Executive Summary

The Government of Yemen is currently working with the private sector to develop a strategic plan to enhance the business environment. It aims to provide more incentives than those currently provided under Yemen’s investment law, accelerate Yemen’s accession to the WTO, execute free trade agreements, and encourage privatization, particularly in the field of telecommunications.

According to the Central Statistical Organization’s most recent report (2006), the population of Yemen is 20.7 million. The Republic of Yemen government ROYG has sought to improve the economic situation of the people and increase development in different economic sectors. For this purpose, the government established the Poverty Reduction Strategy Paper (PRSP). The PRSP includes a number of strategic projects financed by foreign donors through the Social Fund for Development (SFD), Public Works Project (PWP), and the Social Welfare Support Fund (SWF).

SFD seeks to reduce poverty, affecting 75% of the population, by improving living conditions and providing income generating opportunities. SFD was the first organization in Yemen to help introduce micro-finance projects. Since its establishment, SFD has used internationally recognized best practices in the field of micro-finance. SFD provides grants for set-up, training, and technical assistance to enable local organizations to provide sustainable micro-finance services. The PWP is a government-run agency which seeks to deliver and improve services to dense population groups in cities by building roads, hospitals, dams and schools. The SWF focuses on lending to small and micro enterprises with soft loans and long grace periods.

Ensuring environmental sustainability for Yemen’s future is crucial. Few countries face as difficult a challenge as Yemen in environmental sustainability, particularly water depletion. The depletion of groundwater has a direct impact on poverty, employment, and the social order. Given Yemen’s heavy reliance on rainfall capture and diversion of floods for irrigation, watershed protection is a major priority. Groundwater management is now incorporated into joint urban and rural planning efforts. In addition, the rural economy’s dependence on agriculture has created the need for a new focus on soil conservation.

Under President Saleh's leadership, Yemen has remained committed to the comprehensive economic reform program initiated in 1995 under the guidance of the International Monetary Fund (IMF) and the World Bank. The Yemeni government has floated and stabilized its currency, reduced inflation from 70% in 1994 to 19.8% in 2006, and eliminated government subsidies on basic commodities such as wheat and wheat flour. Also, in mid-2005, the Yemeni Government reduced subsidies for oil derivatives.

The sharp rise in world oil prices has significantly increased Yemen’s foreign exchange reserves. A CBY report stated that the oil revenues from January to August 2006 increased to USD 1,462 million compared to USD 1,131 million in 2005 and that foreign assets increased to USD 7,232 million against USD 5,713 in the previous year. Statistics are not yet available for 2007.

The ROYG committed itself to implementing the projects and programs stated in the World Bank’s Poverty Reduction Strategy Paper during fiscal years 20032005. The program provided 70% of the funding for development and infrastructure projects with financing for the remaining 30% from the international community. The ROYG, with the assistance of the World Bank and the International Monetary Fund, joined the consultative group meeting, which took place in mid-October 2002 in Paris, France.

According to the Central Bank of Yemen (CBY) Annual Report for 2006, Yemen’s total exports were valued at USD 5.25 billion for 2005 and USD 6.39 billion for 2006, while the country’s total imports were valued at USD 4.70 billion for 2005 and USD 5.268 billion for 2006. Furthermore, Yemen’s GDP was valued at USD 13.9 billion for 2005 with a growth rate of 4.06%, while 2006’s GDP was valued at USD 20.4 billion with a growth rate of 7.04%.

With the implementation of tax incentives for merchants, Yemen’s trade environment is steadily improving but more government focus is needed on privatization and regulatory reform. An April 2004 Presidential directive decreed that land be granted to investors at no cost and that the investment projects enjoy profit tax exemption if the project capital is more than 10 million USD. A privatization program started in 1998 with sixteen enterprises in industry, tourism, and trade, came to a standstill in April 2001. According to the technical Privatization Office, the government privatized two enterprises in 2005 and the Public Land Transportation Corporation government sector in 2007. Airport services, cements, and medications are at the top of the privatization list.

At the moment, there is almost no gas production in the country. However, the Ministry of Oil and Mineral Resources, formed a liquefied natural gas (LNG) joint venture to process Yemen's 17 trillion cubic feet of proven natural gas reserves for export. Yemen’s USD 3.5 billion LNG project is scheduled to come on line by 2009. The project will involve construction of gas-gathering facilities, a pipeline to Balhaf at the Gulf of Aden, and an LNG plant. A second pipeline will carry gas for local consumption to Sana’a.

The main ports of Yemen are Hodeidah, Aden, Mukalla, and Mocha. In addition, Ras Isa serves as a loading point for oil exports, and a small amount of cargo passes through Nashtoon Port. Hodeidah was built by the Soviets in the 1960s, and is the main point of entry for imports to the populous northern highlands. Mukalla serves as Hadramout’s major point for imports of goods and exports of oil. An active trade in live animals with Ethiopia is conducted through Mocha. In the port of Aden, a container terminal owned and operated by the Port of Singapore Authority opened for business in March 1999. In October 2003, the government cancelled that contract.

Facilities at Aden consist of the Maalla port and the Aden Container Terminal (ACT), which opened in March 1999. The latter has an annual handling capacity of 500,000 twenty-foot equivalent units (TEUs). Aden’s location provides it with a natural physical advantage over other container ports in the region: it is just a few KM off the main shipping routes between Europe and Asia and it is one of the world’s best natural deepwater harbors. The Port raised 5.3 billion Yemeni rials (USD 27.6 million) in customs revenue in the first half of 2005. Exports via the port totaled 55,942 tons of products, including fish, sweets, bananas, perfumes, and canned tuna, among others --items that traditionally make up the largest share of Yemen's exports.

The development of the Aden Free Zone also presents opportunities for manufacturing companies to process and ship products to the Gulf, the Indian subcontinent, and East Africa. Plentiful stocks of fish and shellfish provide opportunities for packing and export. Yemen’s unique culture, history and geography offer attractive prospects for tourism development.