Yemen’s battle for the economy

Economists warn that diminishing natural resources threaten Yemen’s fragile economy.

Unemployment in Yemen runs at 37 per cent and resources are diminishing [GALLO/GETTY]

On a ridge of the rugged brown mountains that encircle Sanaa, the capital of Yemen, Qatari investors are creating a little slice of the Gulf.

“This project will be an icon of quality,” promised Hassan Fadala, deputy CEO of operations at Qatari Diar, the real estate investment company pumping $600mn into Al Rayyan Hills, a luxury residential and retail development perched 100m above the southern side of the capital.

“A turning point for real estate and tourism in Yemen,” said Saad Sabra, chairman of Shibam Holding, the state’s joint venture firm, set up last year to attract foreign investment.

Yemen’s complex reality
By Hashem Ahelbarra in The Middle East Blog

With 172 luxury villas, gated entrances guarded round the clock, a five star hotel, a sky-scraping apartment block and rows of luxury shops set among green trees, the development is certainly unprecedented in Yemen. 

But it cannot quite break the mould. Power and water are in short supply in Yemen, which is the poorest country in the Arab world. Rayyan Hills is unlikely to connect to the mains electricity network because if it did, every villa would need its own generator.

The plan, according to Shibam, is to set up an “individual power plant” for Rayyan Hills, perhaps run on some of the country’s newly-tapped gas resources.

Diminishing resources

And though the developers promise infrastructure that will conserve and recycle water, most experts believe Sanaa will become the world’s first capital city to run out of economically sustainable water supplies in just ten years. 

With its army struggling to put down a determined rebellion by guerrilla fighters loyal to the Houthi clan in the north, renewed calls for secession in the south and al-Qaeda establishing a foothold in the wilds of the east, Western security analysts have raised fears of Yemen becoming the world’s next failed state.

Oil and water depletion could put many at risk in Yemen, the poorest country in the region

But according to government officials and local economists, it is the dismal economy and the drastic depletion of Yemen’s natural resources, such as oil and water, that are the country’s most pressing concerns.

“Everything is about the economy,” said Nidal al-Hyme, a government adviser. “Al-Qaeda exists because of the economy. If you have no work and you are out on the streets with no money anyone can recruit you.”

Yemen’s raw figures would make even the most hardy policy planner’s head spin. Over three-quarters of the state budget, which this year totalled around $8.76bn, according to Mostafa Nasser, chairman of the Economic Media Centre in Sanaa, comes from oil revenues.

Though ministers insist most of Yemen’s land remains unexplored for oil, there have been only limited new discoveries in the past five years and production has fallen from 450,000 barrels per day (bpd) in 2003 to roughly 280,000 bpd at the beginning of this year.

The World Bank estimates that by 2017 the government will earn no income from oil at all.

Economy on the brink

Unicef, the UN’s children fund, reports that nearly half of all Yemeni children are malnourished.

Couple this with unemployment topping 37 per cent – health indicators comparable to Sub-Saharan Africa – and a population growing at one of the fastest rates in the world, and it appears the economy is heading for break down.

Not so, says Jalal Yaqoub, the deputy finance minister and author of a ten-point plan to rescue Yemen’s economy from the brink. Not, that is, if the drastic reforms the plan outlines can be implemented within its schedule of the next 20 months. 

“We are hemorrhaging money on fuel subsidies”

Jalal Yaquob, Yemen’s Deputy Finance Minister

“Declining revenues from oil are the critical issue. Oil production has been going down steadily since 2003 and we have not been able to attract big oil companies to come and search for more,” said Yaqoub. “Also, we are hemorrhaging money on fuel subsidies – one quarter to one third of the state budget.”

And as with most development issues in Yemen, one crisis is inter-connected with another: the subsidised diesel is used in pumps to draw water for agriculture, which accounts for some 90 per cent of water use in the country, most of which goes to growing the mildly narcotic qat shrub.

“Last year we estimate we used one billion litres of diesel only for water pumps around Yemen. Subsidising $0.70 per litre of diesel, the government in effect paid $700mn to subsidise the depletion of water in the country,” said Yaqoub.

Gas powered future?

The plan is to reduce the consumption of diesel by producing electricity from a new gas-fired power station and securing better long terms prices on oil imports.

In the years before the new power station comes online, the government is considering importing up to a dozen gas-fired mobile power stations, which arrive in pieces in shipping containers and can be assembled within a few weeks at sites across the country.

Yaqoub estimates that the state can save up to $250mn on subsidies and fuel imports annually – money which could then be spent on highly visible public works projects to give average Yemenis a feeling their government is working for them.

He insists that consumer prices must not rise as a result of reforms, recalling the day of rioting in 2005 when cooking gas doubled in price and 13 people died. 

Perhaps most radical of the ten points of the plan, which includes conservation of water, developing the port of Aden, enforcing the rule of law and repairing Yemen’s international image, is the aim to attract 100 professional Yemenis, most of them from abroad, into key civil service posts.

The finance ministry, for example, aims to headhunt up to 30 new members to run its operations. With many of those, like Yaqoub, educated in Europe or the US and only having recently returned to Yemen, the vested interests of the powers that be are already calling the move a “silent coup”.

Creating economic miracles

Yemen faces an uncertain future [GALLO/GETTY] 

“They say: ‘Who do these people think they are?’ They call us the shadow cabinet,” said Yaqoub. “But the current cabinet needs to focus on priorities in line with the ten-point plan in order to create economic momentum in the country.”

The ten-point plan was endorsed by Ali Abdullah Saleh, the president, in August and is overseen by his son and potential heir Ahmad Ali Abdullah Saleh. McKinsey, the international consulting firm, has reportedly been hired to assist in the reform process, while US-based Chemonics, a development consultancy, is also in talks on cooperation.

Both the US and UK governments have recently expanded their assistance to Yemen: the UK has quadrupled its development assistance to $83mn per year for the next five years, while the US announced in September that it had signed an agreement with the government to provide up to $121mn for development over the next three years.

Not everyone, though, is convinced Yaqoub and the new generation of technocrats can pull off the economic miracle needed to save Yemen.

“The new blood in Yemen’s economy is not for reform, but to prepare the way for the son of the president,” said Mostafa Nasser of Sanaa’s Economic Media Centre. “The problem is not in personnel but in corruption which has infected all institutions.”

Resistance to the plan is also expected from the powerful tribes, who allegedly carry out kidnapping raids and block major roads to the capital in order to force the government to adhere to their wishes.

The new blood promise a zero-tolerance policy to tribal muscle flexing, but as Yaqoub admits: “We are stepping on so many toes.”

“When we were asleep no one noticed us. Now the president has come with new ideas and there is a rebellion against him by many forces,” said government adviser Nidal al-Hyme.

“They want to change into the Taliban, not into modernisation. But if we don’t change this country who will?”

Source : Al Jazeera

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