Yemen: Claiming the futurePart III in a series [Archives:2004/753/Culture]
July 8 2004
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For the Yemen Times
In the third part of here essay 'Yemen: claiming the future' serialized in Yemen Times, Irene Knehtl brings her discussion of the development of the Yemeni economy to the challenges facing the YAR immediately prior to unification.
Due to the considerable flow of resources into Yemen during the 1980s, the individualistic nature of Yemeni traders in general, nature of Yemeni merchant class, and type of power structure during 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 gradually more integration with the economies of the neighboring oil rich countries. It also became integrated into the world market from where YAR during eighties obtained its basic and other requirements for all kinds of goods and service.
Reassessment
The various factors at work began to change position at the end of the eighties. The first effect was felt by foreign exchange reserves as a consequence of national economic policy. The economic “crises” that affected the region since 1986 was the product of collapse of world oil prices, and the decline of productivity and investment. The response of the YAR government was to attempt to rationalize the use of the massive flows to the best advantage of the Yemeni economy and people
The events that followed were:
* Further deterioration of the labor market in Saudi Arabia and hence decline in remittances,
* Stabilisation of external financial resources, such as aid, loans and grants, due to the fact that there were less financial resources available in the region.
* In Y.A.R., building the institution of the State and hence increased government spending,
* The discovery of oil in commercial quantities,
* Building of remaining infrastructure,
* Beginning of provision of basic commodities to citizens, like water, electricity, health, etc.
* Beginning of establishment of an industrial and agricultural base.
* Exploration and assessment of mineral and other natural wealth.
One of three measures usually used in such a situation is the imposition of restrictions. The other two are exchange controls and financing of the deficit. Y.A.R. opted for the imposition of restrictions. This trend has led to greater discussion about the need to develop local production capacity. More specifically “the crisis” stimulated the debate over the need for a local agricultural and manufacturing industries. As a result only during the period of two years 1979/80 roughly 77 factory licenses were issued.
Yemen developed no longer the quick profit market of the seventies. Increasingly the country began to search for serious long term investment. Foreign investors were encouraged by Investment Law No. 18 which was re-written after unification to provide even greater incentives to interested parties.
Y.A.R. went on also to encourage various forms of industrial cooperation, ranging from joint ventures, licensing agreements, co-financing, etc. Industrial enterprise was a priority at the Ministry of Economy, which gave further incentives through import license privileges.
It was estimated then that Yemen had a good business and investment climate. Yemen was still heavily dependent on the importation of goods for the provision of its most basic needs. This dependence extended from basic commodities up to heavy machinery in the years to come.
During the eighties began an obvious trend and increased government involvement in overall investment and its strategies. The government determined priorities, basic and strategic industries and also began to provide basic commodities and services to its citizens. It was then supplemented in its development efforts by such dynamic sectors as the cooperative development movements, and the Yemeni private sector. The government institutions were complemented by more than 20 public and mixed corporations. The areas that were dominant in investment were agriculture, building and construction, housing, transportation, communication, mining and energy.
Yemeni Development Movement
am never slave
except to my guest
Yemen Development Movement during the eighties, which became known as the “Arab Phenomenon”, was based on local initiatives, and represented a bottom up, self reliant and decentralized mechanism for meeting basic rural infrastructural needs, roads, drinking water, schools, health facilities and other projects based on local priorities determined at the local level in rural areas. The increased flow of remittances to rural Yemen was an important factor in the role of this unique Yemeni development movement. The movement in many ways awakened the rural economy in Yemen, and changed the life style since the rural areas lived in isolation and people spent incredible effort simply to survive.
The principles of self-reliance and private initiative have their roots in centuries of Yemeni isolation from the rest of the world. The organization of tribes was based on the leadership of the heads of each tribe. Because of the absence of a strong central authority due mainly to physical constraints, a tradition of local government developed over time in Yemen. These local village organizations focused almost only upon law and order, and not economic development as shown by the relative absence of infrastructure, and all social sectors. But their creative talents were applied to the imaginative terraces in the mountains.
This movement had also its roots in the history and character of the Yemeni people, which were isolated from the rest of the world.
During the eighties this movement had a dramatic effect on the social, political and economic structures of the villages. By linking rural communities with other areas, the movement raised their awareness of the potential for economic development. Perhaps the most unique feature of the movement was the fact that the villagers were prepared to contribute a major financial part to their projects and undertakings, thus confirming that development is for the people and by the people, and that otherwise it has no “taste” and no meaning.
Beginning of Factory Enterprises
The largest and most successful companies established agencies for product lines. It is also through agency representation that the beginning of the factory enterprise began. In the model of import substitution, former agents for soft drinks, pumps, diapers, etc. were erecting local processing plants. Yemeni businessmen generally do not like to produce under license, preferring instead to purchase machinery and manufacture local brands. Increasingly as a result of government import restrictions during the eighties they went into commercial agriculture and manufacturing.
In this context the “Saudi connection” played a significant role as the source of machinery and equipment supplies, due to not only the large presence of Yemenis in the kingdom but also due to the fact that a substantial portion of external financial resources including loans, aids, grants, and now investment has been coming from Saudi Arabia. It has been also through the “Jeddah connection” that Yemeni workers first came in touch with Western products and technology, and in particular with American products.
Summary of thought:
Starting with unfavorable economic conditions characterized by severe shortage of physical and economic resources, the Yemeni economy during the eighties managed to achieve a remarkable transformation from traditional subsistence economy to a dynamic and relatively diversified one.
With the discovery of oil in Yemen a tremendous amount of speculation occurred about the future of Yemeni economy. Certainly the presence of commercially exploitable quantities of petroleum is good news for the country. Although oil prices may continue to fluctuate in the coming years, it is not a relevant issue for Yemen due to the fact that the country has never had an important raw material available for sale on the world market. Yemen oil finds are, however, significant. But it is when you have oil that you need the ideas. What is oil without ideas? Especially when the reserves are not infinite, it is vital to find ways to save as much of it as possible. And new methods, too, that no one thought possible a few years ago. It also means finding ways and coming up with solutions to make its use more efficient and cleaner with new generation fuels.
As result of rapid growth in the 1970s and 1980s and the introduction of generous transfer to large portions of the populations, the growth rates were among highest for countries at their level of per capita income. Also income inequality was low, and improvements in social indicators were dramatic. A reorganization of the private sector at the end of the eighties lead to a more controlled growth, a slower and qualitative development with stress on social return as preparation for faster development related to oil strikes.
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[archive-e:753-v:13-y:2004-d:2004-07-08-p:culture]
