SMALL BUSINESS OWNERS TAKE TO THE STREETS

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 000695 SIPDIS E.O. 12958: DECL: 03/21/2015 TAGS: PGOV PREL PHUM YM ECON COM DOMESTIC POLITICS SUBJECT: SMALL BUSINESS OWNERS TAKE TO THE STREETS REF: A. SANAA 0037 ¶B. SANAA 0426 Classified By: CDA Nabeel Khoury for Reasons 1.4 (b) and (d). ¶1. (C) Summary: Many small business owners across Yemen closed their shops and took to the streets, March 13-18, in protest of ROYG plans to implement a general sales tax as part of its economic reform package. Demonstrations occurred in the cities of Hodeidah, Taiz, Sanaa and Aden, with a few developing into riots. Senior ruling party GPC officials accused opposition parties of fomenting the unrest and issued a stern warning to opposition leaders not to "play with fire." Islah party leaders denied being behind the unrest but told CDA in confidence that they were considering their "options." End Summary. ¶2. (U) Widespread strikes and demonstrations took place in the cities of Taiz, Hodeidah, Sanaa and Aden after shopkeepers closed their doors and took to the streets to protest a planned general sales tax (GST). The largely peaceful demonstrations, which began in Sanaa on March 13, ended nationwide on March 18. There were unconfirmed accounts of violence breaking out in Taiz after security forces rushed a crowd of demonstrators, resulting, according to the local press, in a few minor injuries. Semi-official newspaper "al-Thawra" reported some damage to private property. The demonstrations were relatively small scale, with the largest reportedly reaching around 300 participants in Sanaa and Taiz, and less in Hodeidah and Aden. -------------- Background -------------- ¶3. (U) Background: The general sales tax is part of the economic reform package that includes reducing the diesel subsidy, reforming civil service, rolling back tariffs and implementing a General Sales Tax (GST) (ref A). The GST is widely misunderstood with businessmen complaining that the tax will put an undue burden on the average Yemeni. In fact, modeled after a program in Lebanon, the GST will be levied at factories and importers rather than at retail outlets. Service industries will be taxed at ten percent with gross receipts totaling more than 40 million Riyals (217,000 USD). According to press reports on the GST, most food products are exempt. Ministry of Finance officials have predicted the GST's effect on inflation to be minimal because in some cases the tax burden will be reduced. (Note: Current taxes range �00A;from five percent to twenty five percent on imports and factory production. End note). End Background. -------------- ROYG to Opposition: Don't Play With Fire! -------------- ¶4. (U) "Al-Thawra" claimed that "investigations" revealed that Islah and the Joint Meeting Parties (JMP),an opposition party coalition, were to blame for the strikes. The paper reported that Interior Minister al-Alimi chaired a special security committee meeting to discuss these "adverse incidents" and warned the JMP and "other political forces" against "playing with fire." The Yemeni News Agency Saba quoted a "senior Ministry of Interior official" saying the demonstrations were orchestrated by the opposition Islah party (ref) and the Joint Meeting Parties (JMP),a coalition of opposition parties. ¶5. (U) Parliament suspended its March 20 session after the head of the GPC bloc, Sultan al-Barakani, accused the JMP of "sabotage and terrorism" and requested a full parliamentary investigation. Speaker of Parliament and Islah party chief Abdullah al-Ahmar agreed to opposition MP's demands to summon the Ministers of Interior and Information March 23 to question their claims that JMP is responsible for the riots. On March 21, Parliament also formed a multi-party "fact finding" committee to investigate causes of the demonstrations. ¶6. (C) Both Islah and JMP deny they are behind the strikes. Mohammed al-Matawkil, Professor of Political Science at Sanaa University and Secretary General of the Union of Popular Forces (UPF) shared his belief with poloff that the sales tax was only an excuse, and not the true reason for the recent strikes and demonstrations. Nabil Sufi, prominent Sanaa journalist and Islah member agreed, insisting that the Yemeni street does not oppose the sales tax. Thabit and Saif also hold this view, believing shopkeepers were enraged at the prospect of having to deal with inept and corrupt ROYG tax authority officials on a daily basis. ¶7. (C) Some Embassy contacts say the strikes were inspired, although likely not organized, by the United Yemeni Chambers of Commerce (UYCC) under the leadership of Mohammed Abdo Saeed, ironically a GPC member and related to the prominent Hayel-Saeed business family. Saif and Thabet both attribute the strikes to a handful of large family business conglomerates, which they believe gave the order to close their shops in all major cities. Saif added that the UYCC leadership met recently with ROYG officials to push their position -- comprehensive economic reforms should be implemented before levying the general tax, otherwise business will be forced to feed money in to a corrupt tax system. -------------- Comment -------------- ¶8. (C) According to Hassan Zeid, political chair of the al-Haq opposition party and member of the Political Forum, President Saleh, although secure in his reelection bid, is worried at the prospect of even a minor challenge as a demonstrable reminder that "his reign cannot last forever." President Saleh, he and other insiders contend, fears that the latest strikes, which came on the heels of strikes by the Sanaa Medical Syndicate and Sanaa University professors, as well as recent troubles in Saada (septel) may demonstrate growing hostility in the Yemeni street. Last weekend's strikes are not likely to spawn a nationwide challenge to the government's authority, and with Sheikh al-Ahmar at the helm, it is unlikely that Islah would seriously challenge the President. More likely, the Yemeni population's patience is beginning to wear thin with unceasing ROYG corruption. Although Saleh and the GPC are confident in a 2006 presidential victory, the latest ROYG attack on the opposition in response to relatively small-scale demonstrations likely reflects GPC's fears that Islah has the ability to move the street if it so chooses. In a country where he must balance political, tribal, religious and business interests, the prospect of stronger and more unified opposition this close to an election year may be too much for Saleh to stomach. ¶9. (C) Comment continued: Saleh's decision to send VP Abd Rabbu to represent him at the Algeria summit probably reflects his unease at recent security incidents, to Whit, the tax riots coming on the heels of university strikes and a recent clash in Saada (septel). A ranking Islah party leader told CDA that Islah did not call for the strikes but that a serious debate is taking place among party leader to consider Islah's options in expressing their discontent with their government,s ineptitude and corruption. Saleh, with his ears ever to the ground, may have good reason to stay home from Algiers to ensure things do not get out of hand at home. End Comment. Khoury