General News Summary

Eight weeks after the February 10 elections, Israel's new Prime Minister Benjamin (Bibi) Netanyahu formed a government designated to rule Israel for the next four years. But already at the start, the survival of the new government for its full term seemed uncertain.

Netanyahu's coalition was approved in a 69-45 vote by the Knesset, Israel's parliament, late on the night of March 31. He created a coalition base broader than the 65 right-leaning members (of the 120-seat Knesset) by enlisting Ehud Barak of the Labor party, former prime minister and one-time commander in the elite Sayeret Matkal commando unit, to stay on as defense minister in the new government. The portfolio was not, however, the only enticement to Barak, whose party ruled Israel for decades but is now the fourth largest in the Knesset with only 13 seats.

Then there's the question of what Netanyahu would talk to the Palestinians about. He has pledged to honor all of Israel's international commitments, including continuation of final-status talks with the Palestinian Authority under President Mahmoud Abbas, those talks have less of a prospect of progress than ever before. The “economic peace” he has long advocated, which he maintains would improve the sad lot of the Palestinians exponentially, and their authority to conduct their own domestic affairs in a kind of autonomy under the Israeli mantle.

There are contradictions inside the new coalition, beyond the difference on the peace process. For example, how will he reconcile the secularism of Yisrael Beitenu, a party which has promised to push for the establishment of civil marriage in Israel for the Russian immigrants who make up part of its base with the Orthodox Shas, which is equally adamant about the preservation of the situation where only religious marriages can be performed in Israel? And what will happen to Yisrael Beitenu, a significant coalition partner and the Knesset's third-largest party, if its leader Lieberman may be indicted amid the investigation against him?

Netanyahu managed, albeit at the last minute, to mollify Silvan Shalom, a former foreign minister and finance minister who sees himself as a candidate for the party leadership with a right to a senior cabinet post. As part of his coalition-building, the new prime minister dealt the Defense Ministry to Barak, the Foreign Ministry to Lieberman while placing his long-time confidant Yuval Steinitz at the Treasury, had nothing left that was significant enough for Shalom. In the end, Shalom accepted the third-best offer of the vice premiership with two insignificant portfolios, the Negev and Galilee and Regional Cooperation. It is questionable whether those very small plums will make Shalom, who doesn't take slights lightly, a very loyal minister in the Netanyahu coalition.

In building a broad coalition including Labor, Netanyahu sought to establish a government with the ability to last out its full four-year term and face the challenges posed by Iran and by the world economic crisis. That's something that has not happened to any of the previous half-dozen governments, including those led by Ariel Sharon, Ehud Barak and Netanyahu himself. And, given the contradictions and possible pitfalls this government faces, don't bet on this government lasting to the end of its term, either.

Israel has declined to confirm or deny that its air force carried out strikes earlier this year against convoys carrying Iranian arms bound for Gaza, in Sudan. ABC, the U.S. network, reported on March 27 that the Israel Air Force had attacked a 17-truck weapons convoy in Sudan in January, killing 39 people. The network later reported that the IAF had carried out three such strikes since the start of 2009.

Subsequent reports indicated that the Sudanese, who publicly claimed that the trucks were carrying goods and not weapons, had first suspected the U.S. of carrying out the air raids, and that the attack or attacks had come from Israeli UAVs (unmanned aerial vehicles). London's Sunday Times said that UAVs had attacked at least two convoys, destroying all the trucks and killing at least 50 smugglers and their Iranian escorts. It quoted defense officials, nationality undisclosed, as saying that the trucks carried long-range missiles capable of striking from Gaza to Tel Aviv.

The American Time Magazine offered a slightly different version of the attacks, saying they were carried out by F-15 and F-16 warplanes, with UAVs providing the reconnaissance and making sure, after the initial strike, that all of the intended targets had been destroyed.

In the event the strikes were carried out by Israel, they demonstrated how far Jerusalem is willing and able to go in its attempt to deal with arms smuggling into the Hamas-controlled Gaza Strip, and that Hamas continues to deploy long-range rockets deployed in Gaza, considered by Israel as a serious, strategic threat. Obliquely, it might serve to dispel any potential illusions Teheran might have about Israel's strike capabilities. It should be noted that the distance from Eilat in southern Israel, 1,500 km., is similar to that between northern Israel and Teheran, the Iranian capital, if not the Iranian nuclear sites.

Though Israel and Egypt may have intercepted and destroyed some arms shipment, from Iran to Gaza, it is clear that others are continuing. Reporting to the Israeli cabinet on March 29, Yuval Diskin, head of the Shin Bet security service, said that almost 70 tons explosives or explosive materials had been smuggled into the Strip since Israel concluded its three-week offensive against Hamas in January. Diskin said that Egypt had improved its effort to stop smuggling across its border with Gaza. “When Israel provides intelligence on smuggling that is about to happen, or is happening, they [the Egyptians] respond quickly and effectively,” Diskin said. He calculated that since the end of Operation “Cast Lead” 45 tons of raw materials for the production of weapons have been smuggled into the Strip, along with 22 tons of standard explosives, as well as dozens of rockets, mortar shells, and anti-aircraft missiles.

The Israeli government announced on March 29 that it plans to invest millions of dollars for a Roman Catholic religious ceremony during the May visit of Pope Benedict XVI. The pontiff plans to conduct a Mass on Mt. Precipice, near Nazareth, which is expected to attract about 50,000 worshippers.

Despite warnings by the Bank of Israel, prime minister-designate Benjamin Netanyahu said in mid-February that he would press ahead with his plan to cut taxes as a means of stimulating the Israeli economy. In recent months Bank of Israel Governor Stanley Fischer has warned that tax cuts would be dangerous, in light of falling government revenues. Some sources reported a $10B drop in tax collections in the first few months of '09 and the prospect of a ballooning government deficit.

Of course, Netanyahu and his team could not make real economic decisions or implement any economic policies before they took office on April 1. But that did not prevent Fischer from taking an initiative and unveiling the central bank's plan for coping with the economic crisis, at an estimated cost of $1B. The Bank of Israel plan calls for increased aid for lower-income families, including a negative income tax, incentives for increased exports and industry and stimulus outlays for the labor market. Fischer suggested increasing the government deficit to 5.8% of GDP, almost double the previous maximum target of 3%, extending the entitlement period for unemployment benefits and postponing any scheduled pay raises in the civil service and the non-government public sector.

A February report by the International Monetary Fund in February praised Israel's economy and plans for its revival. The IMF said that the Israeli economy is withstanding the economic challenges well, although additional stimulation to the economy is needed.

In its executive assessment, the IMF noted that robust and balanced economic growth since 2003 was underpinned by sound macroeconomic policies, and supported by a stable banking sector and favorable global conditions. The IMF noted, however, that global strains and weakness in the corporate bond market weigh on credit and growth prospects, and accordingly, activity is set to slow markedly in 2009-10.

Trends changed in the fall of 2008 as the deterioration of global financial conditions and the weakening of export markets took their toll. Exports and growth slowed, lowering the annual external current account surplus to 1.25% of GDP, and reducing growth to about 4.1% for the year. In addition, fiscal revenue fell short in the fourth quarter, raising the central government deficit to 2.1% of GDP in 2008, with public debt at about 77.5% of GDP, the IMF noted.

The IMF commended Israeli authorities for their disciplined budgetary administration execution in recent years, which had secured significant debt reduction and as a consequence established a firm base to deal with the current global crisis.

Despite the world economic crisis, foreign investment in Israel rose by 5% in 2008, the Bank of Israel reported. Direct investment by foreigners amounted to $10.5B, up from 2007's $9.96B, while new portfolio investment in stocks and bonds was up by $214, a smaller increase than the $1.4B recorded in 2007. Bloomberg quoted former Treasury official Vered Dar, now the chief economist at the Psagot investment house, who called the trend “really positive.”

High-tech exports, 52% of all industrial exports excluding diamonds, rose by an annualized 21% in December-February, after falling by an annualized 8.1% in September-November, the Central Bureau of Statistics announced in mid-March. At the same time exports of goods declined by an annualized 24.7% for the period. The trade deficit for the period amounted to $500M, with imports at $3.3B and exports at $2.8B.

Israel's diamond industry continued to feel the hard times. Exports of rough and polished diamonds in the first two months of 2009 were only $800M, compared to the $2.3B in the corresponding period last year.

The deepening recession has affected most Israelis, according to a survey conducted by a local firm and reported in Globes. The paper said that 56.3% of respondents said that they reduced their spending because of the economic situation. The biggest cuts were in eating out at cafes and restaurants, where some 67% said that they have cut back. 54% said that they were spending less on food, 61% were spending less on clothing and footwear, 50% were lowering their telephone bills, 53% were spending less on entertainment, 57% were spending less on recreation in Israel and 58% on recreation overseas. Geocartography found 90% of respondents said that they would prefer not reducing spending on health care, and 67% were not cutting spending on their children's school and extracurricular educational activities.

Israeli venture capital funds raised a total of $793M in 2008, 30% less than the $1.14B raised in 2007, including about $100M each for new funds by well-establish VC firms Giza, Jerusalem Venture Partners and Genesis Partners. According to the Israel Venture Capital Association, over the last decade Israeli venture capital funds have raised $11B, of which about $1B is still available for investment.

Medical technology giant Boston Scientific is acquiring Labcoat, an Israeli-initiated developer of drug-eluting stent technology with a main operational base in Galway, Ireland, according to an exclusive mid-March report in Globes. According to Globes, the purchase price is in the $100M range.

Using a combination of drugs and polymers, Labcoat's stents, now under development, are coated with drugs released in metered quantities over an extended period of time, providing improved protection for inner arterial walls. Labcoat's founder is Israeli cardiologist-medical engineer-serial entrepreneur Dr. Asher Shmulewitz, who is also the founder of Cappella, another Galway-based medical device firm, as well as about 10 medical device firms in the U.S., including Neovision, which was sold to U.S. Surgical, and Xcardia, sold to UroHealth.

Medtronic Inc., the world’s largest stand-alone maker of medical devices, is purchasing Netanya-based start-up Ventor Technologies, for $325M in cash. Established in 2004, Ventor has developed an aortic valve prosthesis that can be implanted in severely ill cardiac patients with heart valve-related diseases to enhance blood supply. The prosthetic valve can be implanted on a beating heart without requiring open-heart surgery; Ventor's catheterization mechanism allows for a more stable positioning of the artificial valve than competitive products. Earlier, Meditronic had invested $7.5M in Ventor.

Elron Electronic Industries, based in Tel Aviv, said in late March that it had agreed to sell digital camera developer 3DV Systems for $34M to an unnamed third party, identified later by Globes as Microsoft. Elron, part of the IDB Holding Corp. Group, had owned 43% of 3DV both directly and via its Rafael Development Corp. subsidiary.

Industry sources were buzzing in mid-March with renewed rumors of an impending takeover of SanDisk, the Milpitas, California-based flash memory specialist, by either Samsung or Toshiba. According to the reports, Samsung and Toshiba made simultaneous bids to acquire the company, founded and headed by Israeli expatriate Dr. Eli Harari. An attempted hostile takeover by Korea's Samsung ended without an agreement last September, and Toshiba, of Japan, acquired substantial equity in SanDisk last year. In 2006, SanDisk acquired Israel's M systems, the developer of the DiskOnKey portable flash memory device, for $1.65B.

Zvi Ziv, CEO and president of Bank Hapoalim, Israel's largest bank, resigned on March 25, a year and nine months before the expiration of his contract. No official reason was announced, but it was widely thought that Ziv quit over differences with board chairman and major shareholder Danny Dankner, a strong figure who deals hands-on with bank policy and its implementation. A day after Ziv's resignation, the bank reported 2008 net loss of NIS 895M (about $225M), compared to a NIS 2.68B 2007 net profit. The bank's fourth-quarter loss was NIS 363M, far greater than the NIS 250M profit/loss warning it had issued to the Tel Aviv Stock Exchange in February.

Some Israeli real estate operators are slowing or halting operations in the once-booming Indian market, while others are continuing to move ahead, albeit more slowly, with existing projects, according to a report in Calcalist, the economic supplement Yediot Aharonot. According to the report, Eliezer Fishman's Monson has halted construction of a shopping center in Ludhiana, the Alonei Hetz firm has canceled a planned residential-commercial project in Pune, BSR Engineering has halted a golf-and-residential project in Bangalore, and Direct Capital, which has called off a Pune residential development. At the same time, Plaza Centers, owned by Elbit Medical, is continuing with six commercial projects, Property & Building and Electra are going ahead with two projects in the southern state of Tamil Nadu, and Levinstein, Gazit Globe and Azorim are reducing activity in various projects around India.

In late March, Gazit-Globe reported a net loss of NIS 1.08B (about $250M) for 2008, compared to a 2007 net profit of NIS 961M. The international developer said that the net value of its real estate assets had fallen by almost $1B.

High Technology

Teva, Israel's world-class pharmaceutical company and a world leader in the production and marketing of generic drugs, continues to be a good investment, even in poor economic times. The Jerusalem and Petah Tikva-based company registered record revenues of $11.1B in 2008. Fourth quarter sales were $2.8B. Teva's fourth quarter North American sales, including its proprietary multiple sclerosis drug Copaxone, amounted to $1.65B, up 15%; its European sales, at $668M, were up 1% compared to the fourth quarter of 2007.

Two companies based on technology originally developed by Jerusalem's now-closed Luz Industries have handed big contracts for the generation of electricity by harnessing the rays of the sun. BrightSource Energy of Rosemead, California and Jerusalem has signed an agreement with Southern California Edison to build a series of solar-thermal power plants that will generate 1.3 gigawatts of electricity for SCE’s customers, enough power for 845,000 homes, by 2016. The deal is considered to be one of the largest ever in this field. The initial 100-megawatt plant will be located in the Ivanpah dry lakebed in California's Mojave Desert. BrightSource is headed by Arnold Goldman, the American-Israel entrepreneur who founded Luz, which built a series of solar farm power plants using special mirrors to heat a liquid and produce steam for electricity-generating turbines in the 1970s in Death Valley, California. The plants are still operational.

Solel Solar Systems of Beit Shemesh, about halfway between Jerusalem and Tel Aviv in the foothills of the Judean mountains, has begun construction on a 50 MW solar field in Lebrija, Spain. The $150M project utilizes Solel’s technology (much of which was purchased after Luz closed down) to capture sunlight and convert it to maximum heat for clean energy. The Lebrija project has an overall cost of $400M and is being developed in partnership with Madrid-based construction firm Sacyr Vallehermoso. With the Lebrija project, more than 400 MW of installed capacity of clean energy is being generated with Solel equipment in the U.S. and Spain.

Investors in SercoNet, a developer of networking technology in the pre-wireless era that closed down in late 2008, will get a substantial share of their stakes back due to the sale of the failed firm's intellectual property. In March, Yehuda Binder, the company's founder and former CEO, managed to sell about 300 SercoNet patents to Mosaid, a Canadian firm that purchases and licenses out patents, for $20M. Among the investors who will be getting back a substantial portion of the $22M put into SercoNet are Israeli VC funds Shrem-Fudim, Pitango and Platinum, Alice Ventures, based in Milan and Tel Aviv, and investors in the ITP seed fund. SercoNet's technology used wiring already inside the house as a backbone for wireless home networking.

Patent sale is not new to Israel. According to Dr. Ilan Cohn of Reinhold Cohen, a leading Tel Aviv intellectual property legal firm, patent sale is one of the largest export branches in Israel, accounting for hundreds of millions of dollars in foreign sales, including many that are never publicized.

Aerospace & Defense

"Iron Dome", the made-in-Israel system designed to protect against short-range rockets like the Palestinian Qassam and Katyusha, passed a crucial test in late March. A terse Defense Ministry announcement said that the system, being developed by Rafael, had successfully intercepted a number of rockets “of the same type that were fired against Israel in recent years.” Iron Dome is part of a three-part missile defense system under development, which also includes the already-deployed Arrow for long-range ballistic missile, and "David's Sling", for use against intermediate-range rocketry.

The Israeli press, quoting unnamed Defense Ministry sources, called the Iron Dome test a “milestone,” saying it has provided real-life verification of previous simulations and laboratory tests. Ministry director-general Pinhas Buhris said that due to accelerated work, Iron Dome would be deployed operationally in the near future, without specifying a date. But Ma'ariv was more specific, reporting that the Israel Air Force intended, within four months, to establish the Iron Dome Brigade to provide missile defense to embattled communities around the Gaza Strip.

Before the test, MOD, Mafat R&D head Danny Gold had said that work on Iron Dome was “running ahead of schedule” and was in its “final stage.” He estimated that Iron Dome's development time was a “fifth of the time it would take to develop other systems, and at a tenth of the cost. It is the cheapest system in the world.”

Israel Aerospace Industries said on March 26 that it had signed a $1.4B export contract for an air defense system. The contract, for the development of sea and shore-based systems against missile attack was signed in late February. According to IAI, announcement of the contract, which involves 2,000 Barak Mark VIII missiles, had been delayed after the customer said that early disclosure might cause difficulties.

Singapore received the first of four AWACS airborne command-and-control aircraft from IAI in early March, according to a report in Asia-Pacific Aerospace Report, an Australian monthly. According to a report by Ma'ariv, the plane, IAI's "Eitam", landed at Tengah airport in western Singapore.

The Eitam, an IAI Phalcon AWACS system mounted on a Gulfstream G-550 executive aircraft, was reportedly ordered by Singapore as part of a four-aircraft, $1.5B package, to replace six U.S.-made Hawkeye AWACS systems.

Ma'ariv stated that two similar aircraft, one an Eitam and the other the Shavit model, are already in service with the Israel Air Force. The Eitam, considered the third generation of IAI's Phalcon AWACS, has 360-degree radar capability at a range of hundreds of kilometers. It said that the Eitam can fly at 900 kph, at an altitude of 12,000 meters, and has a range of 10,700 km.

India is due to launch RISAT-2, an Israeli-made satellite with day-and-night observation capabilities, sometime this spring, according to a report from New Delhi on India's NDTV website. The March 19 report said that the purchase was rushed through after the Mumbai attacks, both because India's existing intelligence-gathering satellites get blinded at night, and because they fail to function fully in the monsoon season. NDTV said the 300-kg. satellite, which would provide early warning of incoming hostile missiles, was being integrated with its launch vehicle at Sriharikota, India's spaceport.

It's not the first case of Indian-Israel satellite cooperation. In January 2008, an Israeli-owned and IAI-developed Tecsar (Polaris) intelligence satellite was put into orbit by India's Polar Satellite Launch Vehicle rocket.

Despite the world economic turndown, Yossi Ackerman, CEO of Israel's Elbit Systems, was optimistic about the prospects for 2009, while presenting his firm's 2008 results. “We are registering increases in all our fields of operation and our growth is greater than the world growth in the defense sector,” he said on March 12. “I do not believe that in 2009 we will sell less than in 2008.” For the fourth quarter of 2008, Elbit's sales increased by 18.1% to $697M, while profits were up 228% to $105.3M. Elbit's total 2008 revenues amounted to $2.64B, up 33%, while its net profits, at $204M, rose by 166%.

Plasan, based in and owned by Kibbutz Sasa on Israel's northern border, said in February that it had won first place in a competition for best development in armored vehicle survivability at the annual conference on LMAV (Light & Medium Armored Vehicles) in London. Plasan's candidate for the award was the body of the Lockheed Martin AVA, a prototype armored personnel carrier, which increases survivability by placing the soldier at the center of the vehicle. Plasan is a world player in providing armor and survivability solutions for tactical wheeled vehicles, fixed and rotary-wing platforms, naval platforms and civilian armored vehicles.