Following Up Yemeni Economic Situation Since 1960s [Archives:2000/39/Business & Economy]

Dr. Abdulaziz
Al-Shawafi,
Prof. of Economic
Foreign investments in Yemen had had a powerful role since the 1960s up till the 1990s. Throughout almost one century the prosperous oil station in Aden attracted British as well as international investments, including Aden oil refinery and other financial, maritime transportation and trade projects. However, investors were forced to shun Aden due to certain reasons, the most important of which was the binary impact after the 1969 nationalization and confiscation of British, French, American, Indian, Pakistani, and Jordanian banks and maritime transportation, trade and insurance projects by the semi-socialist regime, in addition to closure of the Suez Canal. Since the revolution of YDRY, foreign private sector started to shrink due to those consequences. What is more important is that planners had begun talking of foreign projects as a source of capital for development. A few of Arab, Asian, and Eastern European projects were established in the country.
Unlike that planners in the Yemen Arab Republic welcomed foreign capitals, but more liberal Arab policies had attracted investments in selected areas, where foreign projects had developed most of their capitals in those areas. Thus, until 1990 foreign general assistance was the main source of investment capital in the infrastructure and social industrial, and agricultural services. Due to low incomes and level of progress of the then two parts of Yemen, they were termed by donors as basket. Despite the different date of assistance system in 1980s, the overall patterns of foreign funding were rather similar.
At the beginning, the Peoples Democratic Republic of Yemen used to depend mainly on Britain and then on Soviet Union. However, it started lately to seek different sources of support. Before independence, Britain used to cover more than two thirds of the budget, and so its withdrawal would consequently mean bankruptcy of the new state.
For more than a decade, Aden regime was boycotted by the west and conservative systems in the Arab peninsula due to the regimes adoption of socialism as the states approach. The Soviet Union, and its allies as China and extremist Arab countries, were the main source for assistance. Multilateral and international agencies led by International Development Organization affiliated to the World Bank offered capitalist funding to PDRY economy.
From beginning of the 1960s, super powers began a world competition on projects. However, oil-rich Arab countries were the most prominent donor countries during the 1970s. Besides, the International Development Organization exercised a evident effect on the economic policy. In 1981, development assistance had reached its peak in Yemen Arab Republic exceeding $ 1 billion. However, it decreased to the half by 1985 and less than $ 100 million in 1988. Both the then two parts of Yemen were depending on similar donor countries and creditors who became in the course of time less enthusiast in funding big capital projects. Donations were restricted to limited technical assistance programs by the UN or donor countries or showing-off gifts by Gulf countries.
Infrastructure projects were the corner-stone for development investment in Yemen. Public projects were funded by the socialist and non-socialist donors in terms of loans or joint projects. For instance, China and East Germany had established agricultural factories such as cereals mills, textiles and canning factories in the then PDRY. China and the Soviet Union established cement, textile factories and mills in YAR. The Public Fish Establishment in the PDRY was supported by a Soviet Agency, International Development Organization, Denmark and Kuwait, while International Fund Organization supported batteries Factory in YAR. Bilateral support organizations built joint projects with state projects such as Democratic Yemeni-Iraqi, Democratic Yemeni-Soviet fishing companies, Yemen Arab-Saudi airlines and Yemen Arab-China engineering and contracts companies. In 1985, YAR and PDRY established a joint tourist company and agreed on cooperation in fruits, chicken and fish projects.
In agriculture, projects and funding have had a different nature. This was also attributed to deteriorated level of private and cooperative investment.
Western international organizations strategy was to provide provinces and villages with developing programs and social services, besides, building typical agricultural farms and providing farmers with necessary guidance. Most prominent projects on rural development projects all over Yemen followed the example of the World Bank for regional development. Such measures were taken in the Northern areas which are more convenient for agriculture such as semi-tropical Tehamah valleys and moderate southern heights. Despite that progress towards targets of production was slow, the same thing extended to include those almost integrated projects, 50% to 70% of populated areas in most of Yemen.
For instance the biggest project for integrated rural development for the period since the 70s till 1986, was that of Hadramout valley at an estimated cost of $ 70 million. The project was focused on building roads, setting up surface irrigation systems, conducting studies on ground water, providing some cooperatives with fertilizers and insecticides. The second was a $ 200 million multi-funded project digging deep wells, constructing water barriers, irrigation canals and agricultural roads, fresh water projects, agriculture guidance services and mechanization etc. It is to be noted that this cost was allocated for some stages of these two projects and not for all their stages.
Yemen has depended on assistance instead of foreign companies to get capitals for investment, except for few big investments of some companies especially since the 1960s, and before oil discovery in 1984. When oil industry started in Yemen, foreign private and public sector projects competed on Yemen not only as importers but also as partner contractors and investors. At this point, foreign investment in Yemen increased, as compared to foreign assistance, as being a source of outside financing.
If reasons behind failings in overall economic and financial imbalances are majorly attributed to successive governments economic policies, specifically the public spending policy, the problem of economic and social development in the country is connected to historical, economic, social, political and technological factors. These factors have defined prevalent levels of technological and economic development and the nature of economic structure. Modes and averages of development, and its requirements in economic, productive and services sectors, have taken steadiness. These factors and circumstances have also led to drop in efficiency of the mechanism of mobilizing economic resources and their use, specially handling economy of the country by administration of the central government comprehensively. Added to those the implementation of the governments inefficient interference measures.
Therefore, it is important that the Yemeni government re-consider its use of the outcomes of the scientific and research institutions including universities, research centers, institutes for science either inside or outside the country through granting graduates good salaries, giving them incentives and support the needed; improving their social and living conditions so as to create good and proper atmosphere to push such nationals forward and move the wheel of development. It should also enact laws that ensure their rights in their different fields and ensure a better future for them. Otherwise it is almost impossible to establish a real comprehensive development in the country. Man is the end and means of development. Therefore, absence of close scientific interconnection between development of national skills and development needs has led to the phenomenon brain drain. This is a new phenomenon Yemen has not experienced before in its modern and contemporary history. It will certainly impede the process of development in the country. Besides, it will also slow the performance of universities and scientific researches as key channels for providing decision-makers with statistics, economic, social and political analyzes and information needed for drawing up policies and making decisions.
Multi-Sources               YAR                               PDRY
I.D.O                              12%                               8%
UN                                  1%                                 2%
OPEC                             11%                              10%
Bilateral resources          –                                     –
Arab countries               20%                              12%
NATO and 
European Market          2%                                 2%
Japan                              4%                                 –
Soviet Union                  45%                               46%
Other Warsaw Countries 1%                              10%
China                             3%                                  9%
Total                              99%                                99%

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