This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 SANAA 002795 
 
SIPDIS 
 
Commerce ITA for Loustaunau and Hoffman 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON YM IMF ECON COM
SUBJECT: YEMEN SCENESETTER FOR COMMERCE ASSISTANT SECRETARY 
FOR MARKET ACCESS AND COMPLIANCE LASH 
 
REF  A) SANAA 2776 
     B) Sanaa 2136 
 
¶1. (sbu) Embassy Sanaa warmly welcomes you and your team to 
Sanaa, Yemen, December 7-8.  You will be the first visitor 
from the Department of Commerce since Deputy Assistant 
Secretary Molly Williamson in May 2001.  Your visit will 
 
SIPDIS 
afford an opportunity for follow-on talks with the Yemeni 
businessmen you met on the margins of the September Yemen Days 
symposium.  Your meetings with ROYG officials will provide an 
important forum to press Yemeni officials and businessmen to 
improve the tendering process and give due regard to U.S. 
bidders and to encourage Yemen's continued progress on WTO 
accession.  You will also find your Yemeni counterparts eager 
to hear about the U.S. Trade agenda, specifically the Middle 
East Free Trade Area and how Yemen might benefit. 
 
¶2. (U) WHILE MAINTAINING SUSTAINED SECURITY COOPERATION WITH 
YEMEN IS A KEY OBJECTIVE, USAID REOPENED ITS OFFICE IN JUNE 
AND AS PART OF THE MISSION DEVELOPMENT TEAM IS FOCUSING ON THE 
EDUCATION, HEALTH AND AGRICULTURE SECTORS.  OUR MIDDLE EAST 
PARTNERSHIP INITIATIVE (MEPI) GRANTS IN THE AREA OF DEMOCRACY 
HELPED FUND DOMESTIC AND INTERNATIONAL ELECTION OBSERVERS 
ELECTION ADMINISTRATIONS FOR THE APRIL 2003 PARLIAMENTARY 
ELECTIONS -- A STEP FORWARD FOR DEMOCRACY IN YEMEN.  EMBASSY 
SANAA LOOKS FORWARD TO BEING ABLE TO EXPAND ITS ECONOMIC 
ASSISTANCE THROUGH BOTH USAID AND MEPI.  THE MISSION IS ALSO 
WORKING WITH YEMEN TO IMPROVE ITS CHANCES FOR QUALIFYING FOR 
THE MILLENNIUM CHALLENGE ACCOUNT (MCA) IN THE FUTURE. 
 
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ECONOMIC OVERVIEW 
----------------- 
 
¶3. (u) One of the 25 poorest and least developed countries in 
the world, Yemen's real GDP per capita is approximately 
US$481. According to the World Bank, GDP growth for 2002 was 
2.9 percent, which does not match population growth of 3.5 
percent per year.  Unemployment is estimated to be 25-35%, and 
oil resources, which account for one third of the gross 
national product and 70% of government revenues, are expected 
to decline significantly during the next decade.  Despite 
these negative indicators, many international donors praised 
Yemen's fiscal policy and progress in economic reform 
throughout the last five years. 
 
-------------------- 
Trade and Investment 
-------------------- 
 
¶4. (u) Yemen is considered by the World Bank to be among the 
most open and trade liberalized countries in the MENA region. 
However, oil exports represented more than 95 percent of total 
merchandise exports in 2000.  Of the remaining 5 percent, 
products such as fish, coffee, fruits, and vegetables are low 
value added.   Similar constraints also restrict the ability 
of Yemeni producers to contribute to internal economic growth 
and employment creation by exporting their products to markets 
within Yemen. 
 
¶5. (sbu) Foreign investors are discouraged from investing in 
Yemen because the legal structure is weak and commercial 
courts are ill-equipped to adjudicate disputes.  Proctor and 
Gamble's (P&G) long standing IPR case (ref a), is an 
illustrative example of the problems investors face.  Judges 
are often unfamiliar with commercial law, and since the 
unification of North and South in 1990, conflicting laws 
remain on the books.  Courts are burdened with large caseloads 
and, often, a case may take years to be heard and then 
stagnates in the appellate process.  If a commercial ruling is 
won, it is rarely enforced.  Without a clear land-titling 
system, limited ability to collateralize against property, and 
courts' reluctance to enforce default judgments against 
property collateral, domestic investors are also reluctant to 
invest their money into new businesses. 
 
¶6. (sbu) One of the greatest obstacles to direct foreign 
investment in Yemen is the non-transparent and protracted 
nature of the tendering process.  Two American firms, Delma 
and Fusion, have had difficulty with the confidentiality of 
their bids.  There have also been bids awarded to American 
businesses that were later overturned and rewarded to their 
competitors.  Post has raised concerns about the tendering 
process at the highest levels and repeats often that a sound 
tendering process is necessary for continued American 
investment in Yemen. 
 
¶7. (u) The following is an overview of suggested themes to 
raise at your upcoming meetings. 
 
-------------------- 
American Businessmen 
-------------------- 
 
¶8. (u) American Business is dominated by the oil sector in 
Yemen.  Hunt Oil Company has recently renewed its agreement 
with Yemen to continue their operations until at least 2010. 
Production in Yemen Hunt Oil's Jannah and Marib fields 
contribute about 140,000 bpd of Yemen's total 450,000 bpd. 
Yemen Hunt is the second largest producer in Yemen behind 
Canadian Nexen, which produces about 240,000 bpd.  While 
output from the Marib concession is falling, the introduction 
of new technologies is expected to minimize the decline in the 
near term. 
 
----------------------------------- 
Dinner with Yemeni Businessmen and 
Working Level Trade Contacts 
----------------------------------- 
 
¶9. (u) Post proposes a dinner hosted by DCM Alan Misenheimer 
with Yemeni businessmen on December 7.  This dinner will be a 
chance to talk with the business delegation you met with on 
the margins of the Yemen Days celebrations in September.  The 
businessmen are hesitant about, if not against, WTO accession 
and any information you can provide on WTO and the Middle East 
Free Trade Agreement (MEFTA) will help promote our dialogue on 
these issues.  Because the businessmen are also a strong 
lobby, you may also want to raise problems with the investment 
climate and solicit their input for reforms. 
 
------------------------------------------- 
Minister of Industry and Trade Rajeh Sheikh 
------------------------------------------- 
 
¶10. (u) Bio note:  Dr. Khaled Rajeh Sheik was born in 1955. 
He has a PhD in Economic Administration.  He has also served 
as a Cabinet Economic Affairs Officer, as the Assistant 
Secretary-General of the Supreme Council for Economic and 
 
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Investment Affairs, and as a Regional Consultant for the 
International Labor Organization.  He is an assistant 
professor at Arwa University. End bio note. 
 
¶11. (u) Ministry of Industry and Trade (MEIT) officials are 
moving forward on WTO accession with the help of a five 
year/seven million Euro grant from the EU.   Yemen will also 
be receiving assistance through the State Department's MEPI 
program for GCC members and WTO accession.  Presently, 
officials at MEIT are finalizing answers from the 167 
questions submitted from the U.S., the EU and Australia on 
Yemen's Memorandum of Foreign Trade Regime.  Officials hope to 
have their working party meeting early in 2004.  Minister 
Rajeh Sheikh also oversees all intellectual property rights 
enforcement, and this visit is a good opportunity to raise our 
desire to see Yemen's Supreme Court's ruling in favor of P&G 
upheld (ref a). 
 
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Minister of Telecommunications and Information Technology al- 
Moalimi 
--------------------------------------------- ---------------- 
 
¶12. (u) Bio note: Abdul-Malik al-Moalimi was born in 1947.  He 
has a BA in Engineering and a Diploma in Administration.  He 
has also served as Minister of Telecommunications (2001-2003), 
as Deputy Minister of Education (1998-2001) and as Deputy 
Minister of Labor and Vocational Training (1990-1992).  End 
bio note. 
 
¶13. (u) Only 1.5 percent of all Yemenis have phone lines, and 
the ROYG plans for 3 million additional phone lines by 2009. 
While there is little American investment presently in this 
sector, telecommunications and information Technology could be 
a source of American investment (ref b). 
 
--------------------------------------------- ------- 
Deputy Prime Minister and Minister for Planning and 
International Cooperation Sofan 
--------------------------------------------- ------- 
 
¶14. (u) Bio note: Ahmad Mohammed Sofan was born in 1958.  He 
has a High Diploma in Economics and Political Sciences from 
the UK (1970).  He is licensed in Sharia and Law, Sana'a 
University (1985).  He has been the Minister of Planning and 
Development since 1991.  He has also served as the Minister of 
Industry, as a Shura Council member and is a Member of 
Parliament.  End bio note. 
 
¶15. (u) Deputy Prime Minister and Minister for Planning and 
International Cooperation Sofan will want to hear about the 
MEFTC and opportunities to expand trade.  Post is also closely 
engaging with Sofan's office on Yemen's potential qualifying 
for the Millennium Challenge Account (MCA).  Presently, Post 
does not believe Yemen will qualify for MCA in the first year, 
and in order to qualify in future years it must make progress 
in the "Governing Justly" category.  Particular areas of 
concern are Yemen's poor court systems, which have a direct 
impact on foreign direct investment and government 
effectiveness. 
 
¶16. (u) If past experience serves as a guide, Sofan will ask 
to increase trade and investment cooperation with the USG. 
Recent American experiences with unsound tendering practices 
and the P&G saga, however, make it necessary for Post to 
reiterate that the investment climate must improve before 
American companies will invest in Yemen.  We encourage you to 
echo our message and provide a perspective on what U.S. 
companies seek in an investment climate. 
 
MISENHEIMER