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In an effort to save the war-torn nation’s faltering currency and to address a diminishing economy, the Yemeni government announced 10 September 2018 executive measures on reforms approved by the national Economic Committee. The government said it will withhold docking permits for luxury cargo, while reassuring that licenses for fuel shipments and five food commodities - wheat, rice, sugar, milk and edible oil– and medicine will continue being issued.

As head of the legitimate government, President Abdrabbuh Mansur Hadi ordered forming a national Economic Committee presided by presidential adviser and economic and financial expert Hafez Moayad. Barring the entry of non-basic shipments came in an effort to reduce hard currency depletion lost through the import of luxury goods. Economic Committee Head Moayad, in an official statement, confirmed that the committee has devised a mechanism for import processes relevant to five main commodities (wheat, rice, sugar, milk and edible oil), as well as means to resolve the problem facing the oil derivatives market-- both with domestic consumption and the export of surplus.

By early 2017 Yemen was the largest humanitarian crisis in the world and the Yemeni people faced the spectre of famine. Two-thirds of the population – 18.8 million people – needed assistance and more than 7 million are hungry and do not know where there next meal will come from. That is 3 million people more than in January. As fighting continues and escalates, displacement increases. With health facilities destroyed and damaged, diseases were sweeping through the country.

All parties to the conflict are arbitrarily denying sustained humanitarian access and politicize aid. Already, the humanitarian suffering in Yemen was caused by the parties and proxies and if they don’t change their behaviour now, they would be accountable for the inevitable famine, unnecessary deaths and associated amplification in suffering that would follow. Despite the almost impossible and terrifying conditions, the UN and humanitarian partners were not deterred and stepped up to meet the humanitarian needs across the country. In February 2017 alone, 4.9 million people received food assistance. For 2017, the humanitarian community requires US$ 2.1 billion to reach 12 million people with life-saving assistance and protection in Yemen. Only 6 percent of that funding had been received by March 2017.

Macroeconomic balances worsened in early 2014 due to a wave of sabotage activities, leading to serious pressures on the fiscal and external sectors and disruption to economic activity, with GDP growth slowing down to about 1.9 percent in 2014. The outlook largely depends on the political and security situation, and the government’s ability to implement reforms. Gradual recovery of economic activity, projected for the second half of 2014, was expected to continue into 2015 and the medium term.

With the onset of armed conflict in March 2015, real activity collapsed, the country’s human and real capital suffered, large external and internal imbalances emerged, and the fiscal deficit surged. As of April 2016, there were tentative hopes that the conflict could be settled in the near future and security be restored.

As one of the poorest and least developed states in the world, Yemen suffers from weak state institutions with under skilled and under-paid state employees. Yemen has a woeful education system; its elites and its general population are fragmented along geographic, tribal, religious and economic lines, and parochial identities appear to broadly trump a sense of national identity outside of the small and urban technocratic elite.

Yemen faces substantial economic and social challenges, such as a reported unemployment rate in 2013 of nearly 40 percent and, according to the United Nations, a third of Yemenis suffering from acute hunger. Yemen is also undergoing a difficult political transition following mass protests in 2011 that culminated in the end of the 33-year rule of former President Ali Abdullah Saleh. The most impoverished country in the Middle East and North Africa region, Yemen is experiencing a rapidly growing population, which is estimated at about 25 million; increasing scarcity of natural resources, including water, and its primary export— oil—in steady decline; extremely high unemployment; and dwindling revenues that decrease the government’s ability to fund basic operations. Internal conflicts have displaced over 430,000 Yemenis from their communities, and a December 2012 United Nations report found that nearly half of Yemen’s population had limited or no access to sufficient food.

In addition to the United States, bilateral and multilateral donors have provided or pledged billions of dollars in assistance to Yemen. Data from the Organisation for Economic Co-operation and Development show that between 2007 and 2011, more than 35 bilateral and multilateral donors disbursed about $2.7 billion in official development assistance for Yemen. Further, in 2012, donors pledged over $7 billion more in support of Yemen’s transition and development. This included a pledge of about $3.3 billion from Saudi Arabia, the single largest contributor of aid to Yemen. Saudi Arabia provided Yemen with approximately $2 billion in petroleum products earlier in 2012 to help ease fuel shortages caused by attacks on key pipelines.

Yemen’s economy improved somewhat since 2011 but faced continuing challenges. According to the International Monetary Fund, economic activity in Yemen fell by 10 percent and inflation rose to 23 percent in 2011 as a result of the civil unrest, which limited the availability of basic commodities, bank financing, and imports. The International Monetary Fund subsequently reported in December 2012 that the Yemeni economy had improved since 2011 and that the exchange rate had returned to levels experienced prior to the 2011 unrest. Additionally, according to the World Food Program, the inflation rate had dropped to less than 5.5 percent in December 2012.

USAID reported that some gains have been made in improving educational opportunities, increasing school enrollment rates, and decreasing dropout rates, though there is still a reported 50 percent adult literacy rate—73 percent for men and 35 percent for women. Other economic challenges include reduced government revenues and disrupted services due to continuing attacks on oil pipelines and electricity transmission lines, as well as the anticipated depletion of oil reserves — the source of 60 percent of the Yemeni government’s revenue — within a decade.

At unification, both the YAR and the PDRY were struggling, underdeveloped economies. In the north, disruptions of civil war (1962-70) and frequent periods of drought had dealt severe blows to a previously prosperous agricultural sector. Coffee production, formerly the north's main export and principal form of foreign exchange, declined as the cultivation of qat increased. Low domestic industrial output and a lack of raw materials made the YAR dependent on a wide variety of imports.

Remittances from Yemenis working abroad and foreign aid paid for perennial trade deficits. Substantial Yemeni communities exist in many countries of the world, including Yemen's immediate neighbors on the Arabian Peninsula, Indonesia, India, East Africa, the United Kingdom, and the United States. Beginning in the mid-1950s, the Soviet Union and China provided large-scale assistance to the YAR. This aid included funding of substantial construction projects, scholarships, and considerable military assistance.

In the south, pre-independence economic activity was overwhelmingly concentrated in the port city of Aden. The seaborne transit trade, which the port relied upon, collapsed with the closure of the Suez Canal and Britain's withdrawal from Aden in 1967. Only extensive Soviet aid, remittances from south Yemenis working abroad, and revenues from the Aden refinery (built in the 1950s) kept the PDRY's centrally planned Marxist economy afloat. With the dissolution of the Soviet Union and a cessation of Soviet aid, the south's economy basically collapsed.

Since unification, the government has worked to integrate two relatively disparate economic systems. However, severe shocks, including the return in 1990 of approximately 850,000 Yemenis from the Gulf states, a subsequent major reduction of aid flows, and internal political disputes culminating in the 1994 civil war hampered economic growth.

Since the conclusion of the war, the government has entered into agreement with the International Monetary Fund (IMF) to institute an extremely successful structural adjustment program. Phase one of the IMF program included major financial and monetary reforms, including floating the currency, reducing the budget deficit, and cutting subsidies. Phase two will address structural issues such as civil service reform. The World Bank also is present in Yemen, with 19 active projects in 2005, including projects in the areas of public sector governance, water, and education. Since 1998, the government of Yemen has sought to implement World Bank economic and fiscal recommendations. In subsequent years, Yemen has lowered its debt burden through Paris Club agreements and restructuring U.S. foreign debt. In 2004, government reserves reached $4.7 billion.

Current U.S. commercial assistance is focused on aiding the business sector in supporting U.S.-Yemen bilateral trade relations, encouraging American business interests in country, and diversifying Yemen's economy toward non-petroleum dependent sectors.

Following a minor discovery in the south in 1982, an American company found an oil basin near Marib in 1984. A total of 170,000 barrels per day were produced there in 1995. A small oil refinery began operations near Marib in 1986. A Soviet discovery in the southern governorate of Shabwa proved only marginally successful even when taken over by a different group. A Western consortium began exporting oil from Masila in the Hadramaut in 1993, and production there reached 420,000 barrels per day in 1999. More than a dozen other companies have been unsuccessful in finding commercial quantities of oil. There are new finds in the Jannah (formerly known as the Joint Oil Exploration Area) and east Shabwah blocks.

In November 2005, Hunt Oil's 20-year contract for the management of Block 18 fields ended. Despite agreement with the Government of Yemen on a 5-year extension, the Republic of Yemen Government abrogated the agreement via a parliamentary vote (not called for in the contract). The company formally requested arbitration proceedings at the International Chamber of Commerce in Paris in November. No decision has been rendered.

Yemen's oil exports in 1995 earned about $1 billion. By 2005, exports had grown to approximately $3.1 billion and comprised roughly 70% of government revenue. Oil production continued to decline in 2007 due to dwindling reserves, but revenue would be stable as long as oil prices remain high.

Oil located near Marib contains associated natural gas. Proven reserves of 10-13 trillion cubic feet could sustain a liquefied natural gas (LNG) export project. A long-term prospect for the petroleum industry in Yemen is a proposed liquefied natural gas project (Yemen LNG), which plans to process and export Yemen's 17 trillion cubic feet of proven associated and natural gas reserves. In September 1995, the Yemeni Government signed an agreement that designated Total of France to be the lead company for an LNG project, and, in January 1997, agreed to include Hunt Oil, Exxon, and Yukong of South Korea as partners in the Yemeni Exploration and Production Company. The project envisions a $3.5 billion investment over 25 years, producing approximately 3.1 million tons of LNG annually. A Bechtel-Technip joint venture also conducted a preliminary engineering study for LNG production/development. In 2005, Yemen LNG signed two agreements for the sale of 4.5 metric tons per year, the majority of which will be exported to the United States and South Korea. Construction on the LNG export facility began in September 2005, and it was expected to begin exporting in 2009.

The business elite is not as directly important to political stability as tribal and military elites, but their economic clout prevents them from being taken politically for granted. There are two primary types of major business elites: traditional and parasitic. The traditional business elite come from the southern, non-tribal areas of what was once North Yemen. These Shafa'i Sunni businessmen arose in the context of the prosperous and settled agricultural regions of Yemen, and in close proximity to the vibrant market of the Aden Colony, then under British rule. The Hadramawt region, and to a lesser degree, the city of 'Aden, both in the former PDRY, also support substantial traditional business interests. However, because of the civil war, the business elites are politically without clout. Indeed, many of the top businessmen from Hadramawt actually live across the border in Saudi Arabia, where the climate for their businesses is friendlier.

Since the 1970s, and especially since the civil war ended in 1994, Yemen has developed a parasitic business class that derives its wealth from its social and political proximity to state power. Profits come almost exclusively from lucrative state contracts, usually in the absence of competitive bidding. Not surprisingly, the parasitic business elite is heavily tribal and Zaydi. The northern tribes have historically been unable to generate an indigenous bourgeoisie, and their scare business activity was limited to illicit smuggling enterprises (including human trafficking across the Saudi border, a practice that continues today). The effective tribal capture of the Yemeni state has allowed tribal elements to translate their connections with power into state contracts. The most lucrative sectors for the parasitic business class have been construction and public works.

Inefficiencies and inequities in the justice sector, as well as the policy formulation and implementation capacities of the State have created an operating environment that is not conducive to the growth of private enterprise, particularly micro, small and medium enterprises. The increasing concentration of the best agricultural lands in the hands of richer farmers, who typically use less labor per acre than smaller farmers, has constrained the growth of employment in the agriculture sector. Lack of protection and support for the manufacturing sector and the greater ease of making profits from trading has led to a situation where the share of manufacturing in total employment has remained unchanged over the past decade. The youth in particular face tremendous hurdles in getting jobs, as they are saddled with sub-optimal growth of their productive potential due to prevalent child malnutrition, limited and poor quality of general and vocational education, high prevalence of communicable disease and dilapidated health facilities. This has lead to high youth unemployment rates, which if left unchecked will exceed 40% within a decade and could lead to political instability.

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Page last modified: 12-09-2018 18:57:12 ZULU