As one of the poorest Arab nations, Yemen’s per capita income currently stands at a mere $300. According to UN figures, the country’s poverty rate was 27 percent in 1998. Despite a host of factors impeding significant economic growth, Yemen continues to push forward reforms to improve its dire economic situation.
Among the slew of obstacles, which impeded Yemen’s economic progress in the past, was a civil war, resulting in the unification of its northern and southern regions in 1990. The unification marked the beginning of new financial policies; it also resulted in the inheritance of an enormous foreign debt from the south.
One major impediment to growth has been the nation’s accelerated population growth rate, which in turn offsets any improvement of the GDP or GNP. According to a recent study, nearly 430,000 births occur yearly in Yemen, or some 1,200 every day. These figures translate into an annual 3.4 percent population growth; at this rapid pace, the national population doubles every 19 years.
In addition, the Gulf War, the bombing of the USS Cole in the port of Aden and continued political conflict within the country, have further harmed the country’s fragile economy. When four European tourists were kidnapped and killed in 1999, Yemen’s tourist industry came to a near standstill. The sector had previously been an important means of foreign income for the nation.
Despite these continuous setbacks, the country remained adamant about economic progress. Since the first half of 1995, Yemen has implemented an aggressive economic reform policy, putting the country on a determined path to financial recovery.
Under this program, public enterprises including Yemen Airlines, the Public Telecommunication Company and Yemen’s National Bank were all privatized. Prices and trade were liberalized and local production was shifted to become more export oriented. A value added tax was also introduced, as well as steps being taken to end corruption and protectionism.
Increased economic stability for Yemen was also achieved by strict measures of regulating public expenditures. Increases in the cost of oil have helped further boosted the economy dramatically.
Thus, despite an increase in imports and a negative balance of payments due to the lifting of trade restrictions, the country’s new policies resulted in substantial growth and relative economic stability.
From 1996 until 2000, Yemen experienced a remarkable GDP growth of between 4.2 to 6.1 percent per year. Also, a significant reduction in the state budget deficit, and a decline in inflation were achieved.
Yemen’s economy has been extremely dependent, for better or for worse, on world oil prices. Whereas a decade ago more than one quarter of the country’s gross domestic product (GDP) came from agricultural and fishing revenues, today, oil is taking up a growing part of the national income, with oil production accounting for nearly 68 percent of state income in 1999. Production during the same year stood at approximately 143 million barrels, contributing about 214 billion Yemeni rials ($1.26 billion) to the state budget.
Presently, oil accounts for more than 90 percent of all exports, valued at some YR 134 billion. In 1998, when oil prices dropped by nearly 50 percent, national growth slowed to a mere three percent, while the budget deficit grew from a mere 0.9 percent in 1997 to 5.8 percent. In the long run, however, oil production will be beneficial to the economy.
As result of its policies, Yemen has indeed attained remarkable progress in recent years, and has become one of the fastest growing economies in the Gulf region. According to reports from the World Bank, Yemen’s economy ranks first in terms of progress compared to all its neighbors.
Consequently, several international donor countries have expressed their interest in supporting continued reforms, as well as social safety nets geared at offsetting the negative short-term results of such programs. Russia, for instance, wrote off nearly 80 percent of Yemen’s debt to it in 1999.
Moreover, Yemen’s ever-increasing cooperation with its Saudi neighbor and the United States are promising signs for potential advancement. Future plans lie in revival of the tourist industry, promotion of the container terminal at the port of Aden, and developing the production of liquefied natural gas.
Yemeni authorities have recently approved the nation’s second five-year development plan, from 2001-2005. With a focus on the country’s vast human resources, the program hopes to boost foreign investment, and raise the manufacturing industry’s growth rate to approximately six to 13 percent. In addition, it aims to achieve a national economic growth rate of some 5.6 to eight percent per year. — (MENA Report)
© 2001 Mena Report (www.menareport.com )