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.

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Background
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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
from five percent to twenty five percent on imports and
factory production. End note). End Background.

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ROYG to Opposition: Don't Play With Fire!
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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.

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Comment
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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