The Wealth and Poverty of Yemen [Archives:2007/1059/Reportage]
By: Raidan Abdulaziz Al-Saqqaf
[email protected]
The failure of Yemen in realizing its economic potential lies in the inability to understand what is Yemen's competitive advantage and how the government should lead the way in developing this advantage and using it to spur on economic development.
The assets of different countries play a major role in their development: Gulf Countries are using their Oil revenue in funding their development; the United Kingdom used coal to spur its industrial revolution; western Europe and North America rely heavily on their capacity to innovate and produce technically-superior products and services to sell to the international market; South Africa depends on its immense natural resources; and China relies on producing low-end products at an amazingly cheaper production cost, and so on.
If we examine developing countries that do not have a particular asset, they strive at strengthening particular points of their economy in order to create such an asset. India, for example, has developed an IT-enabled infrastructure that allows it to attract low-end IT-enabled jobs, resulting in the boom of off-shoring data warehousing and information management jobs to Indian IT graduates, thousands of them, thereby creating thousands of new jobs and creating a competitive advantage in India in this regard. Similarly, Singapore has built a competitive advantage through creating a highly enabled and technologically advanced workforce.
Turkey is another example: since rising from the ashes of the Ottoman Empire and the First World War, Turkey did not awaken to the development strategies of other European countries until well into the second half of the twentieth century. By the 1970s Turkey started focusing on the development of micro and tiny enterprises in several parts of the country, with the objective of creating several baseline industries that have the potential to become a competitive advantage for the country. Such baseline industries included a scrap-mental industry that has grown today to supply the world market with quality automotive and machinery spare parts of European standards.
Examples of countries using their competitive advantages and building competitive advantages are plenty, but what are Yemen's competitive advantages and how can Yemen build any such advantages?
Yemen does not have enough natural resources to be invested in its future (although a large portion of Yemen's Oil revenue is used for running the government's day-to-day operations) and Yemen is yet to start any long-term strategy with the focus of building a competitive advantage for the country. There is a sense of disorientation among policy makers when it comes to anything exceeding a five-year national strategy. I haven't heard any news about the Economic Zone's strategy since the new Prime Minister took office; was the idea to develop strategic economic zones in several parts of the country just a notion in the mind of the previous Prime Minister or is it an on-going government policy to create some sort of a competitive advantage with the aim creating an industrialized economy in the long term? Whatever happened to that notion?
There are cases where the market forces and the private sector have played a major role in developing the national economy, however, quoting a well-known businessman and investor in Yemen: “Why would you operate in a regime of endless paperwork and harassment?” The world has become an interlinked and globalized market place where the most suitable places to run business are the ones which attract business and operation. Can Yemen compete with, for example, United Arab Emirates, in attracting investment and business enterprise?
The major problem with Yemen's policy makers when it comes to the economic realities it that they too often lie to journalists, but when they read their lies being published in the press they tend to end up believing these lies. Yemen, in spite of its potential, does not have an investor-friendly environment compared to neighboring countries or other countries that aim at attracting investment. What Yemen has is a slightly improved business environment, which is still not good enough.
Through my work as the Economic Editor of Yemen Times I get to often speak with fellow economists, businessmen, officials, entrepreneurs, and academics who are interested in “the way out” of Yemen's poverty. There are different theories of what Yemen should do in order to become wealthier and less impoverished, and these theories can be categorized into three prime areas: the first is government-aided development, the second is business/international community aided development, and the third is a ground level theory of development.
Government-aided development takes the examples of countries such as South Korea and Malaysia, where the government is heavily involved in the economy and regulates market forces. Following this theory, the government of Yemen should invest and be more involved in business enterprise, through the creation of giant corporations, providing employment and producing large quantities of products, labeled as state-owned enterprises. The main developmental spillover is in the job opportunities and the creation of a large number of privately owned ancillary industries with considerable growth potential.
My opinion is that this example would fail in Yemen due to the government bureaucracy and manifested corruption. If we examine how government tenders are currently being awarded we would see that several corporations have become 'pets' of the government, not because of their highly competitive pricing and services, but because of links to officials. However, the government is still heavily involved in regulating the market with the central bank interfering frequently to regulate the value of the currency without tackling the problems of inflation and unwise government spending.
The second theory focuses on creating an investment-friendly business environment, allowing the private sector to venture into the country, go about business following best practice and eventually the growth of business operations would have a spillover effect and increase the size of the economy and number of taxable business transactions. However, for this theory to succeed, the government must have a genuine interest in enforcing the legal framework in the country and in maintaining a benchmark of transparency.
This theory has been advocated by the government time and again, with policies that aim at allowing new investors more freedoms and a semi-effective legal system. However, the problem is the interference of influential persons and entities in the operations of business, and there are plenty of examples where a business corporation finds itself having to choose the lesser of two evils in order to please these power figures and not to fight them considering the current legal scenario.
The third theory, which is development at grassroots' level, where the development of the country is based upon the development of the bottom line of the society, is demonstrated by the success of micro credit as an example of baseline development.
Deputy Prime Minister for Economic Affairs, Al-Arhabi, was the executive director of the Social Fund for Development since it was established in 1997. The fund has the objective of facilitating microfinance for small and tiny enterprises that have the economic potential for growth, but lack the necessary finances. The success of the fund was evident in spite of the obstacles it faced, but let the numbers talk for themselves: The Social Fund for Development has administered over 152,000 micro credit loans, worth over 7,5 billion Riyals, with a growth rate ranging from 20-30 percent per annum, while the number of beneficiaries from these loans exceeds 400,000 persons.
If micro credit has had such success in Yemen, why aren't more resources being channeled towards developing and spreading this program even further? If the number of loans triples within the next few years this means that the number of beneficiaries is likely to increase similarly.
The most important aspect about micro credit is that it helps people help themselves with nominal amounts of money. The Yemeni person is a creative hard working individual, and has a huge potential in business, according to sources who work first-hand in the micro credit programs. It is amazing how many business-enterprising ideas are being raised by loan seekers, some of these ideas are very creative and do have high return rates. Some of the tiny enterprises we have given loans to a few years ago are now worth ten times the amount of the principle loan.
Yemen is a wealthy country because of the Yemeni people. The enterprising potential at the grass-root level is huge and can, evidently, become the prime factor for Yemen's development and could become the competitive advantage unique to this country.
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