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Research paper topic: Yemen: Developing A Country - 1134 words

Yemen: Developing A Country Yemen: A Focus on Development for the Oil and Tourism Industries Yemen, a third world country desperately trying to achieve 2nd or even 1st world status, is in the midst of turmoil and tribulation in trying to bail out their economy and increase their level of reform. Since 1995, the Yemeni government began to implement a large scale program of reform. The program was formulated in cooperation with the IMF and the World Bank and it is considered a liberal program aimed at making the market the dominant regulator of the economy (6. Mallakh, 241.) Unfortunately, the outcome of this reform is not encouraging even though 1995 and 1996 were nominally successful years for the program. Yemen's economy continues to operate under the auspices of the International Monetary Fund (IMF) and the World Bank, with the government moving forward with the economic-reform package that was initiated in 1995 (6. Mallakh, 241.) In the conclusion of my first case study, I found that in order for Yemen to successfully reform economically, there was a definite need for foreign investment.

Whereas this may prove to be true for a minute part of the economy, it fails to recognize the most blatant of truths: the Yemeni economy cannot survive without the counterbalance on the oil industry concerning the imports and exports. I. Yemeni oil production, Exploration and Foreign Investment 1. Oil Production Yemen's current oil output of about 350,000 bbl/d provides the country's main source of income. After a slight decline from 1995 to 1996, oil production is back on the increase.

In 1996, output fell 5,000 bbl/d to 340,000 bbl/d, rebounding to 385,000 bbl/d in 1997. Yemen contains proven oil reserves of 4 billion barrels. Proven recoverable reserves of 1.7 billion barrels are concentrated in five areas: Marib-Jawf Block 18 (490 million barrels), Masila Block 14 (550 million barrels) in the south, the Jannab Block 5 (345 million barrels), and Iyad Block 4 (135 million barrels) in central Yemen. The Masila block is the country's most productive oil field at 200,000 bbl/d followed by Marib-Jawf at 140,000 bbl/d (4. USEIA) 2. Exploration and Bringing in Foreign Investment A.

Exploration Exploration for additional reserves and new investments from foreign companies began to decline in 1994, due mainly to civil war between north and south Yemen, unattractive exploration and production contractual conditions, and the low success rate of hydrocarbon discoveries. However, exploration activity picked up again in 1997 after the civil war ended and the government started to offer more attractive contract terms. By mid 1997, approximately 20 exploration agreements were in force with foreign oil companies (4. USEIA) (5. E.I.U. p.

37-40.) B. Foreign Investment Projects In September 1997, Canada's TransGlobe Energy signed a MOU with Yemen's ministry of oil and mineral resources followed by a production sharing agreement (PSA) in December 1997 for the Dameis Block S1. Under the terms of the PSA, Transglobe will conduct a 3D seismic survey covering 60 square miles and drill three wells. This first exploration phase will take 22 years at a total cost of US$11 million. A second 22-year phase requires an additional 40 square miles of 3d seismic data and drilling three more wells.

This second phase will cost another US$11 million. Block S1 was previously explored by Royal Dutch/Shell between 1990 and 1993. Meanwhile, another Canadian company, First Calgary Petroleum, signed a US$15 million deal for oil exploration in Yemen's southern province of Hadramaut. Two phases of exploration activities are expected, which will include drilling two wells as well as conducting 3D seismic surveys (2. Yemen Observer) 3. IMF Reform Package: Is it the answer? A.What is the IMF Reform package? The IMF program includes banking reform, privatization of state-run industries, major infrastructure investment, and reduction or elimination of government subsidies. Thus far, the economic situation has been improving in what is one of the world's poorest countries (3.IMF: Policy) B.

Problems One of the main provisions in the IMF reform package calls for the government to reduce subsidies. The first two phases of reforms reduced subsidies on oil and electricity. Transportation fuel prices were doubled in March 1995, sparking violent protests especially in Aden. Prices for fuel, electricity, and water were increased again in January 1996; diesel prices increased between 40% and 60%. Farmers protested these price hikes by blocking the main Sanaa-Aden highway. The third phase of the reform program began in July 1997, with additional increases to electricity rates, water fees and fuel prices.

Transportation fuel prices rose by more than 30% and kerosene prices by more than 85%, sparking protests form farmers in the tribal region of Maarib. In June 1998, the Yemeni government once again raised prices on gasoline, kerosene, and cooking gas as well by around 40%. In addition, subsidies on wheat and flour were cut. These latest round of price hikes aroused more protests as demonstrators took the streets, calling on the government to revoke the price hikes, and clashed with police. On July 19, 1998, members of the Abida tribe blew up part of Yemen's Marib-Ras Issa oil pipeline in the Marib district, located 106 miles north of Sanaa. This marked the eighth attack on Yemeni oil and gas pipelines since June 19,1998 (3.IMF: Problems.) 4. Projections and Conclusion As expected, Yemen's Central Bank latest figures showed Yemen oil revenues in 1998 down by 55.2% (about US$454 million,) as compared to 1997.

The government's share from oil exports was 39.12 million barrels in 1998 against 54.88 million barrels in the previous year. Also, income from oil sales account for approximately 40% of Yemen's total revenues, and are the county's main source of foreign currency. Therefore, persistently low world oil prices are expected to have a significant on future budget projections. Oil prices began falling after the Organization of Petroleum Exporting Countries' (OPEC) decision in November 1997 to increase its output ceiling 10% to 27.5 million bbl/d. A mild northern hemisphere winter, increased Iraqi exports, and Asia's continuing economic problems also contributed to the declines.

By February 1998, Yemen had already lost an estimated $223 million in revenues due to low oil prices. The 1999 budget projects that oil income will increase 3%, to $1 billion, from $970 million estimated for 1998, while the budget's total revenues are expected to decline 11% from 1998 (4. USEIA) (6. Mallakh pg. 241) Although Yemen has taken many steps in the reform process, getting back on their feet will be a long and tedious process.

As I explained earlier, foreign investment plays a huge role in the success of their growing oil industry. Even with the help of the IMF and the World Bank, Yemen is still struggling, and it's people are the ones suffering. They have seen the overall deterioration in all aspects of economic and social life before implementation of the Economic Reform Package (ERP). Some say that this can be attributed to the lack of a modern and strong state. Lawlessness, corruption, and bribery are widespread in Yemeni institutions and this poses a major obstacle to any corrective program and more generally to any development program in Yemen. This view can be acknowledged by Guiani Perez of the World Bank who also said: Financial reform requires ad ...

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