The Second Yemeni Economic Conference
Sana'a  18 - 20 April, 1998

Abstract 9:

Economic Reforms in Yemen and
their Impact on Investment
Mr. Ahmed Mohammed Sofan
Minister of Industry
President, General Investment Authority

Economic studies and induction from the various experiences of economies that have succeeded in attracting investments have proven that stimulating investment requires a conducive environment. To this end, a certain setting and a number of fundamental prerequisites need to exist. They, in total include the following elements:

Political Stability.

Macroeconomic stability.

Diverting towards a market economy system.

Reliable legal and judiciary framework

Efficient infrastructure.

An information system, promotion activity, and attractive incentives.

During the past several years a considerable political stability has prevailed in the Republic of Yemen. An unprecedented situation for many decades. This stability was enhanced by the democratic regime based on people’s will. Moreover, in the endeavor to achieve the other elements for a proper investment environment, and in particular macroeconomic stability, the Government has diverted its attention since the beginning of 1995 towards preparing and implementing a comprehensive reform program that focuses in its first stage on the following major components:

Fiscal policy.

Monetary and credit policy.

Trade policy.

Initiate amendments in the chain of laws and procedures relating to activities of the business sector.

Implement aid programs to stimulate economic activity.

Prepare a strategy and programs targeting administrative and judiciary reforms.

Despite the short time interval since the implementation of these reforms, positive results at the macroeconomy have succeeded in regaining confidence in national economy. Also, the investment environment has improved and investment activity is growing rapidly. Nonetheless, accomplishing an investment friendly environment capable of attracting foreign direct investment requires the continuity of the economic reform policies at both macro and sectoral levels, as well as speeding up preparation and implementation of prudent programs in the fields of administration and judiciary.

Moreover, it is quite essential to proceed in fostering a flexible and balanced foreign policy capable of increasing private and government cash inflows as well as to continue securing the support of international organizations and donor countries. The implementing of the economic reform program and other supporting programs would evidently lead to fundamental progress in the investment environment in terms of enhancing resource employment. Nonetheless, the domestic resource gap would remain a structural constraint due to a fragile national economy. Prospects look even more bleak if the current wave of declining world oil prices should persist. Oil exports accounted for around 90% of total Yemeni exports, whereas the oil sector contributed by almost 30% of GDP in 1997.