Yemen: Risk Assessment
Due to political unrest, the information on these pages may not reflect current conditions in the country.
Country Risk Rating
Business Climate Rating
- International humanitarian and financial support
- Geostrategic importance of Yemen at the entrance of the Red Sea
- Architectural and cultural heritage
- Gas reserves
- Youthful profile of the population
- Civil war accompanied by a humanitarian and economic crisis, as well as the division of the country
- Poorest country in the Arabian Peninsula
- Heavy reliance on international aid
- Poor business environment (bureaucracy, corruption, destroyed or non-existent infrastructure)
- Explosion of the underground economy
Critical Political and Security Situation
Since 2015, Yemen has been in the throes of a war between Houthi rebels – Shiites – and the government forces of President Abdrabbuh Mansur Hadi, supported by Iran and by a coalition of ten Arab countries led by Saudi Arabia. With the military intervention of the Sunni Arab coalition, the conflict has taken on a new dimension around the tensions between the Shiite and Sunni communities, exacerbated by regional rivalry between Saudi Arabia and Iran. Three years later, the fighting continues, with missiles entering Saudi territory from Yemen. The Houthis control the capital, Sanaa, and northwest Yemen (the most populated region) since 2014, while government forces are grouped in the southeast. Former president Ali Abdallah Saleh was killed by Houthis in December 2017, two days after having ended his alliance with them. The search for solutions to the Yemeni stalemate is expected to be adversely affected by the rivalries between several Gulf countries and Qatar, which reinforce fractures in Yemeni society, forcing the various local factions to choose sides. The antagonistic geopolitical ambitions of Saudi Arabia and Iran will make it difficult to negotiate a solution or an end to the crisis in 2018.
A Worsening Humanitarian Crisis and an Economy Destroyed by War
Prior to the start of the war in 2015, Yemen was already the poorest country in the region. The UNO estimated that 13 million Yemenis – half the population – were living below the poverty line. Since then, the situation has worsened and the country is suffering a humanitarian crisis of the utmost severity. Humanitarian organizations estimate that 80% of the population is in need of emergency humanitarian aid. Imports of food (and medical) products have been severely limited, resulting in a scarcity of basic goods. More than half of the population will likely be at risk of starvation. On top of this, because the sanitation system has not been operational since April 2017, the difficulty of accessing drinking water and the build-up of waste has resulted in a further deterioration of sanitary conditions, and some 700,000 people are likely to be affected by a cholera epidemic. The intervention of the coalition in 2015 led to an intensification of the fighting and an increase in human casualties. The death toll is estimated at 10,000. In addition to this, 300,000 have been injured and there are over 3,000,000 refugees.
While oil and gas exports accounted for 80% of all exports in 2014, these have since declined significantly. Foreign trade represented almost 80% of the country’s GDP in 2006 but only amounted to 26% in 2015. Bombardments by the coalition have further damaged the already degraded s infrastructures, many of which were suffering from obsolescence, thus destroying a large part of the productive system. Investment, public and private, remains almost non-existent. The UN Disaster Assessment Report puts the cost of destruction at USD 19 billion, the equivalent of 50% of the 2013 GDP.
In 2018, the Yemeni economy will likely continue to be undermined by the consequences of the conflict. Combined with the destruction of both public infrastructure and a part of the electricity system, there are also problems associated with shortages of drinking water, which make any reconstruction more difficult. Inflation, boosted by the depreciation of the Yemeni rial, will likely weigh on private consumption in 2018. In addition, failures in international aid distribution channels and the rise in unemployment are likely to result in reduced disposable household income. However, access to perishable foods is improving with the lifting of the blockade on the country’s main ports, and the price of foodstuffs is beginning to stabilize, which should benefit the minority of Yemeni households that still have a capacity to consume.
External and Public Accounts in Dire Straits
The current account balance is expected to continue to run a deficit in 2018, given the low oil revenues. The deficit should nevertheless contract in 2018, due to severe import restrictions and the destruction of the port infrastructure. The port, which is a strategic access point to the Yemeni market of Hodeidah, is under Houthi control and has thus seen a significant reduction in traffic. Current account deficit financing is through expatriate cash transfers (150% increase in the last ten years) and foreign aid.
The public accounts are also in a difficult state. International aid, multilateral and bilateral, is the main source of funding for the state. Yemen relies heavily on Saudi aid, making it vulnerable to the political agenda of the neighboring kingdom. Civil servants have not been paid for more than a year. The majority of essential public services are no longer guaranteed. The central bank, transferred from Sanaa to Aden, is no longer effective. Within the conflict zones, humanitarian associations have replaced the state.