In Yemen, can reforms reinstate values? (2/3) [Archives:2005/877/Opinion]

September 15 2005

One of the most important elements that one sees in many of the sub-programs in the Economic, Financial and Administrative Reform Program (EFARP) discussed in the last Common Sense involve good governance and sound management as key factors that will assure the successful achievement of such programs. Even studies and reports by the relevant government agencies concerned with the implementation of the various components of EFARP never fail in bringing this issue out. Without a doubt, any endeavor that is lacking in sound management techniques is doomed to failure. In addition, the funds expended would not generate their expected returns, not to mention the waste and misuse thereof that is bound to occur under the absence of controls that good governance would entail. This is in fact the problem that has been the overriding dilemma that has boggled most analysts evaluating EFARP.

In May 22, 1990, Yemen was reunited and the two leaderships of what was before that North Yemen (Yemen Arab Republic) and South Yemen (the People's Democratic Republic of Yemen) agreed that the new united Yemen was to undertake a comprehensive reform program in governance. The reforms were intended to launch a free democratic Yemen that would have been a model for a modern Arab state and the four years that followed unification saw tangible ramifications that seemed to indicate that Yemen's leadership did indeed mean to put Yemen on a sound course in governance. Thanks to the balance of power that prevailed in that period between the leading political factions in the country, many concrete steps in defining the application of this phenomenal agenda. However, in 1990, the Gulf War (II) erupted as Saddam Hussein's tanks blitzkrieged into Kuwait. Although Yemen's position did not outright condone the Iraqi occupation of Kuwait, it was nevertheless considered mesmerizing by many of our neighbors and not viewed as helpful to the Coalition that was organized to get Saddam's tanks out of Kuwait. Many observers at that time suggested that for all practical purposes, Yemen should at least strictly abide by an absolute neutrality position in the battle that was to eventually take place seven months later and not propose any alternatives. Others even suggested that the interests of Yemen would dictate that we go along with the international community and openly condemn the Iraqi invasion of Kuwait. Kuwait had been a generous supporter of Yemen since the early days of the Revolution and more importantly, a million or so of our people were working in the Gulf States, their remittances home providing important foreign exchange assets for the country. Yemen's position was bound to be detrimental on both counts. With many Yemeni politicians “unofficially” enticing what appeared to be pro-Iraqi sentiments then, the “Gulf states” factor was removed from the configuration of significant factors that made up the Yemeni economy.

The significance of this development should not be underestimated in trying to understand why Yemen's economy suffered a severe economic setback in the 1990s. But prior to that, there were already difficulties brewing, at least in the YAR, with respect to the matter of governance. Over the 1980s, the government was becoming more tightly centralized, while at the same time growing immensely in size. Furthermore nepotism was becoming firmly entrenched as a feature that was bound to lead to more open corruption and abuse of power. All semblance of local authority or decentralized decision making that existed before that were gradually eliminated down to the community level. One of the most successful development efforts, undertaken by the local and sectoral Cooperatives for close to a decade before, was killed with one sweep of genius by the mindless bureaucrats that influenced political decisions in the period. The Ministry of Finance took over the accounts of all the cooperatives and their management was incorporated into the administrative apparatus of the government – a bureaucratic nightmare. This did away with the transparency and accountability that had characterized the formerly successful operation of these cooperatives.

In the early 1980s, the government (again this is in North Yemen) introduced the rigid uniform wage and benefits regime for all the employees of government entities and state enterprises (and to a certain degree the mixed sector enterprises). Within one year of the introduction of this regime, many of the state enterprises, which were before that operating under lucrative incentive-based remuneration schemes, reported their first year of operating losses! With many of these formerly autonomous enterprises also subjected to falling under some ministerial umbrella, their management became more politicized and horrendously more bureaucratic. Their functional utility became futile. In the meantime, laws or decrees were issued that killed what were once effective and attractive laws. The First Investment Law in Yemen was one of the victims of such changes. In the late 1970s, Yemen had what was considered one of the most attractive investment laws in the world. Many investors from overseas flocked to Yemen to find their niche in the national economy and this companies and individuals from the Gulf states such as Saleh Kamil, the Al-Khorafis, Rafiq Al-Hariri (He was still just a businessman in Saudi Arabia then), just to name a few. They invested in such projects as the Sheraton Hotel (Arab Hotels Company), Yemeni-Kuwaiti Real Estate Corporation, etc. Foreign banks, such as Citibank also had branches opened up or joined other foreign and local investors to form new banks (International Bank of Yemen). Thus by the mid-Eighties, this was all history. Citibank for example pulled out, investors stopped coming, as bureaucracy became further entrenched and as corruption became an attractive alternative to beating the uniform wage and salary scale.

With unification, came the hope that all this would be overcome with more flexible legislation put into effect. Indeed that seemed to be true to a certain extent. However our mindless bureaucrats were not to be easily outdone. New legislations were passed by Parliament that in many cases reflected the governance aura envisioned by the Unification Agreement. However these were rendered practically as no more than being symbolic as “executive procedures” for their implementation became the principle regulatory framework in real effect. Needless to say, the latter were drawn up and issued by the Executive Branch which had fine tuned these “procedures” to practically kill the intent and spirit of the original laws and put them at the mercy of the relevant bureaucracy. More follows in the next issue.