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In September 2014, the agreement in Yemen brokered by the GCC following the Arab Spring events of 2011 fell through. The political crisis was reignited and the security situation deteriorated when Houthis capitalized on an unpopular decision by the Government of Yemen to reverse fuel subsidies, and launched several protests in Sana’a. After a short war that ended with Houthi militia entering Sana’a, a Peace and National Partnership Agreement was signed on September 21, 2014 calling for renewed commitment to the implementation of the outcomes of the National Dialogue, to be led by a new prime minister and a new technocratic government. The Houthi militia continued to hold positions at major check points and stayed in control of key government offices and military posts. Since mid-January 2015, the political crisis has deteriorated progressively. A Houthi offensive in Sana’a on January 19-20, 2015 resulted in the resignation of President Abd Rabbuh Mansour Hadi and his cabinet while under house arrest. Houthis subsequently announced the dissolution of the Yemeni Parliament and the creation of an 18-member Houthi-led “Revolutionary Committee” to rule over the country until the establishment of a 551-member National Transitional Council. In late February, President Hadi escaped from house arrest in Sana’a and has since tried taking steps to form a new interim government to run the country’s affairs from the southern city of Aden, annulling his resignation in a statement, declaring all actions taken by Houthis since their seizure of Sana’a in September 2014 invalid and unconstitutional.
The power struggle between Houthi forces and those loyal to President Hadi further escalated in March 2015 amid deepening political tensions and an uptick in violence. There continues to remain a high threat of Al-Qaeda in the Arabian Peninsula (AQAP) or other emerging extremist groups taking advantage of the situation. In late March, two suicide bombers targeted mosques in Sana'a during Friday prayers killing at least 126 people and wounding scores of others. Large-scale armed conflict continued outside the capital. Following the Houthi offensive to capture crucial installations in Taiz and Aden, a coalition of 10 countries, led by Saudi Arabia and comprising members of the Gulf Cooperation Council, launched a military campaign in Yemen against al-Houthi rebels and allied forces loyal to former President Saleh.
Several peace mediations led by the United Nations and Oman have yet to secure a ceasefire agreement and a return to political dialogue. The ongoing violence and blockade have resulted in a humanitarian crisis with 20 million (or 80%) of Yemen’s 26 million population in need of humanitarian assistance. This represents a 33 per cent increase in needs since the conflict began. The UN and aid organizations warn of an impending famine in Yemen. The UN reported in June 2015 that 13 million Yemenis are food insecure and that millions more have no access to health and water. According to UNOCHA, due to insecurity and the closure of more than 3,500 schools since the escalation of the conflict, 2 million children have been deprived of education. The civil war has destroyed the country’s infrastructure and services, exacerbated social and economic hardships. As of mid-August 2015, the World Health Organization (WHO) had reported 28,022 casualties since March, including 4,513 deaths, among them a vast number of civilians. Since March, more than 1.4 million people have been internally displaced. Imports have ceased resulting in persistent shortages in food, fuel and medicine. Yemen is one of the poorest countries in the Arab world. Poverty, already increasing prior to the latest political crisis, has risen further from 42% of the population in 2009, to 54.5% in 2012. Yemen has one of the highest population growth rates in the world and is one of the most food insecure countries globally.
The difficult political and security situation in Yemen continues to weigh heavily on economic activity and Yemen’s economic recovery is highly vulnerable. GDP growth slowed significantly to about 0.3% in 2014 from 4.8% in 2013, as oil production was constrained by recurrent infrastructure sabotage and as severe fuel shortages and widespread power cuts seriously disrupted economic activity, as did the Houthi military advance. The current war is devastating the economy. Although quality data on national accounts is scarce, we expect oil production to fall by 60-70% over the year—it is now nearly completely suspended. In terms of the non-oil economy, the impact of reduced government spending and changes in trade flows suggest 20- 30% non-oil contraction for 2015 the year as a whole—about twice the contraction seen during the 2011 Arab Spring protests. In addition to the direct impact of fighting, the shortage of fuel and electricity is having a serious short-term impact on every aspect of the economy. Overall, we estimate a 25-35% contraction in real GDP in 2015. If peace is recovered next year, there will be a natural rebound as internal and external trade flows revive and expenditure from the government and aid agencies injects cash into the economy. Nevertheless, the recovery is likely to slow, and constantly undermined by political instability and violence.
Source: World Bank Updated: September 2015
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