The Government of Yemen is currently working with the private sector to develop a strategic plan to enhance the business environment. It aims to provide more incentives than those currently provided under Yemen’s investment law, accelerate Yemen’s accession to the WTO, execute free trade agreements with the European Union and the United States of America, and encourage privatization, particularly in the field of telecommunications.
According to the Central Statistical Organization’s most recent report (2006), the population of Yemen is 20.7 million. More than 45% of the population lives below the poverty line with a 35% unemployment rate. The ROYG has sought to improve the economic situation of the people and increase development in different economic sectors. For this purpose, the government established the Poverty Reduction Strategy Paper (PRSP). The PRSP includes a number of strategic projects financed by foreign donors through the Social Fund for Development (SFD), Public Works Project (PWP), and the Social Welfare Support Fund (SWF).
The United States supports Yemen’s accession to the WTO and is extending technical assistance to help Yemen meet the organization’s requirements, especially IPR conditions, technical and health aspects, plant health and issues related to trade, customs tariffs, standardization, local development, poverty reduction, and decentralization.
The World Bank International Finance Corporation (IFC) opened its Yemen office in 2004 and began supporting appropriate private sector projects. The U.S. Trade and Development Agency (TDA) has financed or partially financed feasibility studies for several infrastructure projects over the past six years, including a study for a private sector oil refinery north of Hodeidah, a cement plant in Bajil (Hodeidah Governorate), a private hospital in Sanaa, expansion of the Marib Oil Refinery, a study for the upgrade of Yemen's electricity grid, and a study for the Wastewater Project in Taiz city.
The sharp rise in world oil prices has significantly increased Yemen’s foreign exchange reserves. A CBY report stated that the oil revenues from January to August 2006 increased to USD 1,462 million compared to USD 1,131 million in 2005 and that foreign assets increased to USD 7,232 million against USD 5,713 in the previous year. Statistics are not yet available for 2007.
According to the Central Bank of Yemen (CBY) Annual Report for 2006, Yemen’s total exports were valued at USD 5.25 billion for 2005 and USD 6.39 billion for 2006, while the country’s total imports were valued at USD 4.70 billion for 2005 and USD 5.268 billion for 2006. Furthermore, Yemen’s GDP was valued at USD 13.9 billion for 2005 with a growth rate of 4.06%, while 2006’s GDP was valued at USD 20.4 billion with a growth rate of 7.04%.
A lack of adequate infrastructure, coupled with an uncertain security
environment, continues to impede foreign investment; nevertheless, risk-tolerant investors can find attractive opportunities in Yemen. According to the CBY 2006 report, the United States is among the top five exporters to Yemen, with exports totaling USD 374.406 million in 2006. Furthermore, according to the joint World Bank and International Finance Corporation (IFC) report entitled “Doing Business 2007,” Yemen ranked 98, better than last year’s rank of 101. The report ranked 175 economies, including Yemen, according to criteria such as time and cost necessary to meet government requirements for business start-up operations.
At the moment, there is almost no gas production in the country, but U.S., French and Korean oil companies, along with the Ministry of Oil and Mineral Resources, formed a liquefied natural gas (LNG) joint venture to process Yemen's 17 trillion cubic feet of proven natural gas reserves for export. Companies such as Canadian TransGlobe Energy and South Korean KoGAS guaranteed to buy the LNG. Yemen’s USD 3.5 billion LNG project came on line by 2009. The project will involve construction of gas-gathering facilities, a pipeline to Balhaf at the Gulf of Aden, and an LNG plant. A second pipeline will carry gas for local consumption to Sana’a.
The main ports of Yemen are Hodeidah, Aden, Mukalla, and Mocha. In addition, Ras Isa serves as a loading point for oil exports, and a small amount of cargo passes through Nashtoon Port.
Major investment projects are:
• The Privatization Program: This program seeks to reinforce the role of the government in the management of the market-based economy by reducing government expenditures on public economic enterprises and enhancing their efficiency on a competitive basis, in addition to encouraging private sector investment and the realization of broader participation in ownership through public subscriptions. The program seeks to accelerate privatization, starting with the preparation of 61 economic units after their evaluation and assessment by specialized and neutral offices. The program includes units from the various economic sectors, including a number of large units expected to be an important step for revitalizing the private sector.
• The Free Zone: Supports the role of the Free Zone in Aden and improvement of the competitive capacity of the zone regionally and internationally by developing its management and training its employees to deal with the conditions and properties of the zone, in addition to completion of the infrastructure projects and the utility services for the zone.
• Port Cities Development: Enhances the competitive edge of port cities, starting with Aden, Hodeidah and Mukalla by rehabilitating and improving their basic services. It supports the administrative and technical capabilities of the local authorities, keeping them at least in parallel with the systems found in the ports of neighboring states while supporting partnerships between the local authorities and the private sector and facilitating procedures and processing.
• Improving the Investment Climate: Undertakes regulatory and institutional reforms for investment and promotion of exports by improving the performance of the General Investment Authority (GIA) and the Higher Council for Exports and its technical organs. The Investment Law stimulates the extractive industry and encourages the private sector to set up industrial zones.
• Gas Pipelines and Power Generation: Constructs pipelines to transport gas extracted from the Marib-Shabwah fields to the regions of Aden, Al-Hodeidah and Hadramout for local use. Specifically, seeks to build gas-powered stations and to link to the establishment of industrial estates in those three regions.
• Principal Growth Sectors: Since the discovery of oil in commercial quantities in the Marib Governorate in 1984, the petroleum industry has led Yemen's economic growth. Yemen's oil production currently stands at 400,000 barrels per day. According to the Central Bank of Yemen, oil revenues of 2006 totaled USD 5.5 billion, compared to USD 3.1 billion in 2005, an increase of 44%. While output from the Marib concession is falling, the introduction of new technologies will minimize the decline in the short term. Only new discoveries, however, can sustain Yemen’s output in the medium term. Cognizant of its oil dependency, Yemeni officials have worked to improve exploration and production contract terms. According to the CBY, oil production was only 450, 000 per day in 2007.
Most international observers believe production will sharply decrease in the next 10 years. On August 30, 2005, the Petroleum Exploration and Production Authority (PEPA) invited international oil companies to bid for the exploration and production opportunities on 14 open oil blocks in Yemen. On February 16, 2006, the Ministry of Oil and Minerals stated that 63 companies, of which five are American, applied to the tender. According to PEPA, there have been no developments since February 16, 2006.
• A long-term prospect for the petroleum industry in Yemen is a proposed liquefied natural gas project (YLNG). Yemen has over 17 trillion cubic feet of proven associated and natural gas reserves. The ROYG negotiated a gas development agreement with Total in 1995, and, in June 2002, renewed the contract for another five years. The investment group includes Total, with 42.9% of LNG shares, Yemen Gas with 23.1%, US Hunt Oil with 18%, South Korean SK Corp. with 10% and Hyundai with 6%. The YLNG project calls for construction of two liquefaction trains with total capacity of 6.7 million mt/y (315.4 billion cu ft/y). The project envisions a USD 20 billion investment over 20-25 years, with two trains of 3.1 million tons producing approximately 6.2 million tons of LNG annually. The facility is located at Belhaf, on the Gulf of Aden, and is connected to the Marib fields by a 320 km pipeline. A Bechtel-Technip joint venture conducted a preliminary engineering study.
• In 2005, YLNG signed two agreements for the sale of 2.5 million mt/y to Tractebel and two million mt/y to Total Gas and Power. Liquefied natural gas from both proposed deals should be shipped to the United States beginning in 2009.
• In transportation, the government established a Free Zone in Aden and
contracted private companies to develop a modern container port, airport
facilities, and an industrial estate. The Yemeni government is planning to extend the port to a width of 2 KM. That extension will raise the container capacity of the port to 3 million in two years. The seaport is 18 meters deep, which facilitates the navigation of large ships into the port area. Half of the world's annual container trade and a large number of oil shipments pass within four nautical miles of Aden.