A Historical Glimpse at the facts of foreign investments and financing in the Republic of Yemen (Prat 2) [Archives:2005/851/Business & Economy]

June 16 2005

Dr. Abdulaziz Ahmed Al-Shawafi
For the Yemen Yemen

The important difference in economies of both the Southern democratic Yemen & The Arab Republic of Yemen , before unity in (22 May 1990) , arises from the differences in ownership and development of production means , before and after the revolutions of each of them.

The Southern Governorates with their colonial legacy has stepped into the sixties with a lot of capital projects in comparison with that of the semi feudal North before its revolution.

The nationalizations of the semi socialist regime in (Southern provinces), and the agricultural reform, has founded modern public sector and achieved equality, but couldn't establish a socialist economy.

The traditional agricultural economy continued, in comparison with (Northern Governorates), which were inaugurating its commercial and industrial projects. The Northern economy before the revolution was dependent on ranching participation in the outcome of the traditional landed property and the wage system in modern farms. The difference between the two economies is that:

The southern Democratic Republic has inherited modern factories and offices from the colonizer in 1967, whereas the Northern Yemen started building its economy in mid seventies.

The liberalized economy in the North was contradictory to that of the Southern democratic republic. This free economy lured the investors who had the capital ,like the local merchants, expatriates in the Gulf.

They got involved in the trade of real estate, exchange and industries. They became the base for private sector, and the free trade after the revolution.

Among the pioneers who came from the south, and contributed to the development in economy in the North by establishing factories, which were the base for investment activities (economically and industrially) in the (Arab Republic of Yemen), in the city of Taiz (Al-hoban), is late Hail Saeed Anaam, who worked for attracting direct foreign investments since the (sixties and seventies), either as investments, consultancy or experience.

He still works on supporting the economical and social development, as private sector. This is shown through his trade, industrial, scientific and health establishments.

Although these establishments in the developing counties are the responsibility of the state, the Hail Saeed establishments have greatly contributed to developing them though it is public sector, with the most modern technological devices.

Contrary to that the semi socialist regime in the South before the unity in 22 May1990 (since the 14th of October revolution 1969) which has cancelled all private and free economy activity, a thing that lead to the escape of a great number of merchants to the North and the Gulf states.

The abnormally unfettered currency and import markets flourished in the Yemen Arab Republic. However the collapse in oil prices decreased the transfers and the aids, and postponed or cancelled many public and private projects.. The Yemeni Rial which maintained a rate of 18 against the dollar (has promoted import ). It dropped to 18 YR against the dollar in 1986-1987.

The government was compelled to cancel the free trade to face the crisis of the balance of payments and the reserves since 1982. It temporarily cancelled the imports specially that of vegetables and fruits in 1983, as a beginning of economical reforms, and the dependence on local products.

The foreign recourses played an important part in financing in the Republic of Yemen .The loans and donations helped greatly in furnishing development programs and plans in the previous period.

The negative savings in the last three decades aggravated the dependence on foreign recourses especially from the regional countries to finance the social and economical programs. This matter makes the Yemeni economy a victim of economical and political changes.

In recess period of the oil exporting countries, in 1982, the demand of emigre employment, especially unskilled ones, dropped. The majority of that employment was Yemeni, resulting in a drop in transfers.

The recession also drove the petroleum countries to follow restrictive measures in the general spending including the foreign aid to developing countries.

It dropped from (9581.8) in 1980 to (253.1) in 1988. This led to a serious decrease in two recourses in the two parts of Yemen. They are , the transfers and the aids. The two regimes share the same relief where men and women work in the fields and herd animals. In the early seventies, the borjoise took their families to the North.

Most of them descend from the North. They moved to Taiz, Hodiedah and Sana'a. They had formerly gone to Aden during the second world war. In the North, they contributed to the investments, during the decade that followed due to increase in oil prices in 1973.

Both economies posses the special characteristic of the emigration of employment to the Gulf countries and others. Due to that fact the foreign transfers are the only source for obtaining the foreign capital, it fed the luxurious consumption (imported commodities and house building) instead of structural investment. Both North and South Yemen were classified as, under developing countries ,who are dependent on transfers and aids to cover their balance of payments. Though North Yemen enjoyed a high rate of consumption, it suffered weakness in its current accounts. Half of the local product is from services though the main activity is agriculture.

Both sides of Yemen took to planning when they applied for the membership of International Monetary Fund in 1970. Central Planning was a goal of the Southern People Democratic Yemen, whereas it was only an ideological commitment towards the World Bank in the Yemen Arab Republic. In both cases there was a three year plan (1971-1974) in the South, and (173-1975) in the North, only for the public sector ..However the following plans after unification were for five years 1996-2000

It is true by that in comparing through available facts, both economies of the participation of the private and public sector, in about three decades here appears a common model in spending on development projects, in spite of the dependence of the Yemen Arab Republic on free market, the public sector participated in the development of total capital of the private sector.

In the mean time the declarations of the semi social regime were contradicting the increasing role of the local and foreign projects. The two regimes were both relatively poor, and lie in the petroleum area of the of Arabian Peninsula, they both depended on the transfers of the workers and developmental and international aid.

The discovery of oil came in the mid eighties and it brought with it a third form of capital, which is the multi petroleum companies .

The important stage in Yemeni economy came in the petroleum industry. The discovered stock in the boarders of the North and South, was developed in collaboration with the international companies.

The governmental companies depended on foreign experience. The Soviet companies assumed studies in the coasts and territorial waters of the people southern Republic of Yemen.

However in the late seventies negotiations were started with British, Italian, French Kuwaiti, Spanish and Brazilian projects. There were also more than thirty international companies in the south searching for petroleum. In 1984, Yemen Hunt which was then totally owned within a local unit of Hunt company in Texas, made the first important discovery outside Marib near the boarders of the South.

Outer companies like Texaco, Alf Fquntain, Total, Canadian Oxedental and other Soviet projects, started negotiations to search for petroleum.

The soviet company Techno Export made a major discovery in 1986, in Shabwa in the boarders with Marib. These discoveries paved the way for complementary contracts in the south for financing and building from all over the world, like the American project to construct a small refinery near Marib, and the Lebanese, Italians and Germans who constructed the pipe line. There were other economical discoveries in 1987 and 1989.

A Yemeni company can't alone exploit the petroleum wealth in Marib -Shabwa basin. They soon became aware that they had to seek joint Yemeni-foreign capital and experience. The joint production not only guaranteed security to the Arab Republic of Yemen, but it also gave it hope to use the capabilities in Aden including the port and the developing refinery, which was badly in need of production. The cooperation has made the two sides leave behind their conflicts.

The two national petroleum companies merged in one Yemeni company for investment in petroleum and minerals. The joint Yemeni company signed a production agreement in late 1989 with an international team constituting each of, Hunt and Exon with a rate of 37.5%, among them is the Kuwaiti establishment for Foreign petroleum Discoveries 25%, Total 18.75% and two of the units of Techno Export and Mashino Sport and oropheogeology 18.75%. This agreement has crowned the efforts of 20 years of the two ideologically different regimes

This general ethnological project removed the contrast between the capitalist – socialist differences and merged the two governments and made them partners in an unprecedent project, then shortly after that unity came.

The influx of capital to Yemen in the form of loans and foreign aid, created two systems dominated by developmental projects at one side and derivative agriculture, marginal trade sector, and emigration on the other side. The drop in petroleum prices together with the reduction in international aid, has confused the economists and lead them to taking restrictive measures in the Arab Republic of Yemen in 1983 which shared in the break out of the factions war in Aden in1986

Had it not been for the discovery of oil, the conditions would have been sad. It gave access to foreign financing recourses, and future instituted investments from revenues of oil (actual) exports.

Unity was prepared as a complete merge. Whereas Sana'a would be the administrative capital, Aden will regain its previous status as an economical center and a free port, with a strategic geographical position competing the international free ports. However a question arises:

When will the Yemeni government have a clear cut policy that will give a free hand to investing and concerned bodies of the free zone without any interference of special meritoriouses, in signing the agreements, a thing that makes investments flee Yemen.

Foreign investments are always eager to head to areas where they find security guarantees in the first place, good hosting, in a transparent climate that have effective investment methods, examples of these are:

1- Availability of safe investment sites

2- A 24 hour continuously available electric power

3- A 24 hour continuous influx of water

4- Asphalt roads with international specifications.

5- International, air and sea ports with good reputation, punctuality, promptness and attractiveness.

6- Varied and advanced communications

7- General advanced services ,of hotels, local and international transport

8- Development of information services for promotion and advertisements through the press and TV

9- Preparation and development of fascinating tourism sites for both tourists and investors

Before any benefits of the unity could be utilized there came the second Gulf crisis, that stopped the influx of transfers, aids from Kuwait, Emirates Iraq and Saudi Arabia, and the return of the new unemployment whose number was (700) thousand.

They in flexed into Yemeni towns when recourses were exhausted. Then came the third Gulf crisis to finish the rest with diplomatic methods, which are American imported and exported (forcibly)

(2) Reference: The American Institute for Yemeni Studies, political changes in Yemen ,western research and studies, Sana'a 1996.