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Foreign Investment

@ESCWA_TC report – FOREIGN DIRECT INVESTMENT flows to #Yemen 2 Sept 2009


FDI flows to Yemen registered a meagre $415.5 million in 2008, down from nearly $917 million in
2007. In addition to security concerns, the dwindling FDI inflows can be attributed to the international
economic crisis, particularly its impact on oil prices. Tighter credit conditions worldwide and lower oil prices have reduced both the capacity and propensity for foreign investment, thereby affecting overall investments in Yemen. This trend continued throughout the first half of 2009, as suggested by preliminary data from the General Investment Authority of Yemen. Arab countries, including ESCWA member countries, were the major sending region of FDI flows to Yemen, with a substantial share of nearly 95 per cent of total FDI inflows into Yemen in 2008 (see table 5). Countries in Southeast Asia stood up as a distant second, with a 4 per cent share of total FDI inflows. Such a geographical concentration of FDI suggests that there is still a great opportunity for attracting foreign investors from Europe and North America.

In 2008, Saudi Arabia was the top FDI sending country to Yemen, with investments amounting to
$166.5 million and representing some 41 per cent of total FDI inflows into Yemen, followed by Oman,
Lebanon and Kuwait (see figure X). In 2007, among ESCWA member countries, only Saudi Arabia and
Egypt were among the top five sending countries, totalling some 25 per cent of FDI inflows in that year.

In order to develop fully its tourism investment opportunities, the authorities need to increase capital
expenditures in transport and communication infrastructures. Another field that could attract FDI inflows is
the fishery sector, where Yemen has a significant comparative advantage that could help to attract financial resources from abroad and establish joint ventures with local investors.

Despite the direct impact of the international economic crisis on investments in Yemen and the overall
economic activity, investment projects valued at more than $9 billion are scheduled for the period 2009-
2011. The bulk of these planned investments consists of transport and shipping projects. This could deepen the integration of Yemen with its neighbours as well as world markets, which could further attract FDI.

Such projected investments partially reflect the reforms recently introduced by the Government aimed
at enhancing the business environment. According to Doing Business 2009, Yemen was the top reformer
among 181 countries in terms of starting a business given its efforts to streamline the required procedures for start-ups. As a result, Yemen’s rank in the report jumped from 123 in 2007 to 98 in 2008 in the overall
ranking on the ease of doing business. Moreover, a number of laws currently under discussion by the Council of Ministers, particularly the new investment law, could further facilitate the business and investment climate in Yemen. In order to continue its efforts in strengthening the attractiveness of the national economy, Yemen needs to deal with two factors that still hamper investment prospects, namely: (a) the difficulty of gaining credit by businesses, which owes mainly to the lack of disposable information on credit conditions and to weaknesses in the legal rights of borrowers and lenders; and (b) the weak protection of investors.

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