Openness to Foreign Investment
In 1990, the Republic of Yemen embarked on a series of reforms aimed at stabilizing the economy and increasing investment. An International Monetary Fund (IMF) and World Bank-sponsored government economic restructuring program began in 1995. The IMF helped introduce indirect monetary policy instruments, such as open market operations, rediscount facilities and reserve requirements. Since then, Yemen’s macroeconomic factors have largely stabilized. Inflation, as measured by the Consumer Price Index (CPI), declined from 70 percent in 1994 to 11.8 percent in 2005, and preliminary figures show continued double digit figures for 2005 and 2006.
These new policies helped create foreign currency reserves that by January 2006 reached USD 6.3 billion. As of June 14, 2001, the Paris Club rescheduled most of the external debt, which currently stands at USD 4.43 billion, and commercial debt has largely been eliminated through a World Bank grant program. In 2004, the IMF reported Yemen’s debt-to-GDP ratio at 23 percent and its debt serviceto-export of goods and services was 3.6 percent, although the World Bank projects a steady increase in each of these figures over the next ten years.
After adopting key economic reforms in the 90s, progress stalled in 2001. The ROYG took steps to restart reform, partially introducing a General Sales Tax (GST) and reducing petroleum subsidies, both part of the government’s strategic plan to improve revenue mobilization in Yemen. In 2005 the ROYG took the significant step of streamlining tariff policies and is in the midst of a number of administrative and legal reforms in order to comply with WTO standards.
With the implementation of tax incentives for merchants, Yemen’s trade environment is steadily improving but more government focus is needed on privatization and regulatory reform. An April 2004 Presidential directive decreed that land be granted to investors at no cost and that the investment projects enjoy profit tax exemption if the project capital is more than 10 million USD. A privatization program started in 1998 with sixteen enterprises in industry, tourism, and trade. Between 2003 and 2004, 8 companies were privatized, 7 of which in public auction. The remaining company was transferred to the Yemeni Economic Corporation (YECO). Also, according to the technical Privatization Office, in 2005, the government privatized 2 enterprises and is working to privatized 3 more by the end of 2006. Recently, the Yemen government announced it would continue the process of privatization by privatizing 15 factories in 2007. Airport services, cements, and medications are at the top of the privatization list.
The government adopted a policy of uniform treatment for all investors, domestic and foreign in 1992. The lead government agency is the General Investment Authority (GIA), established in the same year. The GIA coordinates between 8 government agencies to identify investment opportunities and viable projects for investors as well as obtains necessary approval needed by government agencies on behalf of investors. Over the last decade, the GIA has cooperated with the World Bank's (WB) Foreign Investment Advisory service to update Yemen’s Investment Law 22 of 1991 (as amended). The alternative Investment Law Number 22 of 2002 was adopted by Parliament on June 2002 and signed by the President on July 20, 2002. Implementation began in October 2002.
As written, the 2002 investment law safeguarded all exemptions and benefits called for in the previous investment law and mandates that the GIA de-emphasize licensing and focus on registration and promotion. Recently, the GIA published registration and tax exemption procedures as well as administrative appeals and disputes procedures on line for foreign and local investors
The law eliminated government and GIA intervention in investment projects and gave wider freedom to investors in running their projects. The law canceled some legal provisions, which provided special exceptions for investors from obtaining import and export licenses from the Ministry of Industry and Trade. The law is intended to encourage local production by reducing customs duties by 50 percent on imported raw materials and 100 percent on raw materials produced locally for agricultural and fisheries projects. Finally, the law canceled some tax categories. This investment law falls under the government’s financial, economic and administrative reform program, and is intended to encourage foreign investment.
Under amended Law 22 of 2002, the GIA registers and promotes investment opportunities. The GIA provides potential investors with an information packet that includes a copy of the investment law, an investment guide summarizing GIA activities, and an application form with instructions. Packets may be obtained from the promotion section, General Investment Authority, P.O. Box 19022, Sanaa, Republic of Yemen (Tel : 967-1-262-962/3 or 268-205; Fax: 967-1-262-964, E-mail: firstname.lastname@example.org ; Website: www.giay.org ).
The GIA welcomes investment in all sectors with the exception of arms and explosive materials, industries that could cause environmental disasters, banking and money exchange activities, and wholesale and retail imports. Investments in the exploration and production of oil, gas and minerals are subject to special agreements (e.g., production sharing agreements) under the authority of the Ministry of Oil and Minerals and do not fall within the purview of the GIA. Investment is open to Yemeni, Arab, or foreign investors acting solely or in partnership on any project.
In November 2004, the government announced the creation of three industrial zones in Aden, Hodaida and al-Mukallah that will concentrate on manufacturing The Executive Order provides for the regulation, management, and supervision of industrial zones.
Conversion and Transfer Policies
Right to Private Ownership and Establishment
Under the 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.
Protection of Property Rights
Bilateral Investment Agreements