YEMEN: CABINET PASSES INVESTMENT-REFORM PACKAGE

UNCLAS SECTION 01 OF 02 SANAA 001145 SIPDIS NEA/ARP FOR ANDREW MACDONALD USAID FOR CHRIS KISCO DEPT OF COMMERCE FOR TYLER HOFFMAN USTR FOR JASON BUNTIN DEPT OF TREASURY FOR SAMANTHA VINOGRAD E.O. 12958: N/A TAGS: ECON EINV EFIN YM SUBJECT: YEMEN: CABINET PASSES INVESTMENT-REFORM PACKAGE ¶1. SUMMARY. The cabinet passed an investment-reform package on June 11, which included a new Investment Law, amendments to the existing Customs Law, and a new Income Tax Law. The ROYG would like to strengthen its relationship with the private sector, and is attempting to streamline the investment process in Yemen. With the new legislation, the ROYG will redefine the functions of the General Investment Authority (GIA),establish a new "one-stop shop" for investors, and reduce the corporate income tax. Still, the ROYG will also need to change public perception of the investment climate in order to encourage new companies to take a chance on Yemen. END SUMMARY. CABINET PASSES INVESTMENT REFORM PACKAGE -------------- ¶2. On June 11, the cabinet passed an investment-reform package in order to promote investment in Yemen. Three new pieces of legislation passed by cabinet decree: a new Investment Law, amendments to the existing Customs Law, and a new Income Tax Law. Nabil Shaiban, Director General of International Cooperation at the Ministry of Planning and International Cooperation (MOPIC),told EconOff on June 15 that the new investment package fulfills (in part) ROYG commitments to support national efforts for enhancing institutional and technical capacities under the Development Compact between the ROYG and development partners. (Comment: After two years of internal debate, the legislation has finally passed the cabinet, but must still pass the parliament before being implemented. End Comment.) ¶3. In a meeting with the Ambassador, USAID Director, and EconOff, Deputy Prime Minister for Economic Affairs and Minister of Planning and International Cooperation Abdulkarim Ismail Al-Arhabi recognized foreign direct investment in Yemen as crucial to increasing employment, particularly of young people, of which two-thirds are under the age of 25, and "do not have anything to do except join al-Qaeda." According to Arhabi, who shepherded the legislation through the cabinet, the ROYG would like to strengthen its relationship with the private sector, and is attempting to streamline the investment process in Yemen. The reforms should revise existing legislation and make Yemen more attractive to foreign direct investment (FDI) from a regulatory standpoint. ROYG TO ESTABLISH ONE-STOP SHOP -------------- ¶4. With the new Investment Law, the ROYG will redefine the functions of the General Investment Authority (GIA),and establish a new "one-stop shop" for investors. The GIA will act as a promotion agency, while the one-stop shop will take on regulating and licensing responsibilities. According to MOPIC, the one-stop shop should act as a facilitation and information hub, eliminating any overlap between agencies relevant to investors such as the customs, land, and tax authorities. Salah al-Attar told EconOff on June 1 that the GIA is going to focus on image building and investment promotion in the future in order to "get out the word" about Yemen,s investment potential. While GIA will remain the promoter, other governmental entities will take on greater roles, such as the General Holding Corporation for Property Development and Investment (SHIBAM),a government agency that will act as implementer, according to Maher Farouk Luqman, Chief Investment Officer of SHIBAM. ¶5. The new reform package also includes a reduction in the corporate income tax. According to Dr. Jamal M. Sroor, Surrogate of the Tax Authority, the corporate income tax will be reduced from 35 percent to 20 percent for existing companies and to 15 percent for new investments. Sroor told EconOff on June 22 that the new law eliminates a current investment incentive, in which new companies enjoy seven tax-free years, and an additional two years for investing in rural areas. (Comment: Since companies in Yemen notoriously avoid taxes, the new law attempts to maximize tax compliance, while minimizing the tax burden. While the new tax law removes old incentives, it adds new incentives, and brings Yemen into compliance with international standards based on World Bank and International Financial Corporation (IFC) guidance. End Comment.) COMMENT SANAA 00001145 002 OF 002 -------------- ¶6. With low and sometimes negative FDI levels, the Yemeni economy has suffered from lack of investment for years. The attempt to make the environment more conducive to investment through legislation, if ultimately passed by parliament, is a step in the right direction. The ROYG, however, will also need to change public perception of the investment climate in order to encourage new companies to take a chance on Yemen. END COMMENT. SECHE