The Yemeni delegation to that conference demonstrated no illusions as to the scale of the problems confronting the government, tugging foreign heart- and purse-strings by pleading for “more support to deal with the key challenges facing the country, namely declining oil resources, the need to generate non-oil and pro-poor growth, high population growth, poor human capital, water scarcity, poor infrastructure and limited access to social services.” This has made Yemen a fertile and lightly monitored breeding ground and safe haven for potential terrorists. It is also the most likely reason for the GCC’s largesse: an oft-quoted figure puts the number of small arms in Yemen at three times the population of 22 million people. Saudi Arabia has long mooted a fence along the pair’s common border to prevent radical infiltration.
The Yemeni government, for its part, has promised donors a range of far-reaching economic reforms to attract foreign and private investment, while smoothing PIP project implementation. The results, however, have been mixed to say the least. The World Bank’s “Doing Business 2009” report, released in September, showed Yemen leaping from 123rd out of 181 countries surveyed, to a more respectable 98th position. On the positive side, the state’s place in the “starting a business” category jumped from 178th to 50th – thanks to efforts at reducing the time, cost and number of procedures required. But that was the only category Yemen improved in, with most assessments worsening.
In a country-specific economic update published by the World Bank in August, Yemen was faulted for its stiff restrictions on foreign investment in the services sector, where majority foreign ownership of a business remains barred in most sub-sectors, where “weaknesses in the legal and judicial framework, lack of proper accounting and disclosure practices, and scarcity of banking and financial skills remain major impediments to the development of an effective banking sector.”
Yemen’s officials are at least going through the motions of responding to the “Doing Business” study, which rated the country’s credit environment as among the worst in the world. Ahmed al-Samawi, governor of Yemen’s central bank announced plans for a package of unspecified measures to improve the banking sector’s health in late September. They include encouraging consolidation among the country’s raft of small and weak institutions. Yahya al-Mutawakil, the country’s trade and industry minister, boasted in mid-October that Yemen had escaped the fallout from the international financial crisis so far. Then he attributed its good fortune to the fact that the country had neither a stock market nor an economy integrated into the global banking system.
The Yemen Consultative Group, which hosted the 2006 donors conference, published its own progress report in early 2008. Chief among the problems it highlighted was the slowness of reform and project execution – a failure to turn words into deeds. The finding will come as no surprise to foreign and private companies involved in the myriad individual schemes described in the county’s investment plan. In fact – perhaps not surprisingly in light of its critical importance – upstream exploration licensing is one of the few areas where international firms are generally positive about the terms and transparency of the bidding process. Onshore and offshore exploration is currently underway from a plethora of international oil companies, in blocks that are competitively tendered by the state-run Petroleum Exploration & Production Authority, part of the oil and minerals ministry. Most are smaller firms, but there are include industry giants of the caliber of France’s Total and America’s Occidental Petroleum Corporation.

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