In this debate, Sada publishes three perspectives on Yemen’s economy and threats to Yemeni livelihoods. Years of conflict—and the rival administrations set up in Sanaa and Aden—combined with the effects of climate change have placed the Yemeni economy in a fragile position, which has impacted Yemenis from across the geographic and socioeconomic spectrum, forcing them to make adjustments to their work to survive.
In the first article, Mohammed Ali Thamer analyzes a recently passed law intended to prohibit usurious transactions in Yemen. Exploring the structural shortcomings of the Yemeni banking sector, he argues that this law will complicate banks’ dealings with international financial institutions and compromise the legal frameworks that preserve the rights, funds, and deposits of investors, ultimately dealing the economy a fatal blow if adequate accommodations are not made.
Continuing to examine Yemen’s economic challenges, Abdullah Ali focuses on the agricultural sector, which—either directly or indirectly—contributes to the income of 73.5 percent of the population. Farmers’ livelihoods have been put at risk because of dramatic changes in weather patterns as a result of climate change, as well as the economic implications of the war and blockade. Providing further support for this sector and paying attention to it at the peace table, Ali argues, will contribute to broader economic development.
Finally, in the third article, Ismail Al Aghbari delves deeper into the agricultural sector, explaining a campaign to reduce the planting of Qat and shift resources towards the cultivation of coffee. Amidst severe water shortages, Qat is a crop that consumes significant water resources without providing any benefits to the food supply whereas coffee is a smarter crop for the climate. Some farmers have already begun shifting their planting priorities, with an initiative launched to plant one million coffee plans by 2025.
The Legality of Usury in Yemen
A new law banning usurious transactions in Yemen is expected to destabilize the financial position of Yemeni banks and exacerbate their isolation and deterioration.
Mohammed Ali Thamer
On March 21, 2023, The Yemeni House of Representatives passed a law that bans all forms of usurious transactions in commercial and Islamic banks. The new law was announced in the first circular issued by the Central Bank in Sanaa to regulate the work of banks in Houthi-controlled areas.
The law includes 13 articles that prohibit all forms of usury in all civil and commercial transactions that take place between natural persons or legal entities, and declares all usurious benefits absolutely null and void.
The Committee of Experts of the UN Security Council and other economic researchers and specialists have advocated caution and expressed concern that the law could lead to the closure of banks and the collapse of the entire banking system in Yemen. Yemeni banks have already been compromised by nine years of civil war and political upheaval that weakened their financial position and left them struggling to pay their public debts, which they dispersed in small installments over extended periods of time.
The division of the Central Bank of Yemen (CBY), in 2016, into rival branches associated with the main warring parties in Aden and Sanaa, also severely undermined the Yemeni banking sector. The fact that Yemeni banks were forced to implement conflicting monetary policies and use differing currency systems destabilized the Yemeni Rial and caused it to fluctuate against the American dollar.
Now, as the potential repercussions of the new law begin to unfold, the question is whether the law will be reversed (as Iran and Libya did to save their economies when facing similar obstacles), or whether it will actually be implemented despite repeated warnings from experts.
Are Bank Closures on the Horizon?
According to banking specialists, bank closures are imminent. Banks will be unable to pay their public dept obligations or even cover their expenses unless they diversify their investments—by investing in real estate for example—as the Cooperative and Agricultural Credit Bank did recently when it ventured into industrial and commercial investments. But even if Yemeni banks decide to test new waters, they will be faced with articles 20, 21, and 22 of the Yemeni Banking Law of 1998 which prohibited all banks from partaking in commercial activities. The only solution to work around these laws is to create subsidiary companies that make the investments on behalf of the banks, and this will require time, money, and experience, which will overburden the banks and expose them to bankruptcy and closure.
The Effect of the Law on Yemen’s Economy
The implementation of a law that bans interest will affect the fragile economic situation in the country and worsen people’s living conditions. It will devour the 1.7 trillion riyals (3.3 billion USD) that make up the total investments of banks in the country’s public debt of 9 trillion riyals (17.4 billion USD), and in the 3.9 trillion riyals (7.5 billion USD) that are the total balances deposited as reserves for banks, insurance companies, and telecommunication and postal companies.
Moreover, although the law provides for a national strategy to repay the public debt, it does not stipulate a timeframe or a mechanism for implementing this strategy. Also, the fact that the law prohibits all kinds of loans will discourage investment since financial institutions cannot afford to give away free money.
Banking operations will eventually decrease, and banks will be forced to adopt austerity policies that will lead to a spike in the unemployment rate, which was calculated at 14 percent in 2022, and which a recent study funded by UNICEF calculated at 32 percent. These anticipated hardships, plus the fact that both the governments in Sanaa and Aden, have not been able to pay the salaries of their 1.3 million employees since 2016, will aggravate the situation even more.
International indicators, the most prominent of which is the report of the Panel of Experts of the UN Sanctions Committee, show that 17 million Yemenis face severe food insecurity. Unless the parties to the conflict in Yemen end the continuous escalation and suspend the implementation of the new law that is bound to make matters worse, Yemen will be home to the world’s largest population of starving and poor people.
Yemen can be guided by the experiences of Libya and Iran. Libya also issued legislation to prevent usurious transactions in 2013 but suspended its application in 2015 when officials realized the negative impact these laws had on the financial position of their banking sector.
In Iran, policy makers managed to find ways to handle the issue of usury instead of prohibiting it by creating separate laws that superseded the 1982 law to ban usury in banking services. The Iranian banks were instructed to distribute dividends at fixed rates, charged as fees on loans, or as shares of corporate profits. And the Central Bank of Iran (CBI) established the minimum percentage of profits banks are allowed to collect in joint ventures, speculations, investments, product financing, installment transactions, credit purchases, customer deposits, and commission banking, which eventually saved the Iranian banking sector.
Unless Yemeni banks follow suit and stop the implementation of the anti-usurious transactions law, Yemen’s economy will be dealt a fatal blow that will destroy whatever little is left of its integrity. The country is not ready for a law that will complicate banks’ dealings with international financial institutions and compromise the legal frameworks that preserve the rights, funds, and deposits of investors. This law will also intensify the public debt dilemma that has been snowballing since the start of the war in 2014 as a result of the government’s corruption and poor economic policies and decisions.
Mohammed Ali Thamer is a writer and researcher from Yemen. He writes in the Journal of the Union of Arab Banks, directs the magazine of Yemen Airways, and is the author of a two books on the banking sector in Yemen.
Yemeni Farmers Face Implications of War and Climate Change
The climate change crisis could push the Yemeni agricultural sector, already reeling from years of conflict, to the breaking point.
Abdullah Ali
Yemenis working in the agricultural sector make up the largest segment of the workforce in the country. 73.5 percent of the population rely, either directly or indirectly, on income from agricultural activities related to trade and manufacturing. Agriculture also contributes about 80 percent of Yemen’s national income and provides employment opportunities to about 54 percent of the labor force across the country.
For nine years, Yemen has been witnessing a civil war that Gulf, Arab, and regional countries have intervened in, causing the death of hundreds of thousands and the displacement of millions, in addition to creating one of the worst humanitarian crises in the world, with nearly 21 million people—more than 66 percent of the total population—needing humanitarian assistance and protection.
Despite this disastrous situation, many Yemeni farmers are still trying to cultivate enough crops to become self-sufficient in their own households.
War and Climate
Farmers in Yemen are facing insurmountable challenges because of the siege imposed on the country by the Saudi-led coalition and the frequent bombardment of agricultural land. According to the Ministry of Agriculture and Irrigation of the unrecognized Houthi government, the total direct damages and losses of the agricultural sector in Yemen since the beginning of the war amount to about 111 billion dollars.
Yemeni farmers suffer from the high cost of oil derivatives, fertilizers, and agricultural pesticides, the decline in seasonal rainfall, and an increase in government taxes and customs on farmers. Climate change and water shortages are reflecting negatively on the production of crops, compared to previous years, which is impacting food provision and increasing the scale of famine in the country. The impact of climate change is exacerbated by the absence of alternative food provision methods because of the deteriorating national economy, the closure of most major economic institutions, and the suspension of public sector salaries in Houthi-controlled areas.
With approximately 3 in every 4 Yemenis relying on agriculture to survive, the climate crisis could push the already war-torn agricultural sector to the breaking point especially as severe drought and reduced monsoon rainfall have persisted since 2022.
M.Q. is a farmer from the city of Ibb who says that the harvest in 2022 declined to less than half of its usual amount as a result of the decline in rainfall and the drought wave that the country witnessed.1 Like millions of Yemenis, he is currently suffering from harsh living conditions that have been exacerbated by the unprecedented increase in the prices of consumer goods and services and the collapse of the national currency in government-controlled areas, as well as the volatility of exchange rates in Houthi-controlled areas.
In most agricultural seasons up to a few years ago, M.Q. achieved self sufficiency in various grains and legumes, but in the past few years, crop yields have drastically declined, falling to half their expected yields in the agricultural season of 2022—providing sustenance for only 5 months.
Saving the Agricultural Sector
Yemeni economist Rashid Haddad believes that supporting agriculture is a solution to deteriorating living conditions because it contributes to reducing unemployment and poverty and improving people’s livelihoods, especially since about 75 percent of Yemenis live in the countryside.2
Despite political division and the absence of a unified state, international organizations working in the country can support the agricultural sector and save farmers from looming poverty by facilitating access to agricultural resources, providing alternative energy sources, utilizing water collection systems, and expanding rain-supported agriculture.
Moreover, if the recent Saudi-Irani rapprochement manages to expedite truce negotiations between the warring parties in Yemen, including the issue of agricultural reform in the negotiations as part of the peacebuilding process will be critical to mitigating the threats facing Yemeni farmers and improving the quality of life in rural Yemen significantly.
Ultimately, providing support for and paying attention to the agricultural sector can contribute to economic development, employment opportunities, and food security.
Abdullah Ali is a freelance Yemeni writer and journalist whose work focuses on humanitarian issues. He has been published in regional and international media outlets.
Notes:
1. A private conversation with a 50 year-old farmer who is the father of ten children in the Ibb governorate (under Houthi control) in central Yemen.
2. A statement from the Yemeni economist Rashid Al-Haddad.
Back to Coffee in Yemen
Yemeni farmer Nader Al Hammadi has decided to uproot the destructive Qat plants in his mountain farm and replace them with coffee trees.
Ismail al-Aghbari
Nader Al Hammadi is a farmer in the Taiz governorate in central Yemen. He is one of the farmers who decided to stop the expansion of Qat farming by heavily investing in coffee planting in Taiz, which has always been internationally known for its fertile land and the quality of its “mocha” coffee.
Many social initiatives were launched in the past few years to counter the devastating effects of climate change which have added to Yemen’s woes and resulted in a significant decrease in the per capita allotment of water.
In the face of water scarcity, the fact that Qat (which requires significant water resources and feeds no one) has been prioritized over more necessary plants has exposed Yemen’s agricultural land to many risks, not the least of which is desertification. According to the data of the Central Statistical Organization for 2012, Qat plantation had been expanding to cover 6 to 10 thousand hectares of land annually.
Enabling Desertification
Research has indicated that “the amount of coffee Yemen exported to the world at the beginning of the 18th century was about 20,000 tons per year.” Today, Yemeni coffee production has substantially declined as a result of the widespread cultivation of the Qat narcotic, which is consumed on a very large scale, and which generates huge financial returns for farmers.
The Qat plant consumes almost half of underground water resources, which could be used to cultivate more important crops. According to the General Directorate of Forestry and Desertification, nearly 97 percent of agricultural land in Yemen is now threatened by increased desertification, which currently stands at about 90 percent of the country’s farming area.
The area of Qat cultivation has increased in recent decades at the expense of coffee cultivation, which declined by 415 hectares. According to a report by Holm Akhdar (Green Dream), coffee farms shrank in size from 33,959 thousand hectares in 2015 to about 33,544 thousand hectares in late 2017. Moreover, according to data from the Central Statistics Organization, coffee production declined by 490 tons per year, with the country producing 19,257 tons in 2015 before that figure fell to 18,856 tons in 2017.
Back to Coffee
A few years ago, the Bani Sinan Association in Taiz, a social group interested in agriculture, gave Nader Al Hammadi 60 coffee plants and trained him on how to farm them. Al Hammadi now owns about 300 coffee trees, and his production of coffee has doubled to nearly 600 kilograms per year.
According to Al Hammadi, it has been a challenging journey because of the lack of water and greenhouses and the meager support offered by governmental institutions. However, he still hopes that one day Yemen will be able to export its magnificent coffee to the rest of the world, as it once did.
Many farmers in the Taiz governorate have uprooted their Qat trees and replaced them with coffee bushes in response to a governmental initiative that aims to plant one million coffee trees by 2025 in Taiz and its surrounding districts, where promising results have been seen. The Bani Sinan Association distributed about 400,000 seedlings over a four-year span as part of this initiative. The target of the campaign was to combat the expansion of Qat trees, a key enabler of desertification, and to grow exportable and climate-smart crops, like coffee, to save water and increase cultivation space.
Abdul Karim Al Nabeira, head of the initiative, says that this campaign produced 50,000 seedlings in 2019 and 70,000 seedlings in 2020. He adds that last year, the nurseries of the Bani Sinan Association were able to provide 100,000 seedlings, and this year they are expected to produce 150,000 more. The state nurseries provided the Association with 30,000 seedlings, and in 2021, the Association was able to supply the neighboring governorate of Ibb with about 100,000 seedlings. Through sheer persistence and hard work, the Association was able to overcome the many obstacles that faced the “One Million Coffee Trees Campaign,” which have included the deficit in the provision of greenhouses and a lack of clear production requirements.
Al Nabeira explained that in the past, Taiz produced 100,000 tons of coffee, and today the production has almost reached 150,000 tons, reflecting a 50 percent increase. Production in 2023 is expected to reach 300,000 tons, and by 2025, the Taiz governorate will produce 400,000 tons and will export 4,000 tons.
Nader Al Hammadi, or the “Treasure Farmer” as he likes to be described, says that he has benefitted from coffee cultivation far more than he ever benefitted from Qat. Beyond the benefits of saving water, coffee planting does not require significant labor nor expensive fertilizers. Al Hammadi hopes to see more support from the government so that his beloved mountains can become as green as they once used to be, after years of being covered with the brown color of Qat.
Ismail Al Aghbari is a Yemeni journalist specializing in humanitarian journalism, peace, and coexistence. He has worked for a number of local and international platforms, and he is interested in investigative journalism and data-driven investigations.
