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The Directions of Economic Reforms in Yemen 1990-1996

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The Directions of Economic Reforms in Yemen 1990-1996

This article is a partial text of a paper-work submitted by the author for participating in the "Second Yemeni Economic Conference " held in Yemen during the period 18-20 April, 1998.

Upon the birth of the Republic of Yemen on May 22, 1990; through re-uniting the two Yemeni sectors, and due to the impact resulting from the Gulf War; the economy faced series of crisis and sharp economic obstacles. These were actually originating from the structural irregularities found within Yemen's economic framework. Such state of imbalances grew to a huge extent due to the economic conditions and internal policies which shapely distinguished the first half of the nineties. Besides, the regional and international reactions been imposed on Yemen called for shape-up and implementing a comprehensive reform program for economic, financial and administrative re-structing and adjustment of these conditions. This program had been thought best to proceed in line with the direction towards incorporating within the new international economy, or what generally came to be known in political terminology "Economic Globalization"! By presenting and viewing the total economic indicators, and development of the economic structure of Yemen for the period 90-1996, it is possible to point out that by re-uniting the two Yemeni sectors, there were consequently to arise incorporation of all resources and capabilities in one common pool. The market volume thus expanded to 16 million of the population, with a total labor capacity of four and half million workers (males and females). The coastal line prolonged some distance to over 2000 kilometers, and is known to be enriched with abundant volume and variety of fish wealth and marine creatures. While the area of Yemen became more than 555,000 square kilometers in size without inclusion of Rub-al-khali, but rich with large petroleum wealth and huge reserves of the natural gas; as well as; the mineral resources such as gold and steel. All these have made up a strong basis of the natural resources required for a comprehensive plan of economic and social development. Table (1) indicates the GDP based on the current price rates (in millions of rials) for the period 1990-1996. Table (2) shows the break-up of the GDP's elements within the current price rates for the same period. Table (1) GDP at the product's rate per the sectors for the years 19960-1996

The Items 1990 1991 1992 1993 1994 1995 1996 1- Industries -- -- -- -- -- -- -- - Agriculture, Forestry and hunting 34582 35786 -- -- -- -- -- - Agriculture, hunting and forestery 23785 34402 47257 55570 69817 96569 108392 Fisheries 797 1384 1903 3585 5814 8832 9010 2- Transforming Industries (Except Oil) 17370 15437 14083 14108 201132 74218 198568 - Transformed products (Except Oil) 421 607 871 1346 2342 5102 7295 -Crude Oil & gas Extraction 16949 14830 13212 12762 17790 69116 191273 3- Transforming Industries 10037 14251 20297 21597 24823 45706 70037 - Transformed product (Except Oil) 6001 9325 44573 16047 20902 27817 35273 - Oil refining industry 4036 4926 5724 5550 3921 17889 34769 4- Electricity, water & LPG 4244 4411 4956 5774 6000 9067 8711 5- Construction & building 3322 4620 6560 8585 9987 17091 23457 6- Wholesale & Retail Trading 15639 20678 25903 33574 43404 65748 72800 - Restaurants and hotels 14868 19493 24310 31331 40440 60884 67445 - Wholes sale & Retail with Restaurants & Hotels 771 1185 1593 2216 2964 4864 5355 7- Transport, Storage & Communication 8489 10664 14001 19594 23492 33352 42015 8- Transport, Supply real Estates and works services. 6930 10823 12348 15372 21699 30977 36731 - Provision and Supply 3728 6712 7122 9012 12868 18828 20610 - Real Estates and Works services 3202 4111 5226 6360 7831 12149 16121 - Social & Personal services 2062 2657 2382 5010 6665 10383 15997 - Total (Industries) 102675 119327 148787 179157 226019 383111 576708 8B- Producers of Gov. Services 19598 25170 32480 40893 48609 65760 74452 8C- Non-Profitable Organizations (Serving family-community) 95 100 128 164 196 240 270 9- Customs & Excise 4012 6012 6647 7535 744 16804 22988 Less Accountable bank services 2603 4368 5161 2867 11364 11644 20382 Net GDP At Market Rate 123757 156241 182881 220882 270900 449271 654036 Gross GDP For Non-Oil Sectors 106868 131411 169669 208120 253110 380155 462763

TABLE (2) COMPOSION OF GDP PER THE PRODUCT AND ACCORDING

TO THE SECTORS FOR THE YEARS 1990-1996 ( CURRENT PRICE RATES) The Items 1990 1991 1992 1993 1994 1995 1996 1- The Industries Agriculture, Forests & Animal Hunting 27.9 24.5 25.8 25.2 25.8 21.5 16.6 Agriculture, Forests & Hunting 27.3 23.5 24.8 23.5 23.6 19.5 15.2 Fisheries 0.6 0.9 1.0 1.6 2.1 2.0 1.4 2- Extracting Industries 14.0 10.6 7.7 6.1 7.1 16.5 30.4 Extracting Industries (Except Oil) 0.3 0.4 0.5 0.6 0.9 1.1 1.1 Refining of crude oil &Gas 13.7 10.1 7.2 5.8 6.6 15.4 29.2 3- Transforming Industries 8.1 9.7 11.1 9.8 9.2 10.2 10.7 Transforming product (Except Oil) 4.8 6.4 8.0 7.3 7.7 6.2 5.4 Refining oil industries 3.3 3.4 3.1 2.5 1.4 5.0 5.3 4- Electricity, Water & Gas 3.4 3.0 2.7 2.6 2.2 2.0 1.3 5- Construction & Building 2.7 3.2 3.6 3.9 3.7 3.8 3.6 6- Wholesale & Retail Trading 12.6 14.1 14.2 15.2 16.0 14.6 11.1 Restaurants & Hotels 12.0 13.3 13.2 14.2 14.9 13.6 10.3 Whole, Rattail, Restaurants and Hotels 0.6 0.8 0.9 1.0 1.1 1.1 0.8 7- Transport, feel storage & Telecomm. 6.9 7.3 7.7 8.9 7.8 7.4 6.4 8- Provision, Supply, Estates & Works Services 0.6 7.4 6.8 7.0 8.0 6.9 5.6 - Supply & Provisions 3.0 4.6 3.9 4.1 5.1 4.2 3.2 - Estates & works Services 2.6 2.8 2.9 2.9 2.9 2.7 2.5 - Social & Personal Services 1.7 1.8 1.8 2.3 2.5 2.3 2.4 A- Group Industries 83.0 81.6 81.4 81.1 83.4 85.3 88.2 B- Group Services' producer 15.8 17.2 17.8 18.5 17.9 14.6 11.4 C- Non-profitable producers Serving the families 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Customs & Excise 3.2 4.1 3.6 3.4 2.7 3.7 3.5 Less Accountable bank services 2.1 3.0 2.8 3.1 1.2 3.7 3.1 GDP at Market price 100.00 100.00 100.00 100.00 100.00 100.00 100.00 GDP for Non-Oil Sectors 86.3 89.9 92.8 94.2 93.2 84.6 84.6

* Note:- Table (1) & (2) Source: Central Statistical Organization.

Upon reviewing the compositors of the GDP and ratio of the contributions by these economic sectors related to that GDP, it is possible to point out the following indications:-

The pattern of the economic framework changed form the traditional agricultural economy to the combined. This is viewed through the successive draw back of the contributory ratio of the agricultural sector to the GDP from 27.9 % in 1990 to 16.6% in 1996. Thus, the newly-generated economic sectors to the GDP came ahead of the table with the extracting industries by a growing ratio from 14% in 1990 to 30,4% in 1996. This had been the case along with a similarly growing period of the oil extracting sector, which had been also evolving within its applicable developing technology. That sector highly valuable in costs, wages and productivity came to stand side by side with the traditionally-agriculture sector known to have low-paid wages and lesser productivity. An increase in the ratio's contributions of the government sector to the GDP, and for the initial stages of the whole period reaching an average of 17%. It then was reduced to 14.6% in 1995 and 11.4% in 1996, due to the implementation of the first stage of the Economic Reform Program. Attendance of gradual increase in the contributory ratio of the transforming industries to the GDP from 8.1% in 1990 to 10.7% in 1996. It is important to note that the non-oil transforming-industry sector was exceeding the level of importance throughout the period 1990-1995, but the sector of oil and gas gradually increased in ratio till it became equal in its contribution to the GDP with the former. It is thus expected to over-pass in ratio of its contribution the sector of non-oil transforming industries as from the next period of 1996-2001. The service sectors' ratio; represented by the business, transport, supply and social se; had reached 25.5% in 1996 in of their contributions to the GDP, while those of non-oil transforming industries were only 5.4% for the same year. The agriculture sector was, too, 16.6% in 1996, which meant accounting 22.2% ratio of contribution to the GDP. This verified that the service activities were more of shares attributed to the GDP of Yemen's economy framework than each of the two mentioned-above i.e. the agriculture and industry structural frameworks of their production to our economy. Moreover, factors such as the economic activities, employment market, and generating of revenues and incomes proved to exist only through temporary-existing elements e.g. the revenues of crude oil and gas and external circumstances, such as increase of imports. Unfortunately, such environments were healthy for Yemen's economy. The sector of produced commodities had shown a decrease in productivity. This related in particular to the agriculture sector which employed; during the period 1990-1996; 60% of the employment capacity, but only contributed with a ratio of 16,6% to the GDP of Yemen's economy.

In viewing the economic indicators for the same period, one could derive conclusions on the important structural distortions in Yemen's economy. These can be listed briefly as follows:- 1. Increase of the overall net public consumption on account of the available national revenues, thus causing negative savings to occur annually for the consecutive years 91-1995 as shown by the table below. 2. Chronic deficit of the Balance of Trade due to the presence of excessive imports and proportionally less exports. This is shown by the following table:-

Table (3) Balance of Trade deficits 1990-1996

Year Imports (in millions of Rials) Exports (in millions of Rials) Deficit (in millions of Rials) 1990 25390 18060 -7230 1991 53710 20760 -32950 1992 65540 23100 -42440 1993 101370 33160 -68210 1994 162651 45537 -59114 1995 215921 111821 -104100 1996 328715 264202 -64513

3. Simultaneously, the chronic deficit continued also in the annual budgets, due to the imbalances shown above.

Table (4)

The Year Volume of Savings and Deposits (In millions of Rials) 1991 -12062 1992 -11599 1993 -27911 1994 -3290 1995 -6194

These distortions resulted of a group of problems and economic crisis which piled-up since the eighties, and reached its peak in the first mid-half of the nineties. The important ones to mention here were: -

1- The galloping inflation:

The general price level started to increase continuously since 1985, till it reached its highest in 1994 when the average inflation rate going up to 104%!

2-Serious deterioration in the exchange rate of the Rial:

The serious widespread of inflation was accompanied by an equal proportion of deterioration in the rate of the Rial against foreign currencies. It reached its maximum in May 1994 when the exchange cash rate in the non-official market was 165 Rials for one dollar, whereas its bank value remained at 12 Rials for one dollar.

3-Draw-back of the average investment

ratio and increasing rate of unemployment:

The widespread galloping of inflation accompanied by serious deterioration of the Rial's exchange rate resulted in a condition of seriously rising rates of inflation, whereby that galloping inflation timely coincided with the growth of unemployment state all over the country, because of the drawbacks of the new investment averages. The average unemployment rate reached between 20 to 35% (in the mid-nineties) of the total employment force!

4-Draw-back of the averages in incomes' and revenues' growth:-

The three factors combined together; as above described, had to cause serious negative effects on the growth of incomes and revenues, as it witnessed a serious draw-backs in the years 1994 and 1995. This is shown by the following table:-

The Year Average growth of GDP 1991 0.31 1992 4.91 1993 4.93 1994 -0.46 1995 8.24 1996 4.44

Thus, it became unbearable to leave the economic situation deteriorating more and more because it was about to reach a complete collapse! To stop that, it was very necessary to design and implement a suitable economic reform program for Yemen's national economy first, and for then to inspire gradually the growth and development of all its sectors. Thereby, the program constituted a non-available necessity and not a random choice in view of the Yemeni government. It began, as from April 1995, implementing certain financial, monetary and economic procedures and policies. These mainly included the followings: -

1- Cancellation of all subsidies on the main commodities such as the rice, sugar, baby milk, and medicines. At the same time partial and gradual abolition of subsidies prevailed for some time on maize flour and corn flour.

2- Cancellation of the pricing irregularities on some products and general services, produced or distributed by the state. This meant gradual increases in their prices. Refined oil and its by-products increased by 150%; together with; proportional increases selling rates in the cement, electricity and water supplies, telecommunication and transport facilities, etc etc

3- Abolition of the bank rate of the Rial, and leaving it gradually to be regulated by the market's forces of supply and demand. Besides, other major policies were taken as they were directly related with regulating the movements of the economic sectors on one hand, and the lowering down of the deficit in the Government's annual budget on the other. ______________________________ An Article published by : Althowra Newspaper Issue No. 12235 date. 12/5/98 Author: Dr. Abdulkarim A. Amer, Professor of Economics In Sana'a university


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