Identifier
Created
Classification
Origin
05SANAA663
2005-03-21 11:09:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Sanaa
Cable title:  

SCENESETTER FOR VISIT OF EB/ICT DEPUTY ASSISTANT

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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

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