Last month’s Investment Opportunities in Yemen conference was the first of its kind to be held in the country. It highlighted some of the striking challenges and opportunities in the Arab world’s poorest and most undeveloped state, which despite myriad difficulties now faces a period of transformation.
Long considered the backward underbelly of Arabia, one of the world’s poorest countries and certainly one with the highest number of weapons per capita, Yemen is stepping up efforts to entice investors into what is virtually a pristine economy.
A daunting host of political, social and economic problems currently lay siege to the country’s development, however, including a frighteningly high population growth, water shortages, weak government control, over-reliance on oil revenues and endemic corruption.
Nevertheless, Yemen’s investment authorities are doing all they can to attract a new influx of foreign capital—especially from the GCC—and reverse the economic misfortunes of recent times.
Getting it together
The Investment Opportunities in Yemen conference, which, after being postponed twice, eventually took place late last month in the capital, Sanaa, was largely designed as a private-sector follow-up to an international donors’ conference held for Yemen in London last November.
That event raised some $4.7 billion in pledges to support Yemen’s development, about half of which came from the GCC, to which Yemen wants—perhaps ambitiously—to accede within the next decade.
This time around, though, the focus of the conference was firmly on private investment. A packed house of some 650 delegates and 70 ministers from across the region gathered for a two-day series of speeches and debates on Yemen’s prospects, whilst a trade exhibition showed off some of the country’s key investment opportunities, mostly in the construction, manufacturing, real estate, tourism and energy sectors.
“Yemen is witnessing a significant transformation marked by a will and determination to create a prosperous future full of welfare and peace,” said President Ali Abdullah Saleh, the strongman who has managed to hold the country together through long decades of civil strife.
“We realize that today’s world is one of economic blocs, a world marked by heated competitiveness and rapid transformation in all economic aspects where there is no room for those who think traditionally,” he told the conference.
But although Yemen may lie in the same geographical zone as some of the world’s richest states, in most other respects it has more in common with Ethiopia than the Emirates—something which might not change too much in the near future.
Towards the edge
Crippling problems face Yemen as it looks to develop and diversify its economy. Amongst the most worrying of these is spiralling population growth, which at a rate of over 3% puts Yemen amongst the fastest-growing nations in the world, and will levy a even greater toll on some resources, especially water, which are already close to breaking point.
This population, whilst large in size, is small in purchasing power. About 45% of Yemenis live under the poverty line, according to the UN, and almost three-quarters reside in rural areas. Unemployment is unofficially over 40%, and a sizable chunk of the average male income (and waking hours) is dedicated to qat, a natural stimulant which is the country’s most lucrative cash crop and which occupies the majority of fertile land.
GDP growth, meanwhile, is barely keeping up with population growth, whilst inflation is equally onerous, reaching a peak of 18.4% in 2006 according to the World Bank.
As part of the aid deals and donor grants negotiated with external benefactors, a halting program of reforms has nevertheless been gathering pace over the past 18 months, although some measures may prove unpalatable to the local population.
“The government finds itself in a difficult position between keeping its promises to donors on one hand, and treading carefully with the local population on the other,” says Dr. Ali al Abdulrazzaq, Senior Economist with the World Bank in Sanaa.
“They need to be very careful with measures that may have an effect on income levels, such as cutting fuel subsidies or raising taxes,” he told Executive.
And whilst the investment authorities have enacted specific reforms to attract capital, such as introducing a new investment law in 2003, modernizing real estate legislation and opening a “one-stop shop” for interested parties, Yemen is still an opaque place to do business.
Corruption is considered to be endemic and the entrenched tribal power in most parts of the country mean that it is often more valuable to have the backing of the local tribal power than that of the central government.
Energy levels
Underlying all these issues is a fundamental over-reliance on oil, which constitutes 71% of government revenues and is already suffering from waning production as reserves dwindle.
Yemen presently pumps some 350,000 barrels of oil per day (bpd), and whilst the majority of the country’s exploration blocks have not yet been probed, analysts believe they are unlikely to wield any earth-shattering finds. Nevertheless, the Ministry of Oil and Minerals is about to launch a new bid round for interested parties, which include a number of big international names.
Yemen’s gas reserves have perhaps more to offer, with the country’s largest-ever single investment, the Yemen LNG project, currently under construction. A consortium made up of the Yemeni government, Total, Hunt Oil and two Korean companies is investing a total of $3.7 billion in the plant, which is set to come onstream in early 2009.
It will extract gas from an exploration block in the centre of the country, transport it by pipeline to a state-of-the-art plant on the Gulf of Aden and then convert it to LNG before shipping it on to clients.
“The plant will produce around 7 million tons of LNG per year, or about 180,000 barrels of oil equivalent [BOE]” said Joel Fourt, Chairman of the Yemen LNG Company. “In answer to the question: is it possible to build a world-class, world-scale project in Yemen, the answer is yes,” he told delegates at the conference.
The real question that many are asking, though, is how Yemen can diversify its economy away from this over-dependence on hydrocarbon revenues: LNG alone is not a long-term solution.
Milking the land of honey
One possible answer is tourism, a sector which the authorities seem particularly—and justifiably—eager to promote. Yemen’s rich cultural heritage, its old towns, unspoiled beaches, mountains and islands, theoretically put the country head and shoulders above regional tourist hotspots like the UAE in terms of natural attractions.
Yet a consistently bad image, a lack of infrastructure and expertise, poor air connections and a meagre promotional budget mean that Yemen is light years behind its northern neighbors in terms of drawing in holidaymakers.
Speaking to Executive, Yemen’s Minister of Tourism, Nabil al-Faqeeh, says that the first priority is simply to build more infrastructure.
“In Yemen we have a lack of rooms, a lack of hotels, a lack of restaurants. We need to attract as many investors as possible for these kinds of projects,” he says.
“In 2006 we only had 382,000 tourists. We want to increase this by 20% in 2007 and we’re changing our strategy to try and attract more Arab tourists, especially from the GCC, where traditionally we have concentrated heavily on the European market.”
But finding the money for these projects is problematic. The state lacks the kind of disposable oil revenues which nearby countries like the UAE have been able to pour back into promoting tourism and real estate, whilst the local banking system in Yemen is too underdeveloped and illiquid to support start-up needs for new investors.
“Financing is the biggest problem for new tourist projects”, Alwan Saeed al-Shibani, Chairman of the Sanaa-based Universal Group, told the conference. “Our commercial banks don’t give out loans, and that needs to change. We have Gulf investors who want to start projects but they’re being held back by this.”
Yemen may also have to shrug off its image as a minor hotbed of kidnapping. Small groups of tourists travelling in rural Yemen, usually Europeans, are periodically spirited away by local tribes who treat their “prisoners” like guests whilst making modest demands on the government, such as building roads, hospitals or schools in their villages.
Island life
According to Al-Faqeeh, the government has no particular geographical priorities for tourist development, but one special area of opportunity is Yemen’s roughly 190 islands. Some have already caught the attention of regional powerhouses such as Orascom and the Mikati group, both of whom are reportedly finalizing agreements to develop islands in the Red Sea.
Yemen’s largest and best-known island is Soqotra, which lies in the Arabian Sea south-east of Aden and boasts a unique ecosystem which has evolved independently of the mainland. Potentially a tourist magnet, visitor numbers have been gradually on the up since an airport opened on the island several years ago, although the ministry are at pains to point out that no major developments will be allowed here: instead, they want to attract a classier breed of eco-tourists.
But although Soqotra looks as if it may thankfully be preserved from mass tourism, the mainland is already gearing up for some large-scale tourist and residential developments spearheaded by courageous investors.
The biggest and most ambitious of these is the Jenan Aden project, which will cover 14 km2 of pristine mountainside and beaches just outside of Aden. Phased over 10 years, the development is being led by a Saudi-Yemeni joint venture, Bin Farid and Baghlaf, and when complete will contain 4,000 residential units, four hotels, two marinas, a school and a university.
“There’s definitely an element of being pre-emptive in the market,” says Chris Orrell, Chief Operating Officer of the project. “But there’s also a belief that this is Yemen’s time. It is an exceptionally beautiful country with a great deal of potential.”
Most developers planning projects in the country say they are targeting a relatively small crust of high-income locals, but more importantly the Yemeni expatriate population, which is largest in Saudi Arabia, other Gulf states and also the UK.
Rise or fall?
No-one would argue that huge amounts need to be done in order to improve Yemen’s business climate, particularly, according to investors, in terms of the real estate registry and the commercial court system. But it seems that the government, at least, has realized the urgency of the need to diversify away from oil.
“I think many of the changes enacted over the past 18 months will really begin to bear fruit in 2008,” says the World Bank’s al-Abdulrazzaq. “The government is pushing for reforms, which is encouraging.”
Yemen is clearly only at the start of a long road to attract foreign capital, and it will need to create a positive track record that can earn the trust of investors, particularly those from outside of the GCC.
It is uncertain whether sufficient time remains to tackle critical issues like population growth and declining resources before it is too late, but there is enough excess cash available in the region, enough vested interest in keeping Yemen stable, and enough latent potential in the country itself to suggest that this could be the start of Yemen’s entry into the modern age.
Battling local tribesmen, Sanaa claims Iranian-backed militants wish to establish a Shia-run imamate
Yemenis are no strangers to unrest, having fought their way through a string of civil wars in the past half-century, but a longstanding dispute in the northern Sa’ada region of the country is now erupting into something approaching full-on warfare.
The conflict is the latest in a series of skirmishes between government forces and followers of the al-Houthi clan, who are based in the isolated mountains close to the Saudi border around the town of Sa’ada.
The sides have already crossed swords in two previous clashes, in 2004 and 2005, and the latest fracas has intensified rapidly since the start of 2007 to claim hundreds of lives on both sides.
Confusion surrounds the root cause of the fighting, which now appears to have spun completely out of control. The government claims that the Houthis, bankrolled by Iran and radicalized by the situation in Iraq, are attempting to establish a Shia-ruled Imamate in northern Yemen.
Others argue that the conflict has little to do with Sunni-Shia divides and is more related to the weakness of government power outside the main cities.
“It’s more a case of the government stepping on the toes of the local tribes and trying to extend its control in certain parts of the country,” said one western diplomat in Sanaa. “The system of power in Yemen means that these areas are largely autonomous, and they don’t like any outside interference—even from their own government.”
Beset by heavy losses and little progress, the army is pouring vast resources into Sa’ada. The local press reports that warplanes, tanks, artillery and thousands of soldiers are being dispatched northwards, although the region has been completely sealed off and it remains difficult to establish the reality on the ground.
“Even we can’t really understand what’s going on up there,” one civil servant in Sanaa told Executive. “Yemenis have never been religious extremists—both Sunnis and Shias in this country have traditionally been very moderate in their outlook.”
Whatever the case, the fighting has again shown up the fragility of a state in which allegiances are first and foremost tribal, not national, and in which the army is far from being the only significant military power.
