One-on-One with President of the Yemeni Association of Certified Public Accountants Ramzi Al-Ariqi:”Companies involved in corruption should be Black listed” [Archives:2007/1025/Business & Economy]

February 15 2007

Corruption is one of the main factors curbing the development of Yemen's economy and the main tool to detect and tackle corruption is accounting and auditing, a practice in spite of its importance is being ignored by both policymakers as well as the business community. Yemen Times met with Ramzi Al-Ariqi, President of the Yemeni Association of Certified Public Accountants.

Interviewed by Raidan Al-Saqqaf

[email protected]

Please brief us on the role of your association in regulating accounting and auditing methods, standards and practices in Yemen.

The practitioners in Yemen work under the guidance of the current law of the accounting and auditing profession. However, our association, as per the law, does not play any role in setting the accounting and auditing standards in the country, and this task was given to the High Council of the Accounting and Auditing Profession in Yemen. And since 1999 this council has not been formed yet. The High Council was supposed to be an oversight governor body responsible for setting the accounting and auditing standards followed in the country, and operates also as a monitoring body for the accounting profession, but till now it has not been formed.

How about other countries?

There is a different role for such associations in various parts of the world. In the U.S. or Europe such associations have a major rule in setting the accounting and auditing standards and setting the best practice that should be followed, for example in the U.S. the American Institute for Certified Accountants play this role and issue the accounting and auditing standards to be followed by its members and affiliates. In some Arab countries like Egypt and Jordon the associations play a big role in setting the accounting and auditing standards. However, in Yemen at the time of issuing the Accounting and Auditing Profession Law in 1999, our association and the government were not on the best terms and as a consequence they reduced the role of the association in setting the standard and gave that authority for the High Council which never existed.

From your experience, how would you describe mechanisms of corporate governance among leading Yemeni corporations and trading groups?

Corporations in Yemen are mostly a one-man show; there are several companies with good corporate governance mechanisms in place here in Yemen, but most of the corporations and trading groups are a family business and therefore are dominated by one person – sometimes the father of the elder brother, so it's mostly a one-man show with it comes to governance. Even with the current laws in place with regards to public companies and also the limited liability companies, but still corporate governance mechanisms, although in place, are not completely enforced, and as a result the one man who is running the show has dominant and unquestionable authority and this creates problems in many companies and there isn't sufficient protection for minority shareholders here in Yemeni regulations as well as practices.

How does this affect International Investments?

This is a critical point for establishing partnerships especially for partnerships between local and international investors, and it depends on who has the majority of shares in the company, if the International Investor is the majority shareholder then he is entitled to formulate a management and governance mechanism he sees fit, and the same applied for the Yemeni investor if he is the majority shareholder. There are cases where you find the international investor is very happy with how the local partner is running the company, but there are many other cases when international investors cannot cope with the Yemeni ways of management and governance and therefore they withdraw from joint ventures with Yemeni partners.

Having said that, I must elaborate that as per the investment law international investors need not involve themselves in joint ventures with Yemeni partners in many sectors of the economy, in fact they can establish Greenfield ventures in Yemen maintaining 100 percent of ownership with them. You see, the prime issue with regards to investment in Yemen is not the ownership stake or the partnership with local investors, the prime issue is the investment environment in Yemen and the fundamental setbacks it has.

As an auditor yourself, Have you detected any cases of corruption or improper economic management and how were these cases handled?

I think this is a case that takes place in any country, not only Yemen. Corruption exists in many countries, but the magnitude of corruption is the issue that differentiates Yemen per se, but corruption is far less evident in the private sector compared to the public sector in Yemen and I think it is an issue relating to the sense of ownership, as I mentioned most companies in Yemen are family businesses and you would fight very hard to eradicate corruption in your own company because you have a stake in it, but the same sense of ownership does not exist within government circles.

Addressing the other part of your question, corruption cases within the private sector depends on the philosophy of the management. Many businesses in Yemen take severe actions and punishment against cases of corruption detected to ensure that this corruption won't be repeated in the future, especially if it was a case of embezzlement of money or resources of the company. The real issue of corruption within the privet sector is in the way of doing business; when corruption takes place as a directive from the management of the company, for instance with the company is trying to get business from the government or other companies, companies are willing to pay bribes and commissions to officials and otherwise, and they look at this practice not as corruption but as a part of doing business in Yemen.

I also don't think that there are enough or sufficient regulations to punish companies which deal in corruption and grow corruption within the country. For instance if there is a constructions company which have been discovered as being involved in huge cases of corruption with the government in one of the projects, you will find that the same company is still being awarded more projects. If the government is serious in tackling corruption then it should blacklist all such companies and never award them any more government projects, you would be surprised to see how efficient such a policy would be in combating corruption as it would make involvement in corruption and paying bribes an unprofitable strategy for the privet sector and therefore limit the damage of corrupting business. But so far this notion is outrageous by many officials.

The government of Yemen exerts efforts towards regional economic integration with Gulf States as well as joining the WTO. Are there any efforts to harmonize accounting and auditing standards and practices with the counterparts in the region or in an international level?

Actually when you study the accounting and auditing standards of GCC countries you would find that most of them have already adopted the International Accounting Standards and International Standards on Auditing, and I think that Yemen should adopt the International Accounting and Auditing Standards just like many other countries in the region and beyond.

However, until now, there is no movement in this direction despite the fact that the international standards have been adopted by the Central Bank in its dealings with commercial banks in Yemen, but for other companies and the proposed stock market we must adopt the international standards as soon as possible as we do not have the financial or human resources to develop our own standards. I believe that we will eventually adopt the International Accounting and Auditing standards but before we adopt them the government must first formulate the High Council for Accounting and Auditing Profession to oversee the process.

One of the main claims of Yemeni businessmen against the 2001 General Sales Tax and the proposed taxation mechanism is the additional costs involved. How valid is this argument?

No, I don't think that cost is the major issue here, I think there are many issues behind rejecting the General Sales Tax Law, the law resulted in a lot of discussions behind closed doors but the real issue is not the cost, the real issue is transparency and mistrust between businessmen and the Tax Authority, because the law requires full transparency in dealings between the businesses and the Tax Authority, and such high levels of transparency required by the law are unacceptable by many businessmen and they are happy with status-que. On the other hand, as the law requires full transparency from the private sector, there should be reconsideration of current corporate tax rates and full transparency from the Tax Authority and its employees in dealing with the taxpayers.

Minister of Finance Saif Al-Asali promised to establish a stock exchange in Yemen in the near future. Is Yemen ready for a stock exchange?

Again we are talking about finding the proper environment for establishing the stock market to ensure proper success for the stock exchange. One of the factors critical for the success of a stock market is setting the accounting and auditing standards, which will provide the disclosure required for a stock market. And therefore I don't see that we can establish the market in the near future. First you have to 'fix' the accounting and auditing profession, establish proper accounting laws and regulations, and Al-Asali is aware of this because he was brought-in many missions from abroad to help them in this regards and he knows precisely what is needed to establish the stock exchange. Especially when it comes to preparing several corporations to be listed on the stock market, as it is a valid question to ask if Yemeni corporations may be willing to be listed on a stock market.

Is Yemen an attractive destination for investments? How would you describe the administrative efficacy of the government in dealing with new investments and multinational corporations wishing to expand into Yemen?

Investments do not only require proper laws and regulations alone, as a strong legal framework is only one of many factors that make a country an attractive destination for investments. For instance infrastructure is an important factor, consistency of laws and regulations, review the taxing policy, as the income tax in Yemen of 35 percent is one of the highest in the region. Despite the fact that the investment law gives exemptions for seven years, but after the seven years period 35 percent is considered relatively high compared to other countries in the region, there are countries which give tax exemptions for fifteen years and after that the income tax is still lower than that of Yemen. I think that what they need to do is to change the attitude and mentality in dealing with local and foreign investments, and that the Investment Authority should have the power and should be a real one-stop shop for investors. It is equally important to have a sense of understanding of business orientation, as the Investment Authority still suffers from bureaucracy and it needs to become more efficient in handling the requests and demands of investors.

How can Yemen become a better investment location?

Attracting investments, fighting corruption and enhancing economic growth are all components in one package, if you are fighting corruption, enforcing a strong legal framework, efficient in dealing with investments, all these factors would help speed economic development of Yemen, but ignoring any one of these issues would not result in sustainable economic development.