What does Yemen need to resuscitate its economy?

Yemen has promising economic potential in various sectors, including agriculture, industry, tourism, and oil, but any recovery in the country remains subject to political and security stability, comprehensive reconciliation, and national will.

Yemen has promising economic potential in various sectors, including agriculture, industry, tourism, and oil, but any recovery in the country remains subject to political and security stability.
Al Majalla
Yemen has promising economic potential in various sectors, including agriculture, industry, tourism, and oil, but any recovery in the country remains subject to political and security stability.

What does Yemen need to resuscitate its economy?

The history of Yemen can be traced back to the 10th century BC and the Kingdom of Sheba can be found in religious texts.

The country earned the title ‘Happy Yemen’ because of its favourable topography and climate, and rich agriculture. Its expansive coastline touching the Red Sea to the west and the Arabian Sea to the south is also a huge draw.

Since 2014, the country has been engulfed in a gruelling civil war leading to regional interventions and tense relations among regional actors.

The unstable political and security situation in Yemen has naturally disrupted development and aggravated living standards. Meanwhile, its ill-equipped healthcare system struggles to rein in disease outbreaks and epidemics exacerbated by conflict.

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A young man runs after a vehicle of Yemen's Houthi supporters following their participation in a funeral of fighters killed during the ongoing battles between the Iran-allied Houthi movement fighters and Yemeni government forces.

According to World Bank estimates, Yemen’s population reached 33mn in 2021. Its population growth rate is close to 2.4% per year.

Meanwhile, the International Monetary Fund (IMF) predicts that Yemen’s economy will shrink 0.5% to reach a GDP of $19.53bn in 2023, while per capita income will not exceed $573. This contradicts Yemeni government estimates of a 2% growth in 2022 and 2023.

The International Monetary Fund (IMF) predicts that Yemen's economy will shrink 0.5% to reach a GDP of $19.53bn in 2023, while per capita income will not exceed $573.

Despite this bleak picture, there are hopes that a recently brokered Saudi-Iranian détente could lead to an end to the civil war and the silencing of guns. This would give the Yemeni people room to breathe and refocus their efforts on development.

Read more: Reconciliation efforts bring Yemen one step closer to political solution

A resourceful land and people

Yemen is known for its abundant natural resources, agricultural fields, coastal cities, and communication routes with strategically important countries in Arabia and East Africa.

Oil is one of its vital resources. Several oil companies have already shown great interest in the sector, conducting studies and exploration since the mid-1980s.

Interest in oil increased after the north-south unification in 1990, and production has since risen from 69mn to 160mn barrels per year in 2001 before declining to lower rates (approximately 117mn barrels per year between 2002 and 2007).

Pro-government forces walk in the port of the western Yemeni coastal town of Mokha on February 9, 2017 as part of a major offensive to recapture the coastline overlooking the Bab al-Mandab strait.

Read more: Peace in Yemen to breathe new life into Bab al-Mandab

In recent years, production was 350,000 bpd or 128mn barrels per year in 2022. A government report showed Yemen's revenues from oil exports amounted to $739mn in the first half of 2022.

The Yemeni people have also been known to be outstanding professionals, especially in the fields of trade and finance. Many Yemeni migrants in Gulf countries and East Asia, as well as in Britain and the United States, have been able to create private wealth and invest money in vital sectors.

However, Yemeni resources and human potential cannot be tapped without the necessary security and stability to allow them the space to operate safely and freely. 

Read more: Building a viable state fit for Yemeni people to return

The Yemeni people have also been known to be outstanding professionals, especially in the fields of trade and finance. However, this human potential cannot be tapped without the necessary security and stability to allow them the space to operate safely and freely. 

Foreign investment can throw a vital lifeline

Data and figures related to Yemen's economy remain murky due to the political turmoil in the country, as well as the poor performance of government institutions which make observers distrust such data.

However, this doesn't negate the importance of studying the Yemeni economy and figuring out ways to restore its structures and enhance growth capabilities if regional consensus reflects positively on the country.

Since the 1970s, Gulf states – Saudi Arabia, the United Arab Emirates, Kuwait, and Qatar – have sought to support the Yemeni economy and develop its infrastructure through specialised funds or investment in industrial, agricultural, real estate, and oil projects.

Yemeni workers in Gulf countries have also been an important source of foreign exchange flows through their remittances. Any expected recovery in Yemen in the coming years will depend on Gulf support, Gulf private sector investment, and investments by Yemeni expatriates. 

Yemeni workers in Gulf countries have also been an important source of foreign exchange flows through their remittances. Any expected recovery in Yemen in the coming years will depend on Gulf support.

It's important to note here that there is a disparity among the country's regions, where the south remains more open, economically and socially. As a result, many people from Aden and Hadramout have already migrated and worked in Gulf, East Asian, and Western countries.

EU countries, the United States, UN organisations, the World Bank, and the IMF can also finance many educational, health, infrastructure, and possibly other projects in various sectors if stability and security are achieved.

Lost potential…but this can be turned around

But can investment in these sectors boost Yemen's sovereign revenues and exports? When reviewing the economic landscape in the past years, it becomes clear the civil war eroded the country's potential.

Agriculture contributes only 8% of the GDP, at a time when it could play a larger role. For example, decades ago, coffee was one of Yemen's biggest exports. However, coffee production has fallen to 20,000 tons per year due to the war, according to the Food and Agriculture Organization (FAO).

Meanwhile, exports have decreased in recent years to 3,000-4,000 tons per year. The cultivation of coffee and other agricultural products faced several problems, even before the outbreak of the last war.

However, there are still development opportunities in Yemen in a variety of sectors including agriculture, manufacturing, and services.

Yemen also has great tourism potential for people interested in the country's rich ancient history or those who want to experience its untouched nature and diverse terrain. 

Yemen also has great tourism potential for people interested in the country's rich ancient history or those who want to experience its untouched nature and diverse terrain. 

Human development vital

The educational system in Yemen has been greatly disrupted by the civil war. Human development is important and essential to combat the economic deterioration.

 

AFP
Children walk near a mural painted by Yemeni artist Alaa Rubel in the southern port city of Aden, highlighting the victims of the war.

 

Yemenis need to be equipped with the knowledge and skills to find meaningful employment, especially after the destruction of educational institutions which disrupted children's education.

Statistics on Yemen and its economy reflect the country's abysmal situation. International institutions estimate that nearly 80% of the population is below the poverty line.

Meanwhile, the Yemeni riyal's exchange rate has fallen to its lowest levels since the mid-1990s; this decline has naturally accelerated over the past few years due to conflict and instability.

It varies from place to place in the country, ranging in Sana'a from YER 550 to YER 556 to the US dollar, while the exchange rate in Aden is between YER 1,225 and YER 1,232.

There's no doubt that the exchange rate's decline has exacerbated inflation which is reflected in the deteriorating living standards of the population, especially low-income households.

A report by IMF experts, after a visit to Yemen in October 2022, indicated that inflation had risen to 45% while food price inflation had reached 58%.

Meanwhile, the United Nations has warned of worsening food insecurity and estimated that 23.4mn people were in need of food assistance at the end of 2022. Therefore, economic recovery is not sustainable under such miserable humanitarian conditions.

The United Nations has warned of worsening food insecurity and estimated that 23.4mn people were in need of food assistance at the end of 2022. Therefore, economic recovery is not sustainable under such miserable humanitarian conditions.

A turn-around of the country's economic situation requires substantial humanitarian support, lifting citizens out of their dire conditions, reforming the healthcare system, and supporting education.

But is such support enough to recover Yemen's economy? How important is national will and civil consensus in the recovery process?

Without comprehensive Yemeni reconciliation and consensus over the country's political and administrative system, it is unlikely.

What is needed is a comprehensive development strategy comprising short- and medium-term economic plan that should be developed under the auspices of the United Nations, the IMF and the World Bank, and with the support of the Gulf states, the European Union, and the United States.

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