Nabeel Al-Mughalis, 49 years old, who works as a teacher in one of the schools in the capital Sanaa, says: "I used to live comfortably with my family, belonging to the middle class, and my life was stable before the war began. However, with the outbreak of the war and the interruption of salaries, my life changed completely to the extent that I had to sell most of my belongings due to the harsh circumstances. Now, I am searching for a job that can provide for my daily expenses and the needs of my family, but all opportunities have become extremely scarce and limited. The war has resulted in the economic deterioration and the collapse of businesses, which had been our sole source of hope."
Nabeel belongs to a wide segment of employees, previously known as the middle class, which suddenly turned, due to the state of war, from a relatively stable living standard, where its individuals used to struggle monthly to meet their family's basic needs with some ease, to a poor class characterized by deprivation and destitution. This individual who was once financially secure, building dreams for his future and the future of his children, now his primary struggle is how to provide the essentials of survival such as food, drink, and clothing.
Since the beginning of the war, the Yemeni economy has experienced a deterioration that has led to the depletion of all cash reserves in the central bank. Its relocation from Sanaa to Aden resulted in the fragmentation of the financial system and increased complexities in the daily economic life of ordinary citizens. Today, there are no unified monetary and fiscal policies to help alleviate the difficulties faced by the population.
The losses have not been limited solely to the economy, but have also extended to claim human lives. According to a report from the United Nations Development Program, the war has resulted in the deaths of at least 377,000 individuals, both directly and indirectly. The loss of human resources has a catastrophic impact on Yemeni society, as the youth are being utilized as fuel for the war. The absence of this productive age group constitutes an enormous economic burden on both the state and society.
The War and Its Catastrophic Impact on Yemen
Yemen is currently enduring a challenging economic situation as a result of the war, which has inflicted substantial and severe damage on the infrastructure and economic and social sectors. These damages can be divided into two categories: direct damages and the consequences of disruption.
Regarding direct damages, Yemen's economic components and assets have been utilized primitively and consumed by the controlling forces on the ground. Many economic assets, whether public or private, have been destroyed. There are no clear criteria for assessing economic performance in this new situation, but what is evident is a significant decline in economic activity due to the blockade and destruction inflicted upon infrastructure and institutions.
In this context, some economic estimates indicate a contraction of Yemen's Gross Domestic Product (GDP) by 55.7% during the years 2015-2021. The Yemeni economy has incurred economic losses ranging between $170 and $200 billion due to the war, whereas in other countries in the region, economic losses typically range from only 6-15% of the gross domestic product. The increase in Yemen's losses can be attributed to the blockade imposed by the Arab coalition and the utilization of energy resources by the conflict parties in their conflict."
As for the consequences of disruption, many economic and service sectors have completely or partially ceased operation due to the effects of the war, lack of security, shortage of human resources, and energy resources constraints. Many factories and facilities have been bombed and destroyed, leading to production halts. It is worth noting that Yemen has lost about 4 billion dollars from its oil-dependent exports.
From his perspective, Rasheed Al-Haddad explains: "The war has greatly impacted the Yemeni economy, affecting both society and Yemeni citizens. Its consequences have become apparent in the deterioration of humanitarian conditions, whether in areas under the control of the Sana'a government or the Aden government. The average income of Yemeni citizens has declined by more than 53%, according to official estimates, as a result of the war. Business opportunities have dwindled due to the decline in both domestic and foreign investment."
Al-Haddad further adds: "The economic situation pre-war was already deteriorating, with political unrest directly impacting economic performance, worsening during the years of war. Today, amidst a state of neither war nor peace, the situation has reached a bleaker state, amidst the absence of any signs or indicators of ending the collective punishment imposed on state employees. Nearly 800,000 state employees are not receiving their salaries, which constitute their primary source of income. Additionally, the consequences of the war have led to financial fragmentation between the Sanaa and Aden governments, resulting in currency and monetary policy divisions, thereby hampering economic endeavors. This has had a negative impact on society, with citizens bearing the brunt of the war, especially the poor and impoverished classes. It is worth noting that the middle class, which used to be a fundamental pillar, has either changed or eroded due to the war."
The Yemeni economy currently grapples with a deterioration in infrastructure and the local currency, in addition to the cessation of economic programs and the absence of financial and monetary policies.
Exploiting the Conflict for Economic Gains
Since the outbreak of the war, the country has relied almost entirely on three main external sources to secure foreign currency inflows and stimulate economic activity. Among these sources are the foreign humanitarian aid, regional financial support, and financial remittances from Yemeni expatriates. The most crucial of these is the financial remittances, as most Yemeni expatriates work in Saudi Arabia and other Gulf countries. This shift represents the first major transformation in the Yemeni economy, turning it into a war economy.
The economy of war simply refers to the continuation of economic activity through alternative means, whereby warring groups utilize all available opportunities and tools at their disposal to generate income and make money, regardless of the ethics of these methods. Typically, the governing authorities in the state usually resort to harsh economic measures to cover deficits in the public budget and increase military spending. Both rely on circumventing the laws of natural economics.
In Yemen, the war economy faces several challenges, including financial and administrative corruption, a shortage of competent personnel, favoritism, declining exports. Under the management of the war economy, these problems have worsened, lacking integrity and accountability, with individuals engaging in dubious transactions aiming for personal gain and wealth at the expense of the war.
Furthermore, data collected from various sources in Yemen indicates that in areas lacking legitimacy or unable to exercise it, major political parties are often assumed by traditional actors (such as tribal leaders) who assume state functions, such as tax collection, infrastructure regulation, and healthcare provision.
Civil society organizations usually work alongside international organizations seeking to provide assistance in these areas, where civil society can mobilize local residents and access remote areas on the ground. However, civil society organizations face difficulties in dealing with traditional authorities, as they are often seen as proxies for foreign powers and encounter opposition and multiple obstacles. Aid is subject to manipulation and restrictions by political actors in these areas. These unsustainable conditions often compel relief organizations to pay bribes or taxes, and aid is frequently sold in black markets. Typically, funds generated from the sale of aid are used to finance armed operations, pay fighters' salaries, and recruit children into pointless conflicts and futile wars.
Likewise, investigations conducted by the Associated Press (AP) reveal instances of aid manipulation by the Houthi group. The Houthis are positioned as major political players within Yemen, predominantly function as armed militias in the northwestern regions. Besides, documents that were obtained by the Associated Press illustrate the Houthis' deliberate attempts to impede access and monitoring efforts during the execution of various restrictive measures.
“The transition of the Yemeni economy from a fragile and weak state to a war economy will have implications in the post-war phase, particularly during the phase of political settlement, which requires that influential groups and parties focus on how to reorganize and alleviate its consequences.”
Scarce Resources and High Population Density
In response to this, Dr. Nasser Al-Taweel, a political science professor at Sana'a University, commented: "In Yemen, resources are extremely limited, coupled with a high population density. This is one of the key factors driving the situation towards conflict. There is a reciprocal relationship exists between the economy, war, and conflict. The scarcity of resources and population density create instability and political, social, and economic turmoil. This has transitioned the country from one phase to another, eventually leading to the ongoing conflict. Additionally, at the same time, the conflict has reshaped the economic structure, leading to what is known as a war economy."
Moreover, he adds, "Accessing and deploying resources are directly linked to the conflict, its parties, and its goals. Since 2015, the Yemeni economy has been reconstructed, turning it into a typical war economy. In Houthi-controlled areas, resources are largely amassed and directed towards the conflict to achieve the group's objectives. Similar dynamics are observed within the internationally recognized government authority, where economic interventions by the two coalition states also occur. Those benefiting from the current economic situation are intricately tied to the conflict and its parties."
He concludes his remarks by emphasizing that the transformation of the Yemeni economy from fragility and weakness to a war economy will have significant implications in the post-war phase, particularly during the phase of political settlement. This underscores the critical need for influential groups and parties involved in Yemeni affairs to prioritize the restructuring of the Yemeni economy and the mitigation of these consequences."
In conclusion, it seems that any comprehensive political settlement will be burdened by the weight of the dire economic situation resulting from years of war, compounded by its myriad consequences and repercussions, preceded by decades of institutional corruption. Arguably the most glaring indicator of the complex economic reality complicating the overall landscape in negotiations for a comprehensive political solution is the current impasse in ongoing discussions and negotiations, under the auspices of international and regional actors. A significant hurdle to progress lies in the urgent economic initiatives and proposals put forward by the negotiating parties, which must be accompanied by steps taken in parallel with any political agreements to end the state of division and conflict.
Therefore, the paramount objective of any comprehensive solutions regarding the Yemeni economic situation should be an endeavor to reinstate it to its pre-war quasi-normal state, characterized by an economy based on institutions capable of reform and development. Achieving this goal remains contingent upon a transformative shift in the overall landscape at all levels, favoring the establishment of a robust government that embodies a genuine resolution to the deep-seated social and political issues, while representing all strata of Yemeni society. Such a government should exercise authority over all ports and outlets across the country, making pivotal decisions centrally. This endeavor must be undertaken while considering a new political and social reality, wherein responsibilities and powers are distributed among the regions in a manner that preserves and safeguards the unity of the Yemeni state identity.
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