Yemen’s Forgotten Humanitarian Crisis: An Economic Perspective

Yemen’s Forgotten Humanitarian Crisis: An Economic Perspective

By Dhruv Shah

From the time of writing this article, Covid-19 has spread globally at a pace which is unprecedented, while China continues to clash with the US and dominates media headlines. Elsewhere, Yemen’s civil war, the largest humanitarian crisis, has mostly been overlooked beyond its borders. Raging for more than 5 years with no end in sight, Yemen’s civil war has killed 7700 civilians, and has made 80% of the population dependent on food aid to survive. A UN development report states that if war continues into 2022, Yemen will officially become the poorest state in the world. Understanding how Yemen has gone this far downhill remains complex; a civil war rooted in old divisions with competing outside interests along with a variety of economic factors are to blame. With neither side competently able to secure the country both strategically and economically, peace and stability within Yemen remains remote.  

While much of Yemen’s problems can be attributed to their devastating civil war, their economic problems have been a constant for much longer. Even before the civil war, Yemen was the poorest state in the Middle East. Weak institutions have allowed corruption to remain rife within the state. The economy is highly oil dependent, with the government relying on 80% of its income from this revenue stream. Oil is critical to Yemen: building foreign currency reserves, funding grants, and providing public sector salaries. However, Yemen’s financial set-up left it susceptible to international oil markets and political instability. Prior to the 2007 financial crisis, high oil prices masked the systemic weakness in Yemen’s economy, but, after the global crash, dipping oil prices substantially worsened their fiscal deficit. An IMF report concludes that as a result of oil prices dropping in 2008 from $97 per barrel to $62 per barrel in 2009, this change reversed much of the progress Yemen made in the last century in tackling poverty. Critically, Yemen lacks the refinery required to produce its own fuel, therefore seeking to import a lot of oil from other states despite being an oil rich state itself. 

As Yemen’s government struggled for cash, investment in public services like health care and education diminished dramatically. On top of this, with 43% of the population living on $2 a day in 2010, Yemen’s economy was in a dire shape; a tinderbox which would be set alight with the smallest provocation. It did not help that during this time, the IMF provided a loan – conditional on compulsory economic reform to improve their deficit – forcing Yemen’s president Abd Hadi to remove fuel subsidies. Triggered by rising fuel prices, protestors rioted against the president.  

The Houthis – Shia rebels – unhappy with economic reform and their control of territory, and capitalising on the government’s weakness, began to challenge the government’s hold on territory in the North. Years of no economic development and poor reforms led many ordinary Yemenis to support the Houthi movement. In 2015, the Houthi movement took over the capital, Sanaa, and President Abd Hadi fled the country into neighbouring Saudi Arabia.  

Worried that the Houthis were being backed by regional Shia power Iran, Saudi Arabia and several Gulf states formed a coalition backed by the US and UK and intervened militarily in Yemen. Relentless bombing and airstrikes from coalition forces has decimated the Yemeni economy and the local population – damaging hospitals and schools. What was once considered a war which would end within weeks, has extended 5 years, and has shown no signs of stopping. Houthi forces have regularly fired artillery indiscriminately into Yemeni cities while launching ballistic missiles into Saudi Arabia. Since 2015, Human Rights Watch, has recorded over 90 unlawful airstrikes from coalition forces which have targeted schools, hospitals, and mosques. The actions of Houthi forces are not any better and have been criticised by human rights activists for committing many human rights violations.  

Economically, both Houthis and the coalition have played a role in decimating the Yemeni economy. Ships and aircraft carrying vital aid like food and water are continually held up and monitored by coalition forces to make sure they are not carrying arms. However, Saudi led blockades have played a part in generating high inflation within Yemen and worsening the humanitarian situation. As vital supplies run out within Yemen, aid is held up for weeks, while fuel needed to power generators in hospitals are blocked and diverted away from rebel-controlled areas. This has led to rising prices as demand for necessities rises while supply drops – making many Yemenis unable to afford food or water. Houthi forces have similarly blocked and confiscated food and medical supplies for themselves while restricting and kidnapping air workers carrying out humanitarian missions within Yemen. Much like Saudi Arabia, Houthi forces have oppressed the local population and contributed significantly to Yemen’s humanitarian crisis.  

The Saudi backed government’s economic policies have been another factor in explaining the famine. As the value of local currency has dropped, importers face another problem alongside restricted supply: no purchasing power. This has forced importers to also raise prices of the goods they can access. Yemen’s government can relieve such instability by allowing importers access to dollars. Instead, household income continues to decline as the government refuses to pay salaries to public sector employees within rebel-controlled areas. 

Supply restrictions, a civil war and poor economic policies have directly contributed to inflated food prices and resulted in many ordinary Yemenis being unable to afford necessities like bread or water and helping to create the world’s worst humanitarian crisis. Save the Children, a charity organisation which has been active in Yemen for years, estimates that between April 2015 and October 2018, 85,000 children have died from severe acute malnutrition. This has been described by Financial  Times correspondent, Heba Saleh, as a ‘campaign of economic warfare.’ Despite UN mediation, the three round peace talks have failed to resolve the war and failed to alleviate the suffering of millions of Yemenis. As war drags on, both sides prepare to dig in and defend their territory. In the South, the United Arab Emirates, at odds with coalition forces, deploys the largest foreign force on the ground and has built an alliance with Southern rebels.  

If one is serious about ending the humanitarian crisis, building strong institutions must be the goal. Yemen currently ranks as the 176th most corrupt state in the world. Building a strong political system is the first key building block to alleviating the crisis within Yemen by preventing money from being funnelled away from the public. Secondly, Yemen’s government must seek significant foreign assistance in order to rebuild the countries devastated infrastructure and to help the humanitarian crisis. The priority must be to support the fragile healthcare and mitigate damage done by Covid-19 which has been disastrous in Yemen. Finally, Yemen’s government must build an economy which is less reliant on oil and more on labour to account for their growing population and systemic weaknesses in its economy. This is a key way to overcome Yemen’s resource trap – by which high abundance of natural resources equates to no substantial growth. These changes are long lasting and will not be immediate but present a viable solution to long term peace within the state. Nonetheless, Yemen’s future remains bleak and turbulent as its 5-year civil war is far from resolved.  As outside interests compete for influence within Yemen, ordinary Yeminis continue to suffer in the midst of the world’s largest humanitarian crisis.  

The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.

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