Yemen's economy needs rapid attention after a one-man presidential election, but politics are likely to take precedence
On 25 February Yemen replaced its president for the first time in more than three decades, former vice president Abd Rabbu Mansour Hadi officially taking over from the unpopular Ali Abdullah Saleh after a one-man election.
Hadi's swearing-in ceremony was quick and his acceptance speech to the point. He promised to fight al Qaeda, work towards national dialogue and rebuild the national economy. With his speech over, the new president stood to rapturous applause from parliamentarians of all stripes and a collection of international diplomats including officials from the US and Gulf Co-operation Council (GCC), who brokered the transition deal under which Saleh agreed to step down last November, the fourth Arab head of state to do so in a little over a year.
Four days earlier, voters at polling booths in the capital, Sanaa, had been upbeat despite their ballot papers only offering one presidential candidate. At a school in the city's Sawan district, several voters told The Gulf they were voting for a "new Yemen" without Saleh. In Change Square, a bustling protest camp set up next to Sanaa University in early 2011 which played a key role in Saleh's ouster, the mood was also positive even though Hadi had been Saleh's vice president since 1994. Hadi "will do" as a compromise candidate for the next two years, which will serve as a transition period under the terms of the GCC deal, one activist said. Anyway, he added, the real victory of the elections was that Saleh's rule was at an end.
Hadi had not even had time to settle into the presidential palace after being sworn in before a fight broke out between tribesmen at the entrance of the parliament building where the ceremony had been held. More seriously, at around the same time, two car bombs were set off at a military base in Mukalla in the southern province of Hadramawt, reportedly by al Qaeda in the Arabian Peninsula (AQAP). Within an hour or two of news of the bombing, activists in another southern province, Aden, claimed security forces had opened fire on a peaceful demonstration, injuring at least six.
Saleh, meanwhile, quietly re-entered Yemen the night before the ceremony. Many senior Yemeni politicians and activists who spoke to The Gulf in the week running up to Hadi's appointment said they hoped the outgoing president wouldn't get too comfortable in the capital. His presence would only complicate a planned two-year transition process during which a new constitution is to be written and put to referendum, they said.
Yemen's future is no more certain for Saleh's ouster. In fact, some of the challenges the Hadi administration faces are the most acute in the country's recent history. Without rapid action, Yemen faces a financial crisis which could bring the government to its knees while millions starve. Yet politics, rather than economic concerns, are likely to take precedence.
Two days after the elections, Jalal Yaqoub, deputy minister for external financial relations at the finance ministry, explained the country's predicament. "We have a large budget deficit, close to $2 billion for 2012," he says. "Without any outside assistance, foreign aid that is direct budgetary support, it will be difficult to finance this deficit."
In the past, the government sourced finance internally, through treasury bills and by issuing bonds. But even before the political crisis of 2011, when warring factions took over part of the capital and a major oil pipeline in the south was blown up, there was little liquidity in the Yemeni banking system. Central bank interest rates were racked up to 23 per cent last year to combat rampant inflation. The government's only option, if it does not receive outside help, will be to print money, devaluing the riyal, a critical issue in a country where many people cannot afford to eat properly if at all, especially after a year in which inflation may have topped 30 per cent.
"If we don't manage [to raise money] because of political instability, we will have to resort to inflationary sources which will hurt prices, inflation, the whole population," Yaqoub says. "And that's provided there are no new surprises that affect the budget."
The economy shrank about five per cent in 2011, despite a record year for oil prices. Oil production, the main contributor to government revenues and foreign currency reserves, was at half its capacity of 250,000 barrels per day last month because of damage sustained to the key Marib pipeline in 2011, according to new oil minister Hisham Sharaf.
The decision last year to create around 60,000 new government jobs in response to unrest across the country has created an "unsustainable" drag on finance, a senior government official says, adding that the wage bill for 2012 will be about YR860 billion, the better part of $4 billion. Despite the addition of new jobs, unemployment remains stubbornly high, with about half the country out of work. Yemen now spends about 80 per cent of its budget on wages, subsidies and administrative expenses, leaving little cash for economy-enhancing projects. The private sector is "dying", and cannot be relied upon to create new jobs anytime soon, one Sanaani businessman says.
But the economy is not top of the current agenda. "I feel sorry and ashamed that we are leaving the economy to the end of the list," says Mohamed Abulahoum, a senior member of the Bakhil tribal confederation and founder member of the new Justice and Building Party, which plans to contend parliamentary elections in 2014. "[But] we cannot discuss the economy without reconciliation, without dialogue."
A national dialogue process was due to start as soon as Hadi was appointed president, with envoys to be sent to meet southern separatists, Houthi rebels in the largely autonomous Sadda province, and perhaps even members of AQAP. Hadi also faces the tough task of restructuring a military dominated by Saleh family members and associates who also have huge commercial interests in the country, and a dissident general, Ali Mohsen al Ahmar. This group is likely to resist economic reforms just as much as a restructuring of the military, especially if they feel they have the former president's backing.
"I would raise the question, has Saleh disappeared?" asks an anti-corruption campaigner. "If he has, we have a new Yemen. If not, it means nothing has changed."
Hadi has a huge task ahead of him, and the clock is ticking. Yemenis who went to the polls are likely to be impatient for progress.
"It is a big opportunity," says a former government minister. "Everybody is supportive of the government. But vested interests are a huge impediment to these things. The public will lose their logical and psychological ability to support the government if they don't move fast."
© The Gulf 2012
