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Viewing cable 08SANAA88, PART TWO OF TWO: YEMEN'S 2008 INVESTMENT CLIMATE

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Reference ID Created Released Classification Origin
08SANAA88 2008-01-15 11:37 2011-08-24 01:00 UNCLASSIFIED Embassy Sanaa
VZCZCXYZ0000
RR RUEHWEB

DE RUEHYN #0088/01 0151137
ZNR UUUUU ZZH
R 151137Z JAN 08
FM AMEMBASSY SANAA
TO RUEHC/SECSTATE WASHDC 8780
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPCIM/CIMS NTDB WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/USDOC WASHDC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
UNCLAS SANAA 000088 
 
SIPDIS 
 
SIPDIS 
 
NEA/ARP FOR NATASHA FRANCESCHI, 
DEPT PLEASE PAS TO EB/IFD/OIA FOR J. NATHANIEL HATCHER AND 
ANN M. KAMBARA 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV USTR OPIC YM
SUBJECT: PART TWO OF TWO:   YEMEN'S 2008 INVESTMENT CLIMATE 
STATEMENT 
 
REF: A. SECSTATE 158802 
     B. SANAA 00087 
 
1.  SUMMARY:  In response to reftel A, part two of Yemen's 
submission for the 2008 Investment Climate Statement follows. 
 This second section covers protection of property rights, 
transparency of the regulatory system, efficient capital 
markets and portfolio investment, political violence, 
corruption, bilateral investment agreements, OPIC and other 
investment insurance programs, labor, foreign-trade 
zones/free ports, foreign direct investment statistics, and 
web resources.  END SUMMARY 
 
2.  Begin text of second section of Investment Climate 
Statement. 
 
----------------------------- 
PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
 
Yemen has a record of inadequate protection of intellectual 
property rights (IPR), including patents, trademarks, 
designs, and copyrights.  In late 2004, the Cabinet approved 
the Berne Convention for the Protection of Literary and 
Artistic Works, as well as the International Agreement on 
Protecting Intellectual Property Rights.  Parliament has yet 
to ratify these agreements.  Yemen has yet to accede to any 
international IPR conventions and its IPR Law number 19 of 
1994 is not TRIPS compliant.  Yemen's Ministry of Industry 
and Trade drafted a new patents law; trademark law, and a 
design and copyrights law, pending final adjustments the laws 
will be sent to the Cabinet and later to Parliament for final 
approval.  In continuing efforts, the Ministry of Culture and 
Tourism drafted the Related Rights Law, which awaits 
Parliament's approval.  In March 1999, Yemen became a member 
of the World Intellectual Property Organization (WIPO) and is 
now revising its laws with WIPO guidance.  Yemen's 
application to join the World Trade Organization (WTO) was 
approved in July 2000 and the country gained observer status 
in 2002.  Yemen held its first working party meeting for WTO 
accession in November 2004 and held its second meeting in 
2005.  As of December 2007, no IPR laws have been passed in 
Yemen, including the draft patents, trademark, design and 
copyrights laws. 
 
In April 2001, the Yemen Appeals Court ruled in favor of a US 
company in a case involving infringement of the US company's 
trademark.  The company producing the infringed products 
subsequently appealed the decision.  In August 2003, the 
Supreme Court rejected the appeal and ordered it to cease 
production and destroy the infringed trademark.  However, 
this ruling has not been enforced. 
 
--------------------------------- 
TRANSPARENCY OF REGULATORY SYSTEM 
--------------------------------- 
 
Implementation and enforcement of Yemen,s environmental 
protection regulations and labor laws are inadequate and 
non-transparent.  Health and safety standards are rudimentary 
and not enforced.  Customs tariff regulations and tax laws 
remain inconsistent and smuggling is common, but the 
government has taken steps in recent years to standardize the 
process with ASYCUDA systems and WTO-compliant valuation 
methods. 
 
--------------------------------------------- ----- 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ----- 
 
In the 1990s Yemen's banking system suffered from a large 
volume of non-performing loans, inadequate loan provisioning, 
low bank capitalization, and weak enforcement of prudential 
standards.  Under a 1997 World Bank-sponsored financial 
sector reform program, the government took actions to address 
these problems.  A bank reform law was passed in 1998 to 
update, strengthen, and regulate the industry.  By 2000, the 
Central Bank of Yemen (CBY) had circulated strict regulations 
pertaining to credit risk management, liquidity, insider 
lending, foreign exchange exposure, financial leasing and 
external auditors.  Banks are required to reach a capital 
adequacy ratio of eight percent and meet new classification 
and provisioning standards for loan portfolios and most 
comply.  Nevertheless, commercial banks still suffer from 
 
extremely low capitalization rates and are essentially owned 
by large trading families who establish the bank to service 
their own business needs. 
 
In 2005, the Cabinet of Ministers restructured the 
Agricultural Cooperative Credit Bank into the Rural 
Development Bank and raised its working capital to 32 million 
USD.  The new bank aims to augment the state's efforts in the 
local rural development. 
 
Private sector lending is constrained by a lack of judicial 
recourse to recover bad loans.  To correct this weakness, a 
steering committee produced a series of reform 
recommendations in 1999.  Among the recommendations was the 
establishment of special loan recovery courts.  The 
recommendations have not been implemented. 
 
In 1999, under the WB/IMF's financial sector reform effort, 
the government announced the merger of four 
majority-government-share banks with an eye toward 
privatizing the merged entity.  In 2004, the press speculated 
that the National Bank of Yemen was solvent and would be part 
of the merged entity.  The Yemen Bank for Reconstruction and 
Development was also restructured and likely to be part of 
the privatized bank.  The two remaining specialized banks, 
housing and agriculture, were also restructured but are not 
healthy enough to be merged with the others.  At present, the 
merger has not moved forward on any of the four 
government-owned or majority government-share banks. 
 
In June 2000, the president signed the Central Bank Law 
Number 14 granting the CBY greater independence.  Its mandate 
is to focus on price stability, limit public sector financing 
to emergency loans, adopt its own monetary and exchange rate 
policies, and enforce greater commercial bank accountability. 
 The CBY is authorized to conduct inspections of all bank 
implementation provisioning and capital increase schedules, 
and it enforces penalties and corrective measures.  In 2003, 
Parliament passed a Money Laundering Law, which the CBY has 
begun to implement and enforce. 
 
Inter-bank activities are limited, and there are no equity or 
bond markets.  In the recent past, the government hoped to 
establish a stock market in Yemen to promote the government's 
private sector-led growth strategy.  However, the consensus 
of most Yemeni and foreign observers is that the country 
currently lacks the expertise to establish a stock market, 
and there are not sufficient numbers of Yemeni investors to 
sustain an active stock market.  The CBY began offering 
treasury bills in December 1995.  Commercial banks purchased 
a large share of the bills, investing up to 30 percent of 
their assets.  The interest rate on T-bills was gradually 
reduced from a high of 23 percent in 1999 to about 13 percent 
in 2006 in order to encourage investment lending. 
 
------------------ 
POLITICAL VIOLENCE 
------------------ 
 
Yemen faces recurring problems with political and tribal 
violence.  Yemen has suffered from a number of terrorist 
attacks since 2000, including the October 2000 attack on the 
USS Cole in Aden harbor, in which 17 US servicemen and women 
were killed, and the October 2002 bombing of a French oil 
tanker (the M/V Limburg) off the coast of al-Mukallah .  In 
January 2006, 23 convicted terrorists managed to escape from 
the Political Security Organization's prison in Sanaa. 
According to Yemeni and U.S. government sources, some of the 
escaped terrorists were behind the attacks on the USS Cole 
and the M/V Limburg.  On September 15, 2006 before the 
Presidential Elections, two attacks were carried out on oil 
installations.  The first involved two trucks carrying 
explosives, which detonated at the Canadian Nexen coastal oil 
pumping facility at Ash Shahir in the eastern Yemeni 
governorate of Hadramawt, resulting in the deaths of one 
local guard, and the injuries of two others. The second 
attack occurred at the Safer oil pumping facility in Mareb, 
where two trucks carrying explosives detonated.  On July 2, 
2007, suspected al-Qa'ida operatives carried out a 
vehicle-borne explosive device attack on tourists at the 
Belquis Temple in Mareb, which resulted in the deaths of 
eight Spanish tourists and two Yemenis.  The Republic of 
Yemen Government and the United States cooperate closely on 
counter-terrorism. 
 
 
One incident of random violence in Yemen occurred on December 
5, 2006, a lone gunman opened fire outside the U.S. Embassy 
compound during the early morning hours.  The assailant, 
wounded by host-nation security personnel and subsequently 
arrested, was the sole casualty.  There was no indication the 
assailant was part of a terrorist group. 
 
Yemen continues to be plagued by tribal violence. 
Kidnappings have traditionally been seen as a means for 
tribes to pressure the government to accede to their demands, 
such as development projects or improved services. 
Abductions have generally declined over the past seven years 
in the wake of government crackdown.   In December 2005, 
however, a former German diplomat and his family were 
kidnapped and released unharmed several days later.  Shortly 
thereafter, four Italian tourists were kidnapped by a tribe 
in the Mareb region.  The hostages were released after 
several days following extensive negotiations and a 
successful rescue operation by the Yemeni government. 
Earlier in the year, two Spanish tourists and representatives 
of UNICEF were also kidnapped.  The last incident involving 
Americans came in December 2002, when three American doctors 
were killed near the city of Ibb.  The perpetrator was 
caught, convicted and sentenced to death.  The sentence was 
carried out in February 2006.  The government of Yemen has 
sent strong signals that it will no longer tolerate 
kidnapping. 
 
Some tribal elements hijack automobiles or other expensive 
equipment owned by foreign companies as means to pressure the 
government to share wealth with local tribes or resolve 
tribal disputes.  Tribal attacks occur most frequently in 
areas of oil and mineral extraction, including the outlying 
governorates of Mareb and Shabwa.  Attacks on oil pipelines 
and vehicles have been commonplace and 2007 was no exception. 
 The main motive behind the attacks is that some tribes in 
these regions claim they are not getting their fair share of 
the wealth or jobs.  Investors in such ventures should be 
sensitive to the need to build community relations.  The 
provision of community-based services, such as healthcare and 
education contribute to protecting investments in isolated 
areas. 
 
Since 2004, the government has periodically been involved in 
armed conflict with rebels in the northern Sa'ada 
governorate, originally led by anti-American Shiite cleric 
Al-Houthi, who was killed in August of 2005.  In early 2006, 
the government reached a cease-fire with rebels.  Since 
January 2007, the Government of Yemen has been battling 
al-Houthi rebels in and around the northern governorate of 
Sa'ada.  While foreigners have not been targeted, hundreds of 
soldiers and civilians have been killed in the ongoing 
violence. 
 
---------- 
CORRUPTION 
---------- 
 
In 2007, Yemen ranked 131st out of 179 countries and 
territories on Transparency International's corruption 
perception index.  One of the poorest countries in the world 
with a hugely overstaffed and underpaid civil service, Yemen 
has a significant and widely acknowledged corruption problem. 
 Illicit activities include soliciting and paying bribes to 
facilitate or obstruct projects, leveraging dispute 
settlements, skewing taxation and customs tariff 
augmentations, and engaging in family or tribal nepotism. 
The government recognizes that it must enact civil service 
and administrative reforms to create new disincentives to 
corruption, but progress has been slow.  In 2003, a new 
Minister of Civil Service was appointed who initiated several 
programs to improve the civil service.  In September 2004, 
the Cabinet approved the United Nations' Convention combating 
different forms of corruption. 
 
Parliament approved Anti-Corruption Law No. 29 of 2006, which 
established an 11-member Supreme National Authority for 
Combatting Corruption (SNACC) as an independent body with 
legal authority to fight corruption, track down corrupt 
officials and retrieve funds obtained through corrupt 
practices.  SNACC is charged with drafting and executing 
anti-corruption policies and also receives financial 
disclosures from all senior government officials, as required 
 
under the Financial Disclosure Law.  SNACC can interrogate 
people involved in financial crimes and crimes of corruption 
and can refer these cases to the judiciary for prosecution. 
It also collects data and maintains a secret (and not 
releasable) corruption database for investigations and asset 
declarations.  SNACC is required to submit a quarterly report 
to the President and Parliament on its activities.  Yemen's 
Parliament elected 11 members to SNACC on June 25, 2007.  On 
July 4, 2007, President Saleh signed a Republican Decree 
officially establishing SNACC and chaired SNACC's first 
meeting. 
 
------------------------------- 
BILATERAL INVESTMENT AGREEMENTS 
------------------------------- 
 
The US and Yemen signed a Trade Investment Framework 
Agreement in 2004.  According to the General Investment 
Authority, Yemen signed three agreements in 2003 and one in 
2004, bringing the total bilateral treaties to 35.  Yemen has 
bilateral investment treaties with Algeria, Austria, Bahrain, 
Belarus, Belgium, Bulgaria, China, Djibouti, Egypt, Ethiopia, 
France, Federation of Russia, Germany, Hungary, India, 
Indonesia, Iran, Jordan, Kuwait, Lebanon, Malaysia, Morocco, 
the Netherlands, Oman, Pakistan, Qatar, South Africa, Sudan, 
Sweden, Syria, Tunisia, Turkey, the UAE, Ukraine, and the 
United Kingdom.  Yemen has signed initial agreements 
regarding investment promotion with Croatia, Mongolia and 
Romania but those agreements did not enter into force. 
 
-------------------------------------------- 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
-------------------------------------------- 
 
Yemen and the United States signed an investment guarantee 
agreement in 1972.  As of October 1997, OPIC and EXIM Bank 
provide guarantees for both private and public sector 
projects of short and medium duration (up to seven years). 
Yemen is a member of the Multilateral Investment Guarantee 
Agency (MIGA). 
 
----- 
LABOR 
----- 
 
The Yemeni government generally follows International Labor 
Organization (ILO) standards regarding labor laws and worker 
rights.  In 1999 it ratified ILO conventions on the 
elimination of the worst forms of child labor and the minimum 
work age for employment.  As in other areas, enforcement of 
labor laws is weak.  Child labor is an issue of special 
concern.  Some children work with their families in 
agriculture. To address this issue, the government signed an 
agreement to cooperate with the International Program on 
Elimination of Child Labor (IPEC) in 2000.  After 
ratification of the ILO, the government established the Child 
Labor Unit at the Ministry of Social Affairs and Labor to 
implement and enforce child labor laws and regulations. 
Investors find the local pool of skilled labor for technology 
intensive ventures limited. 
 
Yemen's overall illiteracy rate for persons age 15 and older 
is 50 percent (World Bank, September 2004), 28 percent for 
men and 68 percent for women.  In 2005, the Ministry of 
Social Affairs and Labor estimated that Yemen needs at least 
210 thousand new jobs annually to encounter the rapidly 
growing local labor force.  There is no single confirmed 
number for the rate of unemployment in Yemen.  There are 
conflicting reports from different government agencies about 
the rate of unemployment, but the Ministry of Social Affairs 
and Labor estimates the rate of unemployment for 2007 as 16 
percent.  Many local and international organizations estimate 
the rate of unemployment in Yemen to reach 35 percent or 
higher. 
 
Those who complete secondary education and university studies 
in Yemen often do not possess the same professional standards 
as their counterparts from Western educational institutions. 
University graduates also experience difficulty finding 
appropriate employment and are sometimes unwilling to accept 
lower skilled jobs.  The government is beginning to focus on 
increasing access to and improving the quality of vocational 
training as a means to develop a cadre of skilled laborers in 
high demand fields, including construction workers, medical 
 
technicians, electricians, plumbers and carpenters. 
 
------------------------------ 
FOREIGN-TRADE ZONES/FREE PORTS 
------------------------------ 
 
The Yemen Free Zone Public Authority was established in 1991 
to develop the Aden Free Zone.  Yeminvest, a joint venture 
between the Port of Singapore Authority (PSA) and the Bin 
Mohfoud Group of Saudi Arabia, was awarded the concession to 
develop the area.  The government bought out the Yeminvest 
contract in October 2003 and Overseas Port Management is 
temporarily operating the Aden Container Terminal.  In 2005, 
Dubai Port World (DPW) won a tender to become new operator 
for the Aden Container Terminal (ACT), but is awaiting 
approval of the bid from Parliament.  Opened in September 
1999, ACT logged steady growth through 2001.  The October 
2002 terrorist attack on the French oil tanker M/V Limburg 
caused shipping insurance premiums to raise 300 percent.  As 
a result, ships were diverted to the ports of Djibouti and 
Salalah in Oman.  Since the summer of 2003, shipping 
insurance premiums have dropped to zero percent, as is 
standard in Dubai and other nearby ports.  The port mainly 
serves as a transshipment hub, but attempts are being made to 
increase the percentage of the local cargo through the 
development of the industrial and warehousing estate. 
 
In its first phase of development, ACT planned to handle up 
to one million Twenty-feet Equivalent Units (TEUs) annually 
on its two-berth, 700m quay.  Those plans have been scaled 
back, and current capacity is 650,000 TEUs annually.  The 35 
hectare container yard can store 10,000 boxes.  Yemen Ports 
Authority constructed a new 270-meter long and 12 meter deep 
dock assigned for unpacking the wheat-loaded vessels.  The 
dock will alleviate burdens of the other seven docks in the 
port. 
 
An industrial and warehousing estate called Aden District 
Park (ADP) was launched in November 2002.  The Aden Container 
Terminal and the Aden Free Zone are promising areas for 
investment.  Opportunities in light industry, repackaging and 
storage/distribution operations are welcomed.  Future plans 
include development of heavy industry and more extensive 
tourist facilities in the greater Aden area. 
 
Free zone incentives include 100 percent foreign ownership, 
no personal income taxes for non-Yemenis, and a corporate tax 
holiday for 15 years (renewable for 10 additional years), 100 
percent repatriation of capital and profits, no currency 
restrictions, and no restrictions on, or sponsoring required, 
for the employment of foreign staff.  Aden's main selling 
point is its strategic location ) nine days steaming from 
Europe and seven from Singapore.  It is four nautical miles 
off the main Far East - Europe sea route. For further 
information, contact: Free Zones Public Authority (AFZPA), 
(Main Center) P.O. Box 5842 Khormaksar, Aden, Republic Of 
Yemen, Telephones: 967-2-234484/5/6, Fax: 967-2-235-637, 
e-mail: Adenfz@Y.Net.Ye; Website:  www.Aden-Freezone.Com 
 
In May 2001, a new terminal at Aden International Airport was 
officially opened.  In addition, a study was completed in 
August 2001 for future plans for the airport to include a 
duty free zone and cargo village to facilitate transit trade 
with the Aden Free Zone port facilities. 
 
------------------------------------ 
FOREIGN DIRECT INVESTMENT STATISTICS 
------------------------------------ 
 
According to the GIA, the foreign direct investment in Yemen 
for 2006 is approximately USD 861 million, 59 percent of 
total investment.  Most U.S. investment in Yemen is in oil 
exploration, production and oil field services. 
 
------------- 
WEB RESOURCES 
------------- 
 
United States Embassy in Sanaa, Yemen: 
http://usembassy.state.gov/yemen/  The US Embassy website 
provides latest embassy news, reports, travel warnings, visa 
information, programs and events. 
 
Export.gov:  http://www.export.gov/  Export.gov provides 
 
online trade resources and one-on-one assistance for American 
businesses who would like to start or expand global sales. 
 
3.  End text of second section of Investment Climate 
Statement. 
 
SECHE