Economy of Yemen

Yemen's economy, generating more than 20 percent of gross domestic product (GDP) of the working Yemeni population. However, a U.S. government estimate suggests that the sector accounted for only 13.5 percent of GDP. Numerous environmental problems hamper growth in this sector — soil erosion, sand dune encroachment, and deforestation but the greatest problem by far is the scarcity of water. As a result of low levels of rainfall, agriculture in Yemen relies heavily on the extraction of groundwater, a resource that is being depleted. Yemen's water tables are falling by approximately two meters per year; it is estimated that Sanaa's groundwater supplies could be exhausted by 2030. The use of irrigation has made fruit and vegetables Yemen's primary cash crops. With the rise in the output of irrigated crops, the production of traditional rain-fed crops such as cereals has declined. According to the Central Bank of Yemen, the production of khat, a mildly narcotic and heavily cultivated plant that produces natural stimulants when its leaves are chewed, rose 6.7 percent and accounted for 5.8 percent of GDP; the consumption of khat is widespread in Yemen. According to the World Bank and other economists, cultivation of this plant plays a dominant role in Yemen's agricultural economy, constituting 10 percent of GDP and employing an estimated 150,000 persons while consuming an estimated 30 percent of irrigation water and displacing land areas that could otherwise be used for exportable coffee, fruits, and vegetables.

Although Yemen's extensive territorial waters and marine resources have the potential to produce 840,000 tons of fish each year, its fishing industry is relatively underdeveloped and consists largely of individual fishermen in small boats. In recent years, the government has lifted restrictions on fish exports, and production has reached one-quarter of capacity, yielding revenues valued at US$260 million in 2005. Fish and fish products constitute only 1.7 percent of Yemen's GDP but are the second largest export. In December 2005, the World Bank approved a US$25 million credit for a Fisheries Management and Conservation Project to be launched in all coastal governorates along the Red Sea and the Gulf of Aden. This project is expected to improve fish landing and auction facilities; provide ice plants for fish preservation; and enable Yemen's Ministry of Fisheries to undertake more effective research, resource management planning, and regulatory activities.

Yemen is an oil producer and has significant untapped offshore oil and gas deposits. Unlike many regional oil producers, Yemen relies heavily on foreign oil companies that have production-sharing agreements with the government. Income from oil production constitutes 70 to 75 percent of government revenue and about 90 percent of exports. Yemen contains proven crude oil reserves of more than 9 billion barrels (1.4×109 m3), although that is falling from the country's older fields, which have been wrecked by war and corruption, both driven by the fact that oil provides around 90% of the country's exports.

The US government estimates that Yemen's industrial sector constitutes 47.2 percent of gross domestic product (GDP). Together with services, construction, and commerce, industry accounts for less than 25 percent of the labor force. The largest contributor to the manufacturing sector's output is oil refining, which generates roughly 40 percent of total revenue

Economists have reported that Yemen's services sector constituted 51.7 percent of gross domestic product (GDP) in 2002 and 52.2 percent of GDP in 2003. The US government estimates that the services sector accounted for 39.7 percent of GDP in 2004 and 39.3 percent in 2005.

Yemen's tourism industry is hampered by both limited infrastructure and significant security concerns. The country's hotels and restaurants are below international standards, and air and road transportation is largely inadequate. Kidnappings of foreign tourists remain a threat, especially outside the main cities. Coupled with terrorist bombings at the Port of Aden in 2000 and 2002, the threat of kidnappings presents a significant deterrent to tourism. As recently as September 2006, tribesmen in the Shabwa province, east of Sanaa, kidnapped four French tourists on their way to Aden; the tourists were freed two weeks later. In October 2006, the U.S. Department of State reiterated previous warnings to U.S. citizens, strongly urging them to carefully consider the risks of traveling to Yemen. Britain's Foreign Office has issued a similar advisory. Recent statistics for tourist arrivals in Yemen are not available, but the number of tourist arrivals rose to 274,000 in 2004 from 155,000 in 2003.