It is a matter of fact that the war in Yemen did not only destroyed the country's infrastructure of electricity, roads, bridges, public and private utilities, but also demolished the structure of the national economy as a result of the complete halt of production in the key sectors like oil, gas and tourism sectors, and partially in the sectors of industry, agriculture and other services. This was accompanied by deepening the economic split between the areas under the authority of Sana'a and Aden, which may lead to the division and fragmentation of the one and unified homeland.
What escalates the seriousness of the situation is the complete absence of the "compass" the vision of the two regimes on how to deal with the current and future economic situation in terms of policies, legislation, and the development of programs and procedures that preserve what remains of the existing economic entity and establish the post-war stage of recovery and reconstruction. The image becomes clearer when reading what is happening in the areas of Sana’a authority control in terms of blurring, confusion, and practices that indicate the failure of the economic compass and confirms the devastation of what remains of the shattered economic structure, and this can be traced in more than one aspect.
Public budget & levies collection
As per economic axioms, the public budget represents a form of an economic and social contract between the government on one hand, and the taxpayers (individuals, companies...etc.) on the other hand. According to it, the government undertakes the collection of taxes, customs, and revenues of other sovereign resources, in exchange for spending on the salaries of state employees, operational expenses, subsidies, and development projects.
According to the constitution, the public budget is to be approved by the House of Representatives elected by the people, and it is issued by a law obliging the government to manage the sections and lines of the budget in accordance with the principles of transparency, accountability and responsibility.
The Sana'a authority loses the compass of the economy, and applies policies and procedures that all lead to creating an investment-repelling and stifling environment. Evidence for this are obvious in many aspects including; the imposition of record and unprecedented rates of taxes, custom charges and various fees. That's in addition to the levying of double zakat, and the collection of the one-fifth on everything that is extracted from the ground and the sea as well as the obligation of illegal fees to finance the celebrations of the group in power.
What the Sana'a authority is practicing is the demolition of this equation and the constitutional rules and legal foundations, and it is implementing a "crippled" financial policy based on the leg of levies and amputating the leg of expenditures. It has also turned government ministries into tax collectors that are indifferent to providing services to people. On top of that, it manages public money in an opaque, non-transparent manner that is not endorsed by the people’s representatives and far from oversight and accountability.
Therefore, such pathetic situation like this was a result of the imbalance in the legitimacy of the authority to manage public money that is spent for purposes that do not enhance the capabilities of state institutions and do not serve the economy and development projects. Thus, the budget has turned into a tool to exhaust the body of the already wrecked economy.
According to economic principles, the general budget has economic and social objectives, as public spending contributes to pumping liquidity into the economy and generates numerous income and employment opportunities in sectors related to the implementation of government service and investment projects.
On the contrary, the Sana’a authority pursues an unfair financial and tax policy, based on the collection of taxes, customs, fees, and zakat exponentially that pours into a black hole without having any effect on the implementation of service or development projects, or on the payment of salaries of state employees, which have been suspended for years to the extent that most of them work as forced laborers. Also, this tax policy led to an upsurge in the prices of consumer goods, while the owners of commercial, industrial and service activities usually add the cost of the taxes they paid to the prices of goods and services and the citizen bears at the end of the day.
Preventing interest-based transactions to abolish banks
Usually, the sector is likened to the nervous system in the structure of the economy, for its role in attracting savings from depositors and re-lending them to investors in various economic sectors. It is known that the banking sector faced serious challenges during the war period for nearly nine years, starting with the scarcity of liquidity and the loss of investment and its returns in treasury bills, in addition to the deterioration of the financial positions of banks and the exposure of their accounts with correspondent banks, leading to the weak confidence of depositors and investors in the banks.
Additionally, at a time when the banking sector was looking to lend a hand to save the economy, it was surprised by the Sana'a authority issuing a law by which it "canceled the interest-based transactions" without consulting any party involved in the banking business, whether in the government or in the private sector.
Thus, the new law criminalizes all civil and commercial transactions and all the interests that result from them, whatever the name (interest, contributions, or profits). This includes all activities of commercial banks in providing loans, facilities, deposits, or treasury bills, and even commissions on letters of guarantee, documentary credit, and discounting of commercial papers.
Further, it also criminalizes the Islamic formulas that Islamic banks follow, such as the RESALE ON PROFIT (Murabaha sale), the laddering sale, the sale by deferred installments, the relationship selling, and the sale of debt. In addition, the law criminalizes financial systems like that of the central bank, microfinance banks and the postal savings agency.
Unfortunately, those who issued the law did not make any significant effort to present an alternative, which indicates the senselessness of thinking and the inability to provide solutions to the Islamization of banking activities in the entire banking system, starting with the central bank, passing through the rest of the banks and even savings funds.
Here, once again, the Sana’a authority economic compass broke down, and instead of offering solutions to save the banking system from its pitfalls, the Sana’a authority issued a law legitimizing the nationalization of the rights of banks, pension funds and others to the returns on their investments in treasury bills and government bonds. As well as confiscating the rights of depositors (big and small) of the profits on their deposits in commercial banks, microfinance banks, and even the Postal Savings Authority.
Accordingly, the law had catastrophic and immediate consequences, such as: the severe scarcity of liquidity in the banks due to the lack of trust and credibility in dealing with them, and their inability to fulfill the original deposits of savers, as well as to provide loans to investors. In addition, the law deepens the division in the unified homeland, and prompts merchants and investors to deal with banks in the areas of the Aden authority, or dealing with outlaw exchange companies, which have become a parallel system for the banking sector, with an abundance of cash liquidity and enabling it to carry out banking functions without any oversight or accountability. There is also talk about tens of thousands of families who depend on monthly sums of deposit interests that were disbursed to them from banks, but they have become among the poor and impoverished class.
There is also talk about tens of thousands of families who depend on monthly amounts of deposit returns that were disbursed to them from banks, and they have become poor and destitute.
Moreover, it can be said that the confusion and misperception that afflicted the Sana’a authority while issuing the aforementioned law made the banking sector the “nervous system of the economy” crippled and disabled, and this, accordingly, has catastrophic repercussions on the current situation of economic and development activity and on the possibilities available in the future for the reconstruction of what was destroyed by the war, and on the recovery of the economy at large.
Investment-repelling environment
Throughout the years of war and blockade, the private sector proved its capacity to withstand and adapt to the difficulties and challenges posed by the war, and was able to maintain supply chains in internal and external trades, and to provide most basic and luxury goods. Similarly, the industrial sector was also able to continue operating production lines for locally manufactured goods, and to secure raw materials from the local and external markets.
Further, the statistics show that during the war period, the private sector contributed nearly 90% to the formation of the gross domestic product generated from the agricultural, fishery, industry and services sectors. Many rely on it to contribute to the reconstruction and recovery of the economy in the post-war period.
Sana’a’s authority practices blackmailing and “bullying” many national industrial and commercial companies, closing some of them, and paying some parasitic groups of traffickers, whose activity thrives during the scarcity of necessary commodities for excessive profit through customs smuggling and tax evasion, with the support of influential powers.
The Sana'a authority loses the compass of the economy, and applies policies and procedures that all lead to creating an investment-repelling and stifling environment. Evidence for this are obvious in many aspects including; the imposition of record and unprecedented rates of taxes, custom charges and various fees. That's in addition to the levying of double zakat, and the collection of the one-fifth on everything that is extracted from the ground and the sea as well as the obligation of illegal fees to finance the celebrations of the group in power.
Subsequently, all these levies represented an impenetrable barrier to the expansion of the private sector in new investment projects. Rather, Sana'a authority prompted many industrial and commercial houses to freeze their business and chose to flee with their capital to other countries. Also, these levies are added to the prices of commodities, whether essential food items or various goods so that extra burden is borne by the general public, and this explains the continuous price hikes despite the stability of the exchange rate of Yemeni riyal against USD for a several years.
On top of that, Sana’a’s authority practices blackmailing and “bullying” many national industrial and commercial companies, closing some of them, and pushing some parasitic groups of traffickers, whose activity thrives during the scarcity of necessary commodities for the sake of excessive profit through customs smuggling and tax evasion, with the support of influential figures in power so that they reap their profits from the suffering and aching of the people.
Withdrawal of international organizations
It is an obvious fact that the devastating war has led to the worst humanitarian crisis in the contemporary world. United Nations data confirm that nearly 80% of Yemen's population suffers from food insecurity and is in need of humanitarian assistance, and that more than four million people are internally displaced or refugees outside the country.
During the first years of the war, the international community responded enthusiastically to providing aid and relief and humanitarian assistance, which reached its peak in 2019, at nearly four billion dollars. However, the level of support from donor countries and institutions declined to less than one billion dollars in 2023.
This significant decline in support for humanitarian and relief efforts requires a serious stance about the situation of humanitarian aid and how to benefit from it, and the factors that led to donors' reluctance to supporting and funding Yemen's humanitarian needs during the last four years of the war.
According to the reports of international organizations, one of the most important reasons for the decline in the rate of humanitarian support is due to the fact that the agencies concerned with aid management in the Sana’a authority have mastered the placement of obstacles and impediments in front of the United Nations organizations and international non-governmental organizations, which made most of them stop their humanitarian activities in the north and move to other areas.
It is noticeable here that the Sana’a authority has lost the compass of the economy and abandoned with the cooperation and partnership with the international community to address the consequences of the war and its impacts on the Yemeni people and development opportunities in vital sectors such as food, education, health, energy, water, sanitation and others.
And by virtue of the nature of the emergency and changing conditions of war and conflict, most of the humanitarian support is directed to meet the urgent needs that preserve the lives of those affected by the war, such as food, medicine and shelter.
Here comes the role of government agencies in negotiating with international organizations and agreeing with them on how to make good use of humanitarian assistance in a sound and sustainable way, and to direct support towards projects aimed at developing sustainable livelihoods and generating job opportunities to reduce unemployment and poverty. This will only be achieved through mutual respect, providing facilities for the work of the humanitarian actors, avoiding strained relations with them, acting as statesmen in accordance with institutional and legal frameworks, and understanding the patterns and systems of donors and organizations working in the field of humanitarian aid.
It must be emphasized that the donors' commitments to support humanitarian relief in Yemen are characterized by extreme sensitivity towards the parties to the conflict exercising control over that aid, the misuse of support, the failure to distribute aid in accordance with the principles of transparency and accountability the difficulty of reaching the beneficiaries and the needy or ensuring that they receive humanitarian relief. Sana'a authority has to stop the harassment or arrest of humanitarian staff of the organizations working in the field of humanitarian relief according to the rule “everyone is guilty until they prove their innocence". Instead, it supposed to create as appropriate environment for aid agencies to carry out their duties impartially and professionally.
All the above factors indicate a position of rejection of international organizations by the officials in the authority of Sana’a, and it also generate mistrust of the donors and prompt them reduce support or ceasing it or direct it to other crisis regions in the world, as well as push organizations operating in the country to gradually withdraw from their work to search for a safe and incubating environment in other countries.
In conclusion, the entitlements of the post-war period require dealing with high responsibility towards the economic policies and directions of the Sana’a authority in terms of financial and tax policies with the aim of managing public money transparently, in a way that ensures the payment of salaries of state employees and financing development projects, or in the field of monetary and banking policies to ensure that banks continue to play their role and mobilizing efforts towards unifying the Yemeni banking system.
The Sana’a authority is also required to provide an incubating environment for the private sector and its investments and partnership with it to revive the economy and reconstruction. It is also required to strengthen cooperation with the donor community and international and local organizations working in the field of humanitarian and development aid, and to stop practices and abuses that harm Yemen, not only international governmental and non-governmental organizations. Hopefully, I will have an upcoming follow-up article which focus on the authority of Aden.
