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
- Humanitarian aid and support from international donors
- Key position at the entrance to the Red Sea
- Cultural and architectural heritage
- Gas reserves
- Civil war, accompanied by an economic and humanitarian crisis, and division of the country
- Highest level of poverty in the Arabian Peninsula
- Heavily dependent on international aid
- Severe demographic pressure
- Poor business climate (bureaucracy, corruption, destroyed or non-existent infrastructure)
- Scarce water resources
- Restricted access to foreign exchange, maritime blockade
The war drags on
In 2020, affected by the coronavirus, major floods and five years of war, Yemen sank further into one of the world's worst humanitarian crises.
The country is ruled by two administrations: the Revolutionary Committee, led by Mohammed al-Houti in the north, and the alliance established in December 2020 between the internationally recognized Hadi government and the CST, led by its president Aidarous al-Zubaid who initially controlled the south of the country. This new unity government allows the reconstitution of an anti-Hadi front and provides for the balanced distribution of the 24 ministries between the two camps with Moeen Abdulmalik Saeed, former Prime Minister of the Hadi government, as head of government. After a brief truce following the COVID-19 pandemic, fighting resumed after the summer in the south of the country, raising doubts about the possibility of reconciliation between the two sides in the short term. Furthermore, the Houthis, who have held the north of the country for several years, are fighting to gain control of the Marib region. The last region in the north controlled by the Hadi government and long considered a refuge for internally displaced persons, Marib has significant and coveted oil resources. The Houthis are in the process of winning the region, which would deal a fatal blow to the unity government by stripping it of a large share of its tax revenues. The conflict continues to be fuelled by foreign interference, which is preventing peace. The coalition of mainly Arab countries opposing the Houthi rebels is dominated by Saudi Arabia, while Iran remains the only country to officially support them. However, states in the region are seeking to extricate themselves from a conflict that has dragged on for years. The United Arab Emirates has sharply reduced its military involvement, and Saudi Arabia, although a major supporter of Hadi, is trying to end a war that has cost it almost USD 100 billion.
Moreover, the country faces the threat posed by the oil tanker Safer, which has been moored off the coast of Hodeida for several years and could spill more than a million barrels of crude oil onto the Red Sea coast, unleashing an unprecedented environmental disaster.
No recovery expected for 2021
The country's economy was badly affected by the civil war, but also by the coronavirus, which limited remittances and foreign aid from Gulf countries. Activity fell by 5% in 2020, and growth is expected to show a very slight recovery in 2021. Private consumption declined because of numerous shortages of necessities, lockdown measures and the sharp rise in inflation. It is expected to fall further in 2021, driven down by the continuing conflict and inflation. Inflation is being stoked by a range of factors, including depreciation of the Yemeni riyal, which lost about 30% of its value on the black market in the space of a year.
In 2020, the oil sector suffered from falling prices and a slowdown in production because of the conflict. However, in 2021 it will get a lift from favorable oil prices. The agricultural sector, which employs more than half of the workforce, was severely affected after exceptional floods destroyed crops. The floods damaged the country's already very dilapidated water and electricity systems. With only half of all medical facilities in working order, the floods increased the risks associated with the country's cholera epidemic.
Large public and current account deficits
The current account deficit widened in 2020 despite an improvement in the trade deficit, as imports declined because of currency depreciation and the naval blockade of Houthi-controlled territories. In 2021, the trade balance will benefit from a resumption in exports (+60% according to the IMF), although it will be hurt by the rise in the price of oil, as the country is a net importer. The 70% drop in remittances, which represent 10% of GDP, weighed heavily on the balance of transfers. Financing the deficit will be difficult, as the central bank has almost exhausted its foreign exchange reserves. However, it will be made possible by the multilateral and bilateral international aid that the country receives (even though the USD 1.35 billion raised at the donors' conference for Yemen in June 2020 was only half of what was collected in 2019).
The public deficit grew in 2020 as the country faced a decline in oil revenues (the main source of income) and tax collection challenges. Public debt has thus increased but repayment will be facilitated by the debt service suspension initiative granted by the Paris Club, which will result in savings of USD 211 million, or 0.9% of GDP.