Economy of Yemen

The era of Yemeni domination of trade routes and much demanded export products – such as frankincense, myrrh and coffee – is long gone. Yemeni economy is very poor. Virtually no export products are produced. The economy rests largely on oil export, remittances and foreign aid, which feed the consumption, the informal sector and the booming qat production.

Urban Economy

Until the revolution of 1962, Yemen’s economy was closed. After the revolution, Yemen became an open ‘no doors’ economy, with little or no restrictions. In the 1970s and 1980s, at least one male family member was working in Saudi Arabia, sending home large amounts of money that fed the consumption. Yemen has had a consumer economy ever since, feeding a large informal economy. Estimates put this figure at between 60% and 80% of the total economy. Street vendors are everywhere, much of the trade goes unrecorded and the same applies to the large service sector. The building sector is booming in towns such as Sana’a and Taizz, with labourers armed with spades and tools waiting to be picked up at the main crossroads.

Yemenis are born traders. The streets of Yemen are lined with small shops offering the same stock, with little specialization. Open air markets are common, with vendors selling just the one product, or small-scale artisan products occupying many of the pavements. Industrial production is virtually non-existent, apart from a biscuit factory in Taizz. Nearly everything in Yemen is imported. The only positive exception is the urban building sector, which is booming as urbanization speeds up.

Average income stands at an annual 760$ per capita, which is well into the lower range of low-income countries. By comparison, the average income in Oman en Saudi Arabia is $9000 and $12.500, in Egypt $1350. Yemen is certainly the poorest country in the Middle East, leaving only eight African countries behind when indexed on income per capita. Close to 40% of the population has an income below the international poverty line of $2 a day (World Development Report (wdr), 2007). There is widespread unemployment (35%, estimate of various sources). Of the young population (15-24), only 26% is employed, while the figure for child labour stands at 14% (wdr, 2007).

Banner: Economists and analysts say corruption is a large obstacle to Yemen’s development and responsible for deterring 50 percent of development projects. Transparency International’s annual Corruption Perception Index for 2006 placed Yemen at 111 out of 163 countries. (Yemen Times, May, 2007)


Yemen is still very much a rural country, with over 70% (figure 2007) of the population living a self-sufficient, agricultural life in small mountain villages. More than half the population (52%, 2006) still tills the earth to feed themselves. The little overproduction is brought to the local market. Surplus agricultural value has risen to $511, but is still very low in comparison to $1100 in Oman, $14.000 in Saudi Arabia, or $39.000 in the Netherlands. The agricultural sector contributes 21% to gross domestic product (gdp). Most of this, however, is as a result of qat production.

Food security is low. More and more land being designated for qat cultivation, food sufficiency has decreased to a third of total demand. Moreover, in the 1980s, Yemen’s economy shifted to consumption fed by remittances of expatriates in Saudi Arabia. Many of the ancient, labour intensive terraces that adorn the mountains were subsequently neglected, giving way to erosion. Agriculture on a somewhat larger scale is practised only in the flat Tihama and in the vicinity of Marib. The rebuilding of the dam in Marib has not yet led to a significant rise in food production, a structure of canals yet to be completed.


Legend has it that coffee was first discovered in Ethiopia, but the global advance of coffee certainly started from Yemen. Yemeni traders marketed Yemeni grown coffee from the tenth century onwards throughout the Middle East. Coffee became very popular after it was introduced in Istanbul in the sixteenth century and from there on towards the West.

In the seventeenth century, the Dutch East India Company made an unsuccessful bid to monopolize the trade through control of Yemen’s southern port of Al Mokha. Instead, they took seedlings to the Dutch East Indies, from where the large increase in global coffee production spread. Yemen’s mountains still produce coffee of exceptional quality (Harazi, Bani Mattar, Ismaili), but Yemen produces only about 200.000 60 kilogram bags of green coffee, compared to one million bags in Kenia and over four million in Ethiopia.

Box. Al Mokha. One of Yemen’s prime trading houses, Al Kabus – very famous for its tea –, is trying to (re)gain the exclusive right to use the name Mokha for indigenous Yemeni coffee, just as Parmaham, Camembert or Champagne are protected names for regional produce. Al Mokha is the name of the Yemeni port where the international coffee trade originated. Mokha is also the name of a coffee with a chocolaty flavour. Efforts are under way to reserve the geographical name of Al Mokha or Mocca for Yemeni coffee.


Qat increasingly dominates daily life in Yemen. It subsequently increasingly dominates all aspects of the economy. More and more agricultural land is planted with qat shrubs, supplanting foodstuffs such as sorghum, maize, tomatoes or potatoes. Qat now takes up 11% of agricultural land, twenty times as much as in 1970. Qat shrubs consume large amounts of water. They were therefore traditionally confined to the rain-fed mountain terraces on the wetter (west)side of the mountains. As more and more diesel pumps have been installed and ground and fossil water have become widely available, qat is now cultivated throughout Yemen.

The reason for the abundance of qat shrubs is that qat is a cash crop. It yields much more profit than other crops. Qat production gives (rural) households the opportunity to gain income. Qat production employs half a million people. In 2005, qat production reached 124 thousand tons, up from 8 thousand in 1970. On the negative side, on average qat consumption makes up a quarter of household expenditure. For poor people this percentage is a lot higher. It often supplants food exependiture or other basic needs. Ironically, chewing qat takes away the feeling of hunger as well. According to Yemen’s last five-year plan, 20 million working hours are wasted every day due to qat consumption.

Methods of qat cultivation have improved and better varieties have become available through selection. As a result, qat can now be harvested up to six times a year, compared to twice a year previously. This intensive cultivation consumes large amounts of costly water, and the owners of the pumps are taking increasing shares of the profit. It is estimated that qat production uses up to 80% of all irrigation water, and 40% of all the water used in Yemen. As rainfall does not refill groundwater resevoirs at the same pace as it is pumped up, water is rapidly becoming scarce. Many reservoirs have already dried up, making it necessary to drill deeper and deeper, or to search for new, fossil water fields. The government tries to limit the amount of pumps and their depth, but corruption, tribalism and nepotism often stand in the way. The groundwater reservoir underneath Sa’adah has already dried up, the Sana’a reservoir will have dried up within ten to fifteen years. This has prompted the government to come up with a plan for relocation of nearly the entire population of Sana’a to a new city on the Red Sea coast. In Taizz and elsewhere the search for new fields continues.

Furthermore, where traditional qat production did not use fertilizers and pesticides, the intensive cultivation of today requires a lot of chemicals. The result is degradation and contamination of the soil. Worse still, because the chemicals contaminate the actual plants, qat consumption presently involves much higher levels of contamination. As a result, tongue and mouthcancer are becoming a major disease in Yemen. The levels of contamination – because of wrong usage, or usage of old or elsewhere banned chemicals – are sometimes so high that sudden death of qat consumers occurs.

Banner: “I can do nothing but grow qat. Qat is the only crop that returns investment, plus some profit. These used to be potato fields. I’d rather plant potatoes again, but that will only cost me money.” (Qatfarmer in Wadi Hama, Taizz)


There is an abundance of marine wealth along Yemen’s long coasts and around its islands. The Arabian sea is considered by marine biologists to be a highly productive fishing ground, the Red Sea is considered moderately productive. The Yemeni fishing industry is not very sophisticated or organized as yet, three-quarters of the fish production being caught by small boats and sold locally or regionally. The governorate of Al Maharah – far east, bordering Oman – catches 40% of the total of an estimated 250 thousand tons of fish. The governorates of Hadhramawt (30%) and Hodeidah (Red Sea, 10%) come in second and third. It is believed an annual maximum catch of 400.000 tons is sustainable for Yemeni fishing waters.

According to Yemen, fishing accounts for a modest (1%) share of gdp, but the Food and Agriculture Organization of the United Nations (fao) puts this number at 15%, probably because it includes locally sold production. There are around 70.000 fishermen in Yemen, while the total workforce dependent on fish production is estimated at well above 200.000. The revenue of fishing exports accounts for 13% of all non-oil exports. Yemen regards the fishing industry as a very promising sector. The growth of fish production was significant (15%) during 2000-2005, but has apparently shrunk to below the annual target of 7%.

Oil and Gas

Unlike its neighbouring lands, Yemen’s soil is not blessed with formidable oil fields. Oil was found in the eastern governorates during the 1980s and 1990s. Although production has always been franchised to foreign oil companies, it has given the government an unprecedented autonomous income. This has resulted in a much stronger state, capable of rolling out basic social and medical institutions and of challenging tribal autonomy.

Crude oil production started in 1984 with eight million barrels a day, and has since increased to over 400 million barrels. As a comparison, Saudi Arabia produces twenty times as much, Oman produces double the amount. In 2005, oil revenues accounted for 12,5% of the gdp, for 67% of government income, and for 86% of export revenues.

Exploration and production are largely in the hands of foreign companies, in franchise with the Yemeni Oil Ministry. American Hunt and Total have a big presence in Yemen. They have been subject to tribal attacks – tribes wanting a bigger share of the profit – at the production sites, and even in the capital, Sana’a. Most of the produced oil is sold as crude oil, some is refined in Aden. More refineries are currently being built in both Hodaydah and at the end of the pipeline running from the oil fields to the Red Sea.

As projected by the World Bank, Yemen will run out of oil in 2012. However, exploration of new fields is under way, not only in the eastern desert, but also in the Arabian Sea and the Red Sea. Yemen’s present oil minister is confident production levels will be at an unprecedented target of 500 million barrels a day in the ‘near future’. A large natural gas field was found by Yemen and Total in the eastern lowlands. Production is due to start in 2009, in anticipation of foreign specialists and the building of a new pipeline.


Tourism has big economic potential, but at present remains on a small scale. The poor tourist infrastructure – there are simply not enough adequate hotel beds and restaurant chairs for tourists – does not really facilitate growth. In 2005, tourist arrivals topped 300.000, half of them from Arab countries, up from 100.000 in the previous decades. Tourist expenditure in that same year amounted to 2,4% of gdp, or 33% of total export value, and gave jobs to some 34.000 people. As a comparison, Yemen’s neighbour Oman – which has much less antiquities – receives up to a million tourists a year, while a country like Egypt welcomes over a million tourists a month.

Besides a poor tourist infrastructure, Yemen’s image in world news also did not help stimulate the arrival of tourists. The kidnappings of the 1990s did not really affect the number of tourists coming to Yemen. The killings of tourists in 1998, and again in 2007 and 2008 by al-Qaeda affiliates, were far more harmful, however. A significant part of Yemen – the warring north and the tribal east – is unsafe and off limits for tourists. Foreign governments frequently issue travel warnings to potential visitors.

The economic potential of tourism is enormous. The unrivalled Yemeni architecture coupled with well restored ancient cities could make Yemen a prime tourist destination. There is a wealth of archaeological monuments, and there’s twice as much yet to be discovered or restored. The scenic mountains offer ample opportunities for active holidaymakers all year round. The Red Sea coast is a paradise for deep-sea diving and ‘beach tourism’.

Box: Yemen’s foremost tourist company Universal entertains a large number of investment plans for the whole of Yemen. But care must be taken, says director Jamal Omar, as the Yemenis have only just escaped long time isolation. “Cultural differences between the Yemeni population and the potential tourist are still very large. It’s better to let Yemen adjust slowly to tourism.” Consequently, Omar sees no future in Red Sea resorts such as in Egypt. “Let us concentrate on the educated, middle aged, culturally interested tourists. Let us concentrate on eco-tourism.”

Remittances, Aid, Investment and Debt

In the 1970s and 1980s, near to a million Yemeni migrants were working in Saudi Arabia, contributing financially to the booming consumer economy. Most of them were expelled as a result of Yemen’s neutral stand in the 1991 Gulf War. However, many have since returned to work in Saudi Arabia. The total share of remittances in the gdp stood at 16% in 2000, and at 7% in 2007.

For years foreign aid has been an important contributor to the national economy and social services, but has dwindled to $12 per capita, or around 3% of the gdp. The Yemeni debt service currently stands at a third of the national income.

The present Yemeni government is working hard to induce foreign investors to invest in Yemen. Donor conferences in The Hague in 1995 and in London 2006 yielded large amounts of promised money. Meanwhile, foreign investors and the World Bank are pushing the government to promote transparent and good governance, to eradicate corruption and nepotism, and to improve the unsafe infrastructure. At present, investors seem very reluctant to invest in Yemen, total foreign investment coming to just $144 million in 2006.

Banner: Five years ago, three families put all their money together, drilled a well and invested in a pump. They now sell their water to the farmers in the neighbourhood and are earning a thousand riyals ($5) per hour, 24/7. The investment of $15.000 has long been returned. As long as the water flows it equals liquid gold.

Banner: Until the 1980s the government encouraged everybody to drill wells and invest in pumps, as fuel was cheap and water supplies seemed inexhaustible. Today, the government is at pains to limit the pumps, and convince (tribal) owners to stop the illegal pumping. In ten years Sana’a’s water resources will have dried up.

Banner: The United Arab Emirates (uae) play a primary role in supporting Yemen and qualifying its economy to become fully integrated into the Gulf Cooperation Council (gcc) block. The Yemeni community in the Emirates is very large, with most Yemenis operating businesses there. (Yemen Times, 2006)

Banner: Instead of halving the proportion of those without access to safe drinking water by 2015, Yemen faces the risk that water soon may be unavailable in all critical water basins. Therefore, strong national leadership is needed to reverse the current unsustainable use of water in Yemen. (Statement by international donor conference, London)