The study is divided into two parts. The first part introduces the concept, motives and conditions of investment, while part two looks into the prospects of investment in Yemen.

As there are several economic definitions for investment, the paper focuses on addressing the relation between capital, saving, and investment. Capital accumulation is the basis for any development to be achieved through the role played by saving and investment.

Aggregate investment comprises two types. First is net investment which represents the addition to the original capital so as to increase production capacity, whereas the other type, compensatory investment, is the replacement for depreciated capital that preserves the original level of operating capital.

Investment motives vary from one place to another depending on the investing party. Government investments are often tied to the country’s development plan. They used to concentrate merely on the economic dimension of the investment. However, with evolution of the new development thought, public investment motives broadened to include a set of additional motives such as improving the living standards of the population, to provide basic needs, to upgrade the structure of the national economy, to achieve social profitability, and to create a basic platform that encourages other investments.

Private investment has also been developing along the lines of the new political and economic thought, its mechanisms, its legal framework, and the different types of investment projects. Nonetheless, the objectives and motives are constrained by the project cost, funding resources, adequate return on investment, growth and development prospects. Experience acquisition and new technology can also be considered additional constraints.

Foreign investment has been gaining importance since the early 1980s, especially in the wake of the World Debt Crisis. Foreign investment does not create debt liability nor it is subject to any conditionality of political nature. Such investment is carried out due to the fact that developed countries which possess financial surplus tend to seek investment opportunities elsewhere. At the same time, investment recipient economies offer competitive investment incentives and guarantees. Also, the recent developments in world financial markets and investment channels have created favorable links and mutual benefits among international financiers and investors.

The investment climate is characterized by a group of conditions, policies, and economic and political institutions that convince investors to direct their investment to one country and not to the other. In such climate, psychological, political, legislative, economic, social conditions, and the availability of basic and complementary services interact with each other.

The second part of the study looks at Yemen as one of the promising developing countries in terms of its potential to develop and achieve high growth rates. Yemen possesses many investment potentials in every field. Limited investment, large domestic market and potential export markets, natural resources, and the presence of a legal and organizational investment framework all contribute to the creation of a sound situation for investment.

Yemen’s most attractive investment opportunities lie in the Aden Free Zone. The Zone’s development plan includes several infrastructure projects such as harbor, airport, roads, electricity, water and sewerage. In addition, there are projects in the fields of industry, tourism, and storage. The plan spans over 25 years and projects are to be achieved in stages with a total estimated cost of six billion dollars.

The First Five-Year Plan (1996-2000) foresees total investment of YR 817,8 billion to be distributed among private and government investment, foreign loans, and direct foreign investment. The plan mentions major projects in the field of industrial zones, cement, electricity, tourism, agriculture, fisheries, and services.

As for policies and government measures to encourage investments, Investment Law no. 22 of 1991 grants investors complete freedom as well as equal rights for local and foreign investors, together with a set of incentives and tax holidays according to the type of project. Also, Free Zones Law no. 4 of 1993 grants further privileges and guarantees to investors. Moreover, while the Government’s program has increased capital spending, the Government has also committed itself to review laws and regulations that would provide a more conducive environment to private investment. The Government has started by undertaking the responsibility to: amend the Investment Law, unify the exchange rate, liberalize interest rates, issue treasury bills, amend customs tariff and consumption and excise taxes, eliminate import licensing, establish commercial courts, privatize some public enterprises, and to reorganize the Free Zones Public Authority.