A Historical Glimpse atThe facts of foreign investments and financing in the Republic of Yemen (Part 3) [Archives:2005/852/Business & Economy]

June 20 2005

Yemen has witnessed spectacular political changes since 1990 that attracted the interest of international researchers and writers due to its impacts regionally and internationally, on one side, and its contribution to the study of international changes on the other side, since the achievement of unity on the hands of President Ali Abdullah Saleh. Other issues are the changes that accompanied. They were represented by the democratic process, with the regional effects of the unity, and the consequences of the second Gulf crisis and their reflections on the relations between Yemen and its neighbors. Added to that is the elections of 1993, 1994. Another development is the escalation of political differences in 1993- 1994, which ended in a civil war that continued for two months from the 4th of April to the 7th of July , and ended with the defeat of the separation project and the restoration of unity. All these were important points in the Yemeni political development, which the international writers had tackled in a manner that reflects their interest in their results on Yemen and the region as a whole.

We can observe the dimensions of the western interest in Yemen, after the unity in 1990 from a number of perspectives, in connection with the changes that were connected with the unity. The importance of Yemen increased after the establishment of the new Republic of Yemen on the remains of the former South People Democratic Republic of Yemen and the Arab Republic of Yemen, and the consequences of the merger of population, the geographical region, the economy and the military forces which left important impacts that could not be ignored

The geographical merger raised the population number to 20 million, according to 2004 census, which made it the first state in the Arab peninsula. The geographical merger put Yemen in second place to Saudi Arabia, with an area of (60.000 sq. km ) after the demarcation of boarders with Saudi Arabia in June 2000. The military, economical, and political abilities of Yemen have greatly multiplied, because of the several experiences it gained after unity. It could be said that Yemen has inherited two armies, two economies and two experiences, though the factors of political conflict undermined it during the transitional period, and the 1994 war has wasted even, if temporarily a great amount of these abilities, but still, the unified Yemen is a focus of interest for a number of factors, among them the stability which Yemen is considered to be one of its basis, in one of the most sensitive areas in the world.

The process of the unity in Yemen was connected with a number of oil discoveries in the governorates of Marib , Hadramout, and Shabwa , which stimulated the rush of western and international companies to obtain contracts for oil and gas discoveries, and to invest in those two sectors

No doubt this has an effect on the interest on Yemen in spite of the small amount of oil production in comparison if compared with the neighboring countries, but development indications were still high especially in gas. This item is expected to have high importance in the future.

It is clear that the reasons of the prevailing un equilibrium in our economy is mainly due to the general spending policy of the different governments, but the development problems are attributed to historical, economical, social, political and technological factors. They have restricted the levels and nature of the development of the technological economy and its requirements in sectors of production and services. These factors lead to the deterioration in the quality of the mechanism of mobilizing the use of economical recourses, especially those of the central control of the state economy, and the unqualified procedures of the government.

Yemen has depended on foreign financing before and after unity (loans and aids ), instead of obtaining invest mental financing from foreign companies. This led to an increase of gain services on foreign debts. They reached 4.4 milliard in 1994 of the total foreign debt, which was inherited from the two regimes, whose total was 11milliard dollars, with the exception of a few, big investments before the sixties. Those were before discovering the oil in 19984. When oil discoveries began, the special and public foreign investments began their competitions to play roles in Yemen not only as importers, but also as partners and investors. The direct foreign investment increased if compared with the foreign aids as a source of financing.

There were positive results in this respect, in the rescheduling of the foreign debts at the end of 1996, according to Napoli and Paris Club , which is supported by the agreements of the International Monetary Fund on reforms. An agreement was reached in Paris Club to drop about (80 %) of the total Yemeni Russian debts whose amount was 7milliard dollars, by rescheduling it on the long term, so that the foreign debts will be less than five milliard dollars by 2001. In 2000 -2001 Yemen has signed an understanding memorandum with creditor countries to re schedule and rebury about 695million dollars of its trade debts, through a donation of 15million dollars furnished by the International development Authority. This is a success for the government in its reform program to reduce the total of the foreign debt to about 11 milliard which constitutes the rate of 206% of the national product up to the end of 1996, to 4869.9 million dollars 4 , whose rate is 55% of the total national product of 2001. The rate of foreign debt increased to 5.381million dollars by the end of 2004, but the process of mobilizing and distributing the economical recourses, which constitutes up to now an effective factor in economical activity, is still affected by many organizational and manageable factors in addition to unfavorable conditions to improve its utilization. It is true that these problems are not in the least different from the ones that are prevailing in the developing countries, where in spite of the availability of the economical, natural and human recourses, among which is the agricultural, tourist, oil, gas, fish and employment, in spite of all that, their utilization level is still randomly tackled. This is of course due to the intervention of a lobby outside the administrative body. This lobby work for their own good. They, unlawfully seize the country's recourses and consider them their own, ignoring the rights of the other 20 million. They don't respect the law by using their positions and the term of privatizations to usurp the country's wealth. They have wasted the wealth, and offended the State and the President by doing so. These are the reasons for the still low levels of producing and the products, added to it the decrease in private savings. As a result the investments remained low, though they are the main incentive for the economical development. This is of course in spite of the increase in oil revenues.

The oil revenues were not enough for covering the foreign debts, or to contribute to investment, but they also faced foreign threats concerning the ownership of the oil on the boarders, with efforts to hinder the companies that work in Yemen. It is the second time for the foreign politics and the international economy to affect the development plans in Yemen, by hindering the influx of investments. In spite of that, investment projects in Yemen did not stop. Among the most important developmental projects, is the revival of the Aden Free Zone(*). In October 1996,an understanding memo was signed between a foreign company and the general Authority of the free Zone, as an agent, to construct the free zone in Aden. This company will try to find investments from the private sector, for the necessary construction projects to promote the investment, which is the first step in carrying out the major plans of the free zone whose total cost is 5.600 million dollars in 25 year's time, on several phases. These included new facilities, enlarging the airport, constructing a turbine station for the generation of electric power, by utilizing the gas and building the industrial area itself.There are now efforts within the free zone where there would be four industrial zones, a zone for conversion industries, containing a heavy industrial area, a raw material port, a zone for stores and Information city, a technology garden and a center for international exhibitions and a tourist area that extends for 11square kilometers.

The legal framework for this project was established in accordance with laws that grant the exemptions of export and import customs, and also to cancel a number of already imposed taxes, on income and interests. This will last for 15 years in an effort to lure the companies to the area. There are extra exemptions issued lately within the area of the free zone, which will reach up to 25 years for these projects, which export more than 50% of the products , and could allow for execution of 100% foreign capital with the same terms of those of joint and e governmental projects. There also guarantees against nationalization, water, electricity, and other facilities. The position of Aden has important privileges distinction, unlike regional zones, because of its strategic importance, it joins the Red Sea and the Indian Ocean, and as a petrol station between East and West. Other merits are cost saving. There is a bright future ahead, but it depends on the governmental policy and the choice of national conseionesious elements.

The Yemeni Government has to reconsider the reform policy for the economical, managerial and fiscal program and to also reconsider how to employ the outcome of the educational and research establishments of the universities and economical and political research centers in addition to the wage strategies, to motivate them and guarantee them a better future. The absences of coordination between development of minds and the needs of the developments lead to the emigration of the elites. It is one of the most important threats in addition to other factors, will curb the development of the community. It will also contribute to undermine university education and research, as an important recourse which provide the state with the decision makers, spastics, information and political , economical and social analysis, according to the country's needs

(4) Reference :The Magazine of Markets and Finance, Issue no.(23) May2005

(*) Aden was a British colony since 1839-1976 and was a free zones.