Building Back Better: Priorities for Yemen's Economic Reconstruction

It might seem premature to discuss reconstruction as the war in Yemen drags on, with many actors on the ground seeing no end in sight. However, several key decision-makers, including Saudi Arabia and the Gulf Cooperation Council, are already discussing post-war strategies for reconstruction and recovery in Yemen. It is valuable then to discuss some policies that could facilitate rebuilding Yemen’s fractured economy, with an eye toward the future and the cessation of hostilities, but including those that could help the economy even before the conflict has ended.

Short-Term Economic Recommendations for Yemen

On June 5th, the Sana’a Center for Strategic Studies published a policy brief containing a series of short-term recommendations as a part of their larger “Rethinking Yemen’s Economy” initiative. The Sana’a Center based the brief on the outcomes of a recent meeting of the Development Champions Forum, a group made up of Yemeni politicians and scholars, during the World Economic Forum in Amman, Jordan. The brief emphasizes the need for a varied international approach focused on stimulating the collapsed Yemeni economy. The recommendations are divided into three categories: the food security crisis, the insecurity of the banking sector, and the absence of basic public services.

Risks to Gulf states posed by Yemen's civil war: Incentives to invest in reconstruction

A recent report from the Arab Gulf States Institute in Washington, authored by senior resident scholar Karen Young, discusses the Yemen civil war and its cost for Yemen’s Gulf neighbors, urging Gulf Cooperation Council states to end their contributions to the cycle of violence in Yemen. The report notes that the future cost of the ongoing war for Gulf states may be greater than GCC states anticipate due to the reverberations that civil wars tend to have in neighboring states. The author makes policy suggestions for GCC states that seek to minimize the impact of the war in Yemen both on Yemeni society and on Yemen’s neighbors.

Difficult Decisions for Student-Soldiers in Taiz

A recent report from Middle East Eye focuses on the struggles of students trying to complete their university degrees in the embattled city of Taiz. Taiz is Yemen’s third-largest city and has been under siege for nearly two years; the constant conflict has caused many factories and private companies to close, while government employees have not been paid since August of last year. In an economic environment that leaves locals with few options, many residents, including students, are taking up arms to support themselves and their families.

December 26-January 1: Disagreement over proposed UN peace deal continues into 2017

Monday, December 26 Al Jazeera’s closed bureau in San’a was raided by Houthi forces hours after the network aired a program about the group’s looting of heavy arms. Saeed Thabit, head of Al Jazeera's Yemen office, said in a statement on Facebook that the Houthis stole what was left of office equipment and furniture.

Ensuring the survival of state structures - Sana'a Center

A recent publication by the Sana’a Center for Strategic Studies outlines threats to Yemen’s domestic currency and state institutions, as a result of both the year-long war and the poor policies and mismanagement that preceded the conflict. Mansour Rageh, an economist with the Central Bank of Yemen (CBY) since 2003, explains that the Yemeni riyal and government institutions are critical for post-war rebuilding and that it is in all parties’ best interests (save those of IS and al-Qaeda) that they be preserved, so as to avoid the unnecessary expense of reviving them later. Considering the tremendously difficult conditions Yemen is witnessing right now, the country’s central bank and central government have done an impressive job of protecting the riyal’s value while keeping state institutions intact. However, this relative success is no longer sustainable as the ongoing conflict makes it even more difficult for the government to fulfill its debt obligations and the CBY’s foreign currency reserves are plummeting (they now stand at less than $2.1 billion, or enough to cover only two month's worth of imports). Once these reserves are exhausted, the riyal’s value will start to dip, gravely impacting the country’s entire economy and the people’s well-being.

"Many of the weaknesses in Yemen's public finances are structural and predate the current conflict. Government revenues have for some time been undiversified and overly dependant on oil exports, while expenditures have been inflated by endemic corruption and sprawling patronage networks. The current civil war – which effectively began in September 2014 and escalated when the Saudi-led military intervention began in March 2015 – has dramatically intensified these weaknesses and their consequences."

In light of these threats, Rageh suggests a number of steps to be taken to preserve the riyal and the minimum operation of state institutions. In the absence of a cessation of hostilities, which would be the largest single measure to stabilize Yemen, foreign backers of the country’s warring parties should “pressure their local allies to stop plundering state institutions and appropriating state revenue streams.” Houthis must stop selling fuel import licenses and help to reinstate the Yemen Petroleum Company as the primary handler of commercial fuel. All parties must end their respective blockades while not interfering with or targeting commercial networks across the country. Parties must also allow Yemen’s commercial banks to transfer Saudi riyals out of the country in exchange for US dollars. If these actions are taken, among others, Yemen will have a better chance of preserving the state institutions that are essential to its economy and its citizens.

Read the full report here.

It's (still) the economy, stupid.

We're pleased to present another guest post by PhD candidate Fernando Carvajal, who spent most of 2011 embedded in Yemen's revolution, and is now deeply involved in the task of helping the country rebuild. In today's post he argues that the new government and administration--as well as the international community--must prioritize Yemen's economic situation.

Now that people refer to this as the post-Saleh era, and the Gulf Cooperation Council removed a thorn from its side, it is time to step up or shut up. Regional and international actors worked tirelessly to ensure a quick and ‘peaceful’ end to Yemen’s popular uprising of 2011, but none have spoken of concrete efforts to aid the Republic and its new President to recover from a dire economic crisis. The promise of a meeting of the Friends of Yemen lingers on since President Saleh signed the GCC initiative on November 23, 2011. The goals of political stability and a peaceful transfer of authority have been achieved, but what of addressing the root causes of the uprising in order to avoid a renewed conflict?

Some observers and government officials in Sana’a may say that security is the number one priority for the post election period, but this is merely playing with the age old debate over what comes first, security or the economy. The people were suffering from a near famine and worsening economy at the national level prior to the start of the popular uprising of February 2011. Then, the economy was not a priority. Officials always blamed international partners for not delivering on promises made after the 2006 presidential election, while the international community and neighbors blamed widespread corruption as the reason for delay in delivering over $5 billion in aid. This became the same excuse when the dysfunctional Friends of Yemen group was established and again no aid was delivered outside the $150 million authorized following the terrorist attempt by the Underware Bomber Christmas day 2009.

The uprising in Yemen was perceived as a higher threat to stability in the Peninsula than Egypt of Tunisia. It was believed events in Yemen would serve to encourage dissent in Bahrain and other Gulf states. The powers that be moved immediately in early 2011 to ensure no Yemeni center of power would escalate the conflict and create a spill-over throughout the Peninsula. The youth movement was overwhelmed by the organized opposition and military defectors aiming to regain the monopoly on mobilization. This has ultimately failed, for protest squares still maintain the physical presence of resolute young men and women who may not yet be satisfied with the transfer of authority from President Saleh to his Vice President, Abdo Rabo Mansur Hadi, through the one man election of February 21, 2012. But aside from a lack of organization and cohesive leadership the youth do remain hopeful in realizing the remaining goals of their ‘revolution’. And while the precedent of yet another successful electoral process in Yemen does represent a challenge for neighboring rulers, there is still no popular awareness in the Peninsula demanding increased access to the ballot box. The Peninsula is now on Guarded (blue) level rather than Severe (Orange).

Yemen’s economy is so deeply neglected internationally and regionally that it is completely off the media radar. Also, Yemen has been ignored even by the upcoming Jeddah Economic Forum of 3-6 March, 2012. The people of Yemen continue to be ignored while they lack access to stable fuel supplies, electricity, suffer from increasing inflation and diminishing imports. The Yemeni Rial has made gains against the dollar in recent weeks, but banks continue to suffer from low deposits and with minimal international trade, this will not improve any time soon.

Arab governments can no longer neglect dire economic crises. This is no longer time for international priorities, it is time for action to serve the people, or gains will be lost to renewed conflict. In addition, this vacuum will provide fertile ground for the expansion of groups aiming to further destabilize the country. It is a fact that neither the Houthi group nor the Southern Movement currently offer any relief to their ‘people’, never mind a viable option nationally, but they will continue to agitate their followers. During his visit to Riyadh and Abu Dhabi at the start of 2012 PM BaSundwa mentioned Yemen would need about $10 billion, but no one stepped up. In mid-February President Obama’s administration announced a total of $800 million in support of the Arab Spring, Yemen’s share of ‘millions’ don’t begin to scratch the surface. If we look at the government’s budget and the impact of the uprising it is estimated Yemen needs an instant influx of cash of around $3 billion. This will allow the government to inject cash into all ministries in order to meet payroll, deferred for almost three months for some people. The amount will also support payments to the military and allow the government to deal with restoration of public areas around the country.

In addition to this immediate cash the government will need about $5 billion for fiscal year 2012. This amount will provide liquidity to address a number of priorities that will lead to popular trust on the government and the transition process. Without a comprehensive strategy to address the economic crisis no one will be able to call for a stable dialogue process, nor be able to challenge continued agitation by Houthis or the Southern Movement. Unfortunately, people have to accept that an “anti-corruption” campaign by President Hadi will be suicide. It cannot be a priority this year. Corruption is not only at the top, but deeply rooted among ordinary employees whose salaries do not meet the standard of living. One still has to pay the electrician to connect the power line even after the official bill has been paid, never mind government agencies with extensive bureaucratic procedures. International donors should demand increased transparency and accountability, but not a head on anti-corruption campaign. If Yemenis and international partners really want a ‘new Yemen’ each must put forth their best effort to fight corruption from the bottom-up and implement stronger accountability measures immediately. The standard of living will not improve unless the government makes it the number one priority.