Yemen: Risk Assessment
Due to political unrest, the information on these pages may not reflect current conditions in the country.
Country Risk Rating
|E||The highest-risk political and economic situation and the most difficult business environment. Corporate default is likely.|
Business Climate Rating
|D||The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.|
An economy devastated by civil war
As of 2014 the Yemeni economy sank into a deep recession that has worsened as the conflict has gone on. Because of the fighting and the sabotaging of infrastructures, Yemen oil production has collapsed. The outlook for the agriculture sector (19% of GDP in 2013) is looking uncertain given the increasing scarcity of underground water and the destruction of fields in the coalition’s attacks. With the loss of investment and the destruction of infrastructure, any return to the growth rate preceding the civil war would be difficult in the short term even if conflict ends. The blockade on imports imposed last May by the coalition led by Saudi Arabia is leading to problems supplies which, combined with high inflation, are going to further worsen the humanitarian crisis in the country. The United Nations estimated that 80% of the Yemeni population is in need of urgent humanitarian assistance. The number of Yemenis suffering from food insecurity has increased by 33% since March 2015, rising from 16 to 21 million in July 2015 and the deterioration of the health situation has created epidemics diseases such as dengue fever and malaria, particularly in the city of Aden.
The state of the external and public accounts hangs on evolution of the conflict
The blockade on imports and the collapse of exports resulted in a significant increase in the current account deficit in 2015, which is set to continue in 2016.
The public accounts are also critical. Bilateral international aid, in particular from Saudi Arabia, has become the main source of financing for the areas controlled by the regime. Inside the conflict areas, humanitarian organizations have substituted for public services to provide food aid and medical aid to the people. Given the lack of elected representative bodies, the IMF has suspended a three-year 550 million dollars loan granted under the Extended Credit Facility arrangement.
Critical political and security situation
Whilst the country has been suffering a split between the communities in the North and the South ever since the unification of Yemen in 1990, the transition government of former Vice-President Abdel-Rabbuh Hadi was given the task of supporting the political transition with the drawing up of a new constitution that included the reconfiguration of the country into a federal state with six regions.
These measures led to a resurgence of Shiite Zaydi tribes claims, also referred to as Houthis rebel. With the support of pro-Iranian militias and backed by members of the army loyal to the former President, Ali Abdallah Saleh, they launched, at the start of 2014, an armed offensive towards the coast and moved towards the south. In September 2014, the rebel factions captured the capital, Sanaa, and then in January 2015, forced President Hadi to resign and go into exile in Riyadh three months later.
At the request of President Hadi and in order to counter the Shiite offensive, Saudi Arabia decided to intervene militarily in Yemen in March 2015. Since then, It has been leading, alongside nine Arab countries (Saudi Arabia, Egypt, Jordan, Sudan, Kuwait, Qatar, Oman, United Arab Emirates and Morocco), an aerial military coalition that could turn into a ground forces operation.
In the political and security void that has been created in Yemen, the terrorist organizations operating in the region have strengthened their networks. AQAP (Al Qaida in the Arabian Peninsula), as well as Islamic State, have extended their presence in the country with an increase in their jihadist attacks.
With the military intervention of the Sunni Arab coalition, the conflict has taken on a new dimension in terms of the tensions between the Shiite and Sunni communities, exacerbated by the duality between Saudi Arabia and Iran. The UN mission chaired by Ismaïl Ould Cheikh Ahmed is seeking to find a political solution to the impasse whilst the possibility of dialog has failed to prevent increasingly bloody fighting. The agreement by the Houthis to United Nations resolution 2216 which calls on the rebels to withdraw from the areas conquered by the force since 2014 represents an opening towards a solution. A meeting including the various parties involved could be held at the end of December under the aegis of the UN, although the location and date of that meeting have yet to be agreed.