From: Berhane Habtemariam (Berhane.Habtemariam@gmx.de)
Date: Thu Nov 19 2009 - 11:10:19 EST
Yemen's battle for the economy
By Hugh Macleod in Sanaa
Thursday,November19,2009 16:39Meccatime,13:39GMT
On a ridge of the rugged brown mountains that encircle Sanaa, the capital of
Yemen, Qatari investors are creating a little slice of the Gulf.
"This project will be an icon of quality," promised Hassan Fadala, deputy
CEO of operations at Qatari Diar, the real estate investment company pumping
$600mn into Al Rayyan Hills, a luxury residential and retail development
perched 100m above the southern side of the capital.
"A turning point for real estate and tourism in Yemen," said Saad Sabra,
chairman of Shibam Holding, the state's joint venture firm, set up last year
to attract foreign investment.
With 172 luxury villas, gated entrances guarded round the clock, a five star
hotel, a sky-scraping apartment block and rows of luxury shops set among
green trees, the development is certainly unprecedented in Yemen.
But it cannot quite break the mould. Power and water are in short supply in
Yemen, which is the poorest country in the Arab world. Rayyan Hills is
unlikely to connect to the mains electricity network because if it did,
every villa would need its own generator.
The plan, according to Shibam, is to set up an "individual power plant" for
Rayyan Hills, perhaps run on some of the country's newly-tapped gas
resources.
Diminishing resources
And though the developers promise infrastructure that will conserve and
recycle water, most experts believe Sanaa will become the world's first
capital city to run out of economically sustainable water supplies in just
ten years.
With its army struggling to put down a determined rebellion by guerrilla
fighters loyal to the Houthi clan in the north, renewed calls for secession
in the south and al-Qaeda establishing a foothold in the wilds of the east,
Western security analysts have raised fears of Yemen becoming the world's
next failed state.
But according to government officials and local economists, it is the dismal
economy and the drastic depletion of Yemen's natural resources, such as oil
and water, that are the country's most pressing concerns.
"Everything is about the economy," said Nidal al-Hyme, a government adviser.
"Al-Qaeda exists because of the economy. If you have no work and you are out
on the streets with no money anyone can recruit you."
Yemen's raw figures would make even the most hardy policy planner's head
spin. Over three-quarters of the state budget, which this year totalled
around $8.76bn, according to Mostafa Nasser, chairman of the Economic Media
Centre in Sanaa, comes from oil revenues.
Though ministers insist most of Yemen's land remains unexplored for oil,
there have been only limited new discoveries in the past five years and
production has fallen from 450,000 barrels per day (bpd) in 2003 to roughly
280,000 bpd at the beginning of this year.
The World Bank estimates that by 2017 the government will earn no income
from oil at all.
Economy on the brink
Unicef, the UN's children fund, reports that nearly half of all Yemeni
children are malnourished.
Couple this with unemployment topping 37 per cent - health indicators
comparable to Sub-Saharan Africa - and a population growing at one of the
fastest rates in the world, and it appears the economy is heading for break
down.
Not so, says Jalal Yaqoub, the deputy finance minister and author of a
ten-point plan to rescue Yemen's economy from the brink. Not, that is, if
the drastic reforms the plan outlines can be implemented within its schedule
of the next 20 months.
"Declining revenues from oil are the critical issue. Oil production has been
going down steadily since 2003 and we have not been able to attract big oil
companies to come and search for more," said Yaqoub. "Also, we are
hemorrhaging money on fuel subsidies - one quarter to one third of the state
budget."
And as with most development issues in Yemen, one crisis is inter-connected
with another: the subsidised diesel is used in pumps to draw water for
agriculture, which accounts for some 90 per cent of water use in the
country, most of which goes to growing the
<http://english.aljazeera.net/news/middleeast/2008/06/20086151725425620.html
> mildly narcotic qat shrub.
"Last year we estimate we used one billion litres of diesel only for water
pumps around Yemen. Subsidising $0.70 per litre of diesel, the government in
effect paid $700mn to subsidise the depletion of water in the country," said
Yaqoub.
Gas powered future?
The plan is to reduce the consumption of diesel by producing electricity
from a new gas-fired power station and securing better long terms prices on
oil imports.
In the years before the new power station comes online, the government is
considering importing up to a dozen gas-fired mobile power stations, which
arrive in pieces in shipping containers and can be assembled within a few
weeks at sites across the country.
Yaqoub estimates that the state can save up to $250mn on subsidies and fuel
imports annually - money which could then be spent on highly visible public
works projects to give average Yemenis a feeling their government is working
for them.
He insists that consumer prices must not rise as a result of reforms,
recalling the day of rioting in 2005 when cooking gas doubled in price and
13 people died.
Perhaps most radical of the ten points of the plan, which includes
conservation of water, developing the port of Aden, enforcing the rule of
law and repairing Yemen's international image, is the aim to attract 100
professional Yemenis, most of them from abroad, into key civil service
posts.
The finance ministry, for example, aims to headhunt up to 30 new members to
run its operations. With many of those, like Yaqoub, educated in Europe or
the US and only having recently returned to Yemen, the vested interests of
the powers that be are already calling the move a "silent coup". "They say:
'Who do these people think they are?' They call us the shadow cabinet," said
Yaqoub. "But the current cabinet needs to focus on priorities in line with
the ten-point plan in order to create economic momentum in the country."
The ten-point plan was endorsed by Ali Abdullah Saleh, the president, in
August and is overseen by his son and potential heir Ahmad Ali Abdullah
Saleh. McKinsey, the international consulting firm, has reportedly been
hired to assist in the reform process, while US-based Chemonics, a
development consultancy, is also in talks on cooperation.
Both the US and UK governments have recently expanded their assistance to
Yemen: the UK has quadrupled its development assistance to $83mn per year
for the next five years, while the US announced in September that it had
signed an agreement with the government to provide up to $121mn for
development over the next three years.
Not everyone, though, is convinced Yaqoub and the new generation of
technocrats can pull off the economic miracle needed to save Yemen.
"The new blood in Yemen's economy is not for reform, but to prepare the way
for the son of the president," said Mostafa Nasser of Sanaa's Economic Media
Centre. "The problem is not in personnel but in corruption which has
infected all institutions."
Resistance to the plan is also expected from the powerful tribes, who
allegedly carry out kidnapping raids and block major roads to the capital in
order to force the government to adhere to their wishes.
The new blood promise a zero-tolerance policy to tribal muscle flexing, but
as Yaqoub admits: "We are stepping on so many toes."
"When we were asleep no one noticed us. Now the president has come with new
ideas and there is a rebellion against him by many forces," said government
adviser Nidal al-Hyme.
"They want to change into the Taliban, not into modernisation. But if we
don't change this country who will?"
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