Yemen: Economic X-Ray of a Chronic Patient

Written by J. Comins

Translation: María Blanco Palencia

The conference for national dialogue in Yemen will start in mid-November. In the agenda, which was established in general by the implementation mechanism of the Gulf Cooperation Council Initiative (GCCI), are issues related to politics, territory and security. However, the agreement to channel the reconstruction and development of the economic system are going unnoticed despite the worsening symptoms with the years. In reality, the so-called Arab spring has not but aggravated the symptoms and drawn attention over structural deficiencies of a clinically dead economy. 

The political and social crisis is affecting the economical growth of Yemen. According to The Economist,the Gross Domestic Product –in real terms– experienced a contraction of 10.5% in 2011. This was partially due to the decrease of oil production caused by the deterioration of security conditions[1]. More precisely, sabotages to energetic infrastructures have become constant since the start of anti-governmental protests. Precisely, the last attack was carried out on the 30 October against a gas pipeline of the LNG (Liquated Natural Gas) Project, situated 30 Kilometres south of Safir gas camps in the eastern province of Mareb. 

Yemen has been dogged by serious structural deficiencies that place it in an extremely vulnerable position. The main problem is the rentier economy which depends on benefits derived from the extraction and sale of hydrocarbon. In fact, black gold exports represent over 90% of the total and result in 75% of the State’s budgetary income. Given that Yemen is not an export giant, public funds suffer immediately from sudden changes in production and fluctuations of oil prices in international markets. Consequently, it is exposed to a strong lack of macroeconomic equilibrium which makes it quite dependent on foreign aid.

Moreover, the absence of a modern and diverse economic system which relies on productive investments does not enable the country to generate enough employment, especially taking into account that the majority of the population is young. Consequently, a large sector of society is excluded from economic activities and hence its access to basic goods and services is limited. The World Bank estimates that, since 2010, the rate of unemployment has doubled and reached 29% at the end of 2011 –60% among youth. In the same period, the percentage of the population living under the national poverty line has increased from 42 to 54.5%. 

Another system’s failure, which adds to the ones already mentioned, is patronage. Yemen’s transition in the 80s and 90s was marked by an economic transformation. The end of the so-called economy of remittances and the discovery of oil in marketable amounts increased governmental interference in economic issues and the regulation of the State’s main actives. Since then, some groups[2] were favoured by the issue of licenses for the exploitation and distribution of energy resources and, recently, for the marketing of internet and telephone services.

Under the slogan “Recovering our wealth”, young Yemeni revolutionaries try to pressure the Government and cancel unfair agreements with foreign multinationals. Their first achievement was the cancellation of a contract signed in 2008 with Dubai Port World (DPW) where the Executive –presided by Saleh– gave the company the management of Aden Port for a period of one hundred years. The cancellation is due to the fact that the company has not been able to meet acquired commitments, according to declarations of Waed Bathib, Yemeni Minister of Transport, to Reuters. These commitments included reviving the port’s infrastructure and increasing the capacity of shipment of containers, and they should have been achieved before December 2011. 

Although the Yemeni Government seems determined to get rid of the corruption burden, it seems clear that it will not carry out a change in the deficient economic model. As recently stated by President Hadi, attracting foreign investment to gas and oil sectors, two pillars of economy, constitutes a national priority. LNG Project constitutes one of the main investments of the history of Yemen, although it is expected that benefits will be lower –one fifth– of those generated by oil. National priority, foreign interests or resistance to change? What is certain is that this country faces a paradoxical economic horizon: the poorest economy of the Arabian Peninsula and the Arab world seems condemned to the rentier system.

[1] Last year’s production increased from 270,000 barrels per day (b/d) in the middle of 2010 to 140,000 b/d in the first term of 2012.

[2] Among them are great foreign companies and the country’s main elites: technocrats, high rank officials of the security services, tribes, and political representatives from the dominant party, the General People’s Congress (GPC), and the opposition group, Common Encounter (CE).

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J. Comins

J. Comins is a political scientist specialising in Diplomacy, International Relations and Security. In recent years, he has served with the United Nations peacekeeping missions in the Central African Republic (MINUSCA) and Mali (MINUSMA), and also worked as safety advisor for the International NGO Safety Organisation (INSO) in Afghanistan. He occasionally contributes analysis to the Spanish Institute for Strategic Studies (Ministry of Defence) and the International Security Studies Group (GESI) at the Department of Political Science of the University of Granada.

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