Yemen's crippled economy
Author: Al-Hayat (Pan Arab) Posted March 6, 2015
Up until 1990, Yemen was divided into two parts: the north and the south. The north broke free from Ottoman rule in 1918, while the south became independent of Britain in 1967.
North and South Yemen experienced different political and economic developments. The south enjoyed more urban characteristics and better education than the north, despite the similar tribal divisions in the rural areas of both sides. After North and South Yemen were united in May 1990, Yemen’s surface area reached approximately 528,000 square kilometers (203,862 square miles), and based on the latest population census in 2011, the country accommodated about 24 million people.
However, despite the large population, the GDP did not exceed $40 billion, which means that the average per capita income did not exceed $1,700 per year. In the past few years, growth was negative and improvement of sovereign revenues dropped after the decline in exports of goods. The ability to develop industries or promote agricultural production also decreased. Moreover, after the Iraqi invasion of Kuwait, regional political factors led to a decline in money transfers made by Yemenis working abroad, following the deportation of many from Gulf countries.
Yemeni unity did not have a positive impact on the country, especially on the people of the south. The disputes over the rights issue persisted, and the number of extremists in southern regions increased. This situation crippled the possibility of economic development. The 1994 war between the north and south drained the important financial resources and increased military and arms spending. Moreover, the war and its repercussions worsened economic suffering. In 1997, the International Monetary Fund (IMF) adopted two programs to support Yemen’s economy and to implement economic reforms. One of the two programs aimed at decreasing poverty rates in the country, while the other strove to complete the privatization of various economic activities, to reduce fuel subsidies and government employment, and to create job opportunities in the private sector. These attempts, however, failed.
Attempts to increase the public treasury proceeds through tax collection on sales were unfruitful too, and were met with resistance. Moreover, several factors disrupted reform and development. One of the major problems was related to local political differences and the distribution of regionalist and tribal loyalties. Relations with the Gulf countries — which had constituted a reliable source of economic aid — deteriorated after former Yemeni President Ali Abdullah Saleh took stances supporting former Iraqi President Saddam Hussein and his occupation of Kuwait. Gulf countries were among the most important sources of developmental support for Yemen; they initiated educational and health projects and have funded road projects, power plants and other infrastructure projects since the 1960s.
Agriculture constituted a vital sector in the Yemeni economy, for Yemen exported coffee — which it called mocha after the region that produced it — to many countries. Thereafter, the name mocha was adopted in Western languages to refer to that type of coffee. Furthermore, coffee was grown in the mountainous regions of Yemen, where it has relied on rainwater for hundreds of years. Its cultivation deteriorated over the past decades, though, and Yemenis took to growing qat on the traditional coffee plantations to cater to increasing domestic demand. In 2012, the area planted with coffee was estimated at 34,500 hectares (85,000 acres) while qat plantations covered an estimated area of 162,500 hectares (401,546 acres). Coffee crops reached 19,800 tons, while qat crops reached 190,800 tons.
When discussing agriculture in Yemen, talking about the cultivation of fruits, vegetables, and cotton — all viable options on Yemeni soil — is necessary. Breeding cattle is also possible in Yemen, and there is fish wealth in the territorial waters of the Red Sea and the Arabian Sea. Thus, Yemen can enhance its ability to develop and export food products.
The country also has potential in the oil and gas sector, for oil production reached 133,000 barrels per day in 2014. Gas production amounted to 270 billion cubic feet in 2014, too. However, production is facing security problems, impeding the improvement of exports that could give the country good revenues. Gulf and global companies are trying to invest funds in this vital sector, but political factors and the lack of trust in the ruling administration have caused their enthusiasm to wane.
Yemenis have to methodologically resolve their political situation to be able to use their natural resources, revive the economy and save millions of people from poverty, destitution even. Unemployment in Yemen is estimated at 35% of the total labor force. Another 54% are malnourished. Therefore, life expectancy is 64 at most, a low rate compared to most countries in the world.
These findings emphasize the importance of freeing economic and social development from political pressure and addressing the security situation to achieve stability. It is in the interest of the countries in the region to reach an inclusive political solution leading to national reconciliation and justice for all Yemeni people, in the north and the south, in order to provide appropriate conditions to address economic imbalances. If political harmony is restored in the country, many Gulf Cooperation Council governments and the governments of other friendly countries will provide appropriate financial aid to develop the country and improve its economy.
Read More: http://www.al-monitor.com/pulse/business/2015/03/yemen-crippled-economy-political-security-solution.html