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Cablegate: Yemen Scenesetter for Commerce Assistant Secretary

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 SANAA 002795

SIPDIS

Commerce ITA for Loustaunau and Hoffman

SENSITIVE

E.O. 12958: N/A
TAGS: EFIN ECON YM IMF ECON COM
SUBJECT: YEMEN SCENESETTER FOR COMMERCE ASSISTANT SECRETARY
FOR MARKET ACCESS AND COMPLIANCE LASH

REF A) SANAA 2776
B) Sanaa 2136

1. (sbu) Embassy Sanaa warmly welcomes you and your team to
Sanaa, Yemen, December 7-8. You will be the first visitor
from the Department of Commerce since Deputy Assistant
Secretary Molly Williamson in May 2001. Your visit will

SIPDIS
afford an opportunity for follow-on talks with the Yemeni
businessmen you met on the margins of the September Yemen Days
symposium. Your meetings with ROYG officials will provide an
important forum to press Yemeni officials and businessmen to
improve the tendering process and give due regard to U.S.
bidders and to encourage Yemen's continued progress on WTO
accession. You will also find your Yemeni counterparts eager
to hear about the U.S. Trade agenda, specifically the Middle
East Free Trade Area and how Yemen might benefit.

2. (U) WHILE MAINTAINING SUSTAINED SECURITY COOPERATION WITH
YEMEN IS A KEY OBJECTIVE, USAID REOPENED ITS OFFICE IN JUNE
AND AS PART OF THE MISSION DEVELOPMENT TEAM IS FOCUSING ON THE
EDUCATION, HEALTH AND AGRICULTURE SECTORS. OUR MIDDLE EAST
PARTNERSHIP INITIATIVE (MEPI) GRANTS IN THE AREA OF DEMOCRACY
HELPED FUND DOMESTIC AND INTERNATIONAL ELECTION OBSERVERS
ELECTION ADMINISTRATIONS FOR THE APRIL 2003 PARLIAMENTARY
ELECTIONS -- A STEP FORWARD FOR DEMOCRACY IN YEMEN. EMBASSY
SANAA LOOKS FORWARD TO BEING ABLE TO EXPAND ITS ECONOMIC
ASSISTANCE THROUGH BOTH USAID AND MEPI. THE MISSION IS ALSO
WORKING WITH YEMEN TO IMPROVE ITS CHANCES FOR QUALIFYING FOR
THE MILLENNIUM CHALLENGE ACCOUNT (MCA) IN THE FUTURE.

-----------------
ECONOMIC OVERVIEW
-----------------

3. (u) One of the 25 poorest and least developed countries in
the world, Yemen's real GDP per capita is approximately
US$481. According to the World Bank, GDP growth for 2002 was
2.9 percent, which does not match population growth of 3.5
percent per year. Unemployment is estimated to be 25-35%, and
oil resources, which account for one third of the gross
national product and 70% of government revenues, are expected
to decline significantly during the next decade. Despite
these negative indicators, many international donors praised
Yemen's fiscal policy and progress in economic reform
throughout the last five years.

--------------------
Trade and Investment
--------------------

4. (u) Yemen is considered by the World Bank to be among the
most open and trade liberalized countries in the MENA region.
However, oil exports represented more than 95 percent of total
merchandise exports in 2000. Of the remaining 5 percent,
products such as fish, coffee, fruits, and vegetables are low
value added. Similar constraints also restrict the ability
of Yemeni producers to contribute to internal economic growth
and employment creation by exporting their products to markets
within Yemen.

5. (sbu) Foreign investors are discouraged from investing in
Yemen because the legal structure is weak and commercial
courts are ill-equipped to adjudicate disputes. Proctor and
Gamble's (P&G) long standing IPR case (ref a), is an
illustrative example of the problems investors face. Judges
are often unfamiliar with commercial law, and since the
unification of North and South in 1990, conflicting laws
remain on the books. Courts are burdened with large caseloads
and, often, a case may take years to be heard and then
stagnates in the appellate process. If a commercial ruling is
won, 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 into new businesses.

6. (sbu) One of the greatest obstacles to direct foreign
investment in Yemen is the non-transparent and protracted
nature of the tendering process. Two American firms, Delma
and Fusion, have had difficulty with the confidentiality of
their bids. There have also been bids awarded to American
businesses that were later overturned and rewarded to their
competitors. Post has raised concerns about the tendering
process at the highest levels and repeats often that a sound
tendering process is necessary for continued American
investment in Yemen.

7. (u) The following is an overview of suggested themes to
raise at your upcoming meetings.

--------------------
American Businessmen
--------------------

8. (u) American Business is dominated by the oil sector in
Yemen. Hunt Oil Company has recently renewed its agreement
with Yemen to continue their operations until at least 2010.
Production in Yemen Hunt Oil's Jannah and Marib fields
contribute about 140,000 bpd of Yemen's total 450,000 bpd.
Yemen Hunt is the second largest producer in Yemen behind
Canadian Nexen, which produces about 240,000 bpd. While
output from the Marib concession is falling, the introduction
of new technologies is expected to minimize the decline in the
near term.

-----------------------------------
Dinner with Yemeni Businessmen and
Working Level Trade Contacts
-----------------------------------

9. (u) Post proposes a dinner hosted by DCM Alan Misenheimer
with Yemeni businessmen on December 7. This dinner will be a
chance to talk with the business delegation you met with on
the margins of the Yemen Days celebrations in September. The
businessmen are hesitant about, if not against, WTO accession
and any information you can provide on WTO and the Middle East
Free Trade Agreement (MEFTA) will help promote our dialogue on
these issues. Because the businessmen are also a strong
lobby, you may also want to raise problems with the investment
climate and solicit their input for reforms.

-------------------------------------------
Minister of Industry and Trade Rajeh Sheikh
-------------------------------------------

10. (u) Bio note: Dr. Khaled Rajeh Sheik was born in 1955.
He has a PhD in Economic Administration. He has also served
as a Cabinet Economic Affairs Officer, as the Assistant
Secretary-General of the Supreme Council for Economic and

SIPDIS
Investment Affairs, and as a Regional Consultant for the
International Labor Organization. He is an assistant
professor at Arwa University. End bio note.

11. (u) Ministry of Industry and Trade (MEIT) officials are
moving forward on WTO accession with the help of a five
year/seven million Euro grant from the EU. Yemen will also
be receiving assistance through the State Department's MEPI
program for GCC members and WTO accession. Presently,
officials at MEIT are finalizing answers from the 167
questions submitted from the U.S., the EU and Australia on
Yemen's Memorandum of Foreign Trade Regime. Officials hope to
have their working party meeting early in 2004. Minister
Rajeh Sheikh also oversees all intellectual property rights
enforcement, and this visit is a good opportunity to raise our
desire to see Yemen's Supreme Court's ruling in favor of P&G
upheld (ref a).

--------------------------------------------- ----------------
Minister of Telecommunications and Information Technology al-
Moalimi
--------------------------------------------- ----------------

12. (u) Bio note: Abdul-Malik al-Moalimi was born in 1947. He
has a BA in Engineering and a Diploma in Administration. He
has also served as Minister of Telecommunications (2001-2003),
as Deputy Minister of Education (1998-2001) and as Deputy
Minister of Labor and Vocational Training (1990-1992). End
bio note.

13. (u) Only 1.5 percent of all Yemenis have phone lines, and
the ROYG plans for 3 million additional phone lines by 2009.
While there is little American investment presently in this
sector, telecommunications and information Technology could be
a source of American investment (ref b).

--------------------------------------------- -------
Deputy Prime Minister and Minister for Planning and
International Cooperation Sofan
--------------------------------------------- -------

14. (u) Bio note: Ahmad Mohammed Sofan was born in 1958. He
has a High Diploma in Economics and Political Sciences from
the UK (1970). He is licensed in Sharia and Law, Sana'a
University (1985). He has been the Minister of Planning and
Development since 1991. He has also served as the Minister of
Industry, as a Shura Council member and is a Member of
Parliament. End bio note.

15. (u) Deputy Prime Minister and Minister for Planning and
International Cooperation Sofan will want to hear about the
MEFTC and opportunities to expand trade. Post is also closely
engaging with Sofan's office on Yemen's potential qualifying
for the Millennium Challenge Account (MCA). Presently, Post
does not believe Yemen will qualify for MCA in the first year,
and in order to qualify in future years it must make progress
in the "Governing Justly" category. Particular areas of
concern are Yemen's poor court systems, which have a direct
impact on foreign direct investment and government
effectiveness.

16. (u) If past experience serves as a guide, Sofan will ask
to increase trade and investment cooperation with the USG.
Recent American experiences with unsound tendering practices
and the P&G saga, however, make it necessary for Post to
reiterate that the investment climate must improve before
American companies will invest in Yemen. We encourage you to
echo our message and provide a perspective on what U.S.
companies seek in an investment climate.

MISENHEIMER

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