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Country Report

Yemen

November 2009

Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom

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Yemen 1

Country Report November 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Yemen

Executive summary 3 Highlights

Outlook for 2010-11 4 Political outlook 5 Economic policy outlook 6 Economic forecast

Monthly review: November 2009 9 The political scene 11 Economic policy 12 Economic performance

Data and charts 14 Annual data and forecast 15 Quarterly data 16 Monthly data 17 Annual trends charts 18 Monthly trends charts 19 Comparative economic indicators

Country snapshot 20 Basic data 21 Political structure

Editors: Rory Fyfe (editor); Robert Powell (consulting editor)

Editorial closing date: November 2nd 2009

All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: To request the latest schedule, e-mail [email protected]

2 Yemen


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Yemen 3


Executive summary

Highlights

November 2009

• There is a growing risk that the Yemeni state will disintegrate, as the government struggles to cope with the myriad threats posed by Zaydi rebels in the north, growing southern secessionist sentiment and al-Qaida activity.

• Yemen's commercial and diplomatic links with the West will remain limited because of the poor security situation in the country, but its ties with its Gulf neighbours may continue to strengthen, given overlapping security interests.

• Yemen is set to return wide fiscal deficits over the forecast period, averaging 10.7% of GDP, as oil receipts stagnate and efforts to stimulate non-hydrocarbons revenue are undermined by the fragile political scene.

• The economy will struggle in 2010-11, as it is buffeted by falling oil output and growing political instability. However, real GDP growth will rise to 5% in 2010, on the back of surging gas exports, before falling back to 2.6% in 2011.

• We expect the depreciation of the riyal to accelerate over the forecast period, and there is a risk that the combination of declining oil revenue and dwindling foreign reserves will cause the currency to fall even more steeply.

• Yemen's current account is set to return historically large deficits over the forecast period. Although the deficit will narrow slightly in 2010, as gas exports and oil prices rise, it will widen to a record US$3bn in 2011.

• Fierce fighting between the government and Zaydi rebels has persisted in the north of the country, with neither side making noticeable gains. The motivations for the fighting remain unclear.

• The fighting has led to the curtailment of press freedom as the government has refused to give journalists access to the Saada region, and has harassed and imprisoned journalists who have written about the conflict.

• The Yemeni authorities have closed down the Iranian Hospital in the capital, Sanaa, as tensions have risen between Yemen and Iran following Yemeni accusations that the Iranians are helping to fund and arm the Zaydi rebels.

• The Central Bank has used its foreign-exchange reserves to finance a growing current-account deficit, which has led to a steady depletion of these reserves.

• The Central Bank has intervened in the currency markets for the sixth time this year as part of a policy that has been in place since the beginning of 2009 to bring about a slow depreciation of the Yemeni riyal.

• The Yemen Liquefied Natural Gas Company has announced the start of production at its new LNG plant. The project will help to offset declining oil revenue in the oil-dependent state.

Outlook for 2010-11

Monthly review

4 Yemen


Outlook for 2010-11 Political outlook

The Yemeni government will struggle to cope with disparate and deepening security and socioeconomic challenges, which will not only undermine stability, but even threaten the disintegration of the state itself. The war in the northern Saada region has resumed (this is the sixth round of fighting since mid-2004), and, without mediation, could well spread and escalate, drawing in other aggrieved elements. Elsewhere, the formation of the independence-seeking Southern Movement reflects rising secessionist sentiment, and the presence in Yemen of al-Qaida in the Arabian Peninsula (AQAP; comprising the Yemeni and Saudi arms of the group) is contributing to the worsening of security conditions. Taken together, the position of the president, Ali Abdullah Saleh, looks shakier than at any time since the civil war of 1994. Mr Saleh's ability to use fiscal measures to placate public anger over low living standards and maintain the web of patronage that has underwritten his rule will continue to be eroded by the steady depletion of Yemen's oil reserves and lower oil prices; new gas revenue is not expected to offset the losses.

Faced with rising social unrest, the government will put stability before meaningful political and economic reform. Both the local and the parliamentary elections have been postponed, and tensions between the opposition coalition, the Joint Meeting Parties, and the ruling General People's Congress are likely to increase. Although the decision in February to postpone the parliamentary election until 2011 was a joint one, it seems that to bring the opposition on board, the government made several pledges to reform the political system, including moving towards a parliamentary, rather than a presidential, system. However, the Economist Intelligence Unit does not expect the government to fulfil these pledges, which will not only increase tensions between the two sides, but probably lead to a further postponement of the election.

However, the main challenge confronting the government is the resumption of violence in Saada province and surrounding areas. The rebels, often known as Houthis (after their deceased leader, Hussein al-Houthi), have few clearly articulated aims, but are predominately a manifestation of growing resentment at the perceived economic, political and religious marginalisation of the Zaydi Shia. Although a mediated deal brought the insurgency to a halt in mid-2008, both sides have failed to abide by the ceasefire terms, and the government launched a big military offensive in August. However, the government's military approach is fraught with danger. The previous bout of fighting spread to the environs of the capital, Sanaa, and there is a growing risk that other aggrieved parties, such as the Southern Movement, could join the Houthis, causing the conflict to spread and potentially plunging the country into chaos.

Away from the north, the government has failed to deal effectively with the grievances underlying the wave of protests that have spread across the south since early 2008 and unrest is likely to increase further. Southern resentment of the northern elite's perceived economic dominance has been exacerbated by

Domestic politics

Yemen 5


the heavy-handed response of the security forces to the demonstrations. This growing discontent has culminated in the creation of the Southern Movement. Its recently appointed leader is Ali Salem al-Bidh, an exiled former Marxist who led the attempted southern breakaway that culminated in the 1994 civil war; Tariq al-Fadhli, a powerful former ally of the president, has also thrown his support behind the movement. The growing political clout of the Southern Movement has raised the likelihood of confrontation, and the risk of a descent into widespread, sustained violence across the south is high.

Adding to the government's woes, the threat from al-Qaida, which is suspected of being behind the killing of several aid workers in June, is growing. Although the government has taken some action (including reportedly arresting AQAP's top financier in June), it continues to release terrorist suspects, on the dubious promise of future good behaviour. Equally, given the myriad threats emanating from Saada and the south, the already overstretched security services will be unable to apply sustained pressure on the group.

The poor security situation will limit the extent of Western commercial and diplomatic links. Hesitancy in tackling al-Qaida has damaged Yemeni-US ties, and difficulties agreeing to repatriation terms for Yemenis being detained at Camp Delta at Guantánamo Bay, Cuba, reflect US wariness of Yemen's intentions. Conversely, Yemen's ties with its Gulf neighbours may continue to strengthen, given overlapping security interests, particularly with Saudi Arabia. (An assassination attempt by AQAP on the Saudi assistant security minister, Prince Mohammed bin Naif, in August was planned in Yemen.) However, there are signs that disputes between Saudi Arabia and Iran are being fought through proxies in Yemen, with Saudi Arabia claiming that Iran has provided weapons to the Houthis, and Iran asserting that Saudi warplanes have bombed rebel positions. In October, reflecting a worsening of relations between Yemen and Iran, the authorities closed down the Iranian Hospital in Sanaa.

Economic policy outlook

Rising public discontent will hinder efforts by the government to implement much-needed fiscal reforms, and it will struggle to overhaul the hugely expensive fuel subsidy. As a result, the authorities will focus on more piecemeal but achievable measures, covering, among other things, oil production-sharing contracts, electricity production, land allocation and the courts. However, even if this succeeds in reviving the stalled reform process, the challenge of overcoming the country's dependence on its rapidly dwindling oil reserves will force the government to rely increasingly on foreign largesse. The bulk of the US$5.7bn promised by donors at the London donor conference in 2006 is still yet to be disbursed, and, in any case, the amounts pledged are not to be given as direct budgetary support. With oil earnings falling precipitously, the government has reportedly turned to Saudi Arabia for US$2bn in urgent assistance, and we expect it to make similar pleas to its other Gulf neighbours. Although the Gulf Co-operation Council (GCC) states are typically keen to distance themselves from Yemen's problems, fears that the country is descending into chaos are likely to force them to provide financial support.

International relations

Policy trends

6 Yemen


Yemen is set to return wide fiscal deficits over the forecast period, as oil receipts stagnate and efforts to stimulate non-hydrocarbons revenue are undermined by the fragile political scene. However, the coming on stream of Yemen's first liquefied natural gas (LNG) project (YLNG), which has been delayed several times this year, should provide a much-needed fillip to the public finances in 2010. Nevertheless, we expect the revenue boost to be temporary, reflecting our assumption that oil and gas prices will fall the following year (a global LNG glut is likely by 2011). Meanwhile, expenditure will continue to rise, as defence outlays remain high, and political realities prevent major cutbacks in fuel subsidies and the civil service (although modest reforms are likely). We therefore expect the fiscal deficit to remain wide in 2010, at YR633bn (US$2.8bn), or 9.5% of GDP, although this will be slightly smaller than the estimated shortfall in 2009, owing to higher oil prices and LNG exports. In 2011, however, the deficit will widen once again, as oil prices fall.

Financing these deficits may prove challenging. Although the Ministry of Finance can use Treasury-bill sales to the banking sector, local banks will struggle to cover the deficits fully. As a result, the state pension fund has been appropriated to purchase T-bills, but, given the scale of the shortfalls, the government will also rely on foreign grants and concessional borrowing.

Yemen's financial system is underdeveloped and its economy is largely cash-based, which means that the direct impact of the global financial crisis on the country has been limited. However, it also reduces the efficacy of interest rate adjustments, depriving the Central Bank of Yemen (CBY) of an important monetary policy tool. As a result, the CBY's efforts to manage liquidity will remain primarily focused on the issuance of certificates of deposit and T-bills, although the reduction in the minimum deposit rate in January and May indicates a move to greater monetary flexibility. We expect lending rates to remain high over the forecast period, but the government may seek to reduce the minimum deposit rate further in response to falling inflation and, possibly, in an effort to boost demand for T-bills.

Economic forecast

International assumptions summary (% unless otherwise indicated)

2008 2009 2010 2011

Real GDP growth World 2.8 -1.3 3.2 3.4

OECD 0.6 -3.5 1.7 1.4

EU27 0.7 -4.2 0.7 1.2

Exchange rates ¥:US$ 103.4 93.8 90.0 89.0

US$:€ 1.470 1.398 1.423 1.398

SDR:US$ 0.629 0.645 0.637 0.640

Financial indicators € 3-month interbank rate 4.65 1.22 1.08 2.50

US$ 3-month Libor 2.91 0.99 1.29 2.24

Fiscal policy

International assumptions

Monetary policy

Yemen 7


International assumptions summary (% unless otherwise indicated)

2008 2009 2010 2011

Commodity prices Oil (Brent; US$/b) 97.7 62.0 74.0 70.0

Gold (US$/troy oz) 870.2 960.2 1043.8 976.3

Food, feedstuffs & beverages (% change in US$ terms) 29.5 -20.0 6.0 1.3

Industrial raw materials (% change in US$ terms) -5.1 -28.8 18.6 6.0

Note. Regional GDP growth rates weighted using purchasing power parity exchange rates.

We estimate that world GDP (at purchasing power parity rates) will have con-tracted by 1.3% in 2009, as the deep recession in the EU and the US has dragged down global growth, and expect it to expand only weakly in 2010 and 2011, by 3.2% and 3.4% respectively, led by non-OECD states. The average price of dated Brent Blend is forecast to fall in 2011, as the US and a number of the Western economies suffer a slowdown that year, from US$74/barrel in 2010 to US$70/b.

Yemen's economy will struggle over the forecast period, as it is buffeted by a combination of falling oil output and growing political instability. However, the start of gas exports will partly offset the impact of falling oil output in several of Yemen's larger oilfields, although there is a downside risk that depressed global demand could hinder gas sales. Meanwhile, the continued decline in oil output, combined with lower oil prices than in 2008, will limit government spending, which will in turn depress private consumption. Domestic demand will also be hit by the problems in the agricultural sector—the country's largest employer—where persistent water shortages have been exacerbated by a drought in the main grain-producing areas. Over the same period, investment will stagnate, as work on the LNG facilities is completed and foreign investors are deterred by Yemen's unpredictable security environment.

However, the disbursal of monies pledged at the London donor conference in 2006 should increase, and rebuilding in the east of Yemen, after serious floods in October 2008, will support investment. As a result, we forecast that real GDP growth will rise from an estimated 3.8% in 2009 to 5% in 2010. However, with the boost to growth provided by YLNG fading, and the rate of decline of oil production expected to accelerate, real GDP growth is forecast to slow to just 2.6% in 2011—below the rate of population growth.

We expect inflation to return to historical norms in 2010-11, having fallen during 2009, to an average of just 3.4%, on the back of steep declines in the prices of foodstuffs and other commodities. With Yemen heavily reliant on imports, and the riyal likely to weaken gradually, we expect inflation to rise to 12% in 2010, as global oil and other commodity prices rise, before declining slightly to 10.5% in 2011, in line with slightly lower oil prices. However, it should be noted that our inflation (and GDP) data could be revised, owing to a discrepancy in the figures provided by the Central Statistical Organisation.

Having been virtually pegged to the dollar since end-2007, at around YR200:US$1, the riyal has begun to weaken recently—a change that we had

Inflation

Exchange rates

Economic growth

8 Yemen


anticipated given the recent falls in inflation and the need to maintain the competitiveness of non-oil exports. We expect this weakening to gather pace over the remainder of the forecast period, with the riyal now expected to depreciate from an estimated average of YR203:US$1 in 2009 to YR216:US$1 in 2010 and YR231:US$1 in 2011. However, there is a growing risk that the combination of declining oil revenue and the CBY's dwindling stock of foreign reserves will prevent an orderly depreciation of the riyal; if this happens, either the currency will fall more steeply than presently envisaged, or the authorities will have to introduce a range of capital controls.

Yemen's current account is set to return historically large deficits over the forecast period, despite the ramping up of LNG exports. Although we forecast that export earnings will rise by a relatively strong 27% in 2010, boosted by gas sales and an upturn in oil prices, it is worth noting that, at US$6.9bn, they will still be some way below 2008 levels. In 2011 export earnings will fall, as oil prices and production decline. The import bill, having contracted by an estimated 19% in 2009 (owing to lower imported refined fuel products prices and the near completion of the construction of YLNG), is forecast to increase by an annual average of 6.9% in 2010-11, as both the price and quantity of refined products imports rise. As a result, the trade account is set to remain in deficit over the forecast period; the deficit is projected to narrow in 2010, to US$761m (2.5% of GDP), as gas exports surge, before widening in 2011, to US$1.3bn.

Yemen's non-merchandise deficit is expected to widen on average over the forecast period, as income debits rise in the wake of higher oil prices and the start-up of YLNG. Meanwhile, the current transfers surplus will widen slightly, as donor aid increases and more Yemeni workers are allowed into GCC countries. Overall, the current-account deficit is expected to narrow slightly from an estimated US$2.7bn in 2009 to US$2.6bn in 2010, before widening once again to a record US$3bn.

Forecast summary (% unless otherwise indicated)

2008 a 2009 a 2010b 2011b

Real GDP growth 3.2 3.8 5.0 2.6

Oil production ('000 b/d) 306 c 270 260 239

Crude oil exports (US$ m) 7,797 3,888 4,283 3,497

Consumer price inflation (av) 19.0 c 3.4 12.0 10.5

Deposit rate 13.0 c 10.0 12.0 13.0

Government balance (% of GDP) -3.9 -11.6 -9.5 -11.8

Exports of goods fob (US$ bn) 9.0 5.5 6.9 6.8

Imports of goods fob (US$ bn) 8.8 7.1 7.7 8.1

Current-account balance (US$ bn) -1.1 -2.7 -2.6 -3.0

Current-account balance (% of GDP) -3.9 -9.6 -8.5 -9.3

External debt (year-end; US$ bn) 6.0 6.3 6.9 7.5

Exchange rate YR:US$ (av) 199.8 c 203.0 215.5 230.5

Exchange rate YR:¥100 (av) 193.3 c 216.5 239.4 259.0

Exchange rate YR:€ (av) 293.7 c 283.7 306.5 322.2

Exchange rate YR:SDR (av) 317.4 c 314.6 338.4 360.3

a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.

External sector

Yemen 9


Monthly review: November 2009

The political scene

The sixth round of fighting between government forces and Zaydi Shia rebels (often known as Houthis after their deceased leader, Hussein al-Houthi), in the northern region of Saada is still ongoing and fiercer than ever. In late October Médecins Sans Frontières (MSF), an international medical and humanitarian organisation, reported that it had abandoned its hospital in Saada, owing to the severity of the fighting, and that the hospital was subsequently badly damaged by missile and artillery fire, leaving the region with no medical care. The condition of locally displaced persons is reported to be "wretched" and deteriorating as the fighting spreads and increasing numbers of people flee their homes.

Operation Scorched Earth, launched by the president, Ali Abdullah Saleh, in August in order to bring the conflict finally to a close, has failed to achieve the hoped-for decisive victory. There appears to be no prospect of either side gaining the initiative and after five years of fighting a military solution to the conflict seems unlikely. Mr Saleh has launched the latest round of fighting not only because he views the Houthis as a direct threat to his regime, but also because he is keen to demonstrate to other disaffected groups around the country that he will not tolerate dissent and that he is prepared to take the most forceful steps to suppress it. The US has been reluctant to condemn outright Yemen's military assault, perhaps because it does not want to endanger the regime's support for the US's priority of tackling the growing al-Qaida threat in Yemen.

However, the conflict in the north appears to have backfired on Mr Saleh, as it has sucked in many other groups and tribes, and the government has found itself fighting a vastly different foe than when the insurgency broke out five years ago. The local tactic employed by the government of tribal divide and rule, combined with carelessness—both military and humanitarian—towards the local population, has driven many into the ranks of the rebels. Furthermore, the fact that the government has failed to defeat the Houthis and has become embroiled in conflict in the north has encouraged other disaffected groups around the country to become more assertive in their protests against the government. In late October a rally supporting the recently formed Popular Movement for Justice and Change, a predominantly southern political organisation, was dispersed by police in Taiz in south-west Yemen, with dozens arrested. After the authorities imposed a state of emergency in the area, the local MP, and key member of the movement, Sultan al-Samee, said that the government wanted to create another Saada in Taiz.

Given that the Saada conflict appears to be sparking unrest in other parts of the country, there has been increasing speculation about other possible reasons for Mr Saleh's decision to continue fighting the campaign. One increasingly popular explanation is that the president launched the latest round of fighting as a means to support moves by his son, Ahmed Ali Saleh, to secure the succession to the presidency. Ahmed Saleh has been head of Yemen's

Fierce fighting persists in the north of the country

10 Yemen


Revolutionary Guards for several years, but, in order to raise his profile and gain wider support, his role has been expanded. Until now, his uncle, Ali Mohsen al-Ahmar, the commander of the army, has directed the campaign against the Zaydi rebels. However, his failure to defeat them has given Ahmed Saleh a chance to take over military command and gain support from the military leadership by giving them free rein to crush the rebels. Mr Ahmar's credibility had earlier been undermined by the defection of Tariq al-Fadhli, a powerful former ally of the president, to the Southern Movement (May 2009, The political scene). Mr Ahmar had been the government's primary interlocutor with Mr Fadhli, who informally represented the Salafist militias co-opted by the government to help fight the Houthis. Whether these political machinations are indeed behind the ongoing conflict remains speculation, but in a country where there are rarely straightforward explanations for events, it is increasingly clear that the Zaydi conflict must be viewed in the context of wider Yemeni, and indeed regional, politics.

One of the side effects of the Zaydi rebellion is suppression of the media, owing to the government's attempts to eliminate any reporting of the fighting and its consequences. Not only have reporters and broadcasters been banned from the conflict zone, telecommunications in the area have been cut off, so little news can get out, and journalists who have written about the conflict have been harassed and imprisoned. The government has also adopted the same tactics with regard to reporting the widespread unrest in the south of the country. The deteriorating climate for the Yemeni media—once hailed as being among the most vibrant in the region—has been highlighted by international press watchdogs. For example, Reporters without Borders, a French non-governmental organisation, ranked Yemen 167th out of 173 countries in its Press Freedom Index 2009, which was published on October 20th 2009, down from 155th in 2008. It said that the government regarded journalists travelling to the Saada region as collaborators with the rebellion and that this forces journalists to resort to self-censorship.

The Yemeni authorities closed down the Iranian Hospital in the capital, Sanaa, in mid-October, accusing staff of gathering intelligence on the Zaydi conflict for Iran and helping to channel funds to the rebels. The Yemeni government also accused the hospital of failing to pay its rent and having built up arrears of some YR27m (US$131,000). The move is just the latest episode in a persistent campaign by the government to place the blame for the Zaydi rebellion on outside parties, particularly Iran. In August the authorities in Sanaa submitted a formal protest to the Iranian envoy in Yemen, against alleged Iranian support for the rebels. The authorities had earlier claimed that they had discovered Zaydi weapons caches containing Iranian-made missiles. In mid-October an Iranian ship was intercepted at Midi, a Red Sea port, with a cargo consisting primarily of anti-tank shells. The Iranian crew was arrested, but Iranian officials have denied the story. These tensions, as well as a planned demonstration outside the Iranian embassy, forced the Iranian foreign minister, Manouchehr Mottaki, to postpone his visit to Yemen in late October. His visit was aimed at mollifying the Yemeni regime, which has recently tempered its accusations

Tensions between Yemen and Iran rise

Zaydi rebellion results in curtailed press freedom

Yemen 11


towards Iran, by saying that Iranian support for the rebels is not official but rather comes from "Iranian elements".

Economic policy

With Yemen's current account likely to slip further into deficit, the need for foreign exchange is growing ever more acute. Yemen recorded its first trade and current-account deficit for a decade in 2007. Although the current-account deficit narrowed slightly in 2008, this was only because of the steep rise in oil prices. Since the beginning of 2009, oil prices have moderated and Yemen's oil output is forecast to fall at almost double the rate that it did in 2008. Yemen's gas export earnings may offset some of the decline in oil export revenue in 2010, but will probably not be sufficient to pull the trade account back into surplus. In any case, Yemen's demand for imports will continue to grow; although capital goods imports will decline after the completion of Yemen's first liquefied natural gas (LNG) project, rapid population growth will mean a growing need for foodstuffs imports, and falling oil production will translate into a rising refined products import bill.

Supporting the Yemeni riyal has accelerated the depletion of the Central Bank of Yemen's foreign-exchange reserves. According to data from the Central Bank, foreign-exchange reserves fell from US$8.2bn at the end of 2008 to US$6.8bn at the end of July, a decline of 17%. Although international reserves recovered slightly in August, to US$7.2bn, this was principally a consequence of an inter-national allocation of funds by the IMF aimed at boosting global liquidity. As a result, Yemen received around US$305m. Foreign-exchange reserves therefore remain sufficient to cover around eight months of imports, a comfortable level for the time being. However, the downward trend in import coverage—the monthly coverage of imports has halved in just five years—is worrying.

Foreign-exchange reserves (US$ m unless otherwise indicated)

2008 20091 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr

Total reserves excl gold 8,129 8,217 8,292 8,111 7,426 7,064 % change, year on year 6.6 9.4 10.4 5.1 -8.6 -14.0

Source: IMF, International Financial Statistics.

In October the Central Bank intervened in the currency markets for the sixth time this year, releasing US$132m to currency dealers in order to help meet the demand for dollars and stabilise the depreciation of the riyal. Since the beginning of 2009, the Central Bank has sold US$808m of its dollar reserves to ensure sufficient funds are available in the market to buy imports. From 2007 to end-2008 the Yemeni currency appreciated slightly; in the nine months to end-September it weakened by 2.5%. The interventions are part of Central Bank policy to manage the exchange rate, and the currency has probably been allowed to depreciate to increase the Yemeni riyals available to the government once oil revenue has been converted into local currency. Currently, the Central Bank has ample reserves with which to support the currency, but, should reserves continue to be depleted, such support may become problematic.

Central bank intervenes in currency markets

Foreign-exchange reserves are depleted

Central Bank intervenes in currency markets

12 Yemen


Exchange rate (YR:US$; av)


199

200

201

202

203

204

205

206

SepAugJulJunMayAprMarFebJan09

DecNovOctSep2008

Economic performance

On October 15th the Yemen Liquefied Natural Gas Company (YLNG) announced that it had started the production of LNG at its plant at Belhaf on Yemen's Arabian Sea coast. YLNG expects to ship its first cargo to South Korea within weeks, a year after the original planned export start date. The state-owned South Korean energy company, KOGAS, holds a 6% stake in the project.

The development of the LNG project has been delayed by technical hitches, as well as by protracted negotiations with the government over the distribution of gas. According to YLNG, of the 9.15trn cu ft of proven gas reserves in the country's main hydrocarbons region in Marib, to the east of Sanaa, 1trn cu ft will be diverted through a spur line for domestic use. The remainder, and an additional 0.7trn cu ft of probable reserves, will be processed on-site in Block 18, before being transported to the Belhaf facility for liquefaction and export through a 320-km dedicated pipeline. This main line will be capable of carrying 1.14bn cu ft/day of gas, allowing for a production capacity of up to 6.7m tonnes of LNG a year, for some 20 years. Initial capacity will be roughly half of that total, however, since only the first train has come into operation. Although no date has been given for the start-up of the second train, YLNG sources have confirmed that "Train 2 is still scheduled to come on stream several months after Train 1".

YLNG's gas supplies will come from both associated and non-associated sources. According to YLNG, associated gas is currently produced with oil from some 450 active wells and a high percentage of the gas will be produced from fields already in production. The associated gas needs processing prior to liquefaction at Belhaf. Treatment to remove the condensate and extract propane and butane will be carried out at existing production units in the Marib area. Gas already extracted at these facilities has been reinjected into the oil reservoirs to boost oil recovery and production; part of YLNG's mission is to recover this gas and monetise it through liquefaction and export. YLNG claims that its project is the largest and most important investment ever made in Yemen. It estimates that its LNG exports will earn up to US$50bn over the

Yemen LNG begins production

Yemen 13


lifetime of the project, creating around 700 permanent jobs and an additional 700 for contracted service providers.

The project could not start at a more crucial moment. The decline in Yemen's oil output, on which it relies for over 90% of export earnings and around 75% of government revenue, appears to have gained pace in recent months. During the third quarter of 2009, Yemen produced an average of 260,000 barrels/day (b/d) of oil, well down on the average of 310,000 b/d in 2008. With dwindling foreign-exchange reserves, Yemen is in urgent need of an alternative source of income. However, YLNG is only a partial solution and more action will be required to support the economy.

14 Yemen


Data and charts Annual data and forecast

Pl ea se se e g ra p hi c b el ow

2005a 2006a 2007a 2008b 2009 b 2010c 2011c

GDP

Nominal GDP (US$ m) 17,872 20,903 23,727 28,707a 27,912 31,001 32,475

Nominal GDP (YR m) 3,422,730 4,119,011 4,720,562 5,734,671a 5,665,083 6,680,663 7,486,826

Real GDP growth (%) 4.6 3.2b 3.5b 3.2 3.8 5.0 2.6

Expenditure on GDP (% real change)

Private consumption 5.4b 4.6b 4.4b 3.4 2.9 3.3 3.0

Government consumption 6.0b 6.2b 7.0b 7.0 -1.3 0.9 0.6

Gross fixed investment 18.2b 12.5b 9.5b 7.4 -2.2 -3.7 0.9

Exports of goods & services 4.7 -3.0b -3.0b -2.4 6.8 12.5 4.0

Imports of goods & services 14.5 7.6b 5.8b 4.6 -1.3 0.4 2.9

Origin of GDP (% real change)

Agriculture 3.3 3.3b 1.5b 2.2 -1.0 2.0 3.0

Industry -0.9 -0.9b 4.1b 2.8 5.8 9.0 10.4

Services 4.5 4.5b 4.0b 4.0 3.5 3.8 4.8

Population and income

Population (m) 21.1 21.7 22.3 22.9a 23.6 24.3 25.0

GDP per head (US$ at PPP) 2,336b 2,416b 2,509b 2,570 2,626 2,718 2,747

Fiscal indicators (% of GDP)

Central government budget revenue 32.8 35.2 30.3 32.2 22.0 21.8 19.1

Central government budget expenditure 34.5 34.1 35.8 36.1 33.5 31.3 30.9

Central government budget balance -1.7 1.1 -5.5 -3.9 -11.6 -9.5 -11.8

Public debt 31.6b 27.5b 30.0b 28.1 40.3 45.3 54.1

Prices and financial indicators

Exchange rate YR:US$ (av) 191.51 197.05 198.95 199.76a 202.96 215.50 230.54

Exchange rate YR:US$ (end-period) 195.08 198.50 199.54 200.08a 208.00 221.00 237.50

Consumer prices (av; %) 16.5 11.3 7.9 19.0a 3.4 12.0 10.5

Stock of money M1 (% change) 13.3 26.2 9.9 10.8a 5.0 10.2 11.2

Stock of money M2 (% change) 14.4 26.1 17.0 13.2a 8.6 13.5 11.8

Lending interest rate (av; %) 18.0 18.0 18.0 18.0a 18.0 18.0 19.0

Current account (US$ m)

Trade balance 1,700 1,390 -441 148 -1,663 -761 -1,306

Goods: exports fob 6,413 7,316 7,050 8,977 5,456 6,936 6,832

Goods: imports fob -4,713 -5,926 -7,490 -8,829 -7,120 -7,698 -8,138

Services balance -860 -1,306 -1,143 -1,452 -1,447 -1,611 -1,695

Income balance -1,613 -1,234 -1,350 -1,976 -1,133 -1,711 -1,677

Current transfers balance 1,406 1,356 1,426 2,167 1,552 1,461 1,664

Current-account balance 633 206 -1,508 -1,113 -2,692 -2,623 -3,014

External debt (US$ m)

Debt stock 5,363 5,561 5,926 5,977 6,337 6,853 7,459

Debt service paid 211 225 254 318 290 299 329

Principal repayments 149 154 185 236 211 213 228

Interest 62 72 69 82 79 86 100

International reserves (US$ m)

Total international reserves 6,142 7,545 7,759 8,157a 6,307 5,316 4,277

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.


Yemen 15


Quarterly data Pl ea se se e g ra p hi c b el ow

2007 2008 2009

3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr

Prices

Consumer prices (av; 2005=100) 120.6 126.5 140.7 141.6 144.2 144.9 144.1 145.2

Consumer prices (% change, year on year) 8.9 9.1 20.7 21.4 19.6 14.6 2.4 2.5

Financial indicators

Exchange rate YR:US$ (av) 199.02 199.22 199.58 199.70 199.80 199.98 200.17 200.48

Exchange rate YR:US$ (end-period) 199.07 199.54 199.66 199.79 199.83 200.08 200.27 202.72

Deposit rate (av; %) 13.0 13.0 13.0 13.0 13.0 13.0 12.0 n/a

Lending rate (av; %) 18.0 18.0 18.0 18.0 18.0 18.0 18.0 n/a

Treasury bills, 3-month rate (av; %) 15.9 15.9 15.9 15.0 15.1 14.9 14.2 n/a

M1 (end-period; YR bn) 559.6 613.7 584.3 584.1 684.2 680.2 683.5 n/a

M1 (% change, year on year) 8.1 9.9 7.7 10.8 22.3 10.8 17.0 n/a

M2 (end-period; YR bn) 1,409.1 1,516.9 1,518.5 1,569.5 1,678.1 1,717.5 1,746.8 n/a

M2 (% change, year on year) 16.7 17.0 14.3 16.4 19.1 13.2 15.0 n/a

Sectoral trends (Crude oil)

Production (m barrels/day) 0.33 0.32 0.32 0.31 0.30 0.30 0.28 0.27

Prices, Brent (US$/barrel) 75.04 88.95 96.67 122.39 115.59 55.89 44.98 59.14

Foreign trade & payments (US$ m)

Reserves excl gold (end-period) 7,570.0 7,715.0 8,129.0 8,224.0 8,292.0 8,111.0 7,426.0 7,064.0

Sources: IMF, International Financial Statistics; Central Bank of Yemen; International Energy Agency, Oil Market Report; Platts.

16 Yemen


Monthly data Pl ea se se e g ra p hi c b el ow

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Exchange rate YR:US$ (av) 2007 198.52 198.62 198.73 198.80 198.97 199.08 199.06 198.98 199.02 199.11 199.10 199.33

2008 199.54 199.59 199.62 199.66 199.68 199.75 199.79 199.79 199.82 199.84 200.03 200.06

2009 200.12 200.16 200.22 200.30 200.39 200.76 n/a n/a n/a n/a n/a n/a

Exchange rate YR:US$ (end-period) 2007 198.58 198.72 198.77 198.87 199.05 199.11 199.06 198.95 199.07 199.14 199.14 199.54

2008 199.55 199.63 199.66 199.67 199.74 199.79 199.81 199.81 199.83 199.86 200.05 200.08

2009 200.15 200.18 200.27 200.37 200.43 202.72 n/a n/a n/a n/a n/a n/a

M1 (% change, year on year) 2007 19.6 27.9 25.4 21.9 19.0 17.3 14.5 9.1 8.1 5.0 5.0 9.9

2008 8.0 5.7 7.7 5.6 12.7 10.8 13.2 17.3 22.3 11.6 15.1 10.8

2009 19.4 14.1 17.0 23.4 17.1 19.3 n/a n/a n/a n/a n/a n/a

M2 (% change, year on year) 2007 26.8 29.5 30.2 29.1 22.4 23.0 21.4 18.8 16.7 13.0 13.5 17.0

2008 16.7 13.7 14.3 11.6 15.6 16.4 17.5 17.5 19.1 14.7 16.9 13.2

2009 15.5 14.3 15.0 18.1 14.6 14.0 n/a n/a n/a n/a n/a n/a

Deposit rate (av; %) 2007 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0

2008 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0

2009 12.0 12.0 12.0 12.0 10.0 10.0 10.0 n/a n/a n/a n/a n/a

Lending rate (av; %) 2007 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0

2008 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0

2009 18.0 18.0 18.0 18.0 18.0 18.0 18.0 n/a n/a n/a n/a n/a

Foreign-exchange reserves excl gold (US$ m) 2007 7,536 7,663 7,599 7,609 7,559 7,521 7,496 7,507 7,570 7,655 7,667 7,715

2008 7,695 7,802 8,129 7,737 8,008 8,224 8,428 8,440 8,292 8,772 8,172 8,111

2009 7,803 7,512 7,426 7,248 7,274 7,064 n/a n/a n/a n/a n/a n/a

Sources: IMF, International Financial Statistics; Haver Analytics.

Yemen 17


Annual trends charts Pl ea se se e g ra p hi c b el ow

Annual trends charts

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Budget balance(% of GDP)

Current-account balance(% of GDP)



Real GDP growth(% change)

Consumer price inflation(av; %)

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0 World Middle East and North Africa Yemen

11100908070620050.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0 World Middle East and North Africa Yemen

1110090807062005

-16.0

-12.0

-8.0

-4.0

0.0

4.0

8.0

12.0

16.0 Middle East and North Africa Yemen

1110090807062005-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0 Middle East and North Africa Yemen

1110090807062005

Main destinations of exports, 2008(% share of total) (% share of total)

Main origins of imports, 2008

Thailand 26.1

Other 16.5

India 17.1

China 30.6

UAE 4.6

Japan 5.2

US 4.1

Others 53.2

UAE 16.9

China 11.9

Saudi Arabia 8.0

Kuwait 6.0

18 Yemen


Monthly trends charts Pl ea se se e g ra p hi c b el ow

Monthly trends charts

Exchange rate(YR:US$; av)

Consumer price inflation(% change, year on year)

Monetary aggregates(% change, year on year)

Foreign-exchange reserves(US$ m)

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.

6,000

6,500

7,000

7,500

8,000

8,500

9,000

AprJan09

OctJulAprJan08

OctJulAprJan07

OctJulApr2006

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

JulAprJan09

OctJulAprJan08

OctJulAprJan07

OctJulApr2006

195

196

197

198

199

200

201

202

AprJan09

OctJulAprJan08

OctJulAprJan07

OctJulApr2006

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0 M2 M1

AprJan09

OctJulAprJan08

OctJulAprJan07

OctJulApr2006

Yemen 19


Comparative economic indicators Pl ea se se e g ra p hi c b el ow

Comparative economic indicators, 2008

Gross domestic product(US$ bn; market exchange rates)

Gross domestic product(% change, year on year)

Consumer prices(% change, year on year)

Sources: Economist Intelligence Unit estimates; national sources.

Sources: Economist Intelligence Unit estimates; national sources.Sources: Economist Intelligence Unit estimates; national sources.

Sources: Economist Intelligence Unit estimates; national sources.

Gross domestic product per head(US$ '000; market exchange rates)

0 100 200 300 400 500

Jordan

Bahrain

Yemen

Lebanon

Tunisia

Syria

Oman

Sudan

Libya

Iraq

Morocco

Qatar

Kuwait

Egypt

Algeria

Israel

United Arab Emirates

Iran

Saudi Arabia

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

Yemen

Sudan

Egypt

Syria

Morocco

Iraq

Jordan

Tunisia

Iran

Algeria

Lebanon

Libya

Saudi Arabia

Oman

Bahrain

Israel

Kuwait


Qatar

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Iraq

Morocco

Algeria

Israel

Tunisia

Bahrain

Saudi Arabia

Lebanon

Libya

Kuwait

Oman

Sudan

Jordan

Qatar

Syria


Egypt

Yemen

Iran

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Yemen

Algeria

Israel

Saudi Arabia

Tunisia

Syria

Jordan

Libya

Morocco

Bahrain

Lebanon

Oman

Iran

Sudan

Egypt


Iraq

Kuwait

Qatar

20 Yemen


Country snapshot

Basic data

527,968 sq km

22.92m (IMF, mid-2008 estimate)

Population in '000 (2004 census)

Taiz 2,403 Hajjah 1,481 Ibb 2,138 Dhamar 1,339 Hodeida 2,161 Hadramawt 1,029 Sanaa city (capital) 1,748 Sanaa (province) 918

Northern and central highlands: warm in summer but cold in winter; Tihama and southern coast including Aden: hot; eastern plains and desert: hot, arid and harsh

Arabic (official); English is also used in official and business circles

Predominantly metric in the northern governorates and UK (imperial) in the south; local measures are also in use

Yemeni riyal (YR) = 100 fils. The riyal was floated on the open market in July 1996

3 hours ahead of GMT

The dates of Islamic holidays are based on the lunar calendar and are therefore approximate. New Year's Day (January 1st 2010); Mawlid al-Nabi (the birthday of the Prophet; February 26th); Labour Day (May 1st); National Unity Day (May 22nd); Revolution Day (September 26th); Eid al-Fitr (end of Ramadan; September 11th); National Day (October 14th); Independence Day (November 30th); Eid al-Adha (Feast of the Sacrifice; November 17th); Islamic New Year (December 7th)

Land area

Population

Languages

Measures

Currency

Time

Main towns and provinces

Climate

Public holidays

Yemen 21


Political structure

Republic of Yemen

Republic, unified on May 22nd 1990

Under the constitution of May 1991, sharia (Islamic law) is the principal source of law

Unicameral assembly directly elected for a six-year term

September 20th 2006 (presidential); April 2003 (parliamentary). Next parliamentary election had been scheduled for April 2009, but in February it was postponed for two years; next presidential election scheduled for 2013

President (directly elected for a seven-year term): Ali Abdullah Saleh; vice-president: Abdel-Rabbuh Mansour Hadi

Council of Ministers headed by the prime minister

There are 22 legal parties, five of which are represented in parliament: the General People's Congress (GPC, the ruling party); the Yemeni Congregation for Reform (Islah, a religious-based party with tribal and Islamist wings); the Arab Socialist Baath Party; the Yemeni Socialist Party (YSP); and the Nasserist Unionist Party (NUP). These, together with two opposition groups without parliamentary representation, the Union of Public Forces and al-Haq, form a loose parliamentary coalition, the Joint Meeting Parties

Prime minister Ali Mohammed Mujawer Deputy prime minister for defence & security affairs, & local administration Rashad al-Alimi Deputy prime minister for interior affairs Sadiq Amin Abu Ras Deputy prime minister for economic affairs & planning & international co-operation Abdel-Karim al-Arhabi

Agriculture & irrigation Mansour Ahmed al-Hawshabi Defence Mohammed Ahmed Ali Electricity & energy Awad Saad al-Soqotri Finance Nouman Taher al-Souhaibi Fisheries Mohammed Saleh Shamlan Foreign affairs & immigration Abu Bakr Abdullah al-Qirbi Human rights Huda Ali Abdel-Latif al-Ban Interior Mutaher al-Masri Justice Ghazi Shayef al-Aghbari Labour & social affairs Amat al-Razzak Ali Hamad Oil & mineral resources Amir Salem al-Edroos Public health & population Abdel-Karim Rasei Public works & roads Omar Abdullah al-Qurshumi Teaching & education Abdel-Salam al-Jufi Trade & industry Yahya al-Mutawakkel Transport Khaled al-Wazir Water & environment Abdul Rahman Fadhl al-Iryani

Ahmed Abdel-Rahman al-Samaawi

Legal system

Executive

Political parties

Government

Form of state

National elections

Legislature

Head of state

Key ministers

Central Bank governor

Official name

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