Yemen has suffered from economic woes since the unification of the North (Yemen Arab Republic) and South (People’s Democratic Republic of Yemen) in 1990. Months after unification, Yemen—then on the UN Security Council—voted against the authorization of use of force against Iraq after the invasion of Kuwait. The vote not only provoked the US and Saudi Arabia to cut off all aid to the new state, it also spurred the expulsion of nearly 750,000 Yemenis from Saudi Arabia, many of whom had worked there for decades, sending remittances to their families still in Yemen.[1] As external funding flowing into the nation trickled to a stop, the 1994 civil war and subsequent political crises decreased investor confidence, racked up reconstruction expenses, and sent Yemen's economy spiraling.
Even as liberalizing economic policies pushed by international financial institutions promised stabilization and economic growth, their prescription to decrease government salaries and gradually eliminate fuel and grain subsidies provoked political backlash and were extremely unpopular among ordinary Yemenis who were reliant on the salaries and subsidies for survival.[2] Despite—and at times because of—years of economic development programs by the state and international organizations, several economic challenges remained. In fact, in the first decade of the twenty-first century, living standards and employment fell, particularly in rural areas.[3] Between 2007 and 2009, the “Triple F” crisis (food, fuel, financial) crisis wreaked havoc on the economy, with ramifications for the macro economy as well as ordinary Yemenis’ lives.[4] Economic challenges like youth unemployment, uneven regional development, food insecurity, an extensive patronage system, and an over-reliance on oil for government revenue existed before the 2011 uprising and before the current war.
Economic geography
A brief sketch of Yemen’s geography reveals some of the dynamics underpinning the country’s political economy. Yemen is situated along the Red Sea as it flows through Bab al-Mandab Strait to the Gulf of Aden, a route through which almost $700 billion dollars worth of trade between Europe and Asia passes.[5] Once home to the ancient trading state, Saba, trade has been important in Yemen since ancient times.[6] Trading ports such as Hudaydah and Saleef are a significant source of revenue and are important for political control of the country.
Three decades of transformation since unification have divided the country across other regional and urban-rural lines. The Yemeni economy is characterized by a distinct urban-rural divide, with a large rural population: up to 60 to 70 percent of all Yemenis lived in rural areas in the late 2000s.[7] Trends in poverty between urban and rural areas have diverged: While urban poverty dropped from 32.2 to 20.7 percent between 1998 and 2005, it decreased slightly or remained static in much of rural Yemen. In the most impoverished rural areas, poverty actually increased between 1998-2005 by 10-15 percent.[8] Rural economies were increasingly dependent on urban wealth: while before agriculture and remittances had sustained rural communities, the migration of many tribal leaders to Sana’a meant that power and wealth “increasingly flowed from the centre to the periphery – if they flowed at all.”[9]
As the poorest country on the Arabian peninsula, Yemen’s borders with Saudi Arabia and Oman have been porous, crisscrossed by labor migration. During the 1970s and 1980s, labor remittances from Saudi Arabia and other Gulf states made up the bulk of most Yemeni families’ budget and savings, bypassing the state and flowing directly to Yemenis.[10] However, labor migration to Gulf states began to decline in the 1980s and was brought to a halt in 1990, shortly after north and south Yemen’s unification.
Natural Resources
Beginning with the discovery of oil in 1984,[11] Yemen's government has been dependent on oil and gas resources for revenue. Once remittance and agriculture-dependent, the economy shifted over the course of the 1990s to an energy export-oriented model, with the government using oil as a key source of revenue.[12] After peaking in 2002, oil output began to decline, while the government continued to report budget deficits.”[13] Even as international financial institutions crafted interventions to reduce dependence on oil, the government grew increasingly reliant on oil, which accounted for 80 percent of government revenues during the first decade of the twenty-first century.[14]
Other than oil and gas, Yemen has limited natural resources, including water. Water and food security concerns have featured in the headlines of aid reports going back for decades. In 2012, a World Food Programme report found that the number of food insecure people nearly doubled between 2009 and 2011, amounting to ten million Yemenis. The problem also had a marked rural-urban disparity: 51 percent of the rural population was food-insecure compared to 27 percent in urban areas.[15]
Systems of Patronage
After the 1990 unification, Ali Abdullah Saleh, the president of north Yemen since 1978, ascended to the presidency, remaining in the executive position for more than two decades. After a subsequent 1994 north-south civil war, the Saleh regime built a monopoly over land and natural resources, most significantly oil and gas, income from which would form the bulk of state revenues for the next 20 years.[16] The Saleh regime was characterized by an elaborate system of patronage that wove disparate regions of the country into a network that relied on the regime. Oil revenues and other economic incentives flowed through this network, inducing into compliance political leaders that could have challenged Saleh’s regime. Prominent regional families and tribal leaders were handed private sector contracts, control of military units, political appointments, ownership of vast areas of southern land, and business licenses. Economic benefits were also distributed within Saleh’s family: Saleh’s relatives were involved in everything from gun smuggling, fishing, shrimping, and construction, to real estate, oil and natural gas.[17] The more that the state became regarded as a family business, the more resentment grew, especially as oil revenues decreased, lessening the ability of the regime to fully fund its network and maintain political legitimacy. By 2011, tension across the Middle East during the Arab Spring reached Yemen and Saleh was overthrown.
Yemenis advanced one of the most active protest movements of the Arab Spring in 2011.[18] Yemen’s youthful population had a large role to play in the protests, reacting to long standing inequality, corruption, and unemployment. In 2010, nearly 40 percent of the population was between the ages of 5 and 19.[19] ILO estimates suggested that 70 percent of youth were unemployed.[20]
Liberalization policies
Beginning in 1995 and continuing over the course of the 1990s and early 2000s, Saleh’s government made a series of agreements with the World Bank and the International Monetary Fund over loans and grants conditional on liberal economic reforms, including subsidy cuts, price and trade liberalization, and the privatization of state enterprises.[21] These promised liberalization reforms either went unimplemented or were used to reinforce the power of political and tribal elites, who benefited from liberalization by snagging business partnerships with trading companies.[22]
Part of the prescription of the IMF and World Bank was to advise the government to lower subsidies on basic goods such as fuel and wheat. After all, maintaining the subsidies was expensive for the Saleh government: Subsidies took up a fifth of government spending in 2010.”[23] However, reducing the subsidies led to riots and popular discontent, leading the government to reinstate the subsidies, an unsustainable solution.
While these liberalization policies promised to shrink the state, the state continued to be the main employer in the country up until the war’s commencement in 2014: In 2000, state employees numbered 432,351, rising to 1.2 million by the end of 2014, in addition to 700,000 military and security personnel.[24] These figures potentially include “ghost workers” that were supposedly employed by the state, but did not exist.
Social fabric
The war has only worsened some of the economic problems laid out above. Yet, as analyst Peter Salisbury points out, “The sheer strength of Yemen’s social fabric has long baffled aid workers. Most developmental metrics have forecast of famine for years. But Yemeni families and communities have been a safety net in and of themselves, somehow preventing outright catastrophe despite constant strain.”[25] As Salisbury describes, the economic struggles of the past decades bear testament to the strength of the social safety net that has prevented outright disaster. But this support system is no longer strong enough to stave off collapse. As one Yemeni development expert pointed out in a recent interview, “The worst effect of this war is the damage to the social fabric.” The effect of the war on the economic survival of the Yemeni people will be discussed more in depth next week.
[1] Bazzi, Mohammed. “How Yemen Became the Frontline of a Mideast War.” Reuters, March 27, 2015.. http://blogs.reuters.com/great-debate/2015/03/27/how-yemen-became-the-front-line-of-a-mideast-wide-war/
[2] Lackner, Helen. Yemen in Crisis: Autocracy, Neo-Liberalism and the Disintegration of a State. Saqi, 2017, p. 209.
[3] Salisbury, Peter. Federalism, Conflict, and Fragmentation in Yemen. Report. Saferworld, 2015.
[4] Olivier Ecker, et. al. Assessing Food Security in Yemen: An Innovative Integrated, Cross Sector, and Multilevel Approach. Report. International Food Policy Research Institute, 2010.
[5] Bazzi, Mohammed. “How Yemen Became the Frontline of a Mideast War.” Reuters, March 27, 2015. http://blogs.reuters.com/great-debate/2015/03/27/how-yemen-became-the-front-line-of-a-mideast-wide-war/
[6] Burrowes, Robert D. Historical Dictionary of Yemen. Rowman & Littlefield, 2010, p. 319.
[7] Lackner, Helen. Yemen in Crisis: Autocracy, Neo-Liberalism and the Disintegration of a State. Saqi, 2017, p. 229.
[8] World Bank Poverty Assessment. The Government of Yemen, the World Bank, and the United Nations Development Program, November 2007. https://openknowledge.worldbank.org/handle/10986/7905
[9] Hill, Ginny, Peter Salisbury, Leonie Nothedge, and Jane Kinninmont. Yemen: Corruption, Capital Flight and Global Drivers of Conflict. Report. Chatham House, 2013.
[10] Alley-Longley, April. “The Rules of the Game: Unpacking Patronage Politics in Yemen” The Middle East Journal, Volume 64, Number 3, Summer 2010 , pp. 385-409
[11] Miller, Judith. “Yemen Reports Large Oil Discovery.” The New York Times, December 21, 1984.
[12] Hill, Ginny, Peter Salisbury, Leonie Nothedge, and Jane Kinninmont. Yemen: Corruption, Capital Flight and Global Drivers of Conflict. Report. Chatham House, 2013.
[13] Hill, Ginny, Peter Salisbury, Leonie Nothedge, and Jane Kinninmont. Yemen: Corruption, Capital Flight and Global Drivers of Conflict. Report. Chatham House, 2013.
[14] Engelke, Wilfried. “Joint social and economic assessment: Republic of Yemen,” World Bank, 1 July 2012, http://documents.worldbank.org/curated/en/2012/07/16796028/joint-social-economic-assessment-republic-yemen.
[15] “Comprehensive Food Security Survey, 2012” Rome: World Food Programme, 2012.
[16] Salisbury, Peter. “Corruption in Yemen: Maintaining the Status Quo?” in Rebuilding Yemen: Political, Economic and Social Challenges. Berlin, Germany: Gerlach Press, 2015. http://www.jstor.org/stable/j.ctt1df4hh0.
[17] Alley-Longley, April. “The Rules of the Game: Unpacking Patronage Politics in Yemen” The Middle East Journal, Volume 64, Number 3, Summer 2010 , pp. 385-409
[18] Transfeld, Marieke. “Yemen’s GCC Roadmap to Nowhere: Elite Bargaining and Political Infighting Block a Meaningful Transition,” German Institute for International and Security Affairs, 2014, 7.
[19] Lackner, Helen. Yemen in Crisis: Autocracy, Neo-Liberalism and the Disintegration of a State, p. 215.
[20] Lackner, Helen. Yemen in Crisis: Autocracy, Neo-Liberalism and the Disintegration of a State, p. 215.
[21] International Monetary Fund, ‘Yemen in the 1990s: From Unification to Economic Reform’, Occasional Paper, 3 May 2002.
[22] International Monetary Fund, ‘Yemen in the 1990s: From Unification to Economic Reform’, Occasional Paper, 3 May 2002.
[23] Engelke, Wilfried. Joint social and economic assessment: Republic of Yemen, World Bank, 1 July 2012, http://documents.worldbank.org/curated/en/2012/07/16796028/joint-social-economic-assessment-republic-yemen.
[24] Lackner, Helen. Yemen in Crisis: Autocracy, Neo-Liberalism and the Disintegration of a State, p. 215.
[25] Salisbury, Peter. “Bickering While Yemen Burns: Poverty, War, and Political Indifference.” The Arab Gulf States Institute in Washington, June 2017, p. 3.