| Kippreport.com

Yemen conflict costs state up to $5bn

May 29, 2011 12:29 by Reuters

The political crisis that has pushed Yemen to the brink of civil war has cost the economy as much as $5 billion, and immediate aid is needed to prevent a meltdown, the country’s trade minister said on Saturday.

Three months of street fighting and political protests have left nearly 300 dead, scared away investors, driven off urgently needed foreign aid and swollen budget deficits.

“We have reports that the losses range between four to five billion dollars,” Hisham Sharaf Abdalla, minister of industry and trade, told Reuters in an interview.

Western and Gulf donors have called on President Ali Abdullah Saleh to end his 33-year reign under a Gulf-brokered deal and are wary of turning on the aid taps until a solution is found to a crisis that has pushed the state toward collapse.

“The economy should not be held hostage to the political crisis, because the situation is alarming,” the trade minister said.

The outside world is worried that chaos in the country could benefit the Yemen-based branch of al Qaeda and could threaten adjacent Saudi Arabia, the world’s No. 1 oil exporter. Yemen is also on a shipping lane through which 3 million barrels of oil pass daily.

The Group of Eight powers promised tens of billions of dollars in aid to Tunisia and Egypt at their summit on Friday and held out the prospect even more to foster the Arab Spring and the new democracies emerging from popular uprisings.

Abdalla said the conflict in Yemen has hit the tourism and construction sectors hard while straining a still-functioning electric grid.

The political crisis is expected to swell the deficit from an initial projection of 4 percent of GDP to 7 percent, he said.

Some of Yemen’s biggest losses are related to fuel in the country that relies on oil for 60 percent of its income and has a nominal GDP of $31 billion.

Abdalla said in April and May, Yemen has had to import fuel and petroleum derivatives, which have cost $1 billion over the two months.

“We started doing that because the opposition pushed the tribes to bomb the oil pipeline, which has been closed since the end of March,” he said.

Damaged pipelines have also cut off an important source of income for the world’s 32nd largest oil exporter and 16th biggest seller of liquefied natural gas.

“Our biggest problem is that we haven’t been able to attract foreign direct investment to create jobs because of the security problem in Yemen,” he said.

But economists said the problems are much deeper than that.

Under President Saleh, Yemen became the poorest country in the oil-rich Arabian Peninsula with about 40 percent of the population living on less than $2 a day.

“If there is no injection from outside … the Yemen economy will collapse, definitely,” Mohamed al-Maytami, economics professor at Sanaa University, said earlier this month.

“The rial will collapse, inflation will rise to a level Yemen had never witnessed, the most needed food will not be available for majority of people who are poor,” he said.

Abdalla called for a resumption of foreign aid and expected the Gulf-led initiative for a transition of power to provide economic assistance of about $2 billion to $3 billion.

But most of all, he said the stated needed help now.

“We should not get the economy mixed with the ongoing political game.” (By Samia Nakhoul; Writing by Jon Herskovitz in Dubai; Editing by Jon Hemming)

Tags: oil, politics, Yemen, Yemen spend