Yemen Developing A Country Essays - Republics, Western Asia, Yemen

Yemen: Developing A Country Yemen: A Focus on Development for the Oil and Tourism Industries Yemen, a third world country desperately trying to achieve 2nd or even 1st world status, is in the midst of turmoil and tribulation in trying to bail out their economy and increase their level of reform. Since 1995, the Yemeni government began to implement a large scale program of reform. The program was formulated in cooperation with the IMF and the World Bank and it is considered a liberal program aimed at making the market the dominant regulator of the economy (6. Mallakh, 241.) Unfortunately, the outcome of this reform is not encouraging even though 1995 and 1996 were nominally successful years for the program. Yemen's economy continues to operate under the auspices of the International Monetary Fund (IMF) and the World Bank, with the government moving forward with the economic-reform package that was initiated in 1995 (6. Mallakh, 241.) In the conclusion of my first case study, I found that in order for Yemen to successfully reform economically, there was a definite need for for eign investment. Whereas this may prove to be true for a minute part of the economy, it fails to recognize the most blatant of truths: the Yemeni economy cannot survive without the counterbalance on the oil industry concerning the imports and exports. I. Yemeni oil production, Exploration and Foreign Investment 1. Oil Production Yemen's current oil output of about 350,000 bbl/d provides the country's main source of income. After a slight decline from 1995 to 1996, oil production is back on the increase. In 1996, output fell 5,000 bbl/d to 340,000 bbl/d, rebounding to 385,000 bbl/d in 1997. Yemen contains proven oil reserves of 4 billion barrels. Proven recoverable reserves of 1.7 billion barrels are concentrated in five areas: Marib-Jawf Block 18 (490 million barrels), Masila Block 14 (550 million barrels) in the south, the Jannab Block 5 (345 million barrels), and Iyad Block 4 (135 million barrels) in central Yemen. The Masila block is the country's most productive oil field at 200,000 bbl/d followed by Marib-Jawf at 140,000 bbl/d (4. USEIA) 2. Exploration and Bringing in Foreign Investment A. Exploration Exploration for additional reserves and new investments from foreign companies began to decline in 1994, due mainly to civil war between north and south Yemen, unattractive exploration and production contractual conditions, and the low success rate of hydrocarbon discoveries. However, exploration activity picked up again in 1997 after the civil war ended and the government started to offer more attractive contract terms. By mid 1997, approximately 20 exploration agreements were in force with foreign oil companies (4. USEIA) (5. E.I.U. p. 37-40.) B. Foreign Investment Projects In September 1997, Canada's TransGlobe Energy signed a MOU with Yemen's ministry of oil and mineral resources followed by a production sharing agreement (PSA) in December 1997 for the Dameis Block S1. Under the terms of the PSA, Transglobe will conduct a 3D seismic survey covering 60 square miles and drill three wells. This first exploration phase will take 22 years at a total cost of US$11 million. A second 22-year phase requires an additional 40 square miles of 3d seismic data and drilling three more wells. This second phase will cost another US$11 million. Block S1 was previously explored by Royal Dutch/Shell between 1990 and 1993. Meanwhile, another Canadian company, First Calgary Petroleum, signed a US$15 million deal for oil exploration in Yemen's southern province of Hadramaut. Two phases of exploration activities are expected, which will include drilling two wells as well as conducting 3D seismic surveys (2. Yemen Observer) 3. IMF Reform Package: Is it the answer? A.What is the IMF Reform package? The IMF program includes banking reform, privatization of state-run industries, major infrastructure investment, and reduction or elimination of government subsidies. Thus far, the economic situation has been improving in what is one of the world's poorest countries (3.IMF: Policy) B. Problems One of the main provisions in the IMF reform package calls for the government to reduce subsidies. The first two phases of reforms reduced subsidies on oil and electricity. Transportation fuel prices were doubled in March 1995, sparking violent protests especially in Aden. Prices for fuel, electricity, and water were increased again in January 1996; diesel prices increased between 40% and 60%.