Yemen: Claiming the future (Part II in a series) [Archives:2004/752/Culture]

July 5 2004
Yemen, a country of green ladscapes and agriculture.
Yemen, a country of green ladscapes and agriculture.
Irena Knehtl
[email protected]
For the Yemen Times

In the second part of her essay, serialized in Yemen Times, Irene Knehtl brings her historical discussion of the economic development of Yemen up to date, focusing on the period from the 1962 Revolution to the end of the 1980s.

The Yemen Arab Republic – an agricultural country

earth every spring
turns into a painting

Yemen Arab Republic has been basically and agricultural country. It had long been known for the export of coffee, cotton, textiles, fruits, hides and skins. The most important crops are: wheat, sorghum, millet, barley, legumes, grapes, bananas, coffee, dates and other types of fruits. The majority of the population lives on agriculture, although its share of GNP during eighties went gone down from 55% in early seventies to 29% in late seventies. However, those engaged in agriculture represented still 83% of the working population.
Various factors were over time changed conditions in the Y.A.R, including gradual emigration since early 1970 until 1980, the long drought from 1967- 1972 and the expansion of qat cultivation at the expense of some previous export crops such as coffee, and cotton. Cotton, cotton seeds, and qat disappeared from the export list, both coffee, and hides, and skins maintained a relatively low and unstable export value. Other exports such as live animals, fresh fruits, rock salt, dried fish and potatoes maintained also a low and unstable level.
On the other hand it was during eighties that some new items appeared on the export list, which reflected the slow but promising efforts of the Yemeni private sector. Those were the export of biscuits, sweets, and textiles, as well as small quantities from cotton yarn during 1977/78 and 78/79. This shift was a welcome change. It should not be forgotten that such industries are not dependent on domestic agricultural base but are depending mostly on imported foreign inputs, which will always be governed by foreign exchange availability.
Y.A.R. exports during the eighties remained weak, especially as a result of Yemeni emigration and the decline in agricultural productivity. However a gradual process of manufacturing industries then started to have potential for the future and compensated for the decline that had taken place in traditional export crops.
After the 26th September, 1962 revolution, and more precisely after 1970 when political and social conditions settled, the beginning of organized effort started to take shape. Y.A.R. began to open itself up as a reaction to the long isolation that kept the economy and people at an extremely low level of economic and social development. The fact that any attempt or organized effort to improve and raise living standards would have meant material, financial and skilled human resources much beyond that available to the country at the time, or even in 1970 when political conditions greatly improved, also contributed to the process of opening.

Imports experienced an unusual growth since the 1962 revolution. They grew 1.2 times between 1960 and 1969/70, and 46 times between 69/70 and 79/80, and about 50 times between 60 and 79/80. This impressive growth in imports took place in spite of the insignificant proportion of exports to imports. The import bill was largely covered by Y.A.R.s invisible account – emigrants – remittances, and due to the fact that prior to the 1962 revolution an extremely low consumption base was kept. The policy was to produce major food items within the economy. In fact, the suppression of consumption and the insistence on producing the countries own requirements were not without their logic. The policies aimed among other things to keep all modern products and processes out of reach of the Yemeni people. It was thought that such products and processes embody a considerable amount of evil. Such policies were meant to certain ends, namely to keep the population isolated from what was happening in the rest of the world.
The people seemed to have accepted the argument and went on to accept producing for their own needs, and are therefore taking a lot of pride in their own efforts. This explains the strong liking that Yemenis have developed for locally produced products, which is still prevalent until today. It can therefore be seen that while Yemen's isolation prevented it from taking advantage of modern products and processes, such an isolation was in itself instrumental in pushing the population to use their domestic creativity to produce enough food and enough cash crops for exports and also produce other allied products such as domestic crafts which were within the reach of Yemeni technology.
It can also be fairly said that in spite of the low level of production and in spite of the highly suppressed demand for consumption, Yemen was able to have a more economically independent base than was possible in later years. Yemen was then able to secure its own food requirements and was capable of exporting cash crops produced within the country according to its natural environment.
There was clearly a significant development in Y.A.R. imports, which assumed high levels especially after 1970. Various factors have contributed to these developments. One of the factors is that the Yemeni emigrants to the oil rich countries created a reverse flow not only in savings in form of remittances, but also in terms of an indirect market for goods. These remittances constituted during the eighties a major source of Y.A.R.'s prosperity. The country had after 1970 enjoyed a certain degree of political stability, which greatly encouraged and allowed economic activity to carry itself on, especially in the private sector, which was a major force in recycling such remittances. The increasing available liquidity from remittances gave a tremendous push to commercial and trading activities. For the Yemeni private sector, the period of 1972 to 1980 was one of ever-expanding prosperity. Suddenly an enormous market for foodstuffs, other consumer goods, and construction materials emerged, and kept growing.
Looking at the overall changes in the structure of YAR imports it could be said that such developments were positive as the change was more in favor of capital goods items. However much was left to be desired, especially in the area of rationalizing importation of non-essential items as well as in the area of increasing the efficiency of trading procedures and investment procedures, purchasing, storing and keeping proper inventories with a view of optimizing trade and investment and reducing the unnecessary utilization of countries foreign exchange reserves.

Development of Basic Infrastructure
The development of the basic infrastructure for which external financial resources like loans, aid and grants were utilised encouraged the importation of machinery and equipment. Most of the external financial resources during eighties came from Arab governments, including a substantial portion from Saudi Arabia.
The sources of Yemeni imports during the eighties experienced some interesting changes. During 69/70 to about 71-72 major suppliers of imports requirements were USSR, UK, France, and Australia. They supplied 68.4% of total Yemeni import requirements. Beginning 1972- 73 the sources of Yemeni imports started gradually including countries like Japan and Saudi Arabia. Japan had in fact remained YAR's principal supplier from 72-73 until 76-77, when it was replaced by Saudi Arabia from 77-78 until 79-80, Japan taking second position. Only two European countries maintained their hold with a change in rank, and that is UK and France. It may, however, appear odd for a country like Saudi Arabia to become Yemen's major supplier of its import requirements at the time when Saudi Arabia was not yet known to be industrialized country. With the gradual emigration of Yemenis and their concentration in the kingdom they created a reverse flow of goods that took place through Yemeni northern and eastern border. The bulk came as re-export from Saudi Arabia, especially items like fuel, vehicles, electrical and other heavy machinery and equipment.

Summary of thought:
Y.A.R. during Eighties enjoyed a fairly comfortable level of foreign exchange reserves as compared with other least developed countries. However, the accumulation of foreign reserves was not due to an internally generated productive activity, or an internally oriented growth, but due to savings resulting from export of manpower to neighboring oil rich countries, particularly to Saudi Arabia. The accumulation of foreign reserves took place within an extreme open door policy. Remittances and other financial resources were allowed to flow in without any restrictions and were utilized especially by private sector, and again without any restrictions whatsoever.

Structure of the Capital Account
In addition neighboring Arab and European countries as well as international and regional institutions responded with enthusiasm to the massive needs of YAR for all kind of services, assistance and support. In addition to the transfer of emigrants' savings, it converted itself into a massive inflow of funds and resulted in the prosperity that YAR enjoyed during the eighties.
The Imamate established relations with countries like China, USSR, and USA. During 1959-60 major assistance came from USA, USSR and China. By 1971-72 the principal donors were USSR, China, East Germany and Yugoslavia.
During this period most of the external resources contracted by Y.A.R came from Arab governments and financial institutions (62.7%), followed by the socialist countries (13.9%), and lastly Western European governments (7.9%). Such resources were instrumental in building the infrastructure, which was weak or almost non-existing at the time of 1962 revolution. The strict adoption of a policy of non-alignment and neutrality enabled YAR to attract increased financial resources irrespective of the source.
YAR economic independence was not jeopardized by the flow of loans, and grants, as loans were mostly earmarked for specific projects. The “danger”, if any, for Yemeni economy was to come from the nature of its relationship with the Arab rich.
With such a flow of resources, the individualistic nature of Yemeni traders in general, the nature of the Yemeni merchant class, and the type of power structure during the eighties, the only logical policy had been an open door policy. Such a policy was also the major incentive for Yemeni emigrants to transfer their savings, whenever they wished or needed. Since the growth of remittances was higher that the use of remittances, YAR was able to accumulate a substantial level of foreign exchange reserves during eighties.
It was also during Eighties that the economy gradually changed from relative economic independence with high degree of underdevelopment under the policy of isolation to one gradually more integrated within the economies of the neighboring oil rich countries. It also became integrated in the world market from where YAR during Eighties obtained its basic and other requirements for all kinds of goods and service.
Summary of thought:
One thing remains clear and that is much of the YAR infrastructure established after the Revolution had been instrumental in breaking the Yemeni internal as well as its external isolation.