, Saudi Arabia, Yemen and Oman. The retailer is considering adding Libya to that list in the following years. (AB 19.02)

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3.8 Chiquita Eyes More Juice Bars To Serve Dubai Metro

Cincinnati, Ohio based Chiquita Brands International said on 16 February that it is planning to expand its offering of fruit juice bars on the Dubai Metro network when the next phase of stations open on the Red Line. Chiquita Fruit Juice Bars currently operate in three stations on the rail network, which opened last September, but will increase to 11 as more stations open. When the metro becomes fully operational, Chiquita Fruit Juice Bars will be found at 11 stations around the network. The Dubai locations are the first to be opened under an international master franchise agreement, which establishes the right to grant sub-franchises of Chiquita Fruit Bars within certain countries in the Mideast. The Dubai launch comes on the back of successful products like Just Fruit in a Bottle in Europe and Chiquita to Go in North America. (AB16.02)

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3.9 UAE Diabetes Market Growing

Research and Markets (http://www.researchandmarkets.com) "Diabetes Market in UAE" notes that diabetes is one of the fastest growing lifestyle and debilitating diseases in the Middle East region. At present, one out of every five people in the UAE is suffering from diabetes. This has put an extra burden on the country's healthcare spending to allocate more funds for diagnosis, care and prevention. It is estimated that the UAE diabetes will grow at more than 8% during 2010-2012. The prevalence of diabetes in the UAE has reached an epidemic level and some serious steps need to be taken by the government to spread awareness among people about its social, economic and personal effects. Although insulin care products have a smaller share in the market than non-insulin by volume, they contribute maximum to the total market sales. The report has also found that the demand for blood glucose meters and other medical devices will increase at a rapid pace and will introduce major changes in the current market scenario. (R&M 23.02)

3.10 United Arab Emirates Tourism Report - Q1 2010

Research and Markets (http://www.researchandmarkets.com) "United Arab Emirates Tourism Report Q1 2010" claims that after strong growth in foreign visitor arrivals to the UAE in 2008, there was a mixed picture in H1/09. Arrivals were up slightly year-on-year (y-o-y) in Dubai but down sharply in Sharjah. In Abu Dhabi, during the first seven months of 2009, the number of hotel guest arrivals slipped by just 1% y-o-y. While figures from the hospitality sector on hotel occupancy levels in Abu Dhabi and Dubai during the first 10 months of 2009 suggest a very poor outturn in the tourism sector for the year as a whole. Indeed, some recent data releases have been somewhat opaque. To counter the downturn and boost tourism in 2010 all the emirates are making considerable efforts with promotional campaigns.

The hospitality sector in the UAE experienced sharp falls in occupancy rates in 2009, although they remain relatively high compared with the rest of the region. In Dubai, figures for January-October 2009 show a significant fall of over 13% y-o-y in hotel occupancy rates to an average of 67.9%. Over the same period, Abu Dhabi hotel occupancy rates declined by 9% y-o-y to just under 75%. In Sharjah, hotel occupancy rates during Q3/09 stood at 75%, up slightly compared with Q3/08, following occupancy rates of 64% in H1/09 down 15% y-o-y.

In response to poor hospitality data, R&M revised down their forecast for tourist arrivals to the UAE in 2009 to -5% y-o-y, down from negative growth of 2% y-o-y previously. The poor outlook for the sector in 2009 is based on the impact of severe recession in the US and key European economies North America and Europe together accounted for an estimated 45% of total arrivals to the UAE in 2008 and a significant slowdown in growth in the Middle East. Recovery in arrivals growth is anticipated in 2010 and will pick up from 2011, with robust growth expected over the forecast period through to 2014. The spread of the H1N1 virus (swine flu) has also deterred travel in the region, although at the beginning of December 2009 the UAE had reported a relatively low 79 cases and six deaths from the virus. (R&M 23.02)

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3.11 UAE F&B Operator Considers Mideast & India Expansion

On 15 February, UAE-based Gourmet Gulf Company, which operates top-tier food and drink brands in the Gulf region, unveiled expansion plans for the Middle East and India, targeting 100 units by 2014. The company expansion plans will include opening 17 outlets in 2010. The company, which operates units of top brands including Gourmet Burger Kitchen, California Pizza Kitchen, YO! Sushi and Morelli's Gellato, is set to open seven outlets in Saudi Arabia during 2010 and said it was on the look-out for more. The company's most ambitious thrust will be in India, where JSMGCC India Pvt Ltd - Gourmet Gulf Company's joint venture with Mumbai-based JSM Corporation – will launch new outlets for California Pizza Kitchen and another famous international brand. Gourmet Gulf currently operates 20 units in the UAE, Saudi Arabia, Kuwait, Oman and Bahrain. The company defied the global economic slowdown by launching a new brand, California Pizza Kitchen, in 2009, which it said produced "above expectations results". (AB15.02)

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3.12 Saudi Arabia Information Technology Report Q1 2010

Research and Markets (http://www.researchandmarkets.com) has announced the addition of the "Saudi Arabia Information Technology Report Q1 2010" report to their offering. Saudi Arabia has the biggest IT market in the Gulf region, with a forecast value of $3.7bn in 2010 expected to rise to $5.2bn by 2014. Despite the current economic slowdown, the Kingdom will continue to be a lucrative market for technology products and services over the forecast period as it invests to upgrade its IT and communications infrastructure.

In 2010, Saudi IT spending is forecast to record higher single-digit growth compared with 2009. Businesses are expected to maintain a cautious attitude to IT investments due to the economic headwinds, but there should still be growth areas, with many projects put on hold rather than outright cancelled. There could be a boost, particularly in the second half of the year, from computer hardware tenders delayed from 2009. Saudi Arabia's IT market has a number of positive factors that should help it return to a higher growth path, including a growing population and government projects. BMI predicts that per capita IT spending will reach $196 by 2014, with PC penetration rising to above 30%. Youthful demographics and a growing population will support a positive market trajectory.

In August 2009 the Saudi Council of Ministers approved the establishment of a new joint stock company called Saudi Electronic Information Exchange Company (Tabadul). The new company, which is owned by the state-run Public Investment Fund, has been created to take advantage of opportunities generated by government-driven e-projects. Major activities of the company will include installation and maintenance of IT and communications systems, as well as development, ownership and operation of such systems. (R&M 23.02)

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3.13 Saudi's Herfy Plans 17 New Fast Food Restaurants

Herfy Food Services Co, Saudi Arabia's largest fast-food chain, plans to open 17 new restaurants this year, bringing the total number of branches in the kingdom to 173. The company has recently opened three restaurants in Ras Tanura, Riyadh and Dammam. Earlier this month the company began an IPO on the Saudi bourse to raise $110.2 million. Savola Group, the Middle East's biggest edible oil manufacturer and sugar refiner, said it would net a capital gain of $53.3 million from the offering. Herfy was set up in 1981 with a capital of $399,978 and currently has a paid up capital of $71 million. By mid June last year, Herfy had restaurants in Saudi Arabia, Bahrain, Egypt, Kuwait and the UAE. It also owns 16 bakery production units as well as one meat processing plant. (Various21.02)

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3.14 Egypt's Dina Farms in Deal to Purchase 850 US Cows

Dina for Agricultural Investments (Dina Farms), Egypt's largest dairy producer, said it has concluded a deal to import an additional 850 Holstein heifers from the US as part of its ongoing expansion plans. Dina Farms, the agricultural arm of integrated regional multi-category consumer foods platform Gozour, said it plans to take receipt of the new cows by the middle of this year. The total herd of milking cows at Dina Farms is expected to reach 10,000 by 2012. The news comes as Dina Farms continues to expand and improve its existing facilities, which supply Egypt's major dairy manufacturers with high quality milk. The company also announced that it has signed a $2 million agreement to acquire a state-of-the-art equipment for its dairy facility. The high-tech climate control system, which is the first of its kind in Egypt, will increase milk productivity by 10% from late spring through early fall, when temperatures peak. With an annual production capacity of 50,000 tons of milk, Dina Farms is Egypt's largest dairy producer. In early 2009, Dina Farms purchased 1,900 new pedigree Holstein heifers from North America. (TradeArabia 24.02)

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3.15 Turkish Steel Industry Faces Tough Challenges

At a steel conference held in Istanbul on 24 February, steel market analysts and businessmen discussed challenges facing the steel industry globally and in Turkey. Turkey has just begun its recovery, but it will be slow. Steel consumption will remain below pre-crisis levels because it has been directly affected by the global macroeconomic crisis. One major concern of conference participants was the impact that China's soaring steel market is having on the sector. Turkey's steel industry is suffering in the current global economic downturn partly due to a decline in the real estate sector. However, the massive demand Chinese steel companies are creating for raw materials, such as the iron ore that goes into steel production, is also raising the basic cost of production for steel companies around the world. This is negatively affecting companies' ability to stay competitive. Iron ore producers in Latin America have raised their prices by 80% this year. China, because of its purchasing power, managed to negotiate supplies of raw materials for a price only 40% higher than last year. Turkey's top export region for steel is the Middle East. However, the Turkish steel industry, like in most countries, sells mostly to its domestic market. Within Turkey's domestic market, the Marmara region accounts for 75% of consumption. Another factor affecting the Turkish market is that domestic competition is so fierce. There are more than 20 facilities in Turkey and their fragmented structure creates competition. (Hurriyet 24.02)

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3.16 Closure Systems International and Has Plastik Announce Strategic Partnership in Turkey

Indianapolis' Closure Systems International (CSI) and Istanbul, Turkey's Has Plastik announced the creation of a new strategic partnership aimed at accelerating the growth of both companies while delivering greater value to global and regional beverage bottlers in Turkey and the surrounding regions. This partnership will bring together two world-class suppliers offering closures, packaging equipment and technical services. The positive benefits will include an expanded geographic footprint for customers and a wider array of product offerings, along with a proven track record of superior customer service. The partnership will offer closures from a manufacturing site located near Istanbul, Turkey with shipments scheduled to begin during Q1/10. The flexible plant design incorporates the ability to scale up quickly and efficiently to support future growth. CSI is recognized as a global leader in closure design, manufacturing, and high speed application systems. Has Plastik is committed to meeting the needs of customers by providing a wide array of economical capping solutions using state-of-the art manufacturing processes and services. (Has Plastik 23.02)

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3.17 Olympic Air & Aegean Agree To Merge

Greece's two largest airlines, Olympic Air and rival Aegean, have agreed to join forces in a bid to survive the country's economic downturn and increased competition in the aviation industry. The main shareholders of Olympic Air, Marfin Investment Group (MIG), and Aegean, the Vassilakis group, have agreed on the merger to create an airline servicing 106 domestic and international routes, employing 5,850 staff members and operating a fleet of 64 planes. The new company will carry the Olympic Air name. The Vassilakis group and MIG will each hold an equal stake in the newly formed venture, the two companies said in a joint statement which did not provide any financial details. The two airlines surprised the market in mid-February when they announced that they were in talks to create a single company that will have annual sales in excess of €1 billion. The agreement between the two airlines, which jointly control 95% of Greece's air travel market, is subject to approval by European Union competition authorities. (Ekathimerini 22.02)

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3.18 Bulgarian Computer Market Slumps 20% In 2009

The Bulgarian computer market declined by 21.5% during 2009, according to data published by technology industry analysts IDC. The general economic crisis was the root cause of reduced sales demand in both the business and personal computer sectors. This was true even for the final quarter of the year, which is traditionally a stronger period because of Christmas sales. The decline in Bulgaria was even more marked than the average for Central and Eastern Europe. Local factors included a squeeze on available credit, and a general decline in purchasing power, whether personal or commercial. Lack of confidence in the market also played a negative role. Even the popular laptop sector saw a significant decline in sales, registering a drop of 16.2% over the year. Sales of desktop computers were hardest hit, dropping by 29.5% during the course of 2009. The volume of server sales, however, fell by only 8.2%. The total market share of the three largest suppliers in Bulgaria - HP, Acer and Asus - topped 40% for the year. (SMN25.02)

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3.19 Flowserve Receives $31 Million Pump Order for Largest Bulgarian Oil Refinery

Dallas, Texas' Flowserve Corporation, a leading provider of flow control products and services for the global infrastructure markets, announced a pump and solutions order worth more than $31 million, from LUKOIL Neftochim Burgas AD for Flowserve proprietary ebullating pumping systems and heavy-duty high-energy barrel pumps. The contract was signed in the first quarter of 2010. LUKOIL Neftochim Burgas AD, a subsidiary of Russian oil giant LUKOIL, is the largest oil refinery in the Balkans. The pumps will be used in the refinery's new H-Oil & VGO complex in Burgas, Bulgaria, which converts heavy residues to high-valued products. The H-Oil & VGO complex has expected capacity of 47,000 bpd. Flowserve ebullating pumps are the only pumps in the world that can withstand the high temperatures and pressures required by the H-Oil RC process used at the Burgas ebullated bed hydrocracker. The pumps will be equipped with Flowserve Technology Advantage Online Assurance, a program available through the newly formed Flowserve Integrated Solutions Group that is designed to provide 24/7 monitoring and life-cycle management to optimize asset availability. Flowserve will support the LUKOIL Neftochim Burgas H-Oil & VGO project through its global network of Quick Response Centers (QRCs). QRCs offer a wide range of service and support activities to help customers maximize the effectiveness of their operations. (Flowserve 25.02)

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3.20 Bulgaria Customs Agency Debuts AS&E's Z Backscatter Van X-ray Inspection System

Billerica, Massachusetts' American Science and Engineering (AS&E), a leading worldwide supplier of innovative X-ray detection solutions, announced that the National Customs Agency of Bulgaria has debuted the Company's top selling proprietary Z Backscatter Van (ZBV) mobile X-ray inspection system. AS&E's ZBV will inspect cargo and vehicles entering Bulgaria's borders for contraband and threats. The ZBV has proven its ability to quickly and safely find contraband, including alcohol, tobacco, and other legal goods, smuggled to evade duties. With over 450 systems sold to over 90 customers in 47 countries to date, AS&E's ZBV is the number one selling non-intrusive mobile inspection system on the market. AS&E is the leading worldwide supplier of innovative X-ray inspection systems. With over 50 years of experience in developing advanced X-ray security systems, the Company's product line utilizes a combination of technologies, including patented Z Backscatter technology, Radioactive Threat Detection (RTD), high energy transmission and dual energy transmission X-ray. These technologies offer superior X-ray threat detection for plastic explosives, plastic weapons, liquid explosives, dirty bombs and nuclear devices. (AS&E 02.03)

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 GreenRoad Secures Additional Financing To Accelerate Growth

GreenRoad has secured $10 million in financing to continue to accelerate the deployment of its GreenRoad 360 service among existing and new customers. GreenRoad 360, its proprietary technology-based service, provides drivers and fleet managers with real-time, comprehensive and preventative feedback, analysis, reporting and coaching on drivers' abilities, maneuvers and patterns. Driving behavior is the largest single contributor to driving safety and fuel efficiency and costs the US and Europe over $500 billion dollars per year. A typical GreenRoad customer sees up to a 50% reduction in crash costs and up to a 10% reduction in fuel consumption within the first year. As a result, GreenRoad delivers an innovative solution that saves lives, saves fleets money in top vehicle expense categories (fuel, crash, wear & tear, insurance) and provides a cost-effective way to reduce emissions. The Generation IM Climate Solutions Fund, LP has invested $10 million of equity capital in Greenroad to support the expansion of its business. Generation's investment approach is centered on the idea that sustainability factors must be fully integrated into investment research for superior long-term results. GreenRoad (http://www.greenroad.com) is headquartered in Redwood Shores, Calif., with an R&D Center in Beit Dagan, Israel. (GreenRoad 22.02)

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4.2 Fast Company Names SolarEdge One of the World's 10 Most Innovative Companies in Energy for 2010

SolarEdge Technologies announced today that Fast Company Magazine selected the company as one of the World's Top 10 Innovative Energy Companies for 2010. SolarEdge was selected for its unique and innovative approach to boosting PV system output. SolarEdge's system, which incorporates a multi-string solar inverter, PowerBoxes which are per-module power optimizers, and module-level solar monitoring software, enables cost-efficient production of up to 25% more energy from any PV installation. The company attracted $23 million in funding last year, including an investment from GE Energy Financial Services. The company works with industry-leading partners such as BP Solar, Schott Solar and Isofoton, to embed its technology into photovoltaic panels to increase their power output. The Fast Company editorial team analyzed information on thousands of businesses across the globe, striving to identify creative models and progressive cultures.

Hod HaSharon's SolarEdge (http://www.solaredge.com) provides the world's first end-to-end Distributed Solar Power Harvesting and PV Monitoring Solution, allowing maximum energy production at a lower cost per watt. The company works with industry-leading partners to embed its active electronics directly into PV panels. The SolarEdge PowerBoxes are DC-DC power optimizers that perform MPPT per individual panel while monitoring performance of each panel and communicating across existing power lines. Moreover, PowerBoxes always maintain a fixed DC string voltage, allowing optimal efficiency of the SolarEdge multi-string PV inverter, which is tailor made to work with power optimizers. As a result, the SolarEdge system provides more power from any given installation, eliminates design constraints, provides complete panel-level and whole-system visibility for monitoring and maintenance alerts, solves all safety hazards and provides anti-theft mechanisms, all while reducing the cost of energy. (Fast Company 26.02)

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Iran Threatens To Ban Airlines Over 'Arabian Gulf' Name

Iran has threatened to ban airlines from using its airspace if they refer to the waterway between Iran and Arab states as the "Arabian" instead of "Persian" Gulf. The unusual move reflects tension in the region over Iran's dispute with the United States and its allies over its nuclear enrichment activities and the position of Arabian Peninsula states caught between ties to Washington and fear of Tehran. Gulf Arab states share US anxiety that Iran seeks to develop a nuclear weapons capability. Most of them offer facilities to US military forces and some have heavily purchased US weaponry in recent years. The warning seemed directed at airlines based in the Gulf Arab countries and flying into Iran, but the newspaper report also said Iran had taken action against a foreign employee of one of its own airlines. A Greek employee of Iranian commercial carrier Kish Air had been fired for using the term "Arabian Gulf" on a display board, and the airline had been asked to apologize over the incident. The Saudi-based Islamic Solidarity Sports Federation said last month it had scrapped the Islamic Solidarity Games which were to be held in Iran in April because of a dispute over whether the Gulf waterway is "Arab" or "Persian". Designation of the key waterway for global oil and gas supplies has long been a touchy issue among the countries bordering it - Saudi Arabia, Kuwait, Qatar, Bahrain, the UAE, Oman, Iraq and Iran. Iran says it is the Persian Gulf, the Arab states say it is Arab. Foreign language descriptions can offend either party if they use one name or the other, or sometimes if they avoid an adjective altogether. The dispute over Iran's nuclear energy program, which Tehran says is aimed solely at generating electricity, is part of a wider concern among Sunni Muslim-led Arab governments over Iranian expansionism in the Middle East. Iran has a network of allies including Shiite groups in power in Iraq, the Syrian government, Lebanon's Hezbollah and the Palestinian Islamist group Hamas that rules Gaza. (Reuters22.02)

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5.2 Investment in the Kurdistan Region of Iraq Surpasses $12 Billion

Non-oil investment in the Kurdistan Region of Iraq totaled more than $12 billion over the last three years, according to the Board of Investors of the Kurdistan Regional Government. While the rest of Iraq struggled for stability, the Kurdistan Region saw an influx in development and economic growth. The primary source of investment in the Kurdistan Region was the local housing sector, which saw an increase of $4.7 billion. The banking sector followed at $2.29 billion. Of foreign investment in the Region, Kuwait and Lebanon contributed the most, with approximately $3.1 billion, representing a quarter of total investment during the period. Total investments from within Iraq totaled $8.59 billion. Overall, about 70% of foreign investment in the Kurdistan Region comes from neighboring Turkey. The Kurdistan Region, which is the safest and most stable part of Iraq, issued 241 investment licenses from 2006 to present, with Erbil cited as the most sought after investment location. Currently, a $6 billion deal with the United Arab Emirates is pending.

The Kurdistan Region of Iraq has a burgeoning economy built upon progressive economic policies and growing government transparency. Investment opportunities span every sector, including oil and gas, electricity, energy, agricultural and the service industries. The government remains committed to lowering barriers of entry for new business. (KRG 18.02)

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5.3 IMF Announces That Qatar Will Grow 18.5% in 2010

The IMF expects Qatar's economy to grow 18.5% in 2010 after an estimated 9% growth in 2009. Rapid expansion in LNG production and a pick up in manufacturing and construction are set to support strong performance this year, the fund said. In 2009, a sharp fall in domestic house rents led to deflation. Currently, inflation is expected at around 1% in 2010, on account of increases in international prices for food and raw materials and the impact on domestic prices of planned infrastructure investments. According to the IMF, Qatar's medium-term outlook remains positive, with continuing strong growth, moderate inflation and fiscal and external current account surpluses. At the same time, risks to this outlook include a slow global recovery, a large further decline in real estate prices and reduced availability of financing for projects. The IMF said Qatar must make "sustained efforts" to improve its ability to absorb infrastructure spending and reduce the economy's reliance on energy exports. (BI-ME 20.02)

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5.4 IMF Completes Article IV Consultation with the UAE

The IMF concluded its Article IV consultation with the UAE. The Executive Directors commended the UAE authorities for their decisive response to shocks from the global financial crisis, lower oil prices and the bursting of the Dubai bubble. They noted, however, that these shocks, together with the recent announcement that Dubai World (DW) would seek a six-month debt standstill, have raised important challenges for the UAE economy. Directors agreed that the prospects for the UAE economy, given its underlying strengths, remain favorable. They indicated that it will be important, however, to embark on a more balanced and sustainable growth path over the medium term. Directors welcomed the steps taken by the authorities to strengthen confidence in the banking system, but noted that the DW event had highlighted the need for additional contingency planning measures. Directors welcomed recent initiatives aimed at improving policy coordination at the federal level, including the establishment of a Fiscal Coordination Committee, the development of multi-year expenditure plans, and the introduction of debt management units. Looking ahead, they encouraged the authorities to rationalize investment decisions at the federal level, and to respond flexibly to the uncertainties surrounding the global outlook. Directors underscored that, given the limitations of monetary policy, fiscal policy should continue to play an important role in supporting economic activity. Most directors agreed that the exchange rate peg to the US dollar has provided a credible anchor and contributed to macroeconomic stability. The IMF projected real growth of -0.6% in 2009 and 0.6% in 2010, inflation of 1% and 1.5% in each year, a budget balance to GDP of 0.4% in 2009 and 9.8% in 2010 and a current account/GDP of -2.7% in 2009 and 7.3% in 2010. (IMF17.02)

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5.5 Moody's Says UAE Banks Could Absorb Dubai World Losses

UAE banks, which are owed about $15 billion by Dubai World, may be able to absorb losses if they are repaid 60 cents on the dollar, according to Moody's Investors Service. UAE banks would incur losses amounting to only around 9% of their capitalization as of year-end 2009, Moody's wrote in a report. This would hurt 2010 profits, but not jeopardize solvency. The banks' Tier 1 ratio, a measure of financial strength, is unlikely to drop below the required minimum of 8% even if they take a 40% "haircut," according to the ratings firm. UAE banks, 13 of which are rated by Moody's, "are in a position to weather sizeable haircuts," though a potential haircut loss will hurt their ability to borrow money at attractive rates, today's report said. The cost to protect against a default by Dubai on February 15 rose to the highest level since March at 651.3 basis points. The contracts have fallen to 611.87 basis points by February 19, according to CMA DataVision prices on Bloomberg. (BI-ME 22.02)

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5.6 World's Largest Airport Opens on 27 June in Dubai

Al Maktoum International, the world's largest airport and part of the $33 billion Dubai World Central development in Jebel Ali, will open on 27 June, starting with freighter operations. Passenger operations will be introduced at a later date. Dubai Airport is in advanced talks with various international airlines to start operations from the facility. Officials, however, declined to give an exact date as to when passenger operations would begin. (AB 23.02)

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5.7 Dubai White-Collar Jobs Down By 17%

Dubai lost 17% of its professional workforce in 2009, with western foreign nationals hit the hardest, according to recruitment agency GulfTalent. The emirate has been rocked by a debt crisis that came on the heels of a property downturn. Across the region, redundancies appear to have disproportionately hit senior executives and western nationals. Despite Dubai's woes, the United Arab Emirates (UAE) remained the most attractive market in the region for expatriate professionals, with 74% of people surveyed by GulfTalent saying they wished to stay there. As a whole, the country's professional workforce fell 16%, the survey showed. Sharjah in the United Arab Emirates and Bahraini capital Manama followed, shedding 14.4% and 12.8% of their workforces. Salary growth also slowed in the region, with the average pay increase at 6.2% compared with 11.4% in 2008. GulfTalent saw little change in 2010, predicting growth of 6.3%. In 2009, the UAE's average pay rise was 5.5%, down from 13.6% the previous year. In contrast, Oman saw an 8.4% rise, while Qatar, Bahrain and Saudi Arabia posted 7% increases. The GulfTalent report was based on an online survey of 24,000 professional employees at the region's 3,000 largest corporations as well as a poll of 900 human resources managers and other interviews and reviews. (Reuters 22.02)

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5.8 Saudi to Double Technology Spending To $4.27 Billion

Saudi Arabia's King Abdulaziz City for Science and Technology will double spending on technology research over the next five years to $4.27b, a senior official at KACST said on 16 February. The kingdom has highlighted 11 areas of technology including oil and gas, water, and nanotechnology as part of its strategic plan, Prince Turki Bin Saud Bin Mohammed Al Saud, vice president for research institutes at KACST, the national science agency, told a conference in Jeddah, Saudi Arabia. Saudi has already started building the first solar-powered water desalination plant, the first step in a three-part program to introduce solar energy into the Kingdom. The program, launched by KACST aims to help stabilize future power and water supplies inside Saudi Arabia through the creation of solar-powered desalination facilities. (AB 16.02)

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5.9 Egypt's January Inflation Rate Hits 7.39%

The Central Bank of Egypt published the monthly inflation report, providing details on the breakdown of the change in the core inflation index. Annual core inflation had risen to 7.39% in January, from 6.85% in December due to higher changes in food prices. While the recent rise in monthly core inflation is significantly above the average pace of 0.56% (m/m) witnessed in 2009, it was largely driven by higher food prices of poultry and red meat, which together accounted for 0.77% points of the month-on-month increase. Meanwhile, retail prices and paid services were unchanged in January, in continuation of their subdued dynamics since early 2009. Hence, inflationary pressures are assessed to have remained weak through January 2010, assed the CBE. The annual change in food prices excluding poultry was 4.1% in January, compared to 3.2% in December 2009, while poultry prices rose by 1.9% in January from 1.5% in December. Core inflation could fluctuate in the coming months with the seasonal changes that could affect food prices. (Belstone 18.02)

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5.10 Egyptian Government Cleared for Israel Gas Exports

On 27 February, a Cairo court gave the Egyptian government legal clearance to allow natural gas exports to Israel, cancelling a lower court's verdict to stop exports. The Higher Administrative Court, an appeals court for cases involving the state, also ruled Egypt should monitor the price and quantity of its exports and ensure it met local energy needs before exporting. The ruling capped a legal battle that caused public controversy, particularly focused on the price of gas sold to Israel. Gas started flowing to Israel through a pipeline for the first time in May 2008 under an agreement signed in 2005 for the supply of 1.7 billion cubic meters a year over 20 years. In November 2008, a Cairo court overruled the government's decision to allow the exports after a group of lawyers filed a suit against the state, saying the Israelis were buying the gas at prices below the international level. The Egyptian government is reluctant to reveal the price it receives for natural gas exports. A court ruled in February 2009 that gas exports could continue pending a review of the November ruling, although the government had ignored the verdict anyway. Egypt exports gas to Israel and Arab states by pipelines and also ships liquefied natural gas (LNG) abroad. In 2008, it said it would not sign any new gas export contracts until 2010 in order to meet rising local demand. (Beltone28.02)

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5.11 Egypt's Unemployment Rate Continues to Rise

The unemployment rate in Egypt rose to 9.40% in Q4/09, from 9.36% in Q3/09, with the labor force reaching 25.2 million people, according to the government statistics agency CAPMAS. Unemployment had risen to this level from a low of 8.4% in Q2/08, as economic reforms increased the ability of the private sector to absorb more entrants to the labor market, estimated annually to be around 600,000. With the impact of the global and domestic slowdown running their course, unemployment rebounded. Pundits expect unemployment could reach 10% in Egypt as the private sector has opted to keep its skilled labor, but not take on new hires. There is a shortage in skilled labor in Egypt, compared to an excess of semi-skilled university graduates who need extensive training to become eligible for the Egyptian labor market. (Beltone 23.02)

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5.12 Egypt's FDI Will Fail To Reach Targeted $10 billion

The hope for $10 billion in foreign direct investment, one of Egypt's most important contributors of foreign currency and source of capital for increased production capacity and job growth, will fail to materialize for fiscal year 2009/10. After experiencing a high of $13 billion in fiscal year 2007/2008, the government set $10 billion as the goal. In December, Investment Minister Mohieldin described "a good reaction and response to some specific infrastructure projects." He mentioned utilities, medical centers, and roads as areas "that are going to be getting us what we're after, from the Asian countries, some infrastructure funds based in Europe and from some of the Gulf countries." However, with four months remaining and FDI coffers at only $2.6 billion as of December, garnering almost $8 billion would be unlikely, even if global economic growth for the final quarter of the fiscal year jumped considerably.

The Central Bank of Egypt released more promising numbers on its balance of payment (BOP) figures. For the first time since the first quarter of FY2008/09, growth in non-hydrocarbon exports reached 20% growth on a quarterly basis, registering 0.1% above last year. At the same time, hydrocarbon and non-hydrocarbon imports declined year-on-year, at 60% and 10%. The merchandise trade deficit declined from $7.6 billion in Q2/2008/9 to $4.7 billion in Q2/2009/10. The figures were interpreted by Beltone Investment Bank as resulting from a slight recovery in the appetite for Egyptian exports. Consumer goods imports did increase, and will likely continue to rise more quickly than export growth, again widening the trade deficit. (DNE22.02)

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5.13 Egypt Will Not Lift Sales Tax Exemption on Imported Capital Goods

Egypt's exemption on imported capital goods from sales taxes will not be renewed. The exemption had been implemented by the Ministry of Finance in January 2009 for one year as part of the government's first fiscal stimulus package of EGP15 billion in FY2008/9 to help the private sector deal with the impact of the global crisis. The package had included EGP1 billion in sales tax exemptions on capital goods, around EGP1.2 billion in the form of lower customs on imported goods and the remaining capital spending by the government on infrastructure projects to help boost real demand in the economy. A package of EGP8 billion is being spent in the current fiscal year 2009/10, with another EGP11.2 billion in the pipeline, awaiting parliamentary approval for spending in the current fiscal year. The latter package will be financed by economic authorities and not directly from the budget, thus not impacting the budget deficit. The government projects a deficit of 8.4% of GDP this year, while we expect 9.1% due to possibly higher spending on subsidies and investments. (Beltone 21.02)

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Cyprus' Trade Deficit Reduced By €1.4 Billion In 2009

Cyprus' trade deficit reached 4€.3 billion in the first eleven months of 2009, reduced by €1.4 b, compared to the corresponding period of 2008, figures released by Eurostat on 16 February show. According to Eurostat first estimates, Cyprus' total imports reached €800 million, marking a 20% decrease compared with the first eleven months of 2008. Cyprus' total imports decreased by 24%, reaching €5.1 b. Regarding the EU, imports from China declined by 14%, reaching €196.6 b. Imports from Russia also decreased by 38%, reaching €103.9b, whereas imports from the US declined by 15% compared to the first eleven months of 2008 reaching €146.8 b. EU exports to China increased by 2%, reaching €73.7b, whereas exports to Russia decreased by 39%, reaching €59.9b and exports to the US declined by 19%, reaching €187.6b. Hence the EU trade balance recorded a surplus of €40.7 b concerning transactions with the EU, whereas trade with China and Russia recorded a deficit of €122.9b and €44b respectively. (Eurostat 17.02)

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6.2 Bulgaria Finance Minister Says No Belene Nuclear Plant Without EU Investor

On 22 February, Bulgarian Finance Minister Djankov said the project to build the second Nuclear Power Plant (NPP) in the Danube town of Belene can materialize only if an European investor is selected. Djankov was firm the project is going to be scrapped if the State does not find European financing. On 19 February, after meeting his Russian counterpart Shmatko, Bulgaria's Energy Minister Traikov announced Russia is going to grant Bulgaria a loan for the Belene construction. On that same day, the government announced the tender for selecting a financial consultant to help it pick a strategic investor in the Belene NPP. Traikov said after the meeting that a Russian €2b loan will be granted to Bulgaria without any corporate or state guarantees. The aim of the loan is to proceed with the construction phase of the project even though a strategic foreign investor has not been selected yet as the German company RWE withdrew in the fall of 2009. Djankov said that the elimination of the request for state guarantees in order to conclude the deal is great success. Until the last offer in December, Russia insisted on such guarantees or a guarantee from the National Electric Company in order to grant the loan. (SMN23.02)

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Israel to Erect Red Army Memorial To Commemorate Crucial Role In Victory Over Nazis.

Prime Minister Netanyahu told Russian Prime Minster Putin that Israel will erect a memorial commemorating the Red Army's crucial role in the victory over the Nazis. Netanyahu said the gesture, which he intends to promote, is in honor of the 65th anniversary of the victory over the Nazis later this year. This move comes amid growing concern in Russia that their role and sacrifice in the victory over Nazism is increasingly being underplayed. Putin, saying that it was forbidden to forget the Nazi victims and that the Jews and the people of the former Soviet Union suffered more than anyone else at the hands of the Nazis, said he was currently in discussion with Moscow's chief rabbi about the possibility of establishing a Holocaust museum in Moscow. Netanyahu said he hoped the memorial would be erected before Putin's next visit to Israel, expected within the year. (Various 17.02)

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7.2 Israel's Wettest Winter in 5 Years Brings Kinneret Over Red Line

Israel's Kinneret (Sea of Galilee) has floated up from a dangerous drop in water levels thanks to the recent largest rainfall to fall in Israel in five years. Several days of heavy rains have left most regions of the country with a higher-than-average accumulated rainfall and have brought the Kinneret above the "red line," the level that is warning sign the lake is approaching a point where it is potentially dangerous to draw water. The "red line" is located 213 meters below sea level. In recent years, the government added a "black line," at 215 meters below sea level, beyond which water absolutely should not be drawn. In 2009, the water level in the Kinneret sunk to 214.37 meters below sea level following five years of drought and was dangerously close to the black line at the end of last summer. However, the reservoir still lacks 13 feet of water before dams would have to be opened to prevent local flooding. Water Authority officials said on 28 February that the Kinneret had risen by more than nine centimeters since the previous week. The heavy rains that began falling left most northern areas and the northern and central Negev with an annual accumulated rainfall more than 100% of the average for the entire season. Jerusalem, Beer Sheva and Tel Aviv have received nearly 100% of their average accumulated rainfall this year. (IsraelNN 28.02)

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*REGIONAL:

7.3 Egyptian Presidential Hopeful Steps Up

Nobel Peace Prize winner Mohammed ElBaradei received a hero's welcome when he recently returned to his native Egypt as a possible contender for the presidency, a politically explosive challenge to the country's power elite. The former head of the UN's nuclear watchdog agency has repeatedly called for democratic reforms in his homeland and has made a point of not ruling out that he will challenge President Hosni Mubarak, who has held power under emergency laws since 1981. ElBaradei has made his candidacy conditional only if an independent judicial review and international oversight of the election was guaranteed. He also called for the repeal of a 2005 constitutional amendment that effectively prohibits independent candidates from running for president. So, going after the top slot would be a risky enterprise in a country where human rights abuses abound and where political opposition is barely tolerated. The prospect of ElBaradei, who won the Nobel Peace Prize in 2005 for his efforts to curb nuclear proliferation, clearly makes the regime uneasy.

The state-controlled press has vilified the former diplomat, who has no party organization to back him up but has come to be seen as a champion of the masses and what one European newspaper described as a "dissident leader-in-waiting." Indeed, Al-Ahram, Egypt's leading newspaper and government-controlled, branded the swelling campaign behind ElBaradei as "tantamount to a constitutional coup." It is widely believed that Mubarak, a former air force commander who has never designated a deputy, is grooming his son, Gamal, to succeed him. Mubarak is 81 and by all accounts is in poor health. He has not yet said whether he plans to run for a sixth term in 2011.

There is widespread opposition in Egypt to the emergence of a republican dynasty and growing resentment of the power elite who run the country. If the younger Mubarak, a business tycoon who in recent years has made a meteoric rise to the upper echelons of the ruling National Democratic Party, does inherit the presidency, he will follow the trail blazed by President Bashar Assad of Syria. He became head of state after his father, Hafez, died in June 2000. His father, who had ruled Syria with an iron hand since 1970, had groomed him for the post. In Yemen, President Ali Abdullah Saleh is seeking to do the same with his son Ahmed, who holds several key military commands. Libya's leader, Col. Moammar Qaddafi, who has been in power since 1967, is expected to install one of his sons when he dies or steps down. In all these countries, authoritarian rule has been established for decades, with little prospect in the foreseeable future of sweeping democratic changes propelling popularly elected figures to power.

All of the Arab states, whether republics or monarchies like Saudi Arabia and Jordan, are to one degree or another police states where the democratic process, if it exists at all, is harnessed by the state. (UPI 22.02)

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7.4 Bulgaria Delays Tough Smoking Ban Till 2011

Bulgaria's ruling party may delay until 2011 the introduction of a new smoking ban in the country, which has the second highest percentage of smokers in the European Union. The postponement in the introduction of the ban, initially set for June this year, aims to avoid hurting the tourist industry during times of crisis, according to the Finance Minister Djankov. Under the proposed changes the owners of restaurants, clubs and coffee shops with an area less than 100 square meters, should decide if smoking would be allowed, while for larger establishments there must be a well-isolated smoking space. The full ban is to remain effective for all other public spaces. The smoking ban was voted by the previous Parliament and is part of the Health Act amendments. Bulgaria ranks second after Greece in the EU in terms of number of regular smokers as a percentage of the population, according to a Eurobarometer survey. (SMN24.02)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Obecure Patents Cover Adjunctive Use of Betahistine to Mitigate Olanzapine Associated Weight Gain

Obecure received notice of allowance from the US Patent Office for its two key patent applications covering methods of use and compositions covering the use of betahistine with olanzapine for the mitigation of the serious weight gain associated as a side effect of the antipsychotic drug. Obecure is focused on development of Histalean (high dose betahistine) as adjunctive to antipsychotic drug therapy for improved treatment of schizophrenia, bipolar disorder and major depression. Obecure has recently announced the outcomes of randomized, placebo controlled Phase 1b and pilot Phase 2 trials, showing that co-administration of Histalean with olanzapine (Zyprexa), safely and significantly reduced weight gain and somnolence, two of the most serious side effects associated with this drug, as with most of the second generation antipsychotics as a drug class, also including risperidone (Risperdal), quetiapine (Seroquel) and aripiprazole (Abilify). These antipsychotic drugs are widely used to relieve symptoms of serious psychiatric diseases including schizophrenia, bipolar disease and major depression with cumulative prevalence >5% and early onset in adolescence and even childhood. However, in recent years there has been growing concern of regulators and practitioners about these drugs' induction of weight gain. Recent publications suggest that olanzapine causes an average weight gain of about 8 kg in just 12 weeks. This not only reduces patients' compliance, but also exposes them to metabolic syndrome, diabetes and cardiovascular disorders; a concern which has resulted in FDA's issuance of black box warnings, and which has greatly affected prescription decisions. Moreover, daytime sleepiness (somnolence) induced by these drugs is seriously impacting patients quality of life – prohibiting driving, hampering their ability to hold jobs and/or continue with their education. The Company has recently extended its clinical supply agreement with Grunenthal-Italy to include higher dose extended release formulations of betahistine and is planning to initiate follow-on escalating dose clinical trials this year.

Founded by Bio-Light in 2005, Ramat Gan's Obecure (http://www.obecure.com) has a worldwide exclusive license from Mor Research Applications, the Technology Transfer Office of Clalit HMO to clinically develop and commercially exploit the technology. Bio-Light Israel Life Science Investments (http://www.bio-light.co.il) is a holding company traded publicly on the Tel Aviv Stock Exchange. Bio-Light specializes in life science technology development and currently operates a group of three subsidiary companies: Obecure, Ioptima and Zetiq. (Bio-Light 22.02)

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8.2 BrainStorm Enters into Collaborative Agreement with Hadassah to Conduct Clinical Trials

BrainStorm Cell Therapeutics has entered into a collaborative agreement with Jerusalem, Israel's Hadassah Medical Center to conduct its ALS clinical trials at the Hadassah Ein Kerem Hospital. Hadassah's Helsinki Committee has approved the commencement of clinical trials with BrainStorm on condition of approval by the National Helsinki Committee of Israel's Ministry of Health. Hadassah is an internationally recognized medical facility and has vast medical expertise in treating patients through the use of stem cell therapies. BrainStorm's differentiated stem cells have proven more effective on animal models as compared to other stem cell therapies. The agreement that was signed with Hadassah, through its technology transfer company Hadasit Medical Research Services and Development Co., calls for the Company's ALS clinical trials to be performed at Hadassah utilizing Hadassah's state-of-the-art medical facility and physicians and their experience with injecting patients with mesenchymal stem cells. The agreement also provides the Company with the use of a dedicated laboratory and equipment. Work at the lab will be carried out by the Company's employees under the supervision of the Company's supervisor together with Hadassah's supervisor of good manufacturing practice standards.

Hadasit (http://www.hadasit.co.il), the Technology Transfer Company of Hadassah, promotes and commercializes its continuously generated intellectual property (IP) and R&D capabilities. IP generated by Hadassah has already gained global recognition due to Hadasit's successful enterprising of Hadassah's biomedical technology, including novel therapeutics, diagnostics and devices. Petah Tikva's BrainStorm Cell Therapeutics (http://www.brainstorm-cell.com) is an emerging company developing adult stem cell therapeutic products, derived from autologous (self) bone marrow cells, for the treatment of neurodegenerative diseases. The technology allows for the differentiation of bone marrow-derived stem cells into functional neurons and astrocytes, as demonstrated in animal models. The Company's current focus is on ALS, although its technology has promise for treating several other diseases including MS, Huntington's disease and stroke. (BrainStorm 22.02)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Voltaire Powers China's Top High-Performance Computers

Voltaire announced that its InfiniBand switches are powering 24 of China's TOP100 High Performance Computers, including the top three - at the Tianjin Supercomputing Center, the Shanghai Supercomputer Center and the Computer Network Information Center at the Chinese Academy of Sciences. The switches are being used in 65% of the total InfiniBand deployments noted on the list, more than any other InfiniBand systems vendor. Voltaire's 20 and 40 Gb/s InfiniBand switches provide the high-performance interconnect for the world's largest computing systems and scale-out data centers. The switches accelerate mission-critical applications, and enable faster data sharing among storage and server networks. Ra'anana's Voltaire (http://www.voltaire.com) is a leading provider of scale-out computing fabrics for data centers, high performance computing and cloud environments. Voltaire's family of server and storage fabric switches and advanced management software improve performance of mission-critical applications, increase efficiency and reduce costs through infrastructure consolidation and lower power consumption. (Voltaire 18.02)

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9.2 VocalTec Receives $1 Million Order for its Class-5 Solution from Russian Tier-1 Operator

VocalTec Communications announced that one of Russia's leading tier-1 operators selected VocalTec's Large-Scale Class-5 solution as its core platform for the delivery of Voice over IP subscriber services. The initial order, representing the first stage of the deployment, includes the delivery of VocalTec's Essentra BAX Large-Scale Class-5 solution supporting over 100,000 subscribers. The system is dimensioned to provide service to a much larger user base in support of the customer's future expansion plans. The deployment includes an extensive set of applications, and allows the customer to seamlessly migrate his network to an all IP infrastructure and provide his end-users with the latest in IP telephony services. Herzliya's VocalTec Communications (http://www.vocaltec.com) is a global provider of carrier-class Voice-over-IP and Convergence solutions for fixed and wireless service providers. A pioneer in VoIP technology since 1994, VocalTec develops and markets an extensive VoIP offering enabling the flexible deployment of next-generation networks (NGNs). Partnering with prominent system integrators and equipment manufacturers, VocalTec serves an installed base of dozens of leading carriers worldwide. (VocalTec 23.02)

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9.3 Commtouch to Broaden Support of Service Provider Offerings with Connector for Microsoft Exchange

Commtouch announced the upcoming release of its connector for Microsoft Exchange Server, allowing operators of hosted and managed Microsoft Exchange environments to easily reduce costs and differentiate their email offerings. This latest innovation will allow these operators to enjoy the same ease of integration that is already experienced by service providers that have deployed Commtouch on their open source infrastructure. The new Commtouch connector will enable operators of Microsoft Exchange environments to benefit from the industry's leading spam, phishing and malware outbreak protection technology: Commtouch Anti-Spam: Catches 98% of spam through its cloud-based Recurring Pattern Detection technology. Zero-Hour Virus Outbreak Protection: Shields infrastructure from new malware variants in the earliest moments of their release. Both of these technologies are now available as a simple connector to hosted and managed Microsoft Exchange providers' environment. Additionally, these providers can deploy Commtouch's GlobalView Mail Reputation for blocking of up to 90% of unwanted mail at the perimeter of their network.

Netanya's Commtouch (http://www.commtouch.com) provides proven messaging and Web security technology to more than 130 security companies and service providers for integration into their solutions. Commtouch's patented Recurrent Pattern Detection and GlobalView technologies are founded on a unique cloud-based approach, and work together in a comprehensive feedback loop to protect effectively in all languages and formats. Commtouch technology automatically analyzes billions of Internet transactions in real-time in its global data centers to identify new threats as they are initiated, protecting email infrastructures and enabling safe, compliant browsing. (Commtouch 24.02)

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9.4 RADVISION Awarded Patent for Video Conferencing via Instant Messaging

RADVISION has been granted a U.S. patent, numbered 7,631,039, for initiation and support of video conferencing using instant messaging (IM). In accordance with the patent, popular instant messaging services and applications can be used to automatically initiate video conferences providing a significant convenience to business and personal users. The patent granted to RADVISION covers the initiation and support of video conferencing using instant messaging. This combines the convenience of instant messaging with video conferencing, allowing a user to initiate a video conference from an IM directory or from within an IM session. In accordance with the patent, a video conference is initiated between participants in response to an instant message sent between two or more clients. The IM session includes information on the electronic addresses of the requested conference participants. The participants can then join the conference by any of several possible communication modes. For example, they may join a conference with a desktop computer or a dedicated high definition video conferencing room system using standard protocols such as SIP or H.323.

Tel Aviv'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 22.02)

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9.5 Silicom's 10Gbps External Intelligent Bypass Switch Selected by Major Solution Company

Silicom has received a series of orders from a leading application delivery company for its cutting-edge 10Gbps external Intelligent Bypass Switch (IBS) and that the customer has also provided Silicom with a forecast indicating the potential for a flow of repeat orders. The customer selected the Silicom external IBS after a thorough evaluation of the marketplace, which confirmed that the Silicom product offers an optimum mix of innovative features backed by full customization options and support, all at a reasonable price. Like all of Silicom's Bypass solutions, the Intelligent Bypass switch (IBS) is used to protect and maintain network integrity at times of in-line appliances failures. As an intelligent solution, the IBS self generates a "heartbeat" with which it is able to relieve the in-line application from the task of sensing a failure and initiating the Bypass process, thereby facilitating an exceedingly simple integration of the external BYPASS into the network. The IBS can also provide Silicom's Redirector capabilities, increasing the range of applications for which the IBS can be used. Kfar Saba'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. (Silicom 22.02)

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9.6 RiT Technologies Enhances Its Enterprise Offering With Active I Technology

RiT Technologies announced the new Active I Technology, its new actionable graphical interface & platform. This latest technology is being introduced into RiT's PatchView and siteWIZ products making them significantly more powerful and intuitive to use. In the future, RiT intends to use Active I in other solutions and products. Active I brings a new level of usability to RIT's industry-leading IIM solutions. Developed using the Microsoft Silverlight framework, Active I offers a single, smart-web-based graphical point of entry to the system's many management activities, making all tasks easier to learn and operate. Just as important, the system's intuitive real-life visual interface enables managers to make the right decisions quickly, resulting in smoother running networks, reduced downtime - and reduced tension throughout the IT organization. As a web-based system, the Active I gives IT Managers, Facilities Managers and Integrators full visibility and control over the communications room regardless of where they are actually located.

Tel Aviv's RiT (http://www.rittech.com) is a leading provider of intelligent solutions for infrastructure management, asset management, environment & security and network utilization. RiT Enterprise solutions address datacenters, communication rooms and workspace environments, ensuring maximum utilization, reliability, decreased downtime, physical security, automated deployment, asset tracking, and troubleshooting. RiT Environment and Security solutions enable companies to effectively control their datacenters, communications rooms and remote physical sites and facilities in real-time, comprehensively and accurately. (RiT 22.02)

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9.7 Elbit Awarded $20 Million Follow-On Contract for Israeli Air Force's PFI "Snunit" Trainer Program

Elbit Systems was awarded a follow-on contract from the Israeli Ministry of Defense for the continuation of the GROB G-120-AI (Snunit) trainer aircraft operation program, in service at the Air Force Flight Academy in Hatzerim. Under the new contract, Elbit Systems will operate the trainers for an additional period of ten years, starting in 2012, following the completion of the current program. The contract is valued at approximately $20 million. The "Snunit" program was the IAF's first Private Finance Initiative (PFI) project. Under the multi-year program, the IAF purchases training hours onboard Elbit Systems' GROB G-120-AI, and Elbit Systems is responsible for the operation and maintenance of the aircraft, which is performed by a dedicated technical crew Elbit Systems employs in Southern Israel. Haifa's Elbit Systems (http://www.elbitsystems.com) is an international defense electronics company engaged in a wide range of defense-related programs throughout the world. The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance (C4ISR), unmanned aircraft systems (UAS), advanced electro-optics, electro-optic space systems, EW suites, airborne warning systems, ELINT systems, data links and military communications systems and radios. The Company also focuses on the upgrading of existing military platforms and developing new technologies for defense, homeland security and commercial aviation applications. (Elbit 22.02)

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9.8 MTI Wireless Edge is Announcing a New Complete Product Line of Low Cost Dual Polarity Antennas

MTI Wireless Edge released a whole new product line of low cost dual polarity antennas covering the 5.1-5.9 GHz ISM and UNII unlicensed frequency bands as well as the 4.9-5.1GHz Homeland Security and Public Safety bands for both PtP (Point-to-Point) and PtMP (Point–to-Multipoint) applications. The range includes 18-29dBi directional antennas for the subscriber end and various base station antennas such as 60 and 90 degrees with dual linear Vertical & Horizontal polarity as well as dual slant -45 and +45 degrees. All antennas are built to withstand the toughest electrical and environmental requirements according to international standards such as ETSI. This range of antennas provides a powerful solution that allows MTI to offer WiMAX equipment companies, VARs and integrators the best antenna available at an unmatched price performance ratio.

Tel Aviv's MTI Wireless Edge (http://www.mtiwe.com), a leader in the development, production and marketing of high quality, low cost, flat panel antennas for WiMAX, RFID & Fixed Wireless applications, offers a large portfolio with over 90 models of Linear and Circular, Single and Dual polarity antennas for active and passive RFID Systems. The frequencies that MTI offers antennas for are 450MHz, 865-870MHz, 902-928MHz, 950-956MHz, 2.4GHz as well as Integrated Enclosure Antenna solution (IAE).

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9.9 Wavion & BHU Partner to Provide Video Surveillance for "Peace City" Project in China

Wavion and BHU, Wavion's distributor in the Chinese market, announced the deployment of Wavion's Wi-Fi base stations for a city-wide video surveillance network in China. The network has been deployed as part of the "Peace City" project in a rural city in China. The network includes 120 video cameras located in strategic positions to monitor public buildings, roads, major junctions and traffic load. The network infrastructure was based on Wavion's WBS-5800 base stations which were installed on towers with a direct fiber connection to the command and control center of the City's security forces. The network design provisioned each CPE to accommodate 1-4 cameras. Wavion's unique and powerful WBS-2400 and WBS-5800 spatially adaptive beamforming base stations provide extended range, higher throughput, and much better NLOS coverage. As a result, unlike more conventional equipment, they do not require costly high towers and can be easily installed on rooftops and still provide very good coverage and penetration. Yokneam's Wavion (http://www.wavionnetworks.com) is transforming the metro Wi-Fi and rural markets with a new category of spatially adaptive base stations. The company's digital beamforming and SDMA technologies are the first and only to resolve the significant performance, penetration and profitability challenges facing large scale metro and rural deployments. (Wavion

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9.10 RED-C Introduces the Compact Variable Gain 70x90mm EDFA

RED-C Optical Networks announced the launch of the Compact 70x90 Variable Gain EDFA. This full featured variable gain (VG) EDFA module is provided in a compact 70x90mm footprint package and is software and hardware compatible to standard Multi-Source Agreement (MSA) 70x90 Fixed Gain (FG) EDFAs. Thus, it can be easily mounted on any existing line card designed to accommodate MSA FG EDFAs. The amplifier provides a large dynamic gain range, superior gain flatness and very low noise figure over all its operation conditions. The fast AGC digital control electronics provides very stable gain and excellent transient suppression. RED-C's introduction of the VG EDFA in a 70x90mm footprint package enables a flexible approach to amplifier design, whereby FG and VG EDFAs can be mixed and matched on the same line card to support all amplifier configurations, such as: single stage, dual-stage with mid-stage access, and East/ West separation for ROADM applications.

Tel Aviv's RED-C Optical Networks (http://www.red-c.com) is a leading provider of state-of-the-art EDFAs, Raman amplifiers and optical monitoring devices for all network segments (long haul, regional, metro and access) and for all network applications (telecom, cable and enterprise). Beside a broad variety of EDFA and Raman modules, RED-C offers innovative and comprehensive solutions for some of the industry's most difficult technological challenges today, such as ultra long repeaterless links, 100Gb/s and 40Gb/s transmission networks. (RED-C 02.03)

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9.11 Mellanox Enhances Virtualization ROI with Release of InfiniBand Drivers for VMware vSphere 4

Mellanox Technologies announced the immediate availability of InfiniBand driver support for VMware vSphere 4, providing IT end-users the compelling choice of deploying field-proven InfiniBand-based unified and virtualized I/O in cloud environments. Compatible with Mellanox's industry-leading ConnectX and InfiniHost III line of adapter cards, the InfiniBand software drivers are based on OpenFabrics Enterprise Distribution (OFED) version 1.4.1, enabling broad interoperability with other operating systems and the ecosystem of OEM supplied servers, switches, gateways and storage systems. Mellanox server and storage adapter cards enable customers to deploy the most efficient and proven unified fabric technology that seamlessly connects any server to any SAN storage and LAN environments. By supporting VMware vSphere, Mellanox extends the value of its adapter card products into customers' next-generation cloud computing and virtualized data centers. The InfiniBand driver provides additional feature enhancements to VMware vSphere by leveraging InfiniBand's built-in reliability and performance capabilities to enable the highest number of VMs per core available over any standard network today. Features like VMware VMotion and VMware High Availability (HA) gain further performance improvements resulting in increased data center efficiency.

Yokneam's Mellanox Technologies (http://www.mellanox.com) is a leading supplier of end-to-end connectivity solutions for servers and storage that optimize data center performance. Mellanox products deliver market-leading bandwidth, performance, scalability, power conservation and cost-effectiveness while converging multiple legacy network technologies into one future-proof solution. (Mellanox 01.03)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's State of Economy Index Shows Continued Recovery

On 21 February, the Bank of Israel announced that the Composite State of the Economy Index rose by 0.2% in January 2010. The index has risen for several months in a row, indicating that economic recovery is continuing. The Bank of Israel, however, revised downwards the increase in the State of the Economy Index for November and December 2009 to 0.3% in each month from 0.4%. The Bank of Israel attributed the rise in the State of the Economy Index in January to rises in the manufacturing production and trade and services revenue indices, which were partly offset by slower gains in the exports of goods and imports of consumer goods indices. The index of manufacturing production rose 1.2% in December, after falling by 1.3% in November. The trade and services revenue index rose 0.6% in December, after rising 0.2% in November. The services exports index rose 8.2% in January, after falling slightly in December. The goods exports index was unchanged in January, after rising 7.4% in December. (BoI 21.02)

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10.2 Israel World's Third Strongest Housing Market

Israel has fallen from first place in "Global Property Guide's" rankings of home price change for the second and third quarters of 2009 to third place in its Q4/09 ratings, behind Hong Kong and Taiwan. Home prices in Israel were 15.5% higher in real terms in Q4/09, compared with Q4/08, and 2.7% higher than in the preceding quarter. The increase was the highest in ten years. Even though Israel lost its top billing in the rankings, the pace of home prices is picking up: home prices were 8.4% higher in the second quarter compared with the corresponding quarter and were 10.5% higher in the third quarter. In nominal terms, home prices in Israel were up 21.3% in the fourth quarter, compared with the corresponding quarter, putting it in second place behind Hong Kong. Nominal home prices in Israel were up 13.7% in the third quarter compared with the preceding quarter, putting Israel in first place. Globes commented that "Global Property Guide's" figures are in line with the number published by the Central Bureau of Statistics, which showed a 21% rise in home prices during 2009 to an average of NIS 930,000. Fourth quarter home prices were 3% than in the preceding quarter. (Globes 01.03)

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11: In Depth

11.1 ISRAEL: Food & Drink Sales Expected To Rise to $19.27 Billion by 2014

Research and Markets (http://www.researchandmarkets.com) "Israel Retail Report Q1 2010" predicts that the country's retail sales will grow from about $43bn in 2009 to nearly $54bn by 2014. Key factors behind this growth are Israel's strong underlying economic growth, sophisticated consumption habits, its growing population and rising disposable incomes. Israel's nominal GDP was $190.51bn in 2009, with the years contraction of 0.1% expected to turn into growth of 2.6% in 2010 as the economy slowly begins to recover. Average annual GDP growth of 2.2% is predicted by BMI between 2009 and 2014. With the population increasing from 7.5mn in 2009 to 8.2mn during the forecast period, GDP per capita is predicted to rise by more than 23% by 2014, reaching $31,310.

The Israeli tradition of offering gifts to relatives and friends at many festivals during the year Hanukah in December, Passover in March/April and Rosh Hashanah (Jewish New Year) in September generates healthy demand for products such as consumer electronics, fashion goods and accessories, jewellery and other quality goods. Also, with about 30% of the Israeli population under 14, the youth market presents great potential for toy and game retailers.

In 2005, 63.3% of the Israeli population was described by the UN as economically active, with 35.5% in the 20-44 age range, which is important for retail sales. In 2010, 64.3% of the population is expected to be economically active, but the proportion of those in the 20-44 age band is forecast to fall slightly to 35.3%. A very high level of urbanization is also contributing to retail growth. In 2005, 91.7% of the population was classified by the UN as urban, and this is forecast to increase to 92.0% by 2015.

In terms of retail sub-sectors, Central Bureau of Statistics (CBS) data indicate that in 2006, 3.9% of the Israeli household budget was spent on furniture and household equipment. Some 3.4% went on clothing and footwear, 1.3% on cosmetics and 0.4% on jewellery and watches. On this basis, the furniture and household equipment market was worth $1.1bn in 2006, clothing and footwear was valued at $1bn, cosmetics was $0.4bn, and jewellery and watches was $0.1bn.

According to BMI data, retail sub-sectors that are likely to show strong growth over the forecast period include consumer electronics, with sales predicted to rise by more than 28%, from $2.74bn in 2009 to $3.52bn by 2014. The over the counter (OTC) pharmaceutical sector is forecast to grow from $0.32bn in 2009 to $0.42bn by the end of the period, a rise of more than 29%. Food and drink sales are expected to rise from $16.73bn in 2009 to $19.27bn by 2014, an increase of 15.2%. Automotive sales are forecast to fall by more than 25%, from $6.19bn in 2009 to $4.62bn by 2014. Retail sales for our set of Middle East and Africa (MEA) countries in 2009 amounted to an estimated $407.66bn, based on the varying national definitions. Total consumer spending for the region based on BMI's macroeconomic database amounts to $704.94bn. In 2009, the UAE, Saudi Arabia, Egypt and South Africa together accounted for an estimated 78.4% of regional retail sales, and their combined share is expected to rise to 81.3% by 2014. For Israel, the estimated 2009 market share of 10.6% is expected to reduce to 8.5% by 2014. (R&M 25.02)

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11.2 IRAQ: Sunnis and Iraq's Elections: An Evolving Balance of Power

Mr. Muhammad Abu Rumman writes in the Carnegie Arab Reform Bulletin (http://www.carnegieendowment.org/arb) that at first glance, the Sunni political scene in Iraq on the eve of the March 7 parliamentary elections appears to be an incoherent mosaic of political parties. There are two main coalitions, however, that are expected to win most of the Sunni vote; the remaining parties reflect the community's diverse ideological and political views but are unlikely to pack much of an electoral punch. There are new variables in the Sunni community that distinguish these elections from those of 2005 and even from the 2009 provincial elections. Most importantly, these elections will expose the changing balance among various forces within Sunni politics as a subset of the larger Iraqi political equation.

From Boycott to Participation

The upcoming elections will clarify, through voter turnout rates, the general attitude within the Sunni community toward political participation. Sunnis will either move toward further incorporation into the political process or will remain susceptible to rejectionists who want to keep Sunnis within the framework of armed resistance - or at least with one foot in the political game and the other out. Those advocating armed resistance and a boycott of the political process were dominant in the Sunni political scene in the wake of the 2003 U.S. invasion, when only a handful of personalities and parties (such as the Iraqi Islamic Party, and the Iraqi Accord Front) embraced the political option. Although these parties took part in the 2005 parliamentary elections, the prevailing Sunni position was to boycott, reflecting dominance of armed factions (especially al-Qaeda) at that time.

By 2007, serious disagreements emerged among the militant groups, on many occasions taking the form of armed combat between al-Qaeda and other forces such as the Islamic Army or the 1920 Revolution Brigades. The formation of the tribal Awakening Councils constituted a further Sunni reappraisal of the political situation and the utility of using force, and revealed growing Sunni opposition to al-Qaeda and Iran. Last year's provincial council elections provided another indicator of the Sunnis' evolution, with rising voter turnout and a diverse range of actors including Islamist, tribal, and secular parties.

The Rejectionists

Some Sunni groups, with various ideological perspectives, nonetheless continue to boycott politics and embrace militant activism. Former Vice President Azzat al-Douri leads the Baathists; it is unclear how much support they command as opposed to the various Islamist groups, which eschew any loyalty to Saddam Hussein and nationalist ideas. The Jihad and Reform Front is close to the Muslim Scholars Association, which is led by Harith al-Dari. The Front includes a number of leading factions, most prominently the 1920 Revolution Brigades and al-Rashideen Army, and boycotts politics at present.

Among the armed factions is the Islamic State of Iraq, under the leadership of Abu Omar al-Baghdadid, comprised of al-Qaeda and its allies. Although it has been on the defensive for the past two years, the last few months have seen a resurgence of its headline-grabbing attacks. Another force to be reckoned with is the Political Council for the Iraqi Resistance, which represents four leading armed factions: the Islamic Army, Hamas-Iraq, the Islamic Front for the Iraqi Resistance (JAMI), and the Shari'a Committee of Ansar al-Sunna. Among the armed factions, the Political Council is the most receptive toward possible political involvement; it recently entered talks in Turkey with representatives of U.S. forces, although they bore no fruit. While the Political Council is continuing to boycott elections, the spokesman for JAMI, Abdullah al-Hafed, recently told a Qatari newspaper that the resistance would not target election centers. Sources close to the Political Council suggest that it might even quietly back some Sunni candidates.

Shifting Alliances and Blocs

Meanwhile, the number of Sunni parties taking part in the political process has grown and electoral coalitions have shifted. The biggest change, which applies to the Iraqi political scene at large, is the emergence of cross-sectarian coalitions and signs that political rhetoric is becoming more secular. This applies to newer entrants to the political field (such as the Awakening Councils) as well as to older, more established players.

This cross-sectarian feature is clearly dominant in the Iraqi National Movement, comprised of the Iraqi National Accord led by former Iraqi Prime Minister Iyad Allawi, a secular Shi'a whom a broad range of Sunnis consider an acceptable candidate. He is joined by the Sunni former Vice President Tariq al-Hashemi, as well as Usama al-Nujeifi , his brother Atheel al-Nujeifi, Adnan al-Pachachi, and a number of minor coalitions and figures. Observers expect this coalition to compete strongly for the Sunni vote against the Iraqi Accord Front, which until now has been the strongest representative of Arab Sunnis. The front is spearheaded by the Iraqi Islamic Party led by Osama al-Tikriti, his deputy Eyad al-Samarrai, as well as Mohsin Abdul-Hamid.

Meanwhile, the Unity Alliance of Iraq under former Interior Minister Jawad al-Bolani (who is Shi'a) was also able to find allies within the Sunni community, particularly among the Awakening Council leaders such as Ahmed Abu Risha (leader of the Awakening Council of Iraq in Anbar), the former advisor to the Awakening Councils Abu Azzam Al-Tamimi, and the National Charter Gathering under Ahmed Abdul-Ghaffur al-Samarrai.

The State of Law coalition, led by Iraqi Prime Minister Nouri Al-Maliki, has won the support of only a few Sunni tribal and political figures. This is also the case with the Iraqi National Alliance, which includes the main Shi'a parties competing with al-Maliki (the Iraqi Supreme Islamic Council, the Sadrists, Ahmed al-Chalabi's Iraqi National Congress and Ibrahim al-Jaafari from the National Reform Movement).

Now that the pre-electoral strategic positioning and alliance-making has drawn to a close, the ball is in the court of the Sunni voters. Through their participation, they will answer two key questions. Will Sunnis embrace the political process decisively, which would curb armed resistance? Will Sunnis take advantage of intra-Shi'a divisions and increase their clout by voting overwhelmingly for a single coalition - or split their votes and limit their influence?

Muhammad Abu Rumman is a Jordanian scholar and writer. Paul Wulfsberg translated this article from Arabic. (ARB 24.02)

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11.3 ARABIAN GULF: MEP Sector to Net $22.4 Billion Revenue

The Mechanical, Electrical and Plumbing (MEP) services market in the Arabian Gulf is set to earn $22.44 billion in revenues in the next three years at a compound annual growth rate of 10.6%, according to Frost & Sullivan. The MEP sector is considered an integral service within the construction industry and in 2008 the industry had made a revenue of $13.53 billion, Frost & Sullivan said in their latest 'Strategic Analysis of the MEP Services Market in Middle East.' A surge in population, economic expansion, and subsequently, higher investments in real estate and infrastructure projects have generated considerable oil revenues and consequently, cash reserves, aiding the exponential growth of the Gulf construction sector, it said.

Frost & Sullivan pointed out that the fragmented and highly competitive market was likely to take off in 2011, 'once the effects of the recent economic slowdown and reduced construction activities wear off and the economy rebounds.' Nevertheless, Saudi Arabia, Qatar and Abu Dhabi are expected to shore up the market for MEP services till 2013, as their economies are relatively insulated from the financial downturn, thanks to their surplus cash reserves and the latest stimulus package announced by the government, the analysis added. According to Frost & Sullivan research analyst Vivek Vijayakumar, the improved awareness about energy and environment sustainability as well as public health and safety concerns were expected to go a long way in boosting the market for MEP services in the next five years.

Meanwhile, the GCC has mandated all types of buildings to install technologies and services that will make them environment-friendly. Owing to such constant demand, contractors are continuously upgrading their services by investing in in-house pre-fabrication, design and service capabilities to diminish the strong bargaining power of the end users, he stated. Such measures will involve dealing with the escalating cost of construction, construction commodity prices, and labor cost. The prices are not likely to decrease due to the steady global demand and rising accommodation costs of labor, which could severely constrict the contractor's profit margins, the analysis said.

Frost & Sullivan however cautioned that market could be adversely affected by the labor drain, as emerging economies are drawing laborers away from the region. However, contractors can skirt the issue of manpower through technological developments, which will limit on-site prefabrication and thereby, lower time and manpower needs on site and boost productivity hours, the analysis said. Additionally, the involvement of design engineers in the early stages of construction and correct selection of materials will ensure proper building integration and sustainability by reducing its operating costs. (TradeArabia 24.02)

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11.4 KUWAIT: Pharmaceuticals and Healthcare Report Q1 2010

Research and Markets' (http://www.researchandmarkets.com) "Kuwait Pharmaceuticals and Healthcare Report Q1 2010" stated that Kuwait's pharmaceutical expenditure stood at around $377m in 2008. Over the forecast period to 2014, the analysts expect the market to grow with a compound annual growth rate (CAGR) of 5.0% to reach $483m in 2014. Our long-range drug market forecast model predicts that the market should reach $608m in 2019, representing a 2009-2019 CAGR of 4.9%.

In the updated pharmaceutical Business Environment Ratings for Q110, Kuwait is ranked equal third of the 17 markets in the Middle East and Africa. The country's attractiveness to businesses centers on its relatively developed pharmaceutical regulatory regime and stable political and economic environment. While the drug market is small in absolute terms, per-capita pharmaceutical consumption is high in value terms and there is strong demand for innovative pharmaceuticals.

The Gulf Co-operation Council (GCC) region will continue to attract healthcare investments in line with continuing growth. While Saudi Arabia and the United Arab Emirates (UAE) will continue to dominate in terms of market value, Bahrain and the UAE will experience the highest CAGRs. Kuwait will be close behind with a CAGR of 8.5% forecast for health expenditure between 2009 and 2014. Expatriate workers making use of private healthcare are likely to be the major drivers of health expenditure growth. Sanofi-Aventiss launch of anti-ageing drug Sculptra (injectable poly-L-lactic acid) in Kuwait in October 2009 demonstrates there is a willingness to pay for non-reimbursed medicines. Having said this, the state remains heavily involved in the purchase and provision of healthcare for the indigenous population. As a consequence, health expenditure growth will depend on government expenditure, which in turn is highly dependent on government income from oil. The domestic pharmaceutical sector remains largely confined to import and distribution. An increasingly stable Iraq offers opportunities for Kuwaiti firms that are looking to expand regionally. Local distributor Safwan operates offices in Iraq and acts as distributor there for several multinational drug makers. Meanwhile, Kuwait's sole domestic pharmaceutical manufacturer, Kuwait-Saudi Pharmaceutical Industries (KSP) lists Iraq as one of its export markets. (R&M 02.03)

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11.5 KUWAIT: Buying In

The Oxford Business Group observed that retailing is big business in Kuwait and retailers can look forward to strong growth prospects due to economic and demographic trends over the medium to long term. This year, with the economic rebound already under way supported by the country's pro-growth policy, consumer demand is set to rise, though authorities will be wary of the threat of inflation.

Kuwait's retail sector has blossomed over the past decade, with international brands proliferating and consumers flocking to newly opened malls. Kuwaiti enterprises have benefitted from the wave of overseas companies looking to enter the market. A variety of franchising structures exist to facilitate access for chains but most are either revenue-sharing agreements or straightforward management contracts, in which a locally based company buys products from the brand owner, selling them on for a profit.

While relatively small in population, Kuwait is an attractive destination for retailers. It is a very affluent country, with GDP per capita of $57,400. Real incomes are likely to have been trimmed slightly in the past two years - firstly by rising inflation in 2008, then by the recession of 2009 - but the long-term growth trend is positive. As Kuwait diversifies its economy, it will become less dependent on volatile oil revenues; income growth is likely to be steadier.

Demographic trends are also encouraging. Around half the country's population is under the age of 30, which is likely to both stimulate continued population growth in the medium term, and bring a stream of new consumers over the coming years. This new consumer base, enjoying the fruits of Kuwait's position in a globalised economy and an outward-looking education system, will be sophisticated.

Meanwhile, a new wave of expatriate workers are likely to come to Kuwait this year as the regional economy picks up, according to Gulf Talent, a recruitment and human resources research outfit.

Cultural strengths should also not be overlooked. Arabs have an extensive trading history and shopping is as much a social event as a task. Indeed, well-off Kuwaitis have long undertaken shopping trips overseas, particularly for ultra-luxury goods. Increasingly, they can find the same products in the malls and boutiques of Kuwait City.

The fortunes of the retail sector are closely tied to spending power and consumer confidence, so a look at the macroeconomic picture can give a snapshot of the outlook. Regarding the most obvious indicator, GDP growth, retailers in Kuwait can look forward to a better year. The IMF forecasts growth of 3.3% after a 1.5% shrinkage in 2009.

The authorities have taken a strongly pro-growth stance. On 2 February, the Kuwaiti parliament approved a $107b development plan for the next four years. Then, on 8 February, the Central Bank of Kuwait cut its base interest rate by half a% to 2.5% in order to support the recovery, particularly in non-oil sectors.

The rate is on the whole good news for retailers, particularly as tighter credit has trimmed consumer spending, for example through lower credit card use and fewer car loans. Rates have not been the only factor - government measures to discourage households from excessive borrowing, as well as the effects of the recession and cautious consumers are also important. Nevertheless, a rate cut may enhance the macroeconomic environment while making consumer credit more attractive.

Retailers may also be wary of the rate cut, however, as it may trigger further inflation. While a low, steady rate of inflation is tolerable for retailers - and deflation undesirable - high inflation is a risk factor to watch, as it erodes the real value of incomes, putting pressure on disposable income and therefore spending.

Inflation peaked at 11.6% in August 2008 but then sank to 5.2% in May 2009, the last date for which official figures are available. The IMF estimates a year-end rate of 4.6% for 2009 - rather high for a country in recession. Still, Kuwait does not have a direct peg to the US dollar, unlike most other Gulf countries. This allows it more scope for adjusting monetary policy to combat inflation, should the issue re-emerge to a worrying extent. Retailers in Kuwait can look forward to a strong outlook in both the short and the long term, should forecasts prove broadly correct. If inflation is kept in check - or, ideally, reduced - there is great potential for them to flourish. (OBG26.02)

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11.6 KUWAIT: Moody's Outlook for Kuwaiti Banks Remains Negative

The fundamental credit outlook for the Kuwaiti banking system remains negative, although implementation of the government's four-year development plan (announced earlier this month) could stimulate the weakened operating environment of the small and undiversified non-oil private sector, says Moody's Investors Service (http://v3.moodys.com) in its new Banking System Outlook on Kuwait.

Moody's negative outlook for the Kuwaiti banking system expresses the rating agency's view on the likely future direction of fundamental credit conditions in the industry over the next 12 to 18 months. It does not represent a projection of rating upgrades versus downgrades.

The Kuwaiti state remains affluent, but Moody's cautions that the emirate's economy is undiversified and relies heavily on the performance of its oil sector. "The state-owned oil industry is cash-rich and does not require external funding, which means that banks' lending activities in recent years have been limited to only a few growth areas, namely personal lending (with around one-third of personal credit used for purchasing securities), real estate and construction, non-bank financial institutions and, to a lesser extent, trade," says Stathis Kyriakides, Moody's lead analyst for the Kuwaiti banking system and author of the report.

The short- to medium-term performance of Kuwaiti banks will likely remain pressurized by elevated non-performing loans (NPLs). Moody's expects that increased provisioning charges will adversely affect profitability in the 2009 results and that such charges will continue to weigh on the performance of some banks into 2010. The rating agency's negative outlook for domestic banks also reflects the lackluster performance of the Kuwaiti stock exchange, expectations that the recovery of the real estate market will be slow and the weakened credit standing and rising indebtedness of consumers.

Despite some improvement, banks' risk management practices are in need of further significant enhancement. "Industry and single-party concentrations weigh on Moody's assessment of banks' risk positioning, particularly at second tier banks, but their good capitalization levels and liquidity support from the government are defenses against remaining pressures. Corporate governance is weak, like in other countries in the region, but has improved in recent years," explains Mr. Kyriakides.

Nonetheless, parliament's approval on 2 February of a $100 billion four-year development plan aimed at financing large infrastructure projects could, depending on implementation, potentially boost the country's non-oil private sector economy and support the construction sector, whose fortunes have flagged in recent years. This would bode well for the credit standing of the local construction companies and have a positive effect on the asset quality of Kuwaiti banks, many of which suffered elevated credit charges in 2009 as a result of their large exposures to the sector. However, the efficient implementation of the development plan remains in question given that the country's cumbersome bureaucracy has in previous years prevented authorities from meeting much lower spending targets. (Moody's 16.02)

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11.7 KUWAIT: Local IT Spending Is Expected To Reach Around $761 Million In 2010

Research and Markets (http://www.researchandmarkets.com) "Kuwait Information Technology Report Q1 2010" finds that Kuwait, the third largest computer market in the Gulf, was hit hard by the effects of the regional economic slowdown, but local IT spending is expected by BMI to reach around $761mn in 2010. Despite the subdued trading environment, the market is relatively well placed to withstand current economic headwinds and should continue to provide opportunities for information technology vendors over the publisher's five-year forecast period.

Kuwait's IT spending is forecast to record single-digit growth in 2010 after the global economic slowdown hit demand last year. There could be a boost from computer hardware tenders delayed from 2009, but much will depend on confidence in a sustained economic recovery. A similar scenario applies to the consumer segment in 2010, with economic uncertainty, a reduced population and tighter credit all potentially having a dampening effect.

BMI projects a 2010-2014 IT spending compound annual growth rate (CAGR) of 8%. Kuwait's IT market has a number of enduring strengths, including its relatively small but tech-literate and wealthy population, which makes Kuwait an important regional testing ground for new products.

Industry Developments: In 2009, directors of the Central Agency for Information Technology (CAIT) called for an updating of business laws and legislation dealing with e-commerce. CAIT has led the drive to launch the Kuwaiti government's new portal for e-services, making all government services available through a single site, and eventually over a mobile platform. With CAIT playing a coordinating role, Kuwait has ramped up its e-government efforts, rolling out a number of new services for citizens in 2008. 2009 saw continued implementation of projects from various state organizations. The social welfare ministry, the defense ministry and the finance ministry are recognized as particularly advanced. Despite such progress, big challenges remain to Kuwait's e-development, particularly excessive bureaucracy and lagging education systems.

Company News: The Kuwaiti PC market remains dominated by global vendors, such as Acer, HP and Dell, with international players holding most of the top 10 spots in the PC rankings. In 2009 the emergence of small form factor notebooks as a PC market growth area have attracted vendors such as Toshiba to attempt to strengthen their presence in this segment with new product releases. There were signs that some leading vendors were looking more closely at in-country distribution. In 2009, Dell signed a contact authorizing regional IT distribution giant Redington to carry its consumer product line-up in Kuwait. The tie-up with Redington is merely the latest in a series of new partnerships for the region that Dell has announced recently.

In 2010, software market leader Microsoft hopes that sales of its Windows 7 operating system, launched in October 2009, will boost its sales in the Kuwaiti market. In 2009 Microsoft was among vendors who reported that regional sales in the oil and gas segment had been affected by the economic crisis, with some clients cutting back spending on systems. The company warned of 'challenging conditions'.

Computer Sales: In 2010, the Kuwaiti computer hardware market is expected to reach a value of $319mn, following a sharp contraction last year, as the economic slowdown belatedly hit home. Despite the global financial crisis, overall computer hardware sales were estimated at around $310mn in 2009, making Kuwait the third largest market in the region after Saudi Arabia and the UAE. Over BMI's five-year forecast period, demand is expected to grow at a CAGR of 7% to around $420mn by 2014. The public sector and e-government projects will continue to be a mainstay of the market, with sizeable budgets allocated. Privatization initiatives will boost spending, as will retail channel evolution, and more foreign investment. Small and medium-sized enterprises (SMEs) will be a key segment, as growth in regional trade encourages many to invest in information systems.

Software: In 2010, total spending on software is forecast at $205mn, up from $195mn the previous year. The market decelerated in 2009 as enterprises came under pressure to focus more on the bottom line. With trade liberalization and growing regional competition continuing to fuel enterprise spending on software and systems, however, there should still be opportunities across many sectors. Commercial organizations remain the most significant driver of Kuwait's IT spending. In the medium term, facing change and seeking efficiencies, SMEs are likely to generate opportunities. Manufacturing and trading firms are both seeking to transition from manual environments to full automation of backoffice systems.

Services: The Kuwaiti IT services market is projected to be worth around $236mn in 2010 and is forecast to grow at a 8% CAGR to a value of $324mn by 2014. The economic situation, and credit tightening, has had an impact on projects in some key verticals that have been driving IT spending. These include not only oil and gas but the financial, government, education, construction and healthcare sectors.

In 2009, there were reports of IT managers in various areas looking to cut costs. However, the emphasis often seemed to be more on scaling back projects by 10-20% rather than cancellation. In the near term, budgets have often already been commissioned, and so the effects were more likely to be felt in H209 and 2010.

E-Readiness: Kuwait is one of the most advanced technological markets in the Gulf, but high subscription costs continue to restrict internet penetration. Growth in the numbers of broadband subscribers has been stronger, but the numbers are still very low. Competition is limited in the supply of broadband services, and thus prices have remained high, deterring many potential subscribers.

The government hopes to drive IT development with its broadband access initiative. Alcatel was chosen by Kuwait's State Ministry of Communications (MOC) to supply a gigabit passive optical network (GPON) solution that will serve about 60% of access areas involved in the ministry's present roll-out. The MOC's access network is gradually being upgraded by replacing the existing copper access with a passive optical fiber infrastructure. (R&M 23.02)

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11.8 UAE: Retail Sales to Grow To $150.52 Billion By 2014

Research and Markets (http://www.researchandmarkets.com) announced in their "United Arab Emirates Retail Report Q1 2010" that the country's retail sales will grow from $107.26bn in 2009 to $150.52bn by 2014. Key factors behind the forecast are strong underlying economic growth, increasing household consumption, growing acceptance of modern retailing concepts and expatriate wealth.

The UAE's nominal GDP was $230.61bn in 2009, with last years decline of 2.9% expected to translate into growth of 2.8% in 2010 as the economy begins to recover. BMI predicts average annual GDP growth of 3.4% between 2009 and 2014. With the population increasing from 4.7mn in 2009 to an estimated 5.5mn by 2014, GDP per capita is forecast to rise by 33.5% by the end of the forecast period, reaching $65,941.

Average household spending power in the UAE stands at $14,400 annually, according to property consultants Colliers International. Emirati households account for the lion's share of this spending, with an average of $23,000, while Western, other Arab and Asian households have annual spending power of $19,500, $13,500 and $10,000, respectively.

While Emiratis actively contributed to retail sales, the buying power of the country's expatriate residents was the major source of success, a study by Indian research firm RNCOS said. Tourism is also a massive factor in stimulating retail growth, with the UAE expecting more than 11mn tourists every year by 2010. Growing urbanization is also factor in the buoyancy of the retail sector. Abu Dhabi in particular is highly urbanized; the Urban Planning Council (UPC) projects that Abu Dhabi City's population will rise to 1.3mn by 2013. In 2005, 85.5% of the UAE's population was classified by the UN as urban and this is forecast to increase to 86.3% by 2010.

The UN describes 73% of the UAE population in 2005 as economically active, forecast to rise to 78.6% by 2015. In 2005, just over 30% of the population was in the crucial 20-44 age range, and this is expected to hit 57.6% by 2015.

Retail sub-sectors predicted by BMI to show strong growth over the forecast period include over the counter (OTC) pharmaceuticals, with sales expected to increase by 71%, from $0.27bn in 2009 to $0.45bn by 2014. Automotive sales are forecast to rise by 55%, from $10.01bn to $15.50bn, during the forecast period. Sales of consumer electronics are predicted to increase from $2.56bn in 2009 to $3.62bn by 2014, a rise of 41%.

Retail sales for our set of Middle East and Africa (MEA) countries in 2009 amounted to an estimated $407.66bn, based on the varying national definitions. Total consumer spending for the region based on BMI's macroeconomic database amounts to $704.94bn. In 2009, the UAE, Saudi Arabia, Egypt and South Africa together accounted for an estimated 78.4% of regional retail sales, and their combined share is expected to rise to 81.3% by 2014. For the UAE, the estimated 2009 market share of 26.3% is expected to reduce to 23.6% by 2014. (R&M 26.02)

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11.9 UAE: Abu Dhabi - Entering A New Phase

As Abu Dhabi's developers ready themselves to hand over new units, the residential real estate sector in the capital is entering a challenging yet likely beneficial phase of its development. "The real estate market in Abu Dhabi has changed a lot since the financial crisis," Ali Saeed bin Sulayem, chief executive of Hydra Properties, told the Oxford Business Group.

Prior to the global financial crisis affecting the UAE's economy, the emirate's nascent real estate sector was buoyant, as a perennial shortage of units pushed up property and rental prices. In 2006, four years after the property boom in neighboring Dubai, Abu Dhabi opened up its market to foreign investors, launching a slew of new development projects, such as Al Reem Island and Al Raha Beach development. Although the majority of investors have yet to receive the keys to their homes, the result of opening up the market was a vertiginous rise in the value of some properties.

Many observers, both local and foreign, dismissed talk of the fractured global financial system affecting the capital. In late 2008, however, it became all too apparent that the emirate's housing market would not go unscathed. Residential values and rent fell throughout 2009 but the rate of decrease slowed in the second half of the year. According to CB Richard Ellis, rent in the final quarter of 2009 was still declining but at a more stable rate than at any point during the previous year. With a standard unit attracting $24,500-$35,392 per year, one-bedroom apartments were the least impacted, registering just a 4% drop compared to the third quarter. Other segments, however, fell harder.

Cheaper living expenses for tenants in the capital is welcome news for most. In recent years, high accommodation costs and inflation were the bane of many residents' finances. In fact, the declining rents have helped to reduce the inflation figure, which registered a mere 0.78% in 2009, following previous rates of 14.8% and 10.7% for 2008 and 2007, respectively.

According to Abubaker Al Khouri, managing director of Sorouh Real Estate, lower rents in neighboring emirates are one reason why accommodation prices have decreased. "Dubai has affected Abu Dhabi because a considerable proportion of the population has moved there to benefit from lower rents. Its one reason why rent here in the capital has come down a bit," he told OBG.

Another factor is the new economic reality to which many people are growing accustomed. Employment market conditions have changed substantially, which has been reflected in housing allowances companies offer to their staff. John Bullough, chief executive of Aldar Properties, told OBG, "Landlords are becoming more flexible in the prices they are quoting in reaction to the macroeconomic situation and employers are seeing that they don't have to fund residential allowances to such a high level." Bin Sulayem, however, said this would not last long as more people are going to be attracted to the capital. "The government has a lot of projects that will be issued in 2010, which will impact on the number of people coming to Abu Dhabi and the interest in the emirate."

Al Khouri has echoed this sentiment. "Government projects such as the new railway, Khalifa Port and Industrial Zone, investment in petrochemicals, Saadiyat Island and the large infrastructure projects are all going ahead. These will act as a strong stimulus to employment and the economy," he said. Abu Dhabi's economic outlook is very positive, not least due to its "strategic location, prudent government planning, diversification strategy and the basic wealth of the emirate", according to Bullough. Nevertheless, liquidity and access to finance still remain tight, which is making work difficult for some developers, sub-developers and contractors.

For prospective homeowners the banking situation is improving, although it still has some way to go. "Interest rates are high at the moment but we are beginning to see them come down," Philip Ward, the chief executive of Abu Dhabi Finance, told OBG. "Lower rates are part of the equation when it comes to helping the development of the residential real estate market." A host of new units due for completion in June, particularly in the high-end segment, such as Sorouh's Sun and Sky Towers on Al Reem Island, may also be a shot in the arm for the market. "The closer these projects come to being completed the higher demand for them we'll witness. This is because many people like to see the physical building before they buy," Ward said. (OBG22.02)

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11.10 UAE: Information Technology Report - the Updated Q1 2010 Edition

Research and Markets (http://www.researchandmarkets.com) "United Arab Emirates Information Technology Report Q1 2010" says that UAE IT spending is forecast to start to recover in 2010, although significant uncertainty still surrounds the economic situation. UAE spending on IT products and services is now projected to reach $3bn in 2010, with single-digit growth from last year, when there was a steep decline expected in hardware sales. The UAE IT market has received a double hit from the current economic uncertainty, which has impacted both domestic and export demand. BMI expected demand to pick up in the second half of 2009, however. A seasonal upturn in Q4/09 should be reinforced in 2010 by a revival of business procurement, delayed from earlier last year. PC vendors reported improved sales in Q3/09 compared with H1/09.

UAE economic growth is projected to be positive in 2010, but the property price slump and financial upheavals of late 2009 were likely to reinforce business and consumer caution. A number of fundamental drivers of IT spending, including local and federal government initiatives, significant population growth and development of non-oil sectors, should help to prevent market stagnation.

Industry Developments: In September, the Jordan-headquartered Arab Bank announced that it had relocated its Gulf and Yemen back-office operations to the Dubai Outsourcing Zone, with the operation estimated to employ 300 staff. The Dubai Outsourcing Zone initiative was expected to attract more outsourcing business to the UAE, with attractions including 100% exemption from taxes.

In April 2009, the UAE Ministry of Education announced an AED79mn allocation for 2009 for an initiative to supply computers and internet to state schools. Concerns had been growing that state schools were lagging behind private schools in terms of utilization of IT and internet. The government will collaborate in this initiative with Netgear.

Another key area for federal IT spending will be healthcare. The federal governments Wareed healthcare IT initiative aims to establish a completely integrated electronic platform linking 13 state-run hospitals and their 67 affiliated clinics across the country. Starting from July 2009, two new hospitals are expected to be added to the system on a quarterly basis.

Competitive Landscape: Despite the challenging trading conditions in 2009, HP said that it expected a slight increase in year-on-year (y-o-y) shipments and planned to boost sales in H2/09 with new releases of notebooks at sub- $1,000 price points. Korean giant LG said that it had performed positively in the UAE market, which was one of its best markets in the region in 2009. The company expected to ride out the slowdown to achieve 5% y-o-y growth in the UAE market in 2009 and has set a target for 2010 of 20%. In 2010, software market leader Microsoft hopes that sales of its Windows 7 operating system, launched in October 2009, will boost its sales in the UAE market. The home version of Windows 7 was released in the UAE at the price of 477 dirhams. The product received strong promotion at the Gitex Shopper 2009 fair, and PC vendors including Lenovo reported interest.

Software vendors are focused on opportunities in the fast-expanding retail segment. In September 2009, SAP signed a deal to supply major retail group EMKE Group with its BusinessObjects solution. The software will allow EMKE to collate products data from its chain stores. Meanwhile, Microsoft won a contract from Aswaaq, the UAE's largest chain of supermarkets, to implement Microsoft's Dynamics Navision enterprise resource planning (ERP) solution. Hardware UAE computer sales including PCs, notebooks and accessories are projected at around $1.6bn in 2010, with a return to positive growth following a contraction in 2009. The segment is forecast to grow at a CAGR of 9% between 2009 and 2013. The UAE computer hardware market has been among the hardest hit in the region by the global recession.

PC shipments were down in 2009, but despite the global economic slowdown, more than 440,000 units were expected to be sold last year. In H2/09, there were some signs of the market picking up. Leading electronics retailers Sharaf and Jacky's Electronics reported that sales had stabilized in July in terms of volume sale and were achieving solid growth. Stronger demand in the notebook sector will remain the main factor driving retail segment growth, as consumer sales feel the benefits of aggressive channel promotions. (R&24.02)

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11.11 UAE: Ras Al Khaimah 'A/A-1' Ratings Affirmed

On 25 February, Standard & Poor's Ratings Services (http://www.standardandpoors.com) said it had affirmed its 'A' long-term and 'A-1' short-term sovereign credit ratings on the Emirate of Ras Al Khaimah (RAK). The outlook is stable. The Transfer & Convertibility assessment remains 'AA+'. The ratings on the emirate rest primarily on the intergovernmental relationships within the United Arab Emirates (UAE) and the likelihood of extraordinary support in the event of financial stress.

The federal government, funded mostly by the Emirate of Abu Dhabi (AA/Stable/A-1+), meets almost all the current expenditure costs of the seven emirates that make up the UAE. Individual emirates, including RAK, have limited expenditure obligations--primarily related to local infrastructure and services and capital spending to develop emirate-level projects, as well as to service their debts. In our opinion, the financial capacity of the UAE and the larger emirates, in particular Abu Dhabi, is ample to cover RAK's modest liabilities, with RAK's total debt estimated by standard & Poor's at around 36% of the emirate's economic output at year-end 2009.

The ratings are underpinned by the relative wealth and diversification of the RAK economy, with GDP per capita expected at $17,454 in 2010, in line with the 'A' median. Moreover, RAK's growth prospects appear robust, with the overhaul of economic strategy since the appointment of Sheikh Saud bin Saqr al-Qasimi as Crown Prince in 2003 resulting in a substantial rise in investment and diversification of the economic base.

In 2009, developments in Dubai have had an impact on RAK's economic growth, which we estimate to have declined by around 1.3%, in line with the overall UAE economy. We expect that growth will rebound in 2010, and average around 4% over the medium term.

However, the economy's continued reliance on regional growth is a constraint on the rating. Demand for RAK's main industrial and mining products - cement, aggregate, ceramics and glass - and for the rapidly developing tourism and real estate sectors has been affected by the global economic downturn more generally, and the economic crisis in Dubai specifically.

In the longer term, however, we expect an increase in demand from Abu Dhabi and other still-booming regional economies, as well as the tentative recovery in global demand, to largely offset the impact from Dubai. The stable outlook reflects the balance between the risks posed by geopolitical issues and RAK's exposure to the economic fortunes of the larger emirates and the broader region, with what we consider is the near certainty of continued ongoing support from the federation and the strong likelihood of extraordinary support from the federation (backed by Abu Dhabi).

Downward pressure on the rating could result from deterioration in RAK's economic prospects beyond our current expectations, or a deterioration in Abu Dhabi's creditworthiness, which could affect our assessment of likely support to RAK from the federation. A positive rating action could follow an easing of regional geopolitical tensions, the successful implementation of RAK's development strategy, particularly with regard to real estate and tourism, or an improvement in Abu Dhabi's creditworthiness. (BI-ME 25.02)

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11.12 OMAN: Moody's Upgrades Oman's Sovereign Ratings

On 18 February, Moody's Investors Service (http://v3.moodys.com) raised Oman's local and foreign currency government bond ratings to A1 from A2. Oman's country ceiling for foreign currency bank deposits has also been lifted to A1 from A2 and the country ceiling for foreign currency bonds has been raised to Aa2 from Aa3. Oman's local currency country ceilings remain at Aa2. The outlook on the ratings is stable.

"The main driver of today's rating change is the comparative strength of Oman's public finances within its rating peer group. Despite a sharp fall in average oil prices in 2009, the Omani government has managed to keep its fiscal account close to balance. Over the years, the government has accumulated a deep cushion of net financial assets which now imparts considerable fiscal flexibility," explains Tristan Cooper, a Vice President/Senior Credit Officer in Moody's Sovereign Risk Group.

In Moody's opinion, Oman's economy has navigated through the global economic crisis in relatively good shape. Although the country's real non-oil growth fell sharply in 2009, it remained in positive territory and close to the average growth rate for emerging markets as a whole. Meanwhile, the hydrocarbon sector was boosted by the ongoing recovery in Oman's oil production. Oman's financial sector has been less affected than that of many other countries and Moody's has maintained its stable outlook on Oman's banking system. Moreover, Oman's modest level of overall indebtedness has limited its external vulnerability. Given its robust economic performance in recent years, Oman's credit metrics have improved relative to similarly rated countries.

While noting Oman's significant credit strengths, Moody's recognizes some important structural rating challenges. These include the relatively small size of Oman's economy, which limits its shock-absorption capacity, and its concentration on commodity exports. Oman has relatively lower hydrocarbon reserves per capita than other oil-exporting rating peers, which heightens the necessity of economic diversification and private sector job creation over the longer term.

Oman's sovereign ratings could come under pressure if oil production were to unexpectedly falter, international oil prices were to collapse for a sustained period, or there was a serious and destabilizing regional political event. Moody's last rating action on Oman was implemented on 24 July 2007 when it upgraded the country's local and foreign currency government bond ratings to A2 from A3. (Moody's 18.02)

11.13 OMAN: Boost Continues

The Omani oil and gas sector's significant investment in enhanced oil recovery (EOR) techniques has reaped rewards for the second year running, as newly released figures show the Sultanate's daily production rose once again in 2009.

Oil output increased to an average 812,500 barrels per day last year, a 7.4% hike on 2008 production. The figures represent the second year of sustained production growth in the sector, reversing a trend of decline which first set in during 2001 when Omani oil production hit its peak of an average 956,000 bpd. According to media reports, the government hopes to increase production in the sector once again in 2010, hitting a production target of between 860,000 and 900,000 barrels per day.

With state-owned Petroleum Development Oman (PDO) – the Sultanate's largest oil producer – reporting to local media recently that it expects to keep production for 2010 neutral at an average 540,000 to 560,000 bpd, the extra growth will need to come from smaller operators and new concessions. In that spirit, the undersecretary to the Ministry of Oil and Gas, Nasser bin Khamis Al Jashmi, announced February 15 that the government anticipates awarding a total of 11 new oil exploration and production contracts in 2010.

While the lead time of these contracts means any discoveries will not contribute to new production for at least three to four years, contracts signed in recent years are in the process of coming to fruition in 2010. Among some of the smaller companies engaged in specialized exploration in Oman is Harvest Oman, a local subsidiary of Harvest Natural Resources, an independent energy company operating in a number of countries including Venezuela and the US. Harvest signed an exploration and production sharing agreement with the Omani government last April to search for non-associated gas and condensate in the large Al Ghubar-Qarn Alam concession. Harvest announced last week that it intends to drill two exploratory wells in 2011 with a view to beginning production.

The Al Ghubar-Qarn Alam concession area is proving to be a successful venue for EOR techniques and new exploration. PDO announced recently that it had discovered three new fields in 2009 on the basis of four appraisal wells. The most promising of these new discoveries is located at Al Ghubar South, near existing production at the Al Ghubar-Qarn Alam site.

According to local media reports, the reserves at the field could be in excess of 1bn barrels, though they are of a heavy, viscous variety of crude. PDO announced that a successful trial had already been carried out to test the feasibility of production based on EOR techniques (in this case steam injection), and a team was currently being put in place to fast-track the field.

Other fields were discovered at Dafiq West in the north and Anbar in the centre of the Sultanate, while a large gas deposit was found at Khulud in the north concession. The gas deposit again represents a challenge, being located at a depth of more than 5000 meters, though it is apparently in tight reservoirs with low permeability.

As traditional reserves of easily accessible light crude continue to decline throughout the region – and indeed the world in general – Oman's successful production renaissance, based on targeted exploration and sustained investment in EOR, is likely to be imitated by other oil producers. While often costly to implement, EOR is demonstrating that countries like Oman can delay a rapid decline following the maturation of their major oil fields, avoiding the specter of a bell-shaped slump predicted by the Hubbert peak oil model.

As the global economy continues to recover, that investment is also likely to prove more profitable in 2010 than it did in 2009; Oman achieved an average price of $56.67 per barrel last year, down 43.9% on 2008 figures. With the spot prices for both WTI and Brent currently above the $75 mark, 2010 will likely see a significant improvement on that figure. (OBG21.02)

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11.14 SAUDI ARABIA: Retail Report Q1 2010

Research and Markets (http://www.researchandmarkets.com) "Saudi Arabia Retail Report Q1 2010" report forecasts that the country's retail sales will grow from about $73bn in 2009 to more than $124bn by 2014. Principal factors behind the forecast growth in Saudi Arabia's retail sales are: strong underlying economic growth, rising disposable incomes, increasing acceptance of the concept of modern retailing, a youthful population and an enlarged consumer base created by the improved position of women in society.

Saudi Arabia's nominal GDP was $418.34bn in 2009, with growth expected to increase marginally to 1.9% in 2010 as the economy gradually picks up speed. Average annual GDP growth of 2.9% is predicted by BMI between 2009 and 2014. With the population increasing from 24.4mn in 2009 to an estimated 27.2mn by 2014, consumer spending per capita is predicted to rise by more than 21% by the end of the forecast period, reaching $5,401.

The retail sector benefits from the large number of Muslim tourists visiting the country to take part in the hajj and umrah pilgrimages every year. Sales of gifts and souvenirs in 2008 were estimated to have risen by at least $1.1b due to shopping by hajj pilgrims, according to a Gulf News report. Increasing urbanization is also driving retail sales. In 2005, nearly 89% of the population was classified by the UN as urban, and this is forecast to increase to more than 90% by 2010. The UN also described more than 57% of the population as economically active in 2005, with this proportion forecast to exceed 59% by 2010 and 66% by 2015. About 38% of the population was in the crucial (for retail sales) 20 - 44 age range in 2005, and the UN forecasts that this will rise to about 46% by 2015.

San Francisco-based Gap is among the latest international retailers to enter the market. It plans to open 44 Gap stores (and variations) and 10 Banana Republic stores in Saudi Arabia by 2012. Retail sub-sectors that are predicted by BMI to show strong growth over the forecast period include over the counter (OTC) pharmaceuticals, with sales expected to increase by nearly 77%, from $0.33bn in 2009 to $0.59bn by 2014. Automotive sales are forecast to rise by more than 51% before the end of the forecast period, from $16.57bn to $25.05bn. Sales of consumer electronics are predicted to increase from $3.83bn in 2009 to $5.01bn by 2014, a rise of nearly 31%.

Retail sales for our set of Middle East and Africa (MEA) countries in 2009 amounted to an estimated $407.66bn, based on the varying national definitions. Total consumer spending for the region based on BMI's macroeconomic database amounts to $704.94bn. In 2009, the UAE, Saudi Arabia, Egypt and South Africa together accounted for an estimated 78.4% of regional retail sales, and their combined share is expected to rise to 81.3% by 2014. For Saudi Arabia, its estimated 2009 market share of 17.9% is expected to increase to 19.5% by 2014. (R&M 25.02)

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11.15 EGYPT: 2010 Article IV Consultation Mission, Concluding Statement

1. Egypt's economy has been resilient to the crisis. Financial contagion was contained by limited direct exposure to structured products and low levels of financial integration with world financial markets. Sustained and wide-ranging reforms since 2004 had reduced fiscal, monetary and external vulnerabilities, and improved the investment climate. These bolstered the economy's durability and provided breathing space for appropriate policy responses.

• Financial market conditions have eased since the initial downturn. A sharp outflow of capital took place in the second half of 2008, as foreign investors pulled out of equity and government debt markets. Investors' confidence in Egypt and appetite for risk have improved since March 2009, and the stock market reversed course, capital inflows resumed, and official international reserves have been rising.

• Economic performance was better than expected, although headline inflation remains elevated. Growth fell only to 4.7% in FY2008/09 on the strength of consumption spending, and production in the construction, communications and trade sectors. The first half of FY2009/10 provides further evidence of a pickup in growth and external demand. After falling rapidly from 24%, headline inflation has risen above 13% in recent months, although much of the impetus appears to be idiosyncratic. Core inflation remains within the central bank's informal comfort zone.

2. Prompt fiscal and monetary responses helped cushion the impact of the post-Lehman slowdown. Additional infrastructure expenditures - some off-budget - provided a targeted and temporary stimulus. Also helping to limit the slowdown, interest rates were cut sharply. The rapid capital outflow in late 2008 was met mostly with a drawdown in official reserves and the Central Bank of Egypt's (CBE's) foreign currency deposits with commercial banks, limiting the impact on the Egyptian pound and real economy.

3. As the recovery gains strength, the focus of policies can shift back toward fiscal consolidation and other growth-oriented reforms. With growth expected to reach 5% in FY2009/10 and 5.5% in FY2010/11, the need for further stimulus is waning.

Fiscal Policy

4. The FY2009/10 budget is appropriately supportive, but budget execution should give regard to the pace at which activity rebounds. The government's FY2009/10 fiscal deficit target of 8.4% of GDP is expected to be met on the strength of careful fiscal management. If revenues perform better than expected as a result of strengthening activity, it would be prudent to save these. While the large government borrowing requirement represents a potential risk, financing should be available without undue stress. Development of markets for longer-term government debt is under way. The authorities could also consider diversifying toward additional foreign financing. These steps can help lengthen the average maturity of the debt, reduce financing costs and lessen pressures on the banking system to finance the budget.

5. The authorities' objective of reducing the fiscal deficit to about 3% by FY2014/15 is critical to achieving private sector-led growth and reducing vulnerabilities. Reducing the overall deficit by about 5% of GDP over the next five years is feasible, based on the experience of other countries and would lead to a further 15%age point decline in the debt-to-GDP ratio. Such adjustment will be crucial to maintain investor confidence, preserve macroeconomic stability and create scope for future countercyclical fiscal policy. Anchoring the strategy in reforms to increase the low tax revenue-to-GDP ratio and the efficiency of public spending will help durably address Egypt's main fiscal vulnerabilities. Priorities include adopting as early as possible a full-fledged VAT, complementing energy subsidy reform with better-targeted transfers to the most needy and containing the fiscal cost of the pension and health reforms.

6. The mission advises that the FY2010/11 budget targets a narrowing of the deficit compared to this year. A tightening of 1 - 2% of GDP would provide an upfront signal to investors that progress toward the medium term objective is well under way, encouraging a more rapid private sector response to boost FDI and growth. While adopting major reforms could be challenging with the approaching elections - as evidenced by the delays in the property tax - the mission encourages the authorities to continue taking measures such as strengthening tax compliance and reducing the cost of subsidy abuse, and also to resist pressures for additional spending.

Monetary Policy

7. While 12 month inflation is expected to decline in the coming months, the CBE should stand ready to tighten monetary conditions if inflation does not abate. As inflation ceased declining and output growth picked up, the recent decisions to keep rates stable were appropriate. Increases in headline inflation have been driven largely by fruit and vegetable prices. Such pressures are likely to be mostly idiosyncratic and not demand-induced. But persistently high headline inflation risks generating inflationary momentum through its effect on expectations. Bringing down inflation toward partner country levels should remain a key objective for the coming years. The mission welcomes progress in strengthening the monetary policy framework. The new core inflation measure and publishing the planned monetary policy reports will allow a better understanding of the CBE's monetary policy decisions, and help improve its effectiveness.

8. Capital inflows, if continued, will complicate monetary policy-making. As the CBE has done in the past, sterilized intervention is the first option for hot money inflows, although this is expensive and unlikely to be effective if inflows persist. The CBE should also continue to allow greater exchange rate variability to limit one-way bets. Egypt's real effective exchange rate is estimated to be slightly more appreciated than equilibrium, although these estimates are subject to uncertainties. The possibility that capital inflows could exert longer-lasting pressures for real appreciation reinforces the need for fiscal adjustment and productivity-enhancing reforms.

Reforms for Sustained Growth

9. Continuing the reform momentum and reducing fiscal vulnerabilities remain the key medium-term challenges. Rapid growth is crucial to tackling poverty and the high level of unemployment. In this context, reinvigorating the structural reform agenda should help raise productivity and reinforce Egypt's competitiveness.

• Prioritizing reforms that promote macroeconomic stability and improve the investment climate will support the resumption of foreign direct investment. As noted, the planned fiscal adjustment and tax reforms are an important element of generating confidence, improving the business environment, and ensuring space for the private sector. Resumption of privatization and development of public-private partnerships will help mobilize private sector financing and know-how. Contingent liabilities associated with PPPs, however, should be monitored closely.

• Reinforcing financial soundness and promoting financial sector deepening will help mobilize savings needed to finance private sector-led growth. The stability of the financial sector during and since the crisis is a testament to reforms since 2004. The mission supports the continuation of reform efforts with the CBE's Phase II agenda. Introducing Basel II standards and supporting financial sector development will help facilitate intermediation of savings and increase private sector access to credit. The mission supports plans to adopt additional prudential measures to contain vulnerabilities that will arise with greater integration with the global economy and the introduction of new asset classes. Close coordination between the new nonbank supervisory authority and CBE will be a priority, and consideration should be given to introducing forward-looking risk management and developing global standards on liquidity and leverage.

• Strengthening data quality and transparency will help improve the policy debate and business environment, and enhance Fund surveillance. The need for greater transparency and higher frequency data was underscored by the global financial crisis, and enhancements would help ensure that data availability is on par with other emerging markets. In particular, there is a need for more robust CPI and GDP deflators, and for publishing higher-frequency aggregate financial soundness indicators (as planned), and encouraging banks to make available detailed performance and soundness indicators. (IMF 16.02)

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11.16 EGYPT: Stimulus Pressure

With the advent of the global financial crisis, most countries saw their construction activities grind to a halt as banks tightened lending. In this respect, as observes the Oxford Business Group, Egypt is proving resilient; indeed, its cement producers are trying to keep pace with an energetic construction industry.

As an anti-crisis measure, the government has aimed stimulus money at large infrastructure development projects, including water treatment plants, railways, highways and housing. Around €3.1b has been issued since October 2008 to stimulate the economy and the People's Assembly is currently pushing through another €1.35b in stimulus cash, which will be financed by the sale of land plots. This construction surge should help push the GDP growth rate above 5% in the 2009/10 fiscal year, after registering 4.7% in 2008/09.

The sustained demand means Egypt's limited construction supplies are trying to keep up. "Despite the slowdown in Egypt's GDP following the global financial crisis, it has not translated into a slowdown in construction, with cement demand maintaining high growth levels throughout 2009," Jaime Muguiro Dominguez, president of Cemex, a local cement company, told OBG. According to the national Industrial Development Authority, cement demand increased 26% over the course of the year.

As a global trend, most input costs for construction decreased during the crisis due to lack of demand. However, Egypt saw a steady rise in the number of construction projects, so prices for rebar have stayed steady in most parts of the country, while increasing slightly in Alexandria and Matrouh, for example. In contrast, cement shot up to €90 per tonne in April 2009 and the government swiftly responded by banning exports of the product for four months. Without the possibility of producers sending their product abroad, prices stabilized at around €67.

"Contractors are expediting projects to capitalize on significantly lower overall construction costs, with this demand acting as the main driver for cement price increases," said Dominguez. Earlier in February, the Trade Ministry shot down a planned price increase by two Egyptian cement firms, the Suez Group and Amreyah Cimpor Cement Company. The government has intervened on cement pricing before, including increasing export duties in 2007 and prosecuting 20 firms for price-fixing in 2008.

But low prices do not necessarily solve the shortage caused by increased demand, and the government has pledged to increase domestic cement production capacity. The country is now producing 50m tonnes of cement annually. Bidding for eight new cement production licenses will begin in mid-2010, with each new factory able to contribute an extra 1.5m tonnes per year.

While some fear this will create a massive cement surplus once the construction push is over, there are signs that Egypt will be well stocked with projects for the foreseeable future. For one, Orascom, the country largest construction company, has teamed up with Morgan Stanley to focus on infrastructure development in the MENA region. Their 50-50 joint venture, unveiled in January, will spend "hundreds of millions" on projects ranging from wastewater treatment plants to power generators, according to Orascom CEO Nassef Sawiris. The Egyptian holding is already involved in the construction of two new fertilizer plants in Egypt with a $200m price tag in total.

This new joint venture follows an upswing of private sector participation directed at eliminating the industrial bottleneck caused by lack of infrastructure. "From an operational standpoint, Egyptian industrialists face a major future challenge in securing additional power plant capacity and supply of electricity," Dominguez told OBG. The World Bank has predicted that if Egypt permanently increases its infrastructure expenditure to 6% from its current 5%, then its annual GDP per capita growth rate would increase by 0.5% within a decade.

As such, Egypt's anti-crisis measure is serving two main purposes: creating jobs and stimulating the economy, while also putting into the place the infrastructure needed to leverage future growth. However, in this situation Egypt's cement producers have not been able to fully capitalize on skyrocketing demand. (OBG 17.02)

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11.17 EGYPT: Egypt's IT Spending To Increase From $1.3bn to $2.1bn By 2014

Research and Markets(http://www.researchandmarkets.com) has announced the addition of the "Egypt Information Technology Report Q1 2010" report to their offering.

Market Overview: Egypt's IT spending is expected to increase from $1.3bn in 2010 to $2.1bn by 2014. BMI forecasts that the Egyptian IT market growth will remain below pre-economic crisis levels in 2010, but economic recovery, tenders delayed from 2009 and higher incomes boosted by pay raises for civil servants and other groups should help to keep sales on an upwards trajectory. In 2010, a number of factors should help IT spending growth to recover to high single digits, including new hardware and software upgrade cycles, and sales of Microsoft's new Windows 7 operating system.

Over BMI's five-year forecast period, Egypt will benefit from youthful demographics and improving ICT infrastructure, despite a number of constraints and a sub-optimal distribution network outside of Cairo. BMI projects a 2010-2014 IT spending compound annual growth rate (CAGR) of 12%, which puts Egypt in the top-tier of global IT growth markets. Computer penetration is forecast to rise from around 10% currently to about 17% in 2013. Opportunities will also be generated by Egypt's emergence as an outsourcing destination.

Industry Developments: In H1/09, the Ministry of Communication and Information Technology (MCIT) purchased more than 10,000 notebooks for distribution to students and teachers, in what was described as the largest computer procurement tender by a public body in Egypt. The MCIT has pledged further initiatives to further the use of technology in education. A number of policies have been implemented to attract foreign investment in IT outsourcing, including local employment subsidies, lower corporate taxes and deductions for training costs. In 2009, Egypt has made further progress, with Indian IT giant Wipro recently announcing that in future it would outsource 20% of its Indian and Middle Eastern software development work to Egypt. The Egyptian minister of state for administrative development has said that 200 government services will soon be available online through a new e-government portal. The portal will offer 70 services in both English and Arabic. According to the Ministry for Administrative Development, more than 20 government agencies currently offer services and licenses online.

In 2010 Microsoft hopes that sales of its Windows 7 operating system, launched in October 2009, will boost its sales in the Egyptian market. In Summer 2009, Microsoft continued to lay the groundwork for the new operating system launch and released the enterprise version of the software in August. Indian IT services giants have increased their presence in Egypt. Mahindra Satyam, the new brand identity of Satyam Computer Services, aims to grow its consulting and outsourcing businesses by 100% in the next few years, leveraging its Global Development Centre in Cairo's Giza Smart village. In May, Wipro announced that it was planning to save costs by outsourcing 20% of its Indian and Middle Eastern work to Egypt.

Computer Sales: Egypt's computer hardware sales are projected at $821mn in 2010 and are forecast to reach around $1.3bn in 2014. Annual computer sales could increase to nearly 470,000 by the end of BMI's forecast period. The launch of the Windows 7 operating system has the potential to help trigger a new cycle of hardware upgrades in 2010, although much will depend on business and consumer confidence. Egypt's IT market will stay hardware dominated, with spending on PCs sustained by initiatives like the 'Computer For Every Student' and 'PC for Every Home' programs. Hardware accounted for an estimated 62% of Egypt's IT spending last year. Households account for 20-25% of unit sales, with almost 1-1.5mn households said to possess a computer at present.

Software: Overall spending on software remains rather low, being projected at $187mn in 2010. The estimated 14% share of the total Egyptian IT spending accounted for by software reflects the relative immaturity of Egypt's IT market. However, the domestic software market is expected to grow at a CAGR of around 11% over the forecast period until end-2014.

One market driver has been a significant fall in software piracy, with the illegal software usage rate, as measured by the Business Software Association, falling a further 1% to 59% in 2008. While large corporations have long understood the business case for deploying technology, small and medium-sized enterprises (SMEs) are increasingly beginning to see such investments as important if they are to avoid being overtaken by more tech-competent competitors.

Services: IT services revenues are forecast at around $327mn in 2010, accounting for about 25% of Egypt's total spending on IT. A market CAGR of 14% is projected for the next period through to 2014. The Egyptian IT services market is dominated by demand from government, finance and telecoms sectors, which account for more than half of total spending.

Other vulnerable sectors include construction and real estate. Government spending, the largest segment, is projected to be maintained, or even increased, as a counter-cyclical stimulus to flagging domestic demand. One key driver is likely to be the continued expansion of Egypt as an international outsourcing destination.

E-Readiness

In 2008, Egypt continued liberalization of the telecoms market, with the award of a second national fixed license. This development, which followed the award of 3G licenses to three mobile telecoms service providers in 2007, is likely to drive new opportunities for IT vendors. As well as generating additional spending on IT products and services from the telecoms sector, the spread of internet should provide a boost to the PC market over the next few years. A similar story could be told about broadband, although cost remains a big barrier to broadband subscription in Egypt. It has been well documented that private broadband subscribers often club together with two or three neighboring families to get a shared broadband subscription and Wi-Fi router. More competition in the market should hopefully bring prices down in the future and lead to subscriber growth. (R&M24.02)

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11.18 TUNISIA: Fitch Affirms Tunisia at 'BBB'; Outlook Stable

On 18 February, Fitch Ratings (http://www.fitchratings.com) affirmed Tunisia's Long-term foreign currency Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook. The agency has also affirmed Tunisia's Long-term local currency IDR at 'A-' with a Stable Outlook, the Short-term foreign currency IDR at 'F2' and Country Ceiling at 'BBB+'.

"Tunisia's macroeconomic stability and resistance to shocks are its main rating strengths," says Charles Seville, Director in the Sovereign group at Fitch. "Cautious policies towards cross border lending and an absence of macroeconomic imbalances insulated it from global financial turmoil and allowed it to avoid recession in 2009."

Tunisia grew an estimated 3.1% in 2009, outperforming nearly all rated peers. Manufacturing, which accounts for 17.1% of GDP, was hard hit by the global downturn but remittances and tourism revenue were resilient. The government acted quickly to shore up private sector confidence and assist manufacturers. A quarter of growth was explained by a record agricultural harvest. Exports bounced back from their lows and foreign direct investments in manufacturing increased. However, given the uncertainty over the strength of the recovery in the EU, Tunisia's main trading partner, a swift return to recent average growth of 5%, which is required to stabilize unemployment, cannot be counted upon.

The fiscal deficit widened in 2009 as the government increased capital spending, but was contained at 2.9% of GDP. General government debt ended 2009 at 46.8% of GDP and is expected to remain on a gradual declining trend through 2011. Government debt should converge towards the 'BBB' median, but Tunisia will still remain one of the more indebted sovereigns in the rating category.

The external balance sheet remains weaker than the 'BBB' median, but reserves increased in 2009 as capital inflows exceeded the current account deficit. External liquidity improved, with reserve coverage rising to 5.2 months of CXP (current account payments) in 2009 from 3.7 in 2008. As the capital account is liberalized, a buffer of foreign exchange reserves at the Central Bank will become more necessary to ensure stability.

Progress is being made in addressing the weaknesses of the banking system. The legacy stock of non-performing loans in the banking system was reduced to 13.2% of lending by the end of 2009 from 21% in 2005. The system-wide ratio of capital to risk weighted assets increased to 11.9% in 2009 from 10.4% in 2008 but provisions have not yet reached the target of 70% at all banks. The impact of the recent slowdown on bank asset quality is not yet known. Fitch regards banking systems as contingent liabilities on the sovereign, all the more so in Tunisia where state-owned banks account for one third of assets.

The political scene is stable. President Zine el Abedine Ben Ali, in power since 1987, was re-elected for a five-year term in October 2009 with 89.6% of the vote, and his party, the Rassemblement Constitutionnel Democratique, has a comfortable legislative majority.

Further narrowing in the gap between Tunisia and the 'BBB' median government debt burden would be positive for the ratings. A strengthening in the external balance sheet, especially in the context of capital account liberalization, would also be positive. The main risk, which does not look particularly likely, is a sustained reversal of Tunisia's positive debt dynamics. (Fitch 18.02)

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11.19 TUNISIA: Economy on Track

According to recent figures released by the Tunisian government, in spite of the global slowdown and the resulting recession in its biggest export markets, the republic's economy closed 2009 with a healthy set of macroeconomic fundamentals, due in part to increased foreign direct investment (FDI) and international financing, as well as an ongoing privatization and diversification strategy.

Although 2009 was a difficult year, especially considering the country's close economic relationship with a recession-hit EU markets, who make up the bulk of demand for both Tunisia's goods and services, the economy was still able to grow an impressive 3.1%, while several European economies suffered from 0% growth in 2009. For 2010 the government expects economic growth to reach 4%.

In terms of FDI, the country attracted €1.26bn, according to figures by the Ministry of Development and International Cooperation. The government expects Tunisia's economy to receive a total of €52.91b in public, private and foreign investment during the next five years, local media reported.

Tunisia's solid performance has also been a result of the government's ongoing economic upgrade program, set up in 1995 to improve business productivity and performance. Through credit lines and direct technical support, the state assistance has allowed an investment of €2.7b to assist 4,500 companies. This has led to more professional management techniques, which impact the whole economy, and it meant a large number of companies were prepared for the slower economic growth, due to increased competitiveness of 2009.

"When you have qualified human resources around you, you make better decisions, you delegate and the company's governance is improved. This has been a big improvement in the country's economic fabric," Chekib Nouira, chairman of the Institut Arabe des Chefs d'Enterprises, told the Oxford Business Group.

The country is also looking at ways to increase economic cooperation with other markets outside of the EU, such as sub-Saharan Africa, the Gulf and Asia, which would most likely further the country's resilience to future economic shocks. However, as other emerging markets begin to muscle in on the Eurozone, Tunisian firms are also looking to increase their level of added value and shift away from cost competition. "Tunisia's most competitive companies are already at full capacity, so it means they need to focus their attention and energy on the markets they are already serving," said Nouira. "The strategy now for the country's industries is to move up the value chain and not rely solely on cost competitiveness, which won't last forever."

The country's privatization program will also attract more investment into the economy. In 2010 it will affect several sectors, helping to diversify growth. Companies in the agricultural sector, services, transport and industry are scheduled to be privatized this year. State players like the Societe Tunisienne de Reassurance, Compagnie Tunisienne de Navigation and Societe Tunisienne d'Aviculture are expected to attract attention from investors much as the recent initial public offering of Cements de Bizerte did.

The country was also able to reduce its inflation rate from 5% in 2008 to 3.7% in 2009, according to figures from the central bank. However, keeping consumer prices stable might prove challenging in the context of efforts to rein in inflation. The government has already announced a 5% increase in fuel prices to help trim the budget deficit. The expected pick-up in the world economy might put even further upward pressure on prices, affecting 2010 real growth figures.

Investment in 2010 will also be influenced by a €206m loan from the World Bank. The deal, recently agreed between a delegation of the international institution and the Ministry of Development and International Cooperation, will focus on enhancing the employability of university graduates, developing renewable energies, improving natural resource management and upgrading social services, local media reported. Although the country has shown it is prepared to take advantage of renewed economic confidence, Tunisia economic performance in 2010 will remain dependant on a recovery from the European economies. (OBG26.02)

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11.20 ALGERIA: IMF Executive Board Concludes 2009 Article IV Consultation

On January 8, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Algeria on a lapse of time basis.1

Background

Algeria has enjoyed several years of strong economic performance driven by public spending, but continues to face important challenges. Non-hydrocarbon growth has been robust, inflation low and the government has accumulated large savings in the oil stabilization fund (FRR) to finance a sizeable public investment program (PIP) while reducing public and external debts to very low levels. However, the fall of global demand for hydrocarbons has exposed Algeria's vulnerabilities. Despite the recent recovery of oil prices and the improvement of medium-term financial perspectives, the economy remains too dependent on hydrocarbon exports, unemployment, although declining, is still relatively high, and productivity and the business climate lag behind main trading partners. Non-hydrocarbon growth and job creation are largely sustained by public spending, highlighting the pressing need to accelerate structural reforms to diversify the economy and let a competitive and outward-oriented private sector emerge.

Algeria has faced the global slowdown from a position of relative strength. Growth in the non-hydrocarbon sector will likely reach 9% in 2009, reflecting an excellent cereal harvest and the continued strength of PIP-led service and construction sectors. Hydrocarbon production will decline further this year (by 6-7%) due to lower global demand, bringing overall growth down to about 2%. Headline inflation reached 5.8% (y-o-y) in September 2009 due to a 25% surge in fresh food prices, reportedly caused by structural shortcomings in the supply chain. With a small current account surplus, official reserves have grown by $3 billion since end-2008, reaching $146 billion at end-September 2009 (3 years of imports). Following the fall in hydrocarbon revenues, Algeria will post a fiscal deficit of 8% of GDP in 2009, following a surplus of 8% in 2008. This deficit should be largely financed with domestic nonbank resources. The real effective exchange rate continued to be close to its equilibrium level.

The outlook remains favorable in the short term, but is sensitive in the medium term to future levels of oil prices. Growth will continue to be sustained in the short term by large public spending and the acceleration of the national hydrocarbon company's investment program. Non-hydrocarbon GDP could grow by 5% in 2010 and hydrocarbon output should improve with the international recovery, contributing to overall growth of around 4½%. Inflation should come below 5% if fresh food prices stabilize. Higher projected international oil prices would improve the external and fiscal balances, but these would remain well below the large surpluses recorded in the past few years. A worsening world economy and a significant new decline in energy prices would present important downside risks in the medium term, as it would weaken the external and fiscal positions, force a scaling back of the PIP and other investments, imply slower growth and higher unemployment. The medium-term outlook also rests on decisive actions to promote private sector development and economic diversification, as public spending alone cannot ensure long-term growth.

Structural reforms have been timid, and the business climate needs to be improved. The authorities have launched various initiatives aimed at increasing the banking system's lending capacity and the efficiency of public spending, including increasing the minimum capital requirement for banks, reducing the level of nonperforming loans (NPLs) through financial restructuring of public enterprises, and improving fiscal management and budget system. However, the new regulations for foreign direct investment and the slow pace of regional and multilateral trade negotiations could hamper Algeria's effort to ensure a sustainable export-oriented diversified growth. The perception of the business climate has not improved, and continues to be ranked behind those of most regional competitors.

Executive Board Assessment

Executive Directors agreed with the thrust of the staff appraisal. They welcomed Algeria's strong economic performance in recent years, with solid non-hydrocarbon growth and low inflation. In particular, they commended the authorities for prudent financial policies that have enabled a significant increase in reserves, the reduction of public and external debts to low levels and the accumulation of large fiscal savings which will sustain the current fiscal stance in 2010. Nevertheless, they noted that the fall in oil prices and the ensuing deterioration in financial balances show that Algeria continues to face important medium-term challenges. Sustained efforts are needed to improve productivity, diversify the economy to reduce its high dependence on the hydrocarbon sector, and reduce high youth unemployment.

Directors supported maintaining the current fiscal stance in 2010 but encouraged the authorities to revert to a sustainable fiscal path over the medium term. They endorsed continued implementation of the PIP and support to SMEs and noted that the sizable fiscal savings can be used to that effect. Nonetheless, Directors stressed that a thorough overhaul of the current and capital spending would free up budgetary resources, better preserve hydrocarbon wealth in the medium term and maintain fiscal space in case of adverse shock on oil prices. They welcomed the authorities' commitment to prioritize execution of the current and future PIPs based on the fiscal outlook, and advised to firmly contain current expenditure, in particular the wage bill, to make room for additional maintenance costs related to the new infrastructure. They noted that the authorities' ongoing advances to reform the revenue administration should boost further budget revenues, provided that growth in tax incentives is contained.

Directors stressed the critical importance of ensuring the quality and efficiency of public spending, which has become an important driver of Algeria's non-hydrocarbon economic growth. In that respect, they welcomed the authorities' program to modernize budget systems and the work done by the now fully operational projects evaluating agency.

Directors commended the authorities' prudent monetary policy which helped contain inflationary pressures. They noted, however, that abundant liquidity associated with the hydrocarbon sector and public spending demands continued vigilance, and that the authorities should stand ready to tighten monetary policy if inflationary pressures from excess liquidity were to materialize.

Directors considered that Algeria's exchange rate policy is consistent with medium-term external stability. They agreed with the staff's assessment that the exchange rate is broadly aligned with fundamentals. Nevertheless, Directors urged the authorities to accelerate structural reforms to improve external competitiveness. While commending the authorities' efforts to improve infrastructure, they stressed that these efforts are not sufficient to improve the investment climate. Directors noted that the new regulations for FDI projects could deter foreign investors to open subsidiaries in Algeria, preventing much needed technology transfer.

Directors encouraged the authorities to speed up financial sector reform to strengthen and improve the efficiency of financial institutions. In particular, recommendations of the 2007 FSAP Update of the financial sector could be implemented more forcefully, seeking to clarify the role of public banks and further strengthen their governance. Directors considered that possibilities for resuming the privatization process of major public banks could be explored, with the objective to increase the efficiency of the banking sector based on international best practices. They believed that ongoing efforts to reduce NPLs should continue, bringing their levels closer to those in comparable countries. Directors viewed the ban on consumer lending (except mortgages) as a potential hurdle to financial sector development, and suggested that it be removed once the household credit registry becomes operational. (IMF 23.02)

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11.21 ALGERIA: Shop Happy

The year 2009 was one of tighter margins, falling sales and reduced footfalls in the Algerian retail sector as many middle-income consumers felt the pinch of the slowdown. Now, with the economy set to post higher rates of growth, shop owners at all levels are looking forward to an improved turnover in 2010, though there are still some hurdles to overcome.

Many factors combined to weaken the sector in 2009. As the country's export markets contracted and unemployment rose in the wake of the global recession, consumer spending fell accordingly, resulting in a drop in sales turnover of more than 10% recorded in 2009. Creeping inflation also had an impact, with price rises passed on to consumers averaging 5.7% in 2009, up from 4.4% the previous year. In some cases, the jump was even higher, with prices for agricultural products rising by 20.5%, although the cost of manufactured goods rose by only 3.4% over the year.

While this all had some impact on sales of staples, it was felt most strongly in the bottom lines of smaller retailers.

Though there has been growth in the large-scale shopping segment in recent years, with a number of malls and centers being developed, the retail sector is still dominated by smaller outlets, while the share of the informal market constitutes almost 40% of total trade, a figure that rises sharply outside Algiers.

Currently, the market does not appear to be large enough to support substantial quantities of high-end climate-controlled space due to high costs, though the prevalent shopping culture, together with a considerable number of wealthy Algerians, suggest there are good opportunities for quality retail space in Algiers. As the market changes and the economy picks up, people are gradually becoming more brand-conscious. Alain Rolland, the general manager of the Societe des Centres Commerciaux d'Algerie (SCCA), told OBG, "Although Algeria's retail segment is nascent, its population is exposed to foreign retail standards through internet, television and other media and, consequently, is demanding high shopping standards." Increasing brand awareness will encourage greater interest from investors in developing new retail centers. The trend will also be towards linking retail space with leisure and entertainment facilities, with some of the latest malls, such as Algiers Medina, featuring recreational attractions to go with the draw of upscale shopping.

Recent years have seen the development of a large-scale mall project in Algiers, and plans for several other large malls in different parts of the country. Work on the Bab Ezzouar Centre – located in the area of the same name that is being promoted as the capital's new business district – began in July 2006, and the developer, SCCA, will open the €58m property in the first quarter of 2010. The mall will offer 31,000 sq meters of retail and leisure space, including a 7000-sq-metre hypermarket and a cinema. The retail space has been fully reserved by a number of high-end brands, including Lacoste, Nike, Swatch and Mango, among others. In addition to extensive shopping facilities, the Bab Ezzouar Centre will offer 20,000 sq meters of office space and underground parking for 850 cars. Planners are anticipating several thousand visitors daily.

While footfall may be on the rise in some centers, increased disposable income and higher spending levels are what really count. According to the World Bank, Algeria's economy should expand by around 3.9% in 2010 and gain further momentum in 2011, when GDP is forecast to grow by 4%. This is substantially up on the 2.1% increase estimated for 2009, and as long as this growth translates into higher wages, there should be an increase in retail spending over the next two years.

There have already been moves to put more cash in consumers' pockets. In December 2009 the government announced it had brokered an agreement with labor unions representing civil servants to increase the salaries of those on the minimum wage by 25%, a decision that will benefit 300,000 workers. The new pay scale will also have a wider impact on the economy, being used in the setting of social security, retirement and unemployment benefits. This will result in greater consumer spending, though most of it will be concentrated at the lower end of the retail market.

Despite forecasts of increased spending, with the IMF recently predicting household consumption expenditure of above 4% for each of the next three years, a number of factors continue to hold back large-scale new retail investments, especially by overseas operators. Though there is increasing interest from foreign investors, it is tinged with caution.

A number of challenges, including high customs duties and investment costs, were among those cited by French retail giant Carrefour when it announced it was ending its brief partnership with Algerian group Arcofina and withdrawing from the Algerian market. Having joined forces in 2006, with plans to open up to 18 supermarkets by 2012, Carrefour and Arcofina parted company in mid-February 2009, with the French retailer issuing a statement saying "the concept of mass distribution does not work in Algeria."

While Arcofina would beg to differ, and is in the process of developing a chain of supermarkets across the country, the firm did acknowledge that the sector was not easy to break into. At the time of the dissolution of the partnership, Arcofina officials said that the decision had been prompted by difficulties in finding available land on which to open hypermarkets.

The difficulties of retailers carrying overseas products could become greater if the government follows through with a proposal to further cap prices for some goods, especially foodstuffs, as a measure to rein in inflation and protect local producers. Another problem many of the larger retail developments face in their competition with smaller, locally based outlets is ease of access. Though an increasing number of Algerians own a car, many do not, and for the majority a trip to the corner shop is easier than travelling a longer distance to a mall, often one that lies well away from residential centers.

For the time being, tradition, ease of access, income levels and low investment pick-up by foreign chains will combine to restrict the rate of growth of large-scale shopping developments. However, the latest developments in the capital are further evidence that attempts to tap into the high-end market may hold promise. (OBG 25.02)

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11.22 TURKEY: Retail Sales to Grow To More Than $452 Billion by 2014

Research and Markets (http://www.researchandmarkets.com) "Turkey Retail Report Q1 2010" predicts that the country's retail sales will grow from about $208bn in 2009 to more than $452bn by 2014. Underlying economic growth, an expanding population, especially in urban areas; rising levels of disposable income and the continued development of organized retail infrastructure are key factors behind the forecast growth in Turkish retail sales. Turkeys nominal GDP was $611.90bn in 2009, with last years decline of 6.2% expected to translate into growth of 3.4% in 2010 as the economy begins to improve. Average annual GDP growth of 2.7% is now predicted by BMI between 2009 and 2014. With the population increasing from 72.2mn in 2009 to an estimated 76.6mn by 2014, GDP per capita is forecast to more than double to $17,244 by the end of the forecast period. The forecast for consumer spending per capita is for an increase from $5,015 in 2009 to $7,641 by 2014.

Salaries in Turkey remain low, with BMI estimating the 2007 average annual wage at $5,848. However, Turkey has a large, growing and young population. Each year, 750,000 young people join the workforce and, with an increasing level of urbanization, many are abandoning the agricultural sector in order to seek better paid work in other areas. Nevertheless, unemployment is a problem, reaching an estimated 15.0% by the end of 2009. It forecasts that this will start to fall in 2010, ending the forecast period at 8.0%.

In 2005, 65.8% of the Turkish population was described by the UN as economically active, with 41.0% in the 20-44 age range, which is important for retail sales. Just over two-thirds of the population was classified by the UN as urban (67.3%). By 2015, the urban population is forecast to have reached almost 72%, with 43.8% in the 20-44 age band and 69.1% of the population is expected to be active. BMI has calculated that organized retail accounted for an estimated $77.75bn of overall sales in 2009, rising to a forecast $144.26bn by 2014, an annual average growth rate of 7.9%.

Using BMI Food and Drink service data, we identify a food and drink market share in 2009 of 22.9%. Over the counter (OTC) pharmaceutical sales are predicted by BMI to increase from $1.05bn in 2009 to $2.27bn towards the end of the forecast period, a rise of 115%. Automotive sales are forecast to rise by more than 52% to $12.77bn by 2014. Sales of consumer electronics products are forecast to increase by nearly 57%, from $7.74bn in 2009 to $12.14bn before 2014. (R&M 25.02)

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11.23 GREECE: SPIEGEL Interview with Greek Prime Minister Papandreou

'It's a Question of Survival for Greece'

All eyes are on Greece as the country tries desperately to reduce its dangerously high budget deficit and public debt. SPIEGEL spoke with Prime Minister Georgios Papandreou, 57, about massive corruption, rampant tax evasion and the effort to get his country back on track.

SPIEGEL: Mr. Prime Minister, your country has damaged the euro and plunged Europe into a serious crisis. How bad are things for Greece?

Papandreou: Our biggest deficit is not financial, it is credibility. We know that we face major problems, and that we as Greeks are to blame for these problems. Serious mistakes were made in the past. But the citizens voted us into office because they wanted change. We want to restore faith in politics by putting our house in order.

SPIEGEL: Greece falsified statistics for years to hide its massive government debt of €271 billion ($365 billion) and its budget deficit of 12.7% of the gross domestic product from the rest of Europe. How was this even possible, and why didn't anyone notice?

Papandreou: That's a good question, and it's one that we're all asking ourselves. We have launched a parliamentary investigation. No one could have imagined the scope of this.

SPIEGEL: Who is responsible for it? Is it really just the former director of the national statistics office, who everyone is now blaming? Or is it the personal responsibility of your predecessor, Kostas Karamanlis?

Papandreou: Of course, a single official at the statistics office is not solely responsible. He was a political appointee of the previous administration. But I don't want to pass judgment before the investigations are concluded.

SPIEGEL: You have also accused the European Commission in Brussels of having looked the other way.

Papandreou: The EU should have controlled more rigorously in the past to ensure that the stability pact was in fact being observed - also by us. In the future, we should provide the European statistics office with direct access to the data of individual member states. We proposed this, but not all countries wanted that much transparency.

SPIEGEL: Are you trying to blame the EU to deflect some of the responsibility?

Papandreou: No, it isn't my intention to say how bad Europe is. The EU is a unique organization, but it needs to look at this carefully to see this as a failure of the European institutions. This is part of the reason something like this could have happened…and this cannot be allowed to happen again.

SPIEGEL: Many European politicians, and the media, have sharply criticized your country. Some are even calling for Greece to be excluded from the euro zone.

Papandreou: I can understand some of the criticism. But we all have to be careful not to conduct artificial emotional debates via the media. For example, many politicians have recently said in public that they will not bail out Greece. We never asked for a bailout. But if you say that, it is as if we asked for a bailout. Such false information is very dangerous, given the very fragile situation in the world economy.

SPIEGEL: But can you understand that many Germans are worried about having to pay for Greece's lack of discipline, particularly after heavy social cutbacks in Germany?

Papandreou: I can understand the German citizens, who are going through difficult times themselves. But we aren't asking for any money from Germany, even if it is sometimes portrayed that way. We know that we have to help ourselves, just as Germany did in the past. Like any other country, however, we need to be able to borrow on the markets under normal conditions, and we need the EU's backing to achieve this. If the borrowing stays so expensive, our economy cannot function, and we won't be able to implement our reforms.

SPIEGEL: What makes you so confident that you'll be able to overcome this crisis on your own? Your goals are incredibly ambitious. No country in the euro zone has achieved anything comparable.

Papandreou: I don't think that's true. Germany had very ambitious goals, and it achieved them…

SPIEGEL: …but Germany didn't have to reduce its budget deficit from 12.7 to 3% of GDP within three years.

Papandreou: That is indeed difficult. But look: If our country functioned well, we would have little room for cutbacks. However, because there is so much waste everywhere, we can also save a lot.

SPIEGEL: Give us an example.

Papandreou: In a study done last year, the OECD described government-run Greek hospitals as deeply corrupt. It concluded that we could save 30% of the costs, which is enormous. The hospitals generated a deficit of €7 billion last year. Imagine what an unbelievably large amount of money we could save by simply introducing computers into hospitals. Until now, there has been far too little control over the purchasing of medications and equipment. In Germany, a stent for heart operations costs about €500. In Greece it costs €2,000 to €2,500. The fault lies with corruption.

SPIEGEL: Why does the Greek state function so poorly?

Papandreou: Unfortunately, corruption is widespread in government agencies and public enterprises. Our political system promotes nepotism and wasting money. This has undermined our legal system and confidence in the functioning of the state. One of the consequences is that many citizens don't pay their taxes.

SPIEGEL: In other words, you practically have to remake the entire country. How do you propose doing that?

'We Want to Turn Ourselves into a Role Model'

Papandreou: We have to see the crisis as an opportunity to take on the necessary reforms. We have already made important decisions. For example, we will reduce the salaries of civil servants, raise the retirement age and increase the fuel tax. We are planning a tax reform that will impose more of a burden on higher earners. This increases fairness, and it enables us to fight tax evasion.

SPIEGEL: That all sounds good. But how do you intend to fight corruption, nepotism and illegal employment, all of which are problems deeply rooted in Greek society?

Papandreou: Politics also means educating people. It's important to speak openly with our fellow Greeks, to tell them what our problems are and that we have to change something. Citizens have noticed in recent years that corruption is a big problem. Now we have a historic opportunity, with the government and citizens both wanting change.

SPIEGEL: Do you really believe that you can re-educate your citizens?

Papandreou: We need both: clear words and concrete measures. For example, we will place all government orders and contracts on the Internet. This would make us Europe's most transparent country. We want to turn ourselves from a bad example into a role model.

SPIEGEL: How do you intend, for example, to convince wealthy doctors in Athens to finally pay their taxes and stop collecting bribes - so-called fakelaki - from their patients?

Papandreou: I see that you've already learned the word. We have in fact already investigated these doctors. Some of them declare only €10,000 in annual income. This is shocking. They can expect systematic checks in the future. Their patients will have to be given receipts, because medical expenses will be tax-deductible in the future. We need a change in consciousness. For this reason, we have placed several examples of these tax returns on the Internet. If neighbors and patients see how these people live, they ought to ask questions in the future.

SPIEGEL: Another problem is that a quarter of all Greek employees work for the government. The civil service is bloated. What can you do to address this problem?

Papandreou: In Greece, the civil service serves practically the same purpose as the employment office does in Germany. This leads to nepotism. Someone who becomes a department head or minister hires people he knows or who voted for him. We have to reintroduce the principle of meritocracy. In the future, the government will only hire job applicants who have passed a rigorous entrance exam. Besides, only one in five jobs that become vacant will be filled. We have already eliminated 30,000 to 40,000 temporary jobs.

SPIEGEL: Still, resistance is taking shape against each of your reforms given the burden they place on the citizenry. A general strike is expected to cripple the whole country this week. How can you resist the pressure from the street?

Papandreou: We all know that the whole thing will be very painful. It's a question of survival for our country. We have the support of the people in this effort, and the unions know that. I am determined to stand firm.

SPIEGEL: Two-thirds of Greeks polled support your cost-cutting measures, your personal popularity is high and the Socialist Party currently has a 48-percent approval rating - the highest in decades.

Papandreou: That points to the will of Greeks to take new approaches. This is also a message to Europe. Greece has great potential, with green energy, for example. If we clean up the corruption, we will also attract investors.

SPIEGEL: The European Commission doesn't seem to have quite as much confidence in the Greek cost-cutting measures. It wants to see progress by mid-March, otherwise it will demand amendments.

Papandreou: I believe that Brussels first wants to see that we are truly taking action, and that we also make good on our pledges. We need time for now, and they will draw up an interim assessment next month. We are already doing more than the Commission demanded.

SPIEGEL: Are you still pleased that Greece belongs to the common currency union? Paul Krugman, winner of the Nobel Prize for economics, has described the common currency as a mistake as it means that countries like Greece can no longer combat ballooning deficits by devaluing their currencies.

Papandreou: The euro has enabled our companies to obtain cheap loans. This helped us achieve high growth of up to 5%. But the euro also its imperfections, because we have no truly common economic policy. This crisis could be a historic turning point for the currency union. We have to think about the role the euro zone should play in the future. We need more cooperation, more control and more consideration for the different economic situations of the member states. First of all, however, we have to solve our Greek problem.

SPIEGEL: Is it inconceivable that you would leave the currency union?

Papandreou: We haven't thought about it, and no serious political partner in Europe is thinking about it. This would massively weaken the common project. Besides, it's hardly possible in practical terms.

SPIEGEL: Three families have ruled the country for decades, the Karamanlis, Mitsotakis and Papandreou families. You are already the third prime minister from your family dynasty. Isn't this also symptomatic of Greece's problems?

Papandreou: In a democracy, you are elected by the people. When I was growing up in the United States and Sweden, I never thought about becoming a politician. But during the military dictatorship, my grandfather was put in prison six times and my father twice. I was a refugee and didn't know whether I would ever return to Greece. That did shape me as a young man. If my family and my country didn't have this history, I might be a professor somewhere today.

SPIEGEL: You have an enormous task ahead of you. Do you feel more like Sisyphus rolling a boulder up a mountain, or Hercules cleaning out a stall?

Papandreou: I don't feel like Sisyphus. That's not my philosophy. It is certainly a Herculean task. Most of all, I feel reminded of the Odyssey. In Homer, the travelers are being transformed during their difficult journey - and we too will be different people when we arrive at our destination.

SPIEGEL: Mr. Prime Minister, thank you for taking the time to speak with us.

Interview conducted by Manfred Ertel and Mathieu von Rohr. Translated from the German by Christopher Sultan
(Der Spiegel 22.02)

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11.24 GREECE: Greek Corruption Booming, Says Transparency International

Corruption is widely regarded as one of the triggers of the Greek debt crisis threatening the euro common currency. A new study by Transparency International suggests that corruption is part of everyday life in Greece, and claims private households paid more than €780 million in bribes in 2009.

The Greeks paid an average of €1,355 ($1,830) in bribes last year for public services such as speeding up the issue of driver's licenses and construction permits, getting admitted to public hospitals or manipulating tax returns, according to a new study by Transparency International, the Berlin-based global corruption watchdog. In 2008, average bribes were even higher, at €1,374, the study said, according to a report in the German daily Die Welt.

Bribes paid for private sector services such as lawyers, doctors or banks were even higher, rising to €1,671 on average in 2009 from €1,575 in 2008, the study said. It is based on a survey by polling institute Public Issue among 6,122 Greek adults, of whom 13.4% stated that they had been asked to pay bribes. According to Die Welt, Transparency International calculated that Greek households paid a total of €787 million in bribes in 2009 - €462 million to civil servants and €325 million in the private sector. The total sum is up 23% from 2007, when TI estimated that bribes totaling €639 million were paid.

Government, Corporate Corruption Not Measured

The figures show only a small part of the corruption in Greece because many people did not admit to paying bribes, the study said. "We only measure so-called small-scale corruption, meaning bribes paid by private individuals to civil servants and in the private sector," the head of Transparency International Greece, Konstantin Bakouris, told Die Welt. He added that TI did not record the corruption going on at the government and corporate level, even though it was widespread.

The Greek budget deficit in 2009 amounted to 12.7% of GDP, more than four times the EU limit. Market worries that the Greek government might default on its debt have pushed up the cost of Greek borrowing and triggered a 10% depreciation of the euro against the dollar since the end of 2009. There are fears that a Greek default could lead to a breakup of the 11-year-old monetary union.

The Greek government has pledged to hike taxes and slash public spending to bring the deficit back down. German accusations of corruption, false public accounting and extravagance have led to a war of words between Greece and Germany in recent weeks. (Spiegel 02.03)

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11.25 GREECE: Greece Pharmaceuticals and Healthcare Report Q1 2010

Research and Markets (http://www.researchandmarkets.com) announced the addition of the "Greece Pharmaceuticals and Healthcare Report Q1 2010" report to their offering.

Greece's pharmaceutical market is the largest in Central and Eastern Europe (CEE). After consecutive years of high level growth, levels of per-capita spending are now among the highest in the world. These figures make Greece attractive on face value and the market places first in the analysts Business Environment Ratings for Q1/10 largely as a result. Despite this, Greece's attractiveness is set for a prompt downturn in 2010.

The publisher believes that the Greek election victory for the socialist PASOK party on 4 October 2009 marks a true opportunity to regain control of the state healthcare system, where years of poor management and outdated policies have led to high levels of spending and the accumulation of unmanageable debts. While the new ruling party will not implement an Obama-style complete overhaul to the healthcare system, early indications from the government suggest that modernizing the system could be a priority, with new Prime Minister Papandreou accusing the previous government of neglect. The publisher believes that hospital debt reduction is an urgent and necessary objective for the government. While payments of already-accumulated debts will be good news for companies, implementing schemes for more efficient budget management in future are, in the publishers view, even more crucial to ensuring stability within the sector.

Greece's pricing and reimbursement environment is set for a period of transformation, which will see price freezes or reductions for originator drugs, the introduction of referencing for generic medicines and tighter conditions for reimbursement coverage. In mid-November 2009 Greece's new health minister Xenogiannakopoulou presented the recently-elected governments overhaul to the system, which aims to save €1.5bn ($2.2bn) in 2010. These changes, along with the country's altering macroeconomic outlook, have led the publisher to considerably downgrade our outlook for pharmaceutical spending in Greece over the next five years.

In terms of medical devices, Greece's market is heavily reliant on imports, with over 95% of total sales generated by foreign firms. Leading sources include Germany, Italy, the US and the UK, although more recently China has entered the fray. As with the pharmaceutical sector, the publisher believes Greece's recent spending on medical devices is unsustainable. Over the next five years we forecast a CAGR of 5.66%; however, these projections will remain tentative until longer-term policies to control healthcare spending become clear. (R&M 24.02)

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