Yemen Faces Hard Economic Situation in 2008

Several economic experts assure that Yemen will faces big economic challenges in 2008, hinting that government should exert utmost efforts to upgrade the economy and bring more investments.

Coupled with the structural dysfunctions and misadministration within the economy, the country witnessed a massive economic recession and involved all economic sectors prompted by the political events including the protests in the southern provinces which raised fears among the investors.

The experts further believe that one of the challenges facing the Yemeni government is how to convince foreign investors that investment environment is safe and how to prove that it is a pulling rather than pushing environment.

Economic performance has not been to the level and all indicators have been witnessing a setback since 1999 when the economy lost its self-propelled nature, together with a noticed decrease in growth rates and low income ($530 per year).

Likewise, observers maintain the country has recorded a drop in oil production since the start of 2007 and it faces hazard of depletion over next few years accompanied with decline in monetary reserves. 

In 2008 budget, oil reserves have dropped 8.6 percent and the inflation recorded between January – August of 2007 reached 30 percent according to an official report.

The same report also indicated the budgetary deficit during the first half of 2007 reached YR 30 billion, recommending the government to take measures aiming to keep the country's political stability by curtailing the budget deficit at safe levels and not more than 4 percent of the gross national product.

It demanded as well financing the deficit from non-inflationary sources, treating the general budget's dysfunctions, reducing the dependence on oil reserves, reducing the general expenditures and making the optimal use of grants and loans together with enacting the internal auditing and control.

In return, economists predicted that industry sector will achieve better growth in 2008, especially after new cement and iron factories owned by private sector have entered production phase. The total annual production of this sector reaches YR 3 trillion.

Economic expert Abdulaziz Al-Awishiq notes that Yemen's economy faces difficult situation with its natural resources subjected to depletion, hinting the challenges facing the Yemeni economy lie in low performance despite the country natural richness.

Al-Awishiq further believes the natural resources are depleting and maintains that Yemen has consumed about two thirds of its oil reserves and the exports are due to come short by 2010. 

Official reports pointed out that government's share from oil production dropped during the first half of 2007 with 40 percent to reach 20 million barrels totaling $1.2 million, compared with the same period of 2006 when the government's share was $2.2.

Experts expected Yemen's production of oil will decrease by 9 percent in 2008 to reach 300,000 barrels per day (bpd) after it was 335,000 bpd during the second half of 2007.

Attempting to stop the potential decrease and to raise the total production capacity to 500,000 bpd, Oil Ministry announced last year a new international tender to explore oil in 11 offshore sectors and Oil Minister Khalid Bahah mentioned that over 23 companies have submitted bids so far and the bids are due to be opened by this January.