Identifier
Created
Classification
Origin
05SANAA255
2005-02-07 11:03:00
UNCLASSIFIED
Embassy Sanaa
Cable title:  

INVESTMENT CLIMATE 2005

Tags:  OPIC KTDB USTR YM ECON COM 
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UNCLAS SECTION 01 OF 08 SANAA 000255 

SIPDIS

STATE PLEASE PASS TO OFFICE OF INVESTMENT AFFAIRS
EB/IFD/OIA AND USTR

E.O. 12958: N/A
TAGS: OPIC KTDB USTR YM ECON COM
SUBJECT: INVESTMENT CLIMATE 2005

REF: SECSTATE 250356

UNCLAS SECTION 01 OF 08 SANAA 000255

SIPDIS

STATE PLEASE PASS TO OFFICE OF INVESTMENT AFFAIRS
EB/IFD/OIA AND USTR

E.O. 12958: N/A
TAGS: OPIC KTDB USTR YM ECON COM
SUBJECT: INVESTMENT CLIMATE 2005

REF: SECSTATE 250356


1. The following is posts' submission for the 2005 Investment
Climate Statement:

(Begin Text)


Investment Climate 2005 for Yemen:

Openness to Foreign Investment
Conversion and Transfer Policies
Expropriation and Compensation
Dispute Settlement
Performance Requirements and Incentives
Right to Private Ownership and Establishment
Protection of Property Rights
Transparency of 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
Web Resources

--------------
Openness to Foreign Investment
--------------

As one of the world's least developed countries, Yemen offers
international investors natural resources and an inexpensive
labor force. On April 14, 2000, the government of Yemen
requested accession to the World Trade Organization (WTO) to
more fully integrate into the world economy and gained
observer status in 2002. In November 2004, the United States
Trade Representative, Department of State, Department of
Commerce and other key US agencies began talks under the
bilateral Trade and Investment Framework Agreement (TIFA).
The United States anticipates preparation for WTO accession
will further facilitate a free and open investment climate
for international investors.

Since unification of North and South Yemen in 1990, the
Republic of Yemen embarked on a series of reforms aimed at
stabilizing the economy and increasing investment. An
International Monetary Fund (IMF) and World Bank-sponsored
government economic restructuring program began in 1995. The
IMF introduced indirect monetary policy instruments, such as
open market operations, rediscount facilities and reserve
requirements. While there is significant room for
improvement, the ROYG began modernizing customs
administrations and streamlining tariff policies under the
reform program. To help develop exchange markets, the

IMF-advised policies led to the implementation of flexible
exchange rate arrangements and supporting monetary policies.

Yemen's macroeconomic factors have largely stabilized
although some outstanding issues remain. The Ministry of
Finance and the Central Bank of Yemen (CBY) achieved currency
stabilization with the Yemeni Riyal (YR); the YR floats at
market rates and remains stable at 186 YR per USD. Making
dramatic strides, inflation, as measured by the Consumer
Price Index (CPI),declined from 71 percent in 1994 to 11.8
percent in 2003. In 2004, the Central Bank estimated the
inflation rate in the 12 percent bracket and maintaining its
stability remains one of the most significant monetary policy
challenges Another source, the IMF's September 2004 World
Economic Outlook report, stated a CPI increase of 15.3
percent for 2004 and projected a 15.2 percent increase for

2005. It also projected 2.7 percent real GDP growth in 2004
and the same for 2005. Foreign currency reserves in 2004
reached USD 5.2 billion, or 15.3 months of imports. As of
June 14, 2001, the Paris Club rescheduled most of the
external debt ($12 bn) and commercial debt has largely been
eliminated through a World Bank grant program. According to
a September 2004 World Bank report, Yemen's debt-to-GDP ratio
was 49.0 percent and its debt service-to-export of goods and
services was 4.6 percent.

With the implementation of tax incentives for merchants,
Yemen's trade environment is steadily improving but more
government focus is needed on privatization and financial
sector reform. To accede to the WTO, the ROYG must review
its tariff structure. A simplified and less protective
tariff structure is currently being debated and there are
plans to dramatically reduce and eliminate nearly all import
bans, export restrictions, import licensing requirements, and
to adopt a unified tariff structure. Under Investment Law 22
of 2002, duties applied on raw materials not available
locally are exempted by 50 percent. For agriculture and
fisheries projects, all fully imported materials are exempt
from duty. An April 2004 Presidential directive decreed that
land be granted to investors at no cost if the project
capital is more than 10 million USD and the investment
projects enjoy profit tax exemption. For example, in late
August 2004, the Saudi-owned Arab Company for Tourist
Development and Investment was granted a large amount of land
to construct a tourist village in Ibb city, stretching over
127 thousand square meters worth $25 million.

A privatization program started in 1998 with sixteen
enterprises in industry, tourism, and trade, came to a
standstill in April 2001 when Parliament refused to approve a
World Bank credit to fund a larger, long-term privatization
program. In 2004, the Privatization Technical Bureau offered
five trade companies for sale; the bureau is preparing 17
other troubled trade companies for privatization in the
future. A law to bring increased authority to the Central
Bank is being considered. Commercial banks have also been
required to improve their accounting procedures and loan
recovery rates. The banking system remains weak, with most
commercial banks owned by large business families who are
reluctant to lend money to those not known to them. Roughly
three percent of Yemenis have bank accounts and most
financial transactions occur outside of the commercial
banking system.

After adopting several key economic reforms in the 90s,
progress stalled in 2001 as the ROYG focused on important
security issues. In October 2004, a World Bank report
noting, "because of the slackening pace of reforms (in Yemen)
downside risks to medium-term macro-economic stability have
increased." Partly in response to this report, in January
2005, Parliament passed the 2005 budget calling for several
economic reform measures, including reducing the diesel and
gas subsidy, with the provision that the government implement
several economic and administrative reforms.

The government adopted a policy of uniform treatment for all
investors, domestic and foreign in 1992. The lead government
agency is the General Investment Authority (GIA),established
in the same year. Over the last decade, the GIA has
cooperated with the World Bank's (WB) Foreign Investment
Advisory service to update Yemen's Investment Law 22 of 1991
(as amended). The alternative Investment Law Number 22 of
2002 was adopted by Parliament on June 2002 and signed by the
President on July 20, 2002. Implementation began in October

2002.

As written, the 2002 investment law safeguarded all
exemptions and benefits called for in the previous investment
law and mandates that the GIA de-emphasize licensing and
focus on registration and promotion. Once fully implemented,
the GIA will become both a licensing and investment promotion
body. The law eliminated government and GIA and intervention
in investment projects and gave wider freedom to investors in
running their projects. The law canceled some legal
provisions, which provided special exceptions for investors
from obtaining import and export licenses from the Ministry
of Industry and Trade. The law is intended to encourage
local production by reducing customs duties by 50 percent on
imported raw materials and 100 percent on raw materials
produced locally for agricultural and fisheries projects.
Finally, the law canceled some tax categories. This
investment law falls under the government's financial,
economic and administrative reform program, and is intended
to encourage foreign investment.

Under amended Law 22 of 2002, the GIA registers and promotes
investment opportunities. The GIA provides potential
investors with an information packet that includes a copy of
the investment law, an investment guide summarizing GIA
activities, and an application form with instructions.
Packets may be obtained from the promotion section, General
Investment Authority, P.O. Box 19022, Sanaa, Republic of
Yemen (Telephone: 967-1-262-962/3 or 268-205; Fax:
967-1-262-964, E-mail: mohdhussein@yahoo.com; Website:
www.giay.org).

The GIA welcomes investment in all sectors with the exception
of arms and explosive materials, industries that could cause
environmental disasters, banking and money exchange
activities, and wholesale and retail imports. Investments in
the exploration and production of oil, gas and minerals are
subject to special agreements (e.g., production sharing
agreements) under the authority of the Ministry of Oil and
Minerals and do not fall within the purview of the GIA.
Investment is open to Yemeni, Arab, or foreign investors
acting solely or in partnership on any project.

Boycott issues: Yemen formally renounced observance of the
secondary and tertiary aspects of the Arab League Boycott of
Israel in 1995. However, occasional reports of violations
have occurred due to Yemeni companies use of old purchase
order forms that contain prohibited language. When these
violations are brought to the attention of concerned
officials, corrective action is taken. Yemen has stated that
it will not renounce the primary aspect of the boycott absent
an Arab League consensus. Occasionally individuals or
organizations will call for boycotts of US products. Since
the 2003 war in Iraq and throughout 2004, one Yemeni
distributor/producer of a prominent American-branded consumer
product received a number of threats to his factory.

In late 2004, the Islands Development Public Authority
announced more than 4,000 investment opportunities in the
resource-rich islands of the Red Sea and Indian Ocean. The
government hopes that tourism along with investments in other
sectors will create 250,000 additional jobs for these
impoverished island populations.

In November 2004, the government announced the creation of
three industrial zones in Aden, Hodaida and al-Mukallah that
will concentrate on manufacturing and infrastructure. The
Executive Order provides for the regulation, management, and
supervision of industrial zones. In conjunction with the
establishment of the industrial zones, the government is
lobbying industrialists to invest in these zones, construct
its infrastructure, and manage operations.

--------------
Conversion and Transfer Policies
--------------

The Yemeni Riyal is freely exchanged at market rates and has
been largely stable for the last five years at 186YR/1USD.
Most foreign currencies, especially US dollars, are readily
available and trade freely at market rates. Investors may
transfer funds in hard currency from abroad to Yemen for the
purpose of investment and may re-export invested capital,
whether in kind or in cash, upon liquidation or project
disposal. Net profits resulting from investment of foreign
funds may be transferred freely outside of Yemen. Cash
transfers are limited to 10,000 USD, transfers above that
amount must receive approval from the Central Bank of Yemen.

--------------
Expropriation and Compensation
--------------

In the Republic of Yemen's fifteen-year history, there have
been no cases of property expropriation. The government
recognizes that expropriation (which existed in the former
socialist Peoples' Democratic Republic of Yemen (PDRY) until
reunification in 1990) is contrary to its economic
aspirations. Most of the lands expropriated by the PDRY were
returned to the rightful owners. Land registration, however,
is in its infancy and disputes over both residential and
commercial plots are frequent and nearly impossible to
adjudicate legally (see Dispute Settlement section). One
American company has purchased the same plot of land on which
its factory lies several times. Since deed information is
inexact, owners can sell multiple copies of a deed, and
commercial suit options are extremely time-consuming, prone
to corruption, and judgments are often not enforced.

Yemen's investment law stipulates that private property will
not be nationalized or seized, and that funds will not be
blocked, confiscated, frozen, withheld or sequestered by
other than a court of law. Real estate may not be
expropriated except in the national interest, and
expropriation must be according to a court judgment and
include fair compensation based on current market value.

--------------
Dispute Settlement
--------------

While there have been no significant investment disputes
involving US investors in the past several years, commercial
disputes are common. Yemen is a signatory the Convention on
the Settlement of Investment Disputes, as well as the 1958
New York Convention on Arbitration.

Yemen's judicial system is inefficient and corrupt. While
Yemen's investment-related laws are generally sound,
enforcement remains problematic at best and nonexistent at
worst. The government has special commercial courts to
provide a mechanism for commercial dispute resolution, but
they are generally considered ineffective as well. In
January 2005, the Minister of Justice, with the support of
President Saleh, removed several high-ranking Ministry of
Justice officials and judges in an effort to reduce the
corruption and ineffectiveness of the court system.
International donors actively encourage the government to
press forward with more extensive judicial reforms.
Business disputes are generally handled by informal
arbitration or within Yemen's court system. In 1998 the
Yemeni Center of Conciliation and arbitration, a private
arbitration center, was created by a group of lawyers,
bankers, and businessmen as an alternative to the courts.
The center has settled about 37 disputes so far in the areas
of trade, finance, construction and industry, and is gaining
recognition as a viable alternative.

Most investors are best served by establishing a partnership
with a Yemeni who knows the system, and by including an
international arbitration clause in their contracts. In
cases involving interest, most judges use Shari'a (Islamic)
law as a guideline, under which claims for interest payments
due are almost always rejected. Local commercial banks are
sensitive to this problem, and rarely lend to other than
established, large trading houses well known to them.

--------------
Performance Requirements and Incentives
--------------

Yemen's investment law does not specify performance
requirements as conditions for establishing, maintaining or
expanding investment. Incentives permitted under the law
include, but are not limited to: Exemption from customs fees
and taxes levied on fixed assets of the project; tax holiday
on profits for a period of seven years, renewable for up to
18 years maximum; the right to purchase or rent land and
buildings; and, the right to import production inputs and
export products without restrictions and registration in the
import/export register.

--------------
Right to Private Ownership and Establishment
--------------

While foreigners may own property, foreign companies and
establishments generally operate in Yemen through Yemeni
agents. Law 23 of 1997 (as amended) regulates agencies and
branches of foreign companies and firms and outlines the
requirements for establishing a Yemeni agent. Chapter 3 of
Law 23 permits foreign companies and firms to conduct
business in Yemen by establishing foreign-owned and managed
branches. Foreign establishments wishing to open branches in
their own names must obtain a permit by decree from the
Minister of Industry and Trade. Regarding investment
projects, under the 2002 investment law, foreigners can own
100 percent of the land and can execute projects without a
Yemeni agent and without obtaining import/export license from
the Ministry of Industry and Trade or implementing Law 23 of
1997 (the investment law implemented in October 2002 has
precedence over other laws). As a practical matter, however,
foreign establishments should plan to engage a Yemeni partner.

Mortgage lending in Yemen is rare because of the
unwillingness of the court system to uphold the payment of
interest. In addition, Yemen has a long history of
incomplete or inaccurate land records and frequent land
ownership disputes, making the use of real estate as
collateral difficult. While the General Survey Authority is
working to establish a just and legally defensible land
registry system, implementation remains some years off.

--------------
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 will hold the second meeting
in 2005. As part of its accession requirements, Yemen will
need to enact its revised IPR legislation and take concrete
steps to enforce these laws adequately.

In 1999, a large US-based multinational firm litigated
successfully a trademark infringement case in Yemen's courts.
The ruling is now under appeal and the violator continues to
infringe on the trademark despite the court ruling. A final
resolution was expected by the end of 2000, but it is still
pending in the Supreme Court. Three rulings by Primary
Court, Appeal Court and Supreme Court were in favor of the US
Company. Due to the difficulty in enforcing the ruling, both
disputing parties agreed on an amicable arbitration. In a
second case involving a US Company's trademark, the Appeal
Court handed down a final ruling in April 2001 in favor of
the US Company. In August 2003, the Supreme Court rejected
the appeal of the company producing the infringed products
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, labor laws, customs tariff
regulations and tax laws are inadequate and non-transparent.
Health and safety standards are rudimentary and not enforced.

-------------- --------------
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 early 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
rural local 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 to the others. At present, the
merger has not moved forward for 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 2004 in order to encourage investment lending.

--------------
Political Violence
--------------

While kidnappings were halted for almost three years,
tribesmen seeking jobs for relatives briefly kidnapped an
Australian citizen in August 2004. Kidnappings of foreigners
have occurred sporadically since the 1970s. Some tribal
groups have used hostage taking to put pressure on the
government to obtain projects or services, or to focus
government attention on the redress of grievances. Victims
have included foreign businessmen, diplomats, aid workers and
tourists. Historically, most were treated well and released
unharmed after two to three days, although some were held as
long as four weeks. A botched rescue attempt during a May
2000 kidnapping of a Norwegian citizen resulted in his death.
Tribal kidnappings of foreigners have declined significantly
since 1998 as a result of capital penalties enacted by the
Yemeni government.

In December 1998 16 foreign tourists were kidnapped in Abyan
Governorate Four died during a government rescue attempt, at
least two of those at the hands of the kidnappers. Islamic
extremists were responsible for this kidnapping. The
kidnappers were tried, found guilty of murder, and sentenced.
The Yemeni national who led the kidnapping was sentenced to
death under the anti-kidnapping law of 1998; he was executed
in October 1999. In late December 2002, three American
doctors were killed near the city of Ibb; the perpetrator was
caught, convicted and sentenced to death.

Some tribal elements hijack automobiles or other expensive
equipment owned by foreign companies as a means to pressure
the government to accede to their demands. This occurs most
frequently in areas of oil and mineral extraction, with some
tribes in these regions claiming they are not getting their
share of the wealth. Investors in such ventures should be
sensitive to the need to build community relations.
Provision of community-based services, such as healthcare and
education, has contributed toward protecting investments in
isolated areas.

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 Mukalla were acts of international terrorism.

In 2004, the government put down an armed rebellion in the
northern Sa'ada governorate where an anti-American Shiite
cleric lead an uprising against government troops lasting
over three months. The Zaidi conflict ended when the rebel
leader al-Houthi was killed in August.

The Republic of Yemen Government and the United States
cooperate closely on counter-terrorism.

--------------
Corruption
--------------

In 2004, Yemen's Transparency International corruption score
dropped for 88th to 112th place out of 145 countries. 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 facilitating or
obstructing 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. 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.
--------------
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
2004s, 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 initialed
agreements with Croatia, Mongolia, and Romania.

--------------
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. Most children work with their families in
agriculture, although an increasing number are being sent out
to work in shops and restaurants. 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 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. Given the return of thousands
of unskilled and semi-skilled Yemeni laborers from Saudi
Arabia, Kuwait and other Gulf states during the 1990-1991
Gulf war, Yemen's unemployment rate stands at about 35
percent. 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, 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. The
government is presently reviewing tenders for a new operator
for the ACT and the announcement is expected to occur this
year. The Ministry of Transport is now the contact point for
offers from International operators to manage the Aden
Container Terminal (ACT). 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 begun to drop yet by year's end 2004,
they still have not dropped to zero percent, as is standard
in Dubai and other nearby ports. Insurance premiums were
reduced in late July 2004 to 0.009375 percent of the ships'
value and 0.03 percent for oil tankers. A further discount
of 20 percent of the premium is granted to ships carrying out
three or more journeys a month to Yemen's ports, representing
the lowest rates since the 9/11 attacks. 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 1 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.

A 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. The Aden Free Zone
Authority is looking for a company to build and operate the
cargo village. Yemen Free Zones Public Authority (YFZPA)
intends to supervise the cargo village, though the YFZPA has
not received the land to date.

--------------
Foreign Direct Investment Statistics )
--------------

Yemen produces no reliable statistics on foreign direct
investment. Most US 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.

(End Text)
Krajeski