Abstract

The 1990s saw the unification of the two Yemens into one nation and a burgeoning of the country's oil sector. This paper examines the structural changes in the Yemeni economy brought about by these and other developments and identifies the reforms needed to move the country toward rapid and sustainable growth, effectively manage its oil wealth, and reduce the widespread poverty. The paper addresses the issue of poverty reduction by providing background and drawing lessons from Yemen's adjustment experience to date.

Annex I Tourism Sector in Yemen: Problems and Prospects

The tourism sector is widely seen as a potential source of growth in the non-oil sector. It is also widely recognized that a number of structural impediments— such as security concerns, first and foremost, and lack of infrastructure— constrain this potential and would need to be fundamentally addressed before the tourism industry could start making a major contribution to future economic growth and employment.

Sector Potential

Yemen has abundant tourism resources and potential for further growth and development. Yemen’s long history, reflected in its rich and unique culture, has left a wealth of significant archaeological sites and a unique vernacular architecture. Yemen has a mixture of scenery—ranging from desert through verdant valleys to mountain ranges—some 2,000 kilometers of coastline, fringing the Red Sea and the Gulf of Aden, and more than hundred islands. Finally, after centuries of isolation from the rest of the world, Yemen remains one of the last unknown destinations.

In addition to the traditional tourism potential of its existing historic and scenic attractions, Yemen has significant opportunities for the development of other forms of tourism that are still largely unknown there, but which possess increasing market potential. These include trekking and mountain hiking, mountain biking, beach resort tourism, scuba diving, and eco-tourism, both terrestrial and marine.

Size and Trends

In general, since unification in 1990, international tourism in Yemen has been on an upward, trend, with visitor arrivals growing on average by about 5 percent a year (Table 17 and Figure 24). The tourism sector suffered major setbacks in 1991, after the Gulf crisis erupted; in 1994, the year of the civil war in Yemen; and in 1999. after a fatal kidnapping incident in December 1998.

Table 17.

Visitor Arrivals and Tourism Revenues

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Source: General Tourism Authority.
Figure 24.
Figure 24.

Visitor Arrivals

(In thousands)

Source: Data provided by the Yemeni authorities.

Yemen’s principal tourism source market is Western Europe (Table 18), in particular, Germany, France, Italy, and Britain, which to a large extent reflects the contacts established by the existing tour operators. The peak tourist season in Yemen is between October and March. International tourism is mainly concentrated in the governorates of Sana’a, Hadhra-mout, Al-Jouf, Al-Hodeidah, Marib, and Shabwa.

Table 18.

Average Tourism Statistics Since Unification

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Source: General Tourism Authority.

In 1998, the tourism sector provided jobs, either directly or indirectly, to an estimated 23,000 workers, including those in the hotel industry and related sectors. As tourism extends to remote regions, it helps provide employment opportunities and increases incomes among the local population. Total foreign exchange revenues from tourism are still relatively small—at about 3 percent of total exports of goods and services, or 18 percent or non-oil exports in recent years—but have been growing on average by 8 percent a year.

The Yemeni government believes that developing tourism will help enhance long-term economic growth and improve the living standards of the Yemeni people, as well as protect and preserve Yemen’s cultural heritage and natural environment.

Structural Impediments

Concerns over peace and security, and inadequate infrastructure, are the two largest immediate obstacles to the successful development of the tourism industry in Yemen, while the danger of losing the historic and cultural heritage and environmental degradation are longer-term problems.

Security Concerns

At present, the image of Yemen in the Western world is relatively poor and, prompted by continuous security-related incidents, the country is often characterized in the Western media as “kidnapping and bombing prone.”93

Although Yemen was unified in 1990, civil unrest lasted and a 70-day civil war erupted in 1994. There are areas, especially in the North, which are still not under the full control of the central government. Reportedly, there are large numbers of Firearms in the country, almost four per head.94 Illicit weapons, including assault rifles, are openly carried. Politically motivated violence persists and security violations occasionally occur in rural areas.95 Tribal disputes, kidnappings, and shootouts between sheikhs’ armed entourages and government security forces are frequent, including in major cities and public places such as Sana’a International Airport.

More than 100 kidnappings have occurred throughout Yemen since 1991, mainly conducted by armed tribesmen with specific grievances against the government.96 These kidnappings are normally resolved peacefully, but tribesmen have held some foreigners for extended periods, and the December 1998 incident—when four tourists were executed by a group of Islamic militants—gave Yemen front page international news coverage and dealt a severe blow to the nascent tourism industry.

Since then, many countries, including the United States, the United Kingdom, and Japan, have advised their nationals against traveling to Yemen;97 Germany has reduced the number of accredited Yemeni tourist agencies to two; and KLM Airlines has suspended its service to Yemen.98

Inadequate Infrastructure

Addressing security concerns is necessary, but not enough for the successful development of the tourism sector in Yemen. The lack of adequate infrastructure—such as hotels, roads, catering, and airport services— is another major factor constraining the growth of the tourism sector.

Only a third of roads in Yemen are paved. Poor roads and lack of easy access to tourist attractions entail long and uncomfortable journeys by four-wheel drive vehicles, which means that visits to places of interest have to be of relatively short duration.

Existing hotel stock is heavily concentrated in the urban areas of Sana’a, Aden, Hadhramout, and Taiz, with more than 50 percent of first class rooms located in Sana’a. Despite a significant increase in hotel construction since unification, the number of hotel rooms suitable for international tourists who prefer to stay in high-grade properties has remained unchanged and is currently only about 1,100, or less than 15 percent of the total room stock.99 Consequently, tour operators have reported problems getting enough rooms of a suitable standard during the high season and have often had to reject big tour group reservations because of accommodation and transportation constraints.100

The development of tourism is also constrained by the absence of basic services—such as eating and toilet facilities—and a shortage of potable water both at places of interest and at possible stopover points. Furthermore, there are no tourist information or interpretation centers outside Sana’a, while those available in Sana’a are not up to international standards, lacking appropriately trained or licensed tour guides.

The situation is compounded by the shortage of trained and experienced local personnel and the absence of facilities providing professional training in the services sector. As a result, expatriates often have to be hired, especially in the hotel industry, thus further hindering the development of a local tourism sector.

Finally, airport facilities have limited baggage and passenger handling capacity, partly reflecting Yemenia’s monopoly in this area, and could become congested if more than one aircraft is being served.

Threat to Historic Heritage and Natural Environment

At present, regulations to prevent the destruction of buildings of historic and cultural significance or protect the natural environment are limited and poorly enforced. As a result, there is a real threat to the historic heritage of Yemen, the very feature that constitutes the principal tourist attraction. According to anecdotal evidence, some 30 percent of “physical” heritage in the countryside has been lost in the past 10 years to unregulated commercial development, and parts of the coastline with significant beach resort potential are being lost to industrial development.101 Furthermore, the potential for eco-tourism, especially in the coastal areas, is being destroyed as various species—such as sea turtles—are driven to extinction because of poor enforcement of seasonal hunting and fishing restrictions.

Policy Implications

Given the undoubted potential of tourism in Yemen, the foregoing discussion suggests that the following are critical to the successful development of the tourism sector in Yemen:

  • Guaranteeing of security and maintaining a stable political and economic environment as preconditions for investment, both domestic and foreign, in the tourism sector, given the long-term, and hence high-risk, nature of such investment;

  • Investing in essential infrastructure and tourism-related services and facilities;

  • Providing training and licensing for both public and private sector tourism personnel to ensure that tourists receive a standard of service consistent with internationally accepted norms; and

  • Protecting and conserving the historic and cultural heritage and natural environment of the country.

The formation of a public sector institutional structure, with well-defined functional responsibilities that would readily facilitate planning, development, marketing, and regulation, is critical to the attainment of policy objectives for the tourism sector in Yemen. This would require structural changes and training initiatives in order to make the public sector more effective in carrying out its statutory functions, and would include collaboration with the private sector.

Government Efforts to Date

After the kidnapping incident in December 1998, the government stepped up its effort to address the security problem and shore up the tourism industry. Special courts were set up to try kidnappers, and the death penalty was introduced for the offence.102 Weapons were banned in the capital, and a Special Forces unit was formed in November 1999 to combat terrorism.

A new Tourism Law was issued in August 1999, and three new government entities were established—the Tourism Promotion Board, the High Council on Tourism, and the Environmental Council—in addition to the existing government structures in charge of tourism affairs, such as the Ministry of Tourism and Culture and the General Tourism Authority.103

The Tourism Promotion Board was set up under the umbrella of the Ministry of Tourism and Culture and consists of representatives of the government, the private sector, and the media. It is charged with improving the image of Yemen in the Western media as well as increasing the general awareness abroad and at home of tourism in Yemen. It is chaired by the Minister of Tourism and holds weekly meetings to discuss the sector’s promotion and development strategy, hut has no decision-making authority. In addition, the Board has undertaken to study the experience of Egypt in limiting the fall-out from terrorism on the tourism industry.

The High Council on Tourism is chaired by the Prime Minister and comprises seven other ministers, including the Ministers of Tourism, Information, Industry, Planning, Interior, and Defense. It meets to discuss key policy, investment, and security issues in the area of tourism and has decision-making powers.

The authorities, led in their efforts by the General Tourism Authority, have recently been actively seeking technical assistance and external Financing for project implementation, including updating the Master Plan for Tourism Development in Yemen which was sponsored in 1991 by the European Community.

Annex II Summary of the Tax System as of End-June 2000

Summary of the Tax System as of End-June 2000

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Statistical Appendix

Table A.1.

Social and Demographic Indicators, 1995 and 1997

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Sources: Central Statistics Organization. Statistical Year Book: and IBRD, World Development Indicators database.

Algeria, Bahrafn, Djibouti, Egypt Iran, Iraq, Jordan, Lebanon, Libya, Malta, Morocco, Oman, Saudi Arabia, Syria, and Tunisia.

Data for the nearest year to 1997.

Second column data are for 1998.

Table A.2.

Selected Economic and Financial Indicators, 1994–99

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Sources: Yemeni authorities and IMF staff estimates.

Gross reserves minus commercial bank foreign exchange deposits held with the central bank. Imports are for the current year and exclude oil and gas sector imports.

Public and publicly guaranteed debt, including central bank foreign liabilities. In percent of exports of goods and services.

INS. based on free market rate.

Table A.3.

Sectoral Origin of Gross Domestic Product at Current Prices, 1994–99

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Source: Central Statistic Organization.

The large increases in oil and gas GDP in 1993 and 1996 are in large part due to exchange rate effects. The official exchange rate increased from YRls 12US$ in 1994 to YRls 40.5/US$ in 1995 and YRls 114 /US$ in 1996.

Table A.4.

Use of Resources at Current Prices, 1994–99

(In million of Yemeni rials)

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Sources: Yemeni authorities; and IMF staff estimates

Uses data from the fiscal accounts.

Uses balance of payments data.

Includes workers’ remittances.

The large increases in public sector savings and declines in private sector savings in 1995–96 are attributable largely to the effects of exchange rate depreciations and world prices increases.

Table A.5.

Sectoral Origin of Gross Domestic Product at Constant Prices, 1994–99

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Sources: Central Statistics Organization; and Central Bank of Yemen.
Table A.6.

Distribution of Employment (Age 15 Years and Over) by Economic Activity 1

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Source: Ministry of Planning.

Data for 1994 are based on the general population census of that year; 1998 and 1999 data based on Ministry of Planning estimates.

Table A.7.

Distribution of Employment (Age 10 Years and Over) by Sectors in Urban and Rural Areas, 1998

(In percent unless otherwise specified)

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Source: General Statistics Organization, 1998 Household Expenditure Survey.
Table A.8.

Household Income and Expenditure, 1998

(Yemeni Rials, unless otherwise specified)

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Source: Central Statistics Organization, 1998 Household Expenditure Survey
Table A.9.

Distribution of Population (10 Years and Over) by Education Level, Region, and Gender, 1994, 1998

(in percent of total)

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Sources: Central Statistics Organization; General Population Census, 1994; and Household Expenditure Survey 1998.
Table A.10.

Crude Oil Summary, 1994–99

(In thousands of barrels per day)

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Source: Ministry of Oil and Mineral Resources.

Net of miscellaneous oil field uses.

Including YICOM share.

Table A.11.

Oil Exploration Blocks Awarded in 1996–99

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Sources: Arab Oil Directory; and Ministry of Oil and Mineral resources.