Country Brief

Context

A year of political turmoil in Yemen concluded with the swearing in of a new president.  Mass demonstrations, inspired by events in Tunisia, and motivated by similar demands for economic opportunities and political inclusion, brought an end to the 33-year rule of President Ali Abdullah Saleh.  A single candidate election, endorsed by both the opposition and the ruling party, was held on February 21, 2012, resulting in the transfer of executive power to Vice President Abed Rabbo Mansour Hadi, as the head of a unity government, setting in motion a period of transition. President Hadi has committed to launching a national dialogue to draw up a new constitution, which will be followed by presidential elections.

While the political process is underway, the security situation remains fragile, and the interim government faces a number of immediate and long term challenges. Yemen has acute poverty, with about 47 percent of the population surviving on less than two dollars per day. There is also alarming evidence of pervasive malnutrition. 46 percent of all five-year olds are underweight. The economy contracted by about 50 percent during 2011. Yet even before the unrest, unemployment was widespread, especially among the young, and gender inequality severe.  Women represent only 0.6 percent of the workforce, and with an average of only 1.3 years of school, their educational achievement is less than a third that of men, who average 5.9 years.

Under the previous government, there was a steady centralization of power and wealth in the capital, Sana’a. This has led to political tensions with the provinces. The perception that wealth derived from the country’s natural resources was not being shared out equally has fueled ongoing, armed insurrections in both the north and south. There has also been increased activity from Islamic militants, especially in Abyan province in the south, who have taken advantage of the instability to seize control of several key towns.

The economy has been almost wholly dependent on oil over the last decades. Oil represents about one third of GDP, almost three quarters of Government revenues and 90 percent of exports. It has funded an extensive system of state patronage, based on a large public sector, and an expensive and poorly targeted system of universal subsidies. Maintaining this model in the face of fluctuating prices has led to large fiscal deficits during times of low oil prices. Yemen may soon have no choice but to diversify due to the finite nature of the resource.  While natural gas shows promise, in the absence of new discoveries, and based on current exploitation rates of about 300,000 barrels per day, crude oil reserves are expected to be exhausted in the next 10 to 12 years.

Rapid urbanization and an annual population growth rate of 3.1 percent, almost twice the regional average of 1.7 percent, are putting further pressure on Yemen’s limited natural resources. Rainfalls have been affected by climate change, which has in turn exacerbated the country’s aridity, and put water supplies at similar risk of depletion.  In some important cities such as Tai’z and the capital, Sana’a, running water is already available only a few hours every other week and aquifers of urban centers may well be fully exhausted in the next 20 years.  Access to water is critical for large swathes of Yemen’s predominantly rural population, but with demand outstripping supply due to demographic and ecological trends, their traditional livelihoods could soon be in jeopardy.

A program of sustainable development will be a vital component to the transition, to provide a stable environment in which the political process can advance. The launch of the national dialogue will begin to answer one of the principal demands of the protestors, that of political inclusion. This will have to be coupled with a concerted effort to diversify the economy, as a first step toward the creation of a dynamic private sector that can answer the call for increased opportunities and productive employment. Reforms will be needed that encourage private enterprise. This includes the development of a transparent regulatory framework that is administered consistently, with improved access to finance and ease of entry for new companies. Reforms will also be needed to ensure that human potential is not wasted, by providing women with the chance to contribute their full energies and talents. This is equally true of young people, who played such an important role in bringing about change. They are quite literally the future, as nearly 50 percent of the population is under fifteen. The creativity and enthusiasm of the youth movements need to be integrated into the transition process.  Adaptation to climate change, through the conservation and efficient use of natural resources, is another matter of utmost urgency. Not only will it avert a potential catastrophe, but guarantee a sustainable future for Yemen beyond the transition period  

Strategy

After an eight month suspension of all activities due to the deterioration of the security conditions, the World Bank returned to Yemen in January, 2012, with a renewed commitment to provide all the necessary assistance to the country during these challenging times.

There will be three major elements to the transition process: Social and economic reform, reform of the security services, and political and constitutional reform. The Bank will take the lead on the first initiative.

 In the course of determining the most appropriate and effective course of action, there have been extensive consultations with all stakeholders, including activists, civil society groups and members of the unity government.
 
The Bank is coordinating an assessment of the social and economic impact of the crisis together with the interim government and the Bank’s development partners, the European Union, the United Nations and the Islamic Development Bank.

The Bank is also helping the interim government draw up an economic transition plan to cover the two year transition period. Both, the plan and the crisis assessment will be ready in April, 2012. The Bank will use these documents to identify and prioritize relevant actions to be implemented. These two documents will be an important input to the donor’s consultative group meeting scheduled towards the end of the Spring.

In the meantime, the focus will be on accelerating the implementation of Bank-financed projects that were interrupted by the crisis, to restore basic services and create short-term job opportunities. The Bank will also work with the interim government to initiate reforms aimed at putting the economy on a track to recovery and sustainable growth.

Throughout the entire process, the Bank will ensure that all its actions are informed by extensive consultations with all sectors of society.

Results

The World Bank has had a long history in Yemen, managing a broad range of projects in a variety of sectors.  Some selected results include:

• Social Fund for Development:  The World Bank has also provided grant funding and lending assistance towards job creation and income generation; 100,000 loans were provided to support small and medium enterprises.
• Public Works Project: Through this effort, over 3,900 sub-projects in the following sectors - education, health, roads, agriculture, vocational training, social security, water and sanitation - have been delivered to over 14.7 million poor people.  In addition, more than 74 months of job opportunities have been created including work for 1900 local contractors and 1250 local consultants.
• Rural Access Project: As a result of the World Banks involvement in this sector, over 400,000 people have gained reliable year-round access to centers of economic activity and public services.

Partners

The World Bank is closely collaborating with a number of Yemen’s development partners including development agencies from France, Germany, Italy, Netherlands, United Kingdom, United States, European Union, and United Nations agencies.  The World Bank Group is also working closely with the International Monetary Fund on the macroeconomic dialogue. A close dialogue has also been established with the GCC Secretariat and bilateral agencies from the sub-region. 

 

All dollar figures are in US dollar equivalents. Updated April 2012 

 

For more information, please contact:

In Washington; Lara Saade; lsaade@worldbank.org

In Yemen; Samra Shaibani; shaibani@worldbank.org