Abstract
In Yemen’s infrastructure sector, we find a number of endemic issues
holding it back. In recent years,
security problems, poor infrastructure,
an uncertain regulatory climate and perceived corruption problems
have all
obstructed the inflow of investor capital. However, the authorities are
streamlining investment
laws and procedures in an effort to redress the
situation. Recently, the Ministry of Planning and
International
Co-operation requested assistance from the World Bank' s Multilateral
Investment Guarantee
Agency (MIGA) to review its institutional framework
for investment promotion and the International
Monetary Fund (IMF) is also
assisting the government with its reform efforts. Yemen' s trade
regulations
are steadily improving, under pressure from the IMF, and the
country operates a relatively open trade
regime, with import-licensing
having been abolished in 1996. The government is now in the process of
reviewing its tariff structure, with plans to slash most import restrictions
and institute a unified tariff
structure, and is seeking to establish
eleven industrial zones throughout the country.
In BMI’s Q109 Yemen
Infrastructure Report we forecast that the construction and infrastructure
industry
will face an onerous task in trying to recover growth, which we
forecast will remain in negative territory
to 2011. It is noteworthy that
one of the most ambitious infrastructure projects globally is in Yemen; a
bridge to link Africa to the Arab Peninsula. Its fate is undecided, but we are
pessimistic especially as
possible investors flee to safety and thus away
from volatile markets like Yemen, characterised by high
levels of
political, security and economic risk.
Growing concerns that President
Saleh' s political skills may no longer be sufficient to keep the country' s
relative calm in the face of a gathering Islamist challenge are dominating
Yemen’s political landscape and
grabbing headlines. Yemen is facing
a range of domestic pressures, most of them long-standing issues
that have
exposed the numerous fault lines within Yemeni society. These will continue to
challenge
policy makers through 2009, to which must be added the growing
threat posed by piracy in the Gulf of
Aden - a further layer of insecurity
that will test the capacity of the state. Saleh must also face the
realities
of a sporadic civil war in the north from the Houthi minority,
as well as the threat posed by southern
secessionists and an Islamist
militant threat that is growing in complexity. The improved security
situation in Iraq, for example, has had the unfortunate effect of making Yemen
a more convivial arena for
al-Qaeda.
With respect to the current
economic conditions, it is clear that the decline in oil prices is
delivering
benefits with one hand, in the weakening of inflation, but is,
on the other hand, lowering exports, leaving
the country in an
increasingly weak economic position. Yemen' s economic comfort blanket is
unraveling,
as the oil market heads for a bear phase and the price
compensation for Yemen' s diminishing oil output no
longer sustains.
Although the government will be grateful for the fiscal breather that falling
commodity
prices will provide, after the inflationary spikes on key
consumer staples that had a drastic impact on local
consumption, the
medium-term outlook appears increasingly bleak. The revenue kick from high oil
prices
can no longer mask the egregious fall off in oil output, and it is
now down to the Yemen LNG export
project to take on the mantle of main
economic driver.
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