Yemen: Investment, Trade, Banking
Trade Regulations and Standards
The government eliminated import licensing in 1996 and cut tariff rates into four bands between 5 percent and 25 percent ad valorum. The government instituted an excise tax on industrial inputs and a production tax on local manufacturers to create a level playing field between imports and local industrial products. The country no longer enforces the secondary and tertiary aspects of the Arab boycott of Israel.
Since July 1, 1996, imports have been valued by customs at the exchange rate determined by the market. Law 37/1997 regulates the new tariff on imported goods. Customs procedures, while improved, remain the biggest trade barrier.
The government eliminated licensing in 1996.
Exports, which are taxed by the government, must be licensed only for statistical reasons. The Ministry of Fisheries limits the export of certain categories of seafood products. Exports of antiques and archeological items exceeding $100 in value are prohibited. Customs officials at the airport often arbitrarily confiscate souvenirs without compensation.
These documents can be obtained from the Ministry of Supply and Trade and/or the ministry governing a company's activities. Health certificates are required to export animal and fisheries products.
Equipment may be brought temporarily into Yemen to work on specific project, but it must be removed after the project's completion. In general, foreign companies use local agents to import the equipment so it can remain in the country for longer periods. If the equipment is sold or remains in Yemen, it will be taxed.
Labeling, Marking Requirements:
Foodstuff and/or pharmaceuticals imported into Yemen must contain the production and expiration date printed clearly on the package. GCC and International standards are followed.
The government prohibits importation of seven items: pork and pork products, coffee, alcohol, narcotics, some types of fresh fruits and vegetables, weapons and explosives, and rhinoceros horn.
Various government organizations are responsible for standards and product quality control, including the Standardization, Meteorology, and Quality Control Organization of the Ministry of Industry, the Customs Authority, and the Environmental Department of the Ministry of Urban Planning.
Yemen belongs to the International Standards Organization (ISO 9000), the Organization of Meteorology International League (OMIL), and the Arab Standards Organization. The Standardization, Meteorology, and Quality Control Organization is responsible for testing imports and can remove them from the market if they do not meet standards.
Free Trade Zones/Warehouses:
The Yemeni government passed its Free Trade Zone Law (number 4) in 1993, and designated 170 sq. km. in Adeas for the first such zone. In March 1996, the government contracted a Saudi company to develop the Aden Free Zone. The Port of Singapore Authority, a minority shareholder, is constructing a modern container terminal and other seaport facilities, a power station, hotel/conference center, new airport, and developing industrial estates. No other free trade zones have been designated.
Yemen's Investment Code (Law 29 of 1997, amended) encourages franchising. Pizza Hut opened its first restaurant in 1995.
The General Investment Authority (GIA), established in March 1992, is responsible for implementing Yemen's Investment Law 22 of 1991. The authority is to promote investment opportunities, license investment projects and assist investors in overcoming impediments.
The GIA is particularly interested in investment projects in the following sectors: agriculture and livestock resources, including fishing; tourism, health, education, technical and vocational training at all levels; transportation; telecommunications; construction and housing; and industry.
As of 1998, there were seven commercial banks operating in Yemen: five private and two public. There are also three public-sector banks specializing in industry, agriculture and housing that operate under the Central Bank of Yemen (CBY). Three Islamic banks opened between 1996-1997.
In February 1998, the CBY allowed the market to set loan and deposit rates above a bottom rate for savings accounts of 10 percent. The year before, the government established a special commercial bank described in the Standby Agreement with the IMF.
Under the guidance of the World Bank, the Central Bank of Yemen (CBY) is considering establishing a stock market in the next few years. Most experts inside and outside the government, however, feel that the country lacks the expertise to do so in the near future. It is also doubtful that enough citizens have money to invest in the market.
Efficient Capital Markets and Portfolio Investment:
In late 1995, the CBY offered treasury bills to the public and received an overwhelmingly positive response. However, commercial banks make up a disproportionately large percentage of T-Bill holders, keeping approximately 30 percent of their assets in the bills. Because there are only a few wealthy and dependable traders with whom the commercial banks can lend, their main alternative source of revenue is T-bill interest. Thus, there is a large and underused pool of cash sitting in CBY coffers that could and should be put to better use.
Expropriation and Compensation:
Article 13 of Law 22 stipulates that "projects may not be nationalized or seized. Moreover, their funds may not be blocked, confiscated, frozen, withheld, or sequestered by other than the courts of law." Real estate can only be expropriated in the national interest, according to the law and court judgement. If it does occur, the owner must be compensated at the market value.
There is no evidence that the Yemen Arab Republic (former North Yemen) ever expropriated property. The socialist-led People's Democratic Republic of Yemen, however, (former South Yemen) did expropriate until the 1990 unification. The government of the unified Republic of Yemen has not expropriated property.
Settlement of Dispute:
As of 1998, Yemen had not yet signed any international conventions on arbitration. Business disputes in the meantime may be handled by informal arbitration or within the court system.
The court system, however, is widely regarded as inefficient and subjective in its judgments. A special court that was established for resolving commercial disputes is presided over by the same judges in the old system. Thus, they still have no power to enforce their rulings. This situation is due to change as a judicial reform process was to begin in September 1998.
The best method is for foreign investors to establish a partnership with a Yemeni familiar with the system, and by including international arbitration clauses in their contracts. In cases involving interest, most judges base their decisions on the Shari’a (Islamic), which prohibits interest payments.
No performance requirements are specified. Incentives include the following: exemption from customs fees and taxes levied on a project's fixed assets; tax holiday on profits for a 7-year period, renewable up to a maximum of 18 years (subject to restrictions specified in the GIA Investment Guide); 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:
Foreigners may freely own property in Yemen. Foreign companies and establishments, however, generally must trade in Yemen through a Yemeni agent. Law 23 of 1997, "Regulating Agencies and Branches of Foreign Companies and Firms," 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 in the following fields: banking; industrial activities (no limitations are specified); oil and minerals; agriculture and livestock, including fisheries; technical and consultancy services; tourism and hotels; and contracting/construction of infrastructure projects such as roads, airports, public utilities and residential settlements.
Foreign establishments wishing to open branches in their own names in Yemen must obtain a permit by decree from the Minister of Supply & Trade, subject to Law 23 and other laws in force at the time of application. However, as a practical matter, establishments should plan to engage a Yemeni partner.
Intellectual Property Rights
Adequate IPR laws have been enacted (law 19 of 1994). The problem is the weak legal system. Influence with the judge and government is often more important than the facts. The country is not a member of WIPO or other International IPR conventions. The country has a record of inadequate protection for IPR, including trademarks and patents.
© 2000 Mena Report (www.menareport.com)