Economy

In terms of GDP per capita, Yemen is the poorest country in the Arab world and one of the poorest nations in the world. At unification, both the YAR and the PDRY were struggling, underdeveloped economies. In the north, disruptions of civil war (1962-1970) and frequent periods of drought had dealt severe blows to a previously prosperous agricultural sector. Coffee, 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 neighbours on the Arabian Peninsula, Indonesia, India, East Africa, and also the United Kingdom, and the United States. Beginning in the mid-1950s, the Soviet Union and China provided large-scale 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.

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. Yemen, the fastest growing democracy in the Middle East, is attempting to climb into the middle human development region through ongoing political and economic reform.

The World Bank is active in Yemen, with twenty-two active projects in 2004, including projects to improve governance in the public sector, water, and education. In 1996 and 1997, Yemen lowered its debt burden through Paris Club agreements and restructuring U.S. foreign debt. In 2003, government reserves reached $5 billion.

Economic Reforms

In early 1995, the government of Yemen launched an economic, financial and administrative reform program (EFARP) with the support of the World Bank and the IMF, as well international donors. The First Five-Year Plan (FFYP) for the years 1996 to 2000 was introduced in 1996. The World Bank has focused on public sector management, including civil service reform, budget reform and privatisation. In addition, attracting diversified private investment, water management and poverty-oriented social sector improvements has been made a priority for the implementation of the programs in Yemen. These programs had a positive impact on Yemen's economy and led to the reduction of the budget deficit to less than 3% of GDP during the period 1995-99 and the correction of macro-financial imbalances.

In 1997, IMF and the government began medium-term economic reform programs under the Enhanced Structural Adjustment Facility (ESAF) and Extended Fund Facility (EFF). This reform program was aimed at reducing dependence on the oil sector and establishing a market environment for real non-oil GDP growth and investment in the non-oil sector. Increasing the growth rate in the non-oil sector was one of the most important problems to be tackled by the government. These programs included reducing unemployment, strengthening the social safety net and increasing financial stability. To achieve these reforms, the government and IMF implemented containment of government wages, improvements in revenue collection with the introduction of reforms in tax administration, and a sharp reduction in subsidies bills by increasing prices on subsidized goods. As a result, the fiscal cash deficit was reduced from 16% of GDP to 0.9% from 1994 to 1997. This was supported by aid from oil export countries despite the wide-ranging fluctuations in world oil prices. The real growth rate in the non-oil sector rose by 5.6% during 1995-97.

Oil Industry

Following a minor discovery in 1982 in the south, an American company found an oil basin near Ma'rib in 1984. A total of 27,000 cubic metres (170,000 barrels) per day were produced there in 1995. A small oil refinery began operations near Ma'rib in 1986. A Western consortium began exporting oil from Masila in the Hadhramaut in 1993, and production there reached 67,000 cubic metres (420,000 barrels) per day in 1999. There are new finds in the Jannah (formerly known as the Joint Oil Exploration Area) and east Shabwah blocks. Yemen's oil exports in 1995 earned about $1 billion.

Marib oil contains associated natural gas. Proven reserves of 280 to 370 cubic kilometres (10-13 trillion cubic feet) could sustain a liquid 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 480 cubic kilometres (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 project (YEPC). 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.