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 000663 
 
SIPDIS 
 
SENSITIVE 
 
PLEASE PASS TO AMBASSADOR GROSS AND EB/CIP/SP; USAID ANE 
TS-MEZGER 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV EFIN ECPS EIND EINV ETTC KMPI YM KMCC ENVIRONMENT ECON COM
SUBJECT: SCENESETTER FOR VISIT OF EB/ICT DEPUTY ASSISTANT 
SECRETARY DAVID GROSS TO YEMEN MARCH 24-26 
 
SIPDIS 
 
REF: A. STATE 38739 
     ¶B. SANAA 486 
     ¶C. SANAA 196 
 
¶1. (SBU) Post welcomes the visit of EB Deputy Assistant 
Secretary for International Telecommunications and 
 
SIPDIS 
Information Policy David Gross to Yemen March 24-26.  You 
will meet Deputy Prime Minister and Minister of Planning 
Ahmed Sofan, and Minister of telecommunications and 
Information Technology Abdul-Malik al-Maolimi.  As the 
highest-ranking Washington official ever to visit the 
Ministry, you will find the ROYG and industry leaders 
appreciative of your visit and eager to discuss with you the 
future of information and communications technology (ICT). 
You will also meet with business leaders in ICT and other 
fields, a ROYG working group for WTO accession, as well as 
have the opportunity to speak to students and faculty of the 
University of Science and Technology.  Your visit will bring 
attention to the growth of the ICT industry in Yemen, and to 
the important link between an emerging democratic society and 
the free flow of information. 
 
----------------- 
ECONOMIC OVERVIEW 
----------------- 
 
¶2. (U) One of the 25 poorest and least developed countries in 
the world, Yemen's real GDP per capita is approximately 800 
USD.  According to the World Bank, GDP growth for 2003 was 
2.8 percent, which does not match population growth greater 
than 3.5 percent annually.  Unemployment is estimated to be 
35 percent.  Oil resources, which account for 35 percent of 
GNP and roughly 80 percent of government revenues, are 
expected to decline significantly during the next decade.  On 
macro-indicators, Yemen has demonstrated fiscal discipline 
over the last six years, reducing inflation and showing 
balanced budgets, however, without foreign investment and 
domestic development, Yemen faces a grim economic future. 
The one bright spot on the horizon is a 2.5 billion dollar 
investment in a 6.5 metric ton a year natural gas 
liquification plant due to come on line in 2008.  This plant 
is expected to help diversify Yemen's economy and reduce its 
dependence on oil.  Telecom is another high growth industry 
that shows promise -- often in spite of government policies. 
 
-------------------- 
Trade and Investment 
-------------------- 
 
¶3. (U) The World Bank considers Yemen to be among the most 
open and trade liberalized countries in the MENA region.  Oil 
exports, however, represented more than 90 percent of total 
merchandise exports in 2003.  Of the remaining 10 percent, 
products such as fish, coffee, fruits, and vegetables are low 
value added. 
 
¶4. (SBU) Weak legal institutions and ill-equipped commercial 
courts discourage foreign investment in Yemen.  Judges are 
often unfamiliar with commercial law, and since the 
unification of North and South in 1990, conflicting laws 
remain on the books.  Cases may take years to be heard and 
then stagnate in the appellate process.  In the rare instance 
when a case is decided, 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 in new businesses. 
 
¶5. (SBU) One of the greatest obstacles to direct foreign 
investment in Yemen is the non-transparent and protracted 
nature of the tendering process.  Some American companies 
have had problems with the confidentiality of their bids, 
while others were later overturned and rewarded to 
competitors.  Winning companies often have close ties to 
government officials or powerful local business interests. 
Post has raised concerns about the tendering process at the 
highest levels of the ROYG and repeats often that a sound 
tendering process is necessary for increased Foreign and 
American investment in Yemen. 
 
------------------------------- 
Telecommunications: A Mixed Bag 
------------------------------- 
 
¶6. (U) Yemen has one of the lowest levels of telecom 
penetration in the region, which in turn is among the lowest 
rates in the world.  Only 1.5 percent of all Yemeni 
households have phone lines, although the ROYG has made 
progress in its goal of adding 3 million additional phone 
lines by 2009.  Even with a growing number of mobile 
subscribers, many Yemenis still lack access to basic phone 
service.  Less than one percent of the population has 
internet access at home, and a fraction of these have 
broadband services (although ADSL and VSAT are available in 
some areas).  Long distance rates are astronomical and Yemen 
charges high termination fees for incoming calls. 
 
¶7. (U) In many respects, however, Yemen has made good telecom 
decisions that offer great potential for growth of the 
industry.  Yemen has been installing digital lines since the 
1980s, resulting in a telecom backbone that is now almost 
entirely digital.  The Public Telecommunications Corporation 
(PTC) is installing fiber-optic cables to all regional 
capitals as part of its current expansion.  This will allow 
for high volume data backhaul from remote areas, and offers 
the possibility of a nationwide broadband system in the 
future.  Fiber-optic lines currently connect Yemen to Saudi 
Arabia and Djibouti, and will soon reach Oman.  Many remote 
areas tap into the fiber-optic network by microwave, but the 
PTC intends to replace this with more extensive fiber-optic 
systems in the future. 
 
¶8. (U) Yemen has also developed a limited policy of 
technology neutrality in the wireless sector, and is the only 
country in the region to offer consumers a choice between 
CDMA and GSM products.  Spacetel and Sabafon began providing 
GSM service three years ago and now have over a million 
subscribers.  CDMA technology is advocated by the PTC and is 
used by the state-owned wireless company Yemen Mobile.  CDMA 
is also used to provide local fixed wireless access in more 
remote areas.  This system currently provides voice 
technology to approximately 200,000 people, and may 
eventually be used for data transmission (ref c). 
 
¶9.  (SBU) Despite positive steps, Yemen remains hampered by 
its monopolistic tendencies.  TeleYemen, the national phone 
company once owned by British Telecom, has been reacquired by 
the ROYG.  The French company Alcatel provides services, but 
ownership is divided between the PTC and the National Post 
Office.  After allowing private growth in the wireless 
market, the PTC entered the field with its own 
government-owned service.  Both internet providers are owned 
by the government, as is the long-distance service.  The ROYG 
is very protective of this income and would like to see all 
future investment directed through the PTC. 
 
¶10.  (SBU) The Ministry of Telecommunications readily admits 
there is a clear need in Yemen for an effective telecom 
regulatory body.  The Minister of Telecommunications also 
serves as the head of the existing regulatory office, and 
directs the PTC.  This situation produces, at the very least, 
the appearance of conflict of interest.  The GSM CEOs are 
sure to raise this issue during your lunch, and will likely 
cite the long-awaited third wireless tender.  The ROYG has 
said that it will only accept bids for GSM service and will 
not allow new competition in CDMA.  Privatization of PTC 
interests or TeleYemen is not currently on the table. 
Although there are few believers within the Ministry or PTC 
in the benefits of competition, there does exist a growing 
awareness that the lack of proper regulation discourages 
investment in this important sector. 
 
----------------- 
Yemen and the WTO 
----------------- 
 
¶11.  (U) Yemen is making progress in trade reforms necessary 
for WTO accession and eventually a Free Trade Agreement (FTA) 
with the U.S.  Key ministries have a broad mandate within the 
ROYG to draft the necessary legislation and create 
regulations to comply with international standards.  The ROYG 
has created an effective inter-agency mechanism to direct 
these activities.  Significant obstacles remain, however, and 
the ROYG will have to demonstrate to the WTO that it can 
implement the planned reforms.  ROYG aspirations to accede to 
the WTO within one year, while admirable, may be too 
ambitious.  At November 2004 TIFA Talks, USTR officials 
suggested that Yemen quickly adopt the Information Technology 
Agreement to demonstrate their commitment to WTO accession. 
You may want to raise this with a number of your 
interlocutors, including WTO Trade Negotiator, Nagib Hamim. 
 
¶12.  (U) The Ministry of Telecommunications was not 
represented in initial TIFA talks held in Washington in 
November 2004, however ICT issues were raised for the first 
time in follow-up talks in Geneva.  The Yemeni TIFA team is 
aware that telecom is important to the USG, and that ICT 
issues have posed problems for other countries' accession to 
the WTO.  Yemeni officials appear unaware of the many steps 
that will be expected of them, including building a 
regulatory body and liberalizing ICT markets.  Post 
recommends you raise these two points directly with both the 
Minister of Telecommunications and with Deputy Prime Minister 
Sofan when you meet with them.  You can add that we have a 
number of mechanisms to assist in this process through MEPI 
and USAID. 
 
¶13.  (SBU) DPM Sofan will likely ask you for increased 
U.S.-Yemen trade and investment cooperation.  Recent U.S. 
companies' experiences with unsound tendering processes and 
non-competitive practices have made it necessary for post to 
reiterate that in the USG view, the investment climate must 
improve before American firms will invest in Yemen.  We 
encourage you to echo this message and provide a perspective 
on what U.S. companies seek in an investment climate. 
 
---------------------------- 
Bios of al-Moalimi and Sofan 
---------------------------- 
 
¶14.  (U) Bio note: Abdul-Malik al-Moalimi was born in 1947. 
He is Chinese educated, with a BA in Engineering and a 
Diploma in Administration.  He has served before as Minister 
of Telecommunications (2001-2003), and as Deputy Minister of 
Education (1998-2001), and Deputy Minister of Labor and 
Vocational Training (1990-1992).  End bio note. 
 
¶15.  (U) Bio note: Deputy Prime Minister and Minister of 
Planning and International Cooperation Ahmed Mohammed Sofan 
was born in 1958.  He has a High Diploma in Economics and 
Political Sciences from the UK (1970).  He has a license in 
Sharia and Law, Sana'a University (1985).  Sofan has served 
as Minister of Planning and Development since 1991.   End bio 
note. 
Khoury