The Yemen Question

It has become clear to GCC officials and international observers that the collateral damage from conflicts cannot be easily contained within Yemen’s borders

The region in which Oman lies has never been the most tranquil on the planet and tension is rising on the back of a renewed, multi-faceted conflict in Yemen which is currently engaged in several fronts of domestic conflict – with a separatist movement in the south, Al Houthi rebels in the north and a growing presence of Al Qaeda. Members of the neighbouring GCC are taking a sober look at how the fate of the south western peninsula state is intertwined with their own. Oman is particularly vulnerable to any shocks emanating from Yemen since it shares a border and it is in the Sultanate’s self-interest to help stabilise the troubled country by whatever means available. While the current strife can only be fully solved internally, the long-term ameliorating effect of greater economic ties between Oman – and the wider GCC – and Yemen should not be forgotten.

Yemen is no stranger to domestic conflict. The government has been battling the Shiite Al Houthi rebels intermittently since 2004 and separatist sentiment has long been a threat to the country’s fragile unity. Meanwhile crackling in the background is the growing presence of Al Qaeda, which poses a heightened threat of terrorist attacks in GCC territory, particularly the one bordering Oman and Saudi Arabia.

Despite the regular pangs of national strife, Yemen has rarely seen such a confluence of diverse turmoil. President Ali Abdullah Saleh’s grasp of national unity is tenuous at best and two fronts of fighting – combined with chronic weaknesses of the economy, amplified by this year’s global financial crisis – threatens to plunge Yemen into deeper chaos. Indeed while the country remains only marginally integrated with the rest of the Gulf – its application to join the GCC lingers dormant – this oft-forgot corner of the Peninsula is still part and parcel of regional stability. In a salient reminder of this, Al Houthi rebels crossed the border into southern Saudi Arabia at the beginning of November, killing a Saudi border guard and prompting a military reaction.

Neighbouring support
GCC officials have already expressed their solidarity with Sana’a. Following a meeting in late October in Muscat, GCC Interior Ministers vowed – and later reaffirmed their commitment in Doha on November 10 – to support the security, stability and unity of Yemen without interfering in the country’s internal affairs. However, officials have yet to declare a collective response or long-term strategy on the issue. Yemen certainly needs to set its own house in order before any efforts by the GCC can make an appreciable impact. But the GCC – and Oman in particular, thanks to its location away from the most intense conflict zones – can extend economic ties to help lend a more even keel to its neighbour over the long-term.

Yemen is one of the poorest countries in the world. IMF estimates show that the GDP per capita of Yemen broke the one thousand dollar mark just last year, coming in at around $1200 (at current prices). By comparison, the GCC average was about $43,000 in 2008, according to IMF data. This huge prosperity gap has been one of the foremost barriers against greater integration between Yemen and the rest of the Gulf, and also a contributing cause to socio-political instability. The government views Al Houthi rebels as religious extremists but the rebels counter they are reacting to economic discrimination by the state. Since the start of the government’s offensive against rebels in the north in August, geopolitical analysts have often framed the situation not as sectarian conflict, but a symptom of the greater failure of the Yemeni state to provide basic services and the rule of law.

But in recent months and years Yemen has made slow but significant steps toward economic progress. Most notably, the country became an exporter of natural gas in early November with its first shipment, destined for South Korea, from the newly built LNG plant on the Gulf of Aden. Future supply routes are planned for Europe and North America, according to media reports. At a cost of $4.5bn, the Balhaf plant is the country’s largest ever investment and, upon completion of the second liquefying unit, will be able to export 6.7m tonnes of gas per year. The World Bank – which recently raised its aid to Yemen from $120mn to $200mn – has estimated that the new project will help the country’s hydrocarbon sector to grow by 45 per cent in 2009.

Meanwhile regulatory changes over the past year have helped to improve the business environment. A one-stop shop investment scheme was created, new Customs protocol expedites trade and credit regulations were changed to improve accessibility and
borrower rights.

Positive report
It was listed as the world’s fastest reformer in the World Bank’s Doing Business 2007/08 report. More recently, Yemen scored marks for positive reforms in three categories in the 2010 report: starting a business, getting credit and trading across borders. It ranked number 8 (out of 20) in the Arab world and 99th worldwide on the overall ease of doing business index. As of October 2009, the IMF was predicting a GDP growth rate of 4.2 per cent for this year and 7.3 per cent in 2010. Between 2000 and 2007, Yemen’s GDP (in current prices) grew at a compound annual growth rate of about 12 per cent.

Greater integration with the economies of the GCC could prove to be the most effective stalwart against Yemen’s backsliding and insure against the consequences, which would be absorbed throughout the region, of Yemen’s failure. Perhaps the most obvious way to integrate Yemen on a large-scale is via the GCC rail network, currently under construction. Indeed GCC authorities have already indicated to the media that they are willing – in principle – to extend the planned railway to Yemen. But progress on the issue seems to have stalled.

For its part, Yemen is already preparing for the possibility of inclusion in the network. Tenders for consultancy work related to a domestic railway are due next month. Meanwhile the UN Economic and Social Commission for Western Asia (ESCWA) is currently undertaking feasibility studies for three rail projects, one of which is an international line that runs along the borders of Saudi Arabia and Oman.

If executed, the plan would likely open up greater trade within the region, bringing significant economic gains to Yemen. According to the latest statistics available from Yemen’s Central Statistical Organisation (CSO), from 2007, trade with the GCC is weak, with only 12 per cent of total exports headed to the region.

Sultanate’s solidarity
Oman’s efforts to build economic ties with its southern neighbour have been among the region’s most engaging. From late September into October, Yemeni ministers and businessmen joined their counterparts in Muscat to strengthen trade ties. Omani officials reciprocated with a subsequent visit to Sana’a. While no significant or specific accords arose, it was no less an important act of trade diplomacy at a critical time.

A recent report from Saba Centre for Strategic Studies suggests that Yemen has a long way to go before it will integrate into the economy of the wider Gulf, mainly because of the huge gap in GDP and individual wealth. Nevertheless, the potential for integration remains and greater regional cooperation could be achieved by capitalising on Yemen’s strengths, such as its strategic location on the Gulf of Aden and its swiftly expanding population.

It is a widely accepted tenet of development thought and political science that, greater prosperity translates to increased political and social stability. Such a hypothetical transition in Yemen would, obviously, not only aid the whole country, but is also in the self-interest of Oman, Saudi Arabia and the rest of the GCC. As the region emerges from the global financial crisis in a position of relative strength, it has the opportunity to engage Yemen in mutually beneficial economic exchange. While significant risks remain, the long-term cost may be too high to ignore.

 

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