US embassy cable - 03SANAA646

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 000646 
 
SIPDIS 
 
E.O. 12958: DECL: 03/31/2004 
TAGS: ECON, ETRD, ELAB, YM, ECON/COM 
SUBJECT: YEMEN'S ECONOMY: THINKING BEYOND OIL 
 
Classified By: Political/Economic Officer Jill E. Hutchings, for reason 
s 1.5 B. and D. 
 
 1. (C) Summary: A forthcoming World Bank sectoral analysis 
of fish, transportation, tourism and labor markets is a 
potential road map for donor projects and steps that the ROYG 
must take in order to diversify and strengthen Yemen's 
economy.  The Diagnostic Trade Integration Study examines 
four potential sources of revenue that could make up the 
difference of a projected 30% loss to GDP when oil reserves 
run dry in the next twenty years. End Summary. 
 
 
2. (C) The Integrated Framework Program of the World Bank 
will present to the Ministry of Industry and Trade this month 
a Diagnostic Trade Integration Study on four sectors of the 
Yemeni economy: fisheries, transportation, tourism and labor. 
The following is a summary of the report's major findings on 
the four sectors with information about under-reported 
aspects of the Yemeni economy. 
 
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FISHERIES 
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3. (C) The fishing industry is the second largest export for 
the ROYG behind oil, employing 42,000 people and supporting 
250,000 dependents. In 2001, the ROYG earned $70 million in 
revenue from the export of fish, contributing 2% to GDP. 
While there are several prospects for expanding this market, 
the report warns against rapid expansion that would deplete 
fish stocks. 
 
4. (C) According to the study, Yemeni fish exports are unable 
to receive adequate prices in foreign markets because 
fishermen are unable to maintain the quality of their 
product.  Inadequate storage on boats, transport delays, and 
poor quality control all contribute to a decline in the price 
exporters receive for Yemeni fish.  The most pointed example 
of this problem is the fact that most of the fish bound for 
European markets is shipped out of Sanaa, a four to six hour 
drive from most ports.  Once in Sanaa, exporters rely on 
Yemenia Airlines, whose flight schedule is unreliable and 
ill-equipped to ship large stocks of frozen fish.  In 
response, the World Bank is investing in a project to upgrade 
al-Rayyan airport near Mukallah to allow for more direct 
shipment routes from Yemen. 
 
5. (C) The report also encourages the ROYG to establish a 
Fisheries Council to effectively monitor fish resources 
because, according to the World Bank, the Ministry of 
Fisheries is not adequately staffed or resourced to handle 
its required role. The ROYG is considering, and the Bank 
recommends, privatization of the General Corporation for Fish 
Services and Marketing (CFC), that manages landing slips and 
fish auctions, as a way to raise the standards of quality 
control and fish processing. 
 
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Transportation 
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6. (C) Yemen has one of the lowest percentages of paved roads 
in the World (comparable to Niger and Rwanda); therefore 
enhancement of the transport sector is vital to broader 
economic development. The sectoral analysis also notes that 
80% of the Yemeni population live in isolated, rural 
communities and that road injuries cost the ROYG 1-3% of GDP. 
 According to the report, women are not attending school and 
entering the workforce because the existing public 
transportation is not considered appropriate for their use. 
 
7. (C) The chapter on transportation also strongly recommends 
that the ROYG improve port management.  Such improvements are 
necessary because there is increasing competition for the 
Port of Aden. The port managers of Jebel Ali in Dubai are 
beginning to invest heavily in Djibouti, adding more 
competition for the Port of Aden, which has been already seen 
much of its traffic move to Jeddah and Sallalah after the 
October 2002 attack on the French tanker Limburg. 
 
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Tourism 
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8. (C) Tourism in Yemen has vast potential and many hurdles, 
including inadequate hotels, few flights from European 
markets, and fears about security. Nevertheless the sector 
may still become a significant contribution to the Yemeni 
economy. The tourism sectoral analysis states that in 2001, 
tourism accounted for 1.7% of GDP and employed 14,000 people. 
 After September 11, 2001, tourism decreased by 80%.   The 
biggest area identified for growth was adventure tourism. 
The World Bank recommends increased investment in and 
improvement of rest houses (hotels aimed at tourists) in 
tourism regions, and encouraging conservation efforts which 
could in turn attract more tourists. 
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Labor 
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9. (C)  In 2001, remittances from foreign workers amounted to 
1.2 billion USD, bringing in more foreign currency than oil 
revenues. In 1999, for example, the report states that oil 
revenue was 967 million USD.  The importance of remittances 
is compounded by high domestic unemployment. The 2000 five 
year plan by the ROYG estimated that unemployment was around 
25%, and the Yemen Center for Studies and Research estimates 
that unemployment in 2000 was about 50.3 % of the labor 
force.  (Note: The ROYG's Poverty Reduction Strategy Paper 
states that the unemployment rate is about 11.5% of the labor 
force.) Comment: Despite large statistical discrepancies, 
clearly unemployment is a huge challenge for the ROYG. End 
Comment. 
10. (C) Female employment, however, continues to grow at a 
rate of about ten percent a year. In 2000, there were nearly 
one million females employed in Yemen. The number of female 
graduates also increased by 189% in ten years with 3,759 
female graduates in 2,000. The number of women registered at 
universities increased by 153% in ten years to 34,994 in 
2000. 
 
11. (C) According to the report, Yemen's continued population 
growth will greatly impact its prospects for continued 
economic development. In 2001, 7.8 million (50%) of the 
population were of working age; by 2016, 16.5 million people 
will be of working age.  The World Bank study recommends that 
for the ROYG to find jobs for a doubled work force, it must 
improve its foreign direct investment climate. Furthermore, 
the study encourages the ROYG to expand agreements with other 
countries to increase the number of Yemeni guest workers 
employed in other countries. 
 
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Comment 
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12. (C) Comment: The Diagnostic Trade Integration Study 
prepared by the World Bank for the Ministry of Industry and 
Trade does not explicitly state that its goal is to find 
non-oil revenue sources. However, economists are well aware 
that barring any new discoveries, there is less than twenty 
more years of oil output for Yemen. Planning has clearly 
begun by donor agencies and the Ministry of Industry and 
Trade to find new sources of revenue to compensate for the 
expected loss of oil revenue, which presently accounts for 
32% of Yemen's GDP. This report has already served as the 
basis for some of Posts' planning on how to prioritize future 
development assistance.  Our contacts at the World Bank have 
asked that we keep the analysis confidential until its 
release at the end of April. End Comment. 
HULL