A time of challenge and trouble in Yemen

The nation has been vulnerable to oil price fluctuations but the government is pursuing economic diversification that is opening up prospects for business.

Yemenis bring goats to a livestock market. The impoverished populace has created a fertile environment for dissent. Muhammed Muheisen / AP Photo

ASANA'A // This year may turn out to be pivotal for Yemen in shaping its direction and outlook.

The challenge can be seen in the drive from Sana'a airport into the capital's main hub. Widespread poverty and lack of basic infrastructure is clearly visible against the backdrop of stunning historic architecture in the city of some 2 million.

Recently, apart from the more adventurous business type, visitor numbers have dwindled, although special service personnel and government officials remain conspicuous.

Challenges facing the government are significant and include rebel forces operating in the north and south of the country, and an increasingly active al Qa'eda wing. It is a fertile environment for dissent, with an estimated 46 per cent of the population surviving on less than US$2 (Dh7.34) a day against a 17 per cent average for the Mena region.

For Yemen, the numbers are significant, with a population of 23.5 million, just below that of Saudi Arabia's 25 million.

Political and economic issues are closely entwined, while the heat on Yemen's long-serving president, Ali Abdullah Saleh, is growing. Addressing a conference for army and security commanders in Sana'a this month, Mr Saleh said: "Yemen is a country of freedom and democracy, but we warn [against] chaos and demagogy. Yemen is not like Tunisia."

Mr Saleh also criticised those who say he wants to pass power to his son, saying he is against hereditary rule: "Talking about hereditary rule is an impudent symphony. We are a republican and democratic system and we are against the hereditary rule."

Yemen's security risks are a real issue. Gulf nations have been ready to provide financial and technical assistance to set up strategic projects in Yemen but reluctant to build infrastructure projects, according to Abdul Aziz al Owaishiq, the director of the GCC's Economic Integration Department.

And the government's finances are tight. Although the country has registered year-on-year growth throughout the global financial crisis, economic expansion has not been sufficient to raise employment or income to any meaningful level.

The fall in 2009 in the price of oil, on which Yemen depends significantly to underpin government finances, did not help. Lower oil production has also added to fiscal pressures. The increase in the price of oil last year boosted economic growth to about 5 per cent, and the sustained increase in prices this year will provide a much needed fillip to the economy.

The impact of the global crisis was also felt on the external balance of payments through lower export receipts and weaker inward investment and remittance flows. These developments made the fiscal and external positions more difficult.

The government hopes to address the economic imbalances by boosting non-oil revenues through improving its tax policy and administration to allow higher capital and social outlays over the medium term.

Recognising the need to control potential discontent, Mr Saleh has announced plans to increase the salaries of state employees and the military. Steps of this kind may be necessary to control the hostility to the phased reduction of fuel subsidies and the introduction of a goods and services tax.

Further safety nets may be needed to protect the vulnerable. However, such measures may not be enough to prevent gathering opposition.

The response by the Yemeni government and the security forces to the protests has so far been relatively low key. The authorities perhaps prefer to wait to see if protests escalate. A Yemeni government spokesman, Mohammed al Basha, said about the marches: "The government of the Republic of Yemen strongly respects the democratic right for a peaceful assembly."

But such a reserved and moderate response would be unlikely from the Yemeni government if protests grew or became violent. Over the past few days there have been only minor gatherings in Yemen. The Yemeni people may themselves be waiting to see how events in Egypt, which have grown dramatically, are concluded. If the Egyptian turmoil results in the resignation or departure of the president, Hosni Mubarak, this will probably spur on popular action for change in Yemen.

It is not only regional leaders and governments that will be concerned at the escalation of tension throughout the Mena region. The US and other western countries have long been supporters of current regimes in military states. The regimes in turn have provided a moderate political and religious position. But even the US is calling for an "orderly transition of power" in Egypt.

Governments and leaders may change but both short and long-term political and economic reforms are needed to increase standards of living and place countries on a more stable base.

Unless the problems are addressed in a real and meaningful way, protests may increase and the contagion could spread. The issue is, however, that a rapidly growing part of the population feels the time for change has come.

Parliamentary elections in Yemen are due in April and there is likely to be much volatility until then at least.

Darren Stubing is a senior adviser at Capital Intelligence in Cyprus