Identifier
Created
Classification
Origin
09SANAA1145
2009-06-24 08:42:00
UNCLASSIFIED
Embassy Sanaa
Cable title:  

YEMEN: CABINET PASSES INVESTMENT-REFORM PACKAGE

Tags:  ECON EINV EFIN YM 
pdf how-to read a cable
VZCZCXRO7571
PP RUEHDE RUEHDH RUEHDIR
DE RUEHYN #1145/01 1750842
ZNR UUUUU ZZH
P 240842Z JUN 09
FM AMEMBASSY SANAA
TO RUEHC/SECSTATE WASHDC PRIORITY 2173
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
INFO RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
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

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