Yemen’s problems are myriad: the World Food Program estimates that one in three Yemenis cannot afford sufficient food, a level of malnourishment unmatched even in sub-Saharan Africa. Unemployment cripples 40 percent of the workforce. The currency of this import-dependant economy tumbled to record lows against the United States dollar last month and violent rebellions against the central government simmer in both the tribal north and secessionist south.
Yet for the international community, the only concern that has received significant attention is that Yemen could become “another Afghanistan.” While a 2006 conference of donor countries in London produced $4.7 billion in pledges for Yemeni development, barely a fraction of this was ever distributed.
World attention only turned to Yemen with urgency after the failed Christmas Day bombing of a Detroit-bound airliner, in which a Nigerian allegedly affiliated with the Yemen-based Al Qaeda in the Arabian Peninsula (AQAP) tried to blow up a Northwest Airlines flight arriving from Amsterdam. Shortly thereafter the US devoted $150 million in military aid to try and prevent Yemen from becoming an Al Qaeda-sheltering failed state.
More recent international assistance came when the International Monetary Fund loaned $369 million for currency stabilization following the rial’s recent slide.
Yemen’s neighbors have been much more heavily invested in maintaining the country’s stability and security; in 2009, Yemen was the United Arab Emirates’ largest aid recipient, receiving more than $760 million, and last month Saudi Arabia pledged $1 billion in investments. Fears that the teetering Yemeni state will collapse completely seem to have spurred an international drive to try and pay its way out of instability.
The Yemeni government’s capacity to maintain control independent of international assistance has dwindled in proportion to its oil reserves: the World Bank estimates oil receipts constitute 75 percent of government income and 90 percent of exports, but production slowed considerably in 2007 and the World Bank predicts resource exhaustion by 2017.
The tenuous authority exerted by the central government over the network of tribal loyalties across the country depends on its ability to offer incentives to regional power brokers, yet an employee of a US-sponsored non-governmental organization says there is simply “no more juice in the machine” to fund such endeavors. Thus, as oil revenues shrink, Yemen depends ever more heavily on external aid for the state’s basic functions.
This creates the unhealthy equation in which the government actually benefits in proportion to international anxiety vis à vis Yemen’s stability. Although possible solutions exist for many of Yemen’s woes, the authorities have done little to implement them in favor of economic and political brinksmanship.
For one, the American government has criticized Yemen for not doing enough to combat AQAP. Al Qaeda expert Saeed al-Jemhi says AQAP has become a political tool for Sana’a: “The government says the opposition party supports Al Qaeda, and vice versa… Al Qaeda becomes an insult, a tool to win elections. But the winner is Al Qaeda itself.”
The presence of AQAP in Yemen may bolster the government by eliciting military aid, he argues, but such dubious benefits “include a huge risk. It is like giving away your organs in order to buy a palace.”
AQAP’s presence in Yemen, compounded by economic hardship and military strikes that publicly appear to kill civilians as often as terrorists, increase the potential for revolt.
“The economic situation is threatening the government because it leads to joblessness and corruption. This gives Al Qaeda the chance to say the government is unworthy to lead the country, and that [a regime established by] Al Qaeda should be the replacement, because they will bring justice,” Al-Jemhi explains. “All of [Yemen’s] problems benefit Al Qaeda.”
“‘We’re talking about ‘to be or not to be.’ You can’t exchange water for jobs”
Running dry
Besides Yemen’s oil reserves drying up, Sana’a is expected to be the world’s first capital city to run out of water, likely within the next five to 15 years. The Ta’iz basin, south of Sana’a, has already collapsed, while 19 of the country’s 21 aquifers receive no replenishing groundwater. Citizens all over the Yemen are forced to rely on increasingly expensive water trucks as centralized water and wells run dry.
Yet agriculture uses water for free, pumped by government-subsidized fuel. Staple and cash crops, such as wheat, coffee and cotton, have been steadily replaced by the more profitable qat, a leaf chewed for its narcotic effect. Data from the Ministry of Agriculture shows that qat production increased 40 percent from 2004 to 2008, from some 118,000 tons to 167,000 tons, with thousands of wells dug for the specific purpose of irrigating qat fields.
Abdullah al-Thary, deputy chairman of the National Water Reserves Authority, explains that for agriculture to represent a viable percentage of GDP, water resources must exceed the water poverty level of 1,000 cubic meters per capita per year; in Yemen, water resources come to only 130 cubic meters per capita.
“We now have a satellite to detect where someone drills illegally [for water]… But people do not understand that it’s not allowed. They have this idea of ‘Yemen the fertile’, they talk about how Yemen should become agriculturally self-sufficient,” Thary sighs and points out that agriculture — about 60 percent of it qat — currently consumes 90 percent of annual water usage.
Thary suggests importing agricultural products in order to preserve Yemen’s water for human consumption. Importing qat from Ethiopia, for example, would also ameliorate the health problems caused by pesticide-laden Yemeni qat and conserve water for drinking. However, reducing qat production would anger the wealthy landowners who cultivate it and weaken their loyalty to the regime.
Cutting fuel subsidies — one of the primary conditions of the recent IMF loan — would reduce the $700 million spent annually, but would further antagonize landowners. When qat reductions are discussed, those opposed point out that many Yemenis are employed in its cultivation, and reducing qat production would harm the country’s economy.
“We’re talking about ‘to be or not to be,’” says Thary. “You can’t exchange water for jobs.” In his opinion, although Yemen will always have to monitor its water supply, the needs of citizens could be met if they were given priority over other, more parochial considerations.
US military aid to Yemen ($millions)
No grease for the wheels
Oil, on the other hand, will run out regardless of improved management and alternative sources of income are underdeveloped: last year Yemen LNG began exporting liquefied natural gas but production capacity is limited to one facility. Energy investment in Yemen remains minimal, given the absence of security and rule of law. Low prices per barrel of oil on the international market coupled with overspending caused Yemen’s fiscal deficit to reach 10 percent of GDP in 2009.
Although efforts to attract investors include the establishment of the General Investment Authority in 1992, investment has a history of being intentionally de-prioritized. Examples of governmental restrictions, such as the aborted attempts by Hyundai and Toyota to establish factories in Yemen in 1990, demonstrate reluctance to welcome investors.
The implementation of policies to encourage investment would help enhance Yemen’s stability by creating employment and spreading wealth; yet greater stability would weaken the impression that the Yemeni government is the sole defence against complete chaos. By allowing, and even fostering, insecurity in Yemen, the regime secures its own necessity, both domestically and in the eyes of the international community.
Economic brinksmanship, however, cannot last forever. The recent depreciation of the rial illustrated the gravity of the economic condition. A senior official at the finance ministry said that 60 percent of the government’s budget consists of two items: fuel subsidies and government salaries.
“Expenditure exceeds revenue, a gap that we used to cover with treasury bills. But we have reached saturation of the market, there isn’t enough money in the economy to buy treasury bills,” he said. “Now we have a problem because we’ve been borrowing from the central bank… and issuing new currency.”
This influx of rials — coupled with dire and disastrous developments on various other fronts — has caused the currency to shed value this year. At currency exchange offices in Sana’a $1 at the beginning of January bought about 200 rials; when the rial slipped again in early August that same $1 bought 280 rials, before the announcement of the IMF loan calmed panic and allowed it to regain some strength.
The Central Bank has also been hemorrhaging foreign currency reserves trying to keep the rial afloat. In statements to the media, Central Bank Governor Mohammad Awad bin Hammam has said the bank has expended nearly $1 billion so far in 2010 fighting currency deflation, however, the senior official at the Ministry of Finance told Executive that propping up the rial has actually cost closer to $3 billion this year, and that the Central Bank’s coffers now hold no more than $5.5 billion in reserves.
“I’m not very optimistic about the near future if the rial starts sliding down again,” the finance ministry official said. “The Houthi [rebel] problem, the Southern thing, Al Qaeda, water… the economic situation is more important than all of these. Because when the rial starts dropping, that is felt by 23 million people.” Especially given that Yemen, already one of the poorest countries in the world, imports nearly everything it consumes and so a devaluing currency puts the price of things like food and other life staples further beyond the reach of ever-larger portions of the population.
Should the rial fall again, “more instability could happen, and then things could get out of control”
Refusing to reform
In conjunction with the IMF’s assistance program, the Yemeni government has pledged to reduce fuel subsidies, implement a general sales tax and control nonessential expenditures. Yet the finance ministry official remains skeptical: “I don’t think we’ll be capable [of implementing reforms]. We are trying, but I think that the fiscal situation is quite serious and we lack the capacity to implement many of these components.”
In early 2010 the government announced a 10 point plan to address key issues paralyzing development, beginning with the removal of 100 ineffective government officials. However, according to the Ministry of Finance source, the plan has failed.
“Maybe we can’t handle 10 points, maybe we can only a handle a one point plan… Say we promise to create 2,000 jobs next year by taking advantage of the Aden Free Zone,” he said. “We need big signs of hope, we need the leadership to make a promise and deliver.” Yet the government has consistently demonstrated that the improvement of economic and security conditions do not rank as top priorities, and donors are losing patience. Concern is mounting over Yemen’s ability to remain on the brink; if the government fails to keep promises, it may lose its balance.
The finance ministry official warned that, should the rial fall again, “more instability could happen, and then things could get out of control. Nothing can stop this eventual slide [of the rial’s value], and even if we could, it wouldn’t last too long… If people start panicking, that’s it; we can’t stop it.”
