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Cablegate: 2010 Investment Climate Statement - Republic of Yemen

VZCZCXYZ0000
RR RUEHWEB

DE RUEHYN #0178/01 0271144
ZNR UUUUU ZZH
R 271144Z JAN 10
FM AMEMBASSY SANAA
TO RUEHC/SECSTATE WASHDC 3657
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SANAA 000178

SIPDIS

DEPT FOR NEA/ARP AMACDONALD
DEPT FOR EB/IFD/OIA DAHN AND TWALSH

E.O. 12958: N/A
TAGS: ECON EINV EIND EFIN ENRG EPET ETRD PTER PGOV YM
SUBJECT: 2010 INVESTMENT CLIMATE STATEMENT - REPUBLIC OF YEMEN

1. (U) Below is YemenQs submission for the 2010 Investment Climate
Statement.

2. (U) Begin text of 2010 Investment Climate Statement for the
Republic of Yemen.

--------------------------------------------- --------
2010 Investment Climate Statement - Republic of Yemen
--------------------------------------------- --------

Openness to Foreign Investment
Conversion and Transfer Policies
Expropriation and Compensation
Dispute Settlement
Performance Requirements and Incentives
Right to Private Ownership and Establishment
Protection of Property Rights
Transparency of Regulatory System
Efficient Capital Markets and Portfolio Investment
Political Violence
Corruption
Bilateral Investment Agreements
OPIC and Other Investment Insurance Programs
Labor
Foreign-Trade Zones/Free Ports
Foreign Direct Investment Statistics
Web Resources

------------------------------
Openness to Foreign Investment
------------------------------

Yemen, one of the worldQs least developed countries, offers
potential investors inexpensive labor and high tariff rates for
project finance compared to more developed countries. There are
opportunities for significant returns in the power, fishery, real
estate development, infrastructure, and energy sectors. With the
implementation of tax incentives for foreign investors, YemenQs
investment climate has improved steadily in the past decade.
Investing in Yemen, however, is not for the faint of heart. A
minefield of potential violations under the U.S. Foreign Corrupt
Practices Act awaits potential investors, who should expect to
encounter government officials of all levels who solicit bribes at
every step of a project. In addition to corruption, other
challenges include a lack of security in under-governed areas, a
lack of Intellectual Property Rights enforcement, opaque dispute
settlement mechanisms, and unclear lines of decision-making
authority within the government. Official letters and memoranda to
investors and instructions within Yemeni ministries are routinely
issued, and then subsequently ignored, by government officials.
With the exception of a small handful of Western-educated
technocrats, many government officials have a deep cultural
suspicion of foreigners profiting from projects in their country.
Navigating the inner workings of competing centers of authority
within the government is a task best left to a competent local
partner.

YemenQs preparations for WTO accession may eventually lead to a
freer and more open investment climate for international investors.
Yemen still has much ground to cover, however, before meeting WTO
membership standards, including the passage of a WTO-compliant
customs valuation law. In 1992, the government adopted a uniform
investment code for both domestic and foreign investors which
created a General Investment Authority (GIA) to coordinate work
among eight government agencies. GIA is charged with publicizing
investment opportunities and obtaining government ministry approvals
on behalf of investors. In 2002, GIA worked with the World Bank's
Foreign Investment Advisory service to update YemenQs investment
laws, reducing customs duties by 50 percent on imported raw
materials and 100 percent on raw materials produced locally for
agricultural and fisheries projects. Investments in the oil, gas,
and mineral sector are subject to special agreements under the
authority of the Ministry of Oil and Minerals and do not fall under
GIAQs authority. Other sectors not covered by GIA include weapons
and explosives manufacturing, banking and money exchange activities,
and wholesale and retail imports. Potential investors can obtain
information packets from GIA, including a copy of the investment
law, an investment guide summarizing GIA activities, and an
application form with instructions, from: Promotion Section, General
Investment Authority, P.O. Box 19022, Sanaa, Republic of Yemen
(Telephone: 967-1-262-962/3 or 268-205; Fax: 967-1-262-964,
E-mail: invest@giay.org, or m_muthana@giay.org; Website:
www.giay.org).

Since the unification of North and South Yemen in 1990, Yemen has
embarked on a series of reforms aimed at stabilizing the economy and
increasing foreign investment. A successful International Monetary
Fund (IMF) and World Bank-sponsored government economic
restructuring program began in 1995. Reforms included the
introduction of a General Sales Tax (GST) and a reduction in
domestic petroleum subsidies. The IMF also helped introduce
indirect monetary policy instruments, such as open market
operations, rediscount facilities, and reserve requirements. Since
then, YemenQs macroeconomic factors have largely stabilized.

These reforms helped Yemen accumulate foreign currency reserves that
dwindled during the last nine months of 2009 by more than USD 1.41
billion to reach USD 7.41 billion, compared to USD 8.819 billion in
the same period in 2008. The Paris Club has rescheduled most of
YemenQs external debt, which stood at USD 6 billion at the end of
September 2009. In 2008, YemenQs debt-to-GDP ratio was 31 percent,
and its debt service-to-export of goods and services was 2.6
percent, according to the Central Bank of Yemen (CBY). YemenQs
commercial debt has largely been eliminated through a World Bank
grant program.

Between 2003 and 2004, eight companies were privatized, seven of
them by public auction, with the remaining company being transferred
to the Yemeni Economic Corporation (YECO). In 2007, the government
announced the privatization of an additional 15 factories, but as of
early 2010 their status was still pending. In the past two years,
the CBY has made an effort to improve commercial banksQ accounting
procedures and loan recovery rates. The CBY raised capital
requirements for each bank to Yemeni Riyal (YR) 6 billion, or about
USD 30 million. The banking system remains weak, however, with most
commercial banks owned by large families who are reluctant to lend
outside small circles. Roughly 4% of Yemenis have bank accounts and
most financial transactions occur outside of the commercial banking
system. The CBY announced the first liquidation to date of a local
bank, the Watani Bank, in 2006. A CBY committee was assigned to
evaluate the bankQs assets and financial obligations in order to
start distributing the available and collected funds to the
depositors and creditors.

Boycott issues: Yemen has stated that, absent an Arab League
consensus, it will continue to implement the primary aspect of the
Arab anti-Israel boycott.

--------------------------------
Conversion and Transfer Policies
--------------------------------

As of mid-January 2010, the Yemeni Riyal was trading at YR 219YR/USD
1, but inflation was expected to increase gradually. Most foreign
currencies, especially U.S. dollars, are readily available and trade
freely at market rates. Investors may transfer funds in hard
currency from abroad to Yemen for the purpose of investment and may
re-export invested capital, whether in kind or in cash, upon
liquidation or project disposal. Net profits resulting from
investment of foreign funds may be transferred freely outside of
Yemen. Cash transfers are limited to USD 10,000. Transfers above
that amount must be approved by the CBY.

The CBY intervenes regularly in the currency market, selling off
U.S. dollar reserves to bolster the local currency. In 2008, the
CBY sold USD 1.1 billion to control currency depreciation, an
increase from the USD 1.077 billion sold in 2007. By the end of
2009, the CBY had intervened at least seven times, injecting
approximately USD 1.24 billion into the exchange market.

------------------------------
Expropriation and Compensation
------------------------------

Since YemenQs unification in 1990, there have been no cases of
outright expropriation of property owned by foreign investors. The
government recognizes that expropriation, which existed in the
former socialist PeoplesQ Democratic Republic of Yemen (PDRY), is
contrary to its economic aspirations. Most of the lands
expropriated by the PDRY were returned to the rightful owners. Land
registration, however, is in its infancy and disputes over both
residential and commercial plots are frequent and nearly impossible
to adjudicate legally (see Dispute Settlement section). Since deed
information is inexact, owners are able to illegally sell multiple
copies of a deed. Commercial suit options are extremely
time-consuming, prone to corruption, and judgments are often not
enforced.

Yemen's investment law stipulates that private property will not be
nationalized or seized, and that funds will not be blocked,
confiscated, frozen, withheld, or sequestered by other than a court
of law. Real estate may not be expropriated except in the national
interest, and expropriation must be according to a court judgment
and include fair compensation based on current market value.

------------------
Dispute Settlement
------------------

YemenQs judicial system is inefficient and subject to influence from
bribes or family and/or tribal connections. While YemenQs
investment-related laws are generally sound, enforcement remains
problematic at best. The government has special commercial courts
which provide a mechanism for commercial dispute resolution, but
they are generally considered unreliable. Yemen is a signatory to
the 1965 Convention on the Settlement of Investment Disputes, but
not to the 1958 New York Convention on Arbitration. Yemen was sued
by U.S.-based Hunt Oil Company in a Paris-based International
Chamber of Commerce commercial arbitration court in 2005. The
courtQs decision has been kept confidential, according to both
sidesQ wishes. Hunt Oil continues to operate in Yemen, although in
a much smaller-sized oil exploration block.

Business disputes are generally handled by informal arbitration or
within YemenQs court system. In 1998, a private arbitration center,
the Yemeni Center of Conciliation and Arbitration, was created by a
group of lawyers, bankers, and businessmen as an alternative to the
official government-run court system. The Center has settled 52
disputes thus far in the areas of trade, finance, construction, and
industry, and is slowly gaining recognition as a viable alternative
to the official courts in Yemen. Most Yemeni business owners,
however, continue to eschew both government and commercial
arbitration courts in favor of informal settlements, resulting in a
serious deficiency in the equal application of the law.

Outside investors are best served by establishing a partnership with
a Yemeni entity that knows the system, including an international
arbitration clause in their contracts, establishing an escrow
account, and, where appropriate, demanding as much of the payment as
they can get up front. In cases involving interest, most judges use
shari'a (Islamic) law as a guideline, under which claims for
interest payments due are almost always rejected. Local commercial
banks are sensitive to this problem, and lend primarily to large
established trading houses well known to them.

---------------------------------------
Performance Requirements and Incentives
---------------------------------------

YemenQs collective body of investment laws does not specify
performance requirements as conditions for establishing,
maintaining, or expanding investment. Incentives permitted under
the law include, but are not limited to: exemption from customs fees
and taxes levied on fixed assets of the project; tax holidays on
profits for a period of seven years, renewable for up to 18 years
maximum; the right to purchase or rent land and buildings; and, the
right to import production inputs and export products without
restrictions and registration in the import/export register.

--------------------------------------------
Right to Private Ownership and Establishment
--------------------------------------------

Law 23 of 1997 (as amended) regulates agencies and branches of
foreign companies and firms and outlines the requirements for
establishing a Yemeni agent. Chapter 3 of Law 23 permits foreign
companies and firms to conduct business in Yemen by establishing
foreign-owned and managed branches. Foreign commercial entities
wishing to open branches in their own name must obtain a permit from
the Ministry of Industry and Trade.

Under a 2002 investment law, foreigners can own 100 percent of the
land and can execute projects without a Yemeni agent and without
obtaining import/export license from the Ministry of Industry and
Trade or implementing Law 23 of 1997 (the investment law implemented
in October 2002 has precedence over other laws). The 2002 investment
law appears to contradict longstanding Yemeni commercial laws,
however, which limit foreign ownership to 49 percent. The
government is currently reviewing the laws in an attempt to remove
inconsistencies. In March 2008, the government amended a 1991
investment law allowing foreigners to operate businesses in Yemen
without a Yemeni partner.

Mortgage lending in Yemen is rare because of the unwillingness of
the court system to uphold the payment of interest or to accept land
as a form of collateral. In addition, Yemen has a long history of
incomplete or inaccurate land records and frequent land ownership
disputes, making the use of real estate as collateral difficult. In
2006, various agencies and ministry departments dealing with land
ownership were merged into a common General Land Survey and Planning
Authority. This relatively new organization oversees land ownership
and registration, as well as modest government urban planning
efforts.

-----------------------------
Protection of Property Rights
-----------------------------

Yemen has a record of inadequate protection of intellectual property
rights (IPR), including patents, trademarks, designs, and
copyrights. In late 2004, the Cabinet approved the Berne Convention
for the Protection of Literary and Artistic Works, as well as the
International Agreement on Protecting Intellectual Property Rights.
Parliament has yet to ratify these agreements. Yemen has yet to
accede to any international IPR conventions and its IPR Law Number
19 of 1994 is not compliant with the WTOQs Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS). The
Ministry of Industry and Trade drafted new laws dealing with
patents, trademarks design and copyrights. As of early 2010,
Parliament had not passed any of these draft laws. Yemen became a
member of the World Intellectual Property Organization (WIPO) in
1999 and is now revising its laws with WIPO guidance. Yemen gained
observer status in the World Trade Organization in 2002 and has held
regular WTO accession meetings ever since. As part of its WTO
accession requirements, Yemen will need to enact its recently
revised IPR legislation and take concrete steps to enforce these
laws adequately.

In 1999, a large U.S.-based multinational firm won a trademark
infringement case in a Yemeni court. More than ten years later, the
ruling is still technically under appeal and the violator continues
to infringe on the trademark despite the court ruling. In a second
case involving a U.S. company's trademark, a Yemeni appeals court
handed down a final ruling in April 2001 in favor of the U.S.
company. In August 2003, the Yemeni Supreme Court rejected the
appeal of the company producing the infringed products and ordered
it to cease production and destroy the infringed trademark.
However, this ruling has not yet been enforced.

---------------------------------
Transparency of Regulatory System
---------------------------------

Implementation and enforcement of YemenQs environmental protection
regulations and labor laws are inadequate and non-transparent.
Health and safety standards are rudimentary and not enforced.
Customs tariff regulations and tax laws remain inconsistent and
smuggling is common, but the government has taken steps in recent
years to standardize the process with Automated System for Customs
Data (ASYCUDA) systems and WTO-compliant customs valuation methods.
Since July 2009, a draft customs valuation methods law has sat in
Parliament waiting for approval.

--------------------------------------------- -----
Efficient Capital Markets and Portfolio Investment
--------------------------------------------- -----

In the 1990s, YemenQs banking system suffered from a large volume of
non-performing loans, inadequate loan provisioning, low bank
capitalization, and weak enforcement of government banking
standards. Under a 1997 World Bank-sponsored financial sector
reform program, the government took actions to address these
problems. A bank reform law was passed in 1998 to update,
strengthen, and regulate the industry. By 2000, CBY had circulated
strict regulations pertaining to credit risk management, liquidity,
insider lending, foreign exchange exposure, financial leasing and
external auditors. Most commercial banks in Yemen comply with a
government requirement that they reach a capital adequacy ratio of
8% and meet new classification standards for loan portfolios.
Nevertheless, commercial banks still suffer from extremely low
capitalization rates and are often owned and operated by large
trading families to service their own business needs. As of
September 2009, the consolidated balance sheet for all commercial
banks operating in Yemen stood at only YR 1.463 trillion (USD 7.315
billion).

In 2000, President Saleh signed a law granting CBY greater
independence in order to stabilize prices, limit public sector
financing to emergency loans, and increase accountability among
commercial banks. The CBY is now authorized to inspect bank
implementation provisioning and capital increase schedules and
enforce penalties and corrective measures accordingly. In December
2009, the Parliament passed an anti-money laundering and
counter-terrorism finance law.

Inter-bank activities are limited, and there are no equity or bond
markets. Elements in the government still hope to establish a stock
market in Yemen to promote a private sector-led growth strategy.
Most domestic and foreign observers, however, believe that the
country lacks the expertise to establish a stock market, and that
there are insufficient Yemeni investors to sustain an active stock
market. The interest rate on Yemeni treasury bills has fluctuated
since a high of 23% in 1999 to about 12% in 2009.

------------------
Political Violence
------------------

Yemen faces significant, recurring problems with terrorism and
tribal violence. The country has suffered from a number of terrorist
attacks, including the September 2008 suicide attack on the U.S.
Embassy in SanaQa in which 18 people were killed and the October
2000 attack on the U.S.S. Cole in Aden harbor, in which 17 U.S.
servicemen and women were killed. On March 18, 2008, mortars fired
at the U.S. Embassy hit a neighboring girlsQ school, injuring
several Yemeni girls. On January 18, 2008, two Belgian tourists and
their Yemeni driver were killed in Hadramaut governorate in eastern
Yemen. On July 2, 2007, eight Spanish tourists and two Yemenis were
killed in a suicide car bomb attack on their convoy in MarQib
governorate.

The security situation in Yemen continued to deteriorate during
2009. Al-Qa'ida Yemen announced its merger with al-Qa'ida elements
in Saudi Arabia in January 2009, creating al-Qa'ida in the Arabian
Peninsula (AQAP). This strategy of consolidation and greater
organization received significant publicity and demonstrated
al-QaQidaQs reinvigorated recruitment efforts. The creation of AQAP
coincided with fewer attacks within Yemen, possibly due to the
desire of its leadership to use Yemen as a safe haven for planning
of future attacks and recruitment because the central government
lacks a strong presence in much of the country. The governmentQs
response to the terrorist threat was intermittent and its ability to
pursue and prosecute suspected terrorists remained weak due to a
number of shortcomings, including draft counter-terrorism
legislation stalled in Parliament. The governmentQs focus on the
"Sixth War" of the ongoing Houthi rebellion in the SaQada
governorate in the north of the country, which began in August 2009
and had not ceased as of early January 2010, political unrest in
southern Yemen, and internal security concerns distracted its forces
from focusing on counter-terrorism activities.

On March 15, 2009 four South Korean tourists were killed in a
suicide bomb attack in the city of Shibam in Hadramaut governorate.
On March 18 a motorcade carrying South Korean government officials
was attacked by a suicide bomber on the road to Sana'a International
Airport. There were also a number of terrorist attacks against
Yemeni interests in 2009, particularly Yemeni security and military
targets. Revenge for the imprisonment or killing of fellow
terrorists and raids on suspected terrorist safe houses by Yemeni
security forces motivated the majority of attacks on Yemeni
interests. Terrorist elements, either explicitly aligned with AQAP
or offshoot actors, attacked Yemeni targets of opportunity in MaQrib
and Hadramaut in June, July, October, and November, including the
assassination of three high-level security officials. AQAP has
shown signs of financial strain, and Yemeni authorities suspect them
to have conducted the sophisticated, highly-coordinated attack on a
Yemeni bank truck in Aden on August 17, 2009 that resulted in the
theft of USD 500,000.

While attacks inside Yemen decreased in number from 2008, AQAP
launched a daring attempt on Saudi counterterrorism chief Prince
Mohammed bin Nayef's life in Riyadh in August. A known AQAP member,
claiming to seek a royal pardon during Ramadan, succeeded in gaining
access to bin Nayef and detonated a bomb, killing himself but
failing to inflict serious injury on the prince. The suicide
bomber is thought to have crossed into Saudi Arabia via the northern
Yemeni border.

Despite these security challenges, the government did have some
successes in 2009. On January 19, 2009, the Yemeni Counter
Terrorism Unit (CTU) conducted a raid on an al-Qa'ida cell in
Sana'a, which resulted in the death of two suspects, and the capture
of another suspect and a weapons cache, including machine guns,
mortars, and rocket-propelled grenades. In March 2009, Abdullah
Abdul-Rahman Mohammed al-Harbi, a Saudi AQAP member, was arrested in
Ta'iz. Naif Duhais Yahya al-Harbi, another Saudi national AQAP
member, surrendered and Hasan Hessian bin Alwan, a Saudi AQAP
financier, was arrested in June 2009. On December 17, 2009, strikes
were conducted on two significant AQAP sites. Similar strikes
followed on December 24. In the wake of these operations, ROYG
officials affirmed that they will continue to pursue AQAP
operatives.

As Saudi security forces have clamped down on terrorism, and foreign
fighters have returned from Afghanistan and Pakistan, Yemen's porous
borders have allowed many terrorists to seek safe haven within
Yemen. At least 35 known al-Qa'ida operatives, veterans of fighting
in Afghanistan, currently reside in Sana'a. The government lacks a
strong security apparatus outside major cities and its Counter
Terrorism Unit (CTU) and Yemen Special Operations Force (YSOF), the
state's two premier counterterrorism entities, still require
additional training and funding in order to effectively target
terrorist elements. Unfortunately, the government has used the CTU
and the YSOF in Sa'ada to fight the Houthis, which has limited their
capacity to target AQAP. The government's definition of "terrorism"
differs greatly from the USG definition of terrorism. In addition
to AQAP attacks, the government also views the Houthi rebellion in
the north, the southern separatist movement in the south, and piracy
in the Gulf of Aden as acts of terrorism.
Terrorists have also sought to attack economic targets, specifically
in the oil industry, which accounts for more than 70 percent of
YemenQs government revenue. On September 15, 2006, two significant
attacks were carried out on oil installations. The first involved
two explosive-laden trucks detonated at the Canadian Nexen oil
pumping facility at Ash Shahir in the eastern governorate of
Hadramaut, resulting in one death and two injuries among the local
guard force. The second attack occurred at the Safer oil pumping
facility in MarQib, where two trucks carrying explosives detonated.
In 2002, a French oil tanker was bombed off the coast of Mukallah.

Yemen continues to be plagued by frequent kidnappings, which have
traditionally been used as a means for tribes to pressure the
government to accede to their demands for resources or improved
services. Although a government crackdown in recent years has
reduced the number of kidnappings, a couple of high-profile cases
occurred in December 2008: three Germans were kidnapped in the Beit
Bous area of SanaQa and released after one week in captivity and a
South African woman and her two sons were kidnapped in Abyan
governorate in southern Yemen and released unharmed a few days
later. On June 12, 2009, seven Germans, one South Korean and one
British citizen were kidnapped in Sa'ada, likely by al-Qa'ida in the
Arabian Peninsula (AQAP) affiliates. The bodies of three women from
the group were found on June 16. As of yearQs end, the remaining six
hostages were still missing.

Investment projects outside the capital often succeed or fail solely
based on the strength of relations with the surrounding tribes.
Tribes frequently hijack vehicles belonging to foreign companies in
order to pressure the central government to provide additional
social services in the area. Attacks on oil pipelines are
commonplace in Yemen. These types of attacks occur most frequently
in oil exploration and production areas, including, but not limited
to, the outlying governorates of MarQib and Shabwah. Tribes in
these regions claim they are not getting their fair share of
economic activity in their areas, and investors should be very
sensitive to the need to build strong and lasting community
relations. The provision of community-based services, such as
healthcare and education, can contribute to protecting investments
in isolated areas.

----------
Corruption
----------

Corruption is a significant impediment to U.S. investment in Yemen,
since it is nearly impossible for U.S. investors to verify with any
degree of certainty that local partners, the key to any projectQs
success, will comply with the letter and the spirit of the U.S.
Foreign Corrupt Practices Act. U.S. investors should be aware that
Yemeni businessmen have an operating definition of corruption that
differs vastly from one that would satisfy an American corporate
lawyer. Kickbacks and bribes at every level of government and at
every phase of a project are a common way of doing business.
Despite ratifying the UN Convention Against Corruption in 2005,
Yemen ranked as the 154th most corrupt country out of 180 countries
and territories on Transparency InternationalQs 2009 Corruption
Perception Index, compared to 141st in 2008. The poorest country in
the Arab world, Yemen has a hugely overstaffed and underpaid civil
service. One can see ministry employees who make less than USD 300
per month driving luxury cars and traveling abroad in first class.
Potential foreign investors are often approached, either directly or
indirectly through an intermediary, with offers by government
officials to swing a tender or a project license for a Qfee.
Illicit activities include soliciting and paying bribes to
facilitate project approval, leveraging dispute settlements,
changing tax rates and customs tariffs, and engaging in family or
tribal nepotism. Government officials at all levels regularly
approach investors to serve as Qproject consultantsQ for
unjustifiably high rates, a common form of soliciting a bribe that
provides officials with some form of plausible deniability. The
government recognizes that it must enact civil service and
administrative reforms to create disincentives to corruption, but
progress has been extremely slow.

Parliament approved the creation of an 11-member Supreme National
Authority for Combating Corruption (SNACC), an independent body with
the authority to track down corrupt public officials and retrieve
funds obtained through corrupt practices. SNACC is charged with
drafting and implementing anti-corruption policies and collecting
financial disclosure forms from senior government officials. SNACC
can investigate individuals involved in financial crimes and public
corruption and refer them to the judiciary for prosecution. Since
its creation in 2007, SNACC has collected more than 15,000 financial
disclosure forms from public officials and sheikhs and has referred
five corruption cases to Yemeni prosecutors for trial. None of the
five cases had resulted in convictions as of December 2009.

-------------------------------
Bilateral Investment Agreements
-------------------------------

The U.S. and Yemen signed a Trade Investment Framework Agreement in
2004. According to the General Investment Authority (GIA), Yemen
signed three bilateral investment agreements in 2003 and one in
2004, bringing the total number of bilateral treaties to 35. Yemen
has bilateral investment treaties with Algeria, Austria, Bahrain,
Belarus, Belgium, Bulgaria, China, Djibouti, Egypt, Ethiopia,
France, Federation of Russia, Germany, Hungary, India, Indonesia,
Iran, Jordan, Kuwait, Lebanon, Malaysia, Morocco, the Netherlands,
Oman, Pakistan, Qatar, South Africa, Sudan, Sweden, Syria, Tunisia,
Turkey, the UAE, Ukraine, and the United Kingdom. Yemen has signed
initial agreements with Croatia, Mongolia, and Romania. As of early
2010, these agreements have not yet entered into force. For more
information on YemenQs bilateral investment agreements, please see:
www.giay.org or www.investinyemen.gov.ye.

--------------------------------------------
OPIC and Other Investment Insurance Programs
--------------------------------------------

Yemen and the United States signed an investment guarantee agreement
in 1972. As of October 1997, OPIC and EXIM Bank provide guarantees
for both private and public sector projects of short and medium
duration. Yemen is a member of the Multilateral Investment
Guarantee Agency (MIGA). The comparatively short length of export
credit agency repayment terms for Yemen (in EXIMQs case, seven
years) is a significant impediment to the financing of any major
investment project. Potential investors should consult early on
with representatives from OPIC and EXIM Bank regarding the financing
profile of a given project.

-----
Labor
-----

The Yemeni Government generally follows International Labor
Organization (ILO) standards regarding labor laws and worker rights.
In 1999, it ratified ILO conventions on the elimination of the
worst forms of child labor and the minimum work age for employment.
As in other areas, the governmentQs implementation and enforcement
of labor laws is weak. Child labor is an issue of special concern.
Some children work with their families in agriculture. To address
this issue, the government signed an agreement to cooperate with the
International Program on Elimination of Child Labor (IPEC) in 2000.
After ratification of the ILO conventions, the government
established the Child Labor Unit at the Ministry of Social Affairs
and Labor to implement and enforce child labor laws and regulations.
The local pool of skilled labor for technology-intensive ventures
is limited.

There is a high rate of illiteracy in Yemen, and the few students
who complete secondary education or even university studies often do
not possess the same professional standards as their counterparts
from Western educational institutions. University graduates also
experience difficulty finding appropriate employment and are
sometimes unwilling to accept lower skilled jobs. The government is
beginning to focus on increasing access to and improving the quality
of vocational training as a means to develop a cadre of skilled
laborers in high demand fields such as construction workers, medical
technicians, electricians, mechanics, plumbers, and carpenters.

------------------------------
Foreign-Trade Zones/Free Ports
------------------------------

The Yemen Free Zone Public Authority was established in 1991 to
develop the Aden Free Zone (AFZ). Yeminvest, a joint venture
between the Port of Singapore Authority (PSA) and the Bin Mohfoud
Group of Saudi Arabia, was awarded the concession to develop the
area. Dubai Ports World (DPW) now operates the Aden Container
Terminal (ACT) in the AFZ.

ACTQs current annual capacity is 650,000 Twenty-Foot Equivalent
Units (TEUs). The 35 hectare container yard can store up to 10,000
boxes. Yemen Ports Authority recently constructed a new 270-meter
long and 12 meter-deep dock assigned for unpacking the wheat-loaded
vessels. The dock will alleviate burdens of the other seven docks
in the port.

An industrial and warehousing estate called Aden District Park (ADP)
was launched in November 2002. The Aden Container Terminal and the
Aden Free Zone are promising areas for investment. Opportunities in
light industry, repackaging and storage/distribution operations are
welcomed. Future plans include the development of heavy industry
and more extensive tourist facilities in the greater Aden area,
although, as of early 2010, the government had made little headway
in implementing any of these projects.

Free zone incentives include the possibility of 100 percent foreign
ownership, no personal income taxes for foreigners, and a corporate
tax holiday for 15 years (renewable for 10 additional years), 100
percent repatriation of capital and profits, no currency
restrictions, and no restrictions on, or sponsoring required, for
the employment of foreign staff. AdenQs main selling point is its
strategic location Q nine days steaming from Europe and seven from
Singapore. It is four nautical miles off the main Far East - Europe
sea route. For further information, contact: Free Zones Public
Authority (AFZPA), (Main Center) P.O. Box 5842 Khormaksar, Aden,
Republic of Yemen, Telephones: 967-2-234484/5/6, Fax: 967-2-235-637,
e-mail: adenfz@y.net.ye; website: www.adenfreezone.com.

------------------------------------
Foreign Direct Investment Statistics
------------------------------------

As of early 2010, the General Investment Authority had not yet
released foreign direct investment statistics for 2009. In 2008,
foreign direct investment in Yemen totaled USD 1.947 billion, 70
percent of total investment. Most U.S. investment in Yemen is in
the oil and gas exploration and production sectors.

-------------
Web Resources
-------------

United States Embassy in SanaQa, Yemen
http://yemen.usembassy.gov

Export.gov
http://www.export.gov/

Export.gov provides online trade resources and one-on-one assistance
for U.S. businesses who would like to start or expand global sales.

BRYAN

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