P A S E ONG OAD AHEAD FOR YEMENh24-files.s3.amazonaws.com/55215/128903-X1NwD.pdf · 2011-12-16 ·...

POST- ARAB SPRING ECONOMIES:

A LONG ROAD AHEAD FOR YEMEN THE STOCKHOLM FREE WORLD FORUM | STOCKHOLM,

SWEDEN | 2011

SHABAKAT Corporation | Leveraging Grassroots Networks Across The World Written by: Susanne Tarkowski Tempelhof, CEO, Shabakat Corporation

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SC-REPORT –SFWF- 003 -2011 | LEVERAGING GRASSROOT NETWORKS ACROSS THE WORLD

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As the poorest country in the MENA region, Yemen faces tremendous

economic, demographic, and environmental pressures. Even before Yemen’s current

spate of political turmoil began in February 2011, the country faced tremendous

developmental challenges. Yemen is the poorest country in the MENA region, with a per-

capita GDP at purchasing-power parity of around $2,600 (IMF 2010). Yemen scores

poorly across the board on human-development indicators such as literacy (just 35% for

females), infant mortality, and life expectancy.

TABLE 1: GDP per capita (PPP) and total GDP (PPP) for MENA countries, 2010

Country GDP (PPP) US$ per capita, 2010 (IMF)

GDP (PPP) US$M, 2010 (IMF)

Qatar 88,559 150,550 United Arab Emirates 48,821 246,799 Kuwait 37,849 136,495 Israel 29,531 219,431 Bahrain 26,852 29,712 Oman 25,439 75,837 Saudi Arabia 23,826 621,993 Lebanon 15,193 59,367 Libya 13,805 90,571 Iran 10,865 818,653 Tunisia 9,483 99,995 Algeria 6,950 251,117 Egypt 6,354 497,781 Jordan 5,644 34,528 Syria 5,208 107,398 Morocco 4,754 151,432 Iraq 3,538 113,366 Palestine (West Bank and Gaza) 2,900 12,790 Yemen 2,598 63,395

Rapid population growth has put tremendous strain on the Yemeni economy. Owing

to a high birth rate, Yemen’s population has quadrupled since 1965, and now stands at 24



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million — making it only slightly smaller than its powerful neighbor, Saudi Arabia

(population 27 million), and far larger than any other country on the Arabian peninsula.

Yemen’s capital, Ṣanʿā’, has expanded from just 135,000 inhabitants in 1975 to 1.75

million today as migrants stream to the city in search of work. Even middle-aged

residents of Ṣanʿā’ can remember when the city still fit inside its walls; today, it sprawls

far beyond them.

Yemen also has a very young population: 67 percent of the population is under the

age of 24. That is the highest proportion of youth for any country outside sub-Saharan

Africa (IFAD 2011). For an already unstable and bureaucratically inept government, this

demographic precariousness poses great challenges in providing education and health

services.

Population growth and poor government management have created a water crisis.

Yemen has less fresh water per capita than almost any other country in the world (FAO

2007), and Ṣanʿā’ may soon become the world’s first capital city to run out of water.

With its population expected to double in 20 years, Yemen’s water problem is

straightforward: more water is being consumed than replaced, so the water table is

sinking fast. This is especially true in highland areas like Taʿizz (a major city in southern

Yemen) and Ṣanʿā’, where some wells are already 1 km deep, requiring oil-drilling

equipment. Until the 1970s, underground water resources were not used, and traditional

methods of capturing rainfall and managing water use kept consumption in balance with

natural resource. But as the population grew and drilling technology became available,



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the water table began dropping rapidly.1 “If we continue like this, Ṣanʿā’ will be a ghost

city in 20 years,” said Anwer Sahooly, leader of an urban-water-supply team at German

development agency GTZ. 2 Yemenis are already selling their farms and abandoning their

homes in some villages, creating “water refugees” that further increase the strain on

Yemen’s cities. The prospect of Yemeni water refugees eventually seeking to relocate

abroad to the Gulf states or Europe is real.

Nevertheless, the proportion of Yemen’s population living in rural areas remains

high, and it is in the countryside that poverty is most painfully acute. Some development

indicators have actually declined in the Yemeni countryside in recent years. For example,

between 1995 and 2008, the percentage of rural Yemenis with access to an improved

water source declined from 60% to 57% — even it increased from 77% to 80% in the

MENA region as a whole (World Bank 2011). Only 22% of rural women can read and

write (World Bank 2006). Child malnutrition, which is especially severe in rural areas,

has actually increased over time in Yemen — from 33% in 1983 to 42% in 1992 to 53%

in 2003.3

The current political crisis is compounding existing challenges

The political unrest that has engulfed Yemen in 2011 has brought the country to the

brink of economic collapse. This has happened for a number of interconnected reasons.

First, protests and military clashes, both in the capital and throughout the north and south 1 ICRC, “Yemen: War and water woes,” 12 September 2008. 2 Reuters, “Yemen’s water crisis eclipses al Qaeda threat,” 17 February 2010. 3 Family Health Survey in the Republic of Yemen; UN Human Development Report 2005.



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of the country, have sharply disrupted normal economic activity. President Ali Abdullah

Saleh, who has ruled Yemen for 33 years but left in June for Saudi Arabia after being

wounded in an assassination attempt, is making noises about returning to the country,

further confusing an already tense and disorganized internal political situation. Intense

fighting continues between security forces loyal to the president (and his son Ahmed Ali

Saleh, head of Yemen’s Republican Guard) and opposition tribal groups loyal to Ṣādiq

al-Aḥmar, head of the powerful Ḥāshid tribal confederation. In the south, a secessionist

movement is being re-ignited, with its loosely coalesced members regularly either allying

with or fighting against elements of Al Qaeda in the Arabian Peninsula (AQAP). In the

north, the Ḥūthī rebellion among some Zaydī Shia groups is seeking autonomy and has

been flaring up every year since 2004. In short, the popular uprising has brought down

much of the already limited central authority that the Saleh regime had in what was

already close to being a “failed state.” The upshot is that many businesses in Ṣanʿā’ and

other major cities have been closed for much of 2011, putting a tremendous strain on the

national economy.

Second, the turmoil has disrupted the state’s main source of revenue: oil income. The

story of a March 2011 attack on a pipeline in central Yemen is instructive here: it

demonstrates how the uprising has further tangled the unfortunate web of connections

between Yemen’s oil, its economy, its domestic politics, and international affairs.

The story of the Ma’rib pipeline begins with an American air strike in May 2010. The

United States has long backed President Ali Abdullah Saleh, supplying his regime with

military and economic aid in exchange for support in counterterrorism activities.



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However, the United States and its intervention in Middle Eastern affairs have long been

deeply unpopular with most Yemenis. They have also made the president even more

despised by many of Yemen’s citizens than before.

In May 2010, an attack by an unmanned U.S. drone killed the son of ʿAlī al-

Shabwānī, a powerful tribal leader in Ma’rib province. The younger al-Shabwānī was

apparently meeting with Al Qaeda operatives at a remote desert location to convince

them to defect; but he himself was not allied with Al Qaeda, and was not the intended

target of the attack.

The accidental death of a tribal leader’s son at American hands eventually had grave

consequences for the Yemeni economy. Ma’rib province, which has long been under the

control of tribal leaders like ʿAlī al-Shabwānī, is home to around half of Yemen’s oil

reserves. A major pipeline runs west from there to the coast. In March 2011, after the

popular uprising against President Saleh had begun, tribesmen under Al-Shabwānī

attacked the Ma’rib pipeline — in retaliation for his son’s death in 2010.

The attack on the pipeline, and other actions by anti-Saleh tribal groups in the spring

of 2011, launched a cascade of problems for the Yemeni economy. Because oil accounts

for around 25% of Yemen’s GDP and 70% of government revenues, the pipeline attack

caused state income to plummet, worsening a fiscal crisis brought on by the unrest

engulfing the country. At the same time, fuel became scarce across Yemen, and the

country was forced to export expensive oil from abroad. Lines stretched for miles at gas

stations in Ṣanʿā’; drivers waited in line for days to buy gasoline. Moreover, the high

cost and unavailability of diesel fuel meant that the pumps used to bring water up from



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Yemen’s deep wells stopped running, sending the price of water skyrocketing and

causing nationwide water shortages. Transportation costs and food prices soared as well.4

(The pipeline’s repair in July 2011 eventually brought a measure of relief after a summer

of hardship, but the Yemeni economy continues to teeter on the edge of disaster.)

The transition to an oil-based market economy has been tumultuous

In order to understand Yemen’s current crisis, and to develop economic prescriptions

for alleviating it, we must first understand something of the history of state policy and

social relations there.

A double transition to a market economy: North Yemen and South Yemen

Between the 1970s and the 1990s, Yemen underwent a wrenching shift to a market

economy. In some cases, this shift improved growth and created new economic

opportunities, but the benefits flowed disproportionately to urban areas and to those with

patronage connections to the government, ultimately creating a wider rift between rich

and poor and generating new insecurities for rural Yemenis, women, children, and other

marginalized groups.

Until 1990, Yemen was split between the northern Yemen Arab Republic (YAR, or

“North Yemen”), where a market-based economic system was officially in place but

subsistence agriculture was the mainstay of the economy, and the southern People’s

Democratic Republic of Yemen (PDRY, or “South Yemen”), a socialist state with close

ties to the Soviet Union and China.

4 Washington Post, “In Yemen, violence fuels economic collapse,” 1 July 2011.



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North Yemen’s economy has traditionally been based on agriculture. In the 1970s, 90

percent of North Yemen’s population lived in rural areas and engaged in traditional

subsistence farming. Land ownership was relatively evenly distributed and traditional

norms of land tenure, water use, and social support maintained some level of social

stability. However, the country remained poor; medical and educational services were

severely underdeveloped.

South Yemen, by contrast, had a slightly more developed economic infrastructure,

though agriculture, basic fishing, and herding remained the main activities of most

inhabitants. The somewhat more advanced economic development of some parts of South

Yemen was due in part to the historical importance of the southern port of Aden, which

was, until 1958, the world’s second largest port after New York, and thus the site of

investment by the British colonial authority until independence in 1967. However, it was

also due to state investment under the PDRY’s command economy. The socialist regime

invested in state factories in sectors such as fish canning, mining, and brewing. It also

promoted free education and health care, established housing for the urban poor, granted

land rights to the landless rural poor, and expanded educational opportunities for women.

The legacy of these measures is still visible today: indices of unmet basic needs

(including health care, education, and housing) are remain lower in the south than the

north (World Bank 2006).

An oil boom abroad, then an oil boom at home

The oil boom of the 1970s in Gulf states such as Saudi Arabia, Kuwait, and the

United Arab Emirates radically changed the economies of both North Yemen and South



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Yemen. Millions of Yemenis left the country to find work. As a result of massive labor

emigration, nearly one-third of the Yemeni labor force was working abroad by 1990.

Their remittances became a core support for the Yemeni economy: communities invested

remitted funds into local infrastructure (roads, schools, housing, and irrigation), new crop

schemes, and local businesses.

In the mid-1980s, oil was discovered in both North Yemen and South Yemen. This

further transformed the Yemeni economy, especially after unification of North Yemen

and South Yemen in 1990. The newly unified country quickly became a rentier state, and

today, around 70‒75 percent of state revenue and 90 percent of export revenue comes

from oil. However, Yemen does not enjoy nearly as much oil wealth per capita as its

comparatively energy-rich neighbors of the Gulf Cooperation Council (GCC).5 It can be

argued that Yemen occupies an unfortunate position: given the weakness of the rest of its

economy, it has enough oil to generate a network of corruption and official patronage that

undermines state capacity (e.g. by making a strong tax-collection system somewhat

superfluous), but not enough oil to establish a comprehensive welfare state of the type

that exists in the GCC countries.

In 1990‒1991, the Yemeni economy suffered a sudden and lasting shock as a result

of the Yemeni government’s decision to abstain from voting on UN Security Council

resolutions condemning the Iraqi invasion of Kuwait. Governments in Saudi Arabia, the

Gulf states, elsewhere in the Arab world, and the United States viewed this as de facto

5 The GCC includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.



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support for Saddam Hussein. US$300 million of annual Saudi and Kuwaiti aid to Yemen

disappeared, as did most of the US$42 million of American aid. Even more painfully for

the Yemeni economy, between 800,000 and 1 million Yemeni workers were expelled

from Saudi Arabia and the Gulf. Worker remittances dropped from a high of US$2

billion annually in the late 1970s and early 1980s to just US$300 million in the early

1990s (Colburn 2002). The return of migrants, most of them unskilled laborers and half

of them illiterate, put severe strain on the economy: the Yemeni workforce immediately

increased by 15 percent, worsening the unemployment situation, and many of the

returnees settled in shanty towns ringing cities like Aden and Hodeidah, spurring the

creation of a new urban underclass.

How market liberalization has both helped and hurt ordinary Yemenis

Since the 1990s, the combination of (1) economic liberalization and opening to

international markets, (2) the entrenchment of a decentralized, patronage-based mode of

rule, and (3) intermittent violence in much of the country has created a growing gap

between a small group of privileged urban élites on the one hand and the majority of the

population on the other.

The wrenching shift to a market economy from a subsistence-based agriculture

economy, coupled with the fall in remittance income, had tremendous human costs in the

1990s. Most staggering is the simple statistic that per-capita GNP dropped from US$701

in 1990 to US$275 in 1999. Between 1990 and 1996, the price of a 50-kilo bag of rice

increased by 575 percent. Poverty doubled between 1992 and 1998, and as a small



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economic élite concentrated its wealth, the once-stable middle class largely disappeared

(Colburn 2002). The collapse of the socialist regime made the economic troubles of the

1990s especially difficult in southern Yemen, as state social guarantees disappeared — a

transition somewhat comparable to the transition experienced in the former Soviet Union.

Nationwide, it also has become harder for poor Yemenis to obtain health care, especially

as structural-adjustment measures in the 1990s forced the reduction of state expenditures.

With the shift to a market economy and the development of a patronage-based rentier

state, landholdings have also become concentrated in the hands of a few families, hurting

the rural poor and forcing them into distress sales of land (World Bank 2006). At the

same time, traditional producers (such as boat makers and sesame producers) have often

been unable to compete with cheaper commodities produced abroad (such as fiberglass

boats and cheap vegetable oil). In response, they have either left for the already

overpopulated cities or turned away from diversified subsistence production toward cash

crops.

While marketization and the turn to cash crops has proven profitable for the new class

of large landholders, it has also transformed Yemeni society. A striking example is the

intensification of qat production. Qat is a mild stimulant leaf chewed today by over 70

percent of Yemeni men (and a growing percentage of Yemeni women). While qat was for

centuries a relatively limited and private after-work ritual, it has become completely

ubiquitous in Yemen — and a mainstay of the agricultural economy. As farmers have

been forced out of subsistence production, many have turned to qat production, which is

more lucrative. One UNDP development specialist notes that the qat industry employs 14



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percent of Yemen’s workforce, and that 3.5 million Yemenis somehow depend on the

industry for a livelihood (Financial Times 20106). Cultivation of the crop is expanding at

a rate of 12 percent a year. Because qat must be consumed fresh, preferably within hours

of being picked, an incredibly efficient system of distribution has emerged around the

country — something one development consultant calls “Yemen’s most efficient example

of the free market in action” (Financial Times 2010).

However, the growth of the qat market has contributed to water scarcity and to

poverty among consumers. Qat is very water-intensive, and the country’s collective

addiction to the leaf means that qat production now consumers 30 percent of Yemen’s

already scarce ground-water resources. Consumption, meanwhile, is growing fast in all

sectors of Yemeni society. Typical users spend 10 percent of their income on qat; low-

income users spend up to 30 percent. Among the legions of unemployed and bored

Yemeni youth (and older people as well), qat chewing is one way to distance themselves,

if momentarily, from the sorry state of the economy.

Prescriptions for the future: Yemen needs a combination of better-functioning

markets, better governance, and a stronger social safety net

There are indeed some ways in which better-functioning markets can improve the

lives of Yemenis and support broad-based development in the years to come. For

example, Yemeni entrepreneurs currently have trouble accessing credit, and may not

always be aware that they qualify for bank loans or loans from development agencies

6 Financial Times, “Yemen economy hooked on qat,” 20 January 2010.



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(IFAD 2011). Likewise, extensive government red tape makes the process of establishing

a business and getting a license for it very complicated, involving tiresome stops at many

offices, bribery, and wāsṭah (personal connections). Streamlining these types of

government regulations and protocols could provide some stimulus to the struggling

Yemeni economy, and might lead more large business owners to keep their capital at

home instead of moving it offshore during Yemen’s chronic moments of political

instability.

However, efforts to improve market efficiency must be pursued in tandem with

infrastructural development and the expansion social services. This is partly in order to

ensure that the benefits of more-efficient markets accrue to all Yemenis and not just to

those with élite connections and access to capital. But it is also because the economic

problems that face Yemen today are so severe that a “market fix” by itself would be

premature and ineffective.

Targeted development programs can go a long way to both improving market

efficiency and addressing social and environmental concerns. For example, efficient

systems of horticulture have the potential to provide jobs for small rural landowners and

reduce food prices for Yemeni consumers while also reducing water consumption.

Technology transfers and technical assistance from foreign development agencies can

help launch rural horticulture programs.

In the final analysis, the greatest problems facing Yemen require more-effective,

more-efficient, and more-powerful state administration: more equitable access to health

care, sanitation, clean water, and education for rural Yemenis and the urban poor; an end



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to intertribal violence and the establishment of state control over lawless areas in the

north and south; and an end to patronage politics and the unfair distribution of oil rents to

government allies. However, it is currently unclear just who the “state” is in Yemen, and

who it will be in the coming years. This means it is difficult for foreign interlocutors to

know whom they should be supporting or negotiating with in their efforts to support the

broad-based development of the Yemeni economy for the good of all Yemenis. The Saleh

regime is deeply corrupt and has failed to govern the country effectively. On the other

hand, the opposition comprises a fragmented and often incoherent group of tribal sheikhs,

student-activists and other civil-society actors, secessionist groups, military commanders,

and disaffected former allies of the president. The hope is that some semblance of unity

will emerge among them, and that voices interested in Yemen’s broad-based

development (as opposed to regional interests or narrow élite interests) will eventually

hold prominent positions in government.

P A S E ONG OAD AHEAD FOR YEMENh24-files.s3.amazonaws.com/55215/128903-X1NwD.pdf · 2011-12-16 ·...

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