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
- Heavy demographic pressure
- Poor business climate (bureaucracy, corruption, destroyed or non-existent infrastructure)
- Scarce water resources
- Restricted access to foreign exchange, maritime blockade
A way out of the conflict is emerging
After five years of fighting, the Yemeni conflict has seen a small diplomatic breakthrough: the Yemeni government and the Southern Transitional Council, which seceded in 2017, signed a peace agreement brokered by Saudi Arabia in Riyadh on November 5, 2019. A new cabinet, with equal representation, will be formed. As a result, Saudi coalition strikes have been greatly reduced in the areas controlled by the Houthi rebels in the north, with a view to possible talks in Kuwait within the framework of the United Nations, between the new government entity and the Iranian-backed rebels. This was followed by the release of 200 Houthi prisoners by the Saudi coalition, as well as the opening of Yemeni airspace for medical evacuations from Sana’a, the country’s capital, which is under rebel control. The situation remains uncertain: the rebels continue their activities and boarded three ships off Hodeidah a few weeks later. Almost all Emirati forces have left the country, strengthening Saudi Arabia’s role in negotiations with the Houthis. The conflict had reached a stalemate over the course of the year, with none of the warring parties making any substantial territorial gains. Political and financial costs are rising for Saudi Arabia: its Aramco refineries were targeted on September 14, halving the country’s oil production. The parties look to be fatigued and ready to negotiate to achieve peace or de-escalate the conflict.
The war has triggered one of the world’s worst humanitarian crises. 80% of the population suffers from food and health insecurity. 10 million people depend on food aid for their survival. Infrastructure has been severely damaged, and a war economy has been established: 78% of the population is reported to be affected by poverty, and the labor market situation is such that militias offer the best employment opportunities, thus prolonging the conflict. Poor sanitation and poor access to safe drinking water contribute to the spread of disease: Yemen continues to suffer from the largest cholera outbreak in recent history. Yemen’s economic prospects depend entirely on the ability of politicians to find a solution to the conflict and are therefore very uncertain.
Activity continues to contract
The worsening conflict and the destruction of infrastructure have damaged the country's economic fabric. Yemen has lost nearly 50% of its GDP since the clashes began. Trade has nosedived and investment is almost non-existent. Hydrocarbon production (40,000 to 45,000 barrels per day), which accounted for 90% of exports in 2015, is expected to continue to decline. Although oil facilities have not been damaged, the transport of production remains constrained by port blockades and pipeline attacks. Severe fuel and electricity shortages will continue to hinder economic activity and fuel inflation. The decline in investment and damage to infrastructure suggests that, even if the conflict were to abate, it will be hard in the short term to get back to pre-civil war production levels.
Growth resumes but is insufficient to meet the needs of the population
The Yemeni economy has finally started growing again, but remains hampered by institutional fragmentation, the interruption of many public services, the country’s isolation, and violence. Hydrocarbon production continued to increase in 2019: state-owned company Safer resumed production in the Marib basin in October, delivering 5,000 barrels per day. The trend is expected to continue in 2020, as state companies seem to be paying attention to smaller deposits.
Investment remains almost non-existent and activity is hurt by fuel and electricity shortages. In 2020, making the strong assumption that the current political situation will continue, growth is expected to be around 2%, a meager success given poverty levels and the economic needs relating to reconstruction.
Slight improvement in public finances
Public finances improved significantly in 2019. The technical framework and administrative capacity have been partially restored, resulting in the first detailed budget in five years. Revenues have recovered thanks to hydrocarbons, which make up 32% of the total, their highest level since 2014. Tax collection has also improved, enabling the State to resume paying civil servant wages and pensions in territories outside its control, boosting household purchasing power. The main challenge for public finances today is to ensure support for vulnerable populations. Deficit financing will depend on international donors. In the case of insufficient support, the government could use inflationary financing methods.
The depletion of reserves caused by the interruption of hydrocarbon exports and operating problems at the central bank continue to hamper vital imports of medicines, food, and fuel. The Saudi maritime blockade continues, significantly reducing supplies to areas under rebel control. These factors have contributed to inflation, which is an important factor in the deterioration of household purchasing power. In 2020, improved access to foreign exchange should simplify access to foreign products. Oil exports should make it possible to achieve a current account surplus. The country is ranked as the 176th most corrupt country in the world, according to Transparency International’s Corruption Perception Index 2018.