SANA'A: After several months of instability and severe disruptions in the country's main industrial, financial and economic activities, the government reported that Yemen suffered losses exceeding $10 billion since February. Several financial institutions amongst which the World Bank and the IMF have warned that Yemen was on the verge of a meltdown if no political solution was found quickly as the country could not possibly carry on at this pace for much longer. In less than a year, Yemen which was enjoying a steady growth rate and a development in all sectors of the industries is now facing a mounting deficit, an industrial crisis of momentous proportion, a serious cash flow problems as well as a banking crisis. In other words, Yemen is on its last leg. Oil Industry A few months ago, as Yemen's Oil minister was warning of a pending catastrophe in regards to the Oil industry as disruptions in the country's export and production activities had forced several main foreign companies to halt their operations or worse shut down entirely, economists are saying that the rise in global oil prices is alleviating somehow Yemen's financial difficulties. As the entire middle-eastern region continues to be enthralled by more uprisings, Gulf countries have had to increase their productions in order to keep up with global demands. However, such actions could not stop investors' concerns over a new Oil crisis, leading price to spike well above $US110 mark, as opposed to $US90 last year. This has actually allowed Yemen to minimize its unrealized income. However, this brief respite is no mean a quick fix to the country's mounting economic problems. According to government data, Yemen relies on oil revenues to finance up to 70% of the general budget, with customs and tax revenues accounting for 18%, leaving tribal attack on its infrastructures. Deputy Minister of Information, Abdu al-Janadi recently told the press that the government was running a large fiscal deficit and had to lift its subsidies on oil derivatives in order to sell them to the public at world price, plumping up the country's treasury box. This policy however had a negative effect on the economy as commodities' prices went up to compensate the increasing transportation costs. Al-Janadi added that such measures had helped the country cope with its short term commitments in regards to the payment of state employees' salaries since foreign aides had been suspended. Since the rise in global prices, Yemen's oil revenue increased by 13%, which offset lower customs and tax revenues. Furthermore the fact that President Saleh ordered the government to limit its spending to only salaries and basic expenses helped counteract the decrease in revenue from custom taxes, zakat and local councils. Insurance Companies Ali Mohamed Hashem, the President of the Yemeni Union Insurance said that insurance companies in Yemen had lost so far this year 40% of insurance premiums due to the economic recession which the political crisis triggered. He stressed that the security situation in the country had led to the failure of reinsurers to secure the import of goods in Yemen as looting and kidnapping posed a too greater threat. In his last press statement Hashem declared that the “first-class” insurance companies in Yemen had been deeply affected by the economic crisis as many factories and companies had failed to renew their contracts, adding that several foreign companies had simply fled, fearing further instability. Import According to a recent study of the Yemen Chamber of Commerce and Industry, the country's import would have dropped dramatically in comparison to last year. Since Yemen imports about 90% of its needed goods, the decline is bound to have severe repercussions, especially in regards to staple goods such as rice, flour and oil. Yemen's import fell by 80% in the second quarter, a perfect reflection of the market' sentiment in regards to the current crisis. Most Yemeni importers remain extremely cautious as to how they invest since the country is going through its worst crisis yet. With so much insecurity, businessmen prefer to keep their cash away from Yemen. The Vice-President of the Chamber of Commerce warned that if the import index was to continue to decline, the country's economy would be affected to levels unmatched since September 1962, causing banks and industries to halt their activities. Most worryingly is the fact that medical imports are still in the decline; although not as sharply as in previous months, but nevertheless declining. Jamal al-Hadrami, the economic adviser to Yemen's prime minister, told the press that the drop in the volume of imported goods would reduce general budget revenues. “The drop in imports is attributable to the fact that exporting companies that used to agree to an advanced payment of 25 percent of the value of their products and extended credit for the balance, now require merchants to pay the full amount in advance or open lines of credit, due to the political instability,” he said. Al-Hadrami said high insurance premiums on imported goods, rising import and internal transportation costs, as well as widespread work stoppages had all adversely affected state revenues. “A shortfall in general budget revenues is projected due to the dearth of import activity and lower zakat revenues, which fell 40 percent short of expectation this year, in addition to low returns from local councils and the reluctance of donor [countries] to fund development projects,” he said. Khaled Taha Mustafa, former president of the Chamber of Commerce & Industry in the capital, said Yemen's political crisis has had a major impact on investment and commerce. According to Mustafa, the volume of imports is projected to drop by 30%. “This is a high [percentage] that will deprive the Treasury of customs and tax revenues,” he said. However, Taha al-Faseel, adviser to the Ministry of Industry and Trade, said the government's fiscal deficit would stay within “safe boundaries” because oil revenues account for a higher percentage of the general budget than customs and tax revenues. “The general budget lost a number of revenue streams, but global conditions benefitted it through the rise in the global price of oil, which accounts for up to 70 percent of general budget revenues, while customs and tax revenues account for only 18 percent,” he said. Banking Crisis Since the beginning of the crisis back in February, most of Yemen commercial banks have had to cease all activities and as result laid off if not all most of their staffs. Other banks complained that customers' jitters led them to withdraw large amount of cash from their account, depleting the banks' reserves and compromising their abilities to conduct their daily business activities. Dr. Munir Aeriqi, former President of a Yemeni government bank, said that “all commercial banks have been negatively affected by the deteriorating economic, political and security situation experienced by the country since the beginning of February.” Aeriqi confirms that banks suffering from large withdrawals may collapse. Dozens of banks had to carry out measures to ease monetary withdrawals such as reducing official working hours. Economic experts noted that the current crisis in Yemen had greatly impacted the Yemeni economy, especially its banking organizations which provide loans and credit to companies and individual borrowers in order to meet their financial needs. Yasser Almiasa, editor of the Yemeni Banking Guide, said the Yemeni banking system is modest and doesn't have any investments in international banks, investment funds or real estate sectors and, thus, is only affected by local economic fluctuations and tourist conditions. BM
