PROMINENT OPPOSITION BUSINESSMAN'S VIEWS ON ROYG

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 000678

SIPDIS

E.O. 12958: DECL: 04/01/2008
TAGS: ECON PGOV EFIN PINR YM ECON COM
SUBJECT: PROMINENT OPPOSITION BUSINESSMAN'S VIEWS ON ROYG
ECONOMY


Classified By: Classified by CDA Alan G. Misenheimer for
reasons 1.5 B. and D.


1. (C) Summary: A prominent businessman believes civil
service reform is the most important change that the Yemeni
government must make to stem corruption. According to Islah
party member and leading banking figure Mahfoodh Salem
Shammakh, attempts by the government, World Bank and other
lending agencies to reform the civil service have yet to
force the ROYG to take tough decisions such as laying off
workers and raising salaries. Shammakh also offered his views
on Yemeni education and the effects of qat on the economy.
End Summary


2. (C) Mahfoodh Salem Shammakh, Director of Shammakh and
Company, cofounder of the Yemeni Commercial Bank, and
prominent Islah Party moderate, outlined his ideas for
reforming the Yemeni economy, including civil service reform,
education overhaul, and land use reform. Shammakh is from
Hadrawmaut, educated in Aden and a member of several economic
committees, including the Ministry of Industry and Trade's
World Trade Organization accession advisory committee and the
Sanaa Chamber of Commerce.

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Laws Help, but Civil Service Reform is Real Solution
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3. (C) Shammakh supported passage of the anti-money
laundering law by the Yemeni parliament, while acknowledging
that his own accounting procedures may become more
complicated. Shammakh explained that his sugar business
suffered when a Lebanese merchant sold sugar in Yemen at
below market price, but accounted for the sugar at the
regular price, effectively laundering his money and harming
Shammakh's own sugar sales. Shammakh said acts like this may
be curtailed by the law, and his businesses may do better.


4. (C) Shammakh concluded saying, "the law will never be
implemented." Shammakh contended that tribes make too much
money smuggling drugs and antiquities to allow for effective
implementation. He claimed that many of the tribes were
smuggling Jewish texts out of the country, and in one
instance a dealer in Singapore was willing to pay 15 million
USD (sic) for a piece of ancient Hebrew scripture. For the
tribes, this was too much money to forego and after a few
attempts to enforce the law, the government, he believes,
will lose interest in enforcement. Corruption by individuals
in the government, he added, could be stopped, but civil
service reform was the only solution.


5. (C) Citing his experience with corruption he said, "I'm a
merchant, and I know what things cost. None of the Ministers
could afford my refrigerators on their salaries, but they all
have them." Shammakh continued by detailing the financial
requirements of a high official, and concluded that there was
no way a senior official could even afford food on the salary
provided by the Ministry. The first step for reform is to
trim the bloated ROYG workforce and the second step is to
adequately compensate the workers the ROYG is able to keep.
Admitting this may be a painful and long process, Shammakh
said it was the most important factor in ending corruption in
Yemen.

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Ill-prepared Workers
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6. (C) Turning to other problems of doing business in Yemen,
he said, "I cannot find a secretary to hire." Complaining
that the Yemeni education system focuses too much on
impractical knowledge and little on career based education,
he said he and his colleagues found it extremely difficult to
find qualified people. He said to counter this, the Islah
Party founded the Islahi Technical College to train students
in computer and job skills. To his disappointment, the
college has since become a university focused on producing
engineers and has strayed from its original purpose of
teaching job skills appropriate for the labor market in
Yemen.

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Qat: the "Evil of Evils"
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7. (C) Qat, Shammakh said, was "the evil of evils." He
blamed many Yemeni economic problems on Qat and the inability
of the Ministry of Agriculture to encourage the growth of
alternative crops. He said farmers needed micro-enterprise
projects, and not long-term studies. Qat was taking valuable
land and water that could be used for cash crops. Shammakh
owns a tannery and said he was unable to get suitable hides
in Yemen because people kill their cows too young. Blaming
this also on qat, he said that people would rather grow qat
than use the land to graze cattle or grow coffee or ginseng,
all profitable commodities for Yemen. Shammakh himself left
the coffee business because he was unable find land to grow
enough beans to make production profitable.

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Comment
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8. (C) Comment: Shammakh focused his strong critique of the
ROYG on the ministries themselves, and never once mentioned
the Presidency. We have been reliably told that that
President Saleh had asked Shammakh to join the ruling GPC,
but that Shammakh told the President that he needed to stay
in the Islah Party to keep it moderate. Shammakh politely
answered all of Pol/Econoff's questions on money laundering,
but took every opportunity to provide his own views on what
ails the Yemeni economy. End Comment.

MISENHEIMER