Overall Score: 54
World Rank: 127
|73.7||Business Freedom||avg 64.3||45.0||Investment Freedom||avg 50.2|
|81.6||Trade Freedom||avg. 74.8||30.0||Financial Freedom||avg 48.5|
|83.2||Fiscal Freedom||avg. 76.3||30.0||Property Rights||avg 43.6|
|44.5||Government Spending||avg. 63.9||21.0||Fdm. from Corruption||avg 40.5|
|82.3||Monetary Freedom||avg. 73.4||50.9||Labor Freedom||avg 61.5|
- 23.7 million
- $58.2 billion
- 3.9% growth
- 3.5% 5-year compound annual growth
- $2,458 per capita
- $129.0 million
Yemen’s economic freedom score is 54.2, making its economy the 127th freest in the 2011 Index. Its score is 0.2 point lower than last year due to deterioration in four of the 10 economic freedoms, including freedom from corruption. Yemen is ranked 13th out of 17 countries in the Middle East/North Africa region, and its overall score is lower than the world and regional averages.
With a rapidly growing population, poor infrastructure, weak institutional capacity, a difficult security situation, and civil unrest, Yemen has one of the region’s poorest economies. Although some monetary stability has been restored, the rate of inflation remains volatile.
A series of economic reform measures, including reforms in public finance management and the legal framework, have been introduced, but many have not been fully implemented or face considerable delays. Pervasive government interference in the economy and an underdeveloped financial sector hamper the development of a more vibrant private sector. Corruption, compounded by a weak judicial system that is vulnerable to political influence, remains widespread.
Yemen is one of the Arab world’s poorest countries. Following the union between North and South Yemen in 1990, the central government’s authority was challenged by a southern secessionist movement that was defeated in 1994 but has been revived. The Shia Houthi movement also has violently challenged government authority in the northwestern governorate of Saada. President Ali Abdallah Saleh continues to face intermittent challenges from unruly tribes and Islamist extremists who oppose his government’s moderate foreign policy, cooperation with the United States against al-Qaeda, and efforts to modernize and reform Yemen both politically and economically. The government began an economic reform program in 2006 to strengthen the non-oil sectors and attract foreign investment, but declining oil production, terrorist attacks, clashes between Sunni and Shia Muslims, and kidnappings have undermined tourism and foreign investment.
BUSINESS FREEDOM 73.7 -0.7%
Measures to facilitate an efficient entrepreneurial environment have been implemented in recent years. The regulatory process has become more streamlined, and there is a new procurement law. However, the overall impact of these efforts has been mixed, and little new private activity has been generated.
TRADE FREEDOM 81.6 +5.5%
Yemen’s weighted average tariff rate was 4.2 percent in 2009. Some import bans and restrictions, import licensing requirements, inefficient customs administration, and corruption add to the cost of trade. Ten points were deducted from Yemen’s trade freedom score to account for non-tariff barriers.
FISCAL FREEDOM 83.2 No Change
Yemen has a low income tax rate but a burdensome corporate tax rate. The top income tax rate is 20 percent for salaried residents, and the top corporate tax rate is 35 percent. Discussions to reduce the corporate tax to 20 percent are underway. Other taxes include a general sales tax (GST), a property tax, a fuel tax, and a religious Zakat tax on net wealth. In the most recent year, overall tax revenue as a percentage of GDP was 7.3 percent.
GOVERNMENT SPENDING 44.5 -6.8%
In the most recent year, total government expenditures, including consumption and transfer payments, increased to 43 percent of GDP. Declining oil prices, falling output, and fuel subsidies, combined with growing social expenditures on wages, pensions, and welfare transfers, have resulted in a widening fiscal deficit that is estimated to be between 8 percent and 9 percent.
MONETARY FREEDOM 82.3 +17.2%
Inflation has been high, averaging 7.8 percent between 2007 and 2009. Although average consumer price growth fell steeply from 19 percent in 2008 to just 3.7 percent in 2009, inflation has rebounded in 2010. The government controls the prices of pharmaceuticals and petroleum products and influences prices through regulation, subsidies, and state-owned enterprises and utilities. Ten points were deducted from Yemen’s monetary freedom score to account for measures that distort domestic prices.
INVESTMENT FREEDOM 45.0 No Change
The government officially permits foreign investment in most sectors and grants equal treatment to domestic and foreign investors. While the government has made progress toward improving the investment regime, investment-related laws and regulations can be non-transparent and inconsistently applied. Dispute resolution and contract enforcement are unreliable, and political unrest serves as an additional barrier to investment. Foreign exchange accounts are permitted. There are no restrictions on payments and transfers, and capital transactions are subject to few restrictions. Foreign investors may own land.
FINANCIAL FREEDOM 30.0 No Change
Yemen’s small financial system remains underdeveloped and dominated by the state. The economy is largely cash-based. Credit to the private sector accounts for less than 10 percent of GDP, and the limited availability of financing precludes more vibrant entrepreneurial activity. Yemen’s undercapitalized banking sector is open to limited foreign competition. The banking sector is inefficient and burdened with a high level of non-performing loans. The government has total ownership of the National Bank of Yemen and majority ownership of three other specialized banks. Commercial lending is limited to a small circle of clients, partly because of legal inability to collect overdue debts. The non-bank financial sector is small, capital markets are not developed, and there is no stock market. An improved bill to combat money laundering and the financing of terrorism was enacted in late 2009.
PROPERTY RIGHTS 30.0 No Change
The judiciary is subject to government pressure and corruption. Enforcement of contracts is weak. Foreigners may own property, but foreign firms must operate through Yemeni agents. Protection of intellectual property rights is inadequate.
FREEDOM FROM CORRUPTION 21.0 -2.0%
Corruption is perceived as pervasive. Yemen ranks 154th out of 180 countries in Transparency International’s Corruption Perceptions Index for 2009, a decline from 2008. The civil service is overstaffed, underpaid, and highly vulnerable to corruption. Illicit activities include soliciting and paying bribes to facilitate or obstruct projects, leveraging dispute settlements, skewing taxation and customs tariff augmentations, and engaging in family or tribal nepotism.
LABOR FREEDOM 50.9 -14.5%
Yemen’s employment regulations are rigid, and a formal labor market has not been fully developed. The non-salary cost of employing a worker is low, but the absence of a dynamic private sector results in chronic underemployment and a large informal sector.