Source: Los Angeles Times

Economic Roots of Social Unrest in YemenSocial unrest is growing in Yemen as prominent tribal leaders and members of parliament join protesters in urging President Ali Abdullah Saleh to leave office. In response, Saleh — who has held office for 33 years — promised not to seek reelection in 2013 or hand over power to his son.

The government also passed a series of economic measures to improve Yemenis’ livelihood. The package — expected to raise the 2011 budget deficit to $3.75 billion — includes a 25% increase in civil and military servants’ wages, a 50% cut in the national income tax and additional food subsidies. However, these measures fall short of expectations and fail to address the key structural issues behind the turmoil.

Yemen remains the poorest country in the Arab world, with a per-capita income of $1,300; almost half of the population lives on less than $2 a day. The country also holds the region’s worst human development records: a 54% literacy rate, a 62-year life expectancy, and high levels of maternal mortality and child malnutrition.

In addition, only four in 10 people have access to electricity and one in four people have clean drinking water. The situation may grow worse as Yemen’s population is expected to double to 40 million people by 2030.

A weak and oil-dependent economy aggravates the country’s poverty and demographic challenges. Petroleum accounts for roughly 25% of GDP, 70% of government revenue, and more than 90% of Yemen’s exports. While the government has implemented reforms recently to improve the investment climate — especially in the non-oil sector — Yemen represents a risky business environment given its political instability, weak rule of law, ineffective government and widespread corruption. The country ranked 146 of 178 on Transparency International’s 2010 corruption index.

Yemen’s high unemployment rate, which stands officially at 16.5% but is estimated to be much higher, is another challenge; almost half of youth are unemployed. Even those few people with university degrees lack the right skills to meet market demand. And leading job sectors — such as agriculture, the public sector and tourism — suffer from factors such as scarce water resources and political turmoil.

As a result, it’s not surprising that Yemen has failed to achieve political legitimacy and establish a productive economy. That’s why Yemen must begin developing a roadmap for the future now.

First, Yemenis must ensure a smooth political transition when Saleh leaves office and build strong institutions to enforce the law and fight corruption. Second, they must create sound economic policies to address poverty, unemployment, and mismanagement of public resources that are backed by institutions accountable to Yemenis. Otherwise, Yemen’s future may be severely constrained by reduced government revenue, weak state capacity and internal conflicts.

Finally, the regional Gulf Cooperation Council must identify ways to improve economic and employment prospects for Yemenis, including opening labor market access to job seekers and investing in Yemen. Each of these steps will help resolve the issues feeding Yemen’s unrest and ensure the country is more secure in the future.