YEMEN

COUNTRY OVERVIEW

LOCATION AND SIZE.

Yemen is located in the Middle East at the southern end of the Arabian Peninsula. The Arabian Sea, the Gulf of Aden, and the Red Sea bound its south and west. It is also bordered by Saudi Arabia to the north and Oman to the east. Yemen also includes the island of Socotra in the Indian Ocean, and the Kamaran group in the Red Sea. With an area of 527,970 square kilometers (203,849 square miles) and a coastline of 1,906 kilometers (1,184 miles), Yemen is slightly larger than twice the size of Wyoming. The capital city, Sanaa, is located in the west. Other major cities include Aden in the south and al-Hudaydah on the Red Sea coast.

POPULATION.

With a population of 18,078,035 (est. July 2001), Yemen is one of the most populous countries on the Arabian Peninsula. The 1990 population estimate was only 11.88 million. The population growth rate in 2000 was estimated at 3.36 percent, but is expected to drop significantly in the coming decade. With a projected growth rate of 2.8 percent between 2000 and 2015, the population is expected to reach 36 million by the year 2029. The majority of the population are Muslims of the Sunni Shaf'i and the Shi'ite Zaydi traditions. There is also a small minority of Jews and Christians.

Yemen's population growth is very high by world standards, and the highest in the Middle East. The population is generally young, with some 50 percent below the age of 15. About 25 percent of the population live below the poverty line, up from 19 percent in 1992, and the average annual income is less than US$400. Widespread malnutrition and diseases make the infant mortality rate in Yemen one of the highest in the region. An estimated 38 percent of Yemenis age 15 or older could read and write in 1990. Among women, the rate was only 26 percent.

OVERVIEW OF ECONOMY

Yemen's domestic economy is largely dependent on oil, which accounts for about 85 percent of export earnings and 75 percent of government revenue. Yemen's oil reserves, however, are small in comparison to its larger oil-producing neighbors, such as Saudi Arabia. Oil reserves are concentrated in the north and south, with the southern field of Masila being the largest, followed by the Ma'rib field, also in the south. Agriculture, the second largest sector, accounts for 20 percent of real gross domestic product (GDP) and employs over half of the labor force. Higher oil prices fueled GDP growth of 2.8 percent in 1999 and 6.0 percent in 2000, and that upward trend is expected to continue in the coming years, barring a drop in oil prices.

Yemen entered the 20th century as part of the Ottoman Empire, administered by officials appointed by the Ottoman sultan based in Istanbul. For most of the 20th century Yemen was divided into 2 separate states: South Yemen and North Yemen. South Yemen was carved out by the British, who had established a protectorate area around the southern port of Aden in the 19th century. The British withdrew their forces from Aden in 1967. In 1970, when the government declared a Marxist state in the south, hundreds of thousands of Yemenis relocated to northern Yemen. North Yemen became an independent state in 1918, after the collapse of the Ottoman Empire.

In 1990, after years of hostilities and occasional conflict, north and south Yemen formally united to form the Republic of Yemen. Since unification, the country has struggled to overcome the legacy of the civil war that broke out between the north and the south in 1994, and to reform the economy. In 1995, Yemen launched an economic reform program in coordination with the International Monetary Fund (IMF). By the end of the 20th century, however, Yemen still had not created a vibrant economy or diversified its sources of income. As a result, Yemen remains dependent on oil revenue and on international lending agencies for financial assistance.

Yemen's economy is an underdeveloped free market economy with limited state control. Despite political violence, it has a fairly stable multiparty system and enjoys the support of the United States and the European Union. The economy's main exports are cotton, coffee, and dried and salted fish, but oil remains by far the largest single contributor to the national economy. Agricultural products account for one-fifth of GDP. Industry and mining, which are concentrated in Masila in the north and Ma'rib in the south, account for approximately one-fifth of GDP. Limited manufacturing, retail trade, and services are centered in the urban centers of Sanaa and Aden. Because of its limited productive capacity and industrial base, the country is heavily dependent on imported goods and on foreign debt relief and assistance to sustain its struggling economy.

Neither the agricultural sector nor the oil sector is capable of providing enough jobs to counteract long-standing problems with unemployment, which is exacerbated by rapid population growth. Unemployment reached 35 percent in Yemen during 1998, while the unemployment rate in the United States was just 4.2 percent in 1999. Despite the government's efforts to address the problem, unemployment will continue to present a serious challenge to the government for a long time to come.

Yemen's economic difficulties—sluggish GDP growth and high unemployment—have traditionally been offset by remittances from Yemeni workers abroad, and foreign aid from neighboring countries, especially Saudi Arabia. The Saudi government, however, both expelled Yemeni workers and cut off aid in 1990, due to Yemen's support for the Iraqi invasion of Kuwait that started the Gulf War. The country has also sustained a heavy foreign debt as a result of the 1990 unification, which, at its peak in 1990, was valued at almost twice the gross national product. Unable to make its debt payments, Yemen was forced to reschedule its debt to the Paris Club (a grouping of country creditors that extends loans to poor developing countries) in 1996. However, foreign assistance in the form of grants and loans, mainly from the United States and Europe, has alleviated the country's debt burden.

Corruption is a major problem in Yemen, and is especially so in the overstaffed and underpaid government bureaucracy. Chief illicit practices include soliciting bribes, evading taxes, and nepotism (favoring relatives, especially in hiring). The government has taken a tough stand against corruption, but with little success.

POLITICS, GOVERNMENT, AND TAXATION

Since independence, Yemen has been ruled by one party, the General People's Congress (GPC), which holds an absolute majority in parliament. The party is liberal and committed to reform. The emerging multiparty political system coexists with a feudal tribal system, and suffers from a legacy of deeply embedded rivalry between the north and the south. Until its unification with North Yemen, a Marxist-oriented government dominated South Yemen, and its economy was in ruins at the time of unification. For the first 3 years after unification in 1990, the country was governed by a transitional legal code under which the government was a hybrid of the pre-unification cabinets and parliaments of North and South Yemen. Before the 1994 civil war, the Marxist Yemeni Socialist Party ruled South Yemen. Its role diminished greatly after its leaders were sent into exile by the northern government as a pre-condition for peace.

Following the marginalization of the Socialist Party, the government was able to launch an economic reform program in 1995, which was formally endorsed by the IMF in 1997. The program stipulated deep spending cuts and the privatization of numerous state-owned facilities, including the National Bank of Yemen, the Yemen Cement Company, and Yemenia airlines, among other state-owned enterprises. It also aimed at keeping inflation levels low and encouraging foreign investment in the country. Although some progress has been achieved in the areas of cost-cutting and expanding the government's revenue base, the overall performance of the economy has been rather weak.

Taxes are an insignificant source of government revenue. As a result of the reform program, however, the government has attempted to improve its tax revenue collection system by computerizing its customs clearance at ports and airports. The government, however, has been largely reluctant to reform the income tax system in line with the IMF's recommendations. These efforts have been complicated by economic and political uncertainties, such as high unemployment rates, widespread poverty, and a high incidence of political violence. As a result, dependence on the oil sector for revenue is likely to persist.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Yemen's infrastructure is relatively poor and underdeveloped. The country is serviced by a network of over 67,000 kilometers (41,634 miles) of primary and secondary roads, only 7,700 kilometers (4,785 miles) of which are paved. Southern Yemen's road system is in especially bad condition, as parts of many roads are washed away by flash floods and heavy rains. As a result, the country's road system constitutes a serious obstacle to economic development. There is no railway system.

Yemen has 5 major airports: the Sanaa, Aden, Rayyan, Taiz, and Hodeida airports. Renovation of the Sanaa and Aden airports began in 2000. Yemenia airline is the country's official airline and is largely protected against foreign competition. The carrier is slated for privatization, but the government has been reluctant to sell its 51 percent share in the airline. Yemen has 6 ports. With the exception of the Port of Aden, all ports experience delays in loading and unloading. Most domestic activity is concentrated at the Port of Hodeidah. Aden Container Terminal, which opened in March 1999 and is still being expanded, is gradually taking over as the country's main port.

Electrical power is supplied to Yemenis by the Public Electricity Corporation, which has a capacity of 400 Megawatts of power. The company can barely meet local demand; electricity reaches only 30 percent of the population. As a result of repeated blackouts and severe shortages—especially in Mukalla and Hadramawt, both

of which are not connected to the national grid—several factories and residences either have their own generators, or are forced to operate only one shift a day. The situation is worse in rural areas, where an estimated 60 percent of households have no electricity. The government has launched a program to upgrade and extend power supplies, largely with the help of the World Bank.

Telecommunications services in Yemen are unreliable. The country had 249,515 working lines in 1998, with a capacity of 296,129 lines. Telephone service, mobile included, is often interrupted for security reasons. Internet service is available, but is both costly and unreliable. In 2000, the country had just 1 Internet service provider for its 12,000 Internet users.

ECONOMIC SECTORS

Yemen's economic sectors reflect the small size of the economy. The 2 largest economic sectors are agriculture and oil. Agriculture accounted for 20 percent of GDP in 1998, industry (including oil) for 42 percent, and services for 38 percent. Oil accounts for 85 percent of export earnings and is the largest source of government revenue. Two of the greatest obstacles to growth in all of Yemen's economic sectors are overstaffing in all of the state institutions and the sensitivity of the oil sector to changes in world oil prices. Since 1995, the government has targeted certain areas of economic growth— especially the manufacturing and construction sectors— to fuel growth and to diversify the sources of revenue by investing in both the oil and non-oil sectors. Growth in these sectors, however, has been rather sluggish.

AGRICULTURE

Agricultural production is the single most important contributor to Yemen's economy, accounting for 20 percent of GDP. The agricultural sector provides approximately 58 percent of the country's employment. The labor-intensive sector is largely underdeveloped and inefficient, as a result of soil erosion, the high cost of credit and land, a lack of investment, and the scarcity of water. Most of the cultivated land is irrigated and dependent on groundwater, but high demand could exhaust water supplies by 2008. Although agricultural output has increased steadily in the past few years, crop yields remain low relative to those produced by comparable countries.

Major agricultural products include fruits, vegetables, and cereals, but production is rarely sufficient to meet domestic demand. As a result, Yemen continues to import most of its food. Yemen also cultivates qat, a mildly narcotic plant indigenous to Africa. Although legal, the government has recently moved to ban its consumption in public offices and on army duty due to economic and social costs associated with those under the influence. It continues to be widely consumed, and future efforts to ban it are unlikely.

FISHING.

Though Yemen's location would suggest a booming fishing industry, actual fishing production remains low, largely due to under-exploitation. Most fishing activity continues to center around small boats and family-owned businesses. The sector employs some 41,000 people and produced over 127,000 tons of fish catch in 1998. Yemeni fishing would likely benefit from regulation and effective enforcement to avoid the over-fishing of some species.

INDUSTRY

MINING.

Oil is a significant source of revenue for the government and of export earnings. Yemen's oil reserves, however, are small by regional standards. Oil reserves, proven and unproven, are estimated to be about 4 billion barrels, in comparison to Saudi Arabia, which has over 260 billion barrels of proven and unproven reserves. Most of the oil production is concentrated in the country's 2 largest fields at Ma'rib and Masila. There are also significant oil fields in Jannah, East Shabwa, and Iyad. Unlike neighboring Arab oil producing states, oil production is dominated by foreign companies. Several foreign companies, such as Hunt Oil Company (U.S.) and Canadian Occidental, enjoy production-sharing agreements, but Yemen's uncertain political atmosphere and dim oil prospects have limited the number of foreign companies interested in the oil sector. The sector's future lies in the successful exploration of new fields.

In addition to oil, Yemen's Ma'rib region is home to natural gas reserves estimated at 16.9 trillion cubic feet. Although small by regional standards, the gas is produced in commercial quantities, but competition and the lack of potential clients have thus far hindered the development of this endeavor. Other minerals include gypsum, salt, and gold.

MANUFACTURING.

The manufacturing sector is an important and growing contributor to the Yemeni economy, accounting for about 12 percent of GDP in 1998. The sector has grown steadily in the last decade, but its growth is hindered by competition from imported goods and the lack of funding. Oil refining accounts for half of manufacturing activity. Refining activities are mostly concentrated in Aden and Ma'rib.

Yemen's small industrial base is built around small-sized, family-owned enterprises. Yemen has some 33,284 industrial establishments employing 1 to 4 workers. All large-and medium-sized establishments account for 5 percent of the total number of industrial enterprises. The bulk of Yemen's industrial base is centered on food processing and beverages, but production of cooking oil and flour has increased in recent years. The production of mixed metal products, such as water storage tanks, doors, and windows is the second largest industry, followed by the production of non-metallic products.

SERVICES

TOURISM.

Tourism is not a significant contributor to Yemen's economy, despite the government's continuous effort to promote the country as a tourist destination. The sector suffers from a number of problems, foremost among which are political instability and the absence of modern facilities and infrastructure. Furthermore, at least 100 foreigners were reported kidnapped in 1999. Western countries have been advising their nationals against travel to Yemen since the 1998 abduction and killing of 18 foreigners. The number of tourists visiting the country dropped significantly after the 1998 incident, from 87,000 in 1987 to 45,000 in 1999.

FINANCIAL SERVICES.

Yemen's banking system is poor and suffers from a number of problems, including a poor loan collection record, low bank monetary assets, and questionable policies regarding the extension of loans to clients. Despite government efforts to reform the financial sector by setting new standards for local banks in 1997, the sector continues to suffer from poor enforcement and compliance, a weak judicial system to ensure collection, and a general lack of public trust in the banking system as a whole. Furthermore, the government's efforts to sell its 2 major commercial banks have been rather slow, mainly due to the long preparation time required to bring these banks up to standard for sale.

Both public and private banks operate in Yemen. Both state-owned commercial banks and 3 of the 12 private banks follow Islamic banking practices, which includes not charging interest on loans. There are also 4 foreign-operated banks. Banking facilities are virtually absent in rural areas, and most loans are extended to well-known businessmen or on the basis of personal connections, making it hard for independent entrepreneurs to access funding.

RETAIL.

Yemen lacks well-developed commercial centers —even in the larger coastal cities—and, therefore, has a poorly developed retail sector. The majority of shops in major cities are small and family-owned and run. Small family shops and temporary road stands characterize this sector in the majority of inland towns.

INTERNATIONAL TRADE

Over the past several decades, Yemen has relied more and more on imports, but, despite periodic peaks in the amount of imports, Yemen's oil exports have kept its trade balance positive. In 2000, exports stood at US$4.2 billion, while imports were worth US$2.7 billion. In addition to legitimate trade, the smuggling of firearms, alcohol, and consumer goods to and from Saudi Arabia is rampant on the Red Sea. Yemen imports a wide variety of goods, except oil and oil products. Neighboring Gulf countries, mainly Saudi Arabia and the United Arab Emirates, supply the majority of Yemen's imports, followed by France, the United States, and Italy.

Oil accounts for over 85 percent of total sales abroad. Non-oil exports include semi-processed agricultural products, mostly foods. Given its weak industrial base, oil is expected to remain the country's major export. Sales of liquefied natural gas are expected to surge, but the prospects for that eventuality are far from certain. Yemen exports the majority of its oil to Asia, especially Thailand, China, South Korea, and Singapore.

MONEY

Since 1996, the government has allowed the value of the Yemeni riyal to float—meaning its value is determined by supply and demand, not by the government. Before 1996, the government officially set the price, which led to it being widely sold on the black market. The riyal was devalued in 1996 from YR12 per US__BODY__ to YR50 per US__BODY__. Since 1996, the value has fluctuated sharply. Between 1996 and 1997, the value of the riyal remained stable, selling for an average of YR125 per US__BODY__ for most of that period. Since 1998, however, the value of the riyal has declined steadily, mainly due to rising fears about Yemen's increasing foreign debt and budget deficit. As a result, the riyal traded at YR170 per US__BODY__ in mid-1999. The Central Bank's efforts to keep the value at a stable rate since then have been largely successful. Since late 1999, it has been trading at an average of YR160 per US__BODY__.

POVERTY AND WEALTH

With a per capita income of US$254 annually, Yemen is by far the poorest country in the region. Living standards in the country have fallen sharply since 1990 as a result of high inflation, which in 1995 peaked at 56.3 percent. Although inflation dropped to 10 percent in 2000, the value of wages also decreased, forcing

Yemenis to spend more than half their income on food and beverages and limiting their ability to purchase imported goods. An estimated 25 percent of the population lived below the poverty line in 1997, up from 19 percent in 1992.

WORKING CONDITIONS

Yemen's poor education system has meant that the majority of Yemen's labor force is unskilled. About 62 percent of Yemeni adults are unable to read and write. This problem is aggravated by the fact that the majority of Yemen's labor force is concentrated in the agricultural sector, in jobs that do not require advanced skills. The unemployment rate in the country is quite high by regional and international standards, reaching 35 percent in 1998. Local training programs are also poor by regional standards, and job opportunities for graduates of local universities are limited. As a result, thousands of skilled and semi-skilled laborers are forced to seek employment opportunities in neighboring Arab countries. Child labor has been prohibited since 1999, but it remains widespread, especially in the agricultural sector. Government work hours are from 8:00 AM to 2:00 PM. Private businesses maintain a different work schedule, which runs in 2 shifts: from 8:00 AM to 1:00 PM, and from 4:00 PM to 8:00 PM.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1538. Yemen falls under Ottoman rule.

1839. The British occupy Aden in southern Yemen.

1918. North Yemen gains independence from the Ottoman Empire at the end of World War I (1914-1918), calling itself the Yemen Arab Republic.

1935. The British create the Aden Protectorates.

1962. A group of nationalist officers revolt against the British and proclaim the Yemen Arab Republic (YAR) under the leadership of Abdullah al-Sallal.

1967. South Yemen gains independence from the United Kingdom.

1970. South Yemen, renamed the People's Democratic Republic of Yemen, nationalizes foreign-owned properties and establishes close ties with the Soviet Union.

1974-1978. A series of military coups in North Yemen leads to the ascendancy of President Ali Abdullah Saleh, who rules until the 1990 unification.

1986. A 12-day civil war erupts within the government of South Yemen. Former premier Haydar Bakr al-Attas is elected president in October.

1990. The Republic of Yemen is established peacefully on 22 May.

1993. Fair, multi-party, universal-suffrage elections are won by the General People's Congress.

1994. The south rebels against northern domination. The north wins, and the constitution is amended to establish a multiparty democracy.

1995. The government launches an economic reform program.

1999. In the first direct presidential election, Saleh returns to office.

2001. First municipal elections in country's history. The ruling General People's Congress wins the majority of seats. The constitution is amended to extend the term of the president from 5 to 7 years and parliamentary terms from 4 to 6.

FUTURE TRENDS

Yemen entered the 20th century under a cloud of economic decline. For much of the century, the rivalry between northern Yemen and the Marxist-led government of the south sapped the country's resources. The legacy of socialism left the southern economy in ruins. The reunification of the countries in 1990 and the subsequent civil war in 1994 further contributed to Yemen's economic decline. Government policies to stabilize the economy enacted in the mid-1990s have significantly improved the country's macroeconomic and structural conditions.

Yemen will likely address the unemployment problem, attempt to curb population growth, and implement the privatization policy in hopes of achieving long-term economic growth. The government has yet to lift subsidies on diesel fuel completely, cut military spending, downsize the public bureaucracy, or quash corruption in its public institutions and ministries. Much work will need to be done on the political front to achieve social and political stability, particularly to soothe the tensions between the current government and rural tribal groups and southern Marxists.

DEPENDENCIES

Yemen has no territories or colonies.

BIBLIOGRAPHY

Economist Intelligence Unit. Country Profile: Yemen. London: Economist Intelligence Unit, 2001.

Embassy of the Republic of Yemen. <http://www.yemenembassy.org>. Accessed September 2001.

U.S. Central Intelligence Agency. World Factbook 2001. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed September 2001.

U.S. Department of State. FY 2001 Country Commercial Guide: Yemen. <http://www.state.gov/www/about_state/business/com_guides/2001/nea/index.html>. Accessed September 2001.

—Reem Nuseibeh

CAPITAL:

Sanaa.

MONETARY UNIT:

Yemeni riyal (YR). One riyal equals 100 fils. There are coins of 1, 5, 10, 25, and 50 fils riyals, and notes of 1, 5, 10, 20, 50, and 100 riyals.

CHIEF EXPORTS:

Crude oil, cotton, coffee, and dried and salted fish.

CHIEF IMPORTS:

Food, live animals, machinery and equipment, and manufactured goods.

GROSS DOMESTIC PRODUCT:

US$14.4 billion (purchasing power parity, 2000 est.).

BALANCE OF TRADE:

Exports: US$4.2 billion (f.o.b., 2000). Imports: US$2.7 billion (f.o.b., 2000).