Yemen: A Collapsed Economy

Abstract

This article explores the economic development of Yemen after the 1970s in order to identify and analyze the variables that have contributed to its near collapse. It will be argued that the structural changes that took place in the Yemeni economy, particularly over the twenty-year period between 1970-1990, created a unique development experience that, once it collapsed due to the Gulf Crisis of 1990, left the majority of Yemenis with little means of survival. Moreover, it is argued that the structure of the Yemeni economy (which had been based on sustaining labor migration) could not and would not adapt to the changing circumstances. Furthermore, Yemen continues to survive on the substitution of revenue from oil rents for the revenue from labor migration. These rents from oil have not trickled down to the vast majority of Yemenis that had come to rely on labor migration rents either directly or indirectly for over two decades. These revenues significantly shifted the economic base away from the general population and narrowed it to a few individuals associated with the government. Although there have been attempts to restructure the economy with the assistance of international agencies, Yemen's economy remains underdeveloped and appears ready to collapse under the burden of unemployment, poverty, and rapid population growth. In the late 1980s, Yemen was a poor country. There was, however, a constant influx of new money as fellow Yemenis in the Gulf sent home their workers' remittances. Back then, the streets of Sana'a were filled with poor people, but most had a place to sleep at night and some food to eat. There was also hope - hope that Yemen would soon be able to pull itself out of its poverty-stricken position and join the global economy. Over the course of the 1990s and into the 21st century, Yemen began to resemble other developing nations more and more closely - luxurious villas and cars for the few and not much for everyone else. The streets of Sana'a were filled with beggars and street children longing for a place to sleep and a bite to eat. The workers' remittances that had sustained so many families during the 1980s had dwindled, but the government had learned to rely on oil wealth. The Gulf states that needed the unskilled laborers in the 1970s now found them a nuisance. What is most striking now, however, is that hope is gone; Yemenis no longer believe that they or their government can rise out of poverty. The loss of hope has been accompanied by gradual chaos, a lack of faith in the Yemeni government, and a return to tribalism as the way forward.1 The story of Yemen is a very important lesson in how societies on the edge of change can either move forward or self-destruct. Unfortunately, Yemen is doing the latter. It will be argued that the structural changes that took place in the Yemeni economy, particularly over the twenty-year period between 1970-1990, created a unique development experience that, once it collapsed, left the majority of Yemenis with little means of survival. When the Gulf Crisis of 1990 caused an end to the mass labor migration to Saudi Arabia and other Gulf Cooperation Council (GCC) states, the shock was highly severe and disruptive because the structure of the Yemeni economy had been based on this migration being sustained. The aftershock of this event affected the vast majority of the Yemeni population who were either direct or indirect recipients of labor remittances. Furthermore, these rents were replaced with another rent that did not trickle down - oil revenues. These revenues significantly shifted the economic base away from the general population and narrowed it to a few individuals associated with the government. Although there have been attempts to restructure the economy with the assistance of international agencies, Yemen's economy remains underdeveloped and appears ready to collapse under the burden of unemployment, poverty, and rapid population growth. THE MIGRATI ON BOOM: 1970 - 1990 The migration boom of the 1970s and 1980s gave rise to a number of structural changes in the Yemeni economy. …