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Fortnightly - April 9, 2014

EDI Fortnightly Report

TOP STORIES

TABLE OF CONTENTS:

 1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1  US & Israel to Ease Restrictions on Investors
1.2  Flug Says Israel Needs Large 2015 Spending Cuts & Tax Income

 2:  ISRAEL MARKET & BUSINESS NEWS

2.1  IAI to Overhaul Air Canada Boeing 767 Fleet 
2.2  Mellanox Awarded 5-Star Rating in CRN’s 2014 Partner Program Guide  
2.3  IAI Backlog Reaches Record $10 Billion   
2.4  5W Public Relations Launches Israel Practice  

 3:  REGIONAL PRIVATE SECTOR NEWS

3.1  Whisky Sales Soar Nearly 20% Year in Middle East
3.2  CytoSorbents Expands Distribution to Middle Eastern Markets
3.3  HighJump Software Announces Partnership in Turkey

 4:  CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1  Israeli Air Pollution From Transportation & Power Plants Down 
4.2  Six New Solar Fields Launched in Israel 
4.3  Jordan Signs 12 Deals for Solar-Run Power Plants 
4.4  Spanish Firm Selected to Build Jordan’s Wind Power Plant 

 5:  ARAB STATE DEVELOPMENTS

5.1  Jordan’s GDP Grows by 2.8% in 2013
5.2  Ready-Made Clothing Industry Tops List of Jordanian Exports 
5.3  Jordanian Tour Operators Dismayed Over Sudden Entry Visa Hike 
5.4  First of 10 New Fast Trains Ready for Shipment to Iraq

♦♦Arabian Gulf

5.5  UAE Exchange Says GCC Remittances Totaled $21 Billion in 2013
5.6  Qatar Unveils Record $62 Billion Budget
5.7  Qatar Announces Military Contracts Worth $23 Billion
5.8  UAE Approves New Law to Bring in Compulsory National Service
5.9  Forty Three Firms Selected To Provide Health Cover in Dubai
5.10  Oman Says Foreign Trade Exports Up 8.2% in 2013
5.11  Oman Sets Up Committee to Monitor Financial Stability
5.12  Saudi Plans $533 Million of Water Infrastructure Projects

♦♦North Africa

5.13  Egypt's Annual Trade Deficit Slows 21% in December 2013
5.14  Egypt's Suez Canal Revenues Rise 6.4% in February
5.15  Gulf States to Invest $737 Million in Morocco Tourism Infrastructure

 6:  TURKISH, CYPRIOT & GREEK DEVELOPMENTS

6.1  Turkish GDP Grows 4% in 2013 But Market Troubles Ahead 
6.2  Turkey’s Trade Deficit Diminishes by 27% 
6.3  Cyprus’ Rate of Inflation Decreased by 2.3% in March 

 7:  GENERAL NEWS AND INTEREST

♦♦ISRAEL:

7.1  Passover Observance Will Begin on 14 April
7.2  Arab Microbiologist is Israel's New 'Master Chef' 

♦♦REGIONAL:

7.3  More Than 1 Million Syrian Refugees in Lebanon 
7.4  Saudi Arabia to Establish Three New Universities 
7.5  Egypt to Hold Presidential Election on 26 – 27 May 
7.6  Salafists & Tamarod Support Sisi’s Bid for Presidency 

 8:  ISRAEL LIFE SCIENCE NEWS

8.1  Intel Invests $20 Million in Israel’s OrCam
8.2  BioLight Files for Phase I/IIa Study of its Latanoprost Insert for Glaucoma 
8.3  BreedIT Breeds, Owns & Sells Unique Cannabis Seeds 
8.4  Convergent R.N.R Successful Session with Mercy Beam Technology 
8.5  Syneron Sublative Technology Earns CE Mark for Stretch Mark Treatment 
8.6  Breakthrough Technology Can Repair Severe Tissue Damage 

 9:  ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1  Foresight Releases Cloud-Based Website Security Platform
9.2  SysAid Patch Management Tool Version 14.0 of ITSM Platform 
9.3  Eggxer Gadget Creates a "Golden Egg" That's Good for You 
9.4  Qlight Nanotech Names Best Nanotechnology Company of the Year 
9.5  Vidmind Adds to its Hybrid OTT/DTT Platform 
9.6  The Kickstarter Project That Will Guard Your Keys  
9.7  StoreDot’s NextGen Smartphone Battery Fully Charges in 30 Seconds!  
9.8  Crocus & TowerJazz Qualify CTSX Magnetic Sensors  

 10:  ISRAEL ECONOMIC STATISTICS

10.1  Foreign Investment in Israel Totaled $74 Billion in 2012
10.2  Israel's Fiscal Deficit Continues To Narrow

 11:  IN DEPTH

11.1  ISRAEL: S&P Ratings on Israel Affirmed At 'A+/A-1'
11.2  ISRAEL: World’s First Self-Cleaning Solar Park in the Arava Valley
11.3  ARAB MIDDLE EAST: Arab World Faces Crisis of Increasing Electricity Demand
11.4  LEBANON: Geothermal Energy Has Great Potential in Lebanon
11.5  JORDAN: Education System Adjusts To Meet New Challenges
11.6  GCC: Understanding the Gulf States
11.7  UAE: Ratings On Abu Dhabi Affirmed At 'AA/A-1+'
11.8  SAUDI ARABIA: Nuclear Kingdom - Atomic Ambitions
11.9  SAUDI ARABIA: Saudi Succession Change Risks Royal Family Squabble
11.10  EGYPT: The Fate of the Copts after the Arab Spring 
11.11  TURKEY: Fitch Affirms Turkey at 'BBB-'; Outlook Stable
11.12  TURKEY: Elections - Vote of Confidence or Game-Changer?  

1:  ISRAEL GOVERNMENT ACTIONS & STATEMENTS

 1.1  US & Israel to Ease Restrictions on Investors

The Netanyahu government on 30 March approved a proposal drafted by Interior Minister Sa'ar that will ease entry restrictions for Americans wishing to invest in Israel and for Israelis seeking to invest in the United States.  The approval is part of a pilot program agreed between the U.S. and Israel to create a new track for Israeli and U.S. businesspeople to invest in each other's countries.  Under the program, Israelis wishing to make a significant investment in the U.S. would undergo an extensive background check in both countries before being given the U.S.'s special E-2 entry visa, which allows an extended stay in the U.S. for the purposes of opening and managing a business.  The Population and Immigration Authority, which worked side by side with the Interior, Foreign, and Finance ministries to formulate the proposal, will be tasked with its implementation.  For U.S. investors in Israel, steps will also be taken to ease entry requirements for families and for professionals required for an investment project.  (IH 31.03)

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 1.2  Flug Says Israel Needs Large 2015 Spending Cuts & Tax Income

Bank of Israel Governor Karnit Flug said the government will need tax hikes and spending reductions of 20 billion shekels ($5.7 billion) to meet next year's budget deficit target.  The Finance Ministry has set a budget deficit target of 2.5% of GDP for 2015.  Flug said to meet the aim, state spending cuts of 12 billion shekels will be required, while tax revenue will need to bring in another 8 billion - either in tax hikes or improved tax collection.  She added that Israel will likely meet its 2014 budget deficit target of 3%.  (Ynet 31.03)

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2:  ISRAEL MARKET & BUSINESS NEWS

 2.1  IAI to Overhaul Air Canada Boeing 767 Fleet

Israel Aerospace Industries has signed a five year maintenance, repair and overhaul (MRO) agreement with Air Canada, for the airline's fleet of Boeing 767s.  IAI's Bedek Aviation Group will perform all required maintenance procedures in its facilities at Ben Gurion International Airport.  Industry sources estimate the contract to be worth tens of millions of dollars.  The Bedek Aviation Group upgrades and converts passenger airliners, cargo jets and refueling planes.  It has licenses from the aviation authorities of numerous countries, including the US Federal Aviation Authority, which means that the unit meets the strictest standards in the industry.  (Globes 26.03)

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 2.2  Mellanox Awarded 5-Star Rating in CRN’s 2014 Partner Program Guide

Mellanox Technologies was awarded a 5-Star rating in the CRN 2014 Partner Program Guide.  The 5-Star Partner Program rating recognizes an elite subset of technology companies that provide the best partnering elements in their IT channel programs.  The Mellanox PartnerFIRST Program is a global channel program purpose-built to help resellers capitalize on leading products in fast growing markets with rich margins, comprehensive training and much more.  The PartnerFIRST program is designed to give partners a distinct advantage by providing single-vendor access to complete end-to-end InfiniBand and Ethernet interconnect solutions with best-in-class profitability.  To determine the 2014 5-Star recipients, The Channel Company’s research team assessed each vendor’s application based on investments in program offerings, partner profitability, partner training, education and support, marketing programs and resources, sales support and communication.

Yokneam’s Mellanox Technologies (http://www.mellanox.com) is a leading supplier of end-to-end InfiniBand and Ethernet interconnect solutions and services for servers and storage.  Mellanox interconnect solutions increase data center efficiency by providing the highest throughput and lowest latency, delivering data faster to applications and unlocking system performance capability.  Mellanox offers a choice of fast interconnect products: adapters, switches, software, cables and silicon that accelerate application runtime and maximize business results for a wide range of markets including high performance computing, enterprise data centers, Web 2.0, cloud, storage and financial services.  (Mellanox 26.03)

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 2.3  IAI Backlog Reaches Record $10 Billion

Israel Aerospace Industries reported record orders backlog of $10 billion, but flat profits on higher revenue.  Its full-year revenue rose 9% to $3.64 billion from $3.34 billion in 2012, and net profit rose to $75 million from $74 million.  All of IAI's military and commercial divisions achieved higher revenue in 2013, except for Bedek Aviation, which handles aircraft conversions and overhauls.  Exports accounted for 73% of sales in 2013, down from 76% in 2012, mainly because of revenue from the Amos 4 communications satellite and its transfer to the client.  Military sales accounted for 73% of total sales in 2013.  Cash flow from operations rose to $551 million in 2013 from $274 million in 2012.  R&D expenses rose 15% to $180 million in 2013 from $156 million in 2012, and its proportion of sales rose to 4.9% from 4.7%.  (Globes 27.03)

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 2.4  5W Public Relations Launches Israel Practice

New York’s 5WPR, one of the largest independent American public relations firms, announced the creation of an Israel-Entrepreneur and Technology group to specialize in serving companies from this continuously growing market.  The full service New York based PR Agency currently represents nearly 20 Israeli companies across all disciplines, from technology to biotech to entrepreneurial and finance.  Current 5WPR clients include FST21, Roomer, Bizzabo, Beyond Verbal, One Hour Translation and others.  5WPR client experience includes work with brands including NICE Systems, EL AL Airlines, Israel's Ministry of Tourism and others.  The Israel business practice will serve as a focused group within 5WPR's Corporate and Technology divisions. Both practices have consistently been recognized for their results-driven campaigns and successes launching new companies, as well as raising the profile of established businesses through targeted media outreach.  (5W 31.03)

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3:  REGIONAL PRIVATE SECTOR NEWS

 3.1  Whisky Sales Soar Nearly 20% Year in Middle East

Whisky sales in the Middle East increased nearly 20% per annum between 2007 and 2012, according to the latest industry figures.  The 'Global market review of malt whisky - forecasts to 2018', which was compiled by the International Wine & Spirit Research (IWSR) and Just-drinks.com, found 72,300 nine-liter cases of whisky was sold in the Middle East in 2012.  This is compared to 30,850 in 2007, representing a five year increase of 134%, or an average compound growth of 18.6% annually.  This compares to an average of 7% per annum globally across the same period.

Glasgow-based firm the Edrington Group, which produces Scotch whisky brands The Famous Grouse, Cutty Sark and The Macallan, has picked up on this trend and last year announced a significant expansion of its international distribution network, taking control of operations that span three continents.  During 2014, Edrington will establish new sales, marketing and distribution companies in the US, South East Asia and the Middle East.  Collectively, these markets currently account for 26% of its total sales.  (AB 02.04)

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 3.2  CytoSorbents Expands Distribution to Middle Eastern Markets

Monmouth Junction, NJ’s CytoSorbents Corporation, a critical care immunotherapy company using blood purification to treat life-threatening illnesses, announced distribution of its CytoSorb extracorporeal cytokine filter in the Middle East, including Saudi Arabia, the UAE, Kuwait, Qatar, Bahrain, and Oman, as well as Yemen, Iraq, and Jordan through an exclusive agreement with Techno Orbits.  This multi-year agreement is subject to annual minimum guaranteed orders of CytoSorb to maintain exclusivity. 

The GCC spends approximately $35 billion annually on healthcare and offers universal healthcare coverage to its citizens, with roughly 70% coming from the governments and Ministries of Health of each country, and the rest from private sources.  There are approximately 630 public and private hospitals in the GCC, serving an estimated population of 45 million people.  Healthcare standards and investments in healthcare infrastructure continue to increase to meet the needs of the growing population that face chronic illnesses such as diabetes and obesity, major risk factors for future hospitalization and critical illness.  Today, the emerging medical device market in the GCC is approximately $2 billion. 

Although Yemen, Iraq and Jordan are not currently in the GCC, they also represent large markets.  More than 500 hospitals serve an estimated 62 million people in these countries.  In total, this distribution agreement covers a market of more than 100 million people.  (CytoSorbents 08.04)

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 3.3  HighJump Software Announces Partnership in Turkey

Minneapolis’ HighJump Software, a global provider of supply chain management software, announced that Buton eBusiness Solutions is an international partner for supply chain markets in Turkey and the surrounding region.  Based in Istanbul, Buton is a software engineering services leader that delivers best-of-breed solutions for commerce operations, from supply chain to customer service.  The company offers the HighJump Supply Chain Advantage suite to customers in Turkey, including those in the apparel retail, food retail, consumer products, e-commerce, 3PL, automotive and industrial markets.  With the HighJump Supply Chain Advantage suite, companies in Turkey have access to one of the most configurable and scalable warehouse management systems (WMS) in the world.  Because of the country’s geographic location between Europe and Asia, businesses must be dynamic to fit the changing regional and cultural needs of customers.  The HighJump WMS can be configured and adapted to meet any specific industry or business need, and allows customers to take ownership of their systems to implement operational changes quickly.  (HighJump 01.04)

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4:  CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

 4.1  Israeli Air Pollution From Transportation & Power Plants Down

Air pollution in Israel caused by transportation decreased from 2001 to 2012, and the amount of some air pollutants also dropped, according to an Environmental Protection Ministry report on air quality compiled using data collected over a decade.  However, the report said, there was no change in the amount of inhalable particles or the ozone, which present a more serious health risk.

The ministry assembled the report based on information collected at 100 air quality monitoring stations throughout Israel.  Environmental Protection Minister Amir Peretz is expected to announce the launch of a nationwide air quality monitoring system that will include all the stations set up before the Clean Air Law took effect in January 2011.  As soon as the announcement is made, the system will begin operating according to the standards of developed nations.

The report notes an improvement in the concentrations of nitrous oxide and sulfur dioxide in the air, measured by stations located at heavily trafficked areas in Jerusalem and greater Tel Aviv.  The Haifa region saw the sharpest decrease in concentrations of these pollutants due to decreased emissions from the power plant and petrochemical industry located in Haifa Bay, as well as from automobiles.

According to the report, the decreased concentration of sulfur dioxide measured throughout the country at stations adjacent to power plants and oil refineries was the result of a move to "clean" fuel sources. In the greater Tel Aviv area, for example, the concentrations dropped after the Reading power station was converted to run on natural gas, while in Ashkelon no significant changes were recorded in the same period.

The report cited a number of major moves implemented in the past decade that led to a drop in pollutant emissions and ensuing exposure to air pollution, including the switch to natural gas at the nation's power plants, improved quality of transportation fuel, and the scrapping and "green tax" programs.  However, the report did not indicate any change in either the amount of inhalable particles or the ozone. The inhalable concentrations of fine particles that can be composed of toxic and carcinogenic matter, which were measured at all the monitoring stations, were higher than the target.  The main reason for this is Israel's geographic proximity to the Arabian Desert and North Africa.  (IH 07.04)

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 4.2  Six New Solar Fields Launched in Israel

Solar energy developer Arava Power Company inaugurated six solar fields in the Arava and Negev, generating 36 MW of electricity altogether.  The six solar fields are at Maslul, Shoval, Elifaz, Yotvata, Grofit and Erez, all of which are kibbutzim or moshavim in the Negev and Arava Valley.  The solar fields cover an aggregate 512 dunam (128 acres) and cost NIS 500 million to build.  Arava Power was the first company to inaugurate a solar field in Israel - the Ketura Sun project.  It was completed in 2011, and has since supplied nine million kilowatt/hours of clean power annually to Israel Electric Corporation.  Arava Power has also just begun construction of a large 40 MW, 600-dunam (150-acre) solar field at Kibbutz Ketura.  The solar field can provide more than a third of Eilat's electricity.  (Globes 07.04)

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 4.3  Jordan Signs 12 Deals for Solar-Run Power Plants

Jordan on 31 March signed deals with two companies to build two solar energy-run power plants, Energy Minister Mohammad Hamed said.  Under the agreements, the two companies will build power generation facilities in the southern region, each with 10-megawatt capacity.  The agreements raise the number of deals signed by the government for renewable energy projects to 12, he said, ending the first phase of a three-stage project to increase the locally produced renewable energy input.  The total cost of the 12 projects under the first round stands at $560 million.  The 12 projects will generate 470 gigawatt hours per year and will create about 2,500 jobs, said the minister.  Hamed said the projects will significantly help cut the country’s rising energy bill, which is one of the main challenges facing state finances.  The ministry is expected to select four companies by September, with each to build a 50 MW renewable energy power plant.  In addition, the ministry said it is expected to select four other companies that will each build a 100-megawatt renewable energy power plant.  Under the country’s energy strategy, electricity generated from renewable sources will represent about 10% of the energy mix by 2020.  (JT 31.03)

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 4.4  Spanish Firm Selected to Build Jordan’s Wind Power Plant

Jordan will sign an agreement with Spain’s Elecnor this month to build a $150 million wind-operated power plant in the southern city of Maan, according to Energy Minister Hamed.  The 75 MW power plant will be funded by a grant from the Gulf Cooperation Council (GCC) states and is expected to be connected to the grid in the first quarter of 2015.  The national strategy envisions electricity generated from renewable sources to account for 10% of the energy mix by 2020.  Hamed added that the ministry has shortlisted 12 local and international companies to build a $150 million solar-run power station in the southern region.

The solar plant is expected to be ready and connected to the national grid in mid-2015.  In 2011, Saudi Arabia, Qatar, the UAE and Kuwait pledged $5 billion in assistance to Jordan over a period of five years.  Jordan imports about 96% of its energy needs annually.  The Kingdom’s energy bill amounted to JD4.08 billion in 2013 compared to JD4.63 billion in 2012, according to figures by the Department of Statistics.  (JT 02.04)

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5:  ARAB STATE DEVELOPMENTS

 5.1  Jordan’s GDP Grows by 2.8% in 2013

Jordan’s GDP grew by 2.8% in 2013, according to Department of Statistics (DoS).  Last year’s growth rate was slightly higher than 2012, when the economy expanded by 2.7%.  The Kingdom’s GDP grew by only 2.9% during Q4/13, while it was 2.2% in the same time span in 2012.   DoS also said that most sectors recorded growth.  The construction sector witnessed the highest increase, amounting to 9.4%, last year. Public services providers came second with 5.4%, then the social and personal services sector with 5.1%, while private non-profit services producers sector grew by 5%.  Agriculture and extractive industries sectors showed negative growth in the fourth quarter of last year by 13.3 and 12.2%, respectively, compared to the same quarter in 2012.  (DoS 31.03)

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 5.2  Ready-Made Clothing Industry Tops List of Jordanian Exports

The ready-made clothing industry topped the list of Jordanian exports in terms of value in 2013, marking a 10% increase compared with the previous year, according to the Department of Statistics.  The department noted that JD810 million was generated in the exports of clothes last year, compared with JD737 million in 2012.  The president of the Jordanian Society for the Export of Clothes and Textiles said the high quality and competitive prices of national-made clothes have contributed to boosting the sector, which she noted provides more than 40,000 job opportunities and supports other industries.  The exports of clothes have increased to North America; the added value of the Kingdom's clothing sector stands at 37%.  (Petra 02.04)

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 5.3  Jordanian Tour Operators Dismayed Over Sudden Entry Visa Hike

Jordanian tour operators expressed shock over a 1 April decision to raise entry visa fees to the Kingdom from JD20 to JD40, noting that this will negatively affect their business.  Such sudden decisions will affect the country’s credibility among tour operators abroad who “expressed this when we told them about the hike”.  This is not the first time that sudden decisions have been taken which affected the tourism industry.  Four years ago entry fees were raised and the sales tax on hotels went from 8% to 16%. 

Although Jordan Tourism Board Director General Abed Al Razzaq Arabiyat said the decision was justified, he said the government should have informed tour operators in advance or there should have been a grace period so that they could “handle the issue”.  Arabiyat explained that the decision seeks to encourage tourists to stay in Jordan for longer period of time as “tourist groups who stay for 24 hours or less in Jordan pay visa fees, but those who stay for 48 hours or more do not have to pay for a visa”.  (JT 01.04)

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 5.4  First of 10 New Fast Trains Ready for Shipment to Iraq

China’s Dongfang Electric Corp. has completed the first of 10 high speed, desert modified diesel trains at a ceremony attended by Iraq’s ambassador to China.  The trains were ordered in 2012, a year after Iraq announced plans for a Basra to Baghdad high speed rail route, an initiative that does not seem to have materialized.  But the ten new trains, capable of 160 km/h, will bring the dream of a regular fast service between Basra and Baghdad closer to reality.  Each “train set” comes with two diesel engines and eight carriages with a capacity of almost 400 passengers and will be run by Iraqi Republic Railways.  Perhaps it is with sensible foresight that in addition to on board fault diagnostic systems, each train has been specially modified to cope with Iraq’s notoriously dusty conditions.  (Railway Gazette 24.03)

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♦♦Arabian Gulf

 5.5  UAE Exchange Says GCC Remittances Totaled $21 Billion in 2013

Remittance and foreign exchange firm UAE Exchange has said that it remitted around $14 billion from the UAE, largely to South Asia, during 2013.  UAE Exchange said that growth in remittances from UAE was on an upward trend, from $13.2 billion in the previous year.  Across the GCC, excluding Saudi Arabia, remittances totaled over $21 billion.  Most of the remittances from UAE were to India, followed by Bangladesh, Pakistan, Philippines, Sri Lanka, Nepal, Egypt, Indonesia, Jordan and Thailand.  The GCC is estimated to have around 15 million migrant workers, with UAE having over 5 million.  The six-nation bloc is the third largest hub of migration in the world.  (AB 02.04)

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 5.6  Qatar Unveils Record $62 Billion Budget

Qatar, pushing ahead with a massive infrastructure drive in preparation for hosting the 2022 football World Cup, unveiled a record budget of almost $62 billion.  The emir, Sheikh Tamim bin Hamad Al-Thani, approved a budget of $61.98 billion for the 2014/15 fiscal year, up 3.5% from last year, said Finance Minister Ali Sharif al-Emadi.  The budget for the Qatari fiscal year was based on an oil price of $65 per barrel.  Qatar expects 6% economic growth in 2014 and a 3.7% increase in this year's expenditure, rising to $59.977 billion.  Some $24 billion was allocated for key projects.  Investments in health, education, infrastructure and transport rose to 54% in the 2014/15 budget, compared to 48% in the last fiscal year.  Qatar holds the world's third-largest gas reserves and produces around 77 million tonnes of liquefied natural gas per year, making it the world's largest supplier.  (MEO 31.03)

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 5.7  Qatar Announces Military Contracts Worth $23 Billion

Qatar announced contracts worth about $23 billion on 27 March to buy attack helicopters, guided missiles, tankers and other weapons from Boeing, Airbus and other arms makers as the Arabian Gulf state accelerates its military build-up.  Qatar, world's top liquefied natural gas (LNG) exporter, announced deals with about 20 global companies, including firms from the US, which were awarded deals worth QR27.5 billion ($7.6 billion).  The contracts were expected to include deals with Lockheed Martin, Raytheon and others.  Boeing confirmed that the announcement included a contract to buy 24 AH-64E Apache attack helicopters and three Boeing 737 Airborne early warning and control (AEW&C) aircraft.  The deal for the helicopters was valued at QR8.9 billion.  The Defense Security Cooperation Agency (DSCA), the US body which oversees foreign arms sales, had notified lawmakers in July 2012 of a possible sale of the Apache helicopters to Qatar.

Washington has been keen to deepen its cooperation with Gulf nations, who have been long-standing allies, on missile defense and increase pressure on Iran over its nuclear program.  (AB 28.03)

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 5.8  UAE Approves New Law to Bring in Compulsory National Service

The UAE's Federal National Council approved a law to bring in compulsory national and reserve service for all Emirati males between the ages of 18 and 30.  The law aims at forming a national reserve force "to defend the country, its borders, achievements, as well as strengthen youth allegiance to the country, upgrade their sense of duty and participation".  According to the federal draft law, the protection of UAE, its independence and sovereignty represent a sacred national duty to each Emirati.  It said that the national service will "polish youth personalities and boost national spirit to meet future challenges".  The UAE announced plans to introduce compulsory military service in January.  The length of service is set to be two years for those without high school degrees and nine months for those who have graduated from high school, it was reported. 

Earlier this month, Qatar's Emir issued a law to make national service compulsory for males aged 18 to 35 years.  The law stated that citizens who fail to undertake mandatory national service will not be eligible for jobs in the government and non-government sectors.  (AB 26.03)

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 5.9  Forty Three Firms Selected To Provide Health Cover in Dubai

The Dubai Health Authority (DHA) approved 43 insurance companies to provide health cover for Dubai residents and said the first phase of the scheme will end by October this year.  In the first phase, companies with 1,000 or more employees will have to provide health insurance cover to their employees before the end of October this year.  At present, only one million Dubai residents have health cover.  The new scheme will now give access to quality health-care services to more than 3 million people.  This large segment of the population includes low-income workers such as those in the construction sector and domestic help.  Another section of the population that has been neglected but will now have the mandatory health cover are spouses and children of expatriates.  Many expatriates had neglected to provide health insurance for their families because of the high premium costs.  Under the new law, the expatriate will have to pay for the coverage for the spouse and children.  The residence visas of family members will not be renewed without proof of health insurance.

Residents said the new law will hike expenses further with families already reeling under rental increases, rising price of groceries and the rise in the overall cost of living.  Analysts said while health coverage was long overdue, it could have knock-on effects as companies will pass on their extra expenses to consumers.  The new law has come into effect a few years after Abu Dhabi made health cover mandatory in 2008.  (Gulf News 02.04)

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 5.10  Oman Says Foreign Trade Exports Up 8.2% in 2013

Statistics regarding Oman's foreign trade, issued by the National Centre for Statistics and Information (NCSI), revealed that exports in 2013 reached OR21.6 billion ($56.1 billion) compared to just over OR20 billion in 2012, an increase of 8.2%.  Oil and gas exports dominated the total value with more than OR14.3 billion registered by the end of 2013.  The sultanate's non-oil exports increased reached OR3.8 billion compared to OR3.5 billion in 2012, a growth rate of 5.9%.  The data showed that re-exported commodities increased significantly by 42.4%, reaching a total value of 3.5 billion by the end of 2013.  The NCSI statistics also recorded a growth in the total value of imports in 2013 to OR13,2 billion compared to OR10.8 billion, up 22.1%.

Oman's government budget surplus shrank to OR269.7 million ($700.5 million) in January compared with OR417.9 million a year ago due to higher spending and lower oil revenue, provisional government data showed.  The surplus accounts for 0.9% of the country's 2012 gross domestic product, according to a Reuters calculation based on the latest official data.  (NCSI 28.03)

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 5.11  Oman Sets Up Committee to Monitor Financial Stability

Oman's government and regulators have set up a "financial stability committee" to monitor and manage risks in the banking and capital markets.  The creation of the committee follows a suggestion by the IMF last year that Oman's authorities "should articulate a formal mandate over financial stability".  The Supreme Committee for Financial Stability includes the chief executive of the Capital Market Authority, representatives from the finance ministry and the ministry of commerce and industry, and the head of the central bank's financial stability unit.  The committee will study risks and develop solutions. It will also coordinate authorities' fiscal and monetary policy and prudential supervision, as well as the actions of regulators and supervisors, the finance ministry said.  Oman's central bank acts as banking sector regulator while the Capital Market Authority is responsible for managing risks in the securities and insurance markets.  (AB 26.03)

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 5.12  Saudi Plans $533 Million of Water Infrastructure Projects

Saudi’s National Water Co (NWC), the kingdom’s largest supplier of water, is planning $533 million of water infrastructure projects in the tourist area of Taif.  According to the state-owned news agency, the utility was working to increase capacity in the City of Roses near the mountainous Al Hada area to meet rising demand.  Taif is the site of 30 water projects that started last year, including supply networks, sewage systems, treatment plants and a reservoir.  Dams were also planned for Makkah and Riyadh.

The kingdom is expected to complete work on the world’s largest desalination plant by 2018 in Rabigh on the Red Sea near Taif.  When fully operational the plant will supply 600,000 cubic meters (158 million gallons) of water a day. (AB 26.03)

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♦♦North Africa

 5.13  Egypt's Annual Trade Deficit Slows 21% in December 2013

Egypt's trade balance deficit reached LE18.04 billion ($2.5 billion) in December 2013.  The figure represented a 21.2% drop compared to the same month in 2012, when the deficit stood at LE22.9 billion ($3.2 billion).  The value of Egypt's exports in November 2013 declined three% from the previous year, recording LE16.8 billion ($2.4 billion).  Among the main products to suffer a drop in exports, according to CAPMAS, were petroleum products, crude oil, fertilizers, edible oil and margarine.  Similarly, the value of imports also shrank by 13.6% to reach LE34.8 billion ($5 billion) compared to LE40.3 billion ($5.7 billion) in November of the previous year.  Imports included wheat, crude oil, petroleum products.  (CAPMAS 24.03)

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 5.14  Egypt's Suez Canal Revenues Rise 6.4% in February

Egypt’s revenues from the Suez Canal totaled LE2.8 billion ($399.3 million) in February, a 6.4% increase from February 2013, according to the latest report from the state-run Information and Decision Support Centre (IDSC), based on data from the Suez Canal Authority.  The figure represents a 7.9% drop from the previous month’s revenues of LE3 billion ($433.4 million).  The number of vessels (1,265) passing through the canal increased by 2.2% in February, as compared to the same month last year (1,238).  However, the number of vessels is down by 9.5% when compared to the previous month of January.  The artificial waterway connecting the Mediterranean and Red Sea, one of Egypt's main sources of foreign currency, saw around LE36.3 billion ($5.2 billion) in revenues during the fiscal year 2012/13, official data showed.  In February, Mohab Memish, the head of the authority that manages the waterway, stated that revenues from the canal were expected to reach a record high of LE38.4 billion ($5.5 billion) in the current fiscal year.  (Ahram Online 06.04)

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 5.15  Gulf States to Invest $737 Million in Morocco Tourism Infrastructure

Arab Gulf states will invest $737 million in tourism infrastructure in the port of Casablanca in the first of a series of such projects.  The states will use their Wessal Capital joint venture, one of the vehicles created by the Gulf Cooperation Council (GCC) states to support the Moroccan and Jordanian monarchies during the Arab Spring uprisings.  The fund is focused on tourism development in Morocco and is supported by Qatari fund Qatar Holding, the Kuwait Investment Authority’s Al Ajial Investments, Abu Dhabi’s sovereign wealth fund Aabar, Saudi Investment Fund and the Moroccan Fund for Tourism Development (FMDT).  Four Gulf states - Qatar, Saudi Arabia, Kuwait and the United Arab Emirates - agreed in 2012 to provide aid worth a total $5 billion to Morocco between 2012 and 2017 to build up its infrastructure, strengthen its economy and foster tourism.  The Wessal Capital funds worth $3.4 billion are separate from the aid package.  (Reuters 01.04)

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6:  TURKISH, CYPRIOT & GREEK DEVELOPMENTS

 6.1  Turkish GDP Grows 4% in 2013 But Market Troubles Ahead

The Turkish economy grew faster than expected in 2013 at a rate of 4%, government data showed, yet the country may find it difficult to repeat the same success this year amid an exodus of foreign capital due to lingering political tension.  Data released by the Turkish Statistics Institute (TurkStat) on 31 March show that the economy, which grew 4.4% in Q4/13, has been growing the last 17 quarters.  The fourth quarter growth was above market expectations as well.

The growth findings come amid discussions of a graft scandal involving internet postings of wiretapped state communications implicating Prime Minister Erdogan in corruption.  An embattled Erdogan denied some of the serious allegations, which also implicate his family members and instead chose to reshuffle the judiciary and police department in what observers called a cover-up attempt.

The prime minister's harsh rhetoric only makes lingering political tension in Turkey worse, therefore denting foreign investor confidence in Turkey.  Turkey's external financing needs are considerable - estimates put them at $217 billion this year, more than five times the central bank's net foreign exchange reserves - and it is vital to be able to keep borrowing on international capital markets at reasonable costs.  The country's markets remain fragile to external shocks.

The 4% growth in 2013 comes on the heels of strong domestic demand and increased public spending.  Household consumption in Turkey increased by 11.3% last year over 2012 while the government spent 12% more on social services and new public investments in the same period.  Driven by the high demand, Turkey's manufacturing industry also enjoyed a 3.8% increase in output last year over 2012.  The 2013 growth figure is still above estimates from global creditors.  The IMF increased its forecast for Turkey's 2013 economic growth to 3.8% in its World Economic Outlook report.

Turkey's GDP grew by 9.2% in 2010, followed by an 8.8% expansion in 2011.  But it failed to meet the 4% expectation for 2012.  The 2012 figures marked the lowest GDP growth since 2009.  (Zaman 31.03)

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 6.2  Turkey’s Trade Deficit Diminishes by 27%

In 2013, Turkey’s annual exports decreased 0.4% to $151.9 billion compared to 2012, while imports rose 6.4%, reaching $251.7 billion.  Turkey’s foreign trade deficit contracted by over 27% in February, as exports were up 6.2% year-on-year to $13.15 billion, while imports decreased by 5.9% to $18.25 billion.  February´s foreign trade deficit decreased by 27.2% from $7.9 billion to $5.10 billion, the Turkish Statistical Institute’s (TUIK) data revealed.  Calendar adjusted exports increased by 4.5% in February and imports decreased 2.9%, compared with February 2013.

The top destinations for Turkey’s exports were Germany with $1.17 billion, Iraq $1.02 billion and the UK $720 million.  Meanwhile, the top countries for Turkish imports in January 2014 included Russia, which sent $2.044 billion of goods to Turkey, as well as China with $1.92 billion, Germany with $1.7 billion and the United States with $993 million. 

In 2013, annual exports decreased 0.4% to $151.9 billion compared to 2012, while imports rose 6.4%, reaching $251.7 billion.  Last year, the foreign trade deficit increased 18.7% to $99.8 billion compared to 2012.  Turkey’s trade deficit is expected to recover slightly this year thanks to an expected decline in the gold trade as well as an increase in exports fueled by recovery in the EU.  (TUIL 01.04)

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 6.3  Cyprus’ Rate of Inflation Decreased by 2.3% in March

Cyprus’ rate of inflation for March 2014 decreased by 2.3% compared to -2.6% in February 2014 and 1.1% in March 2013.  According to the Statistical Service of the Republic of Cyprus, the Consumer Price Index for March 2014 increased by 1.15 units or 0.99% to 117.52 units compared to 116.37 in February 2014.  This is mainly due to increases in the prices of certain clothing and footwear items, air fares and petroleum products.  Decreases have been recorded in the prices of certain vegetables and electricity.  (FM 03.04)

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7:  GENERAL NEWS AND INTEREST

♦♦ISRAEL:

 7.1  Passover Observance Will Begin on 14 April

On Monday night, 14 April, Israel and world Jewry will begin the week-long celebration of the Passover (Pesach) holiday.  Passover celebrates the liberation of the Jewish People from slavery in Egypt by the hand of G-d.  It is central to Jewish identity and Jewish practice, since the Exodus and life in the wilderness led to the true birth of the Jews as a distinct entity.  Jacob and Josef came to Egypt numbering 70 souls and Moses led 600,000 out after the defeat of Pharaoh.  Probably the most significant observance related to Pesach involves the removal of chametz (or leaven) from Jewish homes and businesses.  This commemorates the fact that the Jews leaving Egypt were in a hurry and did not have time to let their bread rise.  Even converts to Judaism relate to the Exodus as their own ancestors as having left Egypt.  It is also a symbolic way of removing the "puffiness" (arrogance, pride) from our souls.  Instead, special non-leavened bread called matzah is consumed, among a myriad of other special holiday dishes.

On the first night of Pesach (first two nights for Jews outside of Israel), there is a special family meal filled with ritual to remind Jews of the significance of the holiday.  This meal is called a seder, from a Hebrew root word meaning "order," because there is a specific set of information that must be discussed in a specific order.  The seder is full of symbolism, all pointing to one salient point:  that Jews all remember that G-d took us out of slavery in Egypt to freedom to observe his Torah.  Pesach lasts for seven days (eight days outside of Israel).  The first and last days of the holiday (first two and last two outside of Israel) are days on which no work is permitted.  Work is permitted on the intermediate days.  These intermediate days on which work is permitted are referred to as Chol Ha-Mo'ed, as are the intermediate days of Sukkot.  Though work is permitted, many take vacations and a full work environment returns only after the holiday.  Passover ends on 21 April in Israel, 22 April in the Diaspora.

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 7.2  Arab Microbiologist is Israel's New 'Master Chef'

Dr. Nof Atamna-Ismaeel, a 33-year-old microbiologist from the northern Arab Israeli city of Baqa al-Gharbiyye, is the big winner of the fourth season of reality cooking show "Master Chef Israel."  Atamna-Ismaeel won the final after a tight battle against 54-year-old Ido Kronenberg of Savyon. Meseret Woldimikhal, a 42-year-old Ethiopian native, came in third.  The winning dish, which Atamna-Ismaeel named "Sultan's Spring," was made of stripped red mullet with almond cream and a fresh vegetable salad.

During the "Master Chef" season, Atamna-Ismaeel discussed her dream of opening open a Jewish-Arab cooking school which would attract students from all over the country, and she will now try to fulfill it.  In addition to her PhD in biological science, Atamna-Ismaeel has as many as four additional postdoctoral degrees. She has three children, a six-year-old boy and two-year-old twins, and as a child she studied in a Jewish school.  Her mother, a Hebrew teacher, gave her daughter the name Nof after watching a television series on Jordanian TV about a girl with that name, which is common among desert nomads and means the highest spot on the camel's hump.  (Ynet 06.04)

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♦♦REGIONAL:

 7.3  More Than 1 Million Syrian Refugees in Lebanon 

The number of Syrians registered as refugees in Lebanon after fleeing war in their country has surpassed one million, the UN refugee agency said.  Refugees from Syria, half of them children, now equal a quarter of Lebanon's resident population, the UNHCR said in a statement, warning that most of them live in poverty and depend on aid for survival.  The UN agency said the figure is "a devastating milestone worsened by rapidly depleting resources and a host community stretched to breaking point".  Tiny Lebanon has now become the country with "the highest per capita concentration of refugees worldwide," and is "struggling to keep pace", the statement said.  Syria's three-year war has killed more than 150,000 people, according to the Syrian Observatory for Human Rights while half of the population is estimated to have fled their homes.  Of those who have fled Syria, nearly 600,000 have registered as refugees in Jordan and around 670,000 in Turkey.  The influx has put severe strains on Lebanon's health and education sectors as well as on electricity, water and sanitation services.  (TDS 03.04)

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 7.4  Saudi Arabia to Establish Three New Universities

King Abdullah of Saudi Arabia has ordered the establishment of three universities in the north-eastern city of Hafar al-Batin, the south-western town of Bisha and the city of Jeddah.  The king approved the merger of two branches of the King Fahd University of Petroleum and Minerals, and the University of Dammam in Hafar al-Batin and surrounding provinces, into a single independent university named Hafar al-Batin University.  Hafar al-Batin University will include 12 schools from surrounding towns and villages.  The king also approved the transformation of the branch of King Khaled University in Bisha and surrounding provinces into an independent university called Bisha University.  Bisha University will include 13 schools from Bisha and surrounding provinces.  The branch of King Abdulaziz University in Jeddah will become an independent university named Jeddah University, and will include 18 schools and institutes from northern Jeddah and surrounding provinces.  With this announcement, there will be 28 public universities in Saudi Arabia.  (Al Arabiya 02.04)

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 7.5  Egypt to Hold Presidential Election on 26 – 27 May

Egyptians will vote on 26 – 27 May in the first round of a presidential election, the organizing body said on 30 March.  Former army chief Abdel Fattah al-Sisi, who deposed President Mohamed Morsi last July, has been riding on a wave of popular backing from supporters who see him as the man who can save Egypt from crisis.  Islamist oppositionists views him as the mastermind of a coup.  Sisi was seen as the most influential figure in an interim administration that has been cracking down hard on Morsi's Muslim Brotherhood and other opponents in the last nine months.  The Brotherhood, Egypt's best organized political party until last year, has been banned and driven underground.  The vote will go to a second round in June if the first-placed candidate does not by a wide enough margin.  The organizing committee did not say what this margin was.  Sisi is widely expected to win comfortably.  He enjoys solid support from privately- and state-run media.  Candidates may conduct their election campaigns between 3 – 23 May.  (Various 31.03)

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 7.6  Salafists & Tamarod Support Sisi’s Bid for Presidency

Egypt’s Salafist party al-Nour and the anti-Muslim Brotherhood grassroots movement Tamarod have expressed their support after the country’s army chief Field Marshal Abdel Fattah al-Sisi resigned as defense minister and announced his plan to run for president.  Al-Nour party head Jalal Mura urged Egyptians to cooperate with each other to “exit this quagmire and for Egypt to return to its national, regional and international position.”  Tamarod, a key movement behind the toppling of Islamist President Mohammad Morsi on 30 July in a popularly backed ouster, gave its full-fledged support to Sisi.  In a televised statement, Sisi said on 26 March he had resigned from the military and that it would be the last time he wears his military uniform, stating: “I give up the uniform to defend the nation.”  He is set to run in the upcoming elections.  (Al Arabiya 27.03)

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8:  ISRAEL LIFE SCIENCE NEWS 

 8.1  Intel Invests $20 Million in Israel’s OrCam

Intel Capital is investing $15-20 million in artificial vision company OrCam Technologies.  The company develops a range of visual improvement products for the visually impaired including a system enabling them to read content and interpret the world around them.  The system is so far only able to read English texts such as menus and newspapers.  OrCam's product resembles Google Glass and comprises a camera connected to a small mobile computer that can be placed in the user's pocket.  The company says the glasses cost $2,500.

Jerusalem’s OrCam (http://www.orcam.com) harnesses the power of Artificial Vision to compensate for lost visual abilities.  OrCam is a sensor that sees what is in front of you, understands what information you seek and provides it to you through a bone-conduction earpiece.  OrCam is a smart camera mounted on the frames of your eyeglasses, which “sees” text, recognizes objects and “whispers” in your ear.  The OrCam device enables you to read books or newspapers, verify money note denominations, and even identify which product or item you are pointing at.  (Various 27.03)

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 8.2  BioLight Files for Phase I/IIa Study of its Latanoprost Insert for Glaucoma

BioLight Israeli Life Sciences Investments, announced that ViSci, its wholly owned subsidiary, has filed an Investigational New Drug (IND) application with the U.S. FDA to conduct a Phase I/IIa clinical study with its subconjunctival Latanoprost controlled release insert for the treatment of glaucoma.  The 3-month study in 68 glaucoma patients is designed to prove the safety and efficacy of different doses of the insert containing its proprietary form of Latanoprost.  Latanoprost is the most frequently prescribed glaucoma eye drop medication to lower Intra Ocular Pressure (IOP) in patients with glaucoma.  Pending FDA approval, the study will be conducted at up to 7 investigative sites in the U.S.

Recently ViSci has successfully completed an ocular toxicology and safety study in animals.  It holds an exclusive option from Novaer to a worldwide exclusive license for any use of the insert's controlled release technology with any medication.  Use of such insert is an effective solution to the well-known poor compliance with chronic eye-drop administration across the ophthalmic arena.

Ramat Gan’s BioLight Life Sciences Investments (http://www.bio-light.co.il) invests in, manages and commercializes biomedical innovations grouped into "clusters" around defined medical conditions.  The two current clusters are in ophthalmology via 100% ownership of XLVision Sciences and in cancer diagnostics via a 29% controlling ownership of Micromedic.  (BioLight 31.03)

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 8.3  BreedIT Breeds, Owns & Sells Unique Cannabis Seeds

BreedIT Corp, through its Israeli subsidiary, BreedIT Ltd., announced that as a part of the its business development efforts focused on emerging medicinal cannabis markets worldwide, the company has entered into a strategic partnership with an experienced Israeli medicinal cannabis grower Sheifa Le'Haim (http://www.shaefa.co.il) to breed and own unique and hybrid cannabis seeds utilizing its advanced Intelligent Decision Support System (IDSS).  The partnership is focused not only the breeding of cannabis seeds, but also on the future ownership of these unique and hybrid cannabis seeds, and the option to sell them in the market.

On March 30, 2014, BreedIT and Sheifa Le'Haim entered into a 50/50 joint venture agreement designed to develop and own new cannabis seeds.  The development of these unique cannabis seeds will be done utilizing BreedIT's unique agro-breeding IDSS technology combined with the Grower providing needed oversight and guidance during the growth process.  All development will be done in a dedicated area of Sheifa Le'Haim's facility.  Each resulting cannabis seed will be owned by the joint venture.

New York’s BreedIT Corp (http://www.ibreedit.com), through its Herzliya, Israel subsidiary, BreedIT Ltd., is the developer of highly sophisticated agro-breeding solutions for plant breeders and researchers.  BreedIT's proven Intelligent Decision Support System, which was developed by a team consisting of among the world's leading breeding specialists for optimizing the breeding processes, services the plant breeding needs of corporations, research and government institutions.  BreedIT's IDSS provides advanced solutions for generating and disseminating knowledge aimed at assisting breeders to plan, manage and analyze their breeding data and to perform research activities quickly and effectively.  (BreedIT 31.03)

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 8.4  Convergent R.N.R Successful Session with Mercy Beam Technology

Convergent R.N.R (CRnR) (http://www.convergent-rnr.com) completed a very successful and promising proof of concept session of the "Mercy Beam" technology, that will enable more accurate, less harmful and dramatically less expensive radiotherapy and radiosurgery treatment using low-energy x-ray tube instead of high-energy sources commonly used today.  The "Mercy Beam" introduces a sophisticated lens that collects most of the X-rays emanating divergently out of any standard x-ray tube (currently used for x-ray imaging) and converges it towards the tumor location.  The lens simultaneously removes low-energy photons that would be absorbed by the patient's skin.  The convergence increases the therapeutic dose delivered at the tumor location, while the organs in the vicinity of the tumor receive a very low dose or no dose at all.  The converging technology enables the use of photon-energy x-rays 100 times lower than those used by current systems which are based on Linear Accelerators (LINACs).  Due to its low energy requirement, this technology enables a small, light and inexpensive solution in which the cancer is treated accurately with a concentrated radiation at a fraction of the cost of all other methods.

Tirat Carmel’s Convergent R.N.R (CRnR - http://www.mercybeam.com) is a medical start-up company developing a new x-ray focusing technology called MercyBeam to perform cancer Radiotherapy and Radiosurgery.  Established in 2010 in Israel by a team of expert scientists, CRnR developed and patented the said break-through technology utilizing a standard imaging X-ray source to form a converging beam into a volume of treatment rather than the standard diverging or collimated technologies existing today.  (CRnR 01.04)

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 8.5  Syneron Sublative Technology Earns CE Mark for Stretch Mark Treatment

Syneron Medical announced that its proprietary Sublative technology has received CE Mark indication for the effective treatment of striae (stretch marks) and acne scars.  The new treatment protocols are now available on all of the Syneron Sublative compatible systems, which include els Plus, eTwo and eMatrix.  With its new CE Mark clearance, Sublative has been shown to be an effective and safe way to reduce the appearance of stretch marks, acne scars and other skin irregularities in all skin types with minimal side effects, discomfort or downtime.  The unique patented technology uses fractionated bi-polar radiofrequency directed to the skin in the form of a matrix.  Due to its unique design, energy is deposited in the skin to initiate a healing response with minimal epidermal disruption.  Patients benefit from a comfortable treatment with significant outcomes avoiding the potential complications of more aggressive treatments.  After treatment with Sublative, the appearance of stretch marks and acne scars are greatly reduced.

Yokneam Elite’s Syneron Medical (http://syneron-candela.com) is a leading global aesthetic device company with a comprehensive product portfolio and a global distribution footprint.  The Company's technology enables physicians to provide advanced solutions for a broad range of medical-aesthetic applications including body contouring, hair removal, wrinkle reduction, rejuvenation of the skin's appearance through the treatment of superficial benign vascular and pigmented lesions, and the treatment of acne, leg veins and cellulite.  (Syneron Medical 03.04)

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 8.6  Breakthrough Technology Can Repair Severe Tissue Damage

A breakthrough could speed recovery and limit disfigurement for patients who have suffered large soft tissue trauma – as occurs with serious injury or cancer surgery.  By biomedically engineering a muscle flap that includes a patient's own blood vessels, the team created tissue that could be transferred to other parts of the body along with the patient's blood supply.  Current techniques – including grafts and synthetic material – for reconstructing such trauma often fail because of lost blood supply.  Led by Professor Shulamit Levenberg, of the Department of Biomedical at the Technion-Israel Institute of Technology, the scientists fabricated the flap using a variety of added cells and connective tissues to strengthen it.  They tested it by reconstructing deep abdominal wall tissue defects in mice.

Their study provides evidence that tissue-specific cells, such as myoblasts (cells that form muscles), endothelial cells (the thin layer of cells that lines the interior surface of blood vessels), and fibroblasts (the cells providing the structural framework for animal tissues), are necessary to more effectively integrate within the host tissue.  Within one week of being transferred into the test mice, the engineered muscle flaps were "viable, highly vascularized," and demonstrated "firm attachment to the surrounding tissues."  The researchers also noted that the muscle flaps had the mechanical strength to support the "abdominal viscera," or organs in the abdominal region.

The Technion-Israel Institute of Technology is a major source of the innovation and brainpower that drives the Israeli economy and a key to Israel's renown as the world's "Start-Up Nation."  (Technion 08.04)

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9:  ISRAEL PRODUCT & TECHNOLOGY NEWS

 9.1  Foresight Releases Cloud-Based Website Security Platform

Foresight announced the release of Foresight-AIR, the first cloud-based website security platform to simplify Web Application Firewall (WAF) operations and reduce costs, while significantly improving website security and performance levels.  The SaaS solution uses a “smart” Whitelist, which analyzes the website vs. traffic, and protects all layers against malicious cyber-attacks – including DDoS, Zero Day, Malware, Defacement, and Brute Force – for thorough and low-maintenance security.

Current approaches to website security rely heavily on manual configuration and are prone to human error and breaches.  Foresight minimizes the attack surface and eliminates maintenance of thousands of Whitelist rules, making it easier to ramp, operate and maintain than traditional Whitelist or Blacklist WAFs.  Even the most complex websites can be fully protected within three days. Foresight ensures zero downtime - even when a website is under attack, new features are being added, or application changes are being implemented.

Kfar Netter’s Foresight (http://www.foresight-air.com) provides a complete, cloud-based web security platform that protects websites against malicious cyber-attacks of all types. Foresight-AIR comprehensively addresses web security vulnerabilities by providing a holistic solution that protects an environment’s network, host, and application layers. Dozens of organizations in the retail, financial services, government, and other sectors, have already leveraged Foresight to enable the highest level of security and maximum system performance at all times.  (Foresight 26.03)

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 9.2  SysAid Patch Management Tool Version 14.0 of ITSM Platform

SysAid has released version 14.0 of its cloud-based and on-premises ITSM platforms.  The release features the new SysAid Patch Management solution, a free database migration for on-premises customers and new capabilities inspired by user input.  In development for over a year, the SysAid Patch Management Software solution makes it easy to keep Windows-based servers and workstations up-to-date with the latest security patches and upgrades.  The ITIL change management process allows IT admins to review, approve, deploy and audit software updates for all Microsoft products as well as popular applications like Adobe Flash, Mozilla Firefox, Java, Skype and many others.  Fully integrated with SysAid's cloud and on-premises platforms, the Patch Management tool can automate the update process for individual assets or groups of assets.  IT admins can customize policies by software type, the severity of the patch and many other criteria.  The Patch Management tool can even be set to auto-generate an incidence ticket if any error occurs during an update.  Overall, the full inventory and audit controls ensure that patch processes are well-documented, perform correctly and comply with regulations.

Airport City’s SysAid Technologies (http://www.sysaid.com) is a leading provider of IT Service Management (ITSM) solutions that integrate all of the essential IT tools into one service desk.  Available as a cloud-based or on-premises solution, SysAid's ITIL-certified software streamlines day-to-day IT activities so that administrators can deliver fast and comprehensive support.  (SysAid 26.03)

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 9.3  Eggxer Gadget Creates a "Golden Egg" That's Good for You

Egglogix (http://www.egglogix.com) aims to change the way the world eats eggs.  The company focuses on the development and sale of its breakthrough egg scrambling technology and patent-pending Eggxer devices for mixing eggs inside their shells.  Eggnology is seeking partners worldwide, particularly kitchen appliance distributors and shell eggs wholesalers.  

Eggxer - worldwide patent-pending - creates MixedEggs from any fresh egg of any type, age, temperature or size without puncturing the shell, using a controlled process of non-coherent centrifugal forces that the Egglogix team spent months developing.  In just a few seconds, the egg is scrambled in its shell.  Raw, MixedEggs have the same shelf life as regular eggs.  Once hardboiled, MixedEggs extend shelf life from five to 30 days.  Powered by a pull string, Eggxer is fun to use – transfixing children and adults as it transforms an ordinary egg into a MixedEgg before their eyes.  In addition to enticing children to eat protein and vitamin-rich eggs, Eggxer provides the home chef with a cool new ingredient that can be used in a virtually infinite variety of dishes.  Many people find the sulfuric smell and crumbly texture of ordinary hardboiled egg yolks off-putting, but MixedEggs eliminate both issues, enabling users to slice the golden-colored super food for use on a sandwich, as a topping for leafy greens or in potato salad.  MixedEggs are perfect as a soft, nutrient-rich food for babies and can be soft boiled to create an "omelet in the shell."  (Egglogix 26.03)

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 9.4  Qlight Nanotech Names Best Nanotechnology Company of the Year

Qlight Nanotech won the Best Nanotechnology Company of the Year Award at the NanoIsrael 2014 conference.  Qlight Nanotech encompasses a winning combination of outstanding technology originating from the Hebrew University together with a leading international industry partner, Merck KGaA.  The company that was founded within the University reflects the innovation and attractiveness of Israel’s emerging nanotech sector. 

Jerusalem’s Qlight Nanotech (http://www.qlightnano.com) was founded in 2009 and is developing materials and applications based on semiconductor nanocrystals.  Qlight’s leading technological team has significant expertise and innovation in nanoscience and nanotechnology, aimed at applications in general lighting, display screens, and more.  Qlight Nanotech develops nanocrystals with unique optical properties for numerous applications, including technologies that can revolutionize the mechanism of action of flat panel displays.  Its innovative film technology for LCD displays uses unique nanocrystals for reducing energy consumption while significantly improving the color quality.  The technology can nearly double the battery run time in mobile devices, and reduce by almost half the energy consumption of TV sets.  Qlight Nanotech’s film also improves the color quality of the display, thus dramatically upgrading the user's viewing experience.  (Qlight Nanotech 27.03)

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 9.5  Vidmind Adds to its Hybrid OTT/DTT Platform

Vidmind has partnered with Texas’ Media Excel to deliver time-and-place shifting of linear TV channels as part of its turnkey hybrid OTT/DTT solution.  Virtual operators can now utilize existing free-to air content and offer it to their audience to view at any time and across multiple connected devices - as part of a Prime TV experience.  Using Vidmind's platform, mobile operators, ISPs and retailers can launch a Prime TV experience by combining free-to-air and premium OTT content, and deliver an alternative offering to traditional satellite and cable TV providers at a minimum investment in technology and content.    This novel time-and-place shifting capability further enhances the OTT/DTT Pay-TV offering by providing end-users with access to rich content that matches and adapts to their individual lifestyle.  Live TV, premium VOD and Catch-Up content come together under a unified TV Everywhere experience.

Tel Aviv’s Vidmind's (http://www.vidmind.com) hybrid OTT/DTT solution allows service providers to launch a complete TV and VOD service which is personal and social.  The Cloud based platform delivers a TV Everywhere experience of Live TV, Catch-up and VOD content across any screen and enables advanced discovery, Home Media, and Android apps.  (Vidmind 31.03)

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 9.6  The Kickstarter Project That Will Guard Your Keys

Keychains are, by far, one of the most necessary, widespread and inconvenient items we have to carry around.  Luckily, Israeli company Panny (http://panny.co/) has created a sleek, stylish and multi-usage key case that can solve our keychain woes – and they are “this close” to funding it on Kickstarter. 

Panny contains four slots for keys, each one of them universal, meaning any key fits.  It is made of a lightweight and functional material, called Acrylonitrile Butadiene Styrene (ABS), giving the Panny a weight of merely 22 grams (0.05 lbs.).  The key case comes in a different colors, and can even be customized to make room for a USB drive, a belt clip and a tether for securing other objects.  Panny uses color coding for improved organization and its lightweight material also works as a barrier to prevent keys from scratching valuable objects or tearing through clothing.

The first production run of Panny is being funded through Kickstarter.  A submission of $19 will earn buyers their very own Panny if the product hits its funding goal of $15,000 and goes into production (which it will most likely do).  The price includes shipping within the US, and requires an additional $6 for international shipping. So far, the company has raised $13,721.  (NoCamels 01.04)

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 9.7  StoreDot’s NextGen Smartphone Battery Fully Charges in 30 Seconds!

Nanotechnology pioneer, Ramat Gan’s StoreDot (http://www.store-dot.com), unveiled a ground-breaking battery capable of charging your smartphone and other devices in just 30 seconds.  StoreDot demonstrated the prototype of its ultra-fast-charge battery for the first time.  Incredibly, this means smartphone users will be able to charge their phones in less time than StoreDot needs to explain how this cutting-edge technology works.  Here’s the short version: StoreDot specializes in technology that is inspired by natural processes, cost-effective and environmentally-friendly.  The company produces “nanodots” derived from bio-organic material that, due to their size, have both increased electrode capacitance and electrolyte performance, resulting in batteries that can be fully charged in minutes rather than hours.  Manufacturing Nanodots is also relatively inexpensive as they originate naturally, and utilize a basic biological mechanism of self-assembly.  They can be made from a vast range of bio-organic raw materials that are readily available and environmentally friendly.  (StoreDot 07.04)

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 9.8  Crocus & TowerJazz Qualify CTSX Magnetic Sensors

Grenoble, France’s Crocus Technology, a leading developer of magnetically enhanced semiconductor technologies and TowerJazz announced that Crocus' CTSX magnetic field sensor family has completed qualification.  The CTSX magnetic sensor product family includes CTSX100, 200 and 300 series.  They are based on Crocus’ proprietary Magnetic Logic Unit (MLU) technology and are ready for shipping to selected customers.  TowerJazz, Crocus’ strategic manufacturing partner, qualified the sensor products on its 130nm CMOS process.  TowerJazz will fabricate the CTSX product family and offer the new highly-advanced developed sensors to its customers.  Crocus developed the CTSX magnetic sensors to respond to market demand for high sensitivity and low-cost solutions in multiple applications.  The CTSX product family offers several important advantages; including proprietary differential programming, high sensitivity, high linearity, excellent frequency response and low power.

Migdal HaEmek’s Tower Semiconductor (http://www.towerjazz.com) operates collectively under the brand name TowerJazz, the global specialty foundry leader.  TowerJazz manufactures integrated circuits, offering a broad range of customizable process technologies including: SiGe, BiCMOS, Mixed-Signal/CMOS, RFCMOS, CMOS Image Sensor, Power Management (BCD), and MEMS capabilities.  TowerJazz also provides a world-class design enablement platform that enables a quick and accurate design cycle.  (TowerJazz 08.04)

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10:  ISRAEL ECONOMIC STATISTICS

 10.1 Foreign Investment in Israel Totaled $74 Billion in 2012

Foreign investment in Israeli companies in 2012 totaled $74.4 billion, according to data published by the Central Bureau of Statistics.  According to the CBS, the amount of foreign investment in Israel in 2012 represented a 14.5% increase over the $65 billion of foreign investment in 2011, and a 40.7% increase from 2010, which saw foreign investment of some $60 billion.  Initial figures for 2013 indicate that foreign investment in Israeli companies continued to grow by some $1 billion.  Direct investment by Israeli citizens in foreign companies comprised $73.9 billion in 2012, a 4.4% increase over 2011 and 7.3% more than in 2010.  (IH 03.04)

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 10.2 Israel's Fiscal Deficit Continues To Narrow

The Ministry of Finance announced on 8 April that the deficit on government activity fell to NIS 2.5 billion in March 2014 from NIS 2.9 billion in March 2013.  There was a budget surplus of NIS 100 million in the first quarter, compared with a deficit of NIS 4.7 billion in the corresponding quarter.  The cumulative 12-month deficit is falling: it totaled NIS 28.2 billion in the 12 months through March, or 2.65% of GDP, down from 3.15% of GDP in December 2013, 3% in January, and 2.7% in February.  Tax revenues totaled NIS 21.7 billion in March and NIS 66.3 billion in the first quarter, 15.4% more in nominal terms than in the corresponding quarter of last year.

Tax revenues from the capital market totaled NIS 330 million in March, 14% more than in March 2013. Tax revenues from interest fell by 11%, but tax revenues from securities rose 45%, because of the Tel Aviv Stock Exchange (TASE) rally.  Real estate tax revenue totaled NIS 697 million in March, 16.3% more in real terms than in the corresponding month. A breakdown by the type of tax showed an 11.4% increase in betterment tax revenues and an 18.7% increase in purchase tax revenues.  (Globes 07.04)

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11:  IN DEPTH

 11.1 ISRAEL:  S&P Ratings on Israel Affirmed At 'A+/A-1'

Overview 

  • In our opinion, Israel's fiscal consolidation is on track, bolstered by extra one-off revenues in 2013 and upward revisions to GDP due to new calculation methodologies.
  • We expect a modest decline in the gross general government debt ratio as a result.
  • We are therefore affirming our long- and short-term foreign and local currency sovereign credit ratings on Israel at 'A+/A-1'.
  • The stable outlook reflects our view that the government will continue to consolidate the public finances and that the effect of security risks on the Israeli economy will be contained.

On 28 March 2014, Standard & Poor's Ratings Services (http://www.standardandpoors.com/ affirmed its long- and short-term foreign and local currency sovereign credit ratings on the State of Israel at 'A+/A-1'. The outlook is stable.

Rationale

The affirmation reflects our view of Israel's prosperous and diverse economy as well as the positive medium-term impact of natural gas production on the external account. The fiscal profile is improving but remains a rating weakness, while geopolitical risks are the biggest rating constraint.

We project real GDP growth of 3.2% in 2014, which is similar to the past two years.  This includes the contribution of natural gas (about 0.4% of growth in 2014).  For 2015-2017, we forecast growth to remain stable at about 3.4% annually, suggesting a modest upswing due to the impending recovery in Israel's key export markets.  In GDP per capita terms, this equates to trend growth of close to 1.5% annually.  At above $38,000, we now view Israel as a high-income economy, with trend growth at the higher end of its peer income group.

Public finances are improving due to stable growth, as well as last year's revisions to the national income accounts by the statistical office in line with OECD standards -notably the methodology for calculating GDP, which increased 2012 GDP by 6.9%. In combination with one-off revenues from corporate transactions of 0.6% of GDP, the general government deficit in 2013 amounted to 3.2% of GDP.  Since the bulk of fiscal consolidation has been scheduled for 2013-2014, we expect an average annual increase in the nominal level of general government debt of 2.6% of GDP in the medium term (2014-2017).  This should enable Israel's net government debt burden to modestly decline over the 2014-2017 forecast horizon to 61% of GDP by 2017 from 63% currently.  This will largely be due to the increase in nominal general government debt over the period being slightly lower than the increase in GDP.  Notably, the favorable interest rate environment is also helping lower the government's interest payments, which we expect to average about 10% of government revenues.

Israel's external fundamentals remain strong; it continues to improve its net creditor position vis-à-vis the rest of the world.  We project its narrow net external asset position will strengthen to 42% of current account receipts (CARs) over the forecast horizon.  We forecast the current account will remain narrowly positive again in 2014 at 0.8% of GDP before gradually increasing thereafter.  We estimate that the country's gross financing needs will continue to decline and stand at 77% of CARs and usable reserves in 2014.

We consider monetary policy flexibility to be a rating strength.  However, we no longer view the shekel as a free-floating currency and we expect the Bank of Israel (BoI, the central bank) to become increasingly interventionist.  This is over and above its commitment to purchase foreign exchange in line with its assessment of the effect of natural gas production on the balance of payments and therefore to ward off appreciation pressures on the shekel.  Further, a largely balanced current account, very strong foreign direct investment and capital inflows on the financial account have added to appreciation pressures on the shekel, which is complicating the BoI's policy mix. Macro-prudential measures have failed to stem rapid price appreciation in the housing sector, but they do appear to have contained systemic risks.

We consider Israel's institutions to be generally effective with a satisfactory degree of transparency and accountability.  Recent electoral reforms could address the weakest element in Israel's governance, namely a lack of stability and limited policy predictability.  Nonetheless, we believe the effects will only be seen at the earliest in the next electoral cycle.  Meanwhile, external security threats and territorial disputes weaken political stability by inserting another dividing line in the electorate and distorting policy debates.

Geopolitical risks are a rating constraint.  In this respect, Israeli-Palestinian relations continue to be prone to violent outbreaks and also risk inviting other international repercussions.  The war in Syria and instability in Sinai pose medium-term risks for deterioration, though recent trends have been favorable to Israel.  Any significant armed conflict with Israel could further constrain the ratings if it significantly deters investment, weakens the economy's growth potential, or strains fiscal flexibility.

Outlook

The stable outlook reflects our opinion that consensus within the Israeli government to consolidate the public finances will continue to anchor fiscal planning and reduce government debt.  We also expect the impact of security risks on the Israeli economy to remain contained.

We could consider raising our ratings on Israel if it makes material progress in defusing external security risks.  In our view, such progress would have positive implications for domestic stability, economic growth, and investor confidence. We could also consider an upgrade if fiscal consolidation continues to be successfully implemented, leading to declines in Israel's debt and interest burden.

Conversely, we believe that a significant setback in the government's fiscal position, a significant decline in growth prospects, or a substantial deterioration of the security situation in Israel could put downward pressure on the rating.

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 11.2  ISRAEL:  World’s First Self-Cleaning Solar Park in the Arava Valley

Amid the prospect of cheap natural gas for electricity production, thanks to the major gas finds off Israel’s coast, demand for solar energy here has dulled.  But recently solar got a big boost as the Kibbutz Ketura solar park, jointly owned by Siemens AG and solar energy pioneer Arava Power, became the world’s first autonomously-cleaned solar energy production facility.

Each night, the 20-acre facility is cleaned by 100 Israeli-made robots, which brush and clean the hundreds of solar panels, generating 9 million kilowatt hours of electricity per year.  It’s a technical breakthrough, said Eran Meller, CEO of Ecoppia, which built the robot cleaning crew that could encourage more use of solar power.

Solar-produced electricity contributes just a small amount of the approximately 60 billion kilowatt hours of electricity that Israel uses each year, but the government has some ideas about how to change that – beginning with its own “house.”  Earlier this year, the Knesset announced a new project that will make Israel’s parliament “the greenest in the world,” according to the Energy and Water Resources Ministry.  Among other things, the project will entail installing 4,500 square meters of photovoltaic panels on the roof of the Knesset building, generating all the power the building needs to function and more.  According to Energy and Water Resources Minister Silvan Shalom, “the Green Knesset project will be a source of pride for Israel and will inspire other countries.”

Cleanliness – or a lack of it – has proven to be one of the biggest impediments to wider adoption of solar energy.  Most solar energy farms are located in deserts (as is Kibbutz Ketura, which is in Israel’s southern Arava desert) where the sun is strong and the spaces are wide open.  Both are important factors to take into consideration when building a solar energy farm, which consists of hundreds or thousands of solar panels.

Besides a lot of sun, however, deserts have lots of dust, and as that dust settles on the solar panel collectors, it reduces the panels’ efficiency – by as much as 35%, said Meller, in a process called “soling.”  To clean them, park managers use water, a very scarce commodity in the desert.  “Due to the expense of traditional, labor-intensive, water-based cleaning, Ketura Sun’s solar panels were only cleaned some nine times a year,” he said.  “This manual panel cleaning would take up to five days, during which time the field operated sub-optimally and work crews endangered sensitive equipment.  In the interim between cleaning cycles, the park suffered significant electricity production degradation due to soiling.”

Enter Ecoppia’s robot crew.  Instead of using water to clean panels, the robots are equipped with microfibers, with each robot assigned to a row of PV panels.  Using controlled air flow, the robots push the accumulated dirt off panels, as they glide along the surface of panels on their polyurethane-coated aluminum frame using wheels. Each robot can cover about 100 square feet of panel each minute, saving water and time.  The robots are controlled by a central control panel, and can operate in tandem (starting and finishing at the same time) or autonomously, based on the instructions given by park staff.

The Ecoppia solution was the best suited to meet the needs of the Ketura solar park, according to Arava Power CEO Jon Cohen.  “We conducted a thorough worldwide search for a cleaning solution that could deal with the challenging weather conditions in our solar park,” said Cohen.  “Only Ecoppia’s solution showed actual significant uplift in production, while offering an extremely appealing business model.”

Herzliya’s Ecoppia (http://www.ecoppia.com) was founded in 2013 and has customers worldwide for its robot cleaning solution – the only one on the market, the company said.  “We’re pleased to facilitate this important first step towards effectively growing solar park energy output at the Ketura solar park,” said Ecoppia CEO Meller.  “With E4, Ketura Sun maximizes its energy generation, without the expense and negative ecological impact of water-based cleaning solutions.”  (ToI 25.03)

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 11.3  ARAB MIDDLE EAST:  Arab World Faces Crisis of Increasing Electricity Demand

According to the International Energy Agency (IEA), the electricity sector will represent more than half of the global increase of energy until 2035.  In its annual report for 2013 on "Exploring the Future of Global Energy," the IEA said that developing and emerging countries will benefit from most of the expected increase.  China's share of the increase will be around 30%, India 13%, Southeast Asia about 8% and the Middle East about 6%.

The IEA expects the power stations that are to be built to add new electrical energy of about 9.76 terawatts (TW) in 2035, taking into account that the production of 1.94 TW of energy will be stopped in obsolete plants going offline during this period.

Furthermore, $17 trillion is expected to be invested in the production of global electric energy during 2013-15, knowing that the construction of plants will cost about 58% of the total expenditure, whereas the rest of the cost will cover the expenses of delivery stations and distribution networks.

As for the Middle East, the IEA expects a production of new electrical energy of about 281 gigawatts (GW) during 2013-35, noting that the production of about 69 GW will stop in obsolete stations.  The IEA expects that natural gas will be used to generate 153 GW of power in the Middle East, while oil will be used in plants to generate 31 GW.  Moreover, 26 GW will be generated from wind power, 46 GW from solar energy and 7 GW from nuclear energy.  Currently, the United Arab Emirates is building two out of four reactors for this purpose.  Saudi Arabia is considering generating electricity from nuclear power.

Hisham Khatib, an Arab expert in the electricity sector, warns against the high and rapid increase of demand for electricity in the countries of the Middle East and North Africa.  These rates increase by about 6-8% annually, while the rate of global demand for electricity increases by about 2.3% annually.

The Arab Petroleum Investments Corporation (APICORP) expects an increase in the annual demand rate for electricity in the region by about 8.4% during the period 2014-18.

Khatib raises questions about the reasons behind this annual increase in the region's countries, since it exceeds global averages by far.  He added that economic and population growth leads to an increase in demand for electricity.  In Arab countries, the annual economic growth rate ranges between 3 - 4% annually, which is not much different from the annual economic global growth.

Khatib added that the population growth rate in the Arab world is higher than the global growth rate.  He also said that the economy and demography do not offer convincing answers for the reasons behind the increase in electricity consumption in the Arab world.  Most of the increase in electricity consumption is the result of consumption in households and apartment buildings rather than industrial plants.  This means that electrical consumption in the Arab world is the result of the increase in the well-being of people, and not necessarily due to the industrial growth of the country.

What are the reasons behind the high increase in demand for electricity in the absence of an industrial boom in the region?  Some of the main reasons are the governmental subsidies — to varying degrees — for electricity consumers in all countries.  Some countries provide electricity for their citizens almost free of charge.  Moreover, in addition to this subsidization policy, there are no educational programs to rationalize consumption, which is not surprising because it is difficult to convince citizens to save power while they are receiving it at relatively low prices.  Subsidies lead to wasteful energy consumption.  Arab officials and experts believe that subsidies are one of the main risks facing the electricity sector, according to Khatib.

The high annual electricity consumption leads to costly investments and to the consumption of large amounts of fuel.  Some Arab countries with limited oil reserves are compelled to import oil products, which encumbers the commercial balance and causes an increase in emissions that are harmful to both the environment and citizens.

Regional and civil wars exacerbated the crisis of the electricity sector in various Arab countries.  The reasons behind electricity outage varied:  Electricity institutions neglected the establishment of new stations to meet the increased demands.  Also, many power stations were bombarded or sabotaged during military conflicts.  Necessary investments to fix or build new stations and networks were not available.

Corruption plagues the electricity sector, as it does the rest of the sectors in many Arab states.  Some countries relied on the import of natural gas from neighboring countries that suddenly cut off the supply.  Furthermore, there is mismanagement as some oil countries witness high electricity outages during summer year after year, without making any plans or being prepared for the peak of consumption during this season.  Some countries are infested with chaos, where electricity institutions cannot collect monthly bills.  This in addition to negative factors: clear stagnation in developing the electricity sector in terms of the participation of the private sector with the governments in investing in electricity generation and distribution, network development and collection of monthly bills.

In light of the aforementioned, the accumulation of Arab political problems and the expected steady increase in electricity consumption, it is clear that we are heading toward delicate periods in the future and the electricity problem will be getting worse.  (Al Monitor 25.03)

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 11.4  LEBANON:  Geothermal Energy Has Great Potential in Lebanon

The UNDP Country Energy Efficiency and Renewable Energy Demonstration Project for the Recovery of Lebanon (CEDRO), launched in collaboration with the Ministry of Energy and Water, is a national assessment of the geothermal resources in Lebanon within the scope of the development of a sustainable energy strategy and national action plan.  The study, which began in May 2012, is conducted by Zurich-based Geowatt AG.

The project, managed by Hassan Harajli, aims at supporting the adoption of green policies in Lebanon's recovery, reconstruction and reform activities by adopting and implementing end-user energy efficiency (EE) and renewable energy (RE) applications.

For this purpose, CEDRO will cover three areas, namely implementing end-user EE and RE pilot projects in public sector buildings and facilities, providing an enabling environment to transform public sector buildings and other facilities into EE prototypes and developing a sustainable energy strategy and national action plan.

Constant Energy Source

Unlike other alternative energy technologies, geothermal energy provides a reliable and constant energy source this is not affected by weather changes.  Geothermal energy is unlimited, with almost no carbon dioxide emissions. It is a local energy that supports independence from foreign energy providers.

The visual and environmental impact of geothermal power plants is low.  Therefore, protecting heritage, nature and the environment is rarely an intractable issue during selection of the site for the construction of a geothermal project.

The study identified two potential areas for the development of geothermal energy pilot projects.  Akkar is considered one of the most promising areas, where deep underground water is found at a depth of 1,500 meters with a temperature of up to 130 degrees Celsius [266 F.].  The second area is the Bekaa Valley, where water temperature is estimated at about 80 to 90 degrees Celsius [176 to 194 F.] at a depth of 2,800 meters.  If we take into consideration the level of confidence in the available data, it is not unlikely to find water in the Bekaa Valley with temperatures above 100 degrees Celsius [212 F.], which also allows energy generation.  Other potential areas were identified in Kawkaba and in the surroundings of the city of Tyre, where thermal anomaly locations have been identified.

With temperatures such as the ones mentioned above, conditions in Lebanon are deemed favorable for low-temperature geothermal technologies using a binary cycle power generation plant.

Side effects

Despite all the previously mentioned benefits, exploiting the geothermal energy reservoir may have side effects. It can trigger seismic activity, a matter which must be addressed seriously.  The study predicts minimal seismic activity resulting from this exploitation.  This does not negate the need to take stringent risk-reduction procedures and communication plans during the project’s initial stages.

The strong dependence on local geological conditions is the most important element in the development of a thermal power project.  As it is the case in oil and gas exploration, geothermal energy involves the risk of not discovering prospective resources, leading to a shortage in the production of the expected energy quantity.  Moreover, Lebanon has just started exploring for oil and gas and thus lacks appropriate data. In order to determine the available potential, Lebanon must adopt stringent procedures and will incur relatively high costs.

Thermal Measurements

The National Geothermal Resource Assessment aims at estimating the potential of geothermal heat and power generation in Lebanon based on the currently available data and information.  It estimates the extent to which geothermal power is able to assist in the objective set by the Lebanese government to meet 12% of its total energy needs from renewable energy sources by 2020 (and beyond).

Geothermal resources were assessed by collecting all geological, hydrogeological, structural and thermal information available on Lebanon, by taking small scale thermal measurements in neglected groundwater wells and by conducting laboratory measurements on rock samples for thermal suitability.  Based on the collected information, a geological and geothermal three-dimensional model for Lebanon was developed and used to calculate the underground heat and geothermal potential in Lebanon.

Findings

The findings were presented in the form of maps covering all of the Lebanese territories to be part of the geothermal atlas for Lebanon.  This numerical model constitutes a highly important platform for future development of geothermal energy in Lebanon, as it allows updating the assessment of available resources and improving the accuracy of estimates in light of the availability of more data.

The study estimated that the total resources in Lebanon were a billion gigawatts/hour.  This is equivalent to about 70,000 times the annual energy demand in Lebanon.  Total resource is defined as the total energy stored underground in Lebanon at a temperature sufficient to produce electricity above 100 degrees Celsius and at a depth reached by current drilling techniques (less than 7,000 meters [4.3 miles] below ground level). In the absence of any direct measurement of this resource, the level of confidence is deemed “low” and this resource is classified as “probable,” according to the International Geothermal Reporting Code.

The preliminary study showed that there was a very small fraction of the geothermal heat that might be economically exploited, according to current technical conditions.  A both optimistic and realistic scenario allows considering the installation of a 1.3-megawatt facility by 2020.  If this attempt proves successful and yields positive results, four additional power generation plants may be built by 2020, bringing geothermal energy production up to 6 gigawatts per hour.  Total energy production may be increased to 30 gigawatts an hour by 2025, i.e., 0.2% of the total energy demand.

Recommendations to Start Exploration

The study suggests starting an exploration program specifically designed for geothermal energy.  It aims at enhancing the level of confidence in geothermal resources in the identified potential areas and classifying these areas as “indicated” or “measured” according to the International Geothermal Reporting Code.

The proposed exploration program includes superficial geophysical investigations and drilling of one geothermal well.  This is the only means available in light of the current technology potential to ensure the existence of a geothermal resource.  The investment costs for this exploration program are estimated at $5 million, with results issued within three years.

If the geothermal potential is proven, the first pilot facilities may be completed at an additional cost of $20 million.  Wells can be dug and a second geothermal power generation plant can be built until the start of energy production.  At that point private sector investors may finance this stage.  The development of geothermal technology in Lebanon mainly requires strong government incentives and concise procedures for granting permits and licenses during the first 10 years of the initial geothermal energy development phase in Lebanon.  (Al Monitor 30.03)

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 11.5  JORDAN:  Education System Adjusts To Meet New Challenges

The authorities in Jordan are taking steps to reduce the current gap between the university classroom and workplace, while also opening the door to more foreign students.

The government has said it would like the higher education system to be more closely aligned with the needs of the economy, including creating more places for students in areas where there is demand for talent and experience.  This need has become more apparent in recent years, as some sectors have faced challenges in filling positions, despite the high level of unemployment, estimated at around 14% by the World Bank.

One of these sectors is information and communications technology (ICT), long identified as a key industry in transforming Jordan into a knowledge-based economy. The government has already had significant success in building up the ICT industry – it accounts for 14% of GDP and the low-cost, highly-skilled local labor force is considered an attraction for foreign investors.

However, Jordan risks falling behind, in part because nearly half of university students attending ICT courses earn degrees in fields with relatively low prospects of employment, the ICT Association of Jordan (int@j) said in a report last year.

Moreover, rapid changes in technology mean that some universities face challenges in keeping abreast of latest developments. In the National ICT Strategy 2013-17, the Ministry of Information and Communication Technology said the university system has been slow to modify its curricula to meet the needs of high-tech employers.  “Education, training and certification play an important role in determining sustainable competitiveness and longevity. Jordan already is well known for its university system.  However, the university system is not agile enough to remain completely relevant with the demands of the ICT sector,” the ministry wrote in its report.

Other areas where greater educational emphasis can be expected are chemical-pharmaceutical engineering, with Jordan looking to further develop its pharmaceuticals industry, tourism and construction-related vocational studies.

Lessons Learned

While acknowledging that more needs to be done, Issa Batarseh, the president of the Princess Sumaya University for Technology (PSUT), says the education system has already become more responsive to the needs of the economy.  “On the whole, Jordan is attempting to drive the educational sector towards an innovation driven and entrepreneurial mind-set,” he told OBG.  “Universities have established incubator systems to allow students to be creative, with noticeable success over the past 10 years.” PSUT runs an incubator lab in cooperation with US-based technology provider Oracle.

Other universities are strengthening their ties with the business world.  In February, the state-run German-Jordan University (GJU) and the Tamweelcom-Jordan Micro Credit Company announced they had signed an agreement that would allow management and logistics sciences students to take on internships at the microfinance outfit.

Established in 2005, GJU is focused on applied sciences, including business informatics, water and environmental engineering, logistical sciences and chemical-pharmaceutical engineering.  The university provides students with a one-to-one mix of practical and theoretical training, and all GJU students complete a six-month internship at one of GJU’s industry partners in Europe.

Education as an Export

Among them, Jordan’s 10 public and 19 private universities serve some 250,000 students, around 10% of whom are foreign nationals, the majority from countries in the region.  While many Jordanian students study overseas, the number is only around one-third of the estimated 28,000 or more foreigners taking courses at local institutions of higher learning.

Stronger links to the business world could help Jordan build on its appeal as a center for higher education.  A recent survey conducted by the Beirut-based Arab Thought Foundation showed that many in the region felt the education systems in their countries were not in step with the needs of the economy.  By offering educational services both of higher quality than elsewhere in the region and with a solid career-based focus, Jordan’s universities should be better placed to capitalize on this growing demand, both from foreign students and those seeking knowledge at home.  (OBG 26.03)

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 11.6  GCC:  Understanding the Gulf States

Simon Henderson observed that money, they say, can't buy you everything.  But in the conservative Arab states of the Persian Gulf (or the Arabian Gulf as they prefer to call it), money can buy a lot.

What is the tallest building in the world - the Burj al-Khalifa in the sheikhdom of Dubai.  What is one of the best airlines in the world?  Washington, DC friends vacationing in Asia recently chose to fly there with Qatar Airways via Doha.  The newness of aircraft, quality of on-board service and well-timed connecting flight trumped any political misgivings, such as Qatar's support for Hamas in Gaza and the weapons it gives to some of the worst jihadists in Syria.

This prosperity, of course, is a consequence of oil, but in regional terms, the Gulf Arab states - Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman - found oil late in the game.  Oil was first discovered in Iran in 1908.  The giant oilfield at Kirkuk in northern Iraq was found in 1927.  The first oil on the southern side of the Gulf was found in Bahrain in 1931.  Saudi Arabia, which now has the largest reserves of conventional oil in the world - between a sixth and a quarter of the total depending how you do the math - found its first oil only in 1938.  Production did not take off until 1941.  Oil was not found in Abu Dhabi, the leading emirate of the UAE, until 1958.  It is now estimated to have around 6% of the world's oil.  Not bad, considering its population is less than one million.

Apart from hydrocarbon riches, the distinguishing feature of the conservative Gulf Arab states is their small populations.  Saudi Arabia is the largest with a population of about 27 million, though this probably includes at least 7 million expatriate workers.  The smallest is Qatar, with about 2 million people but perhaps as few as 10%, 200,000, actual Qatari citizens.

So it is hardly surprising that these fabulously oil-rich countries and, in the case of Qatar natural gas-rich, have now emerged on the world stage.  Dubai, Abu Dhabi, Doha and Manama (Bahrain) are now iconic city-states, joining countries like Singapore and Hong Kong.  Yet their entrance coincides with their region collapsing into turmoil.  They have only been nation-states for a few decades; yet their immediate future, what with an almost-nuclear Iran and the turmoil of the "Arab Spring," is uncertain.  To make matters worse, the trend line is bad.  Ten, or more likely 20, years ahead there is predicted to be an energy glut in North America (Canada, the U.S. and Mexico.)  This will hammer oil and natural gas prices.  So what if, collectively, you have more than 30% of the world's oil and more than 20% of the world's natural gas?  Lower prices would certainly be to the benefit of the developed world but probably a disaster to the relatively undiversified economies of the Gulf Arabs.

There is a major "but" in this sweep of analysis.  The Gulf States, loosely grouped together since 1981 in the Gulf Cooperation Council or GCC, have seen crises come and go, but, with the exception of Saddam Hussein's 1990 invasion of Kuwait, have themselves been spared political catastrophe.  Indeed, one could make the argument - and quite a few people do - that their quasi-monarchial-but-listening approach to government and administration has worked well.  It hardly fits into the democracy playbook of liberals in the United States and Europe, but their general success has served to highlight the deficiencies of 1950s and 1960s Arab nationalist revolutions in Egypt, Syria, Iraq, Yemen and Libya.

The major problem would appear to be the growing internal contradictions among the GCC member states.  In early March 2014, Saudi Arabia, Bahrain and the UAE withdrew their ambassadors from Doha to protest Qatari meddling in the internal affairs of the other countries.  Apparently there had been a row about this last year, which had led to an agreement in late November 2013.  But Qatar was not living up to its side of the bargain.  The root cause of the crisis was Qatar's support for the Muslim Brotherhood, though this was unstated.  Indeed, the November 2013 pact had never been revealed and the announcement of the withdrawal of ambassadors only emerged in a communique issued at the end of a meeting of GCC foreign ministers in Riyadh.

Such a public schism opens to discussion consideration of whether the GCC as such will continue to exist. It wouldn't be the first shakeup in national boundaries.  When the British left the Gulf in the early 1970s, they created the UAE out of the emirates of Abu Dhabi, Dubai, Sharjah, Ras al-Khaimah, Fujairah, Ajman and Umm al-Quwain.  Qatar and Bahrain were originally intended to be part of the confederation as well but could not agree with the others on the terms.

Taking each member state in turn:

Saudi Arabia

The kingdom is facing a succession crisis.  King Abdullah is 91 years old this year and his half-brother and designated replacement, Crown Prince Salman, is 78.  Neither man is in good physical health.  There are particular concerns about Salman's mental abilities.  Competition to replace either will likely be intense from sons and nephews, many of whom are more privileged than they are able.  Stability in the kingdom is maintained by conservative attitudes and the generous distribution of subsidies and government jobs.  If the oil price falls, the government's ability to maintain these handouts will be lessened.

Uncertainties for the future include a drop in oil exports as more energy is consumed at home.  The populace has become used to highly subsidized prices for gasoline and electricity. Re-educating them will be a challenge.  The main foreign threat is Iran, which Riyadh sees as trying to achieve hegemonic status in the Gulf area.  On the other side of the kingdom, Yemen is also watched closely because its population probably is larger than that of Saudi Arabia but is much poorer.  Within Saudi Arabia, income disparity is an issue with many citizens living in comparative poverty.  The tribes along the border with Yemen are suspected of dubious loyalty.  On the other side of the country, on the Gulf coast, the population is largely Shiite, co-religionists of Iran and the neighboring island of Bahrain.  Saudi Shiites are economically and politically disadvantaged.  In addition, hardline Saudi Sunni clerics regard Shiites as not proper Muslims.  The Saudi authorities handle the issue carefully but often badly.  Any civil unrest could have wider consequences, as the area is also the epicenter of Saudi oil production and export.

Kuwait

The ruler is Sheikh Sabah al-Ahmad al-Sabah, 84 years old, with a lifetime of government service and experience but now in poor health.  The authority of the al-Sabah ruling family is limited by the high standing of other prominent families and a political system that makes for gridlock.  The national assembly, the oldest established parliament-type system in the southern Gulf, is divided among hardline Sunnis, tribal elements and Shiites, with a leavening of technocratic types.  Once the most modern emirate in the Gulf, Kuwait has been overtaken by Qatar and the UAE, partly a consequence of never really recovering from the shock of Saddam Hussein's invasion in 1990.  There must be a concern that next time, American forces will not come galloping to the rescue.  When Sabah retires or dies, the ruling family will nominate possible replacements but the final choice will be a compromise with the members of the national assembly.

Bahrain

The island state has been wracked by political turmoil since February 2011 when pro-democracy supporters, aroused by the "Arab Spring" in other parts of the region, staged protests.  The demonstrations rapidly took on a sectarian hue.  The Sunnis disappeared, making the events into Shiite confrontations with Bahrain's Sunni Muslim security forces.  The main development since then has been the Shiites splitting into those advocating violence and the apparent majority, those confining their activities to peaceful protests.  A secondary, and probably more significant, change has been the emergence of Iranian backing for the violent groups.

The initial protests had prompted the intervention of Saudi paramilitary and UAE police reinforcements.  Neither group actually was involved directly in countering the demonstrations, though in March 2014, an Emirati police officer died when an improvised bomb exploded near a Bahrain police unit.  Political reconciliation has been thwarted by differences within the Bahrain royal family on whether compromises should be made.  The lead conciliator is Crown Prince Salman but he is opposed by hardliners, including the minister of the royal court and the commander-in-chief of the Bahrain Defense Forces, collectively known as the Khawalid.  King Hamad bin Isa al-Khalifa vacillates between the two factions.  Failing political reforms, the more likely outcomes include more violence and fresh involvement by Saudi security forces.  The House of Saud is anxious that violence in Bahrain does not spread to the kingdom and that political reforms do not encourage demands for matching gestures by Saudi Shiites.  An outside possibility is that Saudi Arabia will seek political union with Bahrain.

Qatar

The "bad boy" of the GCC, a status achieved under Sheikh Hamad who abdicated in June 2013, is an even more accurate label for his son and successor, Sheikh Tamim bin Hamad al-Thani, who is just 33.  The country appears to be proud of its reputation for causing trouble whether it is allowing a platform for radical Muslim preacher Yousuf al-Qaradawi, supporting some of the worst jihadists Syria, or backing the Muslim Brotherhood in neighboring UAE.  Having agreed to behave better at a meeting with King Abdullah of Saudi Arabia in November 2013, Sheikh Tamim then failed to deliver, prompting the withdrawal of their ambassadors by Saudi Arabia, Bahrain and the UAE in March 2014.  Having the world's largest reserves of natural gas after Russia and Iran, as well as being the biggest exporter of liquefied natural gas (LNG), funds a lot of mischief, as well as building soccer stadiums for the 2022 World Cup.  The interesting question may be how long Saudi Arabia will put up with such nonsense.  The al-Thani are a large clan and many members are excluded from political power.  Hamad's authority was questioned because he gained power by overthrowing his father, a reclusive alcoholic.  Could Riyadh - would Riyadh - fund a coup in Doha?  The Qatari military is perhaps one of the few armies that the Saudis could actually defeat.

United Arab Emirates

The ruler, Sheikh Khalifa, is "stable" after a recent stroke but had essentially already handed over the strings of power to his crown prince and half-brother, Sheikh Muhammad bin Zayed, who is pro-American but, like many Gulf leaders, deeply skeptical of the Obama Administration.  MbZ, as he is known, represents the new generation of Gulf leadership.  The test will be how much he will be constrained by any need to maintain GCC consensus. Much is made of the UAE's persistent dispute with Iran over three islands (Abu Musa, Little Tumb and Greater Tumb) seized by Iran in 1970. MbZ's views on these islands may be more conciliatory than thought, but sovereignty is claimed by the UAE member sheikhdoms of Sharjah and Ras al-Khaimah and any compromise may threaten the confederation.  Less noticed are two sources of territorial friction with Saudi Arabia - Riyadh's seizure of land between Qatar and the UAE, removing the common border, and Saudi insistence that a huge oil field on the border lies totally within Saudi territory.  The biggest threat is any military confrontation with Iran, which would ruin the commercial viability of Abu Dhabi and Dubai, the UAE's cash-cows.

Oman

Sultan Qaboos is the odd-man-out of the Gulf.  He usually shuns GCC meetings.  He takes positions unhelpful to the U.S. until, of course, he could be helpful to Washington by facilitating the secret talks with Iran before the diplomacy on the nuclear deal opened up.  In socio-economic terms, Oman has got enough oil and gas to keep its relatively large 3.1 million population happy.  It is the one GCC country that had genuine "Arab Spring" type events in 2011 with riots by discontented youth quashed by a combination of firmness and government handouts.  Qaboos believes his people love him.  Perhaps most do, perhaps not.  His unmarried status and lack of any heirs is a source of disquiet and occasional ridicule.  At 74 years old, the question of "who will succeed Qaboos?" is becoming increasingly relevant.  Oman's strategic position, on the southern side of the Strait of Hormuz will remain vital for Gulf energy flows even if the U.S. becomes effectively energy independent.

All the GCC states have had and continue to have a dependence on the United States.  None of them probably think they can rely on Washington for much longer, and certainly not forever.  The sensible way forward would be to develop their unity, but this isn't going to happen.  Alternatively, they can look for another security partner.  China is the name that springs to mind but there is little immediate evidence that this is going to happen.  There remains the prospect of cutting an unpalatable deal with Iran.  So far, perhaps with the exception of Oman and perhaps Qatar, this option is being rejected.

It makes for a worrying future.

Simon Henderson is the Baker Fellow and director of the Gulf and Energy Policy Program at The Washington Institute.  (TWI Spring 2014)

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 11.7 UAE:  Ratings On Abu Dhabi Affirmed At 'AA/A-1+'

Overview

  • In our view, Abu Dhabi's large external and fiscal net asset positions give it a considerable buffer to support its economy and mitigate the risks from external vulnerabilities.
  • We are therefore affirming our 'AA/A-1+' sovereign credit ratings on Abu Dhabi.
  • The stable outlook reflects our view of balanced risks to the ratings.  We  believe that Abu Dhabi's economy will remain resilient and its fiscal policy will remain prudent and flexible, but we expect that structural and institutional weaknesses will remain, which could derail growth.

Rating Action

On 4 April 2014, Standard & Poor's Ratings Services (http://www.standardandpoors.com) affirmed its 'AA/A-1+' long- and short-term foreign and local currency sovereign credit ratings on the Emirate of Abu Dhabi, a member of the United Arab Emirates (UAE).  The outlook is stable.

Rationale

The ratings on Abu Dhabi are supported by its strong fiscal and external positions, which afford it fiscal policy flexibility.  The exceptional strength of its net asset positions also provides a buffer to counter the negative impact of oil price volatility on economic growth and government revenues, as well as on the external account.

The ratings are constrained by our view that the emirate has less-developed political institutions and bigger structural weaknesses than non-regional peers in the same ratings category.  The ratings are also constrained by the contingent liabilities from Abu Dhabi-based government-related entities (GREs), and, to a lesser extent, liabilities more broadly related to the UAE.

Limited monetary policy flexibility, in view of the pegged exchange rate and the underdeveloped domestic bond markets, also constrains the ratings.

Abu Dhabi is one of the world's wealthiest economies; we estimate GDP per capita at $103,000 in 2014.  The underpinnings of economic growth have strengthened since 2010, supported by the expansion in oil production, high public spending, and a broadening of the economy's production base, including services and manufacturing.

Real growth (that is, adjusted for inflation) and nominal growth levels have been robust.  However, real GDP per capita growth, weighted as per our criteria, is contracting by about 4% because of the high flow of foreign workers into the emirate.  Real GDP per capita growth is well below peers in the same GDP-per-capita category. We believe, however, that in a heavily resource-endowed economy such as Abu Dhabi, nominal GDP growth - which averaged 13% annually during 2006-2012 - is a better measure of prosperity and could substantially cushion potential risk.

Assuming an oil export price of $100 per barrel this year, we estimate the fiscal surplus at 12% of GDP (including petroleum dividends and investment income) in 2014.  We expect the fiscal surplus to average 10% of GDP in 2014-2017, helping to further bolster the emirate's net asset position, which we estimate at 218% of GDP over the same period.  By implementing regulations for public-sector debt, the government has strengthened its oversight over public-sector debt levels and aims to ensure sustainability and prevent financial stresses in the GREs.  We estimate the debt of Abu Dhabi's GREs at about 31% of GDP, including the parent-level debt of Mubadala Development Company, International Petroleum Investment Company, Tourism Development and Investment Company, and Abu Dhabi National Energy Company.  These entities are backed by a statement of support from the government to the effect that their creditworthiness should not be differentiated from that of the government.

The dirham's peg to the U.S. dollar constrains monetary policy independence.  Further, the underdeveloped capital markets weigh on the transmission of monetary decisions.  We note that the government is considering the regular issuance of domestic debt from 2014 to strengthen domestic capital markets.

The government has made some progress in strengthening its economic institutions.  It has established a debt management office, undertaken a public expenditure review, and set up a medium-term budget framework.  However, the availability of macroeconomic data is relatively poor compared with similarly rated peers.  Disclosure related to the government's external assets, namely those invested by the Abu Dhabi Investment Authority, is lacking, in our view. Moreover, we believe political institutions in the UAE are nascent compared to non-regional peers. The decision-making process remains highly centralized with checks and balances between institutions largely absent.

Notwithstanding that calls for political reform are not tolerated in the UAE, the federation's leadership fosters domestic stability through financial largesse and consensus building.  Through its regional and international alliances, the UAE government strives to maintain a balanced foreign policy to safeguard both its strategic and commercial interests.  In its energy and foreign policy, Abu Dhabi has been proactively mitigating its exposure to geopolitical risks as well as securing its oil supply to strategic end-users.

To this effect, the government has completed the Abu Dhabi Oil Pipeline, which has the capacity to deliver up to 80% of Abu Dhabi's oil exports directly to the Fujairah terminal on the Indian Ocean, bypassing the Straits of Hormuz.

Outlook

The stable outlook reflects our view of balanced risks to the ratings.  We believe that Abu Dhabi's economy will remain resilient and its fiscal policy will remain prudent and flexible, but we expect that structural and institutional weaknesses will remain, which could derail growth.

We could consider raising the ratings if there were significant improvements in data transparency, including on fiscal assets and external data, and further progress in institutional reforms.  Moreover, measures to improve the effectiveness of monetary policy, such as developing domestic capital markets, could eventually be positive for the ratings.

The ratings could come under pressure if there were a sharp and sustained decline in oil prices or some other development leading to a material deterioration in fiscal and external balances.  The ratings could also face pressure if domestic or regional events compromised political and economic stability.  (S&P 04.04)

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 11.8  SAUDI ARABIA:  Nuclear Kingdom - Atomic Ambitions

A major probable consequence of Iran achieving a nuclear weapons capability is that Saudi Arabia will seek to match it.  With President Obama currently rating the chances of diplomatic success as 50/50 and Iranian Supreme Leader Ali Khamenei giving a "zero" probability, the recent U.S.-Saudi summit will be an opportunity to check whether Saudi planning can help the diplomacy rather than hinder it.

Riyadh's Nuclear Blueprint

In 2009, a Saudi royal decree announced that "the development of atomic energy is essential to meet the kingdom's growing requirements for energy to generate electricity, produce desalinated water and reduce reliance on depleting hydrocarbon resources."  In 2011, plans were announced for the construction of sixteen nuclear power reactors over the next twenty years at a cost of more than $80 billion.  These would generate about 20% of Saudi Arabia's electricity, while other, smaller reactors were envisaged for desalination.

As such, Saudi Arabia's civil nuclear plans are similar in scope to Iran's admitted nuclear power program.  Both countries can also claim the same economic rationale -- that providing electricity produced by nuclear power for the general population allows more oil and natural gas to be exported, contributing to export revenues and government income.  But, unlike Iran, Saudi Arabia lacks any nuclear infrastructure.  Its sole nuclear institution is the King Abdullah City for Atomic and Renewable Energy, which this week represented the kingdom at the Nuclear Security Summit in the Netherlands -- also attended by President Obama.

Since at least 2003, Saudi Arabia has consistently maintained a veiled military nuclear strategy. Reports have suggested that the kingdom is considering either acquiring its own nuclear deterrent or forming an alliance with an existing nuclear power that could offer protection, or else reaching a regional agreement on establishing a nuclear-weapons-free Middle East. It is noteworthy that discussion of these options coincided with increasing apprehension of Iran's nuclear plans, as contrasted with the posture of Israel, which is reported to have developed nuclear weapons in the late 1960s.

The Pakistani Option

The most publicly discussed strategy for the Saudis involves acquiring nuclear weapons from Pakistan, either purchased or under some arrangement of joint control with Pakistani forces.  In 1999, then Saudi defense minister Prince Sultan bin Abdulaziz visited Pakistan's unsafeguarded centrifuge enrichment site at Kahuta near Islamabad and also saw mock-ups of Pakistan's nuclear weapons.  During the visit, Prince Sultan met the controversial Pakistani nuclear scientist A. Q. Khan, who was blamed for proliferating centrifuges to Iran, Libya, and North Korea, as well as then prime minister Nawaz Sharif, who was later exiled to Saudi Arabia after a military coup and is now once again Pakistan's prime minister.  As well as transferring nuclear warheads to Pakistan, Islamabad could provide missiles capable of hitting Iranian targets, though Saudi Arabia already has such missiles.  Earlier this year, reports indicated that the kingdom had, in 2007, updated its previous arsenal of liquid-fueled Chinese CSS-2 missiles with more advanced, solid-fueled CSS-5 missiles.  Both types are designed to carry nuclear warheads, but the newer missiles have been adapted, at reported U.S. insistence, so that they can carry only nonnuclear warheads.

Examining the Kingdom's Treaty Obligations

The kingdom's current nonproliferation-related diplomatic undertakings allow it some flexibility in pursuing alternative strategies, particularly if Iran were to "break out" from its Nuclear Nonproliferation Treaty obligations.  Saudi Arabia ratified the NPT in 1988 but only concluded a Comprehensive Safeguards Agreement with the International Atomic Energy Agency (IAEA) in 2009.  In doing so, it agreed to an earlier version of the "Small Quantities Protocol (SQP)" and has yet to accept the modified SQP adopted by the IAEA Board of Governors in 2005.  In addition, Saudi Arabia, like Iran, has not yet signed the Additional Protocol, which allows for stricter inspections.  Nor has it signed the Comprehensive Nuclear Test Ban Treaty, though it has consistently supported the establishment of a nuclear-weapons-free zone in the Middle East.

In its latest Safeguards Implementation Report, the IAEA secretariat listed Saudi Arabia among those countries where it could find no apparent diversion of declared nuclear material from peaceful activities.  This conclusion is based on analysis of open-source information given that Saudi Arabia does not have any declared facility and that, consequently, the IAEA has no inspections or visits to the country.  According to the report, the IAEA reached this view after only limited efforts, spending just $12,000 on monitoring the kingdom.  By comparison, the amount spent for IAEA activities in neighboring Jordan was $153,000.

Washington's past readiness to allow the export of advanced military aircraft and weapons systems to Saudi Arabia has been justified in part by an apparent understanding allowing the kingdom to defend itself and seek to deter Iran without recourse to nuclear weapons.  Discussion of this principle could constitute one part of the recent meetings between President Obama and King Abdullah.  However the discussion unfolds, the Saudis will, at the very least, resist any commitment to not enrich uranium as part of a prospective deal to buy U.S. nuclear technology for its projected power program.  In the past, Washington has insisted on a so-called 123 agreement, named after the section of the U.S. Atomic Energy Act of 1954, banning enrichment as a condition for cooperation.  Such a condition was part of a deal with the United Arab Emirates when Abu Dhabi announced plans to buy nuclear power plants.  But if Iran is allowed to enrich uranium as the current diplomacy suggests, the kingdom would probably demand the same right.

King Abdullah has already made clear to his U.S. counterparts that if Iran gets a nuclear bomb, the kingdom will do so as well, whatever its NPT obligations.  Defining such a status -- whether through an actual nuclear weapon or a more loosely defined military nuclear capability -- is one difference in the respective diplomatic approaches of Washington and Riyadh toward Iran's nuclear ambitions.  Despite the IAEA's apparent equanimity regarding the kingdom's nuclear activities, the 1988 initial purchase of Chinese missiles, the 1999 Kahuta visit and the 2007 upgrade of the Chinese missile fleet suggest a long-term and well-developed strategy.  The United States is already aware of desert facilities claimed by the Saudis to be oil-related even though there are no nearby pipelines.  Also, North Korean personnel have previously been spotted in the kingdom.

Options for Enrichment

If Saudi Arabia decided to build its own uranium enrichment plant, citing the need to fuel its planned nuclear power reactors, it would have two options: either establish a joint venture with a current technology holder or develop its own technology.  According to the latest IAEA Nuclear Technology Review, there will be excess worldwide uranium supply for enrichment over the next decade; only Pakistan, among the technology holders, would possibly be attracted to establishing an enrichment plant in the volatile Middle East.  If the kingdom opted to develop its own enrichment technology, designing a centrifuge and building a commercial-scale operation would take a decade.  Even then the Saudis would not have achieved energy independence, since the country's known uranium resources are scarce, and insufficient to support such a nuclear program.

Worryingly, even for a small research and development facility, the Saudis -- under their SQP obligations -- can build the installation in secret and must only tell the IAEA 180 days before introducing nuclear material.  The R&D, mechanical testing of centrifuges, and testing with surrogate materials need not be revealed.

Olli Heinonen is a senior fellow with the Belfer Center at Harvard University and a former deputy director-general for safeguards at the IAEA. Simon Henderson is the Baker Fellow and director of the Gulf and Energy Policy Program at The Washington Institute.  (TWI 27.03)

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 11.9  SAUDI ARABIA:  Saudi Succession Change Risks Royal Family Squabble

Simon Henderson wrote on 27 March in the Washington Institute that King Abdullah's appointment of Muqrin bin Abdulaziz, his half-brother, as deputy crown prince could marginalize Crown Prince Salman.

Saudi Arabia is a curious mixture of precedence and edict.  In recent years, King Abdullah has tried to further systematize the process, most notably with the establishment of an "Allegiance Council" in 2006 made up of senior princes.  But a royal decree issued earlier today essentially reduces the council's role.  Instead it "mandates" that the royal family pledge allegiance to Muqrin as crown prince if that position becomes vacant, or as king if the positions of king and crown prince become vacant at the same time.

The announcement partially clarifies the uncertainty that has surrounded Prince Muqrin since he was appointed second deputy prime minister in February 2013.  In the past, that position has been seen as "crown prince in waiting," though officially it only enables the holder to chair the weekly Council of Ministers meeting if the king (who is also the prime minister) or crown prince (who doubles as deputy prime minister) are abroad or otherwise unavailable.

Age seventy-one this year, Muqrin is the youngest surviving son of the late King Abdulaziz, a.k.a. Ibn Saud, the kingdom's founder.  Since his death in 1953, the throne has passed from brother to younger brother with only a few omissions among Ibn Saud's more than forty sons, of which only fifteen are still alive.  Most are sick and/or feeble.  King Abdullah (age 90) can no longer walk unaided but remains composmentis.  Crown Prince Salman (77) has apparently had trouble focusing mentally of late and doubts are often expressed about his capacity to become king.  His recent trip to Japan was mainly for medical reasons.

But Muqrin's elevation challenges accepted understandings of how princes can qualify to be king because he is one of several of Ibn Saud's sons without Saudi tribal lineage.  His mother, referred to in history books as "Baraka the Yemeni" was either a concubine or favored slave girl, a domestic arrangement that allowed Ibn Saud to have more than the four concurrent wives to which he was limited by Islamic law.

It would be surprising if Muqrin was not challenged on this point by royal family rivals with better pedigrees, though such disagreement might not be publicly visible.  Keeping up appearances is important to Saudi royals.  Crown Prince Salman recently completed a hectic series of official visits to Pakistan, Japan, India, the Maldives and China, then chaired the Council of Ministers meeting the day after he returned.  Given concerns about his health, the most likely explanation for his busy schedule is that his own sons -- along with his remaining full brothers in the so-called "Sudairi Seven" power clique -- are pushing him to retain the appearance of being the next king. Muqrin's appointment effectively casts doubt over the future political and financial prospects of Salman and these relatives.

A possible next move in this game of royal family chess is for King Abdullah to have a team of doctors declare Salman medically incompetent, allowing for Muqrin's early elevation to the heir apparent slot.  Genes aside, Muqrin's professional credentials compare well with others.  Trained as an F-15 pilot, he served as head of intelligence from 2005 to 2012 and as a provincial governor before that. He also has a reputation for being a nice man and a safe pair of hands, diplomatically speaking.

At the moment, it is difficult to see him as the leader of a kingdom that regards itself as the head of the Islamic, Arab and energy worlds.  It is also challenging to identify any other immediate contender.  Yet this announcement guaranteed Muqrin a place in the talks between King Abdullah and President Obama -- an occasion that will solidify his appointment without dampening speculation on when and how the kingdom's next big transition will occur.

Simon Henderson is the Baker Fellow and director of the Gulf and Energy Policy Program at The Washington Institute. His publications include the 2009 Institute study "After King Abdullah: Succession in Saudi Arabia."  (TWI 27.03).

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 11.10  EGYPT:  The Fate of the Copts after the Arab Spring

Fikra Forum reported that in the wake of the so-called “Arab Spring,” the Copts and the Christians of the Middle East have lost the most.  For Christians, the revolutionary uprisings became a nightmare due to the emergence of Islamist forces hostile to democracy.

From the outset, the late Pope Shenouda III believed that the Egyptian 25 January 2011 revolution was an Islamist revolution, and for that reason, he cautioned the Copts against participating in the protests.  The civil Coptic forces did not listen to his call, however, and participated in the revolution nonetheless.  From 25 January 2011 until the fall of former President Hosni Mubarak on 18 February 2011, Tahrir Square was an example of national unity, but the situation changed immediately afterwards with the emergence of Islamist forces that had been hiding behind the democratic and revolutionary slogans.

In the difficult period after the Muslim Brotherhood (MB) gained control of the government, the Copts witnessed the reawakening of their history of persecution.  The former guide of the Muslim Brotherhood, Mohammad Mahdi Akef, declared in a public lecture that “There are no rights for the Copts except what was included in the Qur’an,” referring to the people of Dhimmah who paid the jiziyah tax (a tax paid by non-Muslims living in Muslim territory).  This was the system in place in Egypt from the time of the Islamic conquest in 642 CE until it was annulled by former Prime Minister Mohamad Said Basha in 1855.  Effectively, the Guide expressed that in his view, there are no rights to citizenship in a state governed by the MB.  Furthermore, Brotherhood leaders have declared more than once in remarks directed toward the Copts that if they do not wish to live in an Islamic state, they should leave Egypt.

Since the MB’s establishment in 1928, the group has sought to pressure Jews and Christians into leaving Egypt in order to establish an Islamic Caliphate.  They nearly succeeded in emptying Egypt of its Jewish population after a series of bombings that targeted Jewish companies and homes in 1948 and 1949.  With the MB’s ascendance to power in 2012, its leaders began to dream of displacing the Copts.  Approximately one hundred thousand Copts left Egypt during Morsi’s year in power, but that number is insignificant when compared to the size of the Coptic population, which is nearly 15 million people.  For this reason, the Copts participated extensively in the uprising against Morsi on 30 June 2013, as the country stood up against the advancement of a religious state.

It seems as though not a day goes by without a Copt being killed, a Coptic girl getting kidnapped, or property of Copts getting destroyed or stolen.  More than 500 Copts have been killed in separate incidents since the 25 January 2011 revolution, and nearly 500 Coptic girls have disappeared.  To this day, their families have no information about what happened to them.  In addition to this, more than 100 churches and Christian institutions have been burned down or destroyed in the same period, among them the 80 churches and Christian institutions that were destroyed on 14 August after the Brotherhood-led sit-in at the Rabaa al-Adawiya Mosque was broken up.  On that day, a sweeping attack on churches and Coptic homes took place at the hands of Brotherhood supporters, and numerous churches and Christian institutions were burned.  Among them was a 1,400-year-old monastery in Dalga in Minya Governorate and a church that was ten centuries old.

This series of attacks against Copts has reached a level of violence the likes of which has not been seen in Egypt since the year that Napoleon entered Egypt in 1798.  The following are just some of the many acts of violence: In March 2011, Salafis sentenced Ayman Anwar Mitri, a Copt, to having his ear cut off; On 8 March 2011, the army shot at Coptic protesters in Manshiyat Nasser in Muqatam with live ammunition, leading to the death of 11 Copts and dozens injured;  On 9 October 2011, the military attacked Copts protesting at Maspero and 27 Copts were crushed to death by armored personnel carriers; On 13 April 2013, Coptic man Saber Hilal was burned alive in al-Khasous in Cairo; On 28 March 2014, Copt Mary Sameh George was killed in Cairo after being stopped by some MB members who, after seeing a cross hanging in her car, attacked her car from all directions, pulled her out of her car and tortured her before shooting her.

Since the era of former President Anwar al-Sadat, the Egyptian state has participated in crimes committed against the Copts, both in its negligence and its complicity.  The absence of justice and impunity is the salient feature in all of the crimes committed against the Copts, and since the fall of the Brotherhood on 30 June 2013, the Egyptian state has pretended to protect the Copts from the Brotherhood, but the reality is that the policies followed during the Mubarak era are still in effect.

For three decades, the Copts lived under the persecution of the Mubarak era, in which they were subjected to more than 1,500 assaults, and the severity of attacks against them only increased after the fall of Mubarak.  During the Brotherhood’s rule, the attacks became more barbaric, and since the fall of the MB-led government, the Copts have been paying the toll of the conflict between the military and the Brotherhood.

What the Copts need, what all of the Christians in the Middle East need in this critical period, is special consideration and protection from the international community as persecuted religious minorities and indigenous groups who are nearing extinction in the Middle East.  For this reason, more than 300 Middle Eastern Christian activists will meet in Washington on 26 – 27 June under the auspices of the Coptic Solidarity Organization, in order to issue an international appeal for help in this ordeal that they collectively face in the land of their fathers and grandfathers.  Perhaps this international gathering will represent a starting point for an effective international movement to protect and preserve the existence of these religious minorities in the nations that they have inhabited for thousands of years.

Magdi Khalil is the director of the Middle East Freedom Forum.  (Fikra Forum 03.04)

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 11.11 TURKEY:  Fitch Affirms Turkey at 'BBB-'; Outlook Stable

On 4 April, Fitch Ratings (http://www.fitchratings.com) affirmed Turkey's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB-' and 'BBB', respectively.  The Outlooks are Stable.  The issue ratings on Turkey's senior, unsecured foreign and local currency bonds have also been affirmed at 'BBB-' and 'BBB', respectively.  The Country Ceiling has been affirmed at 'BBB' and the Short-term foreign currency IDR at 'F3'.

Key Rating Drivers

Turkey suffered a renewed bout of investor unease in December-January as global risk aversion, stoked by uncertainty about the future direction of US monetary policy, collided with heightened domestic political and social tensions.  These twin shocks put strong downward pressure on the Turkish lira, exposing finite limits to the Turkish authorities' ability to defend the currency while preserving international liquidity.

In the event, the Central Bank (CBRT) bowed to market pressure on 28 January, raising interest rates by 425bp-550bp, taking the main policy rate to 10%.  In taking this action, the CBRT reaffirmed Fitch's view that the authorities are prepared to adjust domestic policy settings to avert more disruptive shocks to economic stability.  Turkey's complex monetary policy framework has also been simplified to a degree, while forward guidance indicates that policy will remain tight pending more favorable inflation outcomes.  Consumer price inflation rose to 8.4% y-o-y in March from 7.9% in February.

Macroeconomic policy management has improved over time, deflecting the risk of an economic 'hard landing' reminiscent of 2001 or 2009.  However, the economy remains highly volatile and Fitch judges the coherence and predictability of macroeconomic policy to be weaker in Turkey than in some emerging market rating peers.

Economic rebalancing, set in place by a previous round of policy tightening in 2011-12, came to a halt in H2/13 and the current account deficit rebounded to 8% of GDP for the year as a whole, four-fifths of which was funded by volatile portfolio and short-term capital inflows.  By acknowledging the higher risk premium that investors have been demanding to hold Turkish financial assets, the authorities hope to reduce Turkey's vulnerability to short-term capital outflows and ease downward pressure on international reserves and the lira.

Fitch considers that macroeconomic outcomes to date have been reassuring. The lira has stabilized and international reserves rebounded in February, following a steep fall in January.  Domestically, industrial production and capacity utilization remain strong, underpinned by exports, whereas domestic lending growth has slowed, and there are signs of a moderation in consumer and investor confidence.  Overall, rebalancing is expected to produce slower growth and Fitch has cut its growth forecast to 2.5% from 3.2% for 2014 and to 3.2% from 3.8% for 2015.

Externally, Fitch acknowledges that Turkey remains a standout both within EMEA and the 'BBB' category on many key metrics.  We now expect current account adjustment to gather pace with the deficit shrinking to 6% of GDP in 2014 and 5% in 2015.  However, given its large gross external financing needs and its weak international liquidity position, we believe that a sharp, sustained downturn in capital inflows would have a material adverse impact on Turkey's economic and financial stability.

Balance of payments data confirms that on a 12-month rolling basis portfolio inflows have fallen from a peak of $49b in May 2013 to less than $20b in January 2014, while deposits have displayed a similar trend.  Nevertheless, Fitch does not believe that Turkey is facing a 'sudden stop' of capital.  Corporate and financial borrowers continue to enjoy roll-over rates of well over 100%, while sovereign debt issuance of $4b to date in 2014 has been oversubscribed.  However, net external debt as a percentage of GDP remains on an upward trajectory, while the non-bank private sector is heavily exposed to interest rate and exchange rate shocks.

Fitch believes that Turkey's resilience to external shocks should not be underestimated. Turkey successfully navigated the Lehman and Eurozone debt crises without a 'sudden stop' of capital.  Moreover, its upgrade to investment grade in November 2012 (BBB-/Stable) owed much to a demonstrable track record of fiscal consolidation since 2002 and a relatively strong banking system.  These rating attributes remain intact for the most part and serve as a strong bulwark against external weaknesses.

Central government fiscal outcomes were better than expected in 2013, thanks to strong revenue growth, and the general government deficit (GGD) is estimated to have remained virtually unchanged from 2012 at 1.6% of GDP.  Fitch expects a modest widening of GGD to 2%-3% of GDP in 2014-15.  However, Turkey's favorable public debt dynamics should remain intact with gross general government debt (GGGD) trending down gradually from 38.9% of GDP at end-2013.  Fiscal financing needs are manageable at around 10% of GDP, while the FX share of GGGD has come down from 60% to around 30%.

Turkey's ratings are supported by the banking system's investment grade ('a' or 'bbb') Fitch Banking System Indicator. The system is well-capitalized, profitable and boasts only modest non-performing loans of less than 3%.  Set against this has been rapid credit growth over a sustained period, implying that loan books are highly unseasoned.  This has elevated Turkey into the highest '3' category of Fitch's Macro-Prudential Indicator.  Nonetheless, Fitch notes that even at the height of the global financial crisis, NPLs did not rise above 5.4% in 2009, while consumer and commercial loan growth has started to trend down towards the CBRT's reference rate of 15% per annum.

Political risk remains a key unknown and one that Turkey has long scored poorly on.  The Gezi park protests in May 2013 have been superseded by a series of allegations against the AKP leadership, raising concerns about governance.  Even so, the AKP defied expectations in local elections on 30 March, capturing over 45% of the vote and bolstering Prime Minister Erdogan's hopes of standing as president.  Nonetheless, Fitch expects political noise to remain an enduring feature of Turkey ahead of presidential elections in August and parliamentary elections in June 2015, periodically clouding the economic outlook.

Rating Sensitivities

The Stable Outlook reflects the fact that in Fitch's view, upside and downside risks to the rating are balanced. The main factors that individually or collectively might lead to rating action are as follows:

Negative:

- A sharp, sustained downturn in capital inflows that has a material adverse impact on economic and financial stability.

- Heightened political volatility that precipitates unpredictable macroeconomic policy responses, decreased government effectiveness and/or a weaker business environment.

- Policy reversals that lead to resumption of rapid credit growth and widening current account deficits, accompanied by material increases in net external debt over the medium term.

Positive:

- A material and durable reduction in the current account deficit, coupled with a rebalancing of net capital inflows towards longer-term instruments and a sustained increase in international reserves.

- A track record of lower and more stable inflation.

- Structural reforms that raise gross domestic savings and attract greater foreign direct investment.

Key Assumptions:

Turkey's ratings are based on a number of key assumptions:

- Continued commitment to fiscal sustainability.

- US Federal Reserve 'tapering' proceeds in an orderly manner such that there is no 'sudden stop' of capital flows to countries like Turkey with large CADs and roll-over rates on external debt remain high.

- International oil prices evolve broadly in line with Fitch's projections of $105/bbl in 2014-15.  (Fitch 04.04)

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 11.12 TURKEY: Elections - Vote of Confidence or Game-Changer?

On 31 March 2014, Soner Cagaptay and James Jeffrey addressed a Policy Forum at The Washington Institute.  Cagaptay, the Institute's Beyer Family Fellow and Turkish Research Program director, is author of "The Rise of Turkey: The Twenty-First Century's First Muslim Power" (Potomac Books; http://washin.st/RiseofTurkey). Jeffrey is the Institute's Philip Solondz Distinguished Visiting Fellow and former U.S. ambassador to Turkey (2008-2010). The following is a rapporteur's summary of their remarks.

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On 30 March, Turks elected new mayors and city and provincial council members in countrywide local elections.  Overall, the incumbent Justice and Development Party (AKP) emerged strong, winning its sixth consecutive electoral victory since 2002.

A conventional analysis of the outcome would compare it with the 2009 local election results.  All four of Turkey's major parties -- the AKP, the Republican People's Party (CHP), the Nationalist Action Party (MHP), and the Peace and Democracy Party (BDP) -- increased their support this year, continuing the country's decade-long consolidation into a de facto four-party system.  According to the Turkish daily Hurriyet, the AKP boosted its tally from 38 to 43%, the CHP from 23 to 26%, the MHP from 16 to 18%, and the BDP from 6 to 7%.  The AKP remains the dominant party, but the two main opposition factions, CHP and MHP, collectively won just as many as votes, while the BDP solidified its base in half a dozen southeastern provinces, winning 60% or more of the vote there.

Although Turks voted for local candidates, party leaders ran nationwide campaigns.  Hence, the results can also be seen as a vote of confidence ahead of upcoming presidential and parliamentary elections.  Indeed, a different picture emerges when one compares the new results with the 2011 parliamentary vote: while the CHP and BDP's tallies have remained the same since that election, support for the AKP dropped from 50 to 43%, while the MHP increased it tally from 13 to 16%.  Apparently, some voters disappointed by the AKP's policies have switched to the MHP, another right-wing party.  This suggests that the left-right split in Turkish politics is very much alive, and that the CHP, a left-leaning party, cannot make significant gains from disenchanted AKP voters.

Erdogan's Winning Strategy

Much of the AKP's popularity can be attributed to Prime Minister Erdogan's ability to deliver phenomenal economic growth since 2002.  Turkey's attractiveness to foreign investors has helped fuel that engine, resulting in a 4.4% growth rate last year -- exceeding rates in Europe and bucking expectations that last summer's Gezi protests might dent the country's investment worthiness.  In exchange for this continued growth, Erdogan will no doubt be rewarded at the ballot box if he runs for president in August.

Ironically, Erdogan's image as an "authoritarian underdog" has further boosted his popularity among many Turks.  Thus far, he has managed to portray himself as a political victim who will crack down harshly on those who undermine his authority through "conspiracies."  Combined with an undeniable economic success story, this simultaneous narrative of "Erdogan the victim" and a demonized opposition has created a powerful cult of personality that would secure him a sizable share of the presidential vote.

Erdogan's Path Forward

If he runs this summer, Erdogan could become Turkey's first directly elected president; previously, all presidents were chosen by the legislature.  As discussed in the recent Washington Institute study "Turkey's 2014 Political Transition: From Erdogan to Erdogan?" (http://washin.st/1iJl0pL), he now has three paths forward.  The first is to become president while transforming Turkey's government into a presidential system.  The current parliamentary system grants only limited powers to the president.  For now, this path seems like a tall order -- or perhaps a long-term project -- since Erdogan does not have the votes in the legislature to usher in a presidential system.

The second option is to retain the status quo, remain the prime minister, and have another AKP member run for president.  This would require revising the AKP's internal charter, which says that elected party officials are barred from holding the same office for more than three terms -- Erdogan is already on his third term as prime minister heading into next year's parliamentary elections.  If current president Abdullah Gul runs again, this summer's race could be less polarizing, since he has an appeal that reaches beyond party lines.  Still, this is the least attractive option for Erdogan, who seems eager to take the seat once filled by founding father Mustafa Kemal Ataturk and to do so through a popular vote.

The third and most likely scenario is that Erdogan will run for president under the existing system.  In that case, his current post would be taken by a caretaker prime minister, similar to the Russian model between Vladimir Putin and Dmitry Medvedev.

To become president, Erdogan would need to win at least 50% of the vote, and reaching that high water mark would require major Kurdish support.  Erdogan has been an outlier in the region for his record of good relations with the Kurds.  Although this past record may not be enough to win over the entire Kurdish voting bloc, Erdogan has a trump card: as part of Turkey's ongoing reform effort to devolve more administrative powers to the provinces, he can offer limited autonomy to Kurdish areas in exchange for their votes in August.

Turkish Foreign Policy Until The August Election

Erdogan seems intent on not letting anything impede his presidential aspirations, so Ankara's foreign policy will likely be subservient to his political agenda in the coming months.

Regarding bilateral ties with Israel, Turkey remains interested in normalizing the relationship, especially on energy issues.  Turkey's energy import needs and Israel's energy export needs should bring the two together.  Turkey must diversify its energy sources if it wants to become less beholden to Russia and Iran, and Israeli natural gas can help.  In return, Turkey can provide Israel with the closest viable market that has a substantive energy demand.  Normalization will thus move forward as long as the issue does not become politicized within Turkey.

Regarding Cyprus unification, Turkey's thirst for natural gas will also soften its policy toward Greek Cypriots, who have discovered offshore gas fields of their own but need to work with Israel to export it.  This makes unification of the island a less remote possibility, though it remains farfetched for the near future.

Future Prospects

The fact that Erdogan is not a dictator but a democratically elected leader shows that democratic values are rooted in Turkey's political culture.  Yet his political success indicates that the country's authoritarian tilt will persist, further polarizing Turks.  The liberal movement that has been building up since the Gezi rallies will continue to challenge Erdogan, with his authoritarianism generating further backlash from opponents.  Their frustration at continued electoral defeats could also lead to more civil unrest.  This would in turn feed into Erdogan's underdog rhetoric, boosting or at the least maintaining his popularity.

Even so, Erdogan will require continued economic growth to secure enough votes for the presidency.  To maintain such growth, Turkey needs to remain open for business, which means being a country of law, where social media is not banned, courts are independent, and the media is free.  Such openness would help secure more capital from investors and added value and knowhow from the creative classes, which in turn could transform Turkey from a middle-income society into an advanced economy.  This would not only help Erdogan, but also make Turkey a great power in the region. In contrast, if civil liberties are not guaranteed, the courts and media lose their independence, and rule of law is violated, Erdogan's own political strategy will jeopardize his vision for Turkey's future.  (TWI 03.04)

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