Fortnightly - February 13, 2013


EDI Fortnightly Report





1.1  Finance Minister Steinitz Halves Dairy Price Hike
1.2  Environment Ministry Opposes Red-Dead Sea Link
1.3  19th Knesset Inaugurated
1.4  Regional Committee Approves Tel Aviv-Eilat Railway Route


2.1  Spacecom and SpaceX Announce Agreement for AMOS-6 Satellite Launch 
2.2  Scodix Raises $14 Million 
2.3  Corephotonics Raises $5.2 Million 
2.4  EarlySense Signs Welch Allyn US Distribution Deal 
2.5  GE Closes Herzliya R&D Center 
2.6  Israel's OurCrowd Completes $12 Million in Funding 
2.7  NCR Completes Acquisition of Retalix 


3.1  US Exports to Arab World Near $66 Billion in 2012
3.2  Steak Escape Fast Food Brand Eyes UAE Expansion
3.3  Methodist International Partnership for Medical City in Jeddah 


4.1  Israel Cleantech Ventures Announces Close of Its Second Fund
4.2  Saudi Arabia Completes its Biggest Solar Power Plant
4.3  Cyprus Allocates 23 Licenses for Photovoltaic Parks


5.1  Iraq Approves Baghdad Free Zone

♦♦Arabian Gulf

5.2  Report Says Kuwait Growth to Slow 
5.3  Qatar to Invest Up To €1 Billion in Greece 
5.4  UAE to Slash Price of Medicine 
5.5  Saudi Economy May Treble By 2050
5.6  Saudi Arabia Leads Major Weapons Markets in Corruption Ranking

♦♦North Africa

5.7  Egypt's Annual Urban Headline Inflation Jumps To 6.32%
5.8  Egyptian Tourism Sector Ravaged by Political Unrest
5.9  Suez Canal Fees Raised in 2013 to Generate More Revenues
5.10  Egypt to Cut Energy Subsidy Bill by 50% Over Five Years
5.11  IMF Demands Reform in Libya
5.12  IMF Says Morocco Continues To Qualify For Credit Line
5.13  Morocco Gets First Slice Of $2.5 Billion in Arabian Gulf Aid


6.1  Turkey Posts January Inflation Above Expectations
6.2  Turkey's Exports Continue to Surge
6.3  Cyprus Earns €100 Million from Total for Natgas Blocks 10 & 11 
6.4  Athens Says It Met Fiscal Targets 
6.5  Rise of Euro Threatens To Stem Greek Export Growth 



7.1  Israel & World Jewry Celebrate Purim Holiday
7.2  Last Decade Saw 60% Rise in Number of Single New Moms in Israel 
7.3  Knesset Members Live the Good Life 


7.4  Saudi King Moves His Son One Step Closer to Throne 


8.1  Medgenics First Hepatitis Clinical Trial to Use INFRADURE Tissue Treatment
8.2  Alpha Szenszor & Technion JV in Lung Cancer Diagnostics
8.3  First Patient Begins Treatment in BrainStorm's Phase IIa Trial for ALS
8.4  Yissum Introduces New Chickpea Varieties with High Nutritional Values
8.5  Gamida Cell's StemEx Achieves Primary Endpoint in Clinical Study


9.1  Saguna & FibroLAN Deliver OTT Content to the Mobile Backhaul
9.2  BluePhoenix Announces Service Upgrades and New Delivery Platform
9.3  Rounds Retires “Meet New People” & Focuses on Meaningful Conversations
9.4  Tekelec & Allot Complete Interoperability Testing to Expand Policy Control
9.5  MoMinis Rebrands as Playscape Based On Successful Gaming Ecosystem
9.6  TraceSpan's DOCSIS Xpert Supports 8x4 Channel Bonding
9.7  Cloudyn Introduces the First Ever PaaS and IaaS Sizing and Relocation Tools
9.8  Vasona Networks Introduces SmartAIR1000


10.1  Israel's Economic Performance Up 0.1% in December
10.2  Israel's High-Tech Exports Drop 
10.3  Israel's Unemployment Rose to 7% in 2012 
10.4  Israel's New Home Sales Up 11% in 2012 


11.1  ISRAEL: Most Active Venture Capital Funds in Israel - 2012
11.2  ISRAEL: Future of the Israeli Defense Industry
11.3  LEBANON: Lean Agriculture Pickings
11.4  JORDAN: King Abdullah is this Round's Winner
11.5  JORDAN: Tight Times for Retail
11.6  IRAQ: Ports Record Highest-Ever Returns
11.7  GCC: Value of Completed GCC Construction Projects up 48%
11.8  GCC: Value of Completed GCC Construction Projects up 48%
11.9  GCC: Value of Completed GCC Construction Projects up 48%
11.10  GCC: Value of Completed GCC Construction Projects up 48% 
11.11  UAE: Sharjah - Expanding Health Care
11.12  OMAN: Set to Limit Number of Foreign Workers
11.13  SAUDI ARABIA: Who Will Be The Next King Of Saudi Arabia?
11.14  SAUDI ARABIA: Will the Saudi Model Prevail?
11.15  EGYPT: Hard Economic Choices
11.16  EGYPT: Investing in Egypt Amid a Second Revolution
11.17  TUNISIA: Assassination a Setback to Tunisia Transition
11.18  ALGERIA: Needing More Than Hydrocarbon Law Amendments
11.19  GREECE: Cuts and Debt Relief Push Greece to Hit Fiscal Targets


1.1  Finance Minister Steinitz Halves Dairy Price Hike

Minister of Finance Yuval Steinitz has almost halved the price hike of dairy products to 3.5%, against the recommendation of the Price Control Committee, which recommended an average price hike on price-controlled dairy products of 6.3%.  Steinitz said, "In view of the fact that we are talking about a sharp price hike for a basic product, I find it proper to moderate the committee's recommendation by means of a proportionate spread of the price hike recommended by the committee, until the completion of more studies on the subject, which I have asked for."  The Price Control Committee is also examining the profit margins of dairies on price-controlled products.  The examination of the basis for prices is still in the early stage and the findings may affect how the base price is calculated.  (Globes 12.02)

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1.2  Environment Ministry Opposes Red-Dead Sea Link

Israel's Ministry of Environmental Protection strenuously opposes the plan to build a pipeline between the Red Sea and Dead Sea which the World Bank is promoting.  On 12 February, the ministry presented its position on the project ahead of next week's hearing.  The ministry warns that the flow of water from the Red Sea to Dead Sea is liable to cause algae and bacterial blooms, which will color the Dead Sea red, fill it with calcium sulfate, causing a stench from sulfur hydroxide emissions.  The leaks from the pipeline are also liable to contaminate ground water in the Jordanian part of the Arava.

The plan promoted by the World Bank calls for a protected underground pipeline comprising several internal pipelines laid in Jordanian territory from the Red Sea to the Dead Sea.  The plan also calls for the construction of a hydroelectric plant and seawater desalination facilities.  The latest report by World Bank experts says that the $10 billion project is financially worthwhile.  The World Bank believes that the project will solve Jordan's drinking water shortage and the problem of the falling water level in the Dead Sea's northern basin by creating a permanent flow of water into it.  The Dead Sea's water level is falling because of overuse of the Jordan River's water and the evaporation pools in the southern basin for the production of potash and other minerals by Israel Chemicals and Jordan's Arab Potash Company.

The Ministry of Environmental Protection said that a study by the Geological Survey of Israel found that if the flow of seawater into the Dead Sea exceeds 350 million cubic meters a year, it is liable to destroy the Dead Sea and its tourism industry.  Ministry of Environmental Protection experts believe that the salinization should be tested by means of a limited pipeline to a controlled site, south of the Dead Sea's northern basin, in order to accurately test the environmental effects of the measure.  (Globes 12.02)

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1.3  19th Knesset Inaugurated

The 19th Knesset convened on 5 February, two weeks after the elections, with the MKs swearing allegiance.  The 120-seat Knesset has 48 new members.  President Shimon Peres opened the 19th Knesset's first plenum session.  The new Knesset has a record 27 women MKs.  (Globes 05.02)

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1.4  Regional Committee Approves Tel Aviv-Eilat Railway Route

The southern regional committee has approved the route for the Tel-Aviv railway line.  The route of the 350 kilometer line was first approved a year ago by the cabinet.  The journey time will be just two hours.  The new railway line is part of a plan to make Eilat into a metropolitan area with a population of 150,000 through business, commercial and real estate development.  The plan includes an investment of $3.5 billion by the private sector to set up an international transport, logistics and trade center.  As part of the plan a new international airport will be built at Timna, a deep sea port and canal dug inland near the Jordanian border north of the city, and the aforementioned railway link by extending the line south of Nahal Zin with stations at the new port and airport.  (Globes 11.02)

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2.1  Spacecom and SpaceX Announce Agreement for AMOS-6 Satellite Launch

Hawthorne, California’s Space Exploration Technologies (SpaceX) and Space Communication (Spacecom) announced an agreement to launch Spacecom’s AMOS-6 satellite on SpaceX’s Falcon 9 launch vehicle.  Falcon 9 will insert the communications satellite into a geosynchronous transfer orbit (GTO), further enhancing Spacecom’s existing satellite fleet.  The AMOS-6 agreement is the latest in a series of wins for SpaceX.  The AMOS-6 satellite, to be built by Israel Aerospace Industries (IAI), will provide communication services including direct satellite home internet for Africa, the Middle East, and Europe.  AMOS-6 will replace AMOS-2, which is expected to end its service in 2016.  The AMOS-6 mission is targeting a 2015 launch from Cape Canaveral, FL.

Spacecom (, operator of the AMOS-2 and AMOS-3 satellites, provides high-quality broadcast and communication services to Europe, the Middle East, the U.S. East Coast and Africa via direct-to-home (DTH) and direct broadcast satellite (DBS) operators, internet service providers (ISPs), telecom operators, network integrators and government agencies.  The company’s planned launches of AMOS-4 in 2013 with coverage over Russia and South Asia, and AMOS-6 in 2015 with coverage over Europe and the Middle East, will further enhance its position as a multi-regional satellite operator.  SpaceX designs, manufactures, and launches the world's most advanced rockets and spacecraft.  SpaceX is advancing the boundaries of space technology through its Falcon launch vehicles and Dragon spacecraft.  (SpaceX 30.01)

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2.2  Scodix Raises $14 Million

Scodix has raised $14 million.  The financing round was led by Lightspeed Ventures, which was joined by previous investors Sequoia Capital and Israel Cleantech Ventures Funds.  The company has raised $30 million to date including the latest financing round.  Rosh HaAyin’s Scodix ( is a leading provider of digital print enhancement presses for the Graphic Arts industry, offering the breakthrough Scodix SENSE experience that delivers effective differentiation to print service providers, customers and products.  The company’s digital solutions have unmatched, high-quality enhancement capabilities that make the graphic communications printed product stand out from the rest and leave a lasting impression.  (Scodix 31.01)

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2.3  Corephotonics Raises $5.2 Million

Corephotonics announced the completion of its first round of financing.  The company has raised $5.2 million from Magma Venture Partners, BetaAngels, a European investment company led by VC practitioner Roberto Saint-Malo and others.  Corephotonics says that its technology will result in a performance leap in camera-phone photography, by achieving the photographic and video capabilities of digital stills cameras, while maintaining the space and cost restrictions of smartphones.  Tel Aviv’s Corephotonics' ( mission is to improve camera phone photography.  The company develops technologies that will transcend some of the most challenging handicaps of camera phones.  Corephotonics’ founding team has pioneered computational photography in commercial devices and has been active in the mobile phone market for several years.  Corephotonics strives to continuously innovate - effective innovation that is liked by consumers because it solves a real problem and by manufacturers because it is easy to manufacture and integrate.  (Corephotonics 31.01)

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2.4  EarlySense Signs Welch Allyn US Distribution Deal

EarlySense has signed a strategic cooperation agreement with Welch Allyn to distribute EarlySense's Proactive Patient Care Solutions to hospitals in the US.  EarlySense estimates the market potential at $4-5 billion.  The EarlySense system enables doctors to identify early warning signs of patient safety risk and deterioration, improving patient care and avoiding adverse events.  The contactless system, placed under the mattress, measures a patient's heart rate, respiration rate, movement in bed, and bed entries and exits.  In the event of a change in a patient's status, the system immediately and simultaneously provides alerts to the clinical staff via the bedside monitor, the central nursing station, hallway displays, and directly to their pagers or in-house telephones.  Ramat Gan’s EarlySense ( is bringing to market an innovative technology designed to advance proactive and preventive patient supervision to enable better patient outcomes.  The company's flagship product, EverOn, is an automatic, continuous, contact-free patient supervision device that follows and documents a patient's vital signs and movement.  There are no leads or cuffs to connect to the patient, who has complete freedom of movement and is not burdened by any irritating attachments.  (Welch Allyn 30.01)

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2.5  GE Closes Herzliya R&D Center

General Electric's medical imaging and health division, GE Healthcare, announced it was closing the division's research and development center in Herzliya.  Following the current dismissals, the number of employees fired since December will total more than 80 out of some 460 workers in Israel.  GE's R&D center in Herzliya develops medical information systems and is called HCIT.  It was founded in the RealTimeImage company, was acquired by American medical equipment systems giant IDX for $15 million in 2005, and was integrated into GE when the latter purchased IDX a year later.  The Herzliya center is responsible for the development of a cardiac simulator, as well as for streaming technology which enables fast and safe access from any remote place to clinical images shot in the hospital.  (Calcalist 07.02)

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2.6  Israel’s OurCrowd Completes $12 Million in Funding

Jerusalem’s OurCrowd has closed $5.5m in Series A funding and successfully closed 12 company funding rounds from accredited investors in its first quarter of operation with an average deal size of $500,000.  Total capital raised for companies and the platform now totals over $12m.  OurCrowd ( is a new and innovative way to invest in Israeli startups.  As an equity Crowdfunding platform, OurCrowd identifies companies seeking early stage investment and brings these opportunities to its membership who choose which deals they participate in via OurCrowd-managed partnerships.  OurCrowd co-invests in all of these deals, and manages the ongoing investments in the companies, including Board participation.  Membership in OurCrowd is limited to only those meeting stringent accreditation requirements.  Further, deals being funded are kept confidential and are not disclosed to the general public until complete.  Therefore, Our Crowd is compliant with today’s regulatory environment.  The first deals completed on the site so far include:

  • - The Leading Organic E-Commerce Site, co-investment with Accel Partners, Index and Carmel Ventures.
  • Sherpa - The new internet information venture from Bob Rosenschein, founder and CEO of (sold to Summit Partner's AFCV Holdings for $127 million), co-investment with Cedar.
  • TradeOS - The new freight forwarding automation venture from Zvi Schreiber, the founder and CEO of (sold to Vertical Net for $450 million).
  • Parko - launching a unique social parking solution and recently won the Israel Mobile Challenge Competition sponsored by Google.
  • Fireblade - leading company for protecting websites from malicious bots and scraping, co-investment with Jeffrey Citron’s (founder of Vonage) KEC Holdings.

Consumer Physics - building a pocket spectrometer for smart phones, enabling a variety of consumer apps, co-investment with Khosla Ventures.  (OurCrowd 05.02)

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2.7  NCR Completes Acquisition of Retalix

Duluth, Georgia’s NCR Corporation completed its acquisition of Ra’anana’s Retalix, a leading global provider of innovative retail software and services.  In the transaction, NCR is paying a cash purchase price of $30.00 per Retalix share, implying a transaction value of approximately $650 million, excluding transaction related fees.  With the completion of the transaction, Retalix became a wholly owned subsidiary of NCR, and its common stock ceased to trade on the NASDAQ Global Select Market and Tel Aviv Stock Exchange and will be delisted.  J.P. Morgan acted as exclusive financial advisor and Morrison & Foerster and Amit, Pollak, Matalon & Co. provided legal advice to NCR.  Jefferies & Co., Inc. acted as financial advisor and Meitar Liquornik Geva & Leshem Brandwein provided legal advice to Retalix.  (NCR 06.02)

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3.1  US Exports to Arab World Near $66 Billion in 2012

US exports to the Arab World rose more than 17% to nearly $66b in 2012, according to latest figures.  New data released by the National US-Arab Chamber of Commerce (NUSACC) showed that exports to 22 Arab nations increased from $56.18b in 2011 to $65.91b last year, its highest for a single year.  By comparison, total US merchandise exports to the world increased by only 4.5%, from $1.48trn in 2011 to $1.55trn in 2012.  Economic drivers in the Middle East and North Africa region - energy, infrastructure development (including railways), defense sales, consumer demand, and a growing commitment to knowledge transfer - are leading to unprecedented sales for US companies.  The findings are consistent with the Chamber's research that forecasts US exports of goods and services to the Arab world growing to $167b by 2015.

The largest category of goods exported was transportation equipment, constituting $26.04b of total US goods shipped to the Arab world.  Importing countries were led by Gulf Cooperation Council (GCC) nations, particularly the UAE and Saudi Arabia, which together accounted for more than half of all US merchandise exports to the Arab world.

Egypt retained its position as the third largest Arab market for US goods, while Qatar and Kuwait filled out the top five importing nations.  In 2012, the UAE was the top US export partner in the Arab world, importing $22.57b in goods from the United States, a 41.9% increase over 2011.  Saudi Arabia was the second largest market, importing $18.12b in 2012, a 31% increase.  The data showed that Texas was the top state for Arab exports ($10.56b, up 4%), followed by Washington ($8.03b, up 48.3%) and California ($5.26b, up 32.6%).  (AB 09.02)

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3.2  Steak Escape Fast Food Brand Eyes UAE Expansion

Steak Escape, the US-based fast food chain, is set to expand its presence in the UAE.  HMS Steak Limited plans to open 10 new Steak Escape outlets across Dubai and Abu Dhabi over the next three years.  The food brand launched its Dubai operations last year but sees growth across the UAE, it said in a statement.  Serving the Philadelphia style 'Philly' Cheesesteak sandwiches, Steak Escape serves 100% halal meat and vegetarian options.  HMS Steak Limited has signed a master franchise agreement with Escape Enterprises to bring Steak Escape to the UAE and Iraq.  This agreement allows for a combination of corporate and franchise owned stores supporting each other within an extended network.  Founded in 1982, Steak Escape now has more than 80 restaurants in the US and Mexico.  With outlets already in Saudi Arabia and the UAE, the brand will soon be launching operations in Iraq.  (AB 08.02)

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3.3  Methodist International Partnership for Medical City in Jeddah

Methodist International, the global subsidiary of The Methodist Hospital in Houston, Texas, United States of America, has entered into an agreement to provide services for the development and operations of a new Medical City, providing the full continuum of care as part of the Prince Sultan Cultural Center in Jeddah, Kingdom of Saudi Arabia.  The Prince Sultan Cultural Center Company (PSCC) is planning to develop a fully integrated Medical City as part of a larger cultural park in Jeddah, Saudi Arabia.  The cultural park is intended to provide services to 3.5 to 5 million inhabitants in Makkah Province, including housing developments, a commercial complex with showrooms and hotels, medical university, a sports center, an international conference and exhibition center, and various public utility services.  The Medical City will offer all medical services through the continuum of care at every stage of life, from birth to old age, and from wellbeing to critical care.  The complex will include a general hospital, several specialized hospitals and medical centers, wellness and long term care facilities and a school of health sciences.  This will be complemented by a range of support services such as clinics, pharmacies and hospitality and office space.

Methodist International has entered into a long-term relationship with PSCC focusing on quality, training, program management, compliance standards and knowledge transfer. A clinical and administrative team of consultants from Methodist will focus on the development and establishment of exceptional clinical, operational and quality standards for the Medical City.  (MI 04.02)

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4.1  Israel Cleantech Ventures Announces Close of Its Second Fund

Israel Cleantech Ventures (ICV) announced the final closing of its second fund with just above $74 million in commitments.  Having raised its debut fund in 2007, ICV now has approximately $150 million under management.  ICV’s second fund has attracted an impressive list of new limited partners, including institutional investors, multi-national corporations and family offices.  Many of its existing LPs also re-upped from the previous fund.

The firm will continue its strategy of investing in Israeli based or Israel related high growth, clean technology, early and growth stage companies.  To date, it has invested in 15 companies and seeks opportunities across diverse cleantech sectors including clean materials, wastewater treatment, alternative energy generation, energy storage & efficiency, green building, smart grid, process efficiency technologies and sustainable agriculture.

Established in 2006, Israel Cleantech Ventures (ICV - is the leading venture capital firm dedicated to providing value added growth capital to exceptional entrepreneurs building Israel's energy, water and environmental technology leaders.  ICV currently manages $150M in two funds, has completed 15 investments and seeks opportunities across diverse cleantech sectors, including clean materials, wastewater treatment, alternative energy generation, energy storage & efficiency, green building, smart grid, process efficiency technologies, sustainable agriculture and in technologies that enable existing industries to work in a more efficient and environmentally friendly manner.  (ICV 30.01)

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4.2  Saudi Arabia Completes its Biggest Solar Power Plant

Saudi Arabia completed its biggest ground-mounted photovoltaic plant as the world’s largest crude oil exporter seeks to generate a third of its electricity with energy from the sun by 2032.  Germany’s Phoenix Solar developed the 3.5 MW plant in Riyadh that uses 12,684 panels from China’s Suntech Power Holdings Co. (STP) and inverters from SMA Solar Technology.  Saudi Arabia plans to boost renewable energy use as a way to pare back on oil consumption used for domestic desalinization and power plants, potentially saving 523,000 barrels of oil equivalent a day over the next 20 years.  The country aims to have 41,000 MW of solar capacity within two decades.  (BI-ME 31.01)

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4.3  Cyprus Allocates 23 Licenses for Photovoltaic Parks

The Energy Service of the Cypriot Ministry of Commerce, Industry & Tourism selected, through an electronic bidding process, 23 firms to construct photovoltaic parks for electricity production with a total capacity of 50 MW.  Minister of Commerce Sylikiotis said that following the conclusion of the four electronic sessions, the cost of electricity production from these parks will be cheaper by 43,76% compared with the price of electricity produced by fossil fuel.  Sylikiotis explained that the photovoltaic parks will be completed with the lowest cost for the citizens, as the price of electricity production declined to 8.66 cent per Kilowatt-hour (KWh) compared with the 15.40 which is the price of electricity production from conventional (fossil) fuel.  The process attracted strong interest as 121 applicants submitted a total of 2,150 bids.  Fifteen firms were selected to construct photovoltaic parks with a production up to 1.5 MW, five for parks up to 3 MW, two firms for photovoltaic parks up to 5 MW and one firm to construct a photovoltaic park with a capacity up to 10 MW.  The annual electricity production from these parks is estimated at 80 Gigawatt-hours (GWh).  (FM 31.01)

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5.1  Iraq Approves Baghdad Free Zone

Baghdad has had a new free zone approved after Iraq’s General Authority for Free Zones signed an agreement with the City Centre for Vehicles Services Co.  The capital’s latest free zone is 6,563 square meters and is part of a government initiative to promote the local economy and reduce unemployment, as well as diversifying state revenues.  The move to establish a new free zone comes at a difficult time for Baghdad, following a series of deadly explosions which have taken the lives of several people.  Despite the volatile environment, Iraq has remained active in several markets, including the oil industry in which deals have recently been signed with the UAE and Kuwait.  Iraqi energy officials signed an oil exploration agreement with Kuwait Energy and Dragon Oil of the UAE to explore a 900 square kilometer block in the south of the country.  Further, Qatar Airways recently launched a third route to Iraq in a bid to help the country get back on its feet, flying to central city Najaf.  (AB 29.01)

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♦♦Arabian Gulf

5.2  Report Says Kuwait Growth to Slow

Oil-driven economic growth in the Gulf state of Kuwait is forecast to slow down this year and in 2014 as crude output is expected to remain flat, the National Bank of Kuwait said.  After the GDP grew by a healthy 6.1% in real terms last year, thanks to continued strong oil income, it is forecast to drop to 3.2% in 2013 and to 2.5% in 2014.  Following a massive contraction of around 8.0% in 2009 due to the impact of the global financial crisis, Kuwait's economy gradually rebounded to grow by around 8.0% in 2011 as oil output and price remained high.  Oil income in the OPEC member contributes an average of 95% to public revenues.  Kuwait ended the past 13 fiscal years in the black and is forecast to post a huge budget surplus in the current fiscal year which ends on March 31.  Oil GDP, which grew by 15% and 10% in 2011 and 2012 respectively, is expected to remain flat this year and contract by around 1.5% in 2014.  But the bank revised upward expected non-oil GDP growth from 4.0%-5.0% this year based on signs of greater determination by the authorities to implement large infrastructure projects.

Most projects under an $110b, 4 year development plan, which runs until 2014, have been stalled because of a political crisis in the emirate.  The opposition has staged protests to demand the dissolution of parliament elected last month on the basis of an electoral law that was amended by the emir, claiming that the change is illegal and aimed at electing a rubber stamp body.  But over the past few months, authorities either signed or gave the green light for mega projects worth around $40 billion, mostly in the oil and power sectors. 

Inflation this year and next is expected to remain moderate at between 3-4%.  Kuwait says it sits on around 10% of global oil reserves and pumps around 3.0 million barrels per day.  It is estimated to have $400 billion in foreign assets run by the sovereign wealth fund.  The emirate has a native population of 1.2 million in addition to 2.6 million foreigners, mostly Asians and Arabs.  (BI-ME 03.02)

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5.3  Qatar to Invest Up To €1 Billion in Greece

Qatar has announced it will invest up to €1b ($1.34 billion) in a joint fund with Athens to bolster recession-hit Greek industry.  Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani revealed his country's investment plan in Greece following talks with his Greek counterpart Antonis Samaras.  He said Qatar's investment could equal a similar investment by Greece in the joint fund, along the lines of an existing deal with Italy.  Qatar wants to match their joint fund agreement signed with Italy few months back, which set up a fund with a 50:50 shared capital of €2b ($2.69 billion).  The Greek fund, part of cooperation agreements signed in Doha, would invest in Greek small and medium-sized businesses.  Recession-mired Greece has long sought to entice Qatari investment in real estate development to jumpstart its flagging construction industry, traditionally one of the main engines of its economy.  Under Qatar's deal with Italy, the Gulf state will invest in several sectors including fashion, food, tourism and design.  (BI-ME 30.01)

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5.4  UAE to Slash Price of Medicine

On 3 February, the United Arab Emirates adopted regulations that will help cut prices of more than 6,600 types of imported medicines by up to 40%.  The cabinet instructed the Health Ministry to issue a new price list for the medicines and gave pharmacies three months to adjust their prices.  The new system will cut prices of 6,619 types of medicines.  The new system will also unify medicine prices with other states in the six-member Gulf Cooperation Council and provide alternative drugs for every type of medicine, including those prescribed for chronic diseases and other types of illnesses.

Healthcare businesses in the Gulf region are expected to boom in coming years as rising wealth couples with an increase in so-called lifestyle diseases - five of the six Gulf nations are in the global top 10 for prevalence of diabetes, according to the International Diabetes Federation.  Some 827,000 people between the ages of 20 and 79 have diabetes in the UAE, according to the Ministry of Health.  Treatment of diabetes accounts for about 40% of the UAE's overall healthcare expenditure.  The move is unlikely to have much impact on inflation in the UAE, the second-largest Arab economy, as health accounts for just over 1% of the overall index.  (AB 03.02)

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5.5  Saudi Economy May Treble By 2050

Saudi Arabia’s economy may treble in size to $3 trillion by 2050, making it the 18th largest economy in the world, according to analyst PricewaterhouseCoopers.  The oil-rich gulf state will grow by 230% to $1582b by 2030 before doubling in the following 20 years.  Saudi Arabia had the 20th largest economy in 2011 but PwC expects the country to record an average annual growth of 4% over the next 37 years, making it the seventh fastest growing market worldwide.  Other Middle East economies, including Egypt and Iran, were not included in the top 20 forecast despite oil and gas creating flows of cash in numerous areas.

Saudi’s growth prospects are limited by its investment, which as a percentage of GDP is expected to be an average of 11% per year until 2025, significantly lower than other economies such as Indonesia (28%), France (24%), Germany (22%), Russia (20%), Brazil (19%) and the UK (17%).  However, the PwC report contradicts other forecasts.

In 2011, prior to the Arab Spring, HSBC said Egypt would surpass Saudi Arabia and emerge as the world's 19th largest economy by 2050.  It estimated Egypt's economy would reach $117b, outstripping Saudi Arabia's $113b.  A Citibank report also published in 2011 predicted Saudi's economy to expand more rapidly and become the sixth largest in the world by 2050.  By all accounts, in 2050, China, the US and India are likely to be by far the three largest economies in the world.  PwC says China will expand to $ 53,856b, while the US economy will increase to $37,998b and India will leap from $4531b in 2011 to $34,704b in 2050.  (AB 05.02)

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5.6  Saudi Arabia Leads Major Weapons Markets in Corruption Ranking

Saudi Arabia is among the biggest arms-importing countries that have insufficient safeguards against corruption in the defense industry, Transparency International (TI) said.  Seven of the 9 countries that imported more than $1.5 billion of weapons in 2011 ranked between high and very high for corruption risk as TI unveiled a ranking of 82 countries.  Morocco, Pakistan, Turkey and China were among the largest markets with the lowest grades.

Saudi Arabia signed a $29.4 billion agreement with the U.S. in 2011 to buy 84 new F-15 fighter jets and modernize 70 existing ones.  A unit of European Aeronautic, Defense & Space Co. (EAD) is currently being investigated by the U.K. Serious Fraud Office over bribery allegations in the country.  The report highlights the risk that companies from Lockheed Martin Corp. (LMT), the world’s largest arms maker, to EADS face as they seek growth markets.  Cuts in U.S. and European defense spending have driven weapons makers to pursue contracts in the Middle East, Asia and other markets to compensate for lost revenue at home.  Transparency International said that 70% of the countries fell into the bottom three bands for the risk of corruption, which costs the defense industry at least $20 billion a year.  (BI-ME 29.01)

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♦♦North Africa

5.7  Egypt’s Annual Urban Headline Inflation Jumps To 6.32%

Egypt’s annual urban headline inflation jumped to 6.32% y-o-y and 1.8% m-o-m in January 2013 from 4.66% y-o-y and 0.10% m-o-m in December 2012, data by CAPMAS showed.  Official inflation figures have been falling over the past couple of months despite anecdotal evidence showing otherwise, with a slight pick-up witnessed in December 2012.  The depreciation of the domestic currency during January 2013 has played an important role in driving inflation upwards.  The EGP depreciated 5.45% against the dollar in January 2013, causing the value of imports to increase, and hence inflation to pick up.  The impact of the depreciation has actually led the imported components of the CPI to witness accelerated inflation in January 2013.  Food prices, shelter, and furniture and equipment have all risen on monthly and annual bases in January 2013.  Shortages in butane gas have also led to housing prices going up.  The hoarding effect has also led inflation to go up, caused by a pick-up in inflationary expectations.  (CAPMAS 10.02)

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5.8  Egyptian Tourism Sector Ravaged by Political Unrest

The tourism sector has been hit hard by the current wave of violence across Egypt, with hotel occupancy rates hitting a record low and tourists fleeing the country.  The recent wave of anti-Brotherhood protests that began on the second anniversary of Egypt's revolution has had a detrimental effect on tourism.  Downtown Cairo, famous for its upscale Nile view hotels, has been the worst affected.  The Intercontinental Semiramis and Shepheard hotels on one side of Tahrir Square, and the Hilton Ramsis overlooking Abdel-Moneim Riad Square, were asked to seal and barricade their entrances and halt all unnecessary hotel operations, such as opening restaurants to the public.  As security circumstances deteriorated, dozens of guests have checked out.

The Red Sea and other tourist areas, such as the historic centers of Luxor and Aswan, have also been affected by the political impasse, despite being far from any violence.  Luxor and Aswan, considered major touristic hubs, have seen signs of recovery since the January 2011 popular uprising, but the current political impasse brought the cities back to square one.

The Ministry of Tourism says the fall in the tourism, which accounts for 11% of the Egyptian economy, since the revolution, has worsened the country’s public debt levels and is a main cause of the foreign currency crisis and the fall in reserves.  Estimates say occupancy rates have reached a record-low rate of 15% in Cairo, 50% on the Red Sea coast and less than 5% in Luxor and Aswan; the worst since the 2011 popular uprising.  (Ahram 29.01)

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5.9  Suez Canal Fees Raised in 2013 to Generate More Revenues

Egypt's Suez Canal Authority (SCA) announced that it would raise toll fees for all vessels passing through the strategic waterway between 2% and 5% starting 1 May.  A 5% fee hike will be imposed on oil tankers and vessels transporting petrochemicals, while container and car carrier toll fees will increase by 2%, with a 3% increase on all other vessels.  The SCA stated that this year's decision to raise fees has been taken based on recent studies on the prospects for global economic and trade growth.  In 2012, transit fees were raised by 3% for all ships passing through the canal.  The SCA justified the move at the time by noting that fees had not been raised previously for a three-year period.  

The decision to raise Suez Canal fees is in line with the government’s efforts to search for means to increase revenues to compensate for weak tax revenues on the back of slower economic growth, and is also a way to increase foreign currency earnings.  It was estimated that Suez Canal revenue growth to slow down slightly in FY12/13, on the back of slower trade activity.  Revenues are forecast to reach $5.3 billion in FY2012/13.  (SCA 03.02)

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5.10 Egypt to Cut Energy Subsidy Bill by 50% Over Five Years

Egypt’s government is working on a program to cut the country's energy subsidy bill by 50% over the coming five years and to compensate by raising Egyptian wages.  According to Egyptian Minister of Petroleum Kamal, the government has spent LE55 billion ($8.1 billion) in the first half of the current fiscal year 2012/13 for the energy subsidy bill and it is expected that the full-year bill will amount to LE110 billion ($16.3 billion).  In November 2012, the Cabinet approved cutting subsidies from high-end 95-octane gasoline.  Last month, the government expected reductions of two% in the state’s expenditures from LE594.8 ($93 billion) to LE583.8 billion ($91.3 billion) in 2012/13 due to austerity measures, which will see the total subsidy bill drop by LE10 billion to LE182.8 billion ($28.6 billion).

The government announced in the 2012/2013 budget a cut of subsidies for energy to LE70 billion ($10.4 billion).  Many experts estimate that the government goal is too optimistic.  Last year, subsidies were set to reach some LE95 billion ($14.1 billion) in the budget, but are estimated to have actually reached LE115 billion ($17.1 billion).  (Ahram 02.02)

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5.11  IMF Demands Reform in Libya

Libya needs to establish a clear macro-fiscal policy framework with a consistent fiscal rule reflecting the country’s economic objectives and the volatile nature of revenues, says a report from the International Monetary Fund (IMF).  It adds that the Sovereign Wealth Fund (SWF) managed by the Libyan Investment Authority (LIA) and the Budget Reserve Account at the Central Bank of Libya (CBL) should be fully integrated in this framework.  The creation of a Macro-Fiscal Policy Unit (MFU) at the Ministry of Finance (MoF) in charge of elaborating medium-term fiscal projections and analysis will enhance fiscal policy formulation and help make the budget a strategic policy tool linking national policy objectives to macro-economic performance.  (IMF 11.02)

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5.12  IMF Says Morocco Continues To Qualify For Credit Line

Morocco continues to meet the criteria for a precautionary credit line, approved last year under a two year agreement for $6.2b, the International Monetary Fund (IMF) said.  The arrangement provides "useful insurance against exogenous shocks" for the North African country and welcomed its authorities’ intention to continue to treat the PLL (Precautionary and Liquidity Line) as precautionary.  The PLL was introduced in 2011, when protests swept across the Arab world toppling four leaders.  The aim of facility is to provide liquidity to countries pursuing sound economic policies which may be adversely affected by economic and financial stress at regional or global levels.  The IMF urged the government to step up efforts to "foster higher and more inclusive growth, including by boosting youth employment and reducing inequalities in income and in access to health care and education."  It also called on the government to press on with reforms of its subsidy and pension systems.

The IMF said "the outlook hinges on the timely and sustained implementation of the reform agenda".  Morocco’s economy is projected to expand 4.5% this year after slowing to 3.2% in 2012 from 5% the previous year.  Inflation is forecast to increase to 2.5% this year from 2.3% in 2012.  (AB 06.02)

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5.13  Morocco Gets First Slice Of $2.5 Billion in Arabian Gulf Aid

Morocco has received the first slice of a $2.5b aid package promised by wealthy Gulf Arab states, part of pledge designed to cement ties between Arab monarchies in the wake of regional uprisings.  Saudi Arabia, Qatar, the UAE and Kuwait agreed in December 2011 to distribute $2.5b to both Morocco and Jordan, the only two Arab monarchies outside of the Gulf.  Morocco finalized the agreement with the Gulf Arab states on the margins of the Arab Social and Economic Development Summit in Riyadh last month.  Analysts say the move to forge closer links between regional monarchies is part of a concerted effort to contain the pro-democracy unrest that has ousted autocratic ruling elites in Egypt, Tunisia, Yemen and Libya.  Rabat is anxious to avoid a drop in living standards and prevent a return to street protests for political and economic reforms that King Mohammed managed to stifle in 2011 with constitutional reforms, social spending and harsh policing. 

The cash-strapped country relies on foreign aid, given its $90b economy is heavily exposed to the debt-scarred euro zone through trade, tourism revenues and migrant remittances.  Its trade gap was 7.9% higher in December than a year ago at a record 197.2 billion dirhams ($23.6b) largely due to a surge of imports of energy and wheat imports, which the state heavily subsidies.  The government now aims to cut the budget deficit to 4.8% of GDP in 2013 from 6% in 2012, and projects GDP growth of 4.5% this year, after 2.8% in 2012.  Morocco raised $1.5b via a bond sale in December, which lifted its foreign currency reserves to Dh140 billion - but that only covers about four months of import needs, which economists say is an uncomfortably low level.  In August, the International Monetary Fund approved a $6.2 billion precautionary line of credit for the North African country, to be treated as "insurance" in case economic conditions deteriorated further.  (AB 02.02)

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6.1  Turkey Posts January Inflation Above Expectations

Turkey’s inflation for January has risen to 1.65% compared with the same month a year earlier, surpassing the market expectations that were around 1.1%.  The 12 month average inflation rate amounted to 8.62% as of January, official data released today by TÜIK showed. The year-on-year figure has moved up to 7.31%.  The prices of alcoholic beverages and tobacco products increased most in January with a 14.26% hike.  The rise of the inflation was based by food prices, which had a positive impact on December inflation, which was 0.38%.  (TUIK 04.02)

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6.2  Turkey’s Exports Continue to Surge

Turkish exports have surged to $11 billion, rising 5.6% in January compared to the same month last year, with the automotive sector taking the top spot at $1.5 billion in export volume despite its previous troubles.  In 2011, Turkey’s exports recorded a record $134.6 billion.  There are only 27 countries in the world that posted export figures higher than $100 billion in size, and as one of them, Turkey aims to reach $500 billion in exports this year, triple the current amount.  Of Turkey’s total exports in January, $1.5 billion went to Germany, $884 million to Iraq, $651 million to the United Kingdom, $546 million to Russia and $546 million to Italy.  Turkey also sent a significant number of exports to China, South Africa and Libya, with 34, 279 and 59% increases, respectively.  The automotive sector posted the highest January figures at $1.5 billion, but sector exports fell 5.7% compared to the same month last year.  The retail and garment industry followed with a 12% increase from last year bringing their export levels to $1.4 billion.  In terms of increase, the olive and olive oil products sector soared to $44.8 million, a 200% rise.

Turkey’s import and export data for 2012 was released Jan. 31 by Turkey’s Statistics Institution, showing that Turkey ran an $83.9 billion foreign trade deficit in 2012, down 20.7% from a year earlier.  Turkey’s exports in 2012 were up 13.1% year-on-year, reaching $152.5 billion, while imports were down 1.8% year-on-year to $236.5 billion.  (HDN 01.02)

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6.3  Cyprus Earns €100 Million from Total for Natgas Blocks 10 & 11

French company Total was granted hydrocarbon exploration licenses in Cyprus’ Exclusive Economic Zone (EEZ) blocks 10 and 11, after signing two production sharing contracts with the Ministry of Commerce, Industry and Tourism in Nicosia.  The revenue from the signing of the two licenses is estimated to fetch about €100m to the state coffers, while the €150m earned last month from the ENI/KOGAS venture for three more blocks has added €150m more to the bankrupt state’s revenues.  Commerce Minister Sylikiotis said that over the next three years, up to ten exploratory drillings will take place, and that in the meantime the infrastructure must be prepared for the commercial exploitation of the hydrocarbons, which translates into thousands of jobs in the energy and other sectors.  He also referred to the financial and political benefits from the exploitation of hydrocarbons and cooperation with countries such as the US, France, Italy, Israel and South Korea, and the prospect of becoming a regional energy junction.  (FM 07.02)

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6.4  Athens Says It Met Fiscal Targets

Greece has achieved a primary surplus of €435 million, according to preliminary figures published by the Finance Ministry for the execution of the general government budget of 2012, although the state’s expired debts were €1.7 billion more than in 2011.  Ministry officials say that the state deficit data for 2012 are going to be adjusted soon, but are certain to beat the target of 1.5% of GDP, ending at between 1.2 and 1.3%.  In regards to the state’s expired debts, these ended at €8.7 billion last year, up from €7 billion in 2011, according to the figures published by the General State Accounting Office.  The general government deficit dropped to €12.5 billion or 6.6% of GDP from €19.68 billion or 9.4% of GDP at end-2011.  The target for 2012 had been set at €12.88 billion.  Primary balance data show a surplus of €435 million, against a primary deficit of €3.5 billion in 2011.  However, the adjustment to come by end-February will produce a primary deficit of 1.2-1.3% of GDP.  Revenues lagged the target, coming to €51.77 billion, against a target of €52.99 billion, posting a €1.22 billion shortfall.  They also dropped by 4% from the year before.  (ekathimerini 04.02)

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6.5  Rise of Euro Threatens To Stem Greek Export Growth

Companies involved in exports are expressing concern at exchange rates for the euro, which in January posted an increase against all foreign currencies, according to a study by the Panhellenic Exporters’ Association.  According to the calculation of total external trade of all eurozone countries (imports and exports), the association’s index combining the exchange rate of all non-eurozone currencies declined by 1.58% last month, meaning an increase in the market price of eurozone exports.  Greek exports have been growing over the last couple of years, but the rise in the euro rate since last summer has started to pose a threat to that trend.  While the main market for Greek exports is eurozone countries, accounting for 60% of their absorption, local enterprises are making an effort to tap into third-country markets whose share in Greek exports is at 40% and growing.  (ekathimerini 01.02)

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7.1  Israel & World Jewry Celebrate Purim Holiday

On 23/24 February, most of Israel and Jewry around the world will mark the holiday of Purim.  Purim is one of the most joyous and fun holidays on the Jewish calendar.  It commemorates a time when the Jewish people living in Persia were saved from extermination.  The story of Purim is told in the Biblical book of Esther.  The heroes of the story are Esther and her cousin Mordecai, who raised her as if she were his daughter.  Esther was taken to the house of Ahasuerus, King of Persia, to become part of his harem.  King Ahasuerus loved Esther more than his other women and made Esther queen, but the king did not know that Esther was a Jew, because Mordecai told her not to reveal her nationality.  Haman, an arrogant, egotistical advisor to the king, hated Mordecai because Mordecai refused to bow down to Haman, so Haman plotted to destroy the Jewish people.  Mordecai persuaded Esther to speak to the king on behalf of the Jewish people.  Esther fasted for three days to prepare herself and then went into the king.  She told him of Haman's plot against her people.  The Jewish people were saved and Haman was hanged on the gallows that had been prepared for Mordecai.

The Purim holiday is preceded by a minor fast, the Fast of Esther (21 February), which commemorates Esther's three days of fasting in preparation for her meeting with the king.  The primary commandment related to Purim is to hear the reading of the book of Esther.  The book of Esther is commonly known as the megillah, which means scroll.  It is customary to boo, hiss, stamp feet and rattle noisemakers whenever the name of Haman is mentioned in the service.  The purpose of this custom is to "blot out the name of Haman."  Jews are also commanded to eat, drink and be merry.  In addition, they are commanded to send out gifts of food or drink, and to make gifts to charity.  The sending of gifts of food and drink is referred to as mishloach manot (lit. sending out portions).  Purim is not subject to the Sabbath-like restrictions on work that some other holidays are; however, some sources indicate that Jews should not go about their ordinary business on Purim out of respect for the holiday.  Purim is also celebrated a day later (24/25 February) in Jerusalem.

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7.2  Last Decade Saw 60% Rise in Number of Single New Moms in Israel

Some five thousand never-married single women became mothers in the last decade, the Central Bureau of Statistics revealed in a survey of the country's families and households, increasing the number of never-married single women raising children under 17 by themselves by 60% between 2000 - 2011.  There were 8,400 never-married single mothers in 2000 and 13,500 in 2011.  Some 5,050 single Jewish women gave birth in 2011, compared to 2,600 in 2000.  Thus 4.2% of women giving birth in 2011 were single and unmarried, as compared to 2.8% in 2000.  In addition, the number of single parent households increased between 2000 and 2011.  A single parent household is one where one adult lives with one or more children under the age of 17, whether that adult be divorced, separated or never married.  A single-parent household as defined by the CBS can include a divorced parent, and 60% of the single-parent households with a child under 17 fall into that bracket.

Some 95% of couples in Israel are married and the remaining 5% live together without being married.  The number of Jewish couples living together out of wedlock went up by a factor of 2.5% compared to 2000.  The percentage of cohabiting couples in Italy is 6%, in the U.S. it is 11%, in Holland 20%, in Denmark 23% and in Norway it is 26%.

The study also revealed that Israeli families with four or more children were largely concentrated in the Arab population, which had more than twice as many such families as the Jewish population.  Some 16% of Israeli families in 2011 were raising more than four children under the age of 17, but this constituted 29.6% of Arab families as opposed to 13.5% of Jewish families.  The average Israeli household has 3.7 family members, roughly the same number as in 2000 (3.8).  Some 520,000 of Israel's 1.8 million families (29%) were registered for social services in 2011, and 15% of those families were defined as single-parent households.  (IH 06.02)

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7.3  Knesset Members Live the Good Life

The 48 new members of the 19th Knesset will soon enjoy the generous salary and benefits that come with the job.  An MK's monthly salary stands at NIS 38,250 ($10,390), and all MKs receive leased cars of their choosing from six different models.  MKs are allotted an annual budget of NIS 68,000 (about $18,500) to "maintain contact" with the public.  From this budget, they are allowed to establish a parliamentary office outside the Knesset.  MKs can also purchase laptop computers, furniture and other such amenities.  Moreover, MKs are entitled to up to a NIS 4,250 ($1,155) reimbursements per year in clothing expenses and a similar amount for foreign language studies.  In addition, each Knesset member is granted an annual budget of NIS 27,500 ($7,470) from which one may be reimbursed for a cellphone, two newspaper subscriptions, two home phone lines (one of which is a fax machine), NIS 103 ($28) per diem for food and lodging on days when Knesset sessions run long, and mailing expenses for up to 15,000 items.

MKs are covered in their travels abroad, which occur quite frequently.  If they travel in a parliamentary delegation, the Knesset pays for flight and accommodations.  If they are sent on an official public diplomacy mission abroad, then the Foreign Ministry picks up the bill.  MKs are also frequently invited abroad by foreign governments, international organizations, Jewish organizations, and so on.  Every MK is given a two-room office at the Knesset in Jerusalem, which includes basic services and a shower.  The offices are furnished, and each comes equipped with three desktop computers and a printer.  It was recently decided to include a mini-refrigerator and 32” television in every office.  Every parliamentarian has two assistants (committee chairmen have three) with monthly salaries that range around NIS 8,350-9,500 ($2,269-2,582).  (IH 04.02)

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7.4  Saudi King Moves His Son One Step Closer to Throne

On Friday, 1 February 2013, Saudi King Abdullah bin Abdul-Aziz al-Saud appointed his 63-year-old brother Prince Muqrin, the 35th son of the kingdom’s founder King Abdul-Aziz, as second deputy prime minister.  This makes Muqrin third in line for the throne after Crown Prince Salman bin Abdul-Aziz.  The top posts thus remain in the hands of the first generation, despite their old age and ill health.  For instance, the king recently underwent several successive surgeries that left him weaker.  Salman has been diagnosed with Alzheimer’s disease, and at many times cannot remember his own name.  Meanwhile, Muqrin, the newcomer, is rumored to be a womanizer, frequently indulging in alcohol, which caused him to be sacked last year from his post as intelligence chief.  But the Saudi king’s move may be construed as an attempt to clear a path to the throne for his son Mutaib, currently the commander of the National Guard.

Prince Muqrin is the youngest son of the founder king.  His selection as second deputy follows a series of appointments made by the king, which propelled the second generation of princes to the forefront.  For this reason, the king’s move came as a surprise.  Two weeks earlier, the king issued a round of decrees that dismissed a number of governors from their posts and appointed others.  Thus, Prince Saud bin Nayef replaced Prince Mohammed bin Fahd, as the governor of the Eastern Province, reportedly as a result of the latter’s mishandling of the unrest there.  The king also appointed Prince Faisal bin Salman as the governor of Medina, relieving Prince Abdul-Aziz bin Majed bin Abdul-Aziz.  (Al-Akhbar 02.02)

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8.1  Medgenics First Hepatitis Clinical Trial to Use INFRADURE Tissue Treatment

Medgenics announced that the first patient has been enrolled in a Phase I/II clinical trial with the Company’s INFRADURE Biopump for the treatment of hepatitis C. This is the first clinical trial of INFRADURE, a subcutaneous autologous skin tissue implant for the continuous production and delivery of interferon-alpha (INFa) being developed by Medgenics to treat hepatitis B, C and D, aimed at replacing months of weekly injections of INFa, along with their serious side effects.

INFRADURE is aimed at replacing injections of INFa to address a global market of over 500 million patients suffering from various forms of hepatitis.  This proof of concept study will test INFRADURE’s approach of continuous production of INFa from the patient’s own dermal tissue.  The INFRADURE treatment will be similar whether used in hepatitis C, hepatitis B, the most widespread form of hepatitis, or hepatitis D, a rare and highly aggressive form of the viral disease.  INFRADURE is the second product based on the Company’s Biopump tissue-based platform to reach clinical trials in patients.  INFRADURE employs the same approach as the Company’s EPODURE implant producing erythropoietin, which reported months of safe and sustained treatment of anemia from a single treatment in a Phase I/II study in patients with chronic kidney disease, replacing frequent erythropoietin injections.

Misgav’s Medgenics ( is developing and commercializing Biopump, a proprietary tissue-based platform technology for the sustained production and delivery of therapeutic proteins using the patient's own tissue for the treatment of a range of chronic diseases including anemia, hepatitis and hemophilia, among others.  (Medgenics 30.01)

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8.2  Alpha Szenszor & Technion JV in Lung Cancer Diagnostics

Carlisle, Massachusetts’ Alpha Szenszor, a leading provider of carbon nanotube based sensors and the Technion -Israel Institute of Technology have announced a joint venture for the commercialization of advanced lung cancer diagnostics based on Volatile Organic Compound (VOC) detection from human breath.  The two organizations plan to merge expertise to commercialize an economically viable, non-invasive, digital tool for the early diagnosis of lung cancer.  Alpha Szenszor is an e-nose diagnostics company based on carbon nanotube (CNT) sensor chips.

Founded in 1912, Technion ( is the oldest university in Israel and has an outstanding reputation in technology transfer.  It has 18 academic departments and 52 research centers.  Pilot laboratory and clinical studies through Technion’s Laboratory for Nanomaterial-Based Devices (LNBD) have demonstrated the feasibility to diagnose and classify several diseases (including lung cancer) from exhaled breath using advanced spectrometry techniques as well as array of nanomaterial-based sensors, developed and patented by the same team.  (Alpha Szenszor 04.02)

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8.3  First Patient Begins Treatment in BrainStorm’s Phase IIa Trial for ALS

BrainStorm Cell Therapeutics announced that the first patient began treatment in the Company’s Phase IIa dose-escalating clinical trial for ALS. The trial, which will evaluate the safety and preliminary efficacy of BrainStorm’s NurOwn stem cell therapy candidate, is being conducted at the Hadassah Medical Center in Jerusalem.  In the Phase IIa trial, three groups of four patients will receive combined intramuscular and intrathecal administration of NurOwn cells, in increasing doses.  The first cohort of four patients is expected to complete treatment by the end of April 2013.  The trial participants will be monitored for three to six months following transplantation.  Israel’s Ministry of Health recently approved BrainStorm’s acceleration to a Phase IIa trial following the positive safety evaluation of the first 12 patients in the company’s recent Phase I/II trial at Hadassah.  

Petah Tikva’s BrainStorm Cell Therapeutics ( is a biotechnology company engaged in the development of first-of-its-kind adult stem cell therapies derived from autologous bone marrow cells for the treatment of neurodegenerative diseases.  The Company holds the rights to develop and commercialize its NurOwn technology through an exclusive, worldwide licensing agreement with Ramot, the technology transfer company of Tel Aviv University.  (BrainStorm 04.02)

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8.4  Yissum Introduces New Chickpea Varieties with High Nutritional Values

Yissum, the Research and Development Company of the Hebrew University at Jerusalem introduced new chickpea varieties, which retain high nutritional values yet exhibit improved synchronization between flowering and the rainy season to increase yield.  The new varieties were developed by the Robert H. Smith Faculty of Agriculture, Food and Environment at the Hebrew University.  The new chickpea varieties were developed using non-GMO breeding technologies, and are characterized by larger seeds, high lutein content, moderate tolerance to fungal infection and improved synchronization between flowering and the rainy season to increase yield.  Chickpea production has increased over the past 30 years from 6.6 million metric tons to over 10 million metric tons, and although the majority of this crop is grown in India for domestic use, it is also an important domestic and export crop in several countries, including the USA and Australia.

Yissum Research Development Company of the Hebrew University of Jerusalem ( was founded in 1964 to protect and commercialize the Hebrew University’s intellectual property.  Products based on Hebrew University technologies that have been commercialized by Yissum currently generate $2b in annual sales.  Ranked among the top technology transfer companies in the world, Yissum has registered over 7,700 patents covering 2,200 inventions; has licensed out 580 technologies and has spun out 74 companies.  (Yissum  04.02)

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8.5  Gamida Cell’s StemEx Achieves Primary Endpoint in Clinical Study

Gamida Cell announced that its flagship product, StemEx, reached its primary endpoint of improving overall survival in a Phase II/III study which compared the use of StemEx as part of a transplantation regimen to historical controls in the treatment of patients with hematological malignancies such as leukemia and lymphoma.  The analysis shows 15.8% mortality in the StemEx group and 24.5% in the control group (p=0.034).  A complete analysis of the data will be available in a few weeks.  Twenty-five bone marrow transplantation centers worldwide treating 101 patients with hematologic malignancies following myleoablative therapy who could not find a family related matched bone marrow donor participated in the study.

StemEx is a graft of an expanded population of stem/progenitor cells, derived from part of a single unit of umbilical cord blood and transplanted by IV administration along with the remaining, non-manipulated cells from the same unit.  Cord blood has less matching requirements than bone marrow or peripheral blood transplants, providing the potential to increase the number of suitable transplant matches and to shorten the time it can take to find a match.  However, there are a limited number of stem/progenitor cells in cord blood, enabling a quantity sufficient generally only for pediatric treatment.  StemEx employs a technology that expands this small number of cord blood stem/progenitor cells, increasing their therapeutic capacity for transplantation in adolescents and adults.

Jerusalem’s Gamida Cell ( is a world leader in stem cell population expansion technologies and stem cell therapy products for transplantation and regenerative medicine.  The company’s pipeline of stem cell therapy products are in development to treat a wide range of conditions including blood cancers, solid tumors, non-malignant hematological diseases such as hemoglobinopathies, neutropenia and acute radiation syndrome, autoimmune diseases and metabolic diseases as well as conditions that can be helped by regenerative medicine.  (Gamida Cell 04.02)

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9.1  Saguna & FibroLAN Deliver OTT Content to the Mobile Backhaul

Saguna Networks and FibroLAN announced cooperation to deliver an integrated OTT mobile backhaul content and application acceleration offering for mobile network operators.  The integrated solution combines Saguna Networks' Saguna CODS for optimizing the delivery of content and applications over mobile networks and FibroLAN's second generation Falcon series for LTE mobile backhaul.  The joint solution will be demonstrated at Mobile World Congress in Barcelona and will feature popular content caching, DNS caching and content localization over FibroLAN's Falcon-M, which is highly optimized for small cell environments.  The solution will expand the OTT cloud into the mobile network to improve user experience and mobile network economics.  As part of the cooperation, FibroLAN has licensed the Saguna CODS software from Saguna Networks.

Nesher’s Saguna Networks ( is an innovative provider of Radio Access Network (RAN) application acceleration and mobile content delivery on HSPA and LTE networks.  Saguna CODS (Content Optimization Delivery System) is a patented technology to drastically reduce data loads over the mobile backhaul and improve the Radio Interface efficiency.  Yokneam Elite’s FibroLAN ( is an experienced and innovative vendor of Mobile Backhauling and Carrier Ethernet access solutions, delivering networking products since 1996.  The company's recent 2nd generation Falcon is highly optimized for LTE backhaul and aggregation, with the Falcon-M series designed to meet the challenges of Small Cells backhaul (indoor and outdoor).  (FibroLAN 04.02)

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9.2  BluePhoenix Announces Service Upgrades and New Delivery Platform

BluePhoenix ( announced enhancements to its existing services and acknowledged development efforts for a new platform designed to change the way legacy modernization services are delivered.  The company has been refining its C# translation services since 2007, but made significant changes to the technology’s latest release.  The new release generates maintainable code designed to make the target environment easier to use and more productive.  The enhancements also address customer cost savings.  BluePhoenix also acknowledged the development of a new modernization delivery platform, codenamed Ringmaster.  Ringmaster is designed to empower the customer with the data they need to make the best choices for modernization - before, during and after the translation process.  It’s a unified platform that solves very specific business problems over the lifecycle of a modernization project and sets the customer up for a successful outcome.

Herzliya’s BluePhoenix Solutions is the leading provider of legacy language and database translation.  The BluePhoenix portfolio includes a comprehensive suite of tools and services for automated database and application migration.  Leveraging over 20 years of best-practice domain expertise, BluePhoenix works closely with its customers to minimize risk and provide a clear path from legacy platforms like COBOL, Natural/Adabas and others to modern solutions like SQL, DB2, Java and more.  (BluePhoenix 07.02)

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9.3  Rounds Retires “Meet New People” & Focuses on Meaningful Conversations

Tel Aviv’s Rounds ( announced the immediate retirement of its “Meet New People” feature, intending to focus on longer, more meaningful video conversations between real friends and family.  As the cross-platform provider of the web’s best hangout experiences, 50% of all video conversations on Rounds are four minutes and longer, viewed as ‘meaningful’ by the company.  The average length of these meaningful video hangouts is eleven minutes for mobile conversations and over twenty-one minutes from Rounds’ Facebook app – with over 10% of Facebook conversations lasting more than thirty minutes.  Rounds Video Chat Hangout, the company’s mobile offering launched last December, has always required Facebook friendship between users for its unique combination of video communication and online entertainment.  Now Rounds’ 7 million-user strong Facebook app, which formerly employed a social matching algorithm allowing users to meet like-minded new people, will also require pre-existing Facebook friendship for users to interact.  Rounds is available as a free download for iPhone, Android, Facebook, Mac/PC and the web.  (Rounds 06.02)

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9.4  Tekelec & Allot Complete Interoperability Testing to Expand Policy Control

Morrisville, N.C.’s Tekelec and Allot Communications completed Interoperability Testing (IOT) for the 3GPP Sd Interface that offers service providers more powerful application policy control and enforcement with a more efficient network architecture.  The IOT was performed to support a global Tier-1 mobile operator that plans to implement application-specific policies.  The new Diameter Sd Interface helps operators offer subscribers new digital lifestyle services, such as the connected home, mobile payments, mobile health and analytics.  With the new Allot/Tekelec Sd integration and by using 3rd Generation Partnership Project (3GPP) standardized mechanisms, operators are able to offer innovative and competitive mobile broadband service plans with dynamic management of over-the-top traffic based on network utilization, subscriber and device awareness.  The companies are the first to announce IOT over the new Sd Diameter Interface, which communicates between the Tekelec Policy Server (PCRF) and Allot’s Service Gateway Sigma E Traffic Detection Function (TDF) in order to enable detection and enforcement control over applications.

Hod HaSharon’s Allot Communications ( is a leading global provider of intelligent broadband solutions that put mobile, fixed and enterprise networks at the center of the digital lifestyle.  Allot’s DPI-based solutions identify and leverage the business intelligence in data networks, empowering operators to shape digital lifestyle experiences and to capitalize on the network traffic they generate.  (Allot 06.02)

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9.5  MoMinis Rebrands as Playscape Based On Successful Gaming Ecosystem

Five years and 40 million users later, Tel Aviv’s MoMinis is making some big changes.  The company is completely rebranding with a new name and logo, and releasing a suite of 100 original games.  MoMinis will now be referred to as PlayScape, based on the mobile game publisher's highly successful mega-game concept that it pioneered in 2011.  The PlayScape umbrella will feature a new logo and a completely overhauled website, and will unite all of the integrated solutions and development tools that the company provides.  The PlayScape Studio (formerly The MoMinis Studio) encompasses several improvements such as enhanced visual effect capabilities to support hardware accelerated scaling and rotation, improved collision detection, full accelerometer support and Facebook integration.  Future enhancements will provide more monetization resources for developers and iOS support.  The PlayScape Platform ensures games' discoverability and gives them immense exposure, and will automatically integrate any games created with The PlayScape Studio. 

To complement the new branding, PlayScape will release 100 games within the next year.  The games will range from classic arcade and action games to complex puzzle games featuring more than 100 levels.  The games also will embrace PlayScape's social layer as an integral part of the game play.  (PlayScape 07.02)

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9.6  TraceSpan's DOCSIS Xpert Supports 8x4 Channel Bonding

TraceSpan Communications announced the general availability of the bonding solution for 8 downstream channels and 4 upstream channels in its DOCSIS Xpert 5300 analyzer.  DOCSIS Xpert is a powerful protocol analyzer which provides full visibility into the DOCSIS network and equipment, including detailed network topology and complete and accurate analysis for troubleshooting of DOCSIS product performance, standard compliance and interoperability.  DOCSIS Xpert captures and analyzes the signals without using any DOCSIS chipset and has no effect on the data transfer between the CMTS and the CMs.  With its unique multi-layer probing capability, it provides comprehensive DOCSIS 3.0 PHY and MAC layer analysis from multiple upstream and downstream bonded channels simultaneously.  It supports both DOCSIS 3.0 and EuroDOCSIS 3.0 as well as the legacy DOCSIS and EuroDOCSIS 2.0, 1.1 and 1.0.

Ra’anana’s TraceSpan Communications ( develops and manufactures innovative broadband testing and monitoring solutions.  Empowered by patent-pending breakthrough technology, TraceSpan's performance analysis and Lawful Interception products enable non-intrusive monitoring of data in broadband networks.  TraceSpan's multi-layer analyzers are accepted worldwide as the industry's first passive analyzers for vendor-independent testing of VDSL2, ADSL2Plus, ADSL2, ADSL, GPON and DOCSIS networks.  (TraceSpan 06.02)

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9.7  Cloudyn Introduces the First Ever PaaS and IaaS Sizing and Relocation Tools

Cloudyn released its latest in-depth cloud optimization tools which provide efficiency and savings for AWS cloud deployments.  The popular Reserved Instance Calculator, which launched in October 2012, is being complemented with the release of the EC2 and RDS reservation detectors.  Moving beyond optimal reservation pricing, Cloudyn now recommends which On-Demand instances can be relocated to unused and available reservations.  When On-Demand instances don't match any idle reservations, sell recommendations for the unused reservation are generated.  A new S3 Tracker analyzes S3 usage tracked by bucket or top-level folders and highlights inefficiencies together with step-by-step recommendations on how to optimize.  A shadow version detector reveals otherwise hidden shadow S3 versions which inflate the monthly bill.  Founded in 2011, Ra'anana’s Cloudyn ( offers organizations clarity and control of cloud costs, actionable recommendations for cost savings and maximized utilization of resources in a dynamic cloud environment.  (Cloudyn 06.02)

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9.8  Vasona Networks Introduces SmartAIR1000

Vasona Networks announced the SmartAIR1000 edge application controller to address cellular bandwidth congestion.  The platform works with traffic across all applications, at granularity of every cell in a network.  It assesses and acts on congestion based on exactly where it is occurring and what is causing it.  Bandwidth is allocated to each application in real time for the best overall subscriber experiences.  This solution empowers mobile operators to more effectively use resources as they face expensive and complex upgrades to add network capacity.  As subscribers use more devices and bigger screens to consume media, worldwide mobile traffic is skyrocketing.  Operators have invested in raw capacity upgrades and network tools to meet this demand but struggle to gain control at a key trouble point — the cell.  The SmartAIR1000 addresses this frequent bottleneck with a comprehensive approach that determines each cell's current capacity and characteristics of each of its concurrent sessions, whether streaming audio and video, web browsing, file downloads, or others.  The platform can then ensure that all available bandwidth is allocated according to the nature of each application and media-type.  This capability is not possible with single-purpose solutions that only address one type of data or media, or solutions that lack perspective on which sessions are causing problems and where those problems are occurring.

Founded in 2010, Vasona Networks ( works with global mobile network operators to deliver better subscriber experiences.  The company's pioneering edge application controller, the SmartAIR1000, takes a holistic approach to addressing mobile network data traffic congestion that occurs in each cell, monitoring every application demanding bandwidth.  Vasona Networks is based in Santa Clara, California, with research and development offices in Tel Aviv, Israel.  (Vasona Networks 06.02)

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10.1 Israel’s Economic Performance Up 0.1% in December

Israel's economic performance, or 'S' index, rose 0.1% in December, indicating the economy continues to expand moderately, the Bank of Israel announced.  For all of 2012, the index rose an average of 2.5% versus 4.4% in 2011.  The Bank of Israel said the slower growth pace of the index was consistent with slower economic growth in 2012.  The index, it noted, slowed to an average monthly increase of 0.1% in the fourth quarter from 0.25% in the first quarter.  The number of salaried employees was 2.196 million in October, the last month for which data was available, up from 2.179 million in September.  Israel's economy grew an estimated 3.3% in 2012 after a 4.6% spurt in 2011.  Growth is forecast for below 3% in 2013, excluding natural gas production.  (BoI 01.02)

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10.2 Israel’s High-Tech Exports Drop

The Israel Export and International Cooperation Institute announced that for the first time in 10 years, Israel’s high-tech exports stagnated.  The Export Institute said that high-tech exports in 2012 totaled $21 billion, 1% lower in dollar terms than in 2011.  The Export Institute warned that even during the global crisis in 2009, Israeli high-tech exports grew by 5%.  The economic crisis in Europe, coupled with the US economic slowdown, affected Israel’s high-tech exports.  (Globes 12.02)

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10.3 Israel’s Unemployment Rose to 7% in 2012

The Central Bureau of Statistics announced that the unemployment rate rose to 7% at the end of 2012 from 5.4% a year earlier, with the number of unemployed rising by a net 73,000 people from 174,000 at the end of 2011 to 247,000 at the end of 2012.  In early 2012, the Central Bureau of Statistics changed its methodology for measuring unemployment, to conform to OECD rules, which resulted in a jump in the unemployment rate from 5.4% to 6.5% of the civilian labor force.  There were serious problems in measuring unemployment in the Arab community, where the rate doubled from 6% under the old method to 12% under the new method.

Participation in the labor force among people over 50 was 54%, mostly men, in 2012, and participation in the labor force by people aged 25-64 rose to almost 79%.  85% of men aged 25-64 and 73% of women aged 25-64 participate in the labor force.  Participation in the labor force by people over 15 was 60%.  50,000 employees worked for employment agencies in 2012, and another 134,000 people worked as contract employees in cleaning and security.  (CBS 31.01)

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10.4 Israel’s New Home Sales Up 11% in 2012

The Central Bureau of Statistics released preliminary statistics that indicate new home sales were 11% higher in 2012 than in 2011.  Demand for new homes was down 5.6% in December 2012 from November, and 13.1% less than in December 2011, according to a survey of privately built housing starts and sales and Ministry of Housing and Construction's survey of publicly built housing starts and sales.  The housing supply was 2.7% lower at the end of 2012 - 20,400 units - from a year earlier.  This is the lowest figure in years.  Housing starts are also down.

New home sales did fall 3.1% from 2,005 units in November to 1,941 units in December, and that the number of new homes not available for sale (homes built by owners, buyers groups, for rent, illegal construction, etc.) fell by almost 10% from 1,170 units in November to 1,055 in December.  New home sales in December were 2.8% lower than in December 2011, and the number of new homes not available for sale was down 28.3%.  The drop in the number of new homes not available for sale is due to financing difficulties and the Bank of Israel's new credit restrictions on buyers groups and people building their own homes.  The Bank of Israel capped the loan-to-value (LTV) on mortgages for homebuyers at 75%, and capped the LTV buyers of apartments for investment at 50%.  (CBS 31.01)

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ISRAEL:  Most Active Venture Capital Funds in Israel - 2012

Ninety venture capital funds made first investments in Israeli and Israel-related companies in 2012 according to the Most Active Venture Capital Funds report prepared by IVC Research Center.  Nineteen Israeli and foreign venture capital funds made three or more first investments, with the most active being Carmel Ventures, an Israeli VC fund managed by Shlomo Dovrat and Avi Zeevi.  Carmel made 11 first investments in 2012, compared with only three first investments in 2011.

Horizons Ventures, controlled by Hong Kong investor Li Ka Shing, made 10 first investments, followed by two Israeli funds, Genesis and Gemini, each of which made seven first investments.  Jerusalem Venture Partners made six first investments, followed by Magma Venture Partners with five.

Five different venture capital funds - including Pitango, Israel's largest fund - made four first investments in 2012.  Eight others made three first investments, while each of 19 funds, including Israeli micro-funds, invested in two companies during the year.  The remaining 52 venture capital funds made only one investment each.

"Israeli and foreign venture capital fund activity clearly demonstrate that the market is thriving and filled with players," explained Marianna Shapira, IVC’s Research Manager.  "At the same time," she noted, "most first investments in the last year were relatively small.  This reflects a certain caution that investors are applying in their activity, trying to fully assess a company's potential before committing substantial funds."

The IVC Research Center ranked Israeli and foreign venture capital funds according to the number of first investments made in Israeli and Israel-related companies in 2012.  The data are based on information received directly from the VC funds and from the IVC Online Database (  Rankings reflect the number of deals only, not capital invested and include only funds with more than $20 million under management.  


Most Active Venture Capital Funds in Israel – 2012

Ranked by Number of First Investments 


VC Fund

Capital Managed ($m)

Total First Investments

Portfolio Company Name





Facemoods1, Ekoloko, TradAir, Tapingo, Tonara, SAManage, Adapteva, ironSource, Desti, Abes Market, Cooldata


Horizons Ventures2


10, PlayMyTone, Hola, Wibbitz, Ginger Software, Shine Security, Preen.Me, Invy, Stevie, Mishor 3D





Moovit, Jfrog, WalkMe, Sckipio, MoMinis, Sportority, SAManage




EatWith, Commerce Sciences, TradAir, 3Dsloes, DaPulse, Preen.Me, Sckipio





Correlor, Wishi, Gamba Games, Playshift, Theta Ray, ReDuxIo





twtrland, Corephotonics, AppsFlyer, Xplenty, Fortycloud





JethroData, DudaMobile, Skycure, Magenta Medical

OrbiMed Israel3



Otic Pharma, RDD Pharma, Ornim, cCAM




Dragonplay, Fiverr, MobileSpaces, Origami Logic

Blumberg Capital5


4, Mishor 3D, Cyvera, MentAd




Vayyar, MyHeritage, Intigua, Ravello 


Sequoia Israel3



BigPanda, Indeni, Adallom




StorONE, WalkMe, Pebbles




Clarizen, FiftyOne, Celeno




Applicaster, Cooladata, Xplenty




Wochit, SherPa, 365Scores




CloudLock, StartApp, ScaleBase




Regentis, Pharma Two B, Hairstetics




Base, Simplee, CloudOn


IVC Research Center is Israel’s leading research company providing business leaders with an unmatched wealth of data on the Israeli high-tech, venture capital and private equity industries.  IVC owns and operates the IVC Online Database ( containing over 8,500 Israeli high-tech companies, venture capital funds, investment companies, angels and technology incubators, as well as news updates and lots more.  (IVC 12.02)

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11.2  ISRAEL:  Future of the Israeli Defense Industry

Bharat Book Bureau released Future of the Israeli Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2017.  It said that in 2012, the Israeli defense market was worth $13.10 billion, which represented the third largest military expenditure in the Middle East.  During the review period, Israeli defense expenditure declined at a CAGR of -0.94% but is expected to record growth at a CAGR of 2.97% during the forecast period.  The growth can be partially attributed to the $15.5 billion of military aid from the US scheduled between 2013 and 2017; moreover, the continued security threats from Iran, Syria, and other neighboring Arab countries is forecast to result in Israel spending $71.3 billion on defense during the forecast period.

The security threats posed by Iran and Syria, hostility from neighboring countries, and Israel's inadequate troop size as a result of the country's small population, are expected to drive the country's defense expenditure during the forecast period.  During the same period, the continued military aid of $3.1 billion per year from the US will continue to increase the spending power of the country.  Between 2013 and 2017, Israel is expected to accelerate its defense procurement plans to prepare for potential confrontations with Iran or Syria.

Key Market Issues

The Israeli government has introduced mandatory offsets for all defense transactions exceeding $5 million.  As Israel is intent on forging long-term relations between domestic firms and foreign investors, no penalties or clause for liquidated damages are imposed on defaulters.  Indeed, one of the most important principles underlying the offset policies is that the activities pursued by domestic and foreign firms should be beneficial to both parties.

The military aid Israel has received from the US through government-to-government agreements has significantly supported the development of the Israeli defense industry, and as a result, a significant portion of the equipment used by the Israel Defense Forces (IDF) is of US origin, which provides US defense manufacturers with opportunities to enter the Israeli defense industry.  For example, The Boeing Company, Bell Textron, Lockheed Martin, Raytheon, Sikorsky Aircraft Corporation and Hughes are all US defense firms that have entered the Israeli defense market through extensive military sales programs.  Israel also stocks US military hardware such as armored vehicles and artillery shells, which can be used in the case of an emergency.

In the last fifty years, Israel has developed a largely self-sufficient domestic defense industry, which satisfies the majority of its defense requirements; however, the nation continues to rely on external technologies to fulfill its more advanced requirements, such as aircraft, air defense systems and submarines.  As a result, the majority of foreign OEMs keen to enter the Israeli defense industry form an alliance with Israeli defense firms to jointly develop and market defense equipment in the international market, which is also beneficial to foreign companies as many are able to capitalize on Israeli expertise in unmanned aerial vehicles, missile defense systems and defense electronics.  The partnership between General Dynamics and Aeronautics Defense Systems, formed in 2004, is an example of market entry through such an alliance; the two companies established a joint venture to develop and manufacture defense and homeland security products, unmanned multi-application systems (UMAS) in particular.  These products are sold in the US and other international defense markets.

Although the Israeli economy encourages foreign investment in other industries, investment into its defense sector continues to be prohibited; Israeli government officials cite national security as the reason for this prohibition.

Israel exports a wide range of defense products including ammunition, defense electronics, small arms, artillery, armored vehicles, and sophisticated land and air defense systems.  During 2007-2011, sensors, armored vehicles and missiles were the three most exported defense goods, with market shares of 32%, 22.8% and 22.8% respectively.  During the forecast period, the global demand for UAVs is expected to rise in order to increase surveillance in an effort to prevent terrorist activities and the accumulation of weapons of mass destruction.  To meet the global demand for UAVs, Israel has increased its investment in the research and development of unmanned platforms.  (BBB 06.02)

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11.3  LEBANON: Lean Agriculture Pickings

Rising costs and disrupted trade routes have been taking a toll on Lebanon’s agriculture sector, while climate change and growing demand for water and land for urban development and industry could see the country’s primary producers come under increasing pressure in the years to come.

Most estimates put the agriculture sector’s contribution to GDP at 4.5-6.5%.  It provides employment for around 15% of the national workforce, with up to 30% of the population dependent on farming for their livelihood.  There have been significant challenges over the past year, with rising fuel costs and the deteriorating security situation in Syria having a negative impact on the sector, as a result of falling sales to the Syrian market and the severing of trade routes to the rest of the Middle East, particularly the Gulf.

The border between Lebanon and Syria has been all but closed to trucks since late July, and while intermittent trade has continued, the worsening security situation has meant fewer exporters are willing to take the risk of using Syrian routes to move their produce.  Prior to the closing of most land routes through Syria, up to 80% Lebanon’s agricultural exports were shipped by road either to or through its neighbor.

To some extent the latter problem has been resolved, with an increasing amount of farm produce being carried by ship directly to markets or trans-shipped through third countries before being moved by land to its final destination.  Though effective in circumventing the Syrian bottleneck, this process can slow down deliveries and add to transport costs, especially as there is a shortage of refrigerated vehicles to make the long haul to markets further afield.  Less likely to be remedied any time soon is the loss of sales to Syria itself, with little sign of a return to stability on the horizon. 

Efforts to boost sales to other markets have proved fruitful, however, with agricultural exports up by 2% year-on-year for the first three quarters of 2012, generating earnings of $152m.  However, this increase has not flowed back to primary producers, according to Antoine Howayek, president of Lebanon’s Farmers Association, with any gains being eaten away by high costs and low prices.  “Farmers have not been impacted positively by the extra demand.  Prices in the local market are still far below expectations and farmers can barely make ends meet,” Howayek said in an interview with the English-language Daily Star on December 27.  “Increasing exports does not mean that the sector is doing well.”

One part of the industry that has benefitted from the Syrian crisis is the olive oil segment, with a drop in imports from Lebanon’s neighbor, which traditionally produces up to 10 times more olives than Lebanon and sells its oil for much lower prices.

Despite the fall in competition, however, earnings have not been strong.  Even with a reduction in cheap imports, the domestic market is still unable to soak up all of the 40,000 tonnes of olive oil produced annually, according to the Ministry of Agriculture.

The longer-term prospects for Lebanon’s farms and their contribution to the economy also appear fraught with pitfalls.  According to a report prepared by the UN Adaptation Fund in 2012, the sector is particularly vulnerable to the twin problems of urbanization and population growth, as well as to risks posed by climate change, which could see already-limited water resources become even scarcer.  With the rising demand for land and resources posed by the spread of urban areas and higher levels of industrialization, Lebanon’s farmers face a future of trying to make a living on increasingly tight environmental margins.  The UN report forecasts a decrease in productivity for most crops and fruit trees as a result of restricted water supplies and a dryer climate in the years to come.

Though there are a number of projects to mitigate the effects of water shortages, such as promoting irrigation and increased utilization of greenhouses in cultivation, these will require far more capital than is currently available.  At present, Lebanon relies on imports to meet more than 85% of its agricultural needs, a figure that may increase in the coming years as economies of scale, scarce resources, low investment and rising costs all eat away at the roots of the sector.  (OBG 31.01)

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11.4  JORDAN:  King Abdullah is this Round's Winner

Oded Eran wrote in INSS Insight on 31 January that the parliamentary elections in Jordan on January 23, 2013 failed to produce a clear answer as to the impact of the Arab uprisings on the kingdom’s real balance of power between the establishment, headed by the King, and the opposition, led by the Muslim Brotherhood.  Both sides stayed deeply entrenched in their initial positions, with the King insisting on holding the election within the limited changes he agreed to, and the Brotherhood insisting on boycotting it given the government's refusal to accept its demands regarding amendments to the election law.

During the public and parliamentary debate King Abdullah II agreed to some changes to the election law, but these were mostly cosmetic and certainly not enough to limit the monarch's power in any significant way.  Perhaps the most important change was the one allowing voters to vote for national lists.  Of the 150 seats in parliament, eligible citizens could cast their votes for candidates in their constituencies, which clearly favored the tribal candidates, and an additional vote for a list competing for 27 seats on a national level.  The remaining 15 were reserved for women.  The ratio between the number of local seats and the number of national seats was a point of dispute with the opposition, especially the Muslim Brotherhood, which estimated that its strength is mostly on the national rather than the constituency level.

Because the Brotherhood boycotted the election, it is difficult to assess the validity of that estimate.  However, three statistics suggest the movement has overrated its strength.  On two occasions, the opposition tried to rally its supporters to participate in anti-election demonstrations.  The first time, in November 2012, the organizers expected a turnout of 50,000, but ended with only 10,000.  Even if one assumes that the security services stopped a similar number from reaching the location of the demonstration, the number of protesters fell far below the numerical goal set by the organizers.  On the second occasion, a demonstration held days before the election, on January 18, 2013, in Jabel Hussein, Amman, was attended by only 2,000 demonstrators, a mere one-tenth of the 20,000 expected by the organizers.  The third indicator and the most significant failure was the Muslim Brotherhood’s failure to keep voter turnout decidedly low, even though the Jordanian regime gave them the means to do so.  According to the new election law, those who wanted to realize their right to vote had to register before election day.  Of all eligible voters, 70%, i.e., 2.3 million citizens, registered despite the pressure of the opposition.  This represents a high percentage of the population, which in the past showed lower rates of participation in the political system.

In the elections itself, only 1.23 million people both overcame the first hurdle of early registration and actually reached the polling booths.  Yet it is doubtful that the Muslim Brotherhood could have used 40% voter participation (out of a total of three million Jordanian citizens eligible to vote) to challenge the election and its results as representative of the will of the Jordanian citizens.  The results of the national ballots cast are also problematic to an extent, but this too is insufficient to strengthen opposition claims.  No fewer than 61 lists vied for the 27 seats reserved for nationally elected candidates, but only one-third made it into the new parliament.  The other lists that failed to enter received about one-quarter of the total votes, and those votes were thus "wasted."  King Abdullah II is contemplating further reforms in the political parties and election laws, as he would like to see fewer parties that present platforms encompassing all of the basic issues affecting Jordanian society.

Of the 27 seats reserved for nationally elected candidates, the Islamic Center Party won three, and together with the 13 seats it won in the constituencies, it has become a significant player, enabling it to claim the role of the parliament Speaker and participate in the recommendations to the King on whom to appoint as prime minister.  When the King was asked in an interview whether he could live with a Muslim Brotherhood prime minister, he avoided responding directly, preferring to point out that in Egypt only 12% voted for the Brotherhood, adding that he views bringing this movement back into the process of reforms in Jordan as an important challenge.  The King also suggested that 12% is likely an accurate reflection of the Muslim Brotherhood’s real strength in Jordan as well.

At this stage of the domestic power struggle between the King and the opposition, the King has the upper hand.  A significant portion of Jordanian society, representing all its strata, participated in the election on the basis of the new election law supported by King Abdullah, while the opposition's demands, which would have limited his authority, were rejected.  The mild criticism voiced by some 400 foreign observers failed to support opposition challenges about the integrity of the election.  The fact that 19 women3 were elected – a new record in Jordanian history – only strengthens the reliability of the election results in the eyes of most Jordanians.

The struggle between the King and the opposition will continue, both in the parliament, where it will be played out by the representatives who do not come from the traditional, mainly tribal, stronghold, which has maintained its power, and outside of parliament, in the public arena.  In all of his public remarks, King Abdullah II has referred to the reforms as an ongoing process and he will be under pressure to expand them.

The stability of the Jordanian regime depends not only on domestic politics.  Part of the criticism, especially on the part of the traditional supporters of the palace, stems from economic hardships that most probably will not be resolved in the near future, especially given the fact that the Jordanian government has been told it must cut subsidies as a condition for receiving aid from various international institutions.  (For several days, there have been sporadic demonstrations in the kingdom, in part because of the economic situation.)  Jordan received promises of aid from the oil producers in the Arabian Gulf, but this assistance is slow in coming, as the contributing nations would rather see a slower pace of regime reform and decentralization of authority.  The large influx of Syrian refugees, currently assessed at more than 300,000, is placing a heavy financial burden on the Hashemite kingdom, and the assistance designed to help Jordan absorb them will not solve all the problems, especially if the refugees remain in Jordan for an extended period.

One may assume that the Muslim Brotherhood’s failure to stabilize its rule in Egypt and the horrors of the violence in Syria will limit the power of Jordan’s opposition, but the King’s future path is hardly rosy.  (INSS 31.01)

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11.5  JORDAN: Tight Times for Retail

Uncertainty over the economy’s medium-term outlook, combined with concerns over regional instability, are likely to result in a subdued 2013 for Jordanian retailers, with many indicators pointing to conservative spending by consumers through the year.

Jordan’s state budget for 2013, which emphasizes austerity, will likely concern retailers regarding their prospects.  The budget aims to reduce the deficit from 7.9% in 2012 to 5.4%, a result the government hopes to achieve by lowering recurrent spending by more than 2%.  This tightening will affect the wages for state employees, with limited pay increases expected and restrictions on new hires.  That in turn will impact consumer spending.

The bar for economic growth in the budget was also set low, with GDP forecast to expand by around 3%, in line with the rate of increase in 2012, though below the projections of the IMF, which in December issued a report stating that the economy would lift by 3.5% this year.

Another factor likely to affect the retail sector will be inflation.  The prices of many goods and services are expected to rise in 2013, in part due to the reduction in the state fuel subsidy in November, which saw the cost of some fuels increase by up to 50%.  As yet, the full impact of these increases has not been passed on to consumers, but Jordan’s Foodstuff Traders Association (FTA) has warned that the effect of higher freight charges will be felt in the coming months.  Samer Jawabreh, the president of the FTA, told English-language daily The Jordan Times on December 31 that local food prices would rise by 35%.

With the price of gas climbing and the government seeking to offset the losses of state-backed National Electric Power Company through electricity price increases, there will be further pressure on retailers to raise prices to compensate for their higher utilities costs.  While the IMF has forecast consumer inflation to increase at a modest 3.9%, down from 4.5% in 2012, this figure could be optimistic if the full effect of fuel and electricity price rises flow into the retail market, with some estimates suggesting inflation could hit 7% in 2013.

The ongoing conflict in neighboring Syria could also affect the retail sector, as consumers are wary of making shopping commitments at a time of uncertainty in the region.  The expense of supporting the 280,000 Syrian refugees the Jordanian government says are currently in the country is also a drain on the budget, siphoning funds away from programs intended to stimulate growth and economic activity.

All of these concerns have weighed down on the public.  According to a November survey of consumer sentiment in Jordan, carried out by the Middle East job website Bayt and research firm YouGov, consumer confidence is well down, and expectations for the coming year are negative.

According to the survey, 11% of Jordanian respondents believed it is a good time to buy durable goods, well below the regional average of 15% and above only Lebanon and Syria, with 10 and 7%, respectively.  More than 50% of those Jordanians surveyed said it was a bad time to make purchases of durables, while 77% said their incomes were not keeping pace with the cost of living.  When asked for their views on the cost of living, 54% of respondents from Jordan said the situation would get worse in the coming year.  Only Syrians had a more negative outlook.

With a generally pessimistic forward outlook, it is unlikely many Jordanians will spend beyond their means.  According to Qassem Hammouri, a professor of economics at Yarmouk University, only a few households will be able to further cut outlays if inflation breaks out of its predicted band.  In an interview with The Jordan Times in late December, Hammouri said some 40% of Jordanians no longer had any fat to trim from their household spending, as their present incomes did not meet current needs.

While both the government and the IMF are forecasting GDP to expand this year, consumers appear to be less confident, meaning retailers may have to tighten their own belts and put any plans for expansion on hold until Jordanians can better assess which way the economy is moving.  (OBG 04.02)

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11.6  IRAQ:  Ports Record Highest-Ever Returns

Omar al-Shaher wrote in Al-Monitor ( on 6 February that revenues from Iraqi ports reached $30 million in December 2012, the highest monthly yield in their history.  Meanwhile, the Ministry of Transport is preparing to open the Iraqi Container Port in the city of Basra during the next few months, in order to meet a growing demand for shipping.

Times are good at Iraqi ports, despite controversy surrounding the desire of political parties in Basra to impose their control over them.  Iraq has had specialized maritime equipment and experience in this field since the 1930s, when the country established a number of ports to reinforce its position overlooking the Arabian Gulf.

The progress made by Iraq with its ports is reflected in the fact that some officials have succeeded in isolating the files they manage from the local political quarrels that have hindered economic prosperity in a country that depends on oil revenues to meet 92% of its financial needs.

For example, over the past year Iraq's ports have been subjected to tremendous pressure, and have responded to a cargo-unloading demand that has surpassed their intended capabilities.  Basra's ports have a combined cargo-unloading capacity of about 27,000 tons per day.  However, these ports have been known to unload 42,000 tons on some days.  In the past year, Iraq has increased the capacity of its maritime navigational channel from 2,000 ships annually to more than 8,000, a big leap by any measure.

This was the result of great efforts in the field of deep drilling, an area in which Iraq has much experience and specialized personnel, as well as machinery that is the most advanced and sophisticated in the region.

After 2003, Iraqi ports faced a formidable challenge in the shallow waters in the Umm Qasr shipping channel.  However, the channel has been increased in depth to record levels and can now receive giant ships that require anchoring depths of up to 11 meters.

Port officials in Iraq take pride in the considerable improvement in the quality of services provided to ships that use the country's navigational channels.  This has resulted in a significant increase in revenues and led many transport companies to show interest in Iraqi ports.  Statistics from the Iraqi Ministry of Transport indicate a decrease in the entry of goods through land ports, because of transport companies' desire to use Umm Qasr and affiliated ports in Basra.

Until 2006, the port of Umm Qasr depended on piecemeal transportation.  Giant ships coming from east Asia would moor in the port of Dubai and then their cargo would be unloaded into small transport ships heading to Umm Qasr, because the port could not handle large ships.  Now, however, the port receives these ships directly and unloads them in record speed.

In one case, the port succeeded in unloading 60,000 tons of wheat for the Iraqi Trade Ministry in seven days, a feat that would take Gulf ports nine or more, according to Iraqi port officials. 

Iraqi ports faced a major challenge when some of the companies that had won oil contracts in Iraq wanted to bring their equipment into the country through alternative ports in the region.  Iraqi officials said that the port of Umm Qasr took this responsibility upon itself and succeeded impressively.  During this period, oil equipment weighing as much as 320 tons was received in the port of Umm Qasr, a precedent for Iraqi ports and even for many ports in the region.

Iraq won an international award last year for its ports.  It did not receive this award for possessing the most important or sophisticated ports in the region, but rather because it has achieved remarkable growth in this field.

Iraq is planning to open a special container port, which, according to port officials, will consist of two platforms and will specialize in receiving container ships.  It will be opened during the next few months.

Yet Thomas Staal, the USAID Iraq mission director, expressed his surprise that "Iraqi officials did not acknowledge the amount of US assistance provided to Iraq to improve the performance of Iraqi ports."  In an interview with Al-Monitor at the US Embassy in Baghdad, Staal said that "there are vital projects that we funded and implemented using private American money."  He added, "It is surprising that the Iraqi authorities have not mentioned this."  He continued, "We renovated the port of Umm Qasr and carried out a project to clean the shipping waters, removing sunken equipment that Saddam Hussein’s regime had left there."

Aziz al-Obeidi, the assistant general manager of the General Company for Ports of Iraq, said that "the US carried out small projects in the ports of Basra that provided our employees with expertise relating to maintenance, maritime safety and other issues."  Obeidi added, "We can't say that the Americans rehabilitated Iraq’s ports, but they did contribute to this.  Iraq does not deny that."  He went on to say, "Not only did the US contribute to the ports, but they went on to build bridges and schools and rehabilitated facilities in the city of Basra in general."  However, he said, "US support was provided in 2004 and 2005, when the ports were under their control.  After 2006, Iraq took control of managing the ports and US efforts decreased."

Omar al-Shaher is a contributor to Al-Monitor’s Iraq Pulse.  His writing has appeared in a wide range of publications including France’s LeMonde, the Iraqi Alesbuyia magazine, Egypt’s Al-Ahaly and the Elaph website.  (Al Monitor 06.02)

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11.7  GCC:  Value of Completed GCC Construction Projects up 48%

According to a report commissioned by dmg :: events, the organizing team behind INDEX, the region’s interiors and design exhibition, building projects worth over $68.7b were completed in the GCC in 2012 according to an in-depth sector report issued today.  Despite being lower than previously estimated, the Gulf’s construction industry grew by 48% over 2011 when completed projects were valued at $46.5b.  It also forecasts a further 19% sector growth in 2013, with completed construction projects set to reach $81.6 billion.

The value of new construction projects in the GCC is also expected to rise in 2013, with projects valued at $64.5b set to be awarded to contractors over the coming 12 months.  This figure shows a sharp increase, up by a third (33%) on the value of projects awarded in 2012 ($48.4 billion).

Growth of Construction Projects by Sector

In 2012, residential, commercial and hospitality sectors led the GCC projects market; with $29.4b, $12.2b and $5.5b worth of projects completed respectively.  Education, medical and retail sectors were other significant contributors, with completed projects worth $5.2b, $3.3b and $2.4b respectively.

In 2013, a two-paced growth is likely with residential, retail and commercial sector construction projects growing at slower rates of 4.4%, 4% and 13% to $30.7b, $2.5 billion and $13.8 billion respectively.  However, hospitality, educational and medical projects will grow at faster rates of 27%, 69% and 79% respectively to $27b, $8.8b and $5.9b.

The hospitality and educational sectors of the GCC building construction industry will see their market share by value of projects completed in 2013 grow tremendously by 137% (from 3.8% to 9%) and 134% (4.7% to 11%) respectively.

Residential building projects will remain the largest segment of the real estate market in terms of projects expected to complete in 2013 with a market share of 38%.  Commercial will remain the second largest real estate sector with 17% but educational is set to overtake the hospitality construction segment and claim third place with an 11% of the market share against hospitality’s market share of 9%.

Overview of the GCC Interiors and Fit-Out Market

Despite being lower than previously forecast, the value of the GCC interior contracting and fit-out market in 2012 was $7.86b – an increase of 56% against the 2011 figure of $5.04b and is expected to rise by 17% in 2013 to $9.2b.  In 2012, the UAE was once again the largest interiors and fit-out market in the GCC and, at $2.83b, made up 36% of the $7.86b GCC market.  It was followed by the Saudi Arabia and Qatar which were valued at $2.6b and $1.49b respectively.  The Kuwait interiors and fit-out market was valued at $472m, Oman’s at $314m and Bahrain’s at $157m.

The residential sector continues to command the largest market share of the GCC interior contracting and fit-out market with a 41% share of the overall market value in 2012 ($3.24b).  While the residential sector is expected to remain the largest sector of the interior contracting and fit-out market in 2013 and increase in value by 5%, it will see its market share reduce slightly to 37% ($3.4b) as other sectors grow at a faster rate.

As GCC countries continue to invest in social infrastructure, the value of the educational and medical sectors of the interior contracting and fit-out market will see huge increases of 70% (from $412m to $702m) and 80% respectively (from $261m to $470m).

In 2013, the hospitality sector of the GCC interior contracting and fit-out market is set to overtake the commercial sector and take the second largest share of the market - increasing in value by 31% from $1.2b to $1.57 billion.  (BI-ME 03.02)

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11.8  KUWAIT: High Profile Retail

The opening of the long awaited, third phase of The Avenues mall in Kuwait has provided the retail sector with a major boost, while reaffirming a growing demand for luxury goods.  Kuwait has one of the highest per capita GDPs in the world, estimated at $45,757 by the IMF in 2011 and forecast to increase to $52,267 by 2014, giving its consumers considerable spending power.

The number of high-profile, international retailers moving into new shopping centers is also on the rise, signaling a growing confidence in the Kuwaiti market.  However, as competition in the sector heats up, industry players are recognizing the need to attract both new and repeat business, citing customer loyalty as a key component of long-term success.

Rising consumer demand has led to a wave of new shopping centers opening their doors in Kuwait in recent years.  360 Kuwait, which began operating in 2009, is home to 82,000 sq. meters of retail space and the Mall of Kuwait is expected to have a 150,000 sq. meter capacity when it opens.

In its expansion, which covers an area of more than 100,000 sq. meters at a cost of KD150m ($533m), The Avenues has adopted the increasingly popular model of combining retail outlets with family entertainment options.  The new sections of the mall include the Grand Avenue, which has become a talking point due to its unusual architectural design.  The avenue sets out to conjure up an outdoor, “European” shopping experience, with retailers located on a 500-meter-long, 20-meter-wide, tree-lined boulevard.

The mall’s new sections contain a number of small boutiques and international retailers, as well as popular restaurant chains. New retailers include the first overseas branch of the American kitchen supply and gourmet goods store Williams-Sonoma.  The store opened in November in partnership with M.H. Alshaya, a Kuwait City-based global franchise operator.

Further sections of the development are set to open in the coming months, including Prestige, which will house a number of high-end retailers, including a branch of Harvey Nichols.  The third phase will also witness the construction of the Mall, which is to serve as a connection between the buildings constructed in the shopping center’s first two phases.  The Mall is set to contain a jewelry souk and a 5,000 sq. meter section of the first floor has been dedicated to children’s entertainment.  Another area of the mall, SoKu (South of Kuwait) is modeled on New York’s famous SoHo district and is intended to attract a younger segment of the Kuwaiti population.

While the expansion of the retail sector is gaining pace, luxury goods sales have suffered in recent years due to a wave of consumer wariness sparked by the global economic crisis.

Shahzad Gidwani, the general manager of the trading division at Kuwait-based luxury goods trader Mourad Yousuf Behbahani Company, told OBG that overall luxury sales were flat in 2012 and that future expansion may necessitate a change in the way retailers interact with their clients.  Gidwani told OBG that by encouraging younger customers to see the value in owning luxury goods, retailers would promote brand loyalty and, in turn, generate growth.

In a separate interview with OBG, Aref Easa Al Yousifi, the vice-chairman and managing director at Easa Husain Al Yousifi & Sons, a Kuwait City-based electronics distributor, also emphasized the importance of cultivating better customer service standards.  “The Kuwaiti consumer, especially in the technology market, is becoming more sophisticated,” he told OBG.  “Quality and after-sales services are becoming increasingly important, therefore it is becoming harder to compete.”

Kuwait’s malls are expected to retain their popularity with consumers, especially centers offering a multi-faceted shopping experience that includes family-friendly facilities and entertainment.  Rising demand should bring more luxury lines to local malls, although they will need to focus on their competitiveness, rather than relying purely on brand name, to flourish in an increasingly diverse market.  (OBG 30.01)

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11.9 QATAR: Focus on Solar

Aiming to reduce both its greenhouse emissions and its use of hydrocarbons to generate power, Qatar is looking to embrace solar technology.  This could lead to the development of a local industry with the potential for exports in the longer term.

On January 9 the international press reported that Qatar was looking to launch an initiative to support the development of alternative energy sources in the Gulf.  The announcement was made by Mohammed bin Saleh Al Sada, the Minister of Economy and Energy, at an electricity conference in Doha.  Al Sada said that Qatar would launch pilot schemes in the solar sector as part of a 200 MW solar project announced last year.

The initial phase, which is due to be tendered in the coming months, will see small-scale plants generating 5MW-10MW each, installed on underutilized land.  Last year the cost of this stage was estimated at $30m.  Phase two will involve assessment of the initial sites, with a view to bringing in private investment to increase solar capacity.  Officials at the conference asserted the importance of boosting generation capacity in the Gulf, as well as broadening the energy mix and increasing the proportion of power generated by renewables.

Al Sada said that greater use of renewables could help reduce the use of natural gas to produce power.  Qatar is one of the world’s leading gas exporters, and also has a growing petrochemicals industry and substantial desalination needs.  Greater diversification of power sources would free more gas for these purposes.  Currently, all the country’s electricity comes from oil and gas fired plants.  Another reason for wishing to increase green energy output and reduce the use of hydrocarbons is environmental.

With these issues in mind, Qatar aims to generate 20% of its energy from renewables by 2024, and have 1800MW of installed green capacity by 2020.  These are ambitious targets given the current generation mix, but not an unobtainable one, thanks to the financial resources at its disposal and its year-round sun, which makes it well suited for solar development.  While solar power is still a relatively expensive source – particularly compared to Qatar’s cheap and abundant gas – scientists are increasingly confident that technology will be developed over the coming years to make it more efficient and thus cost-effective.

One driving force behind renewables development in the state is Qatar Solar Technologies (QSTec), a venture between the Qatar Foundation, a semi-private non-governmental organization backed by the royal family; Germany’s SolarWorld; and the government-owned Qatar Development Bank.

In May 2012 QSTec secured financing for a $1b polysilicon plant in Ras Laffan City, north of Doha.  The factory will have initial annual production of 8000 tonnes of polysilicon and will produce enough for photovoltaic panels generating 6.5GW when at full capacity.

A number of international companies are also involved in research and development in the solar sector in Qatar.  US energy giant Chevron, best known for its hydrocarbons activities, is investing $10m in the Centre for Sustainable Energy Efficiency (CSEE) at Qatar Science & Technology Park, with another $10m coming from local clean energy firm GreenGulf.

The CSEE was inaugurated in March 2011 and aims to develop solar technology that is suited to Qatar’s climate and the specific needs of its energy users.  One of the issues that Chevron aims to address is building solar panels that can perform in the hot and dusty Gulf environment.  With very little rain, panels can get clogged with sand and dust, and thus absorb less sunlight.  According to Chevron, their effectiveness can be reduced by as much as 40% after six months.  Photovoltaics also operate less effectively in high temperatures.

As well as working on technology for power plants, the CSEE is researching the potential of harnessing solar energy for uses such as desalination and air conditioning, as well as energy efficiency measures.

Other international firms investing in solar research in Qatar include General Electric, Shell and ConocoPhillips, while the Doha campus of Texas A&M University has a project working on using solar energy to break down natural gas into carbon and hydrogen for industrial uses.

Renewables are still in their early days in Qatar, and an important caveat is that solar power is still considerably less efficient and more expensive than the state’s abundant gas.  However, the country has the financial resources to invest in solar research and development and has put itself at the cutting edge of technical advances in the industry.  If development continues at this pace, Qatar could become a leader in solar technology.  QSTec’s potential capacity could also leave scope for export, while the work being done at CSEE and Texas A&M should, if successful, be applicable elsewhere in the region, and the world.  (OBG 06.02)

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11.10 UAE:  Dubai’s Health Insurance Makeover

Plans by Dubai’s authorities to tighten regulatory oversight for health insurance and put in place a long delayed scheme for mandatory coverage will likely result in major changes to the sector.  At the end of December the Dubai Health Authority (DHA) said it would be putting in place a new regulatory framework for health insurance to ensure greater accountability by policy writers and to cut down the abuse or overuse of services by the public.  The new regime, which the DHA’s director-general, Essa Al Maidoor, has said will come into effect during Q1/13, aims to reduce insurance fraud, malpractice and alleged cases of unnecessary medication and over-treatment.

Announcing the plan on December 29, Dr Haidar Saeed Al Yousuf, the DHA’s director of health funding, said while health insurance in the emirate is a dynamic, growing sector, a more comprehensive regulatory regime was necessary to protect all players in the market.  “Regulating and monitoring this sector is fundamental to protect members, limit attempts of abuse and further enhance the quality and sustainability of health services,” said Al Yousuf.  “It can contribute to preventing fraudulent activities by service providers such as ordering unnecessary investigations or sending claims for services that were never provided.”

Though instances of overcharging or fraud do occur, an arguably larger problem facing the sector is rising costs.  With the domestic health insurance sector highly competitive, premiums in recent years have been kept down to attract new clients and retain existing ones.  However, this has resulted in shrinking margins for insurers as health costs have risen sharply in recent years.  Though the DHA has recommended that health service providers do not increase prices in 2013, market conditions have pressured some into announcing new tariffs.

In mid-January Mediclinic Middle East, which operates 10 health facilities in Dubai, said it would be increasing charges by 6% to offset rising costs.  Some of the emirate’s leading insurers have not agreed to the increase in fees, meaning their clients may not have full coverage if they are treated at a Mediclinic facility.  “It’s a very difficult pricing market,” David Hadley, the CEO of Mediclinic Middle East, told English-language daily The National in January.  “We are experienced in it, but in essence the price of medical insurance has to go up because it’s such an expensive country to live in and the cost of medical care is rising.”  If more health care providers do move to pass on costs, this will pressure more insurers to raise their premiums, or else face trading in the red.

Another significant change to the health insurance landscape expected this year may alter the fortunes of many policy writers, as the introduction of mandatory health coverage is set to greatly increase turnover.  Though initially planned to come into force in 2009, the emirate declined to enact the measure due to the global economic crisis.  As proposed, all employers will have to take out health insurance for their staff.  This will include private and public hospitals in the emirate.  All residents not covered in work-related policies would be expected to sign up with an insurer on an individual basis.

Though no firm timeline has been set for the implementation of the new scheme, the DHA has said draft regulations to establish the regulatory framework were being considered by the Dubai Executive Council and would be in place in the first half of 2013.  If so, insurance firms can look forward to a busy second half of the year, as they will have to deal with a sharp rise in policies being registered: current estimates reported by local media show that up to 75% of Asian and non-national Arab residents have no coverage at present.  Though most are in the lower-income bracket, the volume of new business should make up for the low value of per capita policies.  (OBG 08.02)

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11.11 UAE:  Sharjah - Expanding Health Care

A new medical center is set to spearhead Sharjah’s efforts to tap into foreign investment in health care as the government moves to meet rising demand and expand into medical tourism.  Sharjah is keen to expand its health sector, which has been earmarked for growth on the back of several major developments.  A study conducted by the Sharjah Investment and Development Authority (Shurooq) late last year forecast the emirate’s health care sector would grow an annual average of 9.3% over the next four years from an expected $1.25b in 2013 to almost $1.8b in 2016.

Shurooq’s chief executive officer, Marwan Bin Jassim Al Sarkal, expects this growth to stem from several major projects and new medical facilities.  “Various new projects are either in planning or execution stages, while many others are in the pipeline,” he said in mid-December, when the report was released.

In its findings, the report said the emirate would need to expand its existing health facilities to allow for Sharjah’s growing population.  It said 600 additional hospital beds would be required over the next five years, and other health-related services, such as pharmaceutical production and supply, would also need to be developed to meet rising demand.

Al Sarkal added that expansion provided plenty of investment openings for firms operating in the sector.  “Despite growing demand for health care services and pharmaceuticals, only a few players operate across the sector’s value chain, thus indicating that opportunities still exist for foreign players to undertake strategic partnerships with local and regional institutions to tap the potential of the undeveloped health care market,” he said.

The emirate will be hoping that a move to offer 100% foreign-owned investment opportunities to service providers at the Sharjah Healthcare City (SHCC) will generate interest from investors and industry players.  The medical hub, to be sited close to Sharjah University City, will operate as a free zone when launched in the second quarter of the year.  The center will incorporate hospitals, polyclinics, laboratories, rehabilitation centers and storage and production units, over an area of 2.4m sq meters.

According to the Sharjah Health Authority, the SHCC will play a pivotal role in serving the needs of health care and auxiliary service providers across the region, while also solving the problem of hospital bed shortfalls in Sharjah and other northern emirates.

Officials are confident the SHCC will place the emirate’s medical services at the forefront of the region’s health care industry even though the new zone faces tough competition from other, long-established hubs.  In a move to shore up support for its project, representatives of the Sharjah Health Authority held talks with officials from Singapore in late December to discuss possible investment opportunities for the island’s service providers at the SHCC and ways in which the two parties could bolster health care links.  Singapore is one of the world’s leaders in health tourism, notching up roughly 1m overseas visitors for medical treatment last year.  Its health care infrastructure has been rated number one in Asia and sixth globally by the World Health Organization (WHO).

In the initial development phase, the SHCC will offer opportunities to building firms, technical service providers and equipment suppliers.  Once the center opens its doors, Sharjah’s government will be hoping that the medical hub’s tax-free status will also attract overseas health care groups.  (OBG 11.02)

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11.12 OMAN:  Set to Limit Number of Foreign Workers

Oman's government will limit the number of foreign workers and sharply raise the minimum wage for locals in a drive to increase employment of Omani citizens.  A statement by the Council of Ministers said the government would aim to limit foreign workers to 33% of Oman's total population.  The minimum monthly wage for Omanis in the private sector will jump to 325 rials ($845) this July from the current 200 rials.  Despite its oil wealth, Muscat is keen to move more Omanis into private employment to avert social unrest and prepare the economy for an eventual fall in oil reserves, which could start later this decade.  Since 2011, there have been sporadic street protests to demand more jobs.  

The IMF estimates unemployment among Omani citizens may have exceeded 20% in 2010, though government officials say that estimate was far too high and that the number of registered unemployed was reduced by three-quarters to about 17,000 last year.  The new measures, which are subject to review by the government's Shura Council, could have a major impact on the economy, though in practice authorities may implement them cautiously to avoid disruption.

Around 1.3 million or 39% of the population of about 3.3 million are foreigners, most of them workers brought in to do skilled or strenuous jobs in the oil, construction and services industries, according to official data last year.  Most are from south or southeast Asia.

Oman's ruler, Sultan Qaboos bin Said, has acknowledged that large numbers of foreign workers are needed for industrial development and construction of a national railway.  It would be impossible to find local replacements for many of these workers in the foreseeable future.  So a sudden mass expulsion of foreign workers looks unlikely.  The Council of Ministers did not specify a deadline for the 33% target to be hit.

But the rise in the minimum wage could affect many businesses in the near term.  The Times of Oman quoted the Public Authority for Social Insurance as estimating over 122,000 registered employees would receive higher pay.  The Oman Society of Contractors, the umbrella body for construction firms in the country, asked the government to reimburse companies for additional costs incurred because of the wage hike, the newspaper reported.

The Council of Ministers identified mechanisms that could be used to boost employment for Omanis, including revising the foreign investment law to stop unnecessary recruitment of foreign workers, and changing procedures for registering companies, ONA said.  A team of government agencies will be formed to submit progress reports on moving Omanis into private sector jobs, it added.  (AB 08.02)

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11.13 SAUDI ARABIA:  Who Will Be The Next King Of Saudi Arabia?

On 12 February, Simon Henderson wrote in the Washington Institute’s PolicyWatch that Riyadh's latest appointment suggests that traditionally secretive royal rivalries may be moving into the public eye as the succession process comes to a head.  Speculation about who will rule Saudi Arabia in the future is mounting after the surprise 1 February appointment of Prince Muqrin bin Abdulaziz as second deputy prime minister, a post long viewed as "crown prince in waiting."  The unexpected move puts a spotlight on the complicated politics and procedures surrounding Saudi succession.


Prince Muqrin is the youngest surviving son of the late Ibn Saud (a.k.a. King Abdulaziz), the founder of Saudi Arabia.  He is now the third most powerful person in the kingdom, behind King Abdullah (who also serves as prime minister) and Crown Prince Salman (the deputy prime minister).  Both of these men are ailing, however: Abdullah (age 90) is rarely seen standing upright and has a limited attention span, and Salman (77) has dementia.  In comparison, Muqrin (70) appears to be in good health.

His appointment has confused analysts because he was sacked as head of the Saudi General Intelligence Directorate just last July.  Although no reason was given for that decision, he was assumed to lack the mettle needed for undermining the pro-Iranian Assad regime in Syria, where Riyadh is competing with its Gulf rival Qatar for influence and control of jihadist fighters.  This assumption may have been mistaken.

Additionally, the change comes just three months after Muqrin's nephew, Prince Muhammad bin Nayef, was elevated to the important position of interior minister (equivalent to the U.S. secretary of homeland security), seemingly setting Muhammad up as a potential future king.  Indeed, during a visit to Washington last month, Muhammad met with President Obama in the White House, a privilege not normally accorded to foreign officials of that rank and therefore widely perceived as conferring U.S. approval of his regal prospects.

Complicated Succession

In the past, the Saudi line of succession has been from brother to brother among the sons of Ibn Saud, in contrast to the father-son method seen in most other monarchies.  The main qualification has been seniority in age, though some princes have been passed over due to incompetence or unwillingness to take the role.  One consequence of this system has been shorter reigns for most of the kings since Ibn Saud, as his sons are increasingly old and often ailing when they assume the throne.  For years, many have argued that the crown should pass to the next generation, the grandsons of Ibn Saud -- hence the excitement following Prince Muhammad's meteoric rise to interior minister.  But the royal family has never been able to agree on when this shift should happen, and which line should be chosen.

Muqrin's new status also challenges another presumed succession principle: that the king's mother should be from a Saudi tribe.  Muqrin's mother was Yemeni and it is not even clear that Ibn Saud was married to her.

Indeed, Ibn Saud's domestic arrangements in the 1920s to 1940s are central to understanding current succession politics.  By the time he died in 1953, he had fathered forty-four sons, thirty-five of whom survived him.  This feat was accomplished by having twenty-two wives, though in keeping with Islamic tradition he was never married to more than four at a time.

Some historians -- and all Saudi officials -- emphasize that these marriages and the resulting offspring were vital to uniting the tribes and stabilizing the nascent kingdom.  The reality is more nuanced: one well-researched work ("The House of Saud" by David Holden and Richard Johns) notes that in addition to four wives, Ibn Saud typically had four favorite concubines and four favored slave girls "to complete his regular domestic team."  Muqrin's mother, usually identified as "Baraka the Yemeni," was presumably in one of the latter categories.

Ibn Saud clearly regarded Muqrin as a full son.  The question now is the attitude of Muqrin's sixteen half-brothers and his many nephews, who might regard their own pedigrees as superior.  Apart from age, the other criteria for becoming king are experience, acumen, popularity, mental stability, and the status of one's maternal uncles (which indicates whether one's mother was a slave or concubine).

Current Royal Factions

Muqrin himself has no recorded full brothers, a status he shares with King Abdullah, which might explain the perceived bond between the two men.  Fraternal alliances have been significant in royal politics.  For decades, the so-called "Sudairi Seven" - full brothers Fahd, Sultan, Abdulrahman, Nayef, Turki, Salman and Ahmed, all born to Hassa al-Sudairi - were a crucial constituency.  Although the deaths of King Fahd and Crown Princes Sultan and Nayef depleted the bloc's strength, Crown Prince Salman continues to lead the faction despite his dementia, propped up by his own sons and Sudairi nephews.

Assessing the combined strength of these nephews presents its own challenges.  Muhammad's elder brother Saud bin Nayef was recently named governor of the oil-rich Eastern Province, but he replaced another Sudairi nephew, Muhammad bin Fahd.  In addition, one of Salman's sons has been appointed governor of Medina province.  Clearly, the Sudairi nephews possess the experience and ability to remain a significant force in palace politics.

Legal Ambiguity

Saudi laws and official statements fail to clarify how the current situation will evolve.  The 1992 Basic Law of Governance merely states that "rule passes to the sons of the founding king and to their children's children."  The principal qualification is to be "the most upright among them," and this vague criterion is not defined.

In 2006, King Abdullah established an Allegiance Council of princes to help guide future succession.  Yet the scope of its role is ambiguous: the council was not involved in the selection of new crown princes to succeed Sultan (who died in 2011) or Nayef (who died last year).  In both cases, Abdullah chose the replacement and the council merely approved it.  The Allegiance Council Law does include a mechanism to replace the king and crown prince if they are incapable of carrying out their duties for health reasons; the kingdom is arguably nearing this point.

Legally, Muqrin's new post -- second deputy prime minister -- exists only to provide an additional person to chair the weekly Council of Ministers meetings; the position has therefore gone vacant at times.  According to the Law of the Council of Ministers, these meetings "are presided over by the king, who is the prime minister, or by a deputy of the prime minister."  It is therefore by convention, not law, that the second deputy prime minister is destined to be crown prince.

Whether any of the above legal documents or bodies will actually be used to determine Saudi Arabia's future kings or crown princes is a matter of conjecture.  There is nothing to stop the king from abolishing the Allegiance Council and establishing alternative procedures.  Meanwhile, various succession scenarios are swirling through the kingdom and the wider Arab world.  One is that Muqrin will become king and appoint Abdullah's son Mitab as his crown prince, thereby cutting out Sudairi challengers.  Although rivalries within the House of Saud traditionally play out behind palace walls, the increasingly high stakes suggest that the rest of the world may get a glimpse of the coming maneuvers.

Simon Henderson is the Baker fellow and director of the Gulf and Energy Policy Program at The Washington Institute.  (Policy Watch 12.02)

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11.14 SAUDI ARABIA:  Will the Saudi Model Prevail?

On 31 January, Ali Al Ahmed wrote in the Fiqra Forum ( that when the plane of deposed Tunisian dictator Zine al-Abidine Ben Ali touched down in Jeddah in January 2011, the Saudi monarchy’s worst nightmare re-emerged.  Ben Ali was a close personal friend of then Saudi strongman, the late Saudi Crown Prince and longtime Interior Minister Naif bin Abdulaziz al-Saud.  For the Saudi monarchs, seeing two personal friends, Ben Ali and Hosni Mubarak, deposed in quick succession was certainly frightening.

Until 1953, Saudi Arabia was surrounded entirely by monarchies ruling in Iraq, Iran, Egypt, Jordan, Yemen, and of course in the gulf states of Kuwait, Qatar, Bahrain, Oman and UAE.  Since then, however, the region’s monarchies have steadily declined, giving way to more inclusive forms of government inspired by republican principles.

This is bad news for the Saudi monarchs.  The Saudi goal in the region is to see weaker and more dictatorial governments, preferably monarchies like the KSA.  This principle applies even when these governments are driven by sectarian forces such as the Shia, a sect of Islam traditionally deplored by the Saudi branch of Salafism.  In 1963, Saudi Arabia supported the Yemeni Shia Zaidi Imam Ahmed against the secular revolutionaries backed by Egypt.

Saudi Arabia remains the largest surviving absolute monarchy in the Middle East.  The longevity of the al-Saud monarchy has led some to advocate for a “Saudi Model” of government and policies, ostensibly to ensure stability and continuity.  There is no doubt that the Saudi monarchy has thus far been able to navigate the treacherous waters of the Middle East largely unscathed, due to both its wealth and its strong, nearly unconditional, Western backing.

Today, however, the situation is changing.  The leaderless upheaval of the Arab Spring has changed cultural and even religious norms.  Among the most important changes are people’s expectations and perceptions of their rulers and their designated positions and roles.  The old belief that a ruler can do whatever he wishes as long as he speaks in favor of the faith is no longer valid.

The Arab Spring has brought another model to the region that will prevail for the foreseeable future.  Love it or hate it, the Muslim Brotherhood model is here to stay and it will take hold across the region, including in the Gulf monarchies.  It appeals to a sizable portion of youth in the region, especially in the Gulf, which has not been willing to share power and wealth with broader society.  It is a model based on religion and ideology rather than bloodline.

Young Saudis have now started to dream of becoming elected prime ministers and even presidents.  The religious cover that provided backing for the absolute monarchy is now collapsing and is being replaced by the view that correctly views monarchical rule as un-Islamic.  Recently, the Emirati government announced the trial of religious activists who aimed to replace the absolute monarchies.

The Muslim Brotherhood model - Sunni, Arab, religious and embracing some democratic views - strikes fear in the heart of al-Saud and other ruling families in the Gulf.  It is a more horizontal political system and more accessible to the average citizen, while the monarchies are increasingly concentrated in the hands of the elite.  The Brotherhood, by contrast, appeals to millions of unsatisfied youths who see members of ruling families dominating most aspects of social and economic life in their countries.  The increasing size of the ruling families is working against them as it limits their options and capacity to co-opt the people by sharing part of the wealth and power.  With the aging and expanding ruling family, it will be almost impossible to protect power with a busy courtyard of princes vying for top seats and petrodollars.

The Saudi model is finding fewer and fewer buyers among the political classes in the region.  The current odds favor the Muslim Brotherhood, who unlike any other group, enjoy considerable support on the streets across the region.

Ali al-Ahmed is the director of the Institute for Gulf Affairs based in Washington, DC.  He is a Saudi Shia political activist and analyst on Saudi Arabia and Gulf political issues.  (Fikra 31.01)

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11.15 EGYPT:  Hard Economic Choices

On 30 January, Mohammed Samhouri wrote in Sada ( that since the early days of the revolution, Egypt’s policymakers have been battling two main economic challenges: maintaining a stable value of the local currency in the face of growing balance of payment deficit, and securing resources to finance an expanding budget deficit.  These two battles seem to have reached a critical juncture by the end of 2012, when a series of adverse developments hit Egypt’s fragile economy.

In the final three weeks of 2012 a preliminary deal with the International Monetary Fund (IMF) for a crucial $4.8 billion loan was postponed; Egypt’s sovereign credit rating was cut to “junk” status (same as Greece) by Standard & Poor’s (S&P); foreign exchange reserves reached an alarming “critical minimum”; the Egyptian pound slid to a record low not seen in eight years; and a budget deficit for the current fiscal year, ending on June 30, that could very well exceed initial projections by 50%.

Still, 2013 brought even more bad news: $5 billion in foreign investments had left the country during the second half of 2012; Moody’s placed Egypt bond ratings on review for possible downgrade; and a new World Bank report projected a 2.6% growth rate for Egypt this year, much lower than the government estimate of 4%.  These developments are all interrelated, and better analyzed and understood in the wider post-revolution macroeconomic context which, for two years now, continues to be mired in political strife and policy uncertainty.

On the monetary side, and since January 2011, the Central Bank of Egypt (CBE) has been struggling to keep downward pressure off the pound, amid continued dwindling of foreign cash receipts from foreign investment and tourism.  In the process, CBE was losing an average of $1.4 billion a month in an attempt to defend the national currency.  By April 2012, Egypt foreign reserves were down to $15 billion from their January 2011 level of $36 billion; a level enough to cover 3 months’ worth of imports.  Since mid-2012, dollar-and euro-dominated debt securities’ sales, and a total of $4 billion from Saudi Arabia, Qatar and Turkey deposited in CBE kept foreign-currency from falling below $15 billion.

Bonds sales and foreign deposits, however, only bought Egypt little time.  By mid-December, signs of worsening international reserves position began to surface when banks started to bring dollars from their overseas accounts to meet growing local demand, followed, days later, by a government decree limiting foreign currency transfers in and out of Egypt to a max of $10,000 per traveler.  A clear indication that the era of defending the national currency was over, however, came when CBE revealed that Egypt foreign reserves had plunged to a “critical and minimum level,” and announced the introduction of a new foreign exchange auction mechanism to buy and sell the US dollar.

Allowing Egypt’s pound to weaken had resulted in an 8% loss of its official value since mid-December.  Whether this new policy of managing the country foreign exchange was an IMF loan-related condition or not, remains to be known.  But for now, it is the inflationary impact of the pound fall that is of immediate concern in a country that imports 60% of its food and 40% of its fuel, and where over 25% of the population - 50% in rural areas and city slums - live below poverty line.  Add to this a jobless rate of 25% among young Egyptians, and the result is an explosive socioeconomic mix at hand.

On the fiscal front, Egypt has been facing a growing fiscal deficit which reached 11% of GDP (about $28 billion) last year, and is expected by the end of the current 2012/13 fiscal year to jump to 13% of GDP (close to $31 billion).  With almost 80% of the state budget allocated to wages, subsidies and debt services, Egypt’s finance officials have little room for maneuvering.  Raising taxes or cutting expenditure in the context of economic decline and rocky transition were not politically feasible and likely to carry a high social price.  Borrowing, thus, seemed the only option left.

External official finances, however, were not readily available, and all seemed to be tied to Egypt undertaking necessary political and economic reform measures to ensure stability and sustainability of the country and its economy.  With Egypt’s international credit rating constantly on the decline (it has been downgraded five times by S&P since the revolution), borrowing from international markets was increasingly hard and costly.  Post-Mubarak Egypt had twice approached the IMF, in May 2011 and again in January 2012, asking, then, for a $3.2 billion loan, and in both cases, internal domestic politics hindered a fruitful conclusion of the talks. 

Egypt, thus, relied extensively on domestic borrowing, causing domestic debt to rise from 76% of GDP by end of 2010/11 fiscal year to 80% by end of fiscal year 2011/12.  With external debt currently at $34.7 billion, or 13.5% of GDP, Egypt’s total public debt now is fast approaching the size of its economy.  More worrying is the continued rise of government debt as a percentage of domestic banks’ total deposits and total credit, which amount to 55% and 56%, respectively.  This high exposure to debt, for the country and its banking sector, partly explains the continued deterioration of their international credit standing.

Desperate for cash, Egypt turned, again in August 2012, to the IMF.  This time asking for $4.8 billion loan; a 50% increase from the request made before.  Three months later, a preliminary agreement was reached between the parties based on Egypt commitment to implement a homegrown economic reform program which aims to reduce the country’s budget deficit from 11% of GDP this year to 8.5% of GDP by 2014.  This, according to the plan, is to be achieved, inter alia, through a mélange of tax hikes on sales, income and property, and through expenditure cuts.  That loan arrangement is now on hold after Egypt retreated last December from raising sales taxes that were part of the IMF deal, hours after they were announced.

Given the sad state of its economy, Egypt is in dire need for the IMF’s support.  With its foreign reserves already at rock bottom; its international credit rating recently “Greece-ed” by S&P; its cost of borrowing rising; and with the public debt, both domestic and external, reaching over 90% of GDP, Egypt is eager to conclude the IMF deal; not only for the $4.8 billion loan, but also to unlock additional international aid -about  $10 billion - from a number of foreign countries and institutions that have conditioned their financial support to Egypt on finalizing the IMF deal.

But this will not be a panacea, nor will it be cost free.  If faithfully implemented, the IMF-supported reform plan is certain to have inflationary consequences, some of which have already been felt by consumers around the country.  Coupled with the inflationary impact of the pound’s fall, this could very well trigger waves of social unrest among the less-privileged, poverty-stricken Egyptian masses lacking social safety nets.

This is where Egypt’s ultimate economic policy challenge this year lies: how to reconcile the high expectations of ordinary Egyptians for a better living and respond to their passionate cry made two years ago this month at Cairo’s Tahrir Square for “bread, freedom and social justice,” while, at the same time, implement - in an increasingly chaotic political setting - a deeply unpopular IMF-required program that, in addition to the much-needed cash it will provide, is all but certain to inflict harsh economic pain on Egyptians’ lives and livelihoods.  Finding a solution to this intricate puzzle will be Egypt’s leadership ultimate challenge in 2013.

Mohammed Samhouri is a Cairo-based economist and a former senior fellow and lecturer at Brandeis University’s Crown Center for Middle East Studies in Boston.  (Sada 30.01)

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11.16 EGYPT:  Investing in Egypt Amid a Second Revolution observed that in April, Egypt will hold crucial parliamentary elections.  Preparations for this are being undertaken against an extremely volatile backdrop of violent protests, a state of emergency in three key provinces, weapons caches discovered in Cairo and growing calls from radical Salafi forces who think the Muslim Brotherhood has far too moderate an agenda.

All of these should be warning signs for investors, if economic indicators aren’t enough.

Popular Uprising, Take II

A number of developments over the past months, weeks and days have triggered country-wide unrest in Egypt, which was already volatile.

•    The Muslim Brotherhood president made a very controversial power grab in order to push through an Islamist constitution that has sparked fears among Christians who have no rights under this constitution, and mass protests by those who originally launched the revolution

•    Muslim protesters attempted to storm a Coptic Christian church in Luxor in the country’s south and attacked Christian-run shops and Christian-owned vehicles after rumors that a Christian man had sexually assaulted a 6-year-old girl.  Police dispersed the marauders with tear gas.  Christians claim the accusations are false and purposefully intended to spark protests and violence, blaming a local Salafi group that is attempting to enforce its own brand of Sharia law in the area.

•    A Coptic man who was an outspoken atheist was sentenced to three years in prison for blasphemy.  This particular case has done much to increase the community’s fears of what is to come under the new constitution.

•    Trials of security forces responsible for violence against protesters in 2011 have fallen short of the justice demanded by the general population

•    Verdicts were handed down late last week against civilians involved in the violence that broke out at soccer match a year ago.  21 people were sentenced to death, sparking mass protests and clashes with security forces this week.  As of 31 January, more than 50 people had been killed and a state of emergency was imposed and the military was deployed the provinces surrounding the three main flashpoints: Port Said, Suez and Ismailiyah.

Forces Line Up Against the Muslim Brotherhood

The secular opposition in Egypt is out in full force, and its power is being boosted by these recent protest developments.  The military - which loyally maintains its own Facebook page - has informed the public that the government faces collapse.  On another front, radical Salafi figures are plotting the Brotherhood’s demise.

While it is the Western tendency to toss the various Salafi groupings and political parties in with the Muslim Brotherhood, the reality is that the Brotherhood has some moderate Salafi allies, but the more radical groups are hoping to make a power grab to sideline the Brotherhood.  There is a new figure emerging from the dust of this power play, and that is the dangerously charismatic Hazem Abu Ismail.  Abu Ismail is forming his own coalition and has had significant success in luring away the Brotherhood’s supporters and forming a radical coalition to challenge the Muslim Brotherhood in April parliamentary elections.  The Muslim Brotherhood and the military have only a very shaky alliance.  (OilPrice 01.02)

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11.17 TUNISIA:  Assassination a Setback to Tunisia Transition

Fitch Ratings ( reported on 07 February that the assassination of Tunisian politician Chokri Belaid and the announcement of the dissolution of the Tunisian government increase the uncertainty about the country's political transition.  The risk that divisions among the population and politicians will result in intensifying social and political violence has risen.

We downgraded Tunisia to 'BB+' with a Negative Outlook in December to reflect the longer-than-expected transition period, characterized by weak economic performance and prolonged political uncertainty.  The rating already incorporates the risk of heightened political trouble.  However, the recent announcement by the IMF that negotiations with the Tunisian authorities for a precautionary stand-by agreement to support the country's reform program were advanced is supportive of the rating.

Our base case in December envisaged elections in 2013 leading to the formation of a stable government and to the gradual decline of social and political tensions.  As we said, the intensification and spread of social violence, generating political destabilization and jeopardizing the transition, would be a potential ratings trigger.  If the likelihood of this increases, with the inability to form a new government and/or a destabilized government, Fitch could downgrade Tunisia's ratings again.

The assassination of Chokri Belaid, the leader of a left-wing secular opposition party, on 6 February prompted protests in some large Tunisian cities, clashes between protesters and the police, and the deployment of the army.  Opposition parties announced they would stop sitting at the National Constituency Assembly (NCA), which is in charge of drafting the long-awaited new constitution of the country and a general strike was held.

The assassination occurred after several weeks of increasing tensions within the coalition government, as Prime Minister Hamdi Jebali of Ennahda, the largest party in the coalition, attempted a reshuffle.  Social tension remained significant in the country, fuelled both by deteriorated economic prospects and by Salafi movements, which were blamed for several violent actions in 2012.  The rising influence and violence of extremist movements in recent months have exacerbated divisions between the secularist opposition parties and the Islamist Ennahda.

Prime Minister Jebali announced that the government would be dissolved and replaced by an apolitical government of technocrats in charge of day-to-day management until elections could be held in the shortest time possible.

However, dates for the designation of this new government and for the elections have yet to be announced.  On 7 February, influential Ennahda leaders publicly contradicted Jebali's announcement, raising uncertainty over any transfer of power.  A split of Ennahda would fuel the political crisis even more.  (Fitch 07.02)

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11.18 ALGERIA: Needing More Than Hydrocarbon Law Amendments

Lahcen Achy wrote in Al-Hayat on 22 January that the lower house of the Algerian parliament, the People’s National Assembly, is considering amendments to a 2005 law and 2006 presidential decree that govern the country’s hydrocarbon industry.  The aim of the amendments is to attract more foreign investment for Algeria’s energy sector and help the government meet growing social demands.

The country has the third-largest oil reserves in Africa after Libya and Nigeria, with an estimated 12.2 billion barrels of proven oil reserves.  The hydrocarbon industry accounts for approximately 35% of Algeria’s GDP and provides more than two-thirds of government revenues; these in turn enable a sustained level of public spending.  It is also virtually the country’s only source of foreign exchange.

However, due to the unattractive contract terms imposed by the government on foreign companies, the volume of Algeria’s hydrocarbon production has declined by 20% over the last five years, and there have been very limited new oil discoveries.  The 2005 law allowed full ownership of projects to the international companies and gave the national oil company, Sonatrach, an option to acquire 20–30% participation, in line with international practice.  The 2006 presidential decree, however, stipulated that international companies can only carry out hydrocarbon exploration and exploitation activities in partnership with Sonatrach, which should own 51% of any project.  Since then, Algeria has issued three tendering rounds of oil and gas exploration but failed to attract the interest of large international companies.

Domestic oil consumption, meanwhile, has risen from 26% of production in 2005 to 40% in 2010.  Domestic consumption of natural gas has also increased, from 19 to 29% of overall production.

This increase in domestic consumption is due in part to Algeria’s population growth.  On average, the population has been growing by 1.5% per year (compared to 1.2% in Morocco and 1.08% in Tunisia).  Car imports have also increased at an unprecedented rate over the last three years, which means more fuel is needed.  Additionally, local fuel prices have remained artificially low thanks to substantial government subsidies, leading people to consume more.  The price of regular gasoline in Algeria represents 50% of the average price in other oil-exporting countries, 28% of the average price in developing countries, and almost one-quarter of the worldwide average price.

The surge in domestic energy consumption and the decline in production have had a dramatic effect on Algeria’s current account surplus, which has already decreased by 50% over the past five years.  During the same period, the overall current account surplus in Arab oil-exporting countries rose by 70%.

If the trend of rising domestic consumption continues over the next decade, Algeria’s energy exports may decline, severely threatening the country’s redistributive rent system that allows the regime to purchase loyalty.  It is no coincidence that the decline of international oil prices in the mid-1980s was a major contributing factor to the 1988 breakdown of Algerian state-society relations.  At that time, the government lost its financial capacity to draw on hydrocarbon revenues, which it had relied on to absorb the country’s growing social and political discontent.

In this context, policymakers in Algeria perceive the amendment of the hydrocarbon law as an urgent concern.  A 2008 Chatham House study indicated that Algeria would have no oil available to export after 2023.  A more recent study argues that Algeria will likely run out of oil to export between 2018 and 2020.  The same study warns that without the discovery of new oil reserves, the country could lose its status as an oil producer by 2026.

Yet despite these dire forecasts, the effort to amend the hydrocarbon law does not bring any revolutionary changes to the table, and it will not be enough to address the current situation.  There are deeper systemic and structural problems at play that will require more than simply amending the hydrocarbon law.

First, the amendments do not change the provision limiting the participation of international oil companies to 49% of joint ventures with Sonatrach.  This, along with other regulations on investment and the country’s general regulatory instability, makes Algeria an unattractive place to do business.  According to the 2012 World Bank’s “Doing Business” report, Algeria ranks 148 of 183 states, behind most countries of the Middle East and North Africa, and it has lost headway in recent years.  Security concerns have grown with the recent terrorist attack on the gas field in the south of the country, which is expected to further damage Algeria’s attractiveness.

Second, the proposed changes to the law do nothing to address Algeria’s overdependence on the oil and gas sector.  Even compared to other oil producers in the Middle East and North Africa, Algeria is heavily dependent on its hydrocarbon resources.  For example, the share of oil and natural gas represents 98% of Algeria’s total commodity exports.  That share stands at 94% in Kuwait, 84% in Saudi Arabia and 67% in Oman.  The agricultural sector contributes 8% of Algeria’s GDP and the manufacturing sector just 5%.

Moreover, only a few sectors, such as construction and public works as well as the demand created by a large public administration, contribute to Algeria’s economic growth.  The problem is that all these sectors depend exclusively on hydrocarbon rents.

Third, Algeria’s public spending has risen substantially since the eruption of the Arab Spring, pushing up the fiscal “breakeven” oil price.  That is, the price at which the government’s budget is balanced.  It edged upward from around $70 in 2008 to over $105 in 2012.

To maintain its current pace of spending, the government is tapping the country’s sovereign wealth fund, known as the Revenue Stabilization Fund.  The fund’s intended objective is to support public investment programs.  However, it is increasingly being used to keep up with mounting current spending.

Of greater concern, the government is rapidly drawing down the fund.  The most optimistic estimates by the IMF reveal that by 2016, the fund could represent less than 16% of GDP, which is half of its 2010 level.  Under an alternative scenario of lower international prices, the fund could melt to 4% of GDP by 2016, while fiscal deficits would have to be financed by higher rates of government borrowing.

Fourth, Algeria has a low budget-transparency score, one out of 100 on the Open Budget Index, compared to an average score of 23 out of 100 for the Middle East and North Africa.

The Audit Court is, in principle, in charge of auditing the government’s budget and the financial accounts of state-owned enterprises, as well as submitting a yearly report to the president.  In practice, however, auditing is often not completed, and audit reports are rarely made public.

The Audit Court does not inspect hydrocarbon taxes, which provide two-thirds of the government’s revenues and Sonatrach does not publish audited financial reports.  The Revenue Watch Index, which assesses the revenue transparency of 41 resource-rich countries, ranked Algeria 38 in its 2011 edition, lagging behind all other oil-rich countries in the Middle East and North Africa.  All of this means that a lack of transparency and poor accountability are key issues that need to be addressed.

The government in Algiers continues to rely on its large hydrocarbon revenues to finance a redistribution system that purchases quiescence and loyalty to the regime.  But this system cannot be sustained indefinitely.

Algeria’s government needs to break the economy’s excessive dependence on global market prices for oil and gas and instead create a legal and economic environment that encourages entrepreneurship, private investment and economic diversification - all of which are necessary for the country’s long-term economic growth.  (CEIP 22.01)

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11.19 GREECE:  Cuts and Debt Relief Push Greece to Hit Fiscal Targets

On 5 February Fitch Ratings ( said Greece has hit its fiscal target for 2012 and posted a minor primary surplus despite economic underperformance.  The deficit reduction was achieved by a combination of larger than expected cuts in primary government expenditure and private and official sector debt relief.

Continued progress in reducing the fiscal deficit, coupled with comparable developments in the current account balance, indicate that the Greek economy is rebalancing.  However, implementation of deeper structural reforms, including completion of financial sector restructuring and privatization, will be necessary to restore the Greek economy to a sustainable growth path.  Fitch Ratings forecasts a further contraction of 4% in GDP this year.

Greece, which had the highest peak deficit of any eurozone country, has done the most to balance its books.  However, it still has a long way to go before debt starts to fall and it complies with the EU fiscal compact.  Public debt sustainability remains extremely fragile, notwithstanding the provision of further official sector debt relief late last year, including further rate cuts and a debt buy-back.

Provisional data, on a cash basis, indicate that Greece's general government deficit narrowed from 9.4% of GDP in 2011 to 6.6% of GDP in 2012.  A minor primary surplus of 0.2% of GDP outperformed IMF projections of a 1.5% of GDP deficit, even as revenues declined by a further 3.6%.  While the government succeeded in reducing primary expenditure by almost 8%, this outturn owed much to sharp cutbacks in planned investment and a lack of funding.  Arrears remained high at €8b (4% of GDP) at end-2012.

The combination of private sector and official sector debt relief reduced interest payment by more than €5b in 2012, helping to keep a lid on general government expenditure.  However, the continued decline in nominal GDP, which contracted by more than 6% in 2012, meant that interest payments remained over 6% of GDP on a cash basis.  Greece should reap further benefits from lower debt service in 2013 as the impact of additional official debt relief agreed in late 2012 starts to feed through.  Even so, we expect the overall stock of general government debt to remain high, peaking at around 179% in the near term, before falling to some 124% by 2020.

The revised EU-IMF program agreed at end-2012 acknowledged the need for a more manageable fiscal consolidation path and reset Greece's fiscal targets with a primary surplus of 4.5% of GDP now targeted for 2016 as opposed to 2014 previously.  (Fitch 05.02)

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