Investment Promotion, Production, Privatization, Foreign Partnership: Tasks Awaiting Bajammal’s Govt. [Archives:2001/17/Business & Economy]

April 23 2001

Improving the economic situation is one of the most important issues on the agenda of the Bajammal government for the next two years.
Reforming the economic situation of the country has been targeted by the five previous governments, which have been formed since the declaration of unity on May 22, 1990. All have failed to bring about remedies for deficit reduction, inflation, unemployment and for currency devaluation.
First Economic Reform Program
In the first four years of unity (1990-1994) the government outlined the first program for economic and financial reform, aiming at improving the situation and condition of public sectors so as to increase their production and promote exports. The government also issued a law to organize investment and encourage local, as well as foreign, capital to invest in the available fields. Among the things which are kudos for the first government is that it was able to maintain the rial rate against hard currencies at one level, kept subsidies of main foodstuffs, and decrease fees of electricity, telephone, water, oil and gas prices. At the same time it began the formation of the first authority of frees zones.
However, the political differences and conflicts between the ruling parties, the General People’s Congress (GPC) and the Yemeni Socialist Party (YSP) played havoc with the first economic reform program. A partner in leadership, the YSP, found itself without power after the civil war of 1994 was over. As a result, Yemen’s external debts increased, deficit of the budget increased and a state of confusion and imbalance dominated the national economy.
Statistically, 1994 witnessed a sharp rise in the level of inflation (71%), and the budget deficit reached 17% of the GDP.
Freeing Trade and Launching the Second Reform Program
After the civil war was over on July 17, 1994 the GPC joined hands with the Yemeni Congregation for Reform Party (Islah) in a bi-coalition that adopted a new financial and economic reform program which aimed at:
– Free trade. This included giving a green light to importing a number of banned products and decrease customs tariffs.
– Apply amendments to the Investment Law and initiate the privatization process for some of the public organizations.
in March 1995 the government kicked off an economic and financial reform program which was supported by the World Bank, World Fund and donors. The program succeeded in decreasing the deficit by 3% of the GDP, inflation by 5% and achieving a 5% development. But with the situation of limited-income, people economic condition deteriorated owing to the lifting of subsidies and increasing prices of oil, gas, electricity, water, and telephone by 25%-50%. As the government pursued the Reform Program, poverty, unemployment and price increases worsened day after day. In addition, the purchasing power of the national currency weakened during the third government (1997-1998), and the forth one which continued until the last formation of a new government by Bajammal.
Economic Tasks before Bajammal’s Government
Undoubtedly, there are difficult economic tasks before the new government which the previous governments failed to fulfill. Most important among those tasks is the launching of a new dose of economic reforms that were postponed under the directives of the World Fund and World Bank, the main supporters of the Reform Program. Bajammal seemed to have paved the way for the new dose by merging two ministries in one, split some ministries into two and by forming new ones as well.
In the next two years, the government has to increase the private sector’s investment. This requires creating a stable economic environment, curbing bureaucracy in the administrative systems and taking procedures to encourage investors to come to Yemen. The coming period also necessitates the completion of the necessary infrastructure for the industrial area and providing a strong administration for the Free Zone in Aden.
Accelerating Privatization
According to the reports of the World Bank, the current government must hasten the privatization process of the remaining ‘failed’ public organizations within a clear plan that is able to attract foreign capital, and create a new channel for income. Improving the economic performance as well as increasing production of the agricultural and industrial sectors require solutions to the banks’ debts in order to be able to give loans to farmers and factory owners.
Foreign Partnership
Yemen’s efforts to join the World Trade Organization (WTO) is blocked by reforming the customs tariffs. The new government has to face three premises in negotiations in order to meet the conditions for joining the WTO. These premises are, carrying out multi-side negotiations to discuss the economic and trade systems of Yemen, having bilateral negotiations focusing on concessions in the field of costumes tariffs as well as the commitments to supporting agriculture, and lastly, holding talks on commitments in the trade and service sectors.
It seems that Yemen’s foreign trade partnership will be achieved only after solving the economic and financial problems, creating an active customs system, stable economic environment that is able to protect the local production and establishing a stock market in order to help investors invest their securities successfully.