The Economy of The Arabian Peninsula: Focus on Yemen [Archives:1998/37/Focus]

September 14 1998

This is an OPINION page.
Every week, a different intellectual writes a FOCUS on a pertinent issue!

Professor Abdulaziz Al-Saqqaf,
Chief Editor, Yemen Times
Professor of Economy, Sanaa University
I: General Background:
Let me start with a warm greeting to all of you who found it worthwhile to come to a lecture on the economic prospects of Yemen. I was warned that not many Japanese business people and academics would be interested in the lot of a small and poor country. I am gratified with this overwhelming attendance of high caliber people. I hope to show that you have not made a wrong decision by coming.
The Arabian Peninsula is the name of the large chunk of land-mass that lies at the South-western corner of Asia. It is made up of seven countries; namely, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates and Yemen. Their basic are are shown in the following table:
The first six of the seven countries listed above, whose economies are dominated by the oil sector, are grouped within the Gulf Cooperation Council, a loose association created 17 years ago. Citing reasons of economic advantages, geographic proximity and historic ties, Yemen applied to join earlier this year, but was rejected.

The countries of the Arabian Peninsula suffer today from a major economic problem because of the dramatic decline in oil revenues. That is why all of them, whether they recognize this or not, require an adjustment process. For many, which have enjoyed an unearned level of high lifestyle, that will now have to go. The run on the Saudi Arabian Riyal which we saw a few days ago, is only a signal of the weakening of the economies of these countries. It is my belief that unless urgent action is taken towards reforms, a painful adjustment is awaiting these countries.

I do not want to dwell on generalities and the region at large. Allow me now to zero in on the situation in Yemen.
II. Biting the Bullet:
Yemen, urged by donor wisdom, has seen the need to embark on corrective measures. Starting in 1995, first a two-year stabilization program was implemented. This required painful changes in the form of currency devaluation, raising of interest rates, limitations on credit, curbs on printing of money and reduction in budgetary deficits, and other similar decisions. But at the end it worked. The exchange rate of the local currency has stabilized, government deficits have shrunk to less than 2% of GDP, which is within the Maastricht requirements, and the banking system has been invigorated.
Now the country has moved to the second stage of the reforms Ð structural adjustment. This required changes in the legal framework to create an environment more favorable to private business, privatization, an overhaul of the bureaucracy by reduction of government paperwork and personnel, etc. New laws now give foreign investors the same rights as locals, including 100% ownership of projects, no labor requirements, no controls on capital flows, and very generous tax holidays.
The price, in terms of the political damage of the adjustment process, has already been paid, as attested in the massive demonstrations and unrest, including the kidnapping of foreigners and the hostile actions against government projects. The country can now turn to collect the dividends.
III. What Are the Opportunities?
The opportunities for investors and businesses are quite clear. Let me list a few:
1- Natural Resources:
Investments in the oil and gas sectors have seen an enormous growth over the last few years. Although Yemen produces some 360,000 bpd of oil today, there are major expectations for growth in this sector. This is especially true if Yemen and Saudi Arabia agree on their borderline, thus releasing more than 50,000 square kilometers of land with high oil potential on the Yemeni side. With about 17 trillion cubic feet of proven gas reserves, a major liquefaction project is being led by American and French companies, with some Korean interests.
Reports of gold discoveries by a joint Swiss/Canadian effort have added to the excitements in the country. Other natural resources which are being prospected include silver, zinc, aluminum, iron, etc. Several Euro-American companies are now heavily involved.
2- Fisheries:
With 2,700 kilometers of shoreline and hundreds of islands in the Red Sea and the Arabian Sea, possibilities for marine projects are enormous. Already, companies from Korea, China, Russia and other parts of the world are involved in the region. The prizes include lobsters, prawns, and various other marine delicacies.
3- Tourism:
Yemen is well-endowed as a tourist destination. As the land of the ancient Queen of Sheba, and home to the aromatic Mokha coffee Ð both household names in many parts of the world, the name Yemen conjures many romantic images. It is also a society rich with folklore Ð souqs that tell tale of the Arabian nights. Male tourists invariably return home with the famous jambia, and women come back with lots of hand-made silver jewelry Ð both of which cost only a few dollars. Desert treks for the adventurers, majestic mountains and deep gorges for the hikers, and beautiful slopes with some of the most unique fauna and flora in the world for family and group tourists offer inviting attractions.
4- Industry:
With abundant and cheap labor, a major consumer market, various industrial joint ventures are a distinct possibility. Processing and packaging industries are an immediate possibility which could tap into the bountiful agricultural products. Manufacturing is another possibility.
With the Aden Free Zone coming on line, taking advantage of redistribution and trans-shipment is yet a further possibility.
Finally, let me conclude by touching on the political changes that have taken place in the Republic of Yemen. Of the countries of the Arabian Peninsula, only Yemen has really embarked on a serious political transformation.
Since the country’s re-unification on 22nd May 1990, Yemen’s desire to join the world community nations into the 21st century has enabled it to adopt new values in the structure of political system.
The first pluralistic parliamentary elections were held in 1993. The second elections were held in 1997. Next year, 1999, the country will have two sets of elections – local and presidential. I cannot say that we have had exactly fair and free elections as in the West. But the system is slowly and steadily correcting itself.
Freedom of the press is reasonably assured. There are today some 100 newspapers and magazines in the country representing all political colors. Although the government heavily guides quite a few of these, there are independent as well as opposition publications which have haunted the people in power. I can say that there is no pre-printing censorship, although if you step on some influential people’s feet, you should expect some heat.
The next development in the country’s freedom of expression would be to break the state monopoly in television and radio stations and allow private investors in.
Human rights and civil liberties are respected, within certain constraints. In short a civil society is being developed.
Nobody is saying life in Yemen is heaven. But compared to the neighborhood, it is indeed better blessed.
I hope some of you will come and check it out.
Thank you for listening.
This lecture was delivered at the Middle East Institute of Japan, Tokyo, on September 11th, 1998.