Yemen: A General Business Law Overview

Yemen: Opportunities and Risks for International Investors

Yemen presents one of the few remaining frontier markets in the Middle East. The economy is underdeveloped, infrastructure is limited, and most sectors require large-scale modernisation. These conditions, while challenging, also provide scope for investors willing to accept higher risk in exchange for significant long-term returns.

Investment incentives under Yemeni law

The principal framework is Investment Law No 22 of 2002, as amended. It provides a number of investor-friendly guarantees, including:

• equal treatment for local and foreign capital;
• permission for 100% foreign ownership of businesses and land;
• multi-year tax exemptions and customs duty relief;
• the right to repatriate profits and capital abroad; and
• jurisdiction of specialised commercial courts for investment disputes.

While these provisions are attractive in theory, their practical value depends on how effectively they are enforced in Yemen’s current environment.

Political and legal context

Yemen’s governance is fragmented, with two authorities – one in Aden, the other in Sana’a – issuing regulations and claiming legitimacy. Both operate outside the strict confines of the 1991 Constitution, but their positions have been reinforced by transitional arrangements, from the GCC Initiative in 2011 to the formation of the Saudi-backed Presidential Leadership Council in 2022.

In practical terms, the country now functions as two parallel states. There are effectively two presidents, two governments, two parliaments, and duplicate ministries and public entities. Each operates separately within its own territorial control, and each asserts its claim to national legitimacy. This dual structure has produced overlapping legal systems, competing fiscal demands and conflicting regulatory frameworks.

For international investors, the consequence is a lack of unified legal authority. Licences, permits and contracts issued by one administration may not be recognised by the other. As such, all transactions must be approached on a territorial basis, with thorough due diligence into which authority controls the relevant area and how far its decisions carry weight beyond its territory.

Operating terrain

The political order is fractured. Authorities in Aden and Sana’a both issue rules, licences and decrees. Neither operates fully within the 1991 Constitution, although each has been given political cover through transitional agreements – such as the GCC Initiative and, later, the Riyadh-announced Presidential Leadership Council.

For investors, this means that:

• a licence granted in one city may not be recognised in another;
• parallel ministries create duplication of regulatory requirements;
• judicial rulings are inconsistent, although some judges are respected for their independence; and
• public administration varies widely in quality, with some bodies being more professional than others.

Despite these challenges, Yemen maintains engagement with The World Bank, IMF, IFC and donor states, which arguably provides external anchors and signals a degree of international confidence in Yemen’s long-term economic potential.

Key legal and commercial risks

• Contract enforcement – domestic courts can be unpredictable and subject to interference.
• Regulatory fragmentation – investors may face contradictory approvals or tax demands from rival authorities.
• Property rights – land ownership disputes are common and title records may lack reliability.
• Currency exposure – dual central banks and exchange rate volatility complicate profit repatriation.
• Security and force majeure – conflict and political instability can disrupt operations unexpectedly.

Recommended strategies for clients

• Arbitration and governing law – insert binding international arbitration clauses (ICC, LCIA, UNCITRAL). Yemen is party to the New York Convention, allowing the enforcement of awards abroad.
• Risk insurance – obtain political risk coverage through MIGA, OPIC or regional export credit agencies to protect against expropriation, inconvertibility and conflict-related losses.
• Corporate structuring – base holding companies in stable regional hubs such as Dubai or Djibouti to ring-fence Yemeni operations.
• Banking safeguards – utilise offshore escrow accounts and correspondent banks to reduce reliance on the fragmented local financial system.
• Land and property verification – conduct independent title checks. Where ownership is uncertain, consider long-term leases in place of outright purchases.
• International partnerships – align with donor-funded or World Bank/IFC-supported projects to enhance credibility and reduce counterparty risk.
• Local legal support – engage trusted Yemeni counsel to navigate parallel jurisdictions and ensure compliance with both Aden- and Sana’a-based authorities.

Conclusion

Yemen offers a rare mix of open statutory incentives and high structural risks. The fragmented governance landscape, competing administrations and institutional weaknesses mean that investments must be carefully structured. Yet for clients with a long-term outlook, Yemen remains a frontier market with the potential for significant first-mover advantages.

By applying robust contractual protections, using regional holding structures and relying on international safeguards, investors can arguably reduce exposure while positioning themselves for growth in a market that still awaits large-scale development.