General News Summary

Olmert's Exit

Prime Minister Ehud Olmert's late-July announcement that he was stepping down did not come as a surprise. For months, pressure had been mounting on Olmert, a mixed bag of right and wrong, baseless and serious, but all allegedly took place long before he became prime minister in mid-2006, and had a cumulative effect. Olmert announced that he would not run in the mid-September primary to choose a new leader for his Kadima party, and would step down as prime minister after that leader was chosen.

Four candidates are in the race to succeed Olmert as Kadima leader, Foreign Minister Tzipi Livni, Transport Minister Shaul Mofaz, Internal Security Avi Dichter and Interior Minister Meir Sheetrit. But only Livni and Mofaz are given any significant chance of winning. In the campaign for the support of the about 70,000 registered Kadima members, Livni's advantage is her general popularity and “clean” image, while Mofaz's strengths are his background as defense minister and chief of staff, and allegedly a better organization within Kadima. Livni runs far better in public opinion polls against any other prime ministerial hopeful, including Likud party leader Benjamin Netanyahu, Mofaz is generally considered to have stronger support inside Kadima itself.

But under Israeli law, Olmert may still be around as prime minister for quite some time. Even after his resignation, he will serve as interim prime minister until a new government is formed, either by the new Kadima leader or some other member of the serving Knesset, Israel's parliament, or if no one is successful, until after new elections. As a result, Olmert may serve as prime minister for many more months or longer.

A Good Trade, or a bad one

In late-July, a deal that returned to Israel the bodies of soldiers Ehud Goldwasser and Eldad Regev, whose July 2006 kidnapping by Hizballah triggered the Second Lebanon War, was brought to an end.

Most Israelis are calling the exchange deal the fulfillment of a national obligation to bring Israeli soldiers home, at any price. And indeed, the nation seemed to breathe a sigh of relief that the ordeal of the Goldwasser and Regev families, and especially Goldwasser's tenacious young wife, Karnit, had finally reached an end – though certainly not a happy one.

New Terror Fears

Israelis were dismayed and shocked by two terror attacks in Jerusalem in July, both by Jerusalemite Arab drivers of heavy equipment who used their tractors to attack civilian cars and passers-by on busy Jerusalem thoroughfares. Three Israelis lost their lives and dozens were injured. Though the incidents appeared to be separate, technically unconnected and carried out by men who had no known connection to terrorist organizations, both perpetrators were Arab residents of East Jerusalem, who were legal residents of Israel with Israeli identity cards. There was increased concern that these Jerusalem Palestinians, who because of their ID cards can move freely around the country, might be recruited by West Bank terror groups unable to carry out attacks in Israel due to the security fence.

The status of such Palestinian Arab residents, who live in territory that has been under Israeli sovereignty since the unification of Jerusalem after the 1967 Six-Day, poses a dilemma for Israel. Severe security measures against them in general would impinge on their civil rights, as legal residents, but failure to act might pose a clear security threat. The alternative is staying alert and watching for any possible danger – exactly what Israel has been forced to do.

“The Band Visits Cairo"

The Israel Embassy in Cairo screened Israeli film “The Band's Visit” to an Egyptian audience in the Egyptian capital in mid-July. The comic film, which depicts the fictional visit of an imaginary Egyptian Police band to an out-of-the-way town in Israel's Negev, won the Coup de Cour du Jury prize at the 2007 Cannes Film Festival, but was never been shown in an Arab country. “The Band's Visit” was due to be Israel's entry in the 2008 Academy Awards competition, but was not allowed to participate as a foreign film because too much of the dialogue is in English (albeit the broken English of the fictional Egyptian and Israeli characters). Israel's replacement offering “Beaufort,” about the last Israeli troops to leave South Lebanon before the 2000 pullback from the 'security zone” Israel had maintained since the 1980s, was one of the five finalists in the Foreign Film Oscar competition.

Renewable Energy Center

Israel's socioeconomic cabinet has approved a Ministry of Trade, Industry and Labor plan for a $20M renewable energy R&D center in the Negev desert. The center will focus on the development of electricity utilizing solar and wind energy. According to the Trade and Industry Ministry, Israeli renewable energy-tech exports in 2007 totaled $110M. Plans presented by the ministry envision an increase to $1B within a decade, and a rise in R&D investment in the field to $350M per annum by 2012.

The Economy

Shoring up the Dollar

Seeking to stem what it considered a too-rapid appreciation of the shekel against the U.S. dollar, the Bank of Israel on July 10 raised its daily purchases of foreign currency from $25M to $100M. The move came after the dollar had fallen to NIS 3.20-$1; in the weeks after the move, it rose to around NIS 3.48-$1. The strong shekel, and the weak dollar, had severely affected many exporters, who were earning fewer shekels for their sales to dollar-denominated markets, particularly in the high-tech sphere, while their low expenses in shekels remained high.

Growth Continues

Israel's economy continued to grow during the first quarter of 2008, at a lower rate than during the previous quarter, the Bank of Israel reported in late June. According to the central bank, the GDP expanded at an annualized rate of 6.5%, while business sector product increased by 6.1%. Private consumption grew by 14.1%. The bank said that the labor market reflects the continued positive economic position, with unemployment at its lowest level since 1995.

Unemployment Low

May unemployment, at 6.1%, was the lowest in 21 years, the Central Bureau of Statistics reported. In all, the CBS said that there were 178,000 unemployed.

The figures mark a sharp decline since unemployment due to the recession of the early 2000s peaked at 11% in early 2004. At the start of 2005, it had declined to 9.5%, then to 9.0% at the start of 2006, 7.9% in 2007, and 6.4% early this year. The latest figure was a pleasant surprise for officials in the Treasury and the Bank of Israel, who had predicted that unemployment had reached a low point early this year and would not decline farther.

Small CPI Increase

Israel's Consumer Price Index (CPI) rose just 0.1% in June, well below expectations, the Central Bureau of Statistics reported on July 15. Inflation in the first half of 2008 was 2.3%, though inflation excluding housing was 3.3%, and only 2.1% if fuel costs were excluded. For the 12 months ending in June 2008, Israeli inflation was, however, higher than recent years, reaching 4.8%.

Tourism Flourishes

Tourism to Israel seemed on its way to a record year, judging by statistics for the first half released by the Ministry of Tourism. The 240,000 visitors in June represented an increase of 33% over June 2007, and 1.5 million visitors came to the country during the first half of 2008, up 50% from 2007. The ministry hopes for a total of 2.8 million tourists in 2008.

Energy Corridor Interest

India has expressed a possible interest in becoming an investor in the planned Turkish-Israeli “energy corridor,” Turkish Energy Minister Mehmet Hilmi Guler told National Infrastructures Minister Binyamin Ben-Eliezer during the Israeli official's visit to Turkey in late July. Details of possible Indian participation will be discussed at a planned meeting of Infrastructures Ministry director-general Hezi Kugler with Turkish and Indian officials, according to a report in Calcalist, the economic supplement of Yediot Aharonot. Under consideration is a 450-km. undersea “corridor” capable of carrying crude oil, natural gas, water, electricity and optical cables for communications between the port of Jeyhan, in eastern Turkey, and Haifa in Israel. Estimated cost of the project is $3-5B.

It has been envisioned that much of the gas for the pipeline would come from Central Asian fields, through the Baku-Tbilisi-Ceyhan pipeline corridor that now carries Caspian Sea gas to the West. But, according to a report in Globes, Gazprom, the Russian energy giant, is in discussions with Turkey on the formation of a joint company to market gas to Israel via the Jeyhan-Haifa corridor. Gazprom has already contracted to provide Turkey with an annual 600 million cubic meters of gas, through 2011.

Water Crisis

As Lake Kinneret (also known as the Sea of Galilee), the country's main reservoir, reached its lowest level in years, Israel's Water Authority outlined a water-saving plan in early July. In addition to a media campaign to get the public to save water, the plan includes a $3.5B investment in developing water resources, and increased desalination of seawater. Israel already has several desalination plants operating on the Mediterranean coastline, but water officials say that foot-dragging by the Finance Ministry has delayed the rapid development of even more plants.

Meanwhile, Globes reported that the Tel Aviv Hilton, one of the seaside city's most prestigious hotels, will begin using seawater in its cooling system. The move will save both fresh water and $300K a year for the 40-year-old hostelry, and reduce electricity consumption by 10%.

British Trade

Bilateral British-Israeli trade should be targeted to reach an annual £3B by 2012, visiting Prime Minister Gordon Brown said on July 20. Over the past decade, bilateral trade has grown by 40% to more than £2.3B annually, and the U.K. is Israel's third largest export destination, not including diamonds,- after the U.S. and Germany. Israel is one of Britain's largest business partners, with 250 Israeli companies located in the U.K. and 47 Israeli companies listed on London stock exchanges.

QIZ Push

An official Israeli-Jordanian delegation met with officials of the U.S. Department of Commerce, the Office of the Trade Representative and members of Congress in mid-July, in an effort to promote expansion of the already successful Qualified Industrial Zone (QIZ) between the three countries. The QIZ with Jordan, and a similar arrangement with Egypt, provides free trade benefits to goods made in Jordan in joint ventures with Israeli manufacturers. The move would expand beyond the currently operating 11 QIZ to “satellite” plants in Jordan with Israeli investors. If adopted, the “satellite QIZs” would create an additional 4,500 jobs and $45M in foreign direct investment. Goods produced in Jordanian-Israel QIZs currently generate over $120M in annual revenues.

Mergers & Acquisitions

Teva-Barr

Israel's Teva Pharmaceuticals solidified its position as the world's largest maker of generic drugs with the purchase of U.S.-based Barr Pharmaceuticals. The $7.5B deal, announced in July, is one of the largest acquisitions ever made by an Israeli company, rivaled only by Teva's 2006 purchase of Ivax of Florida for a similar sum. The purchase of Barr, which had 2007 sales of $2.5B, increases Teva's previous $9.4B share of the generic market to an industry-leading $11.9B. Teva CEO Shlomo Yanai reached agreement with Barr CEO Bruce Downey while the two were waiting for a table at a Hamburger Hamlet restaurant during the lunch break of an industry conference in Florida. With the acquisition of Barr Teva will attain the proportions of an industry giant; it will operate in about 60 countries worldwide, with a staff of about 37,000 employees. Barr itself has headquarters in New Jersey, operations in six U.S. states and overseas holdings in Zagreb, Croatia, Brno, Czech Republic, and Krakow, Poland.

Teva, which will partially finance the deal via a $2.5B corporate bond offering, has grown remarkably over the past decade, with its sales increasing nine-fold from about $1.1B in 1998. Prior to the Barr acquisition it had 28,000 employees worldwide, up from about 2,000 in the early 1980s. Much of the growth has come from an aggressive acquisitions policy in the generic field, capped by the purchases of Ivax in 2006 and Barr in 2008. It recently suffered what it said was a minor setback when its ethical multiple sclerosis drug Copaxone, already a “blockbuster” with annual sales of $1B, failed a clinical test of larger doses for some MS patients. Company officials noted that the drug was still approved, and widely used by many patients, in its 20 mm. dosage.

Teva also completed the $360M purchase of Bentley Pharmaceuticals of Exeter, New Hampshire. Bentley markets 130 branded and generic pharmaceuticals, principally in Spain, and is a major player in the European market for generic drugs.

VeriFon-A.H. Applications

London-based point-of-sale retail systems specialist VeriFon has acquired Israel's A.H. Applications, according to a report in The Marker, the business section of the daily Ha'aretz. The paper did not disclose a purchase price for the deal, which it reported in early July. A. H. is VeriFon's second Israeli acquisition; in late 2006 it purchased Lipman Engineering, which now operates as VeriFon Israel. Retalix, another Israeli provider of point-of-sale systems, specializes systems for retail grocery and convenience store chains; VeriFon has so far concentrated on fashion and clothing applications.

Pirelli-Cyoptics

Italy's Pirelli Group has invested $20M in Israeli company Cyoptics as part of a merger of Cyoptics with PGT Photonics, Pirelli's optics subsidiary. Cyoptics specializes in lasers and indium-phosphorous-based light developers and PGT Photonics in silicon-based photonics technologies. Founded in 1999, Cyoptics has raised $154M to date, including the current round. One investor is George Soros. Pirelli will own 30% of what the two firms call “an integrated alliance.”

Finance & Investment

Norwegian Funds Investments

The Norwegian government pension fund, one of the largest in the world with assets under management of over €270B, has decided to invest about 0.25% of its assets, amounting to €500M, in Israel. The Marker called the investment a major compliment to the Israeli economy.

The investments, which have not been made or specified, are testimony to the continuing strength of the shekel and of the economy as a whole, despite claims by some that the strong currency and the correspondingly low dollar exchange rate, cuts deep into the profits of exporters. And though foreign investments like the Norwegian one may be important, The Marker says that the Bank of Israel attributes the strong shekel to the faith of Israelis in their local currency. According to the newspaper, Israelis have increased their domestic investments in recent months, partly due to caution over world conditions triggered by the sub-prime crisis.

Amdocs Overseas Holdings – The Largest

Amdocs, the communications billing specialist based in Ra'anana northeast of Tel Aviv and St. Louis, Missouri, is the Israeli firm with the greatest foreign property holdings, according to a survey conducted by the Tel Aviv University department of management. The TAU survey valued the Amdocs holdings at $2.099B, followed by $1.53B of pharmaceutical giant Teva, $1.15B of energy-generation specialist Ormat Industries, $999M of Israel Chemicals, $484M of the Makhteshim-Agan chemicals and fertilizer firm, and $445M of the Strauss-Elite food firm.

From the Plaza to Hanoi

Delek Group entrepreneur Yitzhak Tshuva, who in addition to the Israel-based fuel firm has extensive overseas real estate holdings, visited Vietnam in July for discussions on building a seven-star hotel in Hanoi, according to Vietnamese press reports. Tshuva, whose most famous real estate holding to date is New York's century-old landmark Plaza Hotel, was quoted as saying that the hotel would be among the largest in the world and would include a convention center, hotel accommodations and an advanced business center.

Viola Raises $150M

Viola Private Equity, Israel's first high-tech private equity fund, has raised $150M out of an eventual target of $250-$300M, according to a report in Globes. Among the founders of the fund is Jonathan Kolber, former head of the Koor holding company and of Claridge, which represented billionaire Charles Bronfman's Israeli business interests. Though Viola declined to comment on the first closing of the fund, Globes reported that institutional investors include Goldman Sachs of the U.S. and Israel's Bank Leumi. The fund plans to invest in technology companies that have passed the first-investment stage, where venture capital firms tend to invest. Globes noted that despite current unrest in world financial communities, Viola managed to raise a considerable sum in a short time since the fund's launch in late 2007.

High Technology

SAP Move

German-based software firm SAP has acquired the SAP-based R&D facilities of Israel's Ness Technologies and will open its own R&D center in Israel. The purchase price was about $30M. Since the early 1990s Ness has been distributing SAP's ERP products to mid- and large-sized Israeli firms. SAP co-CEO Leo Apotheker was in Israel in mid-July to announce the deal, and establishment of the research facility at Ra'anana, in the high-tech belt northeast of Tel Aviv.

Going Goa

Israeli businessmen Ya'akov Angel and Hezi Hermoni plan to build major projects consisting of 2,030 residential units at a cost of around $500M in the Indian state of Goa, according to a report in Globes. The initial project is in Cortalim (also known as Cortolim), on a site overlooking the Zuvari River. Other projects will be in Panaji, the Goan capital, and in the prestigious Dona Pola area. The projects will be carried out by Venosa, a joint venture of Angel's Angelinvest (75%) and 22% by Hermoni, the former GM of Tadiran Communications with 25 years' experience in India. Angelinvest already has projects valued at $1.5B in Mumbai, Jaipur, Ludhiana, Faridabad and Goa.

ECI Flourishes

ECI Telecom reported $200M first quarter revenues, the highest since 2001. The firm, which specializes in telecommunications infrastructure projects and equipment, said that it expected $100M in revenues from its Indian operations in the first half of the year, including $70M in the second quarter.

Much of the Indian revenue is a result of the purchase of cellular operator Indian Hutchinson Essar by Vodafone, and a resulting upgrade of infrastructure.

Lilly License

Pharmaceutical giant Eli Lilly has signed a licensing agreement with TransPharma Medical, based in Lod near Ben-Gurion International Airport, for a hand-held electronic control unit, which enables drug delivery through microscopic punctures in the skin. Lilly paid $35M for initial rights to ViaDerm hPTH, an osteoporosis product. Lilly officials said that the deal, which includes milestone payments and additional licensing rights, provides the firm with an alternative to injection of drugs for the treatment of osteoporosis.

Cardiac Choice

Jerusalem-based BioLineRx says that its BL-1040, a novel myocardial implant for the treatment of acute myocardial infarction (MI), has been selected as one of the Top 10 most promising cardiovascular projects in development available for strategic partnering by an independent committee assembled by Windhover Information, a Connecticut-based provider of business information products and services. Bioline says BL-1040 represents a breakthrough for supporting cardiac tissue damaged as a result of acute myocardial infarction (MI), improving cardiac function and chances of survival.

Israeli Icemaker

The thousands of Israelis who travel abroad every year for ski vacations may soon find themselves gliding over Israeli snow. IDE Technologies (IDE), equally held by Israel Chemicals and the Delek Group, has begun marketing artificial snowmakers to ski sites around the world. The Vacuum Ice Maker is based on IDE's proprietary technology, known in Israel as the Zarchin process, which it developed in the 1960s for a desalination project in the desert Israeli resort town of Eilat. The technology has also been adapted for thermal energy storage for building and district cooling, district heating, and deep mine cooling.

New Fab for Intel

Intel, the world leader in computer central processing units and other chips, inaugurated its new Fab 28 plant in the southern Israeli city of Kiryat Gat on July 1. The plant, built with an investment of about $4.5B, including an Israeli government grant of $525M, is due to employ over 2,000 people, and will manufacture 45-nanometer processors. The firm estimates that Fab 28, one of its three most modern facilities worldwide, will boost Israel's GDP by 2% when it reaches full production. Since it came to Israel 35 years ago, Intel has invested $7B in the country, and now has 7,300 employees at five R&D centers and three production lines in Israel.

No New Wrinkle

The U.S. Food and Drug administration has approved Evolence, developed by ColBar Life Science of Herzliya, north of Tel Aviv, for the correction of moderate to deep facial wrinkles and folds. The collagen-based structural dermal filter, which can be used as a substitute for Botox treatments, is already available in Canada, European countries, Israel, South Korea and Russia. It is due to come on the U.S. market in the second half of the year, ColBar said. ColBar has perfected a technique in which collagen, a main building block of living organisms, can be purified and transformed so as to create a variety of products that are structurally stable and safe for medical applications.

Aerospace & Defense

Missile Upgrade

The Bush administration has agreed to an upgrade of Israel's missile defense capabilities, Defense Minister Ehud Barak said in late July. These reportedly include providing Israel with early missile launch data and the powerful forward-based X-Band radar system, which Barak said Israel would get “before the new (U.S.) administration arrives” in January.

U.S. officials say the X-Band, built by Raytheon, is capable of tracking an object the size of a baseball from about 2,900 miles (4,700 km) away. It would let Israel's already operational Arrow anti-missile system engage an Iranian Shihab-3 ballistic missile about halfway through what would be its 11-minute flight to Israel. The X-Band radar system is the same as the one the U.S. plans to base in the Czech Republic as part of a missile defense system to protect allies in Europe.

Barak was eying the purchase, or loan from the U.S., of several Phalanx automated cannons capable of intercepting mortar shells and short-range rockets. The Phalanxes would be deployed in defense of Sderot and other Israeli towns on or near the Gaza border which have been under attack from Palestinian-made Qassam rocket and from mortar fire.

Arrow 3 Supported by the U.S.

U.S. Missile Defense Command head Lt. Gen. Henry Oberling III, visiting Israel on August 6, said that the U.S. would support the Arrow 3 anti-missile missile system program, and provide Israel with a land-based version of the U.S. Navy's SM-3 anti-missile should the Arrow development be delayed. Israel officials expressed satisfaction with the move, a joint agreement between the two nations; they had feared that Washington might not support Arrow-3 in favor of the SM-3 developed by Lockheed-Martin.

During Oberling's visit Israel also unveiled prototypes of two systems under development: Iron Dome, which is designed to counter short-range rockets like the Palestinian Qassam and is due to be operational in 2010, and David's Sling, for medium-range rockets like Katyushas, due in 2012-13.

5-Year Defense Plan

For the first time in history, Israel's security-defense cabinet in late June approved a multi-year budgetary plan for the defense establishment. Following the recommendations of a report of a committee headed by former Treasury director-general David Brodet, the plan sets the defense budget at NIS 50.3B for 2009, increasing in annual increments to NIS 52.2B in 2012. The plan still must be fleshed out in discussions between the Defense and Finance ministries, and is subject to government approval. In the current year, the NIS 51B defense budget constituted 16% of the state budget.

Beyond the Uzzi

Government-owned Israel Military Industries, famous for the manufacture of the Uzi assault rifle, has long produced a line of defense products for the Israeli military and overseas customers. Now, according to Yediot Aharonot, it has emerged with a new line of 21st century products unveiled at the Eurosatory defense exhibition in Paris during June. These included GPS-guided artillery shells, a grenade used to neutralize anti-tank rockets, and Rakefet, a 120-mm. tank shell that can be detonated in the air by remote control with an explosive radius of 1.25 km., designed primarily for use against terrorist infantry rather than vehicles or stationary targets.

Smart Helmets for Cargo Planes

VSI, a jointly owned subsidiary of Israel's Elbit Systems and Rockwell-Collins of the U.S., introduced a smart helmet for pilots of cargo aircraft at the Farnborough air show in London in mid-July. The system, installed in a C-27 aircraft for the show, provides pilots with displays of all essential flight data, and can be fitted to provide navigational data and flight training.

VSI also won a $17M contract to supply JHMCS “smart helmets” to Boeing for F-15E warplanes. Introducing VSI helmets to F-15s has been an objective of the company for a decade, a VSI official said.

Elbit Contract

Israel's Elbit Systems has won a contract to supply Boeing with advanced Goshawk-T45 Virtual Mission Training Systems for the U.S. Navy. According to The Marker, the deal is valued at $30-$40M. Part of an upgrade of the Navy's training system, Goshawk-T45 will be installed in actual aircraft, and will enable airborne navigators to train in a virtual environment including radar, different armaments and electronic countermeasures.

Better Bomb Detection

The CompactSafe system made by TraceGuard Technologies of Tel Aviv and New York has successfully passed extensive Israeli Security Agency testing and been certified to replace manual explosive detection processes at international border crossings, according to a TraceGuard statement. CompactSafe is designed to automatically inspect complex items at passenger and baggage screening checkpoints, and works in conjunction with security equipment currently in use to improve accuracy and efficiency in detecting explosives. It is said to sense traces of explosives from laptop computers, electronic devices, shoes and small size items in carry-on luggage, and can also be adapted to improve detection for narcotics and other hazardous materials. Automating inspection processes is a key goal of security and regulatory agencies. Field tests have been conducted at Ben-Gurion International Airport and at the Western Wall (of the Temple Mount) in the Old City of Jerusalem.