The Economy: Retrospect & Prospects? [Archives:1999/28/Focus]

July 12 1999

Common Sense
By: Hassan Al-Haifi
Part Two: Prospects
From last week’s discussion on the economy of the Republic of Yemen, it was clear that the Government’s role vis a vis the developments in the economy cannot be ignored. In this case, it cannot be left without some analysis, to highlight some of the misguided policies pursued, and the painful results that ensued as a result of those policies. Moreover, it should be emphasized that the present situation had been forewarned long before even the Gulf War had occurred. In studies which were issued as early as 1983, it was forecast that the government’s economic policies, or their absence, was leading the economy into serious problems.
By the early 1990s, donors, lead by the World Bank, had begun to tell the Yemeni Government that serious attention towards the economy was warranted. Thus the Economic and Administrative Reform Program was initiated in 1995 to help bring about a “restructuring” of the economic and management sectors, in light of the changes brought on by unification and other regional and international developments. While the economic reforms were indeed called for, the Program itself at first focused on monetary and fiscal measures, which were intended halt the decline, and hopefully bring an improvement in monetary and fiscal indicators. The administrative measures called for streamlining of government organizational structures and the introduction of more effective and efficient management and operational procedures. Unfortunately however, they did not entail sincere and serious steps to ward off corruption and improper use of power, nor concrete steps to have performance become subject to some form of accountability and reward or punishment, as the case may be, although there was significant mention of it here and there in the Program. In the opinion of this observer and many other more enlightened experts on economic and governmental affairs, it would seem that no reform program dealing with government activities can ever be effective without the activation of accountability and performance standards for government officials, whether in the management of economic affairs, or of any other affairs for that matter. That is why the economic reforms called for and the anticipated results desired could not be tangibly felt or physically seen, even after 4 years. Moreover, it could easily be seen that the victims of the reforms have been the very same victims of the poor economic performance of the government Ð the overall majority of the Yemeni people Ð for over a decade and a half, whereas those responsible for such poor performance are still in power, expected to undo what they have intentionally or unintentionally built up and torn down for so many years. What they have built up is a hugely inefficient administrative structure that relies on narrow vested interests, that prevails above the national and public interests. What they have torn down were many of the fairly effective and proven development efforts that were instigated by greater popular or community participation, such as the cooperative movement and a favorable investment climate, backed by simplified government licensing and regulating procedures, incentives and a favorable tax system. The difficulty of reforms on this basis is readily visible, and it is difficult to see how those who thrive on inefficiency and incompetence in government can be expected to rehabilitate their narrow spheres of thinking, merely based on the prodding of the World Bank and other donors. With the prevalence of apathy brought on by fear, economic problems and a strong sense of helplessness that looms over the public mood, no such reforms will be implemented.
The government has even succeeded in convincing the donors that the Economic and Administrative Reform Program has brought some “results,” but the indicators that back these claims are from the government, and they are not easily verifiable. Moreover, on the administrative side, we see no let up in the burdensome operations of government, and we still see a stronger push towards centralization and deactivation of any community or popular efforts towards empowerment and access to resources and public services.
On the other hand, there is very little that gives rise to optimism, even with the giant investment projects, which presumably were to act as catalysts for revitalization of the economy, which we shall consider below:
The Oil Sector: Many reports, issued by international agencies and outside journals stress that the revenues generated by oil exports and other sources of foreign exchange are at par with the levels that were reached by expatriate remittances at the height of the oil boom of the 1970s, if not more. Yet, it remains a mystery of how such income is being used to generate productive investments or to stimulate the improvement of the living conditions of the general population. In fact, it is clear that, regrettably, none of the oil revenues have been saved up to produce a sustainable asset base for future generations of Yemenis to come, when the rapidly diminishing oil resources are depleted, which is not far off. In fact, some experts have suggested to the Government that Yemen should save at least half of its oil revenues towards this purpose. It is fairly clear that this is not being done. The other half should be used to meet short term foreign exchange needs and to put into long term productive investments that would replace the depleted oil income, once the underground reserves are dried up. Again, there is no indication that such channeling of an important irreplaceable resource base is being carried out along these lines. Accordingly, it is not apparent that this important sector is being subjected to more efficient and productive management that could raise hopes that Yemen’s population has something to bank on for its sustainable development in the future.
The Gas Scheme: Much controversy and mystery also hangs above this sector, as it is apparent now that the US $ 600,000,000 per annum increase in foreign exchange revenues expected from the US $ 3,000,000 scheme will not materialize. The problem here lies in the fact that such a relatively gargantuan scheme had been based solely on having one customer for Yemen’s gas, which is India Ð and that only on the promise of a huge electrification project there, which is still on the drawing boards! On the other hand, the constant delays in the implementation of the project has only lead others with more favorable cost advantages and stronger gas reserves to accelerate investments in their gas sectors that will eventually lead to the inability of Yemen to find strong sustainable markets for its gas.
Notwithstanding the highly technical and legal frameworks involved in gas investments, it is still the human factor that had an adverse effect in getting the gas sector off the ground to become a meaningful productive sector that will produce sufficient, efficient and economical energy for domestic use, to say the least. For sure, it seems that the government should have focused its attention towards this end, as the potential domestic benefits of gas cannot be overemphasized, in view of its lower costs and less adverse effects on the environment. The priority would be directed towards converting the available electricity power supply generation to gas fuelled power stations and building badly needed new generator plants, many of which have been envisaged and designed by the competent authorities for many years, but never have been given a chance to materialize, for the simple reason that the all-important electricity sector is not given the priority attention it deserves.
Aden and the Other “Off-Shore” Duty Free Schemes: For almost a decade, we have been hearing of the uplift that the development of Aden and other duty free areas will bring to the economy.
But, all we are hearing about is the rapid results achieved by other regional authorities, by the similar schemes and improvements they have carried out in their countries, which would make our scheme seem like a drop in a bucket of water. Yet, as relatively small as our scheme is, we are still unable to visualize any productive outcome from the large investments made so far, other than the fight for the land surrounding the port areas and for the contracts to be meted out for undertaking the various sub-contracts associated with the project. It would be enlightening if the government could inform us of what is actually happening to this once promising sector, and when can we expect the port to become fully operational.
From the above, it would seem appropriate that the government consider the introduction of serious management overhauls which would entail the establishment of a senior investment council that reports to the President. This council would be made up of serious and sincere technocrats, who are outside of the interlocking interests that the present government framework is comprised of. This council should be assisted by one or two reliable international consulting firms, with proven records of successes in helping developing countries develop the appropriate structural arrangements that lead to more meaningful management and economic reforms. It should have an emphasis on accountability and transparency and the need for conceptual rehabilitation of Government to start conducting economic affairs with the best interests of the Yemeni people in mind and at heart.