Israel Goverment Actins & Statements

1.1 Knesset Committee Considers Israeli FDA

The Knesset Labor, Welfare and Health Committee concluded its discussion on food production supervision by instructing the NPO Public Trust to submit a proposal for a bill to establish an independent food agency, which "will consolidate all the supervisory agencies under one roof to ensure broad and thorough supervision for public health." During the meeting, Public Trust outlined its proposals to the committee members. The organization said that current supervision of food in Israel was deficient, risked public health, and was dispersed among several agencies, each of which says the others bear responsibility. Public Trust added that, since 1966, the State Comptroller and public committees have published dozens of reports, and an uncountable number of discussions have been held to deal with the urgent need to establish a central food regulatory agency with effective supervisory functions, similar to the US FDA. However, nothing has ever been done. The organization's report proposes the establishment of a similar agency, which will provide a higher level of food safety in Israel in line with the standards in Western countries. The organization's model for an Israeli food agency is the European Food Safety Authority. A single food supervisory agency will oversee the quality of the public's nutrition, and set nutritional guidelines for population segments from infants to the elderly, as well as the special needs of diabetics and suffers of other diseases. The agency would also set guidelines for the production, storage and marketing of agricultural produce and food, with the goal of preventing health hazards, food poisoning and the spread of disease by supervising food producers and marketers, as well as restaurants and meals producers for hospitals, kindergartens, old-age homes, and other institutions. (Globes 21.01)

1.2 NASA Adds Israeli Technical Expertise to Lunar Science Research at Ames

NASA and the Israel Space Agency signed a joint statement that recognizes the Israel Network for Lunar Science and Exploration, or INLSE, as an affiliate partner with the NASA Lunar Science Institute at the agency's Ames Research Center in Moffett Field, Calif. NASA is looking forward to working with this Israeli organization to benefit from their shared expertise and advance their understanding of lunar science. The INLSE will bring technical and engineering expertise to advance the broad goals of lunar science at the institute. The initial focus will be on laser communications, robotics, remote sensing and other technologies for future lunar missions. In addition, there will be a major emphasis on education and public outreach inspired by lunar science. (NASA 27.01)

Israel Market & Business News

2.1 BDI Raises Israel Risk Rating to Level of UK & China

Globes reported that Global risk rating agency Coface raised Israel's country risk rating by one grade from A4 to A3, the same rating as Italy, China and the UK, among others. The upgrade was one of 20 upgrades in the company's global country risk review. Coface said that Israel was one of the few countries in the world that was able to improve its risk rating in recent months, during the global credit crisis. Israel's A4 rating of the past two years was the same rating as Mexico, Estonia and Hungary, among others. Coface country ratings A1 through A4 are considered ratings that enable countries to get investment and local companies to obtain credit. Country ratings of B, C and D indicate increasing risk, and concerns about default. Coface's country rating is highly important in setting credit levels for Israeli companies in their international business transactions. The upgrade will reduce Israeli companies' foreign trade credit insurance premiums and may raise the credit levels that Israeli manufacturers and importers will be able to obtain. Foreign trade credit insurance is a critical tool for open credit between foreign suppliers and Israeli companies, so the country rating upgrade could save Israeli companies up to $100 million. The upgrade will also make about 400 more Israeli companies eligible for credit from foreign suppliers. In 2009, foreign suppliers gave Israeli companies a total of $9.7 billion in credit, about 30% of total non-bank credit to the private sector. Coface based its Israel country rating upgrade on data and research supplied by its Israeli subsidiary, BDICoface. Coface analyzed data on Israeli companies' credit risk, payment ethic to foreign suppliers and Israeli macroeconomic figures. (Globes 20.01)

2.2 Mobixell Networks Acquires 724 Solutions

Mobixell Networks announced the acquisition of mobile internet company, Santa Barbara, California's 724 Solutions. The merged company will create a global organization with local sales and support capability in the US, UK, China, Switzerland, India, Israel and other countries, and with a customer base of over 350 mobile operators worldwide. The expanded company will focus on delivering rich media mobile internet and messaging solutions for mobile operators, enabling them to exploit the opportunities presented by the explosion of rich-media data traffic and the emergence of new exciting communication patterns driven by the ever increasing mobile media consumption on laptops, iPhone devices and other smartphones.

The rationale for the acquisition was driven by a joint vision of the two management teams, also shared by the combined company's customers and channel partners, as well as compelling synergies in the core competencies and technologies. 724 Solutions' Seamless Access and Seamless Messaging products provide scalable, reliable and extensible mobile internet, mobile broadband and messaging infrastructure that enable operators to efficiently and flexibly satisfy the explosion of mobile data traffic. Mobixell possesses unrivalled expertise in adapting and manipulating rich- media content, particularly for mobile messaging and video, and in providing advanced Mobile Web 2.0 and Mobile Advertising solutions. The objective in combining the two technologies is to deliver a next generation intelligent Mobile Internet Platform capable of taking a leadership position in the rapidly changing Mobile Internet market. This solution will address the challenges for mobile operators in dealing efficiently with the explosion of data traffic, particularly video, and will allow them to further monetize data and messaging Web 2.0 based services.

Ra'anana's Mobixell Networks (http://www.mobixell.com) provides innovative multimedia and advertising solutions to mobile operators and content providers. Mobixell's solutions focus on enhancing the user experience to increase adoption, encourage customer loyalty and build on the operators' assets to introduce new revenue streams. Mobixell provides tailored solutions for multimedia processing and adaptation, and multi-channel mobile advertising to over 300 mobile operators and content players worldwide, including top-tier carriers in five continents. (Mobixell 21.01)

2.3 Orckit-Corrigent Strengthens Its Sales and Marketing Efforts in the Philippines

Orckit Communications announced the establishment of a new office in Manila to address the Philippines telecommunication sector. The APAC region continues to see rapid bandwidth growth and phased migration from legacy PDH/SDH technologies and TDM services to MPLS technology and packet-based services, resulting in increased demand for cost optimized Carrier Ethernet + Transport solutions. Orckit-Corrigent's field-proven MPLS and TDM over packet technologies integrated with design-to-cost architecture introduce an optimal offering to meet this demand. Tel Aviv's Orckit (http://www.orckit.com) facilitates telecommunication providers' delivery of high capacity broadband residential, business and mobile services over wireline or wireless networks with its Orckit-Corrigent family of products. With 20 years of field experience, a reputable list of worldwide Tier-1 customers and sound leadership, Orckit has a firm foothold in the ever-developing world of telecommunication. Orckit-Corrigent's product lines include Carrier Ethernet + Transport (CE+T) switches - an MPLS based portfolio enabling advanced packet as well as legacy services over packet networks with a wide set of transport features, and Personalized Video Distribution systems - an advanced video distribution portfolio, optimized for IPTV, enabling multiple HD streams per home. Orckit-Corrigent markets its products directly and indirectly through strategic alliances as well as distribution and reseller partners worldwide. (Orckit21.01)

2.4 Israeli Cafes, Restaurants Survive Recession

A recent BDI Coface survey has found that the dire predictions about the effect of the recession on Israel's restaurant and cafe sector have not materialized. It found that the sector's aggregate revenue fell 4% in 2009, compared with 2008, to NIS 13.08 billion. The figure is price for consumers, including VAT. During the year, 160 cafes and restaurants closed, a 2% drop, to 7,930 at the end of 2009. BDI estimates that 20% of Israel's cafes and restaurants - 1,614 - are branches of chains, while 80% - 6,316 - are independent. Tighter credit policies by suppliers and smaller bank credit lines to business-owners, especially small businesspeople, were the main reason for the closing of cafes and restaurants. Prices for meals outside of the home fell, as reflected in the Consumer Price Index (CPI). The cafes and restaurant item in the September 2009 CPI was 7% less than the monthly average in 2008. It is true that the restaurant and cafe sector is riskier than other economic sectors. The deterioration in the sector was reflected by its business risk, the closing of branches, and layoffs, which were affected by the economic climate and reduced consumer spending at restaurants and cafes. (Globes 25.010)

2.5 Elbit Systems Signs Agreement to Purchase Balance of Azimuth Technologies' Shares

Elbit Systems announced that on 24 January a merger agreement was signed with Azimuth Technologies under which it will acquire the balance of Azimuth's shares. In November 2008, Elbit Systems purchased 19% of Azimuth's shares. Under the newly signed agreement Elbit Systems' wholly owned subsidiary, Elbit Security Systems, will purchase the balance of Azimuth's shares from Azimuth's shareholders for a price of approximately $46.5 million. Under the terms of the merger agreement an amount of approximately $3.2 million of the above mentioned consideration will be held by a trustee for the purpose of indemnifying Elbit in accordance with the terms of the agreement and will be distributed, in whole or in part, to the shareholders at a later date as provided in the agreement. The closing of the transaction is subject to approval by a general meeting of Azimuth's shareholders as well as approval by the Israeli Antitrust Authority.

Ra'anana's Azimuth (http://www.azimuth.co.il) is engaged mainly in the areas of satellite navigation systems (GPS), electro-optics and data communications, for defense, para-government and civil applications. The company's systems are designed for target acquisition, fire coordination, navigation and orientation solutions, command and control as well as optical measurement systems for high accuracy. Haifa's Elbit Systems (http://www.elbitsystems.com) is an international defense electronics company engaged in a wide range of defense-related programs throughout the world. The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance (C4ISR), unmanned aircraft systems (UAS), advanced electro-optics, electro-optic space systems, EW suites, airborne warning systems, ELINT systems, data links and military communications systems and radios. The Company also focuses on the upgrading of existing military platforms and developing new technologies for defense, homeland security and commercial aviation applications. (Elbit Systems 25.01)

Regional Private Sector News

3.1 Fatburger Unveils Expansion Plan for Middle East

Fog Cutter Capital Group Inc.'s Fatburger unveiled an elaborate international expansion strategy for 2010 and beyond in the Middle East and Asia Pacific. In Saudi Arabia, 17 stores are planned, with a first location scheduled to open in 2010 in Riyadh and five new stores are scheduled in Kuwait with construction underway now in Kuwait City for its first opening in 2010. Deals totaling 30 stores were recently signed for Qatar, Egypt, Lebanon, Jordan, Syria and Oman. In Dubai, Fatburger opened its first store in the region in 2008 in Dubai Mall at the base of the Burj Dubai, the world's tallest building and is opening its second store in early 2010. The company has unveiled plans to open six additional locations in the city. Fatburger currently boasts 16 locations outside the United States, in Canada, the Middle East and Asia Pacific, with plans to open over 40 more locations internationally over the next several years. Based in Santa Monica, California, the Fatburger restaurant chain has 96 restaurants in Arizona, California, Colorado, Florida, Georgia, Illinois, Maryland, Michigan, Nebraska, Nevada, New Jersey, New York, Ohio, Washington and internationally in Canada, Dubai, Hong Kong, Macao and Jakarta. Fatburger currently operates 32 company owned restaurants with franchisees operating the remaining 64 locations. (FCCG14.01)

3.2 Quarter of Major Retailers Considering MENA for Expansion

Around a quarter of global retailers planning to expand this year are including the Middle East and North Africa (MENA) in their plans for new stores, according to a new report by property consultants CB Richard Ellis (CBRE). CBRE's report examined the attitudes and 2010 expansion plans of 220 leading retailers, based on interviews conducted over the summer of 2009.

The results show that 24% of retailers plan to include the MENA region in their expansion plans. The UAE was the focus of the majority of this interest, with around 80% of those looking to expand in the MENA region only considering the emirates as their favored location. The attraction of the UAE is that retailers are now allowed 100% ownership in the emirates, unlike other parts of the Middle East and North Africa. Retailers in the grocery and food and beverage sectors made up the majority of those showing interest in the MENA region, the report added. Earlier this month, another CBRE report found that Dubai's retail sector saw average rents plummeting 50% last year to an average of $744.50 per square meter per year. (AB25.01)

The latest UAE retail report published by Business Monitor International forecasts sales will grow from $104.1bn in 2008 to $142.6bn by 2013. Key factors behind the forecast, it said, were strong underlying economic growth, increasing household consumption and expatriate wealth. It added that with the population increasing from 4.7m in 2008 to an estimated 5.4m by 2013, GDP per capita was forecast to rise by almost 17% by the end of the forecast period, reaching $60,753. (Various25.01)

3.3 Study Finds $7 Billion in GCC Hotel Projects Under Construction

According to figures from Dubai-based Proleads, hotel projects worth $7bn are currently under construction across the GCC. Most of these are in the UAE ($4.4bn) followed by Saudi Arabia ($1.2bn), Qatar ($620m), Bahrain ($490m), Oman ($300m) and Kuwait ($90m). UK hotel real estate research company Lodging Econometrics also revealed that the Middle East is likely to see 98 new hotels with 29,226 rooms opening in 2010 and 115 hotels with 33,765 rooms in 2011. The studies found that while the number of hotel projects under construction in the Middle East has slowed down, as regional economies react to the challenges of the global economic conditions, the pace still remains considerably better than most. Proleads found that the continuing development of the regional hospitality industry is both robust and sustainable. RevPar (Revenue per available room) rates have declined year-on-year in the Middle East to about $125, but it compares favorably with figures of $81 and $55 in Europe and the Americas respectively. (AB19.01)

3.4 OSyS Provides Qatar Airways with Analytical Tools for Fuel-Efficiency & Emissions-Reduction

Reston, Virginia's Optimized Systems and Solutions Inc. (OSyS) is to assist Qatar Airways to further improve its fuel efficiency and establish effective emissions monitoring, reporting and verifications (MRV) to meet emissions trading scheme (ETS) requirements. Qatar Airways is a new customer for OSyS. This activity will be conducted in the OSyS optimization center within the Qatar Science and Technology Park (QSTP) – established as part of the recent tenancy agreement among QSTP, Rolls-Royce and OSyS – in conjunction with support from OSyS in Derby, England. OSyS' solutions also support Qatar Airways' corporate social responsibility program "The Oryx Flies Green" as part of identifying and initiating enhancements that reduce fuel consumption and carbon footprint. This is just one of a series of OSyS initiatives in the region, leveraging tenancy in the Qatar Science and Technology Park. Working closely with local academics and industry, including Qatar Airways, OSyS is leading the Rolls-Royce initiative to establish a research, training and development program in support of Qatar's mission to create a hub for technology development, education and research in the region. (OSyS 20.01)

3.5 DHCC's Flagship Hospital May Miss Completion Target

Dubai Healthcare City's (DHCC) flagship hospital is expected to miss its scheduled completion date of early 2011, after a senior official admitted the free zone is revising its "aggressive timeline" in the wake of the financial crash. The 400-bed University Hospital, the jewel in the crown of the $5.3bn healthcare city, now has no firm opening date, said senior vice president Ayesha Abdullah. When asked if the teaching hospital was on hold because of a lack of funding, Abdullah refused to comment, but said DHCC was "committed to completing University Hospital and all the other facilities that go with the Academic Medical Centre". DHCC was launched in 2002, in a bid to stem the tide of local patients seeking medical care abroad. The city, which houses 92 clinical outlets, is a unit of Dubai Holding, a state-owned developer that has $1.25bn in debts maturing in the first half of 2010. It was also confirmed that one of DHCC's most prestigious healthcare brands, the US-based Mayo Clinic, was shutting its clinical practice. This is the second significant closure for DHCC, which last year shuttered its outpatient care centre, Dubai Medical Suites (DMS), less than six months after its launch. Unveiled in January 2009, DMS was intended to lure in foreign hospitals, which would offer visiting specialists and share the costs of funding the 20-clinic centre. However, it failed to spark the interest of US and European hospitals facing a recession in their home markets. (AB27.01)

3.6 Bloomingdale's Dubai Opens on 1 February

Macy's opened its first Bloomingdale's store outside the US on 1 February, located in The Dubai Mall. The two stores - a 146,000 sq ft fashion and accessories store spread over three floors, and a 54,000 sq ft home store - opened in partnership with the UAE-based Al Tayer Group. Macy's had already announced in September 2008 to open its store in this UAE location. Dubai was adversely hit by global slowdown and the Dubai World's crisis in November as ripples of slowdown were witnessed across all economic segments. The Dubai's Mall opening has come at a time when retail sales have significantly declined due to slump in the real estate segment. (AB25.01)

3.7 Baja Fresh Opens First International Location at the Burj Khalifa

Cypress, California's Baja Fresh Mexican Grill, the quick-casual fresh Mexican chain, announced the grand opening of its first international location at the entrance of the world famous Burj Khalifa in Dubai, United Arab Emirates. Outfitted in a contemporary, intimate decor, the new location is perfect for dine-in guests or those on the go. Guests can choose from an array of tacos, burritos, salads and fajitas all featuring fresh, and flavorful fire-grilled meats and produce. The salsa bar encourages guests to choose from a selection of freshly made salsas, with at least one that will suit their taste-buds. The new 900 sq. ft. restaurant is owned and operated by Vetra Investments. It also owns and operates a number of other concepts and has secured the rights to develop Baja Fresh's sister brand La Salsa, with plans to open its first location in Dubai later in 2010. Baja Fresh Mexican Grill serves bold, fresh Mexican flavors for lunch, dinner, dine-in or take-out all in a spacious and contemporary environment. (Baja Fresh 21.01)

3.8 Egypt Consumes As Much Wheat As 37 European Countries

Egypt comes high on the list of 18 countries that import the largest amounts of grains, especially wheat and corn, according to the International Grains Council (IGC). Egyptians consume up some 220 million loaves of bread daily. On average, an Egyptian consumes 180 kilograms of flour every year, compared to the international average of 90 kilograms. Egypt uses an amount of wheat equivalent to that used by 37 European countries combined. The IGC expects Egypt's production of grains to increase from 15.2 million tons in 2009 to 15.5 tons in 2010, which indicates that Egypt's imports of grains are projected to drop from 15 million tons last year to 13 million tons in 2010. Imports of wheat and corn in particular are expected to decrease as local production increases in 2010. The IGC report also said local production of wheat is predicted to increase by 300,000 tons in 2010, bringing the total of wheat production to 8.2 million tons, compared to 7.9 million tons the year before. The report predicts wheat imports could drop from 9.9 million tons in 2009 to around 8.2 million tons in 2010, and corn imports from 5.2 million tons to 4.7 million tons as local production is boosted. (Al-Masry Al-Youm 02.01)

3.9 Greek Car Rental Industry in 2009 - Approximately 2,300 Rental Companies Operate across Greece

Research & Markets (http://www.researchandmarkets.com) announced the addition of ICAP Group's new report "The Car Rental Industry in Greece 2009" to their offering. The car industry is a valuable contributor to the Greek economy, with 2,300 car hire companies operating across Greece. In Greece, the car rental sector goes back several decades and it is a valuable contributor to the national economy while also supporting the operation of the entire tourist industry. The services offered by the car rental industry can be split into two general categories: the first involves rentals and is designed for consumers (mainly tourists) who wish to rent a car for a short period of time. The second category is fleet management and satisfies the long-term needs of companies as regards leasing and managing their car fleet. Of the approximately 2,300 car hire companies that operate across Greece, they can be grouped into: a) large-sized companies that own extensive branch networks, many of which represent internationally-known brands, b) medium-sized companies that operate mostly within a local range and c) small-sized companies that operate locally and during a specific season, at least in terms of car rentals. Currently, networks are developed by opening new corporate stores as well as franchises. (R&M21.01)

3.10 Supermarkets in Greece 2009 - the Intense Competition & Price Wars

Research and Markets (http://www.researchandmarkets.com) has announced the addition of ICAP Group's new report "Supermarkets in Greece 2009" to their offering. The intense competition and the price war of recent years have had a negative impact on the profitability of several companies, obliging them to follow certain strategies and actions (mergers, acquisitions, creation of buying groups, expansion of chains through franchising, sale of private label products in their stores, etc.). In order to deal with the fierce competition, supermarket chains are constantly expanding their range of products. Moreover, they are creating new types of points of sale, such as smaller stores (in terms of surface), with an emphasis on fresh produce and basic commodities. In the meantime, discount chains, which mainly sell private label products, continue to grow and are constantly expanding their networks. The sector of super markets is particularly important, first because of its high employment figures and its contribution to total retail sales and second because of the wider social impact of its decisions, which shape consumer standards, affect the price index, etc. The supermarket industry in Greece consists of a large number of companies. The most significant differentiation element among companies of the assessed sector is the number and the type of stores they posses (supermarkets, discount stores, cash & carry stores). The larger companies usually boast an extensive sales network with a broad geographic coverage and different types of stores, depending on their sales surface and product range (hypermarkets, medium-sized stores and small points of sale for quick buys). Smaller chains are usually active on a local level, and there are also companies that operate individual stores. (R&M 21.01)

Clean Tech & Environmental Developments

4.1 Bio Diesel at Rahan Meristem

Rahan Meristem announced its engagement in developing protocols in the area of Bio Diesel for mass propagation of elite selected plants. Rahan Meristem, is currently involved in research in the area of Bio Diesel. The major bottleneck in Bio Diesel research is clonal propagation of selected material. To this end, Rahan Meristem, a world class leader in tissue culture has success in the arena of protocols for mass propagation of castor beans and Jatropha. In addition, Rahan Meristem is developing transformation protocols for the two species. Bio Diesel is an ester made from vegetable oils, animal fats, or other types of biomass. The Bio Diesel Production process is the trans-esterification of oil extracted from Jatropha (India, Africa) and castor bean (Africa, China, South America). Genetic engineering increases plant oil yield, enhances the oxidative stability of the oil, renders the plants resistant to biotic stress (fungi, bacteria, diseases, nematodes, insects), abiotic stress (salinity, drought, heat, cold, marginal soils), control plant height for ease of mechanical harvesting. Over the years, Rahan Meristem has isolated several genes from unicellular algae that confer resistance to drought and salinity. This battery of genes is expected to greatly improve the efficacy of the culture of Bio Diesel crops in low rainfall climates.

Kibbutz Rosh Hanikra's Rahan Meristem (http://www.rahan.co.il) is a world leader in plant propagation, breeding and biotechnology with more than 30 years experience. The company is a world expert in the laboratory production of tissue culture plants. The R&D department of Rahan Meristem is engaged in various projects leading to germplasm improvement via tools of recombinant DNA technology. The main emphasis is development of transgenic bananas resistant to pests and diseases. In recent years, Rahan Meristem's R&D partnered with other Israeli companies and academic researchers to develop bio-informatic platforms for modulating secondary metabolites related to taste, aroma and health properties. The main objective of this project is to improve the quality of fruit and vegetables for the benefit of the consumer. (Rahan Meristem 20.01)

4.2 Israeli Pilot Program to Register Greenhouse Gas Emissions

The Ministry of Environmental Protection and Samuel Neaman Institute for Advanced Studies in Science & Technology at the Technion Israel Institute of Technology have launched a pilot for the registration and recording of greenhouse gas emissions by companies and organizations. The initiative is part of Israel's effort, announced by President Shimon Peres at the Copenhagen Climate Change Conference in December, to cut its greenhouse gas emissions by 20% by 2020. The mechanism aims to provide the private sector, including manufacturers, a tool for calculating greenhouse gas emissions caused by their activity. Participation in the pilot is voluntary, and will enable manufacturers to practice quantifying emissions. The next stage of the mechanism will be mandatory. The Ministry of Environmental Protection believes that registration of greenhouse gas emissions will become mandatory within two years. (Globes 25.01)

4.3 Knesset Committee Approves Waste Water Treatment Bill

The Knesset Committee for the Interior and Environmental Protection has passed a bill regulating quality control for treatment of waste water in Israel. The decision ended a long process of debate over the issue of how to regulate a water resource rarely considered in public discussions: the quality of Israel's "grey water." The committee voted to accept a proposal by MK Dov Hanin (Hadash), chairman of the joint Knesset Committee on Environment and Health Regulations, to accelerate implementation of quality control regulations on treated waste water. Compliance with quality control regulations on waste water that flows into rivers, for example, must now be implemented within a maximum period of five years, according to the decision. The original regulation called for a maximum grace period of 10 years. In agricultural environments and those involving "standing water," compliance must be implemented within the next three years, instead of the original five-year period mandated in the previous regulatory document. (IsraelNN 26.01)

4.4 Evogene Establishing Biofuel Feedstock Field Trials in Texas and Brazil

Evogene announced the establishment of field trials in Texas and northeastern Brazil, for the evaluation of its proprietary castor bean lines. These castor bean lines, designed for higher yield and growth on semi-arid land, are being developed by Evogene to serve as a sustainable and cost efficient second-generation feedstock for biofuel production. Having recently completed two years of field trials under semi-arid conditions in Israel, the purpose of the field trials in Texas and Brazil is to evaluate the lines when grown in the two main target locations for future commercial growth, and further develop them to local conditions. The semi-arid land potentially available for castor commercial growth in these areas is estimated at over 10 million hectares and the climate conditions are suitable for this purpose. The field trials will be operated in collaboration with Texas AgriLife Research, part of the Texas A&M System in the U.S., and South Cone Agriculture in Brazil.

Rehovot's Evogene (http://www.evogene.com) is a world leading developer of improved plant traits. The company's proprietary product development platform combines state of the art computational gene discovery technology (The 'ATHLETE'), plant and field validation capabilities and unique selection systems. Evogene's current programs focus on the improvement of key plant traits, such as yield and stress tolerance, and the improvement of plants specifically for biofuel uses. Evogene has collaboration and licensing agreements with world leading companies in the agro-biotech and alternative energy industries. (Evogene 01.02)

4.5 Egypt Launches First International Tender for Thermal Power

On 1 February, Egypt's Ministry of Electricity launched the first international tender for a thermal power generation plant in Egypt under the build-operate-own (BOO) system to generate 1,500 megawatts. The Egyptian Electricity Distribution Co. will buy the new plant's production for 20 years and distribute its electricity to the national grid. The new power plant will have two 750 MW units in Beheira governorate, with the possibility to establish a third unit. This tender has been launched due to the success of the international tender to establish a 250 MW wind plant, which attracted 31 international companies, 10 of which qualified to submit offers. There are currently three projects in Egypt producing around 2000 MW operating according to the BOOT system for a period reaching 25 years. Egypt has been stepping up efforts to attract investments to the power sector, as part of the infrastructure related sectors, to accommodate the growth in population and industrial sector. The government had also announced three fiscal stimulus packages targeting infrastructure spending worth E£34.2 billion in FY2008/9 and FY2009/10. (Beltone 02.02)

4.6 Masdar Signs MoU with the Province of Alberta

Masdar, Abu Dhabi's multifaceted renewable energy initiative, and the Ministry of Energy of the Government of Alberta, Canada, have signed a MoU for cooperation on carbon capture and storage (CCS) initiatives. The MoU, which was signed during the World Future Energy Summit (WEFS), sets out a strategic agreement between the two governments for the sharing of research and evaluation and analysis on non-confidential CCS projects and technologies. CCS works by capturing carbon dioxide emissions from power plants and industrial sources, thus preventing their release into the atmosphere, and permanently storing these underground in geological structures such as oil reservoirs. Some 40% of the world's carbon emissions currently come from power generation, making CCS a promising new technology in the global effort to combat climate change. Masdar is developing one of the world's most ambitious large-scale CCS projects. The CCS network will capture carbon dioxide from power plants and industrial facilities and then transport it via a UAE-wide pipeline network for injection into Abu Dhabi's oil reservoirs for Enhanced Oil Recovery (EOR). The first phase of the project is currently in the front-end engineering and design stage and upon completion in late 2014 will capture 5 million tons of CO2 per year.- (TradeArabia 21.01)

Arab State & Pakistani Developments

5.1 World Bank Forecasts Arab Middle East Economic Growth to Rebound to 3.7% in 2010

The Arab Middle East and North Africa economic growth will accelerate from an estimated 2.9% in 2009 after the global credit crisis sent oil prices tumbling, the World Bank said in its latest report published on 21 January. According to the Global Economic Prospects 2010, the regional economy will grow 3.7% this year and 4.4% in 2011. Growth was 4.3% in 2008, the bank said.

Following a peak in July 2008 of about $147 a barrel and a low of $34 in December of the same year, oil prices have settled into a range of $65- $$80 a barrel following output cuts by the Organization of Petroleum Exporting Countries, the report said. GDP in Saudi Arabia, Kuwait, Oman and Bahrain, members of the Gulf Cooperation Council, contracted about 0.6% in 2009, compared with growth of 4.6% the year before, the report said. Growth in the four countries may reach 3.2% this year and 4.1% in 2011, it said. Growth in developing oil exporters (Iran, Syria, Algeria and Yemen) is expected to reach 3.1% this year and 3.7% in 2011, the bank said.

Egypt's economy may grow 5.2% this year and 6% in 2011, the report said, from an estimated rate of 4.7% in 2009. The Lebanese economy is expected to maintain a growth rate of 7% through 2011, it added. There remain "substantial downside risks, which would pose additional challenges to policy makers already grappling with the current crisis" in the region, the report said. The risks include political tensions and the possibility of a deeper global recession, the report said. The debt crisis of Dubai World, one of the emirate's three main state-owned business groups, indicates that financial institutions in the region were not entirely unaffected by the global financial crisis. (BI-ME 21.01)

5.2 Lebanon Says 2009 Was Best On Record for Tourism

Figures released in mid-January by the Lebanese Ministry of Tourism showed that 1,851,081 tourists visited Lebanon in 2009, a 39% increase from the previous year. The 2009 number is the highest ever and broke the 1974 record of 1.4 million tourists. That was before Lebanon's 1974-90 civil war, when Beirut was dubbed the "Paris of the Middle East." The 2009 figure is a 39% increase from the previous year. Tourism Minister Abboud estimated the country's annual income from tourism at up to $7 billion, or about 20% of gross domestic product. (GN18.01)

5.3 Jordan Economy to Grow By 4% In 2010

The Jordan economy is expected to grow by 4% in 2010, according to a Central Bank of Jordan (CBJ) report released on 31 January. The financial stability report said that the Kingdom has a sound economy capable of absorbing domestic and external shocks and achieving stable and sustainable growth rates. The report noted that Jordan has a modern and diverse banking system capable of coping with local developments in terms of ensuring appropriate credit facilities and encouraging domestic deposits. According to the report, the national economy showed a slow growth in the first nine months of 2009 due to the repercussions of the world economic meltdown as it grew by 2.7% compared with 9.1% during the same period in 2008. The first chapter of the report summarized expansion procedures taken by the CBJ since 2008 to counter the negative backdrop of the global economic downturn including, lowering interest rates four times, reducing cash reserve ratio three times, and the government's pledge to guarantee all deposits in local banks until the end of 2010. The CBJ succeeded to increase the tempo of the monetary circulation and ensure a sound management of liquidity through developing the national payments system to spur economic growth and achieve broader economic rebound. The report pointed out that the non-Jordanian ownership in Jordanian banks rose by 51.7% at the end of H1/09 compared with 38.6% in 2003, a fact that reflects investors' confidence in the Jordanian banking system and economy as well. Domestic banks' turnover amounted to JD30.6 billion in H1/09 comprising 199% of GDP, the report added. Credit facilities are still the most important funding sources in the national economy as many companies are incapable of gaining access to bonds and stock market; nevertheless credit facilities for individual are on the rise, the report noted. (Petra01.02)

5.4 Kuwait Agrees Plan To Privatize National Airline

Kuwait's cabinet has "tentatively" agreed terms to privatize its national airline, Kuwait Airways Corporation, with legal procedures to change the company now being finalized. The government debated the move in a marathon session based on reports on the privatization plan conducted by international consultancy agencies. Dr Bader Mohammad Al-Saad, managing director of the Public Investment Authority (PIA) said that necessary steps for the implementation of the law regarding the company were reviewed during the session. The government has tasked the PIA with completing legal procedures to transform the corporation into a shareholding Kuwaiti company. Kuwaiti media in March 2009 reported that Kuwait Airways draft budget for 2009-2010 forecast a loss of $123.3 million. The Kuwaiti government said in January 2008 that the airline would be privatized. The government will maintain a 60% share in the carrier, while the remaining will be sold. (AB25.01)

5.5 Bahrain Inflation Rises to 1.6%

Bahrain's inflation accelerated to 1.6% year-on-year in December, from 1.1% in November, data showed on 21 January. The consumer price index of the kingdom increased by 0.45% from November, after a 0.09% rise in the previous month, the Central Informatics Organization's (CIO) website showed. (CIO21.01)

5.6 Design Giant Downsizes in Dubai But Still Eyes GCC Projects

International design and engineering consultancy Scott Wilson has downsized considerably in Dubai and is refocusing on projects outside the emirate. Its regional chief said that although the company still had an office in Dubai, it would not be working on projects in the emirate as a result of the major construction slowdown in the past year. The past 12 months has affected Scott Wilson's operations in Dubai, making them refocus attention to Abu Dhabi and Qatar. Chasing money owed from clients was also a problem but said the company was not in litigation with anyone in the Gulf region over payments. The current environment had made the company look even closer at due diligence on projects. In addition, the firm has drastically dropped its prices in the tendering process. With the UAE being particularly badly hit by the slowdown, the company has focused its efforts even more on operations in Saudi Arabia, Kuwait and Qatar. London, UK based Scott Wilson offers strategic consultancy and multi-disciplinary professional services in the Railways, Buildings & Infrastructure, Environment & Natural Resources and Roads Sectors. (AB25.01)

5.7 Saudi Arabia Pharmaceuticals & Healthcare Q1 / 2010 Report

Research and Markets (http://www.researchandmarkets.com) announced the addition of the "Saudi Arabia Pharmaceuticals and Healthcare Report Q1 2010" report to their offering. In the Q1/10 Business Environment Ratings, Saudi Arabia is ranked fifth of the 17 Middle East and African (MEA) markets. This is a drop from the country's previous second place in Q4/09 and is due to a drop in its score for limits of potential returns. From 2009 to 2014, the pharmaceutical market is expected to post a compound annual growth rate (CAGR) of 6.44% in both US dollar and local currency terms. Council of Co-operative Health Insurance (CCHI) secretary general Dr Abdullah Al Sharif has said that the council has plans to develop a comprehensive healthcare management system centered on health economics and pharma-coeconomics in conjunction with the Saudi Food and Drug Authority. Since Saudi Arabia has both the largest population and the highest level of pharmaceutical spending in the Gulf Co-operation Council (GCC) there is a strong possibility that the Kingdom could itself become a medical tourism destination to rival Jordan. Saudi Arabian consumers will spend 4% of their GDP on healthcare by 2013 and the government is currently constructing more hospitals and recruiting more healthcare professionals to address issues with access to healthcare services in the country. Chronic diseases such as hypertension, diabetes and obesity are forming an increasingly large portion of the region's epidemiological profile. Domestic drug makers in the region, such as Gulf Pharmaceuticals Industries (Julphar) in the UAE, are using exports to reach other GCC states; however, international accreditation for manufacturing practice would allow firms like this to target more lucrative global markets.

Saudi Arabia is highly reliant on foreign doctors for the provision of healthcare. An estimated 78% of the Kingdom's 43,000 doctors are expatriates. Recently, Saudi Arabia recruited 500 doctors from Bangladesh for the 2,000 health centers across the country. In total, 4,000 doctors had been recruited to 150 new family health centers by early 2008. A further 7,000 should be recruited over the next few years in an attempt to bring the doctor-patient ratio down from 1:4,000 to 1:400. Many of these extra doctors are expected to come from abroad - mostly from less wealthy Arab countries such as Syria, Jordan and Egypt. (R&M 22.01)

5.8 Libya Establishes Free Trade Zone on the Mediterranean

Libya's main legislative body has approved a law setting up a free trade zone on the country's Mediterranean coast. The zone will have free movement of capital and goods, its own courts and a stock exchange, and investors there will benefit from a 10-year tax holiday. The zone is viewed as necessary to stimulate investment outside Libya's oil and gas sector. The zone will stretch about 100 km along the Mediterranean coast from Mellitah, west of Tripoli, to the border with Tunisia. Dubai-based developer Emaar Properties had signed an MoU with Libya in 2006 on setting up a joint venture to develop part of the free trade zone. The firm has not said if it is still committed to the project. The legislation for the zone has been approved by Gaddafi and the Basic People's Congresses, Libya's main law-making body. Under Libya's grass-roots system of government, decisions taken by the Basic People's Congresses are automatically passed into law by the General People's Congress, or parliament. (Beltone01.02)

5.9 Libya & Russia Agree On $1.8 Billion Arms Deal

Libya has signed an arms deal with Russia worth €1.3 billion ($1.8 billion), Russian Prime Minister Putin stated on 30 January, without specifying which weapons Libya intended to purchase. Interfax news agency quoted a military-diplomatic source as saying Libya was prepared to buy around 20 fighter planes and S-300PMU2 air defense systems. Libya may also acquire T-90S tanks and modernize more than 140 T-72 tanks and other weapons. The deal was signed after talks with Libyan defense minister, Major General Yunis Jabr, earlier in Moscow. It comes days after the Libyan Investment Authority bought into the Hong Kong IPO of UC RUSAL, the world's biggest aluminum producer. (TA30.01)

Turkish, Cypriot, Greek & Bulgarian Developments

6.1 Turkey Sees Significant Recovery in Foreign Trade Deficit

Turkey's exports fell by 22.6% to $102.17 billion in 2009 over the previous year, while imports decreased by 30.3% to $140.78 billion in the same period. This resulted in a deficit of $38.61 billion in foreign trade, which is nearly half of the 2008 figure, the Turkish Statistics Institute (TurkStat) announced. Turkish exports amounted to $132.03 billion in 2008, while imports were $201.96 billion, making a foreign trade deficit of $69.94 billion, a figure 44.8% more than the previous year's foreign trade deficit.

In December 2009, exports also decreased by 30.3% to $10.06 million over the same month of 2008, while imports increased by 31.4% to $14.99 billion in the same month. The last month of the year saw a foreign trade deficit of $4.93 million, a figure 33.8% more than December 2008 data. Turkey's exports to the European Union increased by 41.4% in December 2009 compared with the same month of the previous year, while the EU's share of Turkey's overall exports rose from 41.8% in December 2008 to 45.3% in the same month of 2009. Turkey exported the largest volume to Germany in the last month of 2009, totaling $894 million, a figure 16.6% less compared to December 2008. Germany was followed by the UK, France and Italy. In the same month, Russia was the top country from which Turkey imported, with $2.02 billion, followed by Germany, China and the US. (Various 29.01)

6.2 Turkey Not To Allow Any GMO Imports Against EU Standards

On 20 January, the Turkish Agriculture & Rural Affairs Ministry announced that it would not allow import of any genetically modified organisms which are not aligned with EU standards. The ministry recalled that a regulation on import, processing, export, control and supervision of genetically modified organisms was put into effect and finalized on 20 January. Genetically modified foods are foods derived from genetically modified organisms. Genetically modified organisms have had specific changes introduced into their DNA by genetic engineering, using a process of either Cisgenesis or Transgenesis. Critics have objected to GM foods on several grounds, including safety issues, ecological concerns, and economic concerns raised by the fact that these organisms are subject to intellectual property law. (Anatolia 21.01)

6.3 Cyprus Ranked As the 24th "Freest Economy"

The Heritage Foundation's 2010 Index of Economic Freedom ranked Cyprus 24th with a score of 70.9. This was a marginal increase of 0.1 points, having been overtaken by Sweden and Germany that ranked 21st and 23rd, respectively, rising from the joint score of 70.5 last year to 72.4 and 71.1, respectively. In the distribution of global economic freedom, this ranks Cyprus as barely within the category of "mostly free" economies. Its overall score is almost unchanged from last year, with significant declines in property rights and labor freedom balanced by improvements in business freedom and freedom from corruption, according to the Heritage Foundation. Cyprus is ranked 13th out of 43 countries in the Europe region, and its overall score is higher than the regional and global averages. Cyprus performs well in many of the ten economic freedoms. Business growth is facilitated by a relatively transparent and efficient regulatory framework. The financial sector has also become more open and efficient with strict but sensible supervision, and the government has taken measures to improve its public finance. A high level of government spending is the primary weakness that holds down Cyprus's overall economic freedom. There is also room for improvement in trade freedom. While tariff barriers are low, there are significant non-tariff barriers. Monetary stability has deteriorated somewhat due to rising inflation and government price-fixing practices. (FM31.01)

6.4 Cyprus' Tourism Revenues Fall 16% In 2009

Revenue from Cyprus's vital tourism sector plummeted 16.7% in 2009, underscoring a bad year for the eastern Mediterranean island's economy. Income from tourism, which makes up 12% of the country's GDP fell to an estimated €1.49 billion in January to December from €1.79 billion in 2008. In December alone the slide was 17.3% – one of the steepest monthly drops of the year – with revenue from holidaymakers down to €42.7 million from €51.6 million in the same month of 2008. Tourism receipts were in negative territory for 12 consecutive months. Tourism income for 2008 as a whole fell 3.5% to €1.7 billion from €1.85 billion in 2007. The average daily spending by tourists last December was €58.60 and the average stay was 11 days. Israelis were the biggest spenders at €107.70 euros a day while Finns were the most frugal, spending just €42 euros a day on average. The annual drop in revenue is linked to a 10.9% decrease in the number of tourist arrivals for 2009. Bumper spending by holidaymakers helped the island achieve GDP growth of 4.4% in 2007, easing to 3.7% in 2008. On the back of disappointing tourism income, the Finance Ministry is expecting 0.5% negative GDP growth for 2009 as the economy is still struggling to come out of recession. (AFP26.01)

6.5 Record Size for Greek Government Deficit

Athens' deficit reached the unprecedented level of €30.8 billion in 2009, Bank of Greece (BoG) announced on 19 January. This amounts to no less than 12.8% of the country's GDP, up from 7.2% of GDP in 2008, or €17.1 billion. These figures illustrate the breakdown in the tax-collection mechanism and the excessive expenditures recorded in 2009, although the BoG figures are slightly different from those used for the 2010 budget: The Finance Ministry estimates the central government deficit at €29.3 billion, or 12.2% of GDP. This difference is due to payments for defense programs and hospital debts, which BoG records as expenses but are not included in the deficit for the budget. This does not in any way change the estimate of a 12.7% of GDP deficit for 2009, ministry sources stressed yesterday. There is also the likelihood of a revision of the deficits for the years from 2005 to 2008, sources said. (Various 20.01)

6.6 Greece's Tourism Drop Softer Than Originally Forecast

Greece saw 2009 end with a 7.4% decline in the arrivals of foreign tourists by air compared with 2008, according to data processed by the Association of Hellenic Tourism Enterprises (SETE). This figure was far better than the originally feared drop of 20%. The reasons for this slighter decline lie in the hotel enterprises which dropped their prices and drew more visitors from abroad as well as Greeks, but which also brought about a 16% decline in revenues. Tourism receipts saw a yearly decline estimated at 11 to 12%. SETE data showed that arrivals at the 13 airports that represent some 95% of total arrivals of foreigners in Greece by air and 74% of arrivals by any means, came to 10,695,328 against 11,544,445 in 2008. There was therefore a loss of some 850,000 tourism arrivals, with 500,000 concerning the airports in Athens and Crete. Tourism in Athens had additional losses in the first few months of 2009 due to the December 2008 unrest in the capital. Hotel enterprises were able to resort to lowering their prices and offering discounts because they had benefited from the measures of support taken last year to curb the impact of the global economic crisis. Representatives of tourism bodies are expressing their worries about the course of Greek tourism this year, as there appears to be a sharp fall in bookings from the main markets, and are waiting for the government to reaffirm the support measures that applied last year. Winter resorts are also struggling, having missed out on some of the season's traffic due to the unseasonable warm weather in December. (eKathimerini20.01)

6.7 Greece's Cosmetics Sector

Research and Markets (http://www.researchandmarkets.com) has announced the addition of ICAP Group's new report "Cosmetics in Greece 2009" to their offering. The Greek cosmetics sector is comprised of a great number of companies, several of which are subsidiaries of multinational groups. In recent years, some of the domestic companies that used to manufacture cosmetics have shifted to imports, and now import cosmetics directly from the group's companies abroad. A major characteristic of the Greek cosmetics sector is the strong competition, especially in the mass distribution channel. This is where the majority of companies operate, since most consumers choose mass market outlets (mainly supermarkets) to buy some of their cosmetics (shampoos, shower gels, deodorants, and so on). This is because they are easily accessible and have affordable prices, but also because consumers get to choose among many brands. Sector insiders consider the sales increase of natural products in pharmacies to be important while, recently, individual stores with self-produced natural cosmetics have also emerged. These chains are also doing remarkably well abroad. Although it does not form the biggest consumer group, the new generation (aged 18-25) affects trends to a great extent, since it pays more attention to fashion and renewal compared to older ages (30 and above), which show brand loyalty. Bearing in mind the most recent information, young people seem to prefer the self-service format in the retail market. This where mass market cosmetics but also medium brands are sold, and they constitute the most important and upcoming cosmetics category. (R&D 25.01)

6.8 Moody's Outlook for Bulgaria in 2010 Sanguine

Moody's (http://v3.moodys.com) Weekly Credit Outlook wrote that despite a deep recession, Bulgaria will have very low budget deficits by global standards in 2009/10, keeping government debt ratios low and stable. An upgrade to Baa2 is contingent upon the country's ability to renew growth and weather the impact of regional shocks. Problems in Greece will likely dampen the recovery this year. About 9% of Bulgarian exports go to Greece and Greek companies are major investors in the country, particularly the banking sector. Economic growth should resume in 2011-2012, supported by significant EU funds and FDI attracted by the low cost base. Bulgaria continues to face risks from its external finances, including a large current account deficit and very high external debt. However, the country passed an important stress test in 2009. External liabilities were re-financed, and the current account deficit adjusted in an orderly manner. (Moody's 25.01)

6.9 Bulgaria Plans to Cut VAT To 16% By 2013

Bulgaria's finance minister has announced that Value-Added Tax (VAT), which currently stands at 20%, could be cut to 16% by the end of the new center-right government in 2013. The statement comes ten days after the proposal for gradual VAT reduction, which has drawn mixed responses in the country. The idea for reducing Value-Added Tax (VAT) in Bulgaria from its current 20 % rate by the end of 2010 was announced after Prime Minister Borisov's meeting with Israeli counterpart Benjamin Netanyahu, who made this recommendation as a measure to fight the financial crisis. Bulgaria has the lowest personal and corporate income tax in the EU at 10%, which was introduced at the beginning of 2008, replacing the previous system, which combined several different tax rates - between 20 and 24%, depending on income. After coming into office, the new Bulgarian government announced it plans to keep unchanged the flat income tax rate and cut the Value-Added Tax (VAT) from the current 20% to 18% in 2010 and by a further 2% by the end of the term of office of Prime Minister Boyko Borisov's administration. The country will apply in January this year to join the exchange-rate mechanism, the two-year currency stability test prior to euro adoption, and seek to switch to the common currency by 2013. (SMN22.01)

6.10 Bulgaria To Launch Procedure For N-Plant Investor By End-2010

Bulgaria's new government will launch a procedure for new private investors for its majority stake in the planned Belene nuclear power plant. The procedure will begin by the end of the year. Traicho Traikov, Bulgaria's Energy, Economy & Tourism Minister, made the announcement during the official visit of a Bulgarian delegation, headed by Prime Minister Borisov, to Germany. The minister said there is renewed interest by big German energy companies in Bulgarian projects, but declined to name them. Representatives of these companies will start negotiations in Sofia next week. Bulgaria's new centre-right government, which has put the 2,000 megawatt Belene under review due to rising costs, was forced to seek new investors after German utility RWE walked out of the project due to funding problems. Russia's state nuclear company Rosatom announced in December that it is ready to finance the multi-billion nuclear project in the Bulgarian Danube town of Belene, which has stalled over lack of funding. This was Russia's second offer to pour money into Bulgaria's second nuclear plant Belene after Russian Prime Minister Putin gave the green light to a €3.8 billion loan at the end of May. Bulgaria's new government of the center-right GERB party has said however that it is not willing to provide any state guarantees for loans and is yet to decide whether to scrap or push ahead due to purely economic terms. The new government plans to cut its shares in the project from 51% to 20-30%, which will still allow the country to keep its blocking quota. Sofia has contracted Russia's Atomstroyexport along with France's Areva and Germany's Siemens, to build Belene. Belene's reactors are to be of the Russian VVER-1000 class, while the Western companies are providing instrumentation and control systems. (SMN27.01)

General News and Interest

*ISRAEL:

7.1 Pacific Islands Leaders Visit Israel to Solidify Ties

The presidents of two Pacific islands who vote consistently with Israel at the United Nations visited the Jewish state to enhance their relationship. Emanuel Mori, of the Federated States of Micronesia, and Marcus Stephen, of the Republic of Nauru, met on 21 January with Israeli counterpart Shimon Peres, who also was hosting a dinner in their honor later in the day. The presidents and their ambassadors visited Yad Vashem and laid wreaths at the Memorial Hall. Following meetings with Israeli Foreign Minister Lieberman, both presidents signed a Memorandum of Understanding on visa issues. Mori and Stephen also met with Prime Minister Benjamin Netanyahu. The Pacific islands delegation will discuss issues of global and strategic importance with Israeli officials and be briefed on security issues. The weeklong visit, inaugurated by an official invitation by Peres, is being implemented under the auspices of Project Interchange, an institute of the American Jewish Committee, in collaboration with Israel's Ministry of Foreign Affairs. (JTA21.01)

7.2 Israel's 2010 Winter Olympics Team is Two skaters & One Skier

On 25 January, the Olympic Committee of Israel announced that the sibling ice dancing pair of Roman and Alexandra Zaretsky would represent the country at next month's Winter Olympics in Vancouver. Alpine skier Mikahil Ranzin will also join Israel's delegation. The Zaretskys finished seventh in the 2010 European Championships, which earned them an Olympics berth. They are scheduled to skate to "Hava Nagila" and the music of " Schindler's List." It is their second Olympics. Renzhin will compete in the slalom and giant slalom events. It is also his second Olympics. (Various26.01)

7.3 Elton John Returning to Israel - Tickets to Cost $80 - $260

Elton John will make his third concert in Israel on 17 June at the Ramat Gan Stadium. The stadium will seat 15,000 people on the grass and 32,000 in the stands for the event. John last appeared in Israel in 1993. Landing in Israel on the day of the concert, he was swarmed by the media and left without performing. He was persuaded to return and perform the following day. He first performed in Tel Aviv in 1979. (Various20.01)

7.4 Rod Stewart Heads To Israel

Rod Stewart, as reported by Globes, will make a single performance in Israel on 1 July at the Ramat Gan Stadium, according to his official website. This will not be Rod Stewart's (65) first appearance in Israel. In 1983, at the height of his career, he gave a concert at the Ramat Gan Stadium. He will be making a European tour this summer to promote his new album, "Soulbook". Israel will apparently be the last stop on the tour. (Globes 24.01)

*REGIONAL:

7.5 Turkey's Aging Population Outpaces Youth Growth

Turkey is witnessing a slowing in the growth of the country's immense youth population and an acceleration in the growth of its elderly population. According to 2009 census figures by the Turkish Statistics Institute (TurkStat), Turkey's population was 72,561,312 at the end of 2009, having grown by 1.45% compared to 2008 and actually picking up the pace compared to the annual 1.31% growth rate in 2008. Turkey's young population, which is larger than the total population of many European countries and is second in Europe only to Russia's, showed signs of contraction, as the median age of the country rose from 28.5 years to 28.8 years in 2009. In other words, half of Turkey's population is under the age of 28.8, a number that has risen 3.6 months in the span of a year. The number of births per woman in Turkey was 2.12, under the global average of 2.58, making Turkey 120th in the world. The growth in the number of children under the age of 4 decreased from 3.53% in 2008 to 2.62% in 2009. Moreover, continuing the aging trend, the growth rate of the number of youth under the age of 29 contracted to 0.35% in 2009 from 0.52%.

The above-65 age group grew the most, jumping by 3.88% in 2009, trumping the youth growth rate and the total population growth rate of 1.45% by 2.43%. Moreover, the size of the 30-64 age group also grew by 3.0%. This, coupled with the decrease in the growth rate of youth noted above, indicates that Turkey is starting to age significantly, following the aging trends that many developed countries have experienced. In accordance with typical development trends Turkey is experiencing lower fertility rates due to increased economic prosperity and thus a slowdown in youth population growth.

The ratio of females in the total population of Turkey is actually falling, contrary to global trends in the developed world, where women make up the majority of the population. While 49.7% of Turkey's population was female in 2009, this number was 49.8% in 2008 and 49.9% in 2007, indicating that the male population is growing faster than the female population. The proportion of females in the youth population, or the population of females under the age of 29, has remained the same at 48.8%. (Zaman26.01)

Israel Life Science News

8.1 Morningside & Can Fite BioPharma Establish JV for CF-102 Drug to Fight Liver Diseases

Can-Fite BioPharma signed a memorandum of understanding (MOU) with the Hong Kong based Morningside Asia Venture (HK) Limited. According to this MOU, Can-Fite and Morningside will establish a JV, which will receive an exclusive license to the Intellectual Property relating to CF102 in China, Hong Kong, Macau and Taiwan, and will be responsible for the clinical development of CF102 for these markets. The Morningside fund will provide all the required funding needed for the pre-clinical and clinical development plans up to the completion of phase II, in the amount of $7.5m. Can-Fite will also provide the JV with all the know how in its possession relevant for the development of CF102. In addition, Can-Fite will have full access to all the clinical and pre-clinical data to be generated by JV and will have the right to use it for regulatory purposes in other countries. Petah Tikva's Can-Fite BioPharma (http://www.canfite.com) is a public company traded on the Tel Aviv Stock Exchange. The Company was founded on the basis of scientific findings made by Prof. Pnina Fishman, an investigator from Rabin Medical Center, and focuses on the development of small molecule-based drugs that bind to receptors of cancerous or inflammatory cells and inhibit their development. The leading drug of the company, CF101, is under advanced clinical development for inflammatory diseases and the second drug, CF102 is being developed for liver diseases, including liver cancer and viral Hepatitis C. (Can-Fite 20.01)

8.2 Melon Transformation at Rahan Meristem

Rahan Meristem announced its successful development of protocols for efficient genetic transformation of various varieties of melons (cucumis melon). Rahan Meristem, jointly with members of academic institutes and private companies in Israel is currently engaged in research to support improvement of aroma, taste, and health related properties of melons. To this end, Rahan Meristem has successfully expressed foreign genes in a variety of melon cultivars. On melon improvement progress to date, company researchers have attempted improving melon quality by cross hybridization, but very little progress has been made in the area of melon genetic engineering. Transformation and regeneration by tissue culture comprise the main limitations. The protocols developed in Rahan Meristem allow efficient transformation in a wide variety of melon cultivars. Melons are a significant source of vitamins. A single serving of melons can contain a whole day's supply of vitamins A and C. Melons are a low calorie, dense food, tasty without too many calories. Melons are a good source of potent carotenoid antioxidants. Research suggests these substances may help prevent prostate cancer and may help quench the inflammation that contributes to conditions like asthma, atherosclerosis, diabetes, colon cancer and arthritis.

Kibbutz Rosh Hanikra's Rahan Meristem (http://www.rahan.co.il) is a world leader in plant propagation, breeding and biotechnology with more than 30 years experience. The company is a world expert in the laboratory production of tissue culture plants. The R&D department of Rahan Meristem is engaged in various projects leading to germplasm improvement via tools of recombinant DNA technology. The main emphasis is development of transgenic bananas resistant to pests and diseases. In recent years, Rahan Meristem's R&D partnered with other Israeli companies and academic researchers to develop bio-informatic platforms for modulating secondary metabolites related to taste, aroma and health properties. The main objective of this project is to improve the quality of fruit and vegetables for the benefit of the consumer. (Rahan Meristem 20.01)

8.3 Rosetta Genomics Closes $5.1 Million Financing to Support microRNA-based Diagnostics

Rosetta Genomics has completed its previously announced registered direct offering with several institutional investors of approximately $5.1 million of securities. Rosetta has received net proceeds of approximately $4.5 million after deducting placement agent fees and other offering expenses. Under the terms of the financing Rosetta has sold 2,530,000 units, consisting of an aggregate of 2,530,000 ordinary shares and warrants to purchase 1,265,000 additional ordinary shares. Each unit, consisting of one ordinary share and a warrant to purchase 0.50 of an ordinary share, was sold for a purchase price of $2.00. Proceeds from the transaction will be used for general corporate purposes, including, but not limited to, repayment or refinancing of existing indebtedness or other corporate borrowings, working capital, intellectual property protection and enforcement, capital expenditures, investments, acquisitions or collaborations, research and development and product development. Rodman & Renshaw, a subsidiary of Rodman & Renshaw Capital Group, acted as the exclusive placement agent for the transaction.

Rehovot's Rosetta Genomics (http://www.rosettagenomics.com) is a leading developer of microRNA-based molecular diagnostics. Founded in 2000, the company's integrative research platform combining bioinformatics and state-of-the-art laboratory processes has led to the discovery of hundreds of biologically validated novel human microRNAs. Building on its strong IP position and proprietary platform technologies, Rosetta Genomics is working on the application of these technologies in the development of a full range of microRNA-based diagnostic tools. (Rosetta Genomics 20.01)

8.4 Teva Announces Tentative Approval of Generic Femara Tablets

Teva Pharmaceutical Industries announced that the U.S. FDA has granted tentative approval for the Company's Abbreviated New Drug Application (ANDA) to market its generic version of Novartis' breast cancer treatment Femara® (letrozole) Tablets, 2.5 mg. Final approval of Teva's Letrozole Tablets is expected upon expiry of patent protection for the brand product in June 2011. Teva Pharmaceutical Industries (http://www.tevapharm.com), headquartered in Israel, is the world's leading generic pharmaceutical company and is among the top 20 pharmaceutical companies in the world. The Company develops, manufactures and markets generic and innovative human pharmaceuticals and active pharmaceutical ingredients, as well as animal health pharmaceutical products. Over 80% of Teva's sales are in North America and Europe. (Teva21.01)

8.5 TASE Launches New Index: Biomed

On 21 January, the Tel Aviv Stock Exchange (TASE) Board of Directors approved the launch of a new equity index covering the biomed sectors. Some 100 technology companies currently trade on the TASE, of which 38 are in the various biomed industries. Most of these companies are early-stage enterprises engaged in R&D in life sciences, biotechnology, drug discovery, medical equipment, etc. The total market value of all biomed shares comes to approximately $2.2 billion while the value of the free float comes to approximately $1billion. Biomed is one of the growth sectors which have generated considerable investor interest in the past few years. Demand for ETNs and other products tracking this sector has grown with this interest. The new index joins existing TASE sector indices, including: the TelTech and TelTech-15 indices of technology shares; Estate-15 index of major real estate and construction shares; Finance-15 index of large financial service firms and TA-Banks index of commercial banks. The construction of the new biomed index will be based on the methodology governing these other indices. The weight of a single company in the index will be capped at 9.5% and the index will include all companies meeting the following threshold conditions: a minimum market cap of NIS 50 million ($13.2 million) and free float of at least 20% with a market cap no lower than NIS 25 million ($6.6 million). The index will be launched once technical arrangements are completed. The launch date will be published 30 days in advance.

Established in September 1935, the Tel Aviv Stock Exchange (http://www.tase.co.il) is Israel's sole stock exchange, offering an increasingly sophisticated range of products to investors, including equity, corporate bonds, treasury bills and notes, index products and derivatives. The Tel Aviv Stock Exchange features 627 companies listing equities, 354 index-tracking products, 37 series of government bonds, 582 series of corporate bonds and 1,136 mutual funds. As of October 2009, the exchange's market capitalization in equities was over $200 billion. (TASE 25.01)

8.6 Notal Vision's ForeseeHome AMD Monitor Receives FDA Clearance

Notal Vision's ForeseeHome AMD Monitor has received Section 510 (k) clearance from the U.S. FDA. The ForeseeHome AMD Monitor is the first ophthalmic device linking patients and doctors between eye exams for ongoing monitoring of age-related macular degeneration (AMD). Patients complete a frequent but brief exam on their ForeseeHome AMD Monitor, in the comfort of their own home, and data is transmitted to the patients' eye care physician and the Notal Vision Data Monitoring Center. The award winning ergonomic design of the ForeseeHome AMD Monitor is comfortable and easy to use for patients at risk of vision loss from wet AMD. Wet AMD is the leading cause of blindness in people over the age of 60 in the western world. Recent breakthroughs in treatments place even greater importance on early detection, which can reduce the risks of vision loss associated with wet AMD. Frequent monitoring is critical in detecting disease onset as early as possible and the ForeseeHome AMD Monitor is the first home monitoring device for following patients at risk of vision loss, offering hope for early intervention through early detection. Numerous clinical studies have demonstrated the ForeseeHome AMD Monitor is an accurate and reliable tool for frequent monitoring of patients at risk for vision loss from wet AMD. Tel Aviv's Notal Vision (http://www.notalvision.com) was founded by a team of medical professionals determined to develop better methods of AMD monitoring and reduce vision loss associated with AMD. (Notal Vision 27.01)

8.7 Teva Announces FDA Accepts BLA for XM02

Teva Pharmaceutical Industries announced that the U.S. FDA has accepted for filing Teva's Biologics License Application (BLA) for XM02, a granulocyte colony-stimulating factor (G-CSF) for the reduction in the duration of severe neutropenia and the incidence of febrile neutropenia in patients treated with established myelosuppressive chemotherapy for cancer. Teva's BLA for XM02 was submitted to the FDA on Nov. 30, 2009. The proposed trade name for XM02 is NEUTROVAL. As previously announced, XM02 was principally developed as a similar biological medicinal product to Neupogen, the trademark for filgrastim (G-CSF). In September 2008, XM02 received marketing authorization in the European Union (EU) where a biosimilars pathway exists. XM02 was launched in several EU markets under the trade name TevaGrastim and will be launched in additional EU markets over time. Teva Pharmaceutical Industries (http://www.tevapharm.com), headquartered in Israel, is the world's leading generic pharmaceutical company and is among the top 20 pharmaceutical companies in the world. The Company develops, manufactures and markets generic and innovative human pharmaceuticals and active pharmaceutical ingredients, as well as animal health pharmaceutical products. (Teva02.02)

8.8 Compugen Discovers Novel Protein for Treatment of Autoimmune Diseases

Compugen announced the discovery and experimental validation of CGEN-15001 for the treatment of autoimmune disorders. CGEN-15001 is the extracellular region of a previously unknown membrane protein in the B7/CD28 family. The existence and potential utility of the newly discovered parent protein from which CGEN-15001 is derived was predicted in silico utilizing Compugen's LEADS Platform and other proprietary algorithms. CGEN-15001 is a novel soluble recombinant fusion protein corresponding to the extracellular region of the Compugen discovered parent protein. The discovery of the parent protein, which is a membrane protein, was accomplished through the incorporation in Compugen's LEADS Platform of additional algorithms specifically designed to predict novel members of the B7/CD28 family of co-stimulatory proteins. This approach relied on Compugen's proprietary understandings and modeling of genomic structure, gene expression, protein structural domains and cellular localization. Compugen has filed for patent coverage on both the parent protein, which potentially has other medical uses such as a target for antibody therapeutics, and CGEN-15001. Tel Aviv's Compugen (http://www.cgen.com) is a leading drug and diagnostic product candidate discovery company. Unlike traditional high throughput trial and error experimental based discovery, Compugen's discovery efforts are based on in silico (by computer) prediction and selection utilizing a growing number of field focused proprietary discovery platforms accurately modeling biological processes at the molecular level. (Compugen02.02)

Israel Product & Technology News

9.1 Mellanox ConnectX-2 10 Gigabit Ethernet Technology Now Available Through HP

Mellanox Technologies announced its leading, low-power, low-latency ConnectX-2 EN controller is now available on the new HP NC542m Dual Port Flex-10 10GbE BLc Adapter directly from HP for the company's HP BladeSystem c-Class. With industry-leading performance, power efficiency, integration and feature-set, ConnectX-2-enabled adapters provide an optimized, low-latency solution for high-transaction databases, financial services, cloud computing, and virtualized server and storage data center environments. The HP NC542m is the company's highest performing, lowest power 10GigE adapter card available today. It provides full bandwidth on both ports simultaneously with the industry's lowest power at 8.5 Watts maximum. The NC542m also supports the industry's lowest standard TCP/IP application latency at less than 8us and supports an internal RDMA acceleration engine to further reduce the latency to well under 6us. The NC542m is VMware Ready certified for VMware vSphere 4, enabling customers to manage key infrastructure components including CPUs, storage and networking as a seamless, flexible and dynamic cloud environment. Yokneam's Mellanox Technologies (http://www.mellanox.com) is a leading supplier of end-to-end connectivity solutions for servers and storage that optimize data center performance. Mellanox products deliver market-leading bandwidth, performance, scalability, power conservation and cost-effectiveness while converging multiple legacy network technologies into one future -proof solution. (Mellanox 25.01)

9.2 BluePhoenix Wins Two Natural/ADABAS Modernization Deals Valued at More Than $1 Million

BluePhoenix Solutions was awarded by separate US government entities two Natural/ADABAS modernization contracts with an aggregate value of over $1m. The first deal is with a US government organization that provides investment, health and dental, disability and life insurance benefits to active and retired public employees. The second deal is with a US state agency, which administers educational reform and improvement of about 100 school districts and more than 1,000 public schools. Both organizations were looking to reduce the cost structure associated with Software AG, the supplier of Natural/ADABAS solutions. BluePhoenix will provide the organizations with automated IT modernization solutions to migrate from Natural/ADABAS to Microsoft .NET. This migration will eliminate costly license fees, increase developer resources and provide an agile IT environment.

Herzliya's BluePhoenix Solutions (http://www.bphx.com) is the leading provider of value-driven legacy IT modernization solutions. The BluePhoenix portfolio includes a comprehensive suite of tools and services from global IT asset assessment and impact analysis to automated database and application migration, rehosting and renewal. Leveraging over 20 years of best-practice domain expertise, BluePhoenix works closely with its customers to ascertain which assets should be migrated, redeveloped, or wrapped for reuse as services or business processes, to protect and increase the value of their business applications and legacy systems with minimized risk and downtime. BluePhoenix provides modernization solutions to companies from diverse industries and vertical markets such as automotive, banking and financial services, insurance, manufacturing, and retail. (BluePhoenix 20.01)

9.3 Elbit Systems to Supply Various Types of Laser Based Systems Israeli & North American Customers

Elbit Systems has been awarded contracts in an aggregate amount of approximately $50 million to supply various types of laser based systems to the Israeli Ministry of Defense and to North American customers. The Israeli MoD will be supplied with laser systems, while in North America, Elbit Systems will supply two different customers with airborne laser systems. The orders were received by Elbit Systems Electro-Optics Elop Ltd. (Elop) and are to be delivered over the next two years. Elop is a world leader in advanced laser technology, developing solutions based on diode-pumped lasers and fiber lasers, for applications such as laser designators, laser radars and laser-based airborne defense systems. These technologies enable the implementation of high-quality, compact and lightweight laser systems for a wide range of applications. Haifa's Elbit Systems (http://www.elbitsystems.com) is an international defense electronics company engaged in a wide range of defense-related programs throughout the world. The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance ("C4ISR"), unmanned aircraft systems ("UAS"), advanced electro-optics, electro-optic space systems, EW suites, airborne warning systems, ELINT systems, data links and military communications systems and radios. The Company also focuses on the upgrading of existing military platforms and developing new technologies for defense, homeland security and commercial aviation applications. (Elbit 21.01)

9.4 Rok Selects ClickSoftware for Optimized Mobile Workforce Management

ClickSoftware Technologies announced that the UK's Rok, a leading provider of building, repairs & refurbishment and maintenance services, has selected its ServiceOptimization Suite. Rok's business model and strategy will be supported by the software which it believes will create a leap forward in the building and maintenance services sector through improvements in customer service, cost reduction and enhanced workforce productivity. ClickSoftware will address a number of the perceived failings of the building industry by making sure Rok's technicians can react faster to requested appointments, give more accurate arrival times and arrive when promised. Rok believes the software will assist 1,500 of its technicians and enhance relationships with the end customers by allowing it to deliver exemplary customer service. In addition, ClickSoftware will allow Rok to provide a better working environment for its employees, supporting health and safety procedures and real-time visibility of lone workers. Rok will use ClickSoftware's workforce management suite initially to carry out repair and maintenance work for the insurance sector, the general public, commercial property owners and housing associations. It will ensure technicians arrive on time, with the right skills and materials to get the job done first time.

Tel Aviv's ClickSoftware (http://www.clicksoftware.com) is the leading provider of workforce management and service optimization solutions that create business value for service operations through higher levels of productivity, customer satisfaction and cost effectiveness. Combining educational, implementation and support services with best practices and its industry-leading solutions, ClickSoftware drives service decision making across all levels of the organization. (ClickSoftware25.01)

9.5 SpaceX & Spacecom Sign Contract for Falcon 9 Geosynchronous Transfer Mission

Hawthorne, California's Space Exploration Technologies (SpaceX) and Space Communication of Ramat-Gan Israel, operator of the AMOS satellite fleet, have signed an agreement for launch of a communication satellite aboard a SpaceX Falcon 9 as early as December 2012. Falcon 9 will insert the satellite into a geosynchronous transfer orbit (GTO), adding to Spacecom's existing satellite fleet. Israel Aerospace Industries (IAI) is also involved in the transaction. Spacecom provides broadcasting and communications services to DBS and DTH operators, as well as a wide range of broadcasters, ISPs, telecommunications operators, government organizations and network integrators with Internet, voice, data and digital TV services. This latest deal supports company plans to launch at least four additional satellites in the coming years to multiple orbital positions.

SpaceX is developing a family of launch vehicles and spacecraft intended to increase the reliability and reduce the cost of both manned and unmanned space transportation, ultimately by a factor of ten. With the Falcon 1 and Falcon 9 vehicles, SpaceX offers highly reliable/cost-efficient launch capabilities for spacecraft insertion into any orbital altitude and inclination. Space-Communication (Spacecom - http://www.amos-spacecom.com) is the operator of the AMOS satellites, which provide high-quality broadcast and communication services to Europe, the Middle East and the Atlantic bridge to the United States. The AMOS satellite constellation, consisting of AMOS-2 and AMOS-3, co-located at the prime orbital position of 4°W, serves Direct-To-Home and other Television platforms in Europe and the Middle East, as well as provides a secure and stable transmission to government agencies. The AMOS-5i satellite, the latest addition to the AMOS fleet, started service January 2010. With a position at 17°E, a new orbital position, Spacecom's coverage is expanding to Africa. (Spacecom28.01)

9.6 Voltaire Announces Industry's First 40 Gb/s InfiniBand Switch with Integrated Ethernet Gateway

Voltaire announced the industry's first 40 Gb/s InfiniBand switch with a built-in low latency Ethernet gateway for seamlessly bridging traffic to and from Ethernet-based networks. The Voltaire Grid Director 4036E's low latency capabilities increase competitive advantage for high frequency trading businesses, where eliminating microseconds can translate into millions of dollars in profits. The Grid Director 4036E features thirty-four, fully non-blocking 40 Gb/s InfiniBand ports (delivering 2.72 Tb/s), less than 100 nanoseconds of port-to-port latency, and two 1 or 10 Gigabit Ethernet ports bridging traffic in less than two microseconds. The switch is designed as a self-contained complete solution in a compact 1U device. It includes an InfiniBand switch, an embedded subnet manager and a built-in hardware-based low latency Ethernet gateway, ensuring that I/O bottlenecks are removed and applications operate at maximum efficiency.

Ra'anana's Voltaire (http://www.voltaire.com) is a leading provider of scale-out computing fabrics for data centers, high performance computing and cloud environments. Voltaire's family of server and storage fabric switches and advanced management software improve performance of mission-critical applications, increase efficiency and reduce costs through infrastructure consolidation and lower power consumption. Used by more than 30% of the Fortune 100 and other premier organizations across many industries, including many of the TOP500 supercomputers, Voltaire products are included in server and blade offerings from Bull, HP, IBM, NEC, SGI and Sun. (Voltaire 26.01)

 9.7 Altair Semiconductor & ANADIGICS Team Up to Drive LTE Technology Development

Altair Semiconductor and Warren, NJ's ANADIGICS announced cooperation focused on driving LTE technology adoption. ANADIGICS provides industry-leading radio frequency integrated circuit (RFICs) for the growing broadband and wireless communications markets. Both companies have significant experience in the wireless communications industry and, together, have already delivered innovative solutions to the marketplace. In this latest cooperation, Altair is integrating ANADIGICS power amplifiers (PAs) into the recently announced FourGee LTE USB ExpressCard UE (User Equipment). The card has undergone extensive and successful interoperability testing (IOT) and is currently being used in various field activities throughout the world. LTE is the natural evolution to existing, widespread 3G networks around the world. It is gaining strong momentum worldwide, with 42 LTE network operators in 21 countries already announcing a commitment to the 4G technology. Altair's FourGee LTE USB ExpressCard UE is one of the industry's first Category-3 datacard solutions. Based on Altair's FourGee-3100/6200 baseband/RFIC LTE chipset, the ExpressCard is an ideal test and IOT UE platform for system vendors and carriers involved in the development, trialing and deployment of LTE systems.

Hod Hasharon's Altair Semiconductor (http://www.altair-semi.com) is the world's leading developer of ultra-low power, small footprint and high performance 4G semiconductors. The company's products provide device manufacturers integrating any 4G technology into their products with a highly power-optimized, robust and cost-effective solution. Altair's comprehensive product portfolio includes baseband processors, multi-band RF transceivers for both FDD and TDD bands, and a range of reference hardware and product level protocol stack software. (Altair Semiconductor26.01)

9.8 JVS Targets Quality Control in LED & Compound Semiconductor Manufacturing

Jordan Valley Semiconductors introduced the QC3, a High Resolution XRD (HRXRD) system which controls production quality at LED and compound semiconductors fabs. JVS continues to evolve the company's HRXRD product line, which it acquired from Bede in 2008, with the addition of the new tool. The QC3 HRXRD (High Resolution X-Ray Diffraction) system was developed on the basis of Bede's industry-proven QC200 and D1 systems. The new system improves hardware performance for higher productivity and system reliability, and reduces both cost of ownership and system price by tailoring the functionality to the specific needs of its customers. These improvements are achieved through the optimization of both the hardware and software. Migdal Ha'Emek's Jordan Valley Semiconductors (http://www.jvsemi.com) is the leader in X-ray metrology solutions for advanced semiconductor fabs. The company's products are used by leading semiconductor manufacturers worldwide. The company offers a comprehensive family of solutions based on advanced X-Ray Reflectivity (XRR), X-Ray Fluorescence (XRF) and High Resolution X-Ray Diffractometry (HRXRD). These tools are fully automated, production ready and ideal for both blanket and patterned wafers. (JVS01.02)

Israel Economic Statistics

10.1 Bank of Israel Issues Inflation Report for 2009's Fourth Quarter

The Bank of Israel's Inflation Report, covering Q4/09, was submitted to the government, the Knesset and the public as part of the process of assessing the inflation rate in relation to the inflation target set by the government. The Report was prepared in the Senior Monetary Forum of the Bank of Israel, headed by the Governor, the forum in which the Governor makes decisions on the interest rate.

The CPI rose by 0.5% in the last quarter of 2009, reflecting in particular the increase in world energy prices. Prices increased by a total of 3.9% in 2009, with relatively rapid increases in April–August due mainly to government policy decisions - the increase in VAT and the temporary increase in water prices; excluding this effect, the CPI rose by 2.8% in 2009. The upward trend in the housing price index evident since the summer of 2008 moderated in Q4/09, with a rise of 0.3%, compared with 2.3% in the third quarter. These developments support the assessment that the upward trend in housing prices is slowing.

Developments in Q4/09 reinforce the assessment that there was a sharp turnaround in Israel's economic and financial environment in the second half of the year. This was clearly reflected in the capital market: since the beginning of the recovery in financial asset prices, in March 2009, share and bond price indices have climbed steeply, and in the last quarter of 2009 returned to their record pre-crisis levels. Indeed it seems that the real recovery is quite strong. GDP in Q4/09 is expected to show an increase of more than 4% over its level in Q3. This indicates that the growth of real activity, the first signs of which could seen in Q2/09 after sharp drops in activity in the last quarter of 2008 and the first quarter of 2009. The trend is becoming more firmly established. According to initial assessments of the Central Bureau of Statistics, Israel's GDP increased by 0.5% in 2009, performing well relative to the assessments at the beginning of 2009 predicting a decline of 1.5%. The unemployment rate declined slightly in Q4/09, breaking the upward trend recorded since July 2008. Thus, the improvement in economic activity is expressed also in the labor market, supporting the assessment that growth is more firmly based.

These developments led to a marked upward revision of the growth forecasts for 2010, and the current forecast of the Bank of Israel is of 3.5% growth, and those of some other forecasters are even higher. The sharp change in the economic environment caused a significant reduction in the budget deficit, and the total deficit in 2009, excluding credit, came to 5.2% of GDP, almost 1% lower than the ceiling specified in the law, which was set in light of the earlier assessments that negative growth would lead to a marked decline in tax revenues.

Economic activity around the world started expanding in Q3/09 as a result of macroeconomic intervention measures taken in many countries. Growth, however, was accompanied by a very high degree of uncertainty regarding its strength and likely duration. In Q4/09, macroeconomic data were published that indicated a substantial improvement in production and growth, and even some improvement in the labor markets and the start of a process of replenishing stocks. Against this background many economies' growth forecasts were revised upwards. Some of the global growth, however, was based on significant fiscal expansion, accompanied by considerable increases in public debt. As a result, there was greater concern over the solvency of some countries, which in turn led to the lowering of their credit ratings and their rating outlooks.

The announcements accompanying the Fed and the ECB interest rate decisions towards the end of the quarter under review spoke of the exit strategy from the unconventional monetary expansion measures introduced during the crisis. In contrast, in the UK the decision was taken to increase further its bond purchase program. In Australia and Norway, which were affected relatively slightly by the crisis, the central banks increased the rate of interest. Despite the economic recovery and continued rising inflation expectations, the major central banks still expect inflation to remain moderate, in light of the large negative output gaps in those economies. In some economies, with Japan at the top of the list, there is even concern regarding deflation. Against this, increases in food and energy prices raise the specter of increased inflation, mainly in the emerging market economies.

Israel's monetary policy adapted to the rapid changes in economic activity and in the inflation environment. When the crisis became more severe, in Q4/08 and Q1/09, the Bank of Israel adopted a very expansionary monetary policy, which it continued in Q2/09. In Q3/09, the Bank began gradually to rein in the degree of monetary expansion, and in the fourth quarter, when growth in Israel became more firmly ensconced, the Bank boosted the rate of its cutback in monetary expansion, and increased the interest rate by 25 basis points for December and January. At the end of the quarter under review the interest rate was 1.25%, and the Bank does not intervene in the foreign currency market on a regular basis, but only when changes in the exchange rate are out of line with the basic economic conditions.

The assessment in the Bank of Israel is that in Q1/10, prices in Israel will increase at a rate consistent with the achievement of the inflation target, and that the upside and downside risks of deviation are balanced. For the next few months, inflation viewed over the previous twelve months will remain above the upper limit of the target range. This assessment is based on (1) the expected expansion in economic activity, which boosts demand, and increases in world commodity prices, which pushes up prices of factors of production and which are passed on to consumers, and (2) on the contractionary effect of the increases totaling 75 basis points in the Bank of Israel's interest rate, on the relatively slow pace of the global recovery, and the half-a-percentage point reduction in the rate of VAT on 1 January 2010, which will have some downward effect on the CPI in the first months of the year. The Bank's inflation assessment is consistent with the inflation expectations derived from the capital market and those of professional forecasters––both of which reflect expectations that inflation will be in the upper part of the price stability target range.

The Bank of Israel will continue to implement an expansionary monetary policy that seeks to support economic growth, while bringing inflation in 2010 back to the midpoint of the target price stability range. It will do this by means of a gradual return of the interest rate to a "normal" level; the path of the return will be determined in accordance with the inflation environment, the firmness of growth, both global and in Israel, and the pace at which the major central banks increase their interest rates, and will take into account developments in the exchange rate of the shekel. The current conditions, with the risks balanced but with much uncertainty still prevailing, make forecasting developments difficult; in any event, decisions on the interest rate and on intervention in the foreign currency market will be taken on the basis of the latest ongoing assessments of real and financial developments. (BoI02.02)

In Depth

11.1 ISRAEL: IMF Executive Board Concludes 2009 Article IV Consultation

On January 15, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Israel.

Background

The economy expanded rapidly following the 2001 - 03 downturn, with growth averaging over 5% in 2004 - 07. Supported by strong exports and contained government spending, the external current account remained in significant surplus while the exchange rate was largely stable. Inflation stayed close to the target band, before soaring fuel prices led to its sharp upward climb after mid-2007. Driven by strong fiscal tightening efforts, and also aided by rapid economic growth, the central government fiscal accounts steadily improved from a deficit of 5¼% of GDP in 2003 to balance in 2007, whereas public debt was lowered from 99% of GDP to below 80% of GDP during the period.

Trends changed, however, in the latter half of 2008, as the deepening global financial crisis took its toll. Exports and growth slowed, reducing growth to 4% and the current account surplus to 1% of GDP for the year. Alongside, unhindered operation of automatic stabilizers pushed the central government deficit up to 2¼% of GDP in 2008. Banks - with robust balance sheets - remained relatively resilient, although non-bank financial institutions and the domestic corporate bond market were strained. In this context, Israel's "safe haven" appeal rose and capital inflows surged, leading the real effective exchange rate to rise by some 15% between end-2007 and mid-2008.

Strong policy measures were adopted in response to the impact of the global crisis. Near-term fiscal targets for expenditure and deficit were relaxed in the 2009/10 budget, even though an increase in some excises and a temporary 1%age point rise in the Value Added Tax (VAT) rate - programmed to be reversed at end-2010 - acted as a partial offset. With headline inflation and inflation expectations rapidly falling and shekel appreciating, the Bank of Israel rapidly reduced policy rates from 4.25% in February 2008 to 0.5% in April 2009, and adopted unconventional monetary measures - intervening in the foreign exchange (FX) market and purchasing long-dated government bonds. Targeted efforts to relieve financial market strains were also taken, including setting up public-private bond funds and offering guarantees for bank capital raising.

In part reflecting this policy support, growth returned in the second quarter of 2009 and signs of a sustained recovery have strengthened in recent months. In this context, fiscal receipts have surprised on the upside, likely bringing the central government deficit to 5% of GDP and debt to about 80% of GDP for 2009, both better than budgeted. Inflation expectations have recently risen back to within the target band and the current account surplus has rebounded strongly on the back of reviving exports. Against this background, the Bank of Israel discontinued its pre-announced FX interventions and government bond purchases in Summer 2009, and began raising policy rates for September 2009, to 1.25% for January 2010. On the fiscal side, the authorities reduced the VAT rate by half a percentage point to 16% from end-December, bringing forward by one year half of the cut that had been planned for end-2010.

Executive Board Assessment

Directors observed that the resilience of the Israeli economy during the global crisis reflected strong policy responses, robust fundamentals, prudent bank supervision, public debt reduction and structural reforms in recent years.

Directors cautioned, however, that the global outlook remains highly uncertain and the slower medium-term global growth would have adverse implications for Israel's potential growth rate. They therefore agreed that long-term anchors in Israel's policy frameworks should be strengthened to allow a flexible response of policies to short-term developments and to stimulate long-term supply. Directors welcomed the various steps that have been taken in this direction--including the adoption of a declining target path for fiscal deficits, the recent tightening of the monetary stance, steps towards adoption of the new Law for the Bank of Israel and various actions to bolster prudential supervision.

At the same time, Directors recognized that challenges remain. The credibility of the new deficit ceiling rules has yet to be fully established. Public debt is high and is expected to rise in the near term before resuming its downward track. Although economic growth has resumed relatively early, upward pressures on the shekel could pose new risks. In this light, Directors underscored that further efforts are needed to address downside risks - notably, moderation in the forthcoming public sector wage settlements, including as a signal to private sector settlements.

Directors noted the importance of strengthening the fiscal framework. Steps to reconcile aggregate spending ceilings with the sum of undertakings on specific programs should be a priority. A reform of the fiscal rules- with the adoption of a framework anchored by explicit medium-term debt targets - would help establish the priority assigned to debt reduction and allow fiscal flexibility in the short term. This should be accompanied by multi-year spending ceilings with appropriate countercyclical properties. Strengthened medium-term budget planning would reinforce credibility and improve spending efficiency.

Given economic recovery and the history of high inflation, Directors welcomed the steps taken to begin withdrawal from unconventional monetary policy measures - including preprogrammed foreign exchange intervention - and to increase interest rates. They noted the authorities' commitment to avoid targeting specific levels of the exchange rate. Discretionary interventions should be formally terminated, for all but the most exceptional market circumstances, once the policy interest rate is well above its effective floor on a sustained basis. Directors urged an early completion of all steps to adopt the Bank of Israel Law.

While noting that the Israeli banking system has weathered the crisis well, Directors saw scope for a further strengthening of the banking prudential framework. Comprehensive banking stress tests, regular publication of a financial stability report by the Bank of Israel, and closer coordination among various regulators would all strengthen transparency and stability. Some Directors recommended consideration of a formal deposit insurance scheme.

Directors welcomed the priority attached by the authorities to effective supervision of the non-banking sector, noting a need to strengthen the budget, staff and autonomy of the non-bank regulators. In this context, separation of the pension and insurance regulator from the Ministry of Finance would reflect international best practice. Regular publication of risk analyses by non-bank regulators was also encouraged. (IMF 25.01)

11.2 ISRAEL: OECD Says Reforming Education & Raising Employment Key To Growth

On 20 January, the OECD Mission to Israel issued two reports, an OECD Review of Israel's Labor Market & Social Policies and an OECD Economic Survey of Israel. Both said that Israel's economy has shown resilience during the global recession, but more active education and employment policies, particularly targeted at minority groups, are needed to bolster its economic performance and bridge deep divisions within its society. The reports were prepared and published in the context of ongoing negotiations for Israel to become a member of the OECD.

Launching the reports in Jerusalem, OECD Secretary-General Gurria noted that Israel's economy has successfully weathered the crisis. GDP growth in 2009 is now estimated to have been around 0.5% - above the projections made by many, including the OECD. "In light of this and the faster recovery apparently underway in many trading partners, our next projections to be released in May will almost certainly be revised up, with growth somewhere between 3% and 3.5% for 2010 and probably over 4% for 2011" Mr. Gurria said.

But there are weaknesses in the Israeli economy, particularly on the social welfare side, he noted. One in five Israelis lives in poverty, a higher ratio than in any OECD country, according to the OECD Review of Israel's Labor Market & Social Policies. Poverty is highest among the youngest and fastest growing population groups: just over half of Arab Israelis and 60% of Haredim, or ultra-Orthodox Jews, have disposable income that is less than half the national median - the standard OECD measure of poverty - compared with just over 10% of the rest of the population.

This reflects low employment levels, particularly among Arab women and Haredi men, and low basic support for pensioners. Overall, about 40% of Israelis aged between 15 and 64 are not working, compared to an OECD average of 33%. Most low-paid jobs with little security are filled by Arabs, Haredim and foreign workers.

At the equivalent of 16% of gross domestic product, public spending on social policies in Israel is low by comparison with the average for OECD countries of 21%., and getting more people from under-represented groups into employment will require increased public spending. But it will be money well spent, Mr. Gurria made clear. "Real progress on social issues requires a more inclusive society and better chances for all citizens to share the fruits of economic growth," he said.

To achieve these objectives, the OECD recommends investing more in active labor market policies and in making it worthwhile for low-skilled workers to take jobs rather than stay on the dole. It calls for action to promote fair employment opportunities for minorities in both the public and private sectors and to enforce labor laws and minimum employment conditions more effectively. It also recommends action taken to stamp out illegal hiring and employment practices for temporary foreign workers.

On the education front, the OECD urges action to reduce the inequalities faced by Arab Israelis. It also calls for efforts to encourage the Haredim to strengthen their vocational skills as part of a drive for a more self-sufficient and less poverty-ridden balance between religious worship and work.

More generally, the OECD recommends efforts to improve the performance of Israeli secondary-school students in mathematics, reading and science. These could include extending to the upper-secondary sector measures such as extra classes for small groups of pupils that are already in force in primary and lower-secondary schools, it suggests. In tertiary education, it recommends revival of efforts to combine greater resources for universities and colleges with commitments for reform, in particular increased and differentiated student tuition fees and academic pay.

While broadly praising the Israeli authorities' response to the global downturn, the OECD Economic Survey also points to a range of other weaknesses in economic policy. In particular, it is critical of the continued intervention in foreign-currency markets by the Bank of Israel. The Ministry of Finance's direct supervision of some financial markets is also regarded as undesirable.

The Economic Survey also emphasizes that while there are legitimate calls for increased spending- such as in social policy - the Israeli authorities should nevertheless reduce the burden of public debt on a sustainable basis. Squaring this with calls for increased spending will be tough: the report stresses the need to cut back on areas of public spending that are the least effective and it makes several recommendations on taxation. Caution in pursuing further corporate and personal income tax cuts is advised, along with the elimination of low-priority tax expenditures.

Israel is one of five countries, along with Chile, Estonia, the Russian Federation and Slovenia, which were invited in May 2007 to open negotiations for membership of the OECD. Chile has successfully concluded the negotiations and recently signed an accession agreement to become the organization's 31st member. (OECD20.01)

11.3 LEBANON: A Year In Review 2009

Lebanon continued to defy the expectations of many in 2009, being able to not only weather the worst of the global financial crisis but also post solid economic gains while undergoing another period of political tension. Though the results of the June 7 general election gave the March 14 bloc a clear majority of seats, in the interests of political stability a government of national unity was formed, a process that took more than five months to complete. After the dust settled, a cabinet consisting of 15 ministers of the March 14 bloc or its supporters under Prime Minister Saad Hariri, 10 more from the March 8 group made up of Hezbollah and its allies, and a further five ministers nominated by President Michel Suleiman was sworn in.

While the cabinet may be in place and, after further heated debate, a policy statement adopted that included the hotly contested demand by Hezbollah to preserve the right to maintain arms for use against Israel, Hariri's government appears to have as many issues that divide it as unify it. These include deep differences over policy positions on privatization and state subsidies, as well as Hezbollah's military arm.

Despite continued uncertainty in the political arena, on the economic front 2009 was a year of stability and growth. Though a final figure has yet to be released, many experts believe the Lebanese economy posted real growth of between 4 and 7% last year. Though even the top-end figure would be down on the 8.5% increase in GDP recorded in 2008, any positive movement, especially of that magnitude, would be in contrast to the majority of the region's economies, most of which posted flat growth or slipped into recession in 2009.

Inflation also fell in 2009, finishing the year at 3.4%, a welcome drop from the peak of 14% seen during 2008. Though most expectations are that inflation will remain low in the coming year, there could be some upward movement if consumer demand heats up.

Another key indicator that showed a positive result was Lebanon's debt levels. According to figures released by the central bank in mid-January, the country's national debt was $51bn as of the end of 2009, equivalent to 153% of GDP. While still dramatically high by any standards, it is far better than the debt-to-GDP ratio of 186% in 2007, with the steady decline attributable to the solid economic performance of the past two years.

Among the sectors that contributed to that growth was the tourism industry, which had a record-breaking year in 2009, with more than 2m overseas arrivals, a 39% increase on the previous year. Announcing the figures in mid-January, the tourism minister, Fadi Abboud, said the sector had earned some $7bn last year, representing around 20% of GDP.

Lebanon's banks also showed they could withstand the problems associated with a global financial crisis. Having adopted a policy of keeping borrowing rates fairly high, Lebanon's private banks saw their deposits increase to some $100bn, a rise of 22% for the year. By offering up to 3% on the dollar and as much as 7% on Lebanese dollar-denominated deposits, the country's banks were attracting capital inflows of up to $1.5bn a month. This helped banks keep the credit taps open throughout 2009, with the central bank governor, Riad Salameh, telling the Bloomberg news agency on January 20 that credit levels rose by 16%, adding that he expected demand to remain high in 2010. "If you have the same increases as last year, then you have the proper foundation for good growth in 2010," he said.

Almost alone across the Middle East, Lebanon's real estate sector remained vibrant, posting increased sales figures throughout 2009, culminating in $1.25bn worth of transactions in December, a 40.8% rise on the same month in 2008. Though not quite as spectacular, the full-year figure saw property sales increase by 27% on the previous year, with 83,622 properties changing hands. Having had two years without major conflict, Lebanon's economy has shown what it is capable of, even in times of global recession. As long as the government can maintain its outward unity and implement policies that could further capitalize on the country's already sound economic performance, Lebanon could be well placed to continue to clear its debts and build a solid foundation for the future in 2010. (OBG01.02)

11.4 LEBANON: Lebanon Pharmaceuticals and Healthcare Report Q1 2010

Research and Markets (http://www.researchandmarkets.com) has announced the addition of the "Lebanon Pharmaceuticals and Healthcare Report Q1/10 report to their offering. In the updated Business Environment Ratings matrix for Q1/10, Lebanon remains 13th out of the 17 markets surveyed in the Middle East and Africa (MEA) region. Lebanon's position in the table, rated above only African markets, reflects the fact that its pharmaceutical market is viewed as the least promising among its Arab peers, due to its small size and a significant amount of counterfeit activity. Furthermore, the market will remain susceptible to shocks caused by funding shortfalls and other one-off factors, such as continuing political problems. The large proportion of the population not covered by any sort of health insurance program represents another worrying factor.

Overall, we expect total drug spending in Lebanon to increase from $500m in 2008 to $650m in 2014. The figures imply a modest compound annual growth rate (CAGR) of 4.56% in local currency terms, as the generics segment continues to receive government support and high prices are targeted by state policies. However, the country's small domestic drug manufacturing industry and the reliance on imports means that opportunities for those foreign multinationals willing to risk exposure to counterfeiters will continue to exist. Additionally, the fact that most generics are of a branded variety will remain a suitable point of entry into the market in the shorter term at least. In the longer term, funding constraints will require an increasing focus on cheaper, unbranded products under the public sector healthcare program, resulting in the gradual slowdown of overall pharmaceutical market growth over the second half of our new, ten-year forecast period.

In the meantime, foreign direct investment (FDI) will continue to be hampered by the unresolved political situation in Lebanon, with the process of new government formation still unfinished, almost six months after the parliamentary elections. The economy has been ticking along, but further progress is conditional on political stability. On the other hand, the government's desire to increase the local pharmaceutical output could present a suitable investment ground for foreign companies willing to risk exposure to a number of challenging conditions on the ground, provided the authorities are receptive to such ideas. On the other, the small size and basic offerings of the local manufacturing sector will render exports minimal (at under $13mn) over the five-year forecast period, with such activities also held back by the intellectual property (IP) regime as well as production and technological capabilities in the country. However, manufacturing co-operation with foreign firms can help this process, while a greater implementation of Good Manufacturing Practice (GMP) standards and economic factors, such as the availability of capital, will also play an important role. Nevertheless, Lebanon will remain one of the leading importers of drugs in the immediate region, with leading suppliers including pharmaceutical companies from France, Switzerland, Germany, Belgium and the UK. (R&M 26.01)

11.5 KUWAIT: Economy's Debt Hazard

The Economist Intelligence Unit (http://www.eiu.com) observed that the Kuwaiti government has made clear that it has no intention of approving a draft bill voted on my a majority of MPs obliging it to purchase all citizens' consumer loans from local banks, reschedule repayments and cancel interest. In addition to the estimated $23bn cost and the moral hazard problems that would arise in the unlikely event that the buyout were to go ahead, the showdown between executive and legislature is the latest in a series of confrontations that is casting into increasing doubt the continuing viability of the political system.

The MPs' demand for the government to intervene does have precedents. In the Souk al-Manakh stock market crisis of 1982, which left all-but-one of the country's banks technically insolvent and nationals indebted to the tune of an average of $90,000 each, the government was forced to step in to prevent economic meltdown (as well as to bail out some prominent members of the ruling family) and allow citizens to pay back as much as they could afford, covering the remainder itself. The government also proved relief following the 1990-91 Iraqi invasion and occupation, buying up the entire domestic loan book of local banks for about $20bn.

However, the debt situation today in no way compares to either event. Consumer borrowing leapt from 2003 until the Central Bank of Kuwait (CBK) imposed serious measures to curb indebtedness in March 2008, such as lowering the percentage of monthly salary for which repayments could account. Later that year the credit crunch infected the region, cutting off the supply of fresh funds. Yet, aside from a brief crisis at Gulf Bank, domestic banks have weathered the economic slowdown well, hiking provisioning for non-performing loans (NPL) while still for the most part posting quarterly profits.

Big fish

Besides, the fate of financial institutions is far from MPs' concerns. The government's Economic Stimulus Bill, issued by decree last April in the absence of a sitting parliament, aiming to kick-start lending and assuage the fallout in the broader economy from troubles being faced by the under-regulated investment company sector was widely criticized by opposition deputies for rescuing the big corporate players while neglecting the general population. The consumer loan bail-out bill has been a hot topic ever since, coming to a head with parliament's vote in favor, by a majority of 35 to 22 out of the 64 MPs, including 14 ex-officio ministers, on 6 January. The draft law calls on the state to purchase all consumer debt from domestic banks at a total estimated cost of $23bn using its own $29.5bn-worth of deposits at the institutions, including those of the sovereign wealth fund, the Kuwait Investment Authority (KIA), cancel outstanding interest payments and reschedule the principal interest-free over ten years, with repayments not exceeding 35% of the borrower's salary.

Advance warning

The government made clear its intention to reject the bill well before the vote took place. On 4 January, an economic policy-making triumvirate of the deputy prime minister for economic affairs (Sheikh Ahmad al-Fahd al-Sabah), the finance minister (Mustafa al-Shamali) and the central bank governor (Sheikh Abdelaziz al-Salem al-Sabah) convened a joint press conference to lay out in great detail their objections to the legislation. They said that it was constitutionally, legally and procedurally flawed, not to mention costly, and morally flawed in benefiting only and all those citizens spending beyond their means. "[The bill] contains a number of discrepancies and loopholes in addition to being incompatible with the banking system and unfair," said Sheikh Ahmad. The central bank governor added in a statement the following day that the proposed solution failed to take account of loans from investment companies which do not take deposits, government or private, and warning that the proposal "adds [a] heavy and intolerable burden upon the central bank to the extent that will result in total paralysis of its supervision tasks and carries grave and unwarranted risks." Constitutionally, by prohibiting lenders from taking legal action against defaulting debtors, the law violates "the basic principle of justice and equality before the law and the right of litigation, some of the basic rights of the Kuwaiti society", Sheikh Abdelaziz said. The legal system was also said to be potentially weakened by the law's casting into doubt respect for contracts and covenants.

Sledgehammer

The authorities are far from alone in such criticisms: on 2 January, the Kuwait Banking Association, members of which would obviously benefit in asset-quality terms from the debt buy-out, deemed the proposed bill "unfair" while economists almost unanimously attacked it for the moral hazard problem and the cost to the government, tying up money better used for much-needed development projects and for investment by the KIA. Both the government and MPs opposed to the bill are committed to tackling the issue of struggling borrowers through the Insolvency Fund, established at KD500m ($1.75bn) in March 2008 and which the finance ministry in November proposed to expand to KD1bn and further if necessary. Central Bank calculations indicate than only 3.3% of borrowers currently need assistance, rendering the bill akin to a sledgehammer cracking a nut. Parliamentary speaker Jassem al-Khorafi voiced his support for the former approach in late December on the pragmatic grounds that when the government inevitably rejects the draft bill, the options left to MPs would be either to seek a two-thirds majority of 44 votes in a second ballot - an unlikely prospect - or to postpone the issue, forcing genuinely distressed borrowers to wait far longer for respite.

Al Sabah backbone stiffened

The ruling Al-Sabah family's most recent behavior suggests a resurgent determination to resist and face down MPs' attempts to exert greater power in the tempestuous relationship. In June, the interior minister, Sheikh Jaber al-Khalid al-Sabah, became the first member of the ruling family to face a grilling and subsequent no-confidence vote, which he comfortably survived. Even more shockingly, the six-time prime minister, Sheikh Nasser Mohammed al-Ahmed al-Sabah, finally agreed to be interpolated on 8 December - the most senior official and Al-Sabah family member to do so and after long resisting the process through repeated resignations. He too survived a non-co-operation motion. Thus the bill will almost certainly be rejected and sent back to parliament. The mood among MPs suggests that they will not choose the pragmatic option of waiting months for the next session in order only to need a repeat of the simple majority passage for the bill to become law, but will attempt and fail to secure the support of two-thirds of parliament. But while the government will emerge victorious, and economists will cheer, the method of overriding the majority of MPs and by theoretical extension the wishes of the people will worsen still the relations between the two branches, boding ill for progress on other key pieces of economic legislation. (EIU12.01)

11.6 BAHRAIN: Pharmaceuticals and Healthcare Market in 2011

Research and Markets (http://www.researchandmarkets.com) has announced the addition of the "Bahrain Pharmaceuticals and Healthcare Report Q1/10" report to their offering. In 2008, Bahrain's pharmaceutical market was worth $115m, but should shrink slightly in 2009 to $112m as the economic downturn impacts private expenditure - which counts for around half of total spending. However, BMI, forecasts a recovery in the market in 2011 and growth should be comfortably above 4% in the 2010-2014 period. This is in-line with an overall recovery in the economy, which BMI believes has already passed its bottom. In 2010, GDP growth should stand at 1.3%, after a small contraction was recorded in 2009. After this, levels will pick up although they will still remain a couple of percentage points below growth in the pharmaceutical sector, which could cause problems for public finances.

However, pharmaceutical expenditure is not growing at anywhere near the levels seen in the health sector as a whole, which is forecast to post annual increases of more than 20% per year. This suggests that drug expenditure is not the main reason behind health cost inflation. Austerities concentrating on drug spending are often the first measures governments put in place in order to tackle runaway health costs. In this instance, BMI's figures suggest such an approach would be unsuccessful and we concur with current government thinking, which believes that a great role for the private sector is needed in order to meet health obligations in the coming years.

Indeed, Bahrain is considering making health insurance compulsory for the entire population. Between 2008 and 2014, BMI expects health expenditure to almost triple to reach $2,253.8 per capita. Health Minister Dr Faisal Al Hamer favors a gradual shift towards privatization, with the Ministry of Health (MoH)'s role eventually changing to one of regulation and policy-making rather than provision. However, public commentators have railed strongly against any moves to scrap free healthcare. Under the new system, much of the extra burden will fall on employers, although there are fears that they will simply pass the extra cost onto the customers. Meanwhile, there are also concerns that individuals with rare or chronic diseases will not be covered by insurance companies. This is especially worrying considering the high-level of genetic blood disorders prevalent in the country. A further concern is that private health insurance could actually make the health of the country worse, as people may be less likely to use primary care due to the cost. (R&M 02.02)

11.7 OMAN: Bouncing Back

The Omani government is expecting the economy to bounce back strongly in 2010, following slower growth in 2009 as a result of the global financial crisis. The minister of national economy, Ahmed Macki, was reported on January 2 saying that he anticipated Oman's GDP to grow by 6.1% in real terms during 2010, with inflation remaining relatively stable at 3.5%. Macki also revealed to the public that Oman's debt as of the end of 2009 stood at $1.88bn, with $655m held domestically. The 2008 debt figures are not available (no IMF article IV consultation was held last year, and the Central Bank of Oman does not report debt figures). However, in 2007 national debt stood at $2.6bn, indicating that the government is continuing to pay down debt.

The government's prediction is relatively bullish, considering Macki revealed in mid-December 2009 that growth figures were a relatively disappointing 1-2%, due in large part to low oil prices in the first half of the year. Indeed, the figures undercut the IMF's prediction of 4.1% growth for 2009. Looking ahead to 2010, the IMF predicts more modest growth than the government, at around 3.8%, with inflation at 3%.

However, there is perhaps reason to favor the government's more optimistic assessment. Favorable business reforms, such as the standardization of the tax rate for foreign firms from 30% to 12%, should see renewed interest in the Sultanate as an investment destination. Externally, the strong double-digit growth expected in China this year is likely to result in high average prices for oil, which will boost government revenues and allow the government to continue its investment program. Tourism, too, is likely to bounce back in 2010, as the wealthier clientele that represents Oman's key market spreads its wings once again in the more favorable economic conditions.

There remain potential clouds on the horizon however, particularly in the shape of a possible fallout from neighboring Dubai's recent problems. While Oman's internal economy remains relatively well-insulated from this, there remains a series of cross-investments between the two states that have the potential to cause concern - though not, in all likelihood, significant problems. Indeed, the Sultanate's long-standing rejection of the so-called "sharia-compliant" finance model has stood it in relatively good stead, limiting the exposure of Omani banks to only $77m of investment in the troubled Dubai World, and no exposure at all to the $26bn sukuk that Dubai World is attempting to reschedule.

In light of the more benign economic conditions that are expected this year, the government is already anticipating state revenues to be 14% higher than in 2009, an increase of $1.99b. Expenditure, on the other hand, will likely grow more slowly at 9%, or $1.48b. The difference should enable the government to further pay down national debt, should it choose, as well as to keep a handle on domestic inflation, and top up the State General Reserve Fund (SGRF). Meanwhile, as 2010 brings to a close the current five-year plan, policymakers in the Sultanate will be focusing attentions on the next five-year period. (OBG28.01)

11.8 YEMEN: IMF Executive Board Concludes 2009 Article IV Consultation

On January 8, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Yemen.

Background

Yemen is one of the poorest countries in the region and progress toward meeting the Millennium Development Goals has been slow. Crude oil output, the mainstay of government revenue and exports, has been in decline since 2000. Barring major new discoveries, exploitable oil reserves could be exhausted in a relatively short period. A new liquefied natural gas (LNG) facility that began production in late 2009 will provide some cushion for dwindling oil, and recent discoveries of natural gas may prolong the life of the hydrocarbon sector as a whole. Nevertheless, the magnitude of adjustment required by continued declines in oil output is substantial, even over the medium term. Generating strong and sustainable non-hydrocarbon growth, ensuring fiscal and external sustainability and meeting Yemen's pressing social and development needs will be key challenges.

Recent economic performance in Yemen has raised some concerns. While direct financial contagion from the global crisis has been limited, Yemen has suffered from a range of indirect effects. The slowdown in world growth appears to have contributed to a slowdown in some areas of economic activity. Non-hydrocarbon economic growth in Yemen appears to have weakened, from 4.8% in 2008 to an estimated 4.1% in 2009, reflecting slower activity in such areas as agriculture (possibly linked to Yemen's growing water shortages), construction, manufacturing and real estate. Inflation has hit record lows, due largely to the sharp decline in international food prices.

The heaviest impact from the global recession has come through lower oil prices. Lower production, combined with the sharp drop in average prices and lower government share of output between 2008 and 2009 has resulted in a significant decline in government oil exports. The loss of oil revenue has put pressure on the government fiscal balance. The authorities have sought to mitigate the impact through containment of the civil service wage bill and a cabinet decree to slash non-essential current expenditures, but overall the adjustment effort has not kept pace with declining oil receipts. Non-hydrocarbon revenues, meanwhile, have been stagnant. Full implementation of the General Sales Tax (GST), expected in 2009, did not materialize. The overall deficit is projected to reach 8 - 9% of GDP in 2009.

The main focus of monetary policy shifted from containing inflation to providing liquidity. With single digit inflation, declining private sector credit, and a rapidly expanding fiscal deficit, monetary policy by the Central Bank of Yemen (CBY) has been largely accommodative. In addition to re-injecting sizeable liquidity into the banking system through a repurchase of central bank CDs, the CBY also made the first adjustment to the benchmark deposit rate in nearly ten years, lowering the rate from 13% to 10% during January - May. The impact on broad money growth has been muted given the decrease in net foreign assets. However, the surge in credit to government may have contributed to lower private sector credit growth, which turned negative by mid-2009.

Pressure on the balance of payments was also visible. From September 2008 to September 2009, usable foreign exchange reserves of the Central Bank of Yemen (CBY) declined by $1.6 billion, or roughly one-fifth of the initial reserve cushion (excluding allocations of Special Drawing Rights (SDRs) in August and September), but remain comfortable at $6.6 billion or about 9 months of imports. The sharp decline in oil exports was the driving force. However, strong import demand (especially for food and fuel, which together account for 60% of total imports) and an apparent slowdown in foreign direct investment and inward remittances also played a role. Pressure may have eased in the last quarter of the year as oil prices rose, but the current account deficit is projected to widen from 4% of GDP in 2008 to about 6% in 2009.

Financial sector soundness indicators continue to improve. While nonperforming loans remain high, they are declining. Capital ratios are also on the rise, in line with a legal requirement to increase capital by end-2009. However, dollarization (measured as foreign exchange deposits as a share of total deposits) appears to be rising after several years of steady decline.

Given the many challenges ahead, the authorities signaled interest in Fund support - possibly under the Extended Credit Facility (ECF) - to support the design and monitoring of a Yemeni strategy to reduce macroeconomic and structural imbalances. It was agreed that program discussions could move forward early in 2010.

Executive Board Assessment

Executive Directors noted that although the global financial crisis had limited impact on economic growth and the financial sector, risks to macroeconomic stability have increased. Lower oil prices and production, coupled with weaker foreign direct investment and remittances, have put pressure on the fiscal and external accounts. These pressures are likely to continue as oil reserves dwindle. At the same time, the political and security situation has deteriorated. The immediate challenge is to restore fiscal sustainability while supporting growth and reducing poverty. Directors stressed the need for prudent macroeconomic policies and sustained structural reforms. Yemen's medium-term prospects hinge critically on progress in enhancing competitiveness, creating an attractive investment regime and promoting non-hydrocarbon growth.

Directors underscored the urgency of reducing the fiscal deficit in 2010, while protecting social and development spending. They welcomed measures to curtail non-priority public expenditures and restrain wage increases. Given the sizable increase in domestic debt to finance the 2009 budget deficit, including use of central bank financing, Directors encouraged ambitious fiscal consolidation, focusing on aligning expenditures with revenues, reducing structural rigidities in expenditures and boosting non-oil revenue. Key priorities in this regard include full implementation of the General Sales Tax and reducing fuel subsidies. At the same time, Directors stressed the need for larger and better-targeted direct transfers to protect the poor. Continued efforts to reform the income tax regime, eliminate exemptions and strengthen public financial management are also crucial. Directors looked forward to early and full implementation of the Automated Financial Management Information System.

Directors viewed the stance of monetary policy as broadly appropriate and endorsed the decision to lower the benchmark deposit rate. They broadly considered that gradual further rate cuts could be explored with a view to eventually liberalizing Yemen's interest rate regime, while being mindful of such key indicators as the international reserve position.

Directors emphasized the role of exchange rate flexibility, together with fiscal consolidation, in facilitating adjustment of the external accounts and protecting the reserve position. Allowing the exchange rate to adjust over time, in line with fundamentals, would help facilitate transition to a post-oil economy.

Directors welcomed the continued improvement in financial sector indicators. They supported the plans to issue Islamic financial instruments. Directors commended the authorities for the recent ratification of new legislation pertaining to Anti-Money Laundering and Combating the Financing of Terrorism and encouraged them to take more concrete actions in this area. As regards structural reforms, Directors recommended further progress in reforming property rights, contract enforcement, and the judicial system for creating an environment in which banks would be willing to expand private sector credit.

Given the significant challenges ahead, Directors welcomed the authorities' interest in closer engagement with the Fund. They noted that any Fund-supported program would require strong government ownership, robust structural reforms and a sustainable macroeconomic framework. Directors pointed out that along with financial support from the Fund, adequate donor support will also be critical. Close cooperation with the World Bank and other multilateral institutions is also encouraged. Directors noted the importance of improving governance, enhancing implementation capacity, and making use of Fund's technical assistance, including in the area of statistical data. (IMF27.01)

11.9 EGYPT: Subsidies Coming to an End

The Oxford Business Group (http://www.oxfordbusinessgroup.com) observed that Egypt's gradual phasing out of energy subsidies will likely be put on hold due to the continuing repercussions of the financial crisis. Industry will benefit, but an extended grace period could increase the national deficit and derail plans for restructuring the country's energy model. Most likely, Egypt's fiscal reforms will be pushed back two years.

On 13 January, the Energy Pricing Committee recommended that current prices in non-energy intensive industries be maintained for the next six months in order to protect the economy, although a final decision has yet to be taken by the prime minister, Ahmed Nazif. According to the Prime Ministerial Decree No. 1795 of 2008, non-energy intensive industries are those that require less than 50m kw/hr of electricity or 66m cu meters of natural gas annually. Just last October, the Industrial Development Authority had announced a 29% price hike would go into effect at the beginning of 2010.

In 2006, following a spike in demand from industries and households, the ruling National Democratic Party began a program to reduce the country's costly energy subsidies. In the 2007/8 fiscal year, subsidies were removed from energy-intensive industries, including petrochemicals, steel and cement production. But by that time, oil consumption had outstripped domestic supplies, forcing Egypt to import at steep international prices. Long seen as part of the social contract, remaining energy subsidies cost the state an estimated $5.89bn in 2009, and constituted 70% of its total subsidies.

The original plan had been to phase out subsidies for electricity and gasoline completely by 2014, with only butane continuing to be supported. However, since the onset of the financial crisis, the state's primary focus has been on maintaining economic and social stability. The budget deficit is expected to reach 9-10% in the 2009/10 fiscal year due to stimulus spending, such as increased wages for public sector workers.

In December 2009, the finance minister, Youssef Boutros-Ghali, told international press that the global crisis had shifted all fiscal plans, including subsidy dismantling, back two years. "I was planning to go down to a 3% budget deficit by 2012. Now it's going to be 2014," he said.

The continuation of subsidies, however, may not be entirely financially motivated. In its daily market report, investment bank Beltone Financial wrote, "The second quarter of 2010 would be an opportune time for the government to restructure energy subsidies as inflation falls below 10%," adding that the decision to not raise energy prices could be a political one as 2010 is an election year.

Despite the state's insistence that they actually benefit the rich, subsidies remain popular with Egypt's predominantly poor population (43% of citizens live on under $2 a day). Indeed, the removal of subsidies has been consistently referred to by the government as a "restructuring" in order to garner public support. However, given dwindling domestic energy supplies and demand rising 6.35% on average annually, subsidized energy is an increasingly unsustainable model. Oil production has been on the decline since 1996, with around 700,000 barrels per day of crude now pumped annually.

Egypt is still a net exporter of natural gas, producing 45.8m tonnes in 2009 and consuming 31.2m, while its 77.2trn ft in proven natural gas reserves are enough to power the country for 30 years. Nonetheless, in 2008 the state announced it would sign no new gas export contracts in 2010 in order to accommodate domestic consumption needs.

As Egypt removes subsidies for petroleum products, it has also sought to increase the weight of renewable energy sources in its portfolio. Given Egypt's vast expanses of uninhabited land and high wind speeds, developing wind power is the obvious answer - the New and Renewable Energy Authority is working in conjunction with international companies to add another 7200 MW in installed capacity by 2020. Egypt's solar power capacity will also receive a boost from the World Bank's Clean Technology Fund, which is putting $5bn towards developing green power in the Middle East and North Africa. While sector restructuring may have been momentarily set off track by the global recession, it is clear that it will soon be the end of an era for energy subsidies in Egypt. Once the country achieves greater economic stability, it must continue down the path to a sustainable energy model. (OBG25.01)

11.10 ALGERIA: Country Forecasted to Account For 8.91% of African Regional Oil Demand By 2014

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

The latest Algeria Oil & Gas Report forecasts that the country will account for 8.91% of African regional oil demand by 2014, while providing 19.57% of supply. African regional oil use of 2.98mn barrels per day (b/d) in 2001 rose to an estimated 3.60mn b/d in 2009. It should average 3.66mn b/d in 2010 and then rise to around 4.13mn b/d by 2014. Regional oil production was 7.84mn b/d in 2001, and in 2009 averaged an estimated 9.79mn b/d. It is set to rise to 12.52mn b/d by 2014. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average 4.86mn b/d. This total had risen to an estimated 6.19mn b/d in 2009 and is forecast to reach 8.40mn b/d by 2014. Angola has the greatest production growth potential, with Nigerian exports set to soar if it can resolve recent quasi-political issues.

In terms of natural gas, the region consumed an estimated 124bn cubic meters (bcm) in 2009, with demand of 191bcm targeted for 2014. Production of an estimated 248bcm in 2009 should reach 385bcm in 2014, which implies net exports rising from 124bcm in 2009 to 193bcm by the end of the period. In 2009, Algeria's share of regional gas supply was an estimated 40.40%, easing to 36.39% by 2014. The country's share of demand in 2009 was an estimated 21.03%, with 17.63% predicted by 2014.

For 2009 as a whole, we have assumed an average OPEC basket price of $59.00 per barrel (bbl), a 37.3% decline year-on-year (y-o-y). This represents an upgrade from the $55.00/bbl forecast we were using in the previous quarter. For 2010, we expect to see a significant oil price recovery to $83.00/bbl for the OPEC basket price, gaining further ground to $85.00/bbl in 2011 and to $90.00/bbl in 2012 and beyond. For 2009, the authors have assumed a global average gasoline price of $67.46/bbl, with the fuel having peaked in June at almost $80.00/bbl. The overall y-o-y fall in 2009 gasoline prices is put at 33.7%. The gasoil forecast is for an average price of $70.59/bbl, assuming a monthly high above $94/bbl in December 2009. The full-year outturn represents a 41.8% y-o-y fall. The annual jet price level for 2009 is estimated at $68.45/bbl. This compares with $124.95/bbl in 2008.

The 2009 average naphtha price is put at $52.66/bbl, down 39.7% from the previous year's level. Algeria's real GDP is estimated to have risen by 4.4% in 2009, compared with 0.8% growth in 2008. We are assuming average annual growth of 3.9% in 2010-2014.

We therefore expect estimated oil demand of 305,000b/d in 2009 to rise by up to 4.0% per annum to 368,000b/d in 2014. State oil company Sonatrach dominates the industry, operating in partnership with various international oil companies (IOCs), but accounting for 60% of the country's oil output. Thanks largely to IOC investment, combined oil and gas liquids output is forecast to increase from an estimated 1.90mn b/d in 2009 to 2.45mn b/d in 2014, with exports heading towards 2.08mn b/d. The country's OPEC membership and assigned production quota could frustrate volume growth ambitions. Gas production of an estimated 100bcm in 2009 should reach 140bcm by 2014. Consumption of an estimated 26bcm in 2009 is expected to rise to 34bcm by the end of the forecast period, providing exports of 106bcm. Between 2009 and 2019, we are forecasting an increase in Algerian oil and gas liquids production of 38.3%, with volumes rising steadily from an estimated 1.90mn b/d in 2009 to 2.62mn b/d by the end of the 10-year forecast period. Oil consumption between 2009 and 2019 is set to increase by 46.6%, with growth slowing to an assumed 4.0% per annum towards the end of the period and the country using 447,000b/d by 2019. Gas production is expected to rise to 185bcm by the end of the period. With demand rising by 63.4% between 2009 and 2019, there should be export potential increasing from 74bcm to 142bcm, in the form of LNG and by pipeline.

Algeria now holds fifth place in the updated Upstream Business Environment rating, and is three points behind regional heavyweight Angola. It has the potential to move higher over the medium term, with Gabon being the next target. The country's score benefits from healthy oil and gas reserves, a large number of non-state companies active in the upstream sector and decent licensing terms. The country is near the top of the league table in the updated Downstream Business Environment rating, with some high scores but progress further up the rankings unlikely. It is ranked third behind South Africa and Egypt, thanks to high scores for gas consumption, nominal GDP, likely refining capacity expansion and oil demand growth. (R&M 25.01)

11.11 TURKEY: Morgan Stanley's Recent Trip - Sticking with Their Base Case

Tevfik Aksoy writes for Morgan Stanley (http://www.morganstanley.com) that on a trip to Ankara and Istanbul he visited officials at the Turkish Treasury, the Central Bank of Turkey and the IMF Representative Office in Ankara, as well as private and public banks and a political consultant in Istanbul. His impressions are summarized below. In general, he saw no immediate upside or downside risks to our base case scenario and accompanying forecasts that he presented in the Turkey section of our CEEMEA 2010 Outlook on January 18.

Some encouraging news on the fiscal front: Based on the discussions we had, there seems to be more encouraging news on the fiscal front than otherwise. First, the budgetary realizations in the last few months of 2009 had been better than expected, mostly due to the rise in revenues. In fact, the budget deficit was some TRY 9-10 billion lower than envisaged and provided some better starting ground for 2010. Combined with the recent tax hikes and price adjustments on certain administered services, the prospects of a better fiscal picture have risen. The rise in special consumption tax on tobacco and petroleum alone might bring in some additional TRY 8-9 billion to the budget. According to the officials, most of the fiscal risks that could be witnessed in 2010 have materialized to a large extent, especially considering that the salary and pension adjustments had taken place. Most of the adjustments on the revenue side had been assumed in the budget and further positive news is expected as the reforms on the health and drug administration take effect, lowering the outlays. The additional cost of increases in the pensions of retirees (which is estimated to be around TRY 3 billion) would be offset by the tax hikes, the increased tolls as well as the recently introduced fees on banks' branches, etc.

Fiscal rule preparations in progress: Second, the preparatory work for the fiscal rule in underway. Our understanding was that the officials were trying to finalize the details and the exact nature of the parameters of the fiscal rule by consulting with the industry, academia and various interested parties. The initial date of expected legislation for the fiscal rule was 1Q10, but our conversations point to a possibility of 1H10 instead. The key point is that the intention to introduce the rule is there and the 2011 budget will be based on this practice. That said, we believe that a fiscal rule alone might not be sufficient to provide full confidence for the market, given the possible lags between fiscal deviations and corrective actions as well as lack of clarity on the accountability aspects. Therefore, we will be watching progress on this front closely.

Lower debt rollover ratio possible: Third, there had been some slight positive news on the financing and the debt rollover side. With improved prospects of a better-than-planned budget for 2010, which might reverse the 0.3% of GDP primary deficit (planned) to a flat or even a slight positive figure, officials believe that the rollover rate could decline. In comparison to the domestic debt rollover rate of 99.5% set for 2010, officials think that the number could ease to 93-94%. We had been reminded that the privatization proceeds assumed for the financing program for 2010 stood at TRY 5 billion, whereas the official budget assumed TRY 10 billion. Hence, there seems to be some further downside to the rollover ratio as the assumptions had been made on the conservative side. Officials believe that there is no imminent need to raise electricity prices (which is good for inflation dynamics) but there might a case for adjusting natural gas prices higher, which partially depends on the course of the currency.

A tough year for the CBT: Our impression from the CBT was somewhat mixed with regards to the market impact of the possible actions by the monetary authority in terms of the response that it might give to rising inflation in the coming months. To start with, the CBT seems to be preserving the rather dovish stance, believing that the slow growth in credit, the presence of a large output gap and uncertainties surrounding the external demand conditions would cause inflation to decline after a brief rise in the first few months of the year. According to the CBT, the growth figure for 2010 could easily exceed 4% and reach 5%, as the statistical carry-over (of some 2.5pp) and the inventory cycle would contribute significantly to the headline number. Still, the output gap is not expected to close before end-2011 or early 2012. Credit demand improved somewhat but remains weak and government consumption is expected to be limited, given the anticipation of fiscal discipline.

Rates to remain on hold for some time: Our impression was that the CBT would try to keep the policy rate at the current level as long as possible as it believes that core inflation would remain low and diverge from the headline CPI. According to the CBT, inflation might rise in the early stages of 2010 on the back of the one-off rises in taxes and administered prices as well as base effects. However, again based on base effects and the possibility of a decline in unprocessed food (especially meat prices), inflation might decline even lower than the targeted rate.

Inflation expectations are key: For the central bank, the main issue seems to be monitoring inflation expectations, which the CBT does not want to see diverging too much from medium-term targets. Hence, the CBT is likely to focus on the developments on this front in setting rate decisions, in our view.

The CBT might be watching the employment levels in the industrial sector, some components of the PMI data (such as the indications related to labor hiring, etc.) as well as the developments in the credit market. While the policy rate might be kept unchanged for some time, officials admit that inflation could rise to levels that might influence expectations adversely, which might need to be addressed. Our conversations pointed to the possibility that the CBT might first resort to liquidity-tightening measures (while keeping the policy rate unchanged) by raising the reserve requirement ratio and perhaps altering the funding size and tenor via repos. Currently, the CBT funds local banks via weekly and 3-month repos while drawing excess liquidity in the overnight market.

No new information on the IMF front: Our discussions with IMF officials essentially were in line with the Turkish officials' rhetoric and confirmed the general market view that the decision to go for a deal would primarily involve PM Tayyip Erdogan's decision to invite an IMF team to Ankara. The message was that the daily correspondence would continue and that the IMF was ready to send a mission immediately after an official invite. Our impression on the future course of the IMF discussions is that the government might decide to complete the work on the fiscal rule to a large extent and finalize all the fiscal action needed before deciding to invite the team. Following the IMF mission's study of the outcome of the 2009 realizations and its assessment of the fiscal outlook, the Fund might suggest more fiscal measures, or be content with the current picture. If the additional measures were acceptable by the government we would expect a deal to go through. However, we did not get the impression that a Stand-By Arrangement is seen as crucial (other than its positive impact on growth), especially if it involved sizeable adjustments. One of the sticking issues in the past was related to the status of the Revenue Administration body. Previously, the IMF requested that the Revenue Administration body is made independent, while the government refused to do this. However, our understating is that progress had been made on this front and the government is willing to improve the legislation significantly to make the operational independence and effectiveness as good as possible while the IMF might be relatively more accommodating. Hence, the future of the relations seems to hinge on whether an invitation would be sent to Washington, DC soon, which is nothing new for the market. Recently, there had been discussions in the media that Turkey might apply for the Flexible Credit Line (FCL) with the IMF. This option had broadly been dismissed in Ankara, and our view is that an FCL seems to be a very unlikely outcome, as by definition it would not serve Turkey's purposes.

Istanbul is cautious: In Istanbul, market participants seemed to have been enjoying the constructive start of the year, especially with the decline in yields and relatively smooth progress in Treasury borrowing auctions. Almost all participants that we spoke with share the view that 2009 had been an extraordinary year in terms of profits (on bonds) and that the results would show it. That said, the common view was also pointing to a likely presence of significant window dressing in balance sheets to be disclosed for year-end, especially on the size of the loan books and deposits. In fact, early credit and deposit data for January, as disclosed by the CBT, show rather sharp declines. In terms of the financing program and the upcoming auctions, banks expect the Turkish Treasury to roll its debt successfully, but a common view is that yields are unlikely to decline from the current levels even if an IMF Stand-By Arrangement is agreed soon. When asked about how much downside they would expect on yields (in case an IMF deal were to be announced today), the answers ranged from 20-50bp with a subsequent take-profit move. In terms of credit growth outlook, the general view was that demand was picking up very marginally and even in the housing sector where growth had been most visible, there had been a sharp slowdown recently. The good news seems to be on the non-performing loan side, with the NPL ratio gradually declining amid banks' increased efforts to improve collections.

No urgent issue on the political front, but the noise will likely be there: We can easily claim that politics had not been a high-ranked agenda item during our meetings. Only one of the private banks mentioned possible escalation of political noise later in the year, mostly in relation to approaching general elections, some issues surrounding constitutional amendments and legislation on the mechanics of a referendum. (MS 26.01)

11.12 TURKEY: International Tourists Arrivals Increased By 2.7% in 2009 Over 2008

Research and Markets (http://www.researchandmarkets.com) announced the addition of the "Turkey Tourism Industry by 2013" report to their offering. Despite the ongoing downturn faced by the tourism industry around the world, tourism industry in Turkey has reported significant growth rate in recent time. International tourists arrivals has increased by 2.7% in 2009 over 2008 as compare to negative growth faced by world tourism industry. With strong government efforts and increasing popularity of Turkey as a tourism destination, the international tourist arrivals in Turkey is expected to increase at a health rate of over 10% in coming four years, with outbound and domestic tourism is also expected see the high growth rates.

Medical tourism is expected to see a maximum growth in coming years. Medical tourists are expected to increase by over 20% in coming years. Increasing healthcare costs in European countries and developing healthcare infrastructure in Turkey will drive the growth of medical tourism in Turkey. Apart from that marine tourism and golf tourism is also expected to see a huge growth in coming years.

Turkey tourism industry by 2013 report provides an insight into the Turkish tourism market. It evaluates the past, present and future scenario of the Turkish tourism market and discusses the key factors which are making Turkey a potential tourism destination. Report deeply analyzed the different parameters of tourism industry, including inbound tourism, domestic tourism, outbound tourism, medical tourism, hotel industry etc.

Medical Tourism to Drive Tourism Industry in Turkey

As per recently released report "Turkey Tourism Industry by 2013", despite the ongoing downturn faced by the tourism industry around the world, tourism industry in Turkey has reported significant growth rate in recent time. International tourists arrivals has increased by 2.7% in 2009 over 2008 as compare to negative growth faced by world tourism industry. With strong government efforts and increasing popularity of Turkey as a tourism destination, the international tourist arrivals in Turkey is expected to increase at a health rate of over 10% in coming four years, with outbound and domestic tourism is also expected see the high growth rates.

Medical tourism is expected to see a maximum growth in coming years. Medical tourists are expected to increase by over 20% in coming years. Increasing healthcare costs in European countries and developing healthcare infrastructure in Turkey will drive the growth of medical tourism in Turkey. A part from that marine tourism and golf tourism is also expected to see a huge growth in coming years. (R&D 25.01)

11.13 GREECE: Greece Economy Not Only a Fiscal Problem

The Economist Intelligence Unit writes that with Greece's long-term credit rating facing the threat of further downgrades, debt-servicing costs continuing to rise, and accusations of official data falsification adding to the uncertainty over the scale of the country's fiscal problems, the Panhellenic Socialist Movement (Pasok) prime minister, George Papandreou, faces an enormous challenge to convince the financial markets, and other EU member states, that his government is both willing and able to implement the difficult reforms necessary to stabilize the economy. These are not confined to short-term austerity measures aimed at strengthening the public finances. Greece also has a very large external deficit, implying structural weakness and a loss of competitiveness that must also be addressed if the economy is to return to sustainable growth over the medium term.

Mr. Papandreou's much anticipated state of the nation address in December was a disappointment to all concerned. Rather than delivering tough rhetoric on plans to reduce the country's huge fiscal deficit - estimated to have risen steeply to at least 13-14% of GDP in 2009- by slashing inefficient government expenditure, the prime minister focused primarily on proposals to curb corruption, tax evasion and excessively high wages.

In part, this was seen as an effort to create a new social compact with farmers, salaried workers, small business owners, pensioners and immigrants, thereby providing the government with scope to implement structural changes without sparking the much-feared social upheaval. The reasoning behind Mr. Papandreou's softly, softly medium-term policy rhetoric is twofold. First, the prime minister values consensus over confrontation as a mode of change. Second, Mr. Papandreou leads a party that is sharply divided between those in favor of wide-ranging fiscal and social security reform and populists in favor of the status quo and additional government hand-outs.

In his address last month the prime minister stated that he aimed to rein in the fiscal deficit to below the 3% of GDP threshold stipulated by the EU's Stability and Growth Pact by 2013, reducing the deficit to 8.7% of GDP in 2010, around 7% of GDP in 2011, around 5% of GDP in 2012 and 3% of GDP in 2013. The minister of finance George Papaconstantinou, then spent several weeks travelling throughout Europe, speaking with politicians, opinion makers and institutional investors in an bid to reassure the many doubters that the Pasok government was prepared to do "whatever it takes" (an oft-heard statement from many countries' politicians over the past year) to fix the shambolic public finances. Indeed, this led in early January to the government announcing its intention to accelerate its deadline for reducing the deficit to 3% of GDP by one year to 2012.

Awaiting the detail

Precise details on how this will be achieved are yet to be released. They are due to be presented in the coming weeks in the government's update of its Stability and Growth Program 2009-12. A draft of this report was completed on January 4th, and since then representatives of the European Commission, the European Central Bank (ECB) and the IMF have held meetings with the government to discuss its deficit-reduction and structural reform plans. The Ministry of Finance was at pains to stress that its discussions with the IMF were solely "within the context of the regular surveillance that the IMF provides to its members" and were in response to the government's request for advice over proposed tax and pension reforms. The Ministry stated that there was "absolutely nothing on the agenda about loans and borrowing [from the IMF]," and strongly denied any suggestion that Greece might be forced to look to the Fund for any financial assistance.

So far the government has hinted at a number of planned reforms. It aims to boost revenue this year primarily through new tax legislation, to be developed in consultation with 28 different social groups and which is expected to increase the number of bands of taxable income and raise rates. This could require many individuals on quite modest salaries to pay substantially more in income taxes, and is likely to face strong union opposition. The government also aims to abolish existing concessionary tax rates, implement a graduated property tax to replace the current flat rate duty introduced by the previous New Democracy administration and levy a tax on consumption. Since January 1st 2010 excise duties on tobacco and alcohol products have increased by 10%, while there are plans to raise tax on petroleum products later this year once demand for heating oil has abated.

One of the government's key strategies for reducing expenditure is to cut costs related to public-sector staff. In his December speech Mr. Papandreou announced plans to freeze public-sector wages and salaries above €2,000 per month, cut allowances for higher paid civil servants by 10%, freeze the creation of new posts, hire only one person for every five who leave the public sector and link the databases of all the ministries to a central payroll system to ensure that no unauthorized hiring takes place. Furthermore, the government is launching a dialogue with trade unions on reducing the number of state pension funds from 13 to three and on raising the retirement age for women to 65 (in line with the age for men). Trade unions have impeded pension reform in the past and have threatened to protest in response to this latest round of proposals.

The final text of the Stability and Growth Program 2009-12 will be formally submitted ahead of February's Economic and Financial Affairs Council (Ecofin) meeting, where a revised deadline will be established for Greece to reduce its fiscal deficit below the 3% of GDP threshold. Of the 11 member states that have so far triggered an excessive deficit procedure (EDP) by the European Commission, Greece is currently one of only two countries (the other is Malta) not to have been granted a grace period for bringing its deficit below 3% of GDP - its present deadline for correcting its excessive deficit is 2010. Clearly, this is now set to change.

Cooking the books

When the EDP against Greece was initiated back in April 2009, the Commission deemed that the country had not undertaken sufficient austerity measures to stabilize the fiscal framework. As has become alarmingly apparent in recent months, Greece's public finances are in a far worse state than the already weak position imagined less than a year ago. The ratings agencies certainly agree. In December 2009 both Fitch and Standard and Poor's (S&P) downgraded Greek sovereign debt from A- to BBB+ (the third-lowest investment grade), with a negative outlook. Moody's followed soon after by downgrading Greek debt from A1 to A2, also with a negative outlook. These downgrades came after a farcical period in October-November when the Greek authorities steadily raised their official estimate for the 2009 fiscal deficit from a relatively modest 3.7% of GDP to an alarming 12.7% of GDP.

This episode only served to emphasize what many observers had long suspected - historical and deep-seated problems with the accuracy and reliability of official data published by the Greek statistical service. Just to underline the point, on January 12th the European Commission published an unusually damning report questioning "the independence, integrity and accountability of the national statistical authorities" and accusing Greece of deliberately misreporting fiscal deficit and debt figures to Eurostat in October 2009. While the unprecedented events of the past 18 months have raised legitimate doubts as to the accuracy and manipulation of official data in a number of countries, Greece has a poor track record of public finance management. Only last month Mr. Papandreou admitted that the country was riddled with corruption and that collection of accurate statistics had been subject to political pressures. A committee has since been tasked with devising proposals on how to improve the reliability of statistical data.

Amid bond market concerns that the Commission's findings had raised further questions as to the validity of Pasok's latest deficit forecasts, the spread between Greek ten-year government bonds and comparable German bunds (the euro area benchmark) widened sharply on 12 – 13 January, rising by a combined 45 basis points (bps) to 261 bps, by some margin the largest spread in the 16-member bloc. This compares with an average of just130 bps in September-October 2009 and the spread is now approaching the recent peak of 294 bps seen at the height of the financial crisis last March.

External factors

The Economist Intelligence Unit's latest forecast envisages a modest narrowing of the deficit this year to around 11.4% of GDP, with a further fall to 9% of GDP in 2011. The risks to this outcome are clear, however, as it is still too early to determine whether Mr. Papandreou has the leadership skills to push through the necessary austerity measures. If the trade unions do not agree to the tough reforms, it will be extremely difficult for the government to implement them. Although not our central scenario, especially in the near term, should investors prove unwilling over time to fund the large deficit, there is a risk that Greece will require a bail-out to avoid defaulting on its debt. The IMF would seem a more likely candidate for this than the EU, given the latter's obvious concern regarding the moral hazard implications of providing a safety net for a recalcitrant member state (there is also no obvious mechanism in place under which the EU could provide a country bailout). Any IMF support would certainly come with strict conditions attached demanding fiscal austerity, thereby providing some useful cover for the government to implement the required tough reforms on a population still wholly unprepared - and unconvinced of the need - for the scale of the changes that will be required.

An important point that has been rather obscured so far by the ongoing debate over Greece's gaping fiscal deficit is that it is not simply a question of raising revenue and cutting public spending to bring down the fiscal imbalance. Greece also has a very large external deficit (estimated at around 13% of GDP in 2009), implying deep structural weaknesses in the economy and a loss of competitiveness that urgently need to be addressed. If they are not, short-term crisis measures aimed at reducing the fiscal deficit run the risk of dragging the economy back into recession and into a deflationary environment that would drive Greece's public debt/GDP ratio higher still (even taking the government's optimistic fiscal projections, public debt is set to exceed a worrying 120% of GDP this year).

As Ireland is now discovering (with Spain set to follow shortly), with euro area membership preventing any external nominal currency devaluation, one of the few options seemingly available to bring about an improvement in competitiveness is through internal devaluation, a uniform cut in wages and prices. Many observers believe this would improve the prospects of Greek public finances and the wider economy returning to a more sustainable path over the medium term. The obvious problem is that such a strategy presents as much a political challenge as an economic one, and at this juncture the Greek government is a long way from being able to convince a skeptical public that such a drastic course of action is required. (EIU14.01)

11.14 GREECE: World Opinion on the Eurozone Now Focuses on Greece

Kathimerini writes that Greece's failure to respond to the demands by international markets for a tighter fiscal policy than envisaged in its three-year Stability and Growth Program and economic structural measures has made things worse, sowing the seeds of a credit crunch with immense economic and social implications. The ball is now in the Greek premier's court.

Greece invited worldwide attention by first allowing the 2009 budget deficit to jump to 12.7% of GDP and by then moving hesitantly to tackle the huge budget deficit while admitting its statistical data had been falsified. In doing so, it was downgraded to the B category by Standard & Poor's and Fitch Ratings and understandably breathed a sigh of relief when Moody's downgraded it just one notch, keeping it in the A category, with a negative outlook.

It should be noted that had all three agencies lowered it to the B category, Greek government bonds would not be acceptable for European Central Bank repo funding when the ECB decides on the pre-crisis rules widely expected next December. It is therefore no surprise that the country's stock and bond markets have been hit by heavy liquidation from both traditional institutional investors, who seek to limit the risk of their portfolios, and speculators since December 2009.

The number of hedge funds and others betting that Greek yield bond spreads will widen further against German Bunds has increased vastly, as earlier bets turned out to be profitable and the government disappointed the international markets when it unveiled its 2010 - 2012 Stability Program. Even worse, Greece became part of a world bet on the euro and eurozone itself. By putting pressure on Greek spreads and, to a lesser extent, the bonds of other peripheral European Monetary Union countries with large budget deficits, the markets tested European Union authorities' credibility and resolve. With Greece's woes threatening to contaminate other weak eurozone countries, known as the PIGS (Portugal, Italy, Greece, Spain) of Europe, the markets know that the EU authorities, even unwillingly, will have to intervene to help Greece.

But EU authorities also know very well that any intervention will have to be preceded by a Greek package of additional restrictive fiscal and structural measures to ensure that the budget deficit targets set in the Stability Plan will be met if they are to safeguard their credibility.

If the Greek government does not reciprocate, the EU will find itself in the delicate position of picking between two choices: either leave a member state to protect its credibility on its own but risk a similar episode in another of the PIGS later or intervene and risk weakening the euro further and making the cost of borrowing more expensive even for core eurozone countries, such as Germany and France. It is more rational to assume that the first choice is more sensible from their point of view but it does not have to come to that and should not. The Greek government can move quickly to address the demands of the markets and avoid a credit crunch while providing the EU with a strong argument to step in and help.

According to different accounts, Prime Minister George Papandreou is now fully aware of the magnitude of the crisis. It is therefore up to him to give the green light to Finance Minister Giorgos Papaconstantinou to announce an additional set of measures to boost tax revenues and cut spending. Unfortunately, the indecisiveness of the Greek administration in the eyes of the markets calls for even tougher measures than perhaps would have been enough to satisfy them back in November or December. Therefore, it should make sure that the additional package includes some true spending cuts to entertain the idea that Greek measures are skewed heavily toward more taxes. Credit rating agencies and markets know very well that tax evasion may indeed be a big problem in Greece but can offer returns in the medium term if combated.

However, they also know that general government expenditure shot up to 50.1% of GDP in 2009 from 44.4% in 2007 and 42.9% in 2006, while revenues fell to 37.3% of GDP in 2009 from 40.4% in 2007 and 39.7% in 2006. In other words, the deficits widened because expenditures exploded in 2008 and 2009, while revenues simply deteriorated. The economic policy decision that has to be taken by Papandreou in the next few days, or couple of weeks at most, is the most crucial taken by any Greek prime minister in decades. For the sake of the country and future generations, he has to make the right one. (Kathimerini 02.02)

11.15 GREECE: Greece's Fiscal Program Poses Execution Risks

On 25 January, the Moody's (http://v3.moodys.com) Weekly Credit Outlook wrote that the Greek government's keenly awaited Stability and Growth Program (SGP), announced 14 January 2010, is a package of measures that attempts to address the most important threats to Greece's long-term creditworthiness. We consider the plan credit positive, but successive Greek governments' track records for following through on reform are poor, so implementation is far from assured.

The SGP aims to partly overcome the country's formidable and long-standing fiscal problems, such as endemic tax evasion and lax enforcement. Greece has considerable scope for increasing its collection and generation of tax revenues, given its narrow tax base, and the SGP makes some preliminary moves to make it broader.

The program also aims to address persistent misreporting of financial data, which has undermined the government's credibility with all market participants (including Moody's), as well as with Greece's European Union partners. Finally, an effort is made to compress the public- sector wage bill by cutting allowances and by removing their favorable tax treatment.

A successful effort to broaden the tax base and strengthen tax compliance would be credit positive for a number of reasons, beyond the obvious impact that it would cut the deficit. Most importantly, a wider tax base and tighter tax compliance would address many of the political economy concerns that historically have been major impediments to the government's attempts at structural reforms, since weak execution has led to the bulk of tax pressures falling on salaried workers.

Overall, we believe that the Greek government's plan to restore its fiscal credibility, reform its tax system and combat tax evasion is relatively well designed, at least for the short term. We calculate, for instance, that just over half of the planned 2010 adjustments are structural, while the remainder is one-off measures related to the unwinding of various election-year stimulus measures in 2009.

Our key uncertainty is the Greek government's ability to implement the program, not just in the near term, but over a longer stretch. Both the heavy legislative program for the first quarter of 2010 and Greece's poor track record in applying fiscal reforms mean that successful execution of the package cannot be taken for granted.

Overall, we believe that the long-term success of the SGP depends on three factors: (1) a credible implementation of the program; (2) overcoming the electorate's long-standing resistance to structural economic reform; and (3) building trust in Greece's data reporting.

It is difficult for us to assess the SGP's impact for 2011 and beyond because the government has not yet provided the degree of detail for its budget- reduction plans that it has supplied for 2010. Indeed, it is unlikely to do so anytime soon. Once the key pieces of legislation, such as tax and pension reform, have been passed into law, there will be a bright signal about just how far-reaching structural reform is likely to be. (Moody's 25.01)

11.16 BULGARIA: Moody's Changes Outlook On Bulgaria To Positive From Stable

On 21 January, Moody's Investors Service (http://www.moodys.com) changed the outlook on the Bulgarian government's Baa3 ratings to positive from stable. The rating action restores the positive outlook that was in place prior to the financial crisis in September 2008. This is also the first positive rating action on an EU sovereign since July 2008. "The Bulgarian government's finances were relatively resilient through the 2008-09 financial crisis," says Kenneth Orchard, Vice-President/Senior Credit Officer in Moody's Sovereign Risk Group. "Despite a deep recession, Bulgaria will have very low budget deficits by global standards in 2009 and 2010, keeping government debt ratios low and stable."

Orchard highlighted that an upgrade to Baa2 is contingent upon the country's ability to renew growth and weather the impact of regional shocks. "Moody's expects the recession to end in mid-2010, although the problems in Greece will likely dampen the recovery this year," says Orchard. About 9% of Bulgarian exports go to Greece, and Greek companies are major investors in the country, particularly the banking sector.

Economic growth should resume in 2011-12, however, supported by significant EU funds and FDI attracted by the low cost base. "Structural changes in the regional economy are expected to shift GDP growth to a 3%-4% range, well below the pre-crisis average. This will ensure continued convergence with wealthier EU countries, but at a slower pace," says Orchard. Moody's recognizes that Bulgaria continues to face risks from its external finances, including a large current account deficit and very high external debt. "However, the country passed an important stress test in 2009," says Orchard. "External liabilities were re-financed, and the current account deficit adjusted in an orderly manner."

In a related action, the outlooks on the A1 foreign currency bond ceiling and Baa3 foreign currency deposit ceiling were also move to positive from stable. The foreign currency bond and deposit ceilings are the highest possible ratings that may be assigned to Bulgarian foreign currency bonds and deposits, respectively. The last rating action on Bulgaria was implemented on 20 March 2009, when Moody's affirmed the Baa3 local and foreign currency ratings of the government with a stable outlook. (Moody's 21.01)

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