Yemen economy bullish, but where's the money?

SANAA, Yemen — On the streets of Sanaa, an angry crowd gathers around a gas delivery truck. Children run down the alleyways rolling gas canisters in front of them, men wave their money at the deliverymen and veiled women who have been standing in line for hours shake their heads in exasperation.

A cooking gas shortage that has lasted more than a month has highlighted Yemeni citizens’ dissatisfaction with what they see as the continued failure of the government to deliver basic services. In the past month, Yemenis have faced an increase in fuel prices, a rapidly weakening currency and a dramatic increase in the price of some foods. Already, roughly half of the population lives on less than $2 a day.

The recently compounded hardships come in the context of an improved outlook for the Yemeni economy, which is projected to grow by about 8 percent in 2010, according to officials at the Central Bank of Yemen.

“Economic growth in Yemen is very promising this year, supported by growth in the energy sector,” said Ibrahim al-Nahari, sub-governor for foreign banking operations at the Central Bank. The current devaluation of the Yemeni riyal is due to market forces outside of Yemen, he said.

But to many Yemenis, the complex workings of the market are an unsatisfactory explanation for the recent spike in prices of imported goods like sugar, which, according to locals, has doubled in recent weeks. And the long lines for government-subsidized cooking gas — at a time when the country has increased exports of liquefied natural gas — seems a cruel irony, even if the two factors aren’t directly linked.

“The economy is in ruins,” said Mohamed al-Baradi, a shopkeeper in the capital. “Maybe for the rich there is an economy, but not for the poor.”

Customers standing outside his tiny grocery nodded in agreement. They blamed recent instability, the weak currency and government corruption for their woes.

As Yemen has come under international scrutiny as a hotbed of Al Qaeda activity, officials inside and outside Yemen agree that improving the economy is key to fighting extremism. An important part of that challenge is translating economic growth into tangible benefits for Yemen’s population of 23 million — a task that may prove more formidable than merely increasing the country’s GDP.

Seventy percent of Yemen’s GDP currently comes from oil exports, a stream of revenue that may be drying up too quickly to be replaced by gas exports. Meanwhile the other sectors of the economy — tourism, agriculture and fishing — are stagnant.

This year’s projected growth is due almost entirely to the completion of a liquefied natural gas terminal on the coast that has begun exporting gas from Yemen’s interior to markets around the world. The Yemen LNG Company made its first of an expected 30 annual deliveries to Boston on Feb. 23.

Officials in Sanaa see the project as an economic lifeline, generating much-needed income as revenue from the country’s oil supplies dwindle. And the five-year, $4 billion project, funded by a consortium investors including the French oil company Total, has been hailed as a prime example of the positive impact of foreign investment in the country.

But the analysis from Yemen’s Deputy Minister of Finance Jalal Omar Yaqoub was more sobering. “The country’s growth cannot be driven by one project,” Yaqoub said. Though the millions of dollars going into the government’s coffers from the project should benefit all citizens of the country in the form of government-sponsored development projects, the reality is far from that ideal, he said.

“There is input to the government in the form of increased revenue, but what you get as output is not always what you expected,” he said.

To create sustainable economic benefits for average Yemenis, the government must improve the country’s investment environment, increase the capacity of the government to deliver services, eliminate corruption and implement reforms, Yaqoub said. And most of all, the government must establish legitimacy in the eyes of the people — a task that will take time and require the government to make good on its promises.

He used the example of government diesel and gasoline subsidies. The unsustainable subsidies currently eat up almost 30 percent of the total annual budget, but a cut in subsidies in 2005 caused the price of diesel to double, and led to riots across the country that killed more than 30 people. So even if it is better economic policy to cut subsidies, Yaqoub said, the government did not have enough credibility to pull it off, “They say ‘It’s your problem. Why should we pay for it?’”

At the beginning of February, the government again cut some subsidies — jacking up diesel and gas prices by a much smaller 8 percent — a gradual increase that has taxi drivers grumbling, but not rioting.

“There needs to be a lot of transparency,” said Abdo Seif, a program adviser to the United Nations Development Fund. “If you are doing reform by lifting subsidies, for example, and nothing is happening down the line, [the citizens] don’t buy in.”

But even skeptics in Yemen see opportunity in 2010, with the revenue from natural gas and the increased interest from the international community in the stability of the Yemeni economy.

“The government has the buy-in of citizens, the buy-in of the international community and strong regional support,” Seif said. “It’s a golden opportunity to implement reforms for once and forever.”

The trick will be ensuring that al-Baradi, the shopkeeper, sees the results.

Reporting for this story was supported by the Pulitzer Center on Crisis Reporting.