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World > Middle East > Yemen > Economy (Notes)

Yemen - Economy (Notes)


ECONOMY
At unification, both the YAR and the PDRY were struggling, underdeveloped economies. In the north, disruptions of civil war (1962-70) and frequent periods of drought had dealt severe blows to a previously prosperous agricultural sector. Coffee production, formerly the north's main export and principal form of foreign exchange, declined as the cultivation of qat increased. Low domestic industrial output and a lack of raw materials made the YAR dependent on a wide variety of imports.

Remittances from Yemenis working abroad and foreign aid paid for perennial trade deficits. Substantial Yemeni communities exist in many countries of the world, including Yemen's immediate neighbors on the Arabian Peninsula, Indonesia, India, East Africa, the United Kingdom, and the United States. Beginning in the mid-1950s, the Soviet Union and China provided large-scale assistance to the YAR. This aid included funding of substantial construction projects, scholarships, and considerable military assistance.

In the south, pre-independence economic activity was overwhelmingly concentrated in the port city of Aden. The seaborne transit trade, which the port relied upon, collapsed with the closure of the Suez Canal and Britain's withdrawal from Aden in 1967. Only extensive Soviet aid, remittances from south Yemenis working abroad, and revenues from the Aden refinery (built in the 1950s) kept the PDRY's centrally planned Marxist economy afloat. With the dissolution of the Soviet Union and a cessation of Soviet aid, the south's economy basically collapsed.

Since unification, the government has worked to integrate two relatively disparate economic systems. However, severe shocks, including the return in 1990 of approximately 850,000 Yemenis from the Gulf states, a subsequent major reduction of aid flows, and internal political disputes culminating in the 1994 civil war hampered economic growth.

Since the conclusion of the war, the government has entered into agreement with the International Monetary Fund (IMF) to institute an extremely successful structural adjustment program. Phase one of the IMF program included major financial and monetary reforms, including floating the currency, reducing the budget deficit, and cutting subsidies. Phase two will address structural issues such as civil service reform. The World Bank also is present in Yemen, with 19 active projects in 2005, including projects in the areas of public sector governance, water, and education. Since 1998, the government of Yemen has sought to implement World Bank economic and fiscal recommendations. In subsequent years, Yemen has lowered its debt burden through Paris Club agreements and restructuring U.S. foreign debt. In 2004, government reserves reached $4.7 billion.

Current U.S. commercial assistance is focused on aiding the business sector in supporting U.S.-Yemen bilateral trade relations, encouraging American business interests in country, and diversifying Yemen?s economy toward non-petroleum dependent sectors.

Following a minor discovery in the south in 1982, an American company found an oil basin near Marib in 1984. A total of 170,000 barrels per day were produced there in 1995. A small oil refinery began operations near Marib in 1986. A Soviet discovery in the southern governorate of Shabwa proved only marginally successful even when taken over by a different group. A Western consortium began exporting oil from Masila in the Hadramaut in 1993, and production there reached 420,000 barrels per day in 1999. More than a dozen other companies have been unsuccessful in finding commercial quantities of oil. There are new finds in the Jannah (formerly known as the Joint Oil Exploration Area) and east Shabwah blocks.

In November 2005, Hunt Oil?s 20-year contract for the management of Block 18 fields ended. Despite agreement with the Government of Yemen on a 5-year extension, the Republic of Yemen Government abrogated the agreement via a parliamentary vote (not called for in the contract). The company formally requested arbitration proceedings at the International Chamber of Commerce in Paris in November. No decision has been rendered.

Yemen's oil exports in 1995 earned about $1 billion. By 2005, exports had grown to approximately $3.1 billion and comprised roughly 70% of government revenue. Oil production is expected to decline in 2007 due to dwindling reserves, but revenue will be stable as long as oil prices remain high.

Oil located near Marib contains associated natural gas. Proven reserves of 10-13 trillion cubic feet could sustain a liquefied natural gas (LNG) export project. A long-term prospect for the petroleum industry in Yemen is a proposed liquefied natural gas project (Yemen LNG), which plans to process and export Yemen's 17 trillion cubic feet of proven associated and natural gas reserves. In September 1995, the Yemeni Government signed an agreement that designated Total of France to be the lead company for an LNG project, and, in January 1997, agreed to include Hunt Oil, Exxon, and Yukong of South Korea as partners in the Yemeni Exploration and Production Company. The project envisions a $3.5 billion investment over 25 years, producing approximately 3.1 million tons of LNG annually. A Bechtel-Technip joint venture also conducted a preliminary engineering study for LNG production/development. In 2005, Yemen LNG signed two agreements for the sale of 4.5 metric tons per year, the majority of which will be exported to the United States and South Korea. Construction on the LNG export facility began in September 2005, and it is expected to begin exporting in 2009.


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