January 15, 2010 / 10:12 AM / 9 years ago

Yemen plans to launch a stock market despite chaos

* Yemen to launch a stock market in one year

* Analysts sceptical given many problems in Yemen

* Government sees it as underpinning economic reform

By Ulf Laessing

SANAA, Jan 15 (Reuters) - It’s a long way from Wall Street to Sanaa, the capital of Yemen, but the poorest country in the Arab world plans to launch a stock market in one year as part of desperately needed economic reforms.

The bourse is a joint enterprise with Jordan, but analysts are sceptical, not only because of rampant corruption but also because the country is growing increasingly violent and the government’s grip appears to be slipping.

Yemen has been making headlines for months with a Shi’ite rebellion in the north, a separatist movement in the south and a fight against a wing of al Qaeda that claimed responsibility for a failed attempt on a U.S.-bound passenger plane on Dec 25.

Analysts say Yemen may become a failed state as poverty spreads and the state’s authority dwindles in parts of the only country in the Arabian Peninsula without major oil resources.

But despite the gloomy outlook, the government plans to set up a bourse to attract investment and try to give its population of 23 million a stake in the economy.

“We just signed a memorandum of understanding with the Amman stock exchange. The Jordanians have helped many countries with a stock market. They are coming to Sanaa at the end of the month to launch the project,” Jalal Omar Yaqoub, deputy finance minister, told Reuters.

“We don’t see it out of context. It fits very well in our situation. People would be naturally sceptical if they look at it as simply establishing a stock market — we look at it as a reform plan. Let’s embark on it,” he said.

Faced with a rapidly rising population, widespread illiteracy, a dependence on oil reserves that are shrinking and depleting water reserves, Yemen has pledged for years to undertake economic reforms but not much has been achieved.

Britain will hold a conference on Jan. 27 to coordinate on counter-terrorism and aid to Yemen but diplomats say one of the biggest obstacles is corruption and a lack of the rule of law.

“Yemen’s judicial system is inefficient and subject to influence from bribes or family connections,” the U.S. government said in its 2009 Investment Climate report.

“While Yemen’s investment-related laws are generally sound, enforcement is problematic at best.”

Few investors outside the oil and gas sector come to Yemen, whose banks have few links with the outside world and do not even control the local economy: Only four percent of Yemenis have a bank account, according to the U.S. report.

According to the central bank, a handful foreign banks are active in Yemen, among them Calyon, the investment arm of France’s Credit Agricole (CAGR.PA) and Qatar National Bank (QNBK.QA).

FANTASY?

While Sanaa hopes a bourse might attract investment in the long term, it believes it will help stabilise parts of Yemen.

“Take the example of Maarib or Shabwa as two oil producing regions. Some of the ideas could be to float shares in some oil blocks and then sell some of these shares at a discount to citizens in Maarib and Shabwa,” Yaqoub said, referring to two regions where diplomats say government control is weak.

“They will then have an interest in stability of the region. They share the responsibility,” Yaqoub said.

The bourse would start with 10-12 private and state firms.

But Yemeni analyst Abdul-Ghani al-Iryani said the project showed the government had no sense of reality as the economy was on the brink of collapse and laws not implemented.

“Before you build a state you cannot organise a regulator,” Iryani said.

Diplomats also said they expected it would be difficult to implement the project with Yemen facing so many other issues. (Reporting by Ulf Laessing, Editing by Myra MacDonald)

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