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Ye-money crisis

Ye-money crisis

Sana’a needs urgent assistance to overcome its economic problems. Despite international donors failing to deliver on previous promises, there is some hope for the future.

April 12, 2010 4:34 by



One alternative for Gulf authorities serious about extending assistance is to insist on overseeing the projects themselves, as was the case with the $650 million in grants pledged by Abu Dhabi Fund for Development in late 2009 to fund 14 schemes, most of which are to be managed by the donor. State-associated investment, such as that by Dubai’s DP World in Aden Container Terminal, would also help boost Yemen’s falling levels of foreign direct investment and non-oil growth. In December, the local General Investment Authority reported that the former had slumped by 98 percent in the third quarter of 2009 to 462,500 Yemeni riyals, from 28.3 million Yemeni riyals during the same period in 2008, while the I.M.F. puts non-oil growth in 2009 at 4.1 percent, down from 4.8 percent the previous year.

Enter gas

The G.I.A.’s main explanation for the fall was political instability, which is naturally playing a role. Yemen’s hydrocarbons revenues, barring force majeure, will increase considerably in 2010 after years of progressive decline due to dwindling oil output, as the first full year’s income from the Yemen L.N.G. project’s first liquefied natural gas train is accrued and the second train comes on stream.

The $4.5 billion scheme, led by France’s Total, is the largest-ever foreign investment in the country and is expected to yield $30 billion-$50 billion over its 25-year lifetime. Unfortunately, its start-up has coincided with a decrease in both global gas demand and prices, but in other regards the timing of the final investment decision in August 2005 (after more than a decade of deliberating and searching for long-term buyers) was ideal. Construction was well underway before the political instability in the country worsened, and an unprecedented $2.8 billion limited-recourse project financing was put in place in mid-2008, before international debt markets froze.

Between the upsurge of Al-Qaeda activity onshore and Somali pirates menacing tankers at sea, alongside the less propitious global market conditions, it would seem highly unlikely that similar decisions by investors and banks would be taken today. On the other hand, even the opportunity cost of Sana’a’s flagship project is estimated by some to be too high: A 2007 World Bank study on Yemen’s gas reserves concluded that “the economic and financial rates of return of using the gas domestically for power generation are higher than the rates of return generated by exporting it.”



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