Political Analysis

Carnegie Endowment for International Peace: ‘Yemen faces difficult choices’

National Yemen

Carnegie Endownment for International peace

The Yemeni economy is often portrayed as a dire picture of impending disaster, as the country runs out of oil and even more devastatingly of water. Yemen’s economic problems are real, but they are not caused by an absolute, irreparable shortage of resources. Rather, it is Yemen’s contentious politics and its lack of institutional development that constitute the main obstacle to surmounting present economic difficulties.

With liquefied natural gas reserves, mineral riches, a once-prominent deepwater port, opportunities for tourism, and more, Yemen is in many ways rich in resources. And Yemen’s oil wealth has enabled it to make significant strides in economic development over the last few decades. But growth has stemmed primarily from oil revenues, not from the state’s fostering of domestic labor, infrastructure, or investment—all sources of sustainable, long-term economic growth and stability. The country’s institutions and infrastructure have long been neglected. Water resources have been depleted and inefficiently used in the agricultural sector, the government has no means of collecting taxes, and labor is not being put to good use at home.

Now, facing political turmoil and a future without relatively easy money coming in from oil, Yemen has some stark choices to make. Ultimately, long-term success depends on the Yemeni state, not on outside help from the United States or Gulf countries—though they can play a critical role in helping to stabilize the Yemeni economy in the short term. At the heart of the matter lies institutional development. Long-term development depends on a strong Yemeni state to strengthen the domestic labor force, build a healthy investment environment, cultivate the private sector, tax citizens to fund state expenditures, and better manage resources. A capable and legitimate state is essential to Yemen’s economic future, much more so than the presence of natural resources.