Yemen has been in and out of favour for most of its three thousand year history. Today it is literally on the margin of the GCC and ignored by many companies with a deep involvement in the other markets of the Arabian Peninsula. Nevertheless there is much to suggest that Yemen is better placed than at any other time in at least the last fifty years to make significant economic progress.

The country appears as a poor and rather unsophisticated shadow of its neighbour Saudi Arabia with whom it shares a long and sometimes disputed border. In terms of key parameters, the two countries contrast as shown in the following table:

Yemen and Saudi Arabia contrasted

 

Saudi Arabia

Yemen

Area km2

1,960,582

527,970

Of which cultivable

4,350

15,699

Population mid 1998 Millions

19.3

17.0

GDP per capita 1996
(purchasing power parity basis $US)

10,600

2,900

Imports 1996 $US Billions

25.5

2.2

It is evident from this table that, although Yemen has a similar number of consumers, they are much poorer. 25% of the population is officially designated as urban compared with over 75% in Saudi Arabia. There is a larger local agricultural sector in Yemen but it lacks the resources available in Saudi Arabia.

The following chart compares per capita consumption for liquid dairy and soft drinks products in Yemen with averages for the GCC as a whole.

The most striking feature of this chart is the very low level of consumption for all products by comparison to the GCC averages. In fact in most cases consumption per capita is usually even lower now than during the early 1990s. This is partly due to the civil war during 1994 which disrupted supply chains, but mainly to the generally poor economic conditions in the country which have depressed disposable incomes in the mid 1990s. Inflationary pressures, coupled with a steep decline in the value of the Yemeni Riyal until late 1995, caused a decline in consumption of virtually all consumer goods in the country. Some degree of normality has returned to the market since 1996. The overall consumption of dairy products for example grew by 3% in both 1996 and 1997. The market for soft drinks finally recovered slightly during 1997.

More than ninety per cent of commercial drinking milk in Yemen is UHT long life. Short life milk, where it exists, is only available in plastic sachets. The market for commercial milk has been one of those products, which has even declined in recent years as consumer disposable incomes have been constrained. It is estimated to have probably reached its lowest point in 1997. The recent success of imported brands however shows that an increase in marketing activities taken by the supplier can influence consumers. Arguably, local manufacturers have neglected the commercial milk sector in the last few years.

Laban or plain drinking yoghurt is a traditional, well-established product in Yemen but is still produced mainly in the home from fresh milk, milk powder or by diluting home-produced/commercial yoghurt. In Yemen, home-produced laban tends to be consumed in spiced form, particularly seasoned with garlic and pepper. Commercial laban was only introduced in the late 1980s and is negligible compared with the Saudi market.

Commercial, branded yoghurt, which is often the first "convenience" dairy product for consumers has grown strongly during the last two years.

Unlike other dairy products, canned evaporated milk is seen as an essential food item in Yemen and its main use is as a whitener for tea and coffee, both basic components of the Yemeni diet. The negative impact of the decline in economic activity is, therefore, limited in the case of concentrated milks, and growth has been above that of the population. Most canned concentrated milk consumed in Yemen is locally produced filled evaporated milk, another sign of the much lower income levels.

As in other regional markets, retail milk powder is a long-established product category with a variety of applications. The market has declined during the last two years, but at a slower pace than previously and has now levelled out.

The carbonates market is still extremely underdeveloped in comparison to neighbouring countries. The average Saudi consumer drinks as much carbonated soft drinks in three weeks as the average Yemeni consumer drinks in a year. There are signs of a recovery in consumption and development of the industry stimulated particularly by the local production of Coca-Cola brands since March 1998, although Pepsi-Cola stopped local bottling at the end of 1997. Consumption is still significantly below the level achieved in 1992.

Any study of economic or social conditions in Yemen must take account of qat. This is a mildly narcotic leaf (containing natural amphetamines) which is chewed by all sectors of the population. The habit was introduced from Ethiopia 600 years ago. Almost all adult male Yemenis indulge in the habit at some time, even though this can cost YR 500 or more a day, i.e., more than would be spent on food. A reasonable estimate would be for somewhere between 30% and 50% of the adult male population to be consuming qat on any given day. Qat sessions tend to begin in the early afternoon and last until early evening.

The drug has a considerable impact on food and drink consumption. It acts as a stimulant but depresses the appetite and is blamed for the inadequate feeding of children as parents do not feel inclined to prepare a main meal. Qat has a slightly bitter taste and dries out the mouth and throat. While some older consumers drink hot milk mixed with honey as a restorative for the throat after chewing qat, the most popular drinks remain carbonated colas and still mineral water.

The steep decline in juice product sales in the early 1990s came to a halt in 1996. Consumption levelled off in 1997. This is mainly due to the dollar exchange rate remaining virtually stable from early 1996, contrary to the developments in 1994 and 1995 when there were extreme fluctuations in the international value of the Yemeni Riyal, affecting the price of input material to the juice production such as machinery, packaging, flavourings and additives. A clear sign of potential future recovery is a recent influx of imported brands. Packaged juice is a luxury product, which only a limited proportion of the population can afford and, as in other fruit producing nations in the Middle East (eg, Egypt, Syria and Lebanon), there is a relative abundance of fresh fruit in the local markets at low prices. Besides the preparation of juice in the home, juice bars which are common in urban areas, and stalls selling diluted squashes and cordials by the cup, are further obstacles to a significant increase in per capita consumption of packaged juice products.

There are no short life juice products available in the Yemeni market, mainly as the low quality distribution environment in Yemen does not provide for a reliably functioning cold chain, but also because local producers are reluctant to invest in new production and packaging equipment at the present time.

The consumption of mineral water increased during 1997 following four years of decline in consumption by 10-15% per annum. This can in part be explained by the continuing good value of bottled water in the market vis-à-vis other soft drinks e.g. fruit juices and carbonated soft drinks and there appears to be a move in favour of drinking bottled water with qat which appears to be replacing CANADA DRY cola as the most commonly taken drink with the product. Carbonated soft drinks can cause a bitter taste in the mouth.

A lot of this sounds rather unimpressive so why do we feel optimistic about the prospects for Yemen? There are a number of reasons.

The Yemeni Government's own five year plan (1996-2000) envisages GDP growth averaging 7.2% per annum. Most analysts expect real annual GDP growth to be at least in the 5-6% range in 1997 and 1998, and remain in that vicinity through the turn of the century. There have been pledges from the West of foreign aid amounting to US$ 1.8 billion over three years in recognition of the commitment to economic reform and the successful holding of national elections. International debt rescheduling agreements have considerably improved the situation faced by Yemen. Russia has for example agreed to write off 80% of the amount owing, much of which had arisen from loans to the South Yemen before unification. The country is receiving support from the World Bank and IMF and structural reform measures agreed as a prerequisite for this include:

  • holding the budget deficit to under 2%
  • reforming tax collection for example with a new general 10% sales tax to be introduced from January 1999 and more effective income tax collection
  • reducing subsidies (petroleum by the start of 1999, utility subsidies by 2000, wheat and flour by 2001)
  • reducing maximum import tariffs to 25% by 1998 and to 5% for raw material inputs
  • removing import bans on some food products and replacing these with tariffs
  • a planned cutting back of the civil service by 20% between 1998-2000
  • a series of privatisations of publicly owned enterprises

Since the start up of the Masila oil field in 1993, Yemen has not suffered the severe balance of payments problems, which characterised the 1980s, although oil reserves are limited. Total foreign reserves have been increasing strongly and consistently since 1993. The population is growing rapidly and the country is expected to remain a net food importer for the foreseeable future. Informed observers feel that Yemen offers potential investors one of the largest populations in the Arabian peninsula as a market, a productive workforce, if properly motivated, and potential access to regional markets in the Gulf and Africa. Certainly there are major problems - acute unemployment is one and the ambivalent political and commercial relationship with Saudi Arabia is another difficult area - but if the GCC has been able to develop to its present position, then Yemen too must have potential.