Beyond the war: The deep roots of Yemen's economic crisis

When representatives of Yemen's main warring parties met in Sweden for talks in December, a lot was at stake. The war, which will mark its four-year anniversary in March, has devastated the country. Around three-quarters of Yemen's population are in need of humanitarian assistance and tens of thousands of people have been killed since a Saudi Arabia-led coalition intervened in March 2015.

Before and after the talks, all eyes were on the western port city of Hodeida, which had witnessed heavy clashes between Saudi- and Emirati-backed forces and the Houthis. A battle for the city was imminent. Whereas the talks in Sweden did not result in an overall peace deal, the internationally recognised government backed by Saudi Arabia and the Houthis signed two humanitarian deals: a prisoner swap and an agreement on the de-militarisation of Hodeida.

"The deal in Sweden was really about preventing things from getting badly worse," Peter Salisbury, senior analyst at Crisis Group and senior consulting fellow at Chatham House, told The New Arab.

He adds that there was never going to be a "good outcome" from the Sweden talks, but that efforts were geared towards producing the least bad result. Nevertheless, it was "positive", Salisbury stresses, that the ceasefire prevented the port in Hodeida from going out of commission.

Hodeida is a crucial lifeline for commercial goods and aid for all of Yemen. Almost 70 percent of the country's humanitarian assistance and commercial goods enter through Hodeida and the nearby port of Saleef.

Hodeida is a crucial lifeline for commercial goods and aid for all of Yemen. Almost 70 percent of the country's humanitarian assistance and commercial goods enter through Hodeida

How volatile the situation remains, however, was on display on January 17, when a UN convoy carrying then-mission head Patrick Cammaert, a retired Dutch general, was hit by a bullet. Just one day before, the UN Security Council had passed a resolution to deploy up to 75 observers to supervise the ceasefire and withdrawal of forces from Hodeida. Both sides of the conflict blamed each other for the incident.

The deep roots of the economic crisis

Yemen's economic future is intricately linked to the fate of Hodeida. However, despite the port city's importance, the roots of Yemen's economic crisis run deeper, analysts say.

	Read also: Turning Yemen's ceasefire into long-term peace

The economic data paints a bleak picture. The World Bank reported in October that Yemen's economy had contracted by around 50 percent since the start of the war in 2015. The poverty rate – Yemen was already seen as the most impoverished nation in the Arab world – rose by 32 percent between 2014 and late 2018 and is projected to remain high in 2019.

Amid the conflict, the state has almost depleted its foreign reserves and the Central Bank of Yemen "remains largely dysfunctional", according to the World Bank. The central bank is also at the centre of a political dispute between the Aden-based government of President Abd Rabbu Mansour Hadi, backed by Saudi Arabia, and the Houthi government in the capital Sanaa.

Speaking to The New Arab from Aden, activist Murad Abdu says the economic situation in southern Yemen is "miserable". With a variety of actors on the ground, he adds, people do not know who is responsible for protecting the economy from collapse. Each side is accusing the other of being behind the dire situation.

For Hisham al-Omeisy, a prominent Yemeni analyst, the roots of the economic crisis go back to "way before the start of the war".

"A lot of people think it was just because of the Houthis. No, we had [economic] issues way before the war started, way before 2011, when the revolution started," al-Omeisy says, citing corruption, nepotism and weak state institutions that mismanaged resources. These factors, he told The New Arab, were also behind the uprising in 2011 that eventually toppled long-time ruler Ali Abdullah Saleh.   

A lot of people think it was just because of the Houthis. No, we had [economic] issues way before the war started

The current crisis is closely linked to the state's finances as many people are in some form or another dependent on government payments. The fact that many state employees have not been paid, "partly caused a huge humanitarian crisis".

However, the blockade against Houthi-run areas by the Saudi-led coalition, al-Omeisy stresses, is not the main problem.

"The issue is not that there isn't stuff inside the country. The issue is that people are not able to buy it because there is no income." He says people were initially cutting back on daily meals, but then resorted to begging and "eating grass and leaves".

A video recently circulating on social media purported to show a teacher, who had not been paid, commit suicide. "We've literally hit rock bottom," al-Omeisy explains. 

Is an economic turnaround possible?

One analyst, who spoke on condition of anonymity due to the sensitivity of his work on the conflict, said even in the case of a long-term ceasefire the Hadi government does not have a solution for the economic crisis, citing two main reasons.

The first, he told The New Arab, was "the lack of control on the ground", as various armed groups continue to operate beyond the government's control.

A Crisis Group update in late January noted clashes between rival factions that are officially on the side of the Hadi government and the Saudi-led coalition in southern Yemen's Shabwa governorate. 

The second reason, the analyst says, was corruption within the government. "This is a war economy and many are profiting from the war. Why would anyone be interested in ending the war and having to compete for contracts or patronage?"

Yemen was ranked as the fifth corrupt country in the world in 2017, according to Transparency International's Corruptions Perceptions Index. 

Relatedly, if the urgently needed flow of aid into Yemen started to increase, the Houthis and their allies stand to benefit, the analyst says, as the rebels control access to northern Yemen, including the capital Sanaa. The result, he adds, would be higher profits for the Houthis. 

An economic turnaround will be "very, very hard", says Salisbury. Yemen is economically "devastated, security is not strong in many parts of the country" and the Hadi government "has utterly failed when it comes to restoring governance, delivering services, getting the economy moving in areas it controls." 

This is a war economy and many are profiting from the war. Why would anyone be interested in ending the war and having to compete for contracts or patronage

Abdu, the activist in Aden, says it would be more difficult to deal with the economic situation without addressing the political issues first. Salisbury predicted "a lot of political infighting and gamesmanship, even in the event that a peace deal is signed."

On a positive note, says al-Omeisy, a lively discussion on the economy was ongoing, with lots of proposals on the table. "So there is hope," he concludes.

However, a breakthrough on the diplomatic front has not been forthcoming since the agreement in Sweden, with a second round of talks set for the end of January postponed due to a lack of progress on Hodeida. Meetings in Jordan to discuss the exchange of up to 16,000 prisoners have not yielded enough results.

Meanwhile fighting between the Houthis and pro-government forces has continued at various frontlines, for example around the city of Taiz, and both sides have accused each other of violating the agreement on Hodeida. Officials from the Saudi-led coalition have said a lack of progress on redeployments from Hodeida could mean a return to hostilities, Crisis Group reported.

"Our best-case scenario for 2019 really is that things don't continue to decline under the current acceleration," Salisbury concludes.

Manuel Langendorf is a writer and editor focusing on the MENA region.

Follow him on Twitter: @m_langendorf