Yemen: Developing A Country


A Focus on Development for the Oil and Tourism Industries

Yemen, a third world country desperately trying to achieve 2nd or even 1st world status, is in the midst of turmoil and tribulation in trying to bail out their economy and increase their level of reform. Since 1995, the Yemeni government began to implement a large scale program of reform. The program was formulated in cooperation with the IMF and the World Bank and it is considered a liberal program aimed at making the market the dominant regulator of the economy (6. Mallakh, 241.) Unfortunately, the outcome of this reform is not encouraging even though 1995 and 1996 were nominally successful years for the program. Yemen's economy continues to operate under the auspices of the International Monetary Fund (IMF) and the World Bank, with the government moving forward with the economic-reform package that was initiated in 1995 (6. Mallakh, 241.) In the conclusion of my first case study, I found that in order for Yemen to successfully reform economically, there was a definite need for foreign investment. Whereas this may prove to be true for a minute part of the economy, it fails to recognize the most blatant of truths: the Yemeni economy cannot survive without the counterbalance on the oil industry concerning the imports and exports.

I. Yemeni oil production, Exploration and Foreign Investment

1. Oil Production

Yemen's current oil output of about 350,000 bbl/d provides the country's main source of income. After a slight decline from 1995 to 1996, oil production is back on the increase. In 1996, output fell 5,000 bbl/d to 340,000 bbl/d, rebounding to 385,000 bbl/d in 1997. Yemen contains proven oil reserves of 4 billion barrels. Proven recoverable reserves of 1.7 billion barrels are concentrated in five areas: Marib-Jawf Block 18 (490 million barrels), Masila Block 14 (550 million barrels) in the south, the Jannab Block 5 (345 million barrels), and Iyad Block 4 (135 million barrels) in central Yemen. The Masila block is the country's most productive oil field at 200,000 bbl/d followed by Marib-Jawf at 140,000 bbl/d (4. USEIA)

2. Exploration and Bringing in Foreign Investment

A. Exploration

Exploration for additional reserves and new investments from foreign companies began to decline in 1994, due mainly to civil war between north and south Yemen, unattractive exploration and production contractual conditions, and the low success rate of hydrocarbon discoveries. However, exploration activity picked up again in 1997 after the civil war ended and the government started to offer more attractive contract terms. By mid 1997, approximately 20 exploration agreements were in force with foreign oil companies (4. USEIA) (5. E.I.U. p. 37-40.)

B. Foreign Investment Projects

In September 1997, Canada's TransGlobe Energy signed a MOU with Yemen's ministry of oil and mineral resources followed by a production sharing agreement (PSA) in December 1997 for the Dameis Block S1. Under the terms of the PSA, Transglobe will conduct a 3D seismic survey covering 60 square miles and drill three wells. This first exploration phase will take 22 years at a total cost of US$11 million. A second 22-year phase requires an additional 40 square miles of 3d seismic data and drilling three more wells. This second phase will cost another US$11 million. Block S1 was previously explored by Royal Dutch/Shell between 1990 and 1993. Meanwhile, another Canadian company, First Calgary Petroleum, signed a US$15 million deal for oil exploration in Yemen's southern province of Hadramaut. Two phases of exploration activities are expected, which will include drilling two wells as well as conducting 3D seismic surveys (2. Yemen Observer)

3. IMF Reform Package: Is it the answer?

A.What is the IMF Reform package?

The IMF program includes banking reform, privatization of state-run industries, major infrastructure investment, and reduction or elimination of government subsidies. Thus far, the economic situation has been improving in what is one of the world's poorest countries (3.IMF: Policy)

B. Problems

One of the main provisions in the IMF reform package calls for the government to reduce subsidies. The first two phases of reforms reduced subsidies on oil and electricity. Transportation fuel prices were doubled in March 1995, sparking violent protests especially in Aden. Prices for fuel, electricity, and water were increased again in January 1996; diesel prices increased between 40% and 60%. Farmers protested these price hikes by blocking the main Sanaa-Aden highway. The third phase of the reform program began in July 1997, with additional increases to electricity rates, water fees and fuel prices. Transportation fuel prices rose by more than 30% and kerosene prices by more than 85%, sparking protests form farmers in the tribal region of Maarib. In June 1998, the Yemeni government once again raised prices on gasoline, kerosene, and cooking gas as well by around 40%. In addition, subsidies on wheat and flour were cut. These latest round of price hikes aroused more protests as demonstrators took the streets, calling on the government to revoke the price hikes, and clashed with police.

On July 19, 1998, members of the Abida tribe blew up part of Yemen's Marib-Ras Issa oil pipeline in the Marib district, located 106 miles north of Sanaa. This marked the eighth attack on Yemeni oil and gas pipelines since June 19,1998 (3.IMF: Problems.)

4. Projections and Conclusion

As expected, Yemen's Central Bank latest figures showed Yemen oil revenues in 1998 down by 55.2% (about US$454 million,) as compared to 1997. The government's share from oil exports was 39.12 million barrels in 1998 against 54.88 million barrels in the previous year. Also, income from oil sales account for approximately 40% of Yemen's total revenues, and are the county's main source of foreign currency. Therefore, persistently low world oil prices are expected to have a significant on future budget projections. Oil prices began falling after the Organization of Petroleum Exporting Countries' (OPEC) decision in November 1997 to increase its output ceiling 10% to 27.5 million bbl/d. A mild northern hemisphere winter, increased Iraqi exports, and Asia's continuing economic problems also contributed to the declines. By February 1998, Yemen had already lost an estimated $223 million in revenues due to low oil prices. The 1999 budget projects that oil income will increase 3%, to $1 billion, from $970 million estimated for 1998, while the budget's total revenues are expected to decline 11% from 1998 (4. USEIA) (6. Mallakh pg. 241)

Although Yemen has taken many steps in the reform process, getting back on their feet will be a long and tedious process. As I explained earlier, foreign investment plays a huge role in the success of their growing oil industry. Even with the help of the IMF and the World Bank, Yemen is still struggling, and it's people are the ones suffering. They have seen the overall deterioration in all aspects of economic and social life before implementation of the Economic Reform Package (ERP). Some say that this can be attributed to the lack of a modern and strong state. Lawlessness, corruption, and bribery are widespread in Yemeni institutions and this poses a major obstacle to any corrective program and more generally to any development program in Yemen. This view can be acknowledged by Guiani Perez of the World Bank who also said: "Financial reform requires additional measures. Mismanagement, corruption, and an underdeveloped legal system all discourage private sector investors" (1. Yemen Times.)

II. Salvaging the Tourism Industry

1. Introduction

The importance of tourism for the Yemeni national economy and the process of development cannot be over emphasized. Tourism ostentatiously represents an inexhaustible river that feeds any country with hard currency. It is rightly termed "the engine of economic development." This is because it is a principle foreign currency earner which supports the national economy. In Fact, in some countries, especially the third world, tourism compromises the whole and sole source of hard currency. Worldwide statistics indicate the rapid expansion of this sector and show that in 1996, for instance, about 592 million tourists spent over $423 billion, compared to 567 million tourists spending $372 billion in 1995. In spite if the fact that Yemen is still new in the tourism industry, it seems that there is a formidable and promising future for the growth of tourism in Yemen (7. Richer pg. 37-42.)

2. The Problem

A. Kidnappings

The recent outburst of kidnapping tourists has been the most dangerous problem facing the future of tourism in Yemen. It is actually a nagging problem which has began to threaten not only the future of tourism, but also continuing relations with friendly countries. As 1998 was coming to a close, suddenly there was disaster. There were several kidnappings leading, for the first time, to the killing of several tourists. The sequence and pace of repetition is very telling.

Ø On December 6th, 1998, 4 German tourists were kidnapped by Bani Dhabyan in Marib Governorate.

Ø On December 28th, 16 American, Australian, and British tourists were kidnapped in Moudiya, Abyan Governorate.

Ø On January 9th, 1999, a failed attempt to kidnap two Italian tourists in Sanaa City.

Ø On January 9th, John Brooke, a British national working for Haliburton, was kidnapped in Marib Governorate.

Ø On January 10th, there was a failed attempt to kidnap two American tourists in Seiyoun, Hadhramaut Governorate.

Ø On January 17th, 1999, 4 Dutch and 2 Britons were kidnapped in Sa'adah Governorate.

Ø On January 26th, 3 Germans were kidnapped in Amran Governorate.

Ø On January 27th, a UK national was kidnapped in Marib Governorate.

(7.Richer pg. 42-53 112-133)

In Summary, in just two months, there were eight incidents involving 35 foreigners in six governorates. The picture is distressing indeed as one Western country after another warned their nationals against travelling to Yemen. The answer: The government must take stiff measures against kidnappers and show them no leniency.

3. Tourist numbers increased

A record 60 thousand tourists visited Yemen in 1995 and 75,000 in 1997. The tourism revenues reached US$ 45 million in 1996. The number of workers in tourist establishments is now more than 5900. These figures indicate that the momentum is accelerating, and hopefully, it has immense prospects in the coming phase. However, the number of tourists visiting Yemen is relatively modest in comparison with those visiting other countries which lack Yemen's attractions and scope for tourism (2.Yemen Observer.)

4. Promotional Schemes

But to give it a positive thrust, there must be a comprehensive plan for promoting tourist drive in the country like a strategy for marketing and advertising, and tourism scheme for Yemeni coasts. The Ministry of Culture and Tourism must play a more aggressive role in promoting tourism. It should intensively provide all the facilities for all potential domestic as well as foreign investors in this field.

In this respect, it should be pointed out that Yemen has various natural, cultural, and coastal resources that can, if exploited well, be developed into centers of tourist interest. The Yemeni coast extends over 2000 kilometers along the shores. It has also more than 112 islands, both in the Red and Arab seas.

The Ministry of Culture and Tourism should also coordinate and cooperate with other ministries so as to promote this industry and show its rosy picture. There must be a cooperation with the Ministry of Housing and Urban Planning in order to build more hotels and increase access points such as airports. It should encourage the building of more four-star and five-star hotels. Roads to different archaeological site and high mountains, which can be used in gliding, should be improved. The rural places, in addition, should be taken into consideration because of their striking beauty (8. IGY pg 4-16.)

5. Role of the Media

Another point that should be raised here is the significant role of the mass media in activating and marketing tourism in Yemen. Their role is considerably integral to that of the Ministry of Tourism. They can help a lot in raising public awareness of the importance of the tourism industry in increasing the national income. This is because tourism is a product requiring social interaction and that social awareness should be promoted as a part of the effort to increase tourism. The information media can also help in conveying the messages of the Ministry of Tourism which must reach all people.

They will also help in educating people in the significance of protecting the environment from any sort of destruction because if the environment is destroyed, then tourism will collapse. With regard to the archaeological sites, ancient monuments must be preserved and well looked after. The government should make strict measures against smugglers of archaeological masterpieces to other countries (2.Yemen Times.)

A. World Bank Assistance

One last note is that officials from the World Bank have also shown interest in Yemen's tourist industry. A World Bank team that was recently visiting Yemen, and which traditionally financed efforts to preserve old/historic cities, showed interest in the re-structuring and re-invigorating of the tourism industry. Though previously not involved in tourism per se, the World Bank team expressed an interest in exploring financial development projects in this sector (2.Yemen Observer.)

III. Concluding thoughts, Forcasts, and Works Cited

For the past several years, Yemen has been under the microscope of the world. Everyone has been analyzing everything from tourist kidnapping to the recent slide in oil prices and the recession it has caused. In the not so distant past, news headlines on Yemen were full of promise and optimism. Now, the economy is in trouble. In my opinion, the clear solution lies right at the top. You must have a stable, strong and concise government in order to maintain order throughout the country. With plenty of interest shown from International Banks and Trusts, Yemen has the resources to stabilize and restructure, starting with government bureaucracy, and eliminate corruption. The oil crisis will eventually play itself out, but foreign investors must be continually attracted to Yemen. This not only brings in revenue, but opens the door to the world of International Trade and the reality of a 1st world economy. But right now, Yemen needs to focus on continuing to repay their debts on time and developing their tourism industry. The tools are there for the Ministry of Culture and Tourism to implement, The only thing that needs to be complemented is the kidnapping problem. With stricter policy on this issue and the influence of a positive mass media, the tourist industry can become an important industry after oil in Yemen.

Word Count: 2399

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