Yemen reported an average annual growth rate in the range of 3-4% from 2000 through 2007. The share of the non-oil sector to the total country’s GDP grew in 2006 to 66.2 percent from 64.4 percent in 2005. The country is trying to diversify its earnings. In 2006 Yemen began an economic reform program designed to strengthen the non-oil sectors and encourage foreign direct investment. International donors pledged about $5 billion for development projects. In addition, Yemen has made some progress on reforms over the last year that will likely encourage foreign investment.
As a result of the program, economic development is sustained for the years to come.
Yemen nominal GDP grew by 13.5 percent in 2007 and expected to grow by 14.5 percent in 2008 (Figure 1)
Figure 1: Yemen nominal GDP, 2004 – 2008*
Source: IMF
* Estimates (2007 and 2008)
In 2007, services sector dominated the Yemen’s economy with 47 percent of GDP, followed by the manufacturing sector (41%) and the agriculture (12%).
Figure 2: Yemen economic structure, 2007
Source: Yemen Ministry of Planning & International cooperation
Investment climate
Yemen enjoys a strategic geographical location at the southwestern tip of the Arabian Peninsula and Asia overlooking the Bab Al Mandab Strait controlling the entrance into the Red Sea.
The government during the second half of the 1990s has created conditions conducive for investment. An Investment Law no. 22 for 1999 has been issued so as to create an institutional and legal infrastructure providing a confidence base for investors.
The law granted foreign Arab investors equal rights as Yemeni. The law provides the following incentives:
exemption from tax and custom fees on project fixed assets; exemption from profit tax for 7 years extendable to 16 years according to clear and specific conditions; exemption from real-estate tax and taxes imposed on capital and contract documentation fees; exemption from proceeds of licensing on technology use for 5 years; the right for ownership of land and buildings, etc.
Despites this attractive investment incentives, there are, however, a number of barriers to foreign investment in Yemen such as limited factor productivity, and the low economic freedom (Yemen was ranked 125 in the Economic Freedom Index 2008). These are serious challenges to the Yemeni government, but the current business environment provides certainly interesting incentives and rewards awaiting first movers.
Yemen trade relation with UAE
In 2005, Yemen total foreign trade with GCC countries totalled $ 2.1 billion, out of which about 78 percent were imports from GCC countries and only 22 percent, were exports/re-exports to the GCC countries indicating that the trade balance is in favor of the GCC countries. UAE have the higher share within GCC countries. In 2005 UAE contributed with more than 50 percent in the GCC trade with Yemen.
During the period 2002-2006, UAE total trade with Yemen increased by annual growth rate of 20.6 percent indicating the potential growth of this destination. In 2006, re-exports from UAE to Yemen accounted for 52.3 percent of UAE total trade with Yemen and during the last five years, UAE exports grew by annual average rate of 17.5 percent (figure 3)
Figure 3: UAE re-exports to Yemen, 2002-2006*
Source: UAE Ministry of Economy
* Not including free zones data
Currently Yemen is negotiating membership in GCC, and expected to join by 2016. The expected integration of Yemen into GCC will broaden the investment opportunities of UAE.
UAE investors can improve their market share in Yemen by increasing their exports/re-exports as Yemen will represent an additional gate to the neighboring African countries.
Finally the Aden Free Zone provides diversified investment prospects in different sectors e.g. Industry and energy (except oil, gas and mineral exploration that are governed by special agreements); agriculture and livestock including fishing and fish culture; tourism; health care; education and vocational and technical training; transport and telecommunication and construction and housing implying more opportunities for UAE investors.
