The Economy: Retrospect & Prospects? [Archives:1999/27/Focus]

July 5 1999

Common Sense
By: Hassan Al-Haifi
Part One: Retrospect
As one goes through the major markets of Sana’a, one is not impressed by the rather poor activity and traffic of shoppers, at the wholesale as well as the consumer level. In a city of around one million inhabitants, this would be a clear sign that the Yemeni economy is not generating income on a widespread basis, in order to induce more consumer spending. For sure, this is not a reflection of consumers being well stocked up, as this is the beginning of the month, and one cannot miss noticing that the overriding conversations in qat sessions and public transport (the mini busses) is on the difficulties of households trying to meet their utility bills, let alone meeting the other household requirements, such as food and clothing. As for family vacation trips, that has been scratched out of the household budget, even before the First Family Budget Survey of 1994.
For several years, the government has become aware that there are “some” problems with our economy, and it was never difficult for the government to come up with the excuses, with a view towards at least convincing the donors that it is “monitoring” the situation. As for the Yemeni people, the government seems to care very little whether anybody is convinced or not by what the Government says, or at anything the Government does. It even comes up with statistics and indicators which are not anywhere near a true indication of where the economy really stands. Moreover, the Government will insist that whatever the problem is with the economy, it arose out of circumstances that are beyond its control, and “external” factors have a heavy influence on the economic situation in the country. There are even “conspiracy” theories that are ready made to help absolve any suspicion of Government failure in addressing the economic problem, and all the other problems, which the Yemeni people seem to have difficulty finding solutions for. Notwithstanding all these abstract theories, nevertheless, there is a stagnant economy, that is close to zero economic growth, if not below it, and a serious unemployment situation. This is true for both skilled and unskilled, educated and illiterate, that may be put at around 40%, if we are to lend some credibility to government figures.
Furthermore, there is a deteriorating currency, and not even the price rebound of oil has helped to maintain the stability, to say the least. While the Government has acknowledged to Yemen’s donors that there are some difficulties, its unabashed public media continues to assure the Yemeni citizens that they have never been better off!
There are some very basic fundamentals that would call for more concrete explanations, and, to a certain extent, accountability for the inescapable assertion that even if the government itself may not have been the cause of an economy with a slump, it has at least failed to address the problem. It needs to deal with the problem in such a way as to activate econometric models to produce positive trends, which could lead to getting investors to have some confidence in the economy and would raise the hopes of heads of households that at least it can’t get any worse! On the other hand, the Government cannot be ignored in any effort to make a clear and rational evaluation of the the economic picture over the past decade and a half. There are three obvious reasons that surely lend support to this deduction:
1)Long-term, and to a considerable extent, short-term macro and micro economic behavior, is more often than not, a direct function of Government policy Ð or the lack of it, where it might be called for. When speaking of government policy here, it is not just implied that it is only economic policy that has a strong bearing on the economy.
For example, earlier this decade, we saw the government make foreign policy decisions that obviously lacked any kind of economic foresight, thus bringing back a million emigrant Yemeni workers from overseas. These workers had formed the backbone of the economy for almost two decades before they were sent home. While the matter of the propriety of such a foreign policy is not the matter being discussed here, it cannot be ignored that the decision did lead to Yemeni expatriate workers loosing an irreplaceable preferential status, which they acquired in the Gulf states. Prior to the governments decisions, Yemenis were the envy of almost all the other expatriate communities that flocked to claim their stake from the Persian Gulf Oil boom. Whatever the moral or “nationalistic” justification behind the decision to adopt such a policy, which never clearly defined Yemen’s position vis a vis an obvious lost cause, the economic implications were devastating. It was not long before Egyptians and other foreign workers, whose governments knew where to put their foreign policy stakes, replaced those Yemenis.
2.The Government is the biggest active entity in the national economy, not just by its function for the formulation of economic and other sectoral policies that have an effect on the economy, but by its colossal spending habits. Furthermore, its budget management, or mismanagement, to be more accurate, has, especially for Yemen, had a profound impact on the state of the economy. On the other hand, by virtue of its size and the economic activities it has pursued, rather inefficiently, there can be no escape from the presupposition that the government indeed has not been very helpful in steering the economy out of its inability to generate growth and job opportunities for a rapidly rising population (close to 4% a year, according to the Government’s own statistics). In addition, the mismanagement of the government’s own economic activities is bound to filter down to the other sectors Thus, rather than the Government producing optimal models to look to for guidance and example in managing economic affairs, one is seeing government enterprises that are running inefficiently, and operating in the red, thus becoming constant drains on the government budget, as well as those of their customers – the people of Yemen.
3.Economic performance of a country is gauged by quantitative yardsticks that have been developed to help government policy makers come up with policies that orient the economic activities in the country to produce positive trends, which will show that Government policy makers really understand what those indicators mean and what kind of a picture they reflect of the people’s real conditions as they live through these indicators. But unfortunately, the Government continues to view the economic indicators that it comes up with, as an academic exercise which must be dealt with “scientifically” and thus the human factor has no place in the analysis of these indicators. On the other hand, it is no secret that most of the senior government officials are separated from the economic plight of the majority of the people of the country. They seem to have been immunized against the economic ills of the nation, as they close themselves up in their plush residences, with no concerns about their salaries not being able to make ends meet. On the contrary, senior government officials seem to always be enjoying their own booming economy that they have created for themselves. How they do it has been a mystifying matter that opens up serious questions about the absence of accountability and adherence to any minimal ethical standards of public responsibility.
As an observation on the side, one of the biggest economic disappointments has been the slow disappearance of the once growing middle class, most of who are, in fact government employees, at the mid-level positions, and professionals. Yet, even these government employees are unable to come up with any convincing argument to their prosperous supervisors, that they are suffering extreme hardships, as their incomes, which used to range from the equivalent of US $1,000 Ð 2,000, has now dwindled down to well below US $100.
Thus, it would seem plausible that the Government leaders should realize that, no matter what explanation they come up with for the state of the economy, they are still not free from the responsibility of getting the economic mess of the country straightened out, by first straightening out themselves. More on the economy in the next issue when we look at the prospects for the future.
“Part Two: Prospects” to be published next week.