Yemen’s Most Pressing Problem Isn’t War. It’s the Economy.
On Sept. 22, a high-level United Nations meeting co-hosted by Sweden, Switzerland, and the European Union concluded with donors pledging an additional $600 million toward the U.N.’s $3.85 billion humanitarian response plan for Yemen. These pledges are vital, but the humanitarian crisis in Yemen is a symptom of an underlying economic conflict. This conflict has contributed significantly to increases in food and fuel prices, and de-conflicting among the parties involved needs to be prioritized.
I am a Yemeni national and have been working on developmental and governance issues in Yemen for almost two decades in multiple roles: as a co-founder and trustee of a number of leading civil society organizations; as the team lead for policy reforms at the Ministry of Planning and International Cooperation in 2013 and 2014; as the minister of youth and sports in 2014 and 2015; as a senior advisor to international agencies on development, peace-building, and Yemen’s political economy; and as a researcher and practitioner on state fragility at Oxford University.
I recently returned from a monthlong visit to Yemen. During my time there, I was able to travel to six major Yemeni cities with stops in smaller towns and villages along the way. I met with leaders of local authorities and chambers of commerce, bankers, traders, and politicians from across Yemen’s political spectrum. I also took part in discussions with hundreds of youth leaders and civil society representatives in town halls across the country. We discussed their views on the ongoing conflict and the peace process, the different governorates’ development priorities, the capacity challenges facing local authorities, and young Yemenis’ visions for the future. But the issue that came up the most and was seen as the most urgent problem facing Yemen wasn’t the military aspects of the war. It was the economy.
War always has a devastating effect on countries’ economies, and Yemen is no exception. In the first year of the war alone, economic output fell by an estimated 28 percent. Exacerbating matters, economic conflict between the Houthis and the government has essentially split Yemen into two monetary and economic zones over the past several years. In Houthi-controlled areas, only prewar banknotes are in use, while in parts of the country under the government’s nominal control, new bills printed since 2016 are prevalent. This division became an acute economic issue when the Houthis banned the new notes in December 2019. The riyal’s value collapsed in government-controlled areas—falling to less than 1,100 riyals this September—while it remained relatively stable in Houthi-controlled areas. The price of basic goods has skyrocketed in government-controlled areas while wages, when they are paid out, have remained stagnant. In Houthi-controlled areas, meanwhile, public salaries haven’t been paid regularly in years, and fuel prices have soared amid shortages and a dispute between the Houthis and the government over imports to the Red Sea port of Hodeida.
These issues are relatively well-known among Yemen watchers. Less visible but still sources of rising frustration inside the country are outrageous fees of up to 100 percent of the transfer amount on transfers between different areas of control in Yemen, cooking gas shortages, and a flailing banking sector that has meant many hard-earned bank deposits are frozen.
This is just a shortlist of the challenges faced by the minority of Yemenis who still earn the semblance of a regular income to contend with on a daily basis. It is easy to forget when you are outside of Yemen, but these economic issues are not an abstract technical matter: They impact the lives of millions of people on a daily basis, as I saw on my travels.
In Marib, a bustling Yemeni city and trade hub that has grown rapidly over the past six years but is perilously close to the conflict’s main front lines, I met an auto shop mechanic who moved to Marib from Ibb, an agricultural governorate in western Yemen. He moved to find a job and support his family, but he was seriously considering leaving his job because it paid poorly and the riyal’s diverging value and cost of transferring money to his family in Ibb was swallowing half of the funds he sent.
In Sanaa, once a two- or three-hour drive from Marib but now a nine-hour ordeal because of front-line fighting along the road, I met a widow outside one of Yemen’s major private banks. Her family’s only income was the interest they earned from a deposit made at the bank after selling a parcel of land. Not only had she seen the real-world value of her deposit and interest payments drop significantly due to the riyal’s declining purchasing power, but she now only receives 50 percent of her interest payments on the deposit due to new regulations from Sanaa’s central bank. Fatima, like hundreds of thousands of bank clients, was barred from withdrawing the other 50 percent of her interest payments in cash. Local businesspeople have started offering services to help depositors get their money out of the banks—but they charge around 70 percent of the deposit’s value to do so. If someone like this widow had a 1-million-riyal deposit, she would effectively only receive 300,000 riyals in cash.
In the southern port city of Aden, meanwhile, many of the people I met had not slept for days because of continuous electricity outages that prevented them from running air conditioning units or even simple fans. Mothers in Taiz, an industrial city that sits between Sanaa and Aden and is caught in Yemen’s complex internal conflicts’ crossfires, are unable to buy food for their children because of some of the highest market prices in the country, caused by a lack of road access and the collapsing riyal. Fuel and cooking gas shortages in Sanaa made it hard not just to prepare meals but to ensure water was clean.
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Of course, all of these issues are symptoms of Yemen’s messy and intractable almost seven-year civil war. A huge part of any solution to these issues is for the ongoing war to end and the rival groups who rule and compete for control of Yemen to come to some kind of political settlement with one another. But such a settlement seems a long way off, and a political and military détente will not automatically solve issues like the collapsed and bifurcated riyal.
The majority of the Yemenis I spoke to felt strongly that critical economic issues need to be addressed as a matter of urgency, not later as part of a political settlement, regardless of the peace process’s military and political track. I agree. The conflict’s military aspects are limited to specific fronts in the country. But economic conflict is impacting every single person in the country and is driving millions of Yemenis to the edge of famine.
Yet economic mediation has been notably absent from the international, U.N.-led approach. When former special envoy Martin Griffiths was appointed in February 2018, many Yemenis urged him to take an economic leadership role and bridge the gap between the rival central bank administrations, one in Sanaa and the other in Aden. (The internationally recognized government relocated the central bank headquarters to Aden in September 2016 while the Houthi movement rejected the move and continued central bank operations in Sanaa.)
Griffiths has always defined his mandate as “focused on the political solutionand the end of the conflict bringing peace.” However, his office was eventually forced to play the role of intermediary in the burgeoning economic conflict. In December 2018, Griffiths led negotiations that prevented a battle for the Red Sea port of Hodeida. The accord, named the Stockholm Agreement, included loose language related to joint management of port revenues to pay state salaries. The two parties have met sporadically under U.N. auspices since 2018 to discuss a mechanism but were unable to find a middle ground. They were able to agree to a compromise deal on fuel imports entering Hodeida in November 2019, but that agreement unfortunately collapsed a few months later. A common theme across these efforts was they were reactive and ad hoc, stemming from a fundamental position held by the special envoy that his office should focus on the political solution and brokering a deal to end the conflict.
U.N. humanitarian agencies have also been fixated on responding to the consequences of economic collapse, providing food assistance and emergency relief to the population. This is not to undervalue the critical work humanitarian agencies have been doing to save millions of Yemenis from starvation. But the rival parties’ economic conflict has exacerbated Yemen’s economic collapse, thereby deepening the humanitarian crisis and, in many cases, nullifying the impact of emergency humanitarian assistance.
The new U.N. special envoy for Yemen, Hans Grundberg, started his new position on Sept. 5 after two years as EU ambassador to Yemen. The new envoy will need to make three key decisions.
First, the United Nations—its member states, secretariat, and envoy—should end ambiguity over the envoy’s mandate and empower him to deal with the economic conflict. This doesn’t need to be through a U.N. Security Council statement or resolution, although that would be a welcome step. It can be done by establishing a dedicated senior position—deputy envoy, for example—in the Office of the Special Envoy to primarily deal with its economic portfolio and feed directly into the special envoy. The envoy will also need to recruit sufficient staff with the technical skills and knowhow in economics, finance, and political economy needed to navigate complex challenges, mediate between the parties, and identify technically and politically feasible solutions.
Second, Grundberg and his office will need to orchestrate the establishment of a clear mechanism for international coordination around the peace process’s economic track. Such a mechanism existed before the war and was represented by the Economic Working Group of the Friends of Yemen. This group would provide an authorizing political environment, signal the importance of such a track, and address many coordination gaps in international community efforts to address economic track priorities in Yemen.
Third, the envoy needs to clearly establish what issues are—and more importantly are not—part of what he can and should deal with. Economic de-escalation issues should be at the top of the agenda. These are urgent economic issues that inflict significant negative impacts on citizens and the economy as well as require negotiations and agreement between the parties closely linked to issues of sovereignty, authority, and legitimacy. These issues include coordination of monetary and fiscal policies, restrictions on key trade and commercial infrastructure and routes, and management of public revenues to ensure payment of public salaries and avoid double taxation.
Establishing an economic negotiation track now will help the envoy, or a successor, prepare for future political negotiations when the war’s economic dimensions are all but certain to be on the agenda. There is significant value to the parties agreeing on how to address some key post-conflict economic issues early on. Postponing agreement on these key issues to an interim transition phase could jeopardize achievements in the peace process and cause a new cycle of conflict. Examples of post-conflict economic issues that need to be included in the peace agreement include: the management of natural resource revenue, the reunification of key institutions, the integration of civil service, and the management of a post-conflict reconstruction process.
Yemenis have suffered enough from almost seven of conflict. Until the war ends, the Yemeni people’s economic suffering should not be relegated to the status of side issue. I have been part of multiple discussions with various international actors in the past few weeks as to whether or not the new special envoy should take leadership on the economic agenda or whether that leadership should sit elsewhere in the international system. Regardless of who takes leadership in this, it is the moral, if not legal, responsibility of the international community to dedicate its full attention to the peace process’s economic track and ensure active leadership in mediating issues between the parties.
Rafat Al-Akhali is a fellow at Oxford University’s Blavatnik School of Government, where he is the convenor of the Council on State Fragility at the International Growth Centre. He was formerly the minister of youth and sports in Yemen. Twitter: @ymnraf