VZCZCXRO7571
PP RUEHDE RUEHDH RUEHDIR
DE RUEHYN #1145/01 1750842
ZNR UUUUU ZZH
P 240842Z JUN 09
FM AMEMBASSY SANAA
TO RUEHC/SECSTATE WASHDC PRIORITY 2173
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
INFO RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 SANAA 001145 
 
SIPDIS 
 
NEA/ARP FOR ANDREW MACDONALD 
USAID FOR CHRIS KISCO 
DEPT OF COMMERCE FOR TYLER HOFFMAN 
USTR FOR JASON BUNTIN 
DEPT OF TREASURY FOR SAMANTHA VINOGRAD 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN YM
SUBJECT: YEMEN: CABINET PASSES INVESTMENT-REFORM PACKAGE 
 
¶1. SUMMARY.  The cabinet passed an investment-reform package 
on June 11, which included a new Investment Law, amendments 
to the existing Customs Law, and a new Income Tax Law.  The 
ROYG would like to strengthen its relationship with the 
private sector, and is attempting to streamline the 
investment process in Yemen.  With the new legislation, the 
ROYG will redefine the functions of the General Investment 
Authority (GIA), establish a new "one-stop shop" for 
investors, and reduce the corporate income tax.  Still, the 
ROYG will also need to change public perception of the 
investment climate in order to encourage new companies to 
take a chance on Yemen.  END SUMMARY. 
 
CABINET PASSES INVESTMENT REFORM PACKAGE 
---------------------------------------- 
 
¶2.  On June 11, the cabinet passed an investment-reform 
package in order to promote investment in Yemen.  Three new 
pieces of legislation passed by cabinet decree: a new 
Investment Law, amendments to the existing Customs Law, and a 
new Income Tax Law.  Nabil Shaiban, Director General of 
International Cooperation at the Ministry of Planning and 
International Cooperation (MOPIC), told EconOff on June 15 
that the new investment package fulfills (in part) ROYG 
commitments to support national efforts for enhancing 
institutional and technical capacities under the Development 
Compact between the ROYG and development partners.  (Comment: 
After two years of internal debate, the legislation has 
finally passed the cabinet, but must still pass the 
parliament before being implemented.  End Comment.) 
 
¶3.  In a meeting with the Ambassador, USAID Director, and 
EconOff, Deputy Prime Minister for Economic Affairs and 
Minister of Planning and International Cooperation Abdulkarim 
Ismail Al-Arhabi recognized foreign direct investment in 
Yemen as crucial to increasing employment, particularly of 
young people, of which two-thirds are under the age of 25, 
and "do not have anything to do except join al-Qaeda." 
According to Arhabi, who shepherded the legislation through 
the cabinet, the ROYG would like to strengthen its 
relationship with the private sector, and is attempting to 
streamline the investment process in Yemen.  The reforms 
should revise existing legislation and make Yemen more 
attractive to foreign direct investment (FDI) from a 
regulatory standpoint. 
 
ROYG TO ESTABLISH ONE-STOP SHOP 
------------------------------- 
 
¶4.  With the new Investment Law, the ROYG will redefine the 
functions of the General Investment Authority (GIA), and 
establish a new "one-stop shop" for investors.  The GIA will 
act as a promotion agency, while the one-stop shop will take 
on regulating and licensing responsibilities.  According to 
MOPIC, the one-stop shop should act as a facilitation and 
information hub, eliminating any overlap between agencies 
relevant to investors such as the customs, land, and tax 
authorities. Salah al-Attar told EconOff on June 1 that the 
GIA is going to focus on image building and investment 
promotion in the future in order to "get out the word" about 
Yemen,s investment potential.  While GIA will remain the 
promoter, other governmental entities will take on greater 
roles, such as the General Holding Corporation for Property 
Development and Investment (SHIBAM), a government agency that 
will act as implementer, according to Maher Farouk Luqman, 
Chief Investment Officer of SHIBAM. 
 
¶5.  The new reform package also includes a reduction in the 
corporate income tax.  According to Dr. Jamal M. Sroor, 
Surrogate of the Tax Authority, the corporate income tax will 
be reduced from 35 percent to 20 percent for existing 
companies and to 15 percent for new investments.  Sroor told 
EconOff on June 22 that the new law eliminates a current 
investment incentive, in which new companies enjoy seven 
tax-free years, and an additional two years for investing in 
rural areas.  (Comment: Since companies in Yemen notoriously 
avoid taxes, the new law attempts to maximize tax compliance, 
while minimizing the tax burden.  While the new tax law 
removes old incentives, it adds new incentives, and brings 
Yemen into compliance with international standards based on 
World Bank and International Financial Corporation (IFC) 
guidance.  End Comment.) 
 
COMMENT 
 
SANAA 00001145  002 OF 002 
 
 
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¶6.  With low and sometimes negative FDI levels, the Yemeni 
economy has suffered from lack of investment for years.  The 
attempt to make the environment more conducive to investment 
through legislation, if ultimately passed by parliament, is a 
step in the right direction.  The ROYG, however, will also 
need to change public perception of the investment climate in 
order to encourage new companies to take a chance on Yemen. 
END COMMENT. 
SECHE