Yemen's main sources of income are:

•  Petroleum Export - According to the World Bank oil accounts for 70% of government revenues and 87% of goods and services exports.

•  Remittance from Yemeni workers abroad

•  Agriculture

•  Industry

•  Services

•  Donation from Arab countries and Arab Financial Organisations, and International Finance Organisations

Through observation of the country's resources, one can see that Yemen has many strengths which to name a few include its prime strategic location on the coast of the Red Sea and the Indian Ocean, availability of natural resources (oil, gas and fish), human resources (population rising at 3.4%, the country's median age is 16 years old) as well as availability of land.  Nevertheless Yemen has had its fair share of economic problems which have contributed to making the country one of the poorest in the Arab world. Some the main problems are high population growth figures, rising poverty and unemployment. Others include diminishing oil and scarce water resources compounded by an unstable macroeconomic and security environment. Upon closer examination one can distinguish the external and internal sources which have impeded the country's economic growth.

External factors include the first Gulf War in 1991, during which hundreds of thousands of Yemeni workers lost their jobs in the Gulf countries owing to Yemen's support of the Saddam regime. The loss of the remittances sent by them to their families in Yemen (estimated to be $3 billion USD) was a big blow to the Yemeni economy. This financial loss was compounded by the Asian crisis in 1996 and the sharp fall in oil prices during 1997-98.

Internal factors which have adversely affected the country's economic progress include the reunification costs after 1990, the defence and reconstruction costs incurred from the civil war in 1994, plus the terrorists attacks and kidnappings against foreigners which have deterred investors. Such problems have been compounded by the Yemeni government's mismanagement of the economy as well as a rising population rate.  

As a donor recipient, the country's leadership has been warned by the World Bank that necessary steps need to be taken in order to improve the management of Yemen's natural resources (especially oil and water). Further recommendations have been made pointing to improvements which need to be made to Yemen's macroeconomic environment (reducing the deficit, introducing tighter fiscal controls and improvement in the country's literacy rate and social protection programs). Diversification and privatisation of Yemen's economy away from oil is another important step recommended to the Yemeni government as the country's economy is deemed as being too oil dependent. The Yemeni government has taken heed of such calls and to its credit a number of positive steps were taken towards improving the situation (such as reduction of the budget deficit, introduction of a single exchange and reduction of subsidies).

Since 2001 the country's economic progress has slowed whilst problems such as the rate of unemployment, inflation and expenditure deficit have increased. Above all some of the most damaging shortfalls can be found in lack of reform in Yemen's public institutions and procedures such as the judiciary and the country's tax system. With warnings from International finance organisation such as threats to cut off aid, it would be interesting to see how (and if) the Yemeni government does implement the required economic and political reforms.

By: Meir Javedanfar- www.meepas.com

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