Yemen's Economic Situation and its Relations with Korea

# This paper was read at the 12th Annual Conference of JAMES, Tottori University, Tottori, Japan. April 20 - 21, 1996

The Middle East is still the important region, which has a specific gravity with not only oil but also foreign market. Considering the importance of the Middle Eastern Market's potential, Korea has to be interested in it continuously. In connection with it, even though Korea, established formal diplomatic relations with the North Yemen on August 22, 1985 in the mid-1980s, has been maintaining friendly relations with her till recent years, the economic relations between two countries has not been performed so much after the establishment of diplomatic relations. In my view, there are some problems between two countries such as political unstability, the differences of economic scale, and/or that of economic structure. Moreover Korea and Yemen do not know each other exactly.

Yemen was a very strange place for Koreans. That's why Koreans couldn't remember the name of Yemen easily only five years ago. Suddenly the unification between the South Yemen and the North Yemen was pronounced on May 22, 1990 through mass media. As soon as the unified Republic of Yemen was declared, most of Koreans began to take an interest in the Yemeni unification. Koreans' concerns about Yemeni unification stems from the reason why Korea has been divided into two countries since 1945. In this point, Koreans have a deep sympathy with Yemenis. In spite of political unstability in Yemen, after the Civil War of 1994, especially in Aden that was the former capital of the south Yemen, the wind of changes fiercely began to blow.

This is my motive to prepare this paper. In relation to it, my paper deals with the economy of Yemen before unification, the characteristics of Yemeni economy, economic situation since unification, and lastly I will analyze the problems of economic relations between Korea and Yemen.

The country of Yemen cannot be properly understood apart from Arabia, While Arabia without Yemen would have lost one of its most essential and spiciest ingredient. Over the course of history , the rather small country on the southern tip of the Arabian Peninsula has been serving as a wellspring of people emigrating across the peninsula and beyond, quickly adapting to foreign surroundings and even settling down for good. There are quite a number of families living in Jordan, Palestine, Lebanon, Syria, Iraq, the Gulf States and certainly Saudi Arabia, who claim to be of Yemeni origin. Names like 'Yamani' or 'Hamdani' can be easily traced back to Yemen. The very south-west corner of Arabia is called Yemen(Fritz Piepenburg, 1987; 11-14).

Yemen was able to attain this wealth because the trade route for frankincense led through this country on the shores of the Red Sea. It came to be known as Arabia Felix; 'the fortunate Arabia' of the ancient world, fortunate not only because of the wealth generated its trade, but also by the climate, considered favourable by the standards of the Arabian peninsula-the 'green Yemen'(Joachim Chwaszcza, 1993, Yemen; 23).

Hundreds of years later, coffee was the source of wealth, and even now a type of coffee bears the name of a port in Yemen-Mocha. And Aden, the 'white man's grave', became the bridgehead to India. Again and again over the centuries, explorers and adventurers have tried to enter the forbidden kingdom. Even today, there is an air of adventure and romance about Yemen.

The Kingdom of Sheba lasted from 950 BC to 115 BC. From then until the sixth century AD Arabia Felix was ruled by the Himyarite dynasty. In AD 525 the Ethiopians conquered the Himyarite Kingdom but in 575 they, in turn, were overthrown by a Persian invasion. During the seventh century the country nominally accepted Islam. During the ninth century a Zaidi Imam, Yahya al-Hadi ila'-Haq, founded the Rassid dynasty of the Yemen, which has survived, with some interruptions, to modern times.

In 1517 the Yemen was conquered the Ottoman Turks. This occupation lasted until the Mudros armistice of 1918, but in 1911 the Imam Yahya had led a full-scale revolt which secured a treaty confirming Turkish suzerainty, but dividing administrative control between the Imam in the highlands and the Turks in the Tiara. During the First World War the Imam supported the Turks, and the British, occupied the island of Perim in 1799 and established protectorate over Aden in 1839, supported Idrisi invaders from the small State of Asir, to the north of the Yemen(The Middle East and North Africa, 1991; 944).

In September 1962 a coup d'?at took place, led by Yemeni army officer, including Col. Abdulla as-Sallal(who, subsequently, was named as President and supported by troops from the UAR, and republican forces gained control of most of the country. The newly-proclaimed Yemen Arab Republic(YAR) was soon recognized by the USSR and the USA, and early in 1963 was admitted to the UN. Britain, however, continued to give recognition to the royalist regime, and repeatedly stated that it would not recognize the YAR until UAR forces were withdrawn.

In Aden there was considerable opposition to incorporation into the Federation. Several political parties opposed the move, and strikes and demonstrations directed against it occurred through 1962. Nevertheless, Britain and the Federation duly signed the agreement in January 1963 and formally became a member of the Federation later that month. As the situation unfolded itself in Aden, the British Government resolved to hasten the withdrawal of its forces and to advance the independence of South Arabia from 9 January 1968 to a date if possible in the second half of November 1967. On 27 November after the British troops had made over large areas of Aden to the armed forces of South Arabia, the National Liberation Front(NLF) proclaimed the creation of the People's Republic of Southern Yemen. The new regime was seen as even more left-wing and pro-Soviet than its predecessor. In November 1970 a new constitution was promulgated, changing the name of the country to the People's Democratic Republic of Yemen(PDRY), with a view to possible Yemeni unity(ibid.; 951-953). After withdrawn of the British, the appearance of the newly formed socialist government in Aden, de facto, caused Yemen to divide two countries of the different system.

In May 1990 the armed forces of the YAR and the PDRY were declared to be technically dissolved, prior to their unification and the Republic of Yemen was declared on May 22, 1990. The North Yemeni leader, Ali Abdullah Saleh, took on the role of president, while that of vice-president was filled by the South Yemeni leader, Ali Salem al-Baidh. Sana'a, the North Yemeni capital, was named the political capital of the new republic, hosting all ministries and government councils. By way of compensation, Aden, which had been the capital of geographically larger but far less populous South Yemen, was named the 'economic capital' with the promise of a free zone. After the elections of April 1993, relations between the president and the vice president deteriorated, and Mr. Baidh left Sana'a for Aden in September 1993. Despite numerous attempts at reconciliation, which included mediation efforts by Oman and Jordan, the two leaders could not agree on the future political organization of the republic. The failure to merge key institutions helped to raise tensions between the North and the South, and there were sporadic armed clashes in early 1994. These finally erupted into full-scale civil war on 5 May with the South declaring its secession from the unified republic. Despite the souths superior airpower, the southern forces were driven back towards Aden, which finally surrendered on July 7, 1994. The north proclaimed a victory for its 'forces of unity' over the southern secessionists, whose leaders fled to neibouring states. With the departure of Ali Salem al-Baidh, who has 'retired from politics' in Oman, there was some early optimism about a resolution of a number of long-standing disputes, but subsequent negotiations have showed little sign of achieving any greater progress than those before the outbreak of hostilities(EIU Country Profile, Yemen 1994-95; 38).

In February 1986 Yemen Arab Republic(YAR) that has been called North Yemen before unification in 1990, had the population of 9,274,173 with 427,185 residing in the capital, Sana'a. The country has traditionally been able to support a comparatively large population because of its relatively high rainfall and fertile soil, permitting dense subsistence agriculture in favourable areas. About two-thirds of the working population are engaged in agriculture.

In recent years, however, the economy has been transformed, not through internal developments, but as a result of the sudden rush of wealth from petroleum in neighbouring Saudi Arabia. Many of the non-resident nationals of the YAR are working abroad, mostly as temporary immigrant labour in Saudi Arabia and other Gulf states. The emigration of a large part of the adult work-force(between 1.5m. and 2m. Yemenis work in the Arab oil-producing states) represents a serious drain on the labour resources available to the economy. As a consequence, agriculture has declined and attempts to develop industry has not been altogether successful. Although aware of the problems posed by labour shortages, the government cannot afford to stem the tide of emigration, as the remittances which are sent home by Yemenis abroad are an essential source of foreign currency, without which the country's huge trade deficit could not be sustained-exports in the early 1980s, covered only about 2%-3% of imports by value. Workers's remittance have, however, declined from $1,300m. in 1983 to $800m. by 1988(The Middle East and North Africa; 956).

The country's lack of infrastructure is clearly indicated by the priority accorded under the plans to the provision of basic electricity and water supplies for the main towns, the development of a transport and telecommunications network, and the provision of simple health and education facilities. The government plans to spend a total of 1,256m. riyals on water projects during the period covered by the third Five-Year Plan. Agricultural development, especially through irrigation schemes, is another priority. The average annual growth rate of the sector was 2.3% between 1980 and 1987. Only a small degree of industrial development has so far been achieved, though the average annual growth of the manufacturing sector was 14.2% between 1980 and 1987. The second Five-Year Plan quickly encountered difficulties. In December 1982 a major earthquake in Dhamar province caused the deaths of about 3,000 people and widespread damage which, it was estimated, would cost $650m. to repair. In 1983, in addition to the problems caused by the earthquake, there was also a slump in earnings from the remittances of Yemenis working abroad, caused by cutbacks in petroleum production, reduced revenues and, hence, less profitable employment in the petroleum industries of Saudi Arabia and the Gulf states. These factors caused a crisis in the economy of the YAR, leading to the introduction of austerity measures, aimed at limiting the amount of foreign exchanges available to the private sector(ibid.; 957).

Luckily in July 1984 it was announced that petroleum had been discovered in promising quantities in the Marib/al-Jawf basin. The development of a petroleum export industry has the potential to transform the nature of the YAR's economy, which for a long time has been one of the poorest in the world. In 1988 oil production averaged 165,000 b/d. Natural gas reserves, estimated by the Government at 7,000,000m. cu ft, have been discovered in the Marib/al-Jawf region. The third Development Plan allocated 5,000m. riyals to both the gas and petroleum sectors. In addition to promoting the development of electricity and water supplies, the third Plan has given priority to major housing schemes in Sana'a and Hodeida and an urban renewal programme in Taiz(ibid.; 957).

The People's Democratic Republic of Yemen(PDRY), the former South Yemen consists of the former British colony of Aden and the former Eastern and Western Aden protectorates. The country covers 336,869 sq km and the population was estimated to be 2,365,000 at mid-1986. There are about 200,000 Bedouin in the PDRY, most of whom reside in the north-east of the country. The most important town is Aden, with a population of 271,590 at mid-1977, followed by Mukalla in the east, with a population of about 50.000. The country is divided into six(formerly eight) administrative governorates, comprising 28 provinces. The governorates' finances and administration are centrally controlled, although the provincial councils are responsible for planning and finance on a local level(ibid.; 963).

Most of the population is concentrated in the west, and one of the Government's most difficult tasks since independence has been to unite the various regions politically, administratively and economically. In 1983 it was calculated that 45.2% of active population were engaged in agriculture and fishing, 10.6% in industry, 13.4% in construction, 9.2% in commerce and 21.2% in other services. Under British rule, the country was sustained by Aden's position as an entrep? on the main shipping route to Europe from the Far East, India and East Africa via Suez. The British Petroleum refinery, completed in 1954, was the focus of industry and trade. In addition, the British troops stationed in Aden and the many foreign visitors who came ashore from ships calling at the port provided a market for services and luxury goods which encouraged local merchants and entrepreneurs and brought plenty of foreign exchange into Aden. This prosperity was, in the main, confined to the Aden Colony where there was a boom in construction work between 1955 and 1965. The British Government was more concerned with maintaining the Aden base and the port installations than with developing the hinterland although certain agricultural areas were developed during this period. The closure of the Suez Canal in 1967, and the withdrawal of British troops in the same year, put an end to Aden's commercial prosperity. Furthermore, British aid and military expenditure, which amounted to about ￡11m. in 1960, increasing to ￡36m. by 1967, and had more than covered the visible trade deficit, was discontinued after withdrawal, making it possible for the Government to cover the budget deficit. In November 1969 the Government decreed the nationalization of all important foreign assets in the republic, with the exception of the BP refinery, which was not taken over until 1977. This development, although a logical one in view of the regime's socialist leanings, nevertheless tended to frighten off firms which might otherwise have risked some investment, and made the republic more than ever dependent on the USSR, the People's Republic of China(PRC) and the German Democratic Republic(ibid.; 963).

Apart from foreign aid, the main income is expected to come from increases in remittances from expatriates which totalled $435m. in 1983 and increased traffic through Aden port. The level of remittances, however, is dependent on the state of economic activity in the Gulf States, and has declined considerably in the 1980s, owing to a recession in the petroleum industry, resulting from a surplus of stocks on world markets, and consequently, falling prices for petroleum.

In 1980 the Government introduced measures of liberalization, aimed mainly at helping farmers, fishermen and merchants. These measures were reinforced by the Law to Encourage Investment, introduced in February 1982. This law sought to induce Yemenis working abroad to invest their money in productive enterprises in the PDRY, by offering extensive tax concessions and guarantees against nationalization. The regime which took power in 1986 has introduced further economic reforms, allowing farmers and fishermen to sell more of their produce in the free market and reducing agricultural taxes. In October 1988 President Attas recommended more foreign investment and promised law reforms to facilitate. The political turmoil of January 1986, when the regime of Ali Nasser Muhammad was overthrown by an uncompromising Marxist faction, caused considerable economic disruption in the country. After that most of the foreign technicians subsequently returned, but a large number of native workers, many of whom were skilled, remained in exile. The new Government called for international aid to rebuild the city of Aden, Large areas of which had been destroyed, and promised to honour its contacts with foreign companies. The discovery of petroleum in commercial quantities in 1983 has improved the PDRY's economic prospects and led to increased co-operation with the YAR. In early 1989 the PDRY and the YAR established a joint-venture company for the exploration and development of the oilfields along their common border(ibid.; 964).

The characteristics of the Yemeni economy can be summarized by following five factors; 1) the process of unification, 2) the scale of the unrecorded economy, 3)the government's failure to disclose data relating to the production and distribution of drug qat, 4) the pattern of economic activity involving Yemenis abroad, and 5) the institutional limitations on the collection and processing of data(EIU Country Profile 1994-95, Oman and Yemen; 46). The basic statistics of Yemen sees as following Table1.

Unification brought together two sharply differing economic systems. In North Yemen the private sector was the main mechanism of economic activity, and government policy was relatively liberal. With GDP about one-fifth the size of its northern counterpart, South Yemen implemented central planning and rigid price controls. The major sectors of the economy were administered by state-owned institutions. Consequently, patterns of demand were severely distorted. The economy of the united republic is a largely free market one, with most controls and restrictions.

The unrecorded economy is at least as big as its formal counterpart. Casual observation reveals that economic activity is at a significantly higher level than is suggested in the official data and that Yemenis have access to imported consumer goods on a scale which contrasts markedly with the country's supposed poverty. The existence of a parallel economy of such magnitude follows from four factors: First, the Central Bank has failed to maintain parity between the official rate of exchange and that offered on the parallel market. Second, both North and South Yemen and the united republic have used import controls, in the form of licensing and punitive tariffs, in an attempt to stem the deterioration of the balance of payments. These cost considerations inflate the price of land limit access to imports obtained through official channels, inducing Yemenis to take advantage of the third factor in the informal economy, the country's extensive and sophisticated smuggling network.

Yemen is both an entrep? and a destination for smuggling organised by the country's powerful tribes, taking advantage of the porous border with Saudi Arabia.

Source: Republic of Yemen, 1993, Statistical Year Book 1992, Central Statistical Organization, Ministry of Planning & Development, PP. 11-16 and EIU Country Profile; Oman and Yemen 1994-95, P. 3.

Shipments of alcohol landed on the Red Sea coast are traded up into Saudi Arabia - where alcohol is banned - while cars and trucks are driven back from the kingdom and sold, unlicensed, in Yemen. A proliferation of consumer goods is sucked into, and through, in this way in unrecorded patterns of trade which extend throughout the Arabian peninsula and down the east coast of Africa. The existence of this network relies on the fourth factor underpinning the informal economy, the weakness of government authority outside urban centres.

The majority of Yemenis chew the stimulant shrub, qat most days from early afternoon to evening. The habit is less prevalent in the southern governorates and is rare in the eastern regions. The production and distribution mechanisms involved in satisfying this enormous demand are sophisticated and highly dynamic. Qat is taxed by the government while in transit to market, although no doubt a significant proportion of the crop escapes excise. However, no official data are published on this sector.

Economic activity by Yemenis abroad as it affects their homeland is obscured by uncertainty as to the size and nature of the large expatriate community. The true scale of the inflows of remittances from short-term migrants and of capital from long-term residents overseas is difficult to determine because of the practice of remitting goods rather than cash and transmitting funds through family networks.

The institutional limitations affecting the collection and collation of economic data arise largely from the lack of trained personnel. While there are some highly qualified and skilled members of of the civil service, they are thinly spread. Training has been identified as a crucial requirement of strengthening Yemen's capabilities(ibid.; 48).

The most important things in the Government of the republic of Yemen, which were united on May 22 1990, are to develop the country's economic infrastructure and to improve relations with other Arab states. In particular, the Government has to resolve longstanding border disputes with neighbouring Saudi Arabia and Oman. There remained great difficulties, as the economies of the two former Yemeni States began to merge after May 1990, that economic disparities between the two former States might lead to factionalism in the new Government.

An increase in Yemen's foreign debt, which has been attributed to the level of indebtedness of the former PDRY, has been identified as one potential source of conflict within the Government. There have also been some signs of social unrest in those parts of Yemen which formerly belonged to the PDRY. Rising prices there have led to industrial action and calls for a general strike. In the course of confusion Iraqi invasion of Kuwait in August 1990 has placed Yemen in an especially difficult position. The economy of Yemen is heavily dependent on trade with, and aid from, Iraq, and also on aid from Saudi Arabia, which normally hosts very large numbers of Yemeni expatriate workers. Yemen's relations with Saudi Arabia have deteriorated as a result of Yemen's initial strong opposition to the presence of foreign armed forces in the Gulf and the ambiguous stance it has subsequently adopted in this respect. On 15 September 1990, in what was regarded as a retaliatory move, Saudi Arabia announced that it had withdrawn the privileges which Yemeni workers in Saudi Arabia had previously enjoyed. On 25 September Yemen voted in favour of the UN Security Council's resolution to impose an air embargo on Iraq(ibid.; 956).

The unified Yemen's principal economic aim is to expand the country's industrial base by developing its infrastructure. Central to the government's economic plan is the creation of a Free Trade Zone at the port of Aden which, will induce a high level of new investment. The new Government has stated that it will allow freedom of economic activity and encourage the private sector. The development of the country's mineral resources, especially of gold reserves in Hadhramaut province, is also a priority task. The recent economic structure of Yemen is shown in Table 2.

Yemen, however, has implemented the economic sanctions imposed by the UN on Iraq following its occupation of Kuwait in August 1990. Therefore the country's economic development plans delayed and disrupted by the trade embargo, since the economy is heavily dependent on trade with, and aid from, Iraq. Trade with Kuwait and assistance from Kuwait-based development funds are also important. The contribution of expatriate worker's remittances to the economy is further threatened by the decision of Saudi Arabia to terminate the privileges of Yemeni workers there, in retaliation for the Yemeni Government's refusal to support the presence of foreign armed forces in the Gulf. By the end of September 1990 it was estimated that some 40,000 of the 500,000-3m. Yemeni workers in Saudi Arabia before the Gulf crisis had returned to Yemen(ibid.; 969).

The formal economy has a number of distinctive features. Although agriculture provides nearly two-thirds of employment, in terms of value-added the economy is dominated by the services sector, predominantly government and trade, which contributes over half GDP. However, this activity is almost exclusively domestic in orientation. Since 1988 exports have been dominated by oil which generates around 85% of earnings. This degree of reliance on a single commodity makes the Yemeni economy extremely vulnerable to fluctuations in the international oil market, and confidence in the long-term potential of the Yemeni oil industry has been dented by the effects of the war. In recent years expatriate remittances have contributed between a quarter and a half of all inward current payments. However, much of this inflow has been directly recycled into purchasing imports and, because of the weakness of local production, consumption and investment are heavily import reliant. As a whole the economy is at low level of integration with only weak linkages between various sectors. The distribution system remains primitive, with much of the country isolated from the main urban centres where services are concentrated(EIU Country Profile; Yemen 1994-95; 48).

Note: Economic indicators is the data of January 25, 1995 and YR 84 equals $1. ^a EIU estimates. ^bActual aggregates from World Bank source.^cParallel market rate. Official rates are YR12:$1 for staple commodities, YR18:$1 for most other goods, and YR25:$1 for oil companies and tourists.^d January 1-November 18 when trading halted.

Political life in the united Yemen was carried out against the backdrop of the catastrophic effects of the 1990-91 Gulf Crisis and war. Yemen's failure to support the US-led military action against Iraq, eventhough the relations between Yemen and Saudi Arabia after border crisis in January has been improving, incurred deep hostility from Saudi Arabia, the majority of the other Gulf monarchies, the USA and the UK. The UN trade embargo imposed on Iraq and Kuwait severed imports of Iraqi crude oil and forced Yemen to divert a considerable proportion of its own high-quality crude to domestic consumption. In addition, the Aden refinery lost the fees previously generated by processing Iraqi and Kuwaiti oil. This development cut off a traditionally vital source of foreign currency and presented major problems in absorbing the returnees. Unemployment is believed to have risen to 25%, and the sudden expansion in urban population put great strain on existing services.

With foreign exchange resources limited and required to subsidise essential imports, direct development spending must be limited to the provision of basic infrastructure. Therefore the government of the unified Yemen aims to work closely with bilateral and multilateral donors from whom it hopes to obtain funding for projects to provide water supplies, health care and roads. according to industrial development the government's role is largely confined to establishing a suitable regulatory framework in order to attract local and foreign investors. The General Investment Authority and the Yemen Free Zones Public Authority are intended to remove the previous institutional hurdles to investment in Yemen

Yemen has 0a high priority to develop the Aden Free Zone. During Ramadhan of 1991 the Yemen Free Zones Public Authority(YFZPA) was instituted by presidential decree. Especially YFZPA sets a goal of development in the field of Industry, Tourism, Storage and Distribution. The YFZPA and the fovernment of Yemen have been emphasized the importance of training and education and jointly develop programs to meet the needs of the Free Zone. The government hopes to develop the country as an Asian Model, which Japan, Taiwan, and Korea had invested heavily in the rapid development of skills for members of their workforce. The government believes that the return on this investment can be seen by the increased productivity of the workforce as well as the higher wage levels associated with the advanced technological output.

Currently, the authority is concentrating on establishing a free zone at the port of Aden. However, owing to a clash between the YFZPA and the GIA over jurisdiction, the legislation to establish the free zone was passed only in May 1993. It includes provisions for full foreign ownership of enterprises within the zone and for tax exemptions for non-national employees. It also contains guarantees against nationalization, exemptions from customs duties and taxes on transactions within the zone, and provisions for subsidies on land, water, electricity and other infrastructure. Raytheon of the USA has proposed a $5.8bn plan to develop the port over a 25-year period. It has also called for the privatization of the local airport and harbour facilities(ibid.;77).

At present, the government of Yemen envisages that the industry will be developed in the direction of processing the country's agricultural, fishery and mineral resources primarily for export. In this strategy it is expected that the port city of Aden have a crucial role for the economic development of Yemen. Really the government has emphasized that Aden will become a free zone since the unification. This will not only require huge investment, but it will also take some time to develop. In Yemen that has possessed insufficient capital, however, the development of Aden port will be a great burden to Yemen in the process of the economic development.

The move to market economy since the unification in 1990 transforms considerably the economic situation of the industry and long-term policies presiding over its development. Furthermore, as the move to liberalize the economy has been slow and that economic reforms have not yet been finalized and will be deployed over several years, the Yemeni industry is therefore operating under conditions of uncertainty. Consequently, while an industrial strategy is an undoubtful necessity, specific transitional policies and measures are an immediate and short-term imperative.

In Yemen the ratio between local production and import of goods and services has widened steadily over the last thirty years, reaching a critical point in the last three years, thus while industrial exports hardly covered 2% of the total imports and the ratio of exports to imports of all categories in the balance of recorded foreign trade, dropped from 20% in 1989 to 6% in 1992 and to 4.23% for the first half of 1993. This has to be related to the rise in local demand and in parallel to the weak development of the local manufacturing industry, its low performance and its internal market orientation(ASeminar Report, January 1994; 226). Because of the paucity of their domestic resource and manufacturing bases both North and South Yemen registered large deficits on their trade accounts, neither of which have been in surplus since records began.

The start of large-scale oil exports by North Yemen improved total aggregate export earnings more than fivefold in riyal terms between 1987 and 1988. However, the trade account remains in deficit and rising oil production cannot be relied upon to close the gap. Domestic demand for imports is expected to grow following a construction in 1990 which reflected the suspension of oil imports from Iraq and Kuwait in the final months of the year. The EIU believes that exports fell 1n 1991 but rose slightly in 1992, before increased oil exports brought a 49% rise in 1993. Although imports also fell in 1991 and 1992, the trade deficit deteriorated 1n 1991, before recovering in 1992 and 1993(EIU Country Profile; Yemen 1994-95; 70).

Although still only a small producer, Yemen is dependent on oil for some 85% of its total export receipts. Canned fish and fruit are other important exports. Yemen is also heavily dependent on foreign supplies for machinery, cars and manufactured consumer goods. If the government pursues its current policy of orienting industrial development to establishing resource processing export orientations then Yemen will continue to rely on overseas manufacturers. Despite the dominant position of cereals within the agricultural sector, Yemeni farmers fail to satisfy domestic demand and cereals are a major food import. Until sanctions were imposed in August 1990, Yemen had imported the bulk of its domestic oil needs from Iraq for processing at Aden refinery. Despite its geographical position, Yemen has not exploited the oil markets of the Far East. Instead, the bulk of its output is destined for refiners in the USA and Europe. Saudi Arabia is, perhaps inevitably, Yemen's major supplier, performing the role of enterp? for manufactured imports(ibid.; 70-71). Major trading partners of Yemen is shown as following Table 3.


Exports to:	1988	1989	1990	Imports from:	1988	1989	1990
USA Italy UK Saudi Arabia France	24.7 16.1 9.6 10.7 10.5	18.1 16.4 - 7.5 2.0	37.2 23.4 8.3 2.9 2.7	Saudi Arabia France UK USA Australia	13.0 4.0 7.2 3.8 5.1	12.8 8.0 5.4 5.8 4.3	8.0 6.9 5.8 5.5 5.2

Republic of Korea has completed three decade of rapid industrialization based on the export of manufactures, a course to which it was impelled in the 1960s by the meagreness of its natural resources. IT has moved from a stage where its advantage lay in cheap manual labour to one where that advantage lies rather in relatively cheap skilled labour and line management. Its exports are no longer dominated by textiles and clothing, but include ships, motor vehicles, integrated circuits and consumer electronics. It now seeks increasingly to develop its own technology and to sell under its own brand names. Its growing wealth is shared more equally than in many other rapidly developing countries, its farming is firmly based on the owner occupation of smallholdings and it has coped impressively with its dependence on energy imports. The fall in export volume experienced in 1989 illustrates the difficulties to the transition ROK is making to knowledge-based, high-productivity export sector. Exports remained too sensitive to price considerations to weather the combined effects of a rising currency and soaring wages(EIU, Country Profile 1994-95, South Korea; 14).

Korea's remarkable economic success of the last quarter century is often cited as a model of sound economic planning, efficient resources allocation, and effective cooperation between government and business. The rapid development was led by export-oriented industrial expansion and was achieved in spite of poor natural resource endowments. The economic growth that characterizes the president Park's era can be attributed to many factors, including investment and rapid capital growth, expansion of industrial productivity, and the development of human resources and labour productivity. Other contributing factors were the favourable worldwide conditions prevailing during the 1060s, Korea's political stability, the commitment of the country's leaders to economic development - by the launching of the First Five-Year Economic Development Plan, 1962-66 -, the outward-looking strategy of industrialization, the vitality and entrepreneurship of the emerging corporate leaders, the grassroots support and participation in rural transformation, and the close government-business interplay in Korean Economic development. It can also be argued that the cultural values shared in common among the Koreans, Chinese, and Japanese contributed to the quality of the labour force, principally through education(Seong Min Hong, 1992; 22-23).

In recent years, Korea has emerged as on of the most successful NIEs(Newly Industrializing Countries) and an inspiration to other developing countries. The success of this approach is clearly shown by the fact that from 1962 to 1989 Korea's Gross National Product grew, in real terms, by an average annual rate of 8.5 percent, reaching $210 billion in the latter year, compared with $2.3 billion at the start of the First Five-Year Development Plan. During the same period, per capita GNP increased from $87 to $4,968 in the current prices. During the past two-and a-half decades, there has been a marked quality change in the nation's industrial structure in response to fast-paced economic development. In recent years, however, Korea also witnessed radical changes of the world's economic environment and domestic situations. In view of this point, Korea must find ways to solve various problems besetting her economy, which range from mounting inflationary pressure, excessive expansion of the construction, and services to lagging technological innovation and the need to expand infrastructures(ibid.; 23-24). On the international facts, Korea faces uncertainties stemming from such international developments as WTO.

Since 1962 the Korean government has consistently pursued an Outward-Looking Foreign Trade Policy, and, as a result, trade volume expanded more than 258 times between 1962 and 1989, with her export-import volume totaling $123.8 billion in 1989, which raised Korea to the rank of the 12th largest trading country in the world. As a consequence, the ratio of foreign trade to GNP rose nearly threefold from 20.9% in 1962 to 74.5% in 1989. During the same period, the Korea's export growth rate averaged 31.0% annually, and its import growth rate was 20.1%(ibid.; 24-25). 1989 saw the beginning of a short transitional period, in which Korea adapted to the loss of markets for labour-intensive manufactures. Although a current-account surplus of $5.1bn was earned and foreign debt was further reduced, exports succumbed to the twin pressures of currency appreciation and high wage increases.

Between 1973 - immediately before a big trade deficit opened up with the rise in oil prices - and 1988 the volume of Korean merchandise exports rose by 14.7% a year, while that of imports increased by only 11.2% a yeat. Over the whole of this period the growth rates of imports and export prices differed little, so that it was essentially a major volume shift which brought Korean merchandise trade from rough balance in 1973 to an fob surplus of $11.45bn in 1988. It was a period in which the range of Korean exports broadened notably, with many new consumer electronics products, integrated circuits, steel, ships and a small but rapidly growing rang of capital goods. Although South Korea earned a bilateral trade surplus(fob/cif) with the USA of $8.6bn in 1988, this had disappeared by 1991 thanks to the real appreciation of the won in the intervening years, and trade had been in rough balance for the three years to 1993. The deficit with Japan is of longer standing and results from heavy dependence on Japanese components for the manufactures Korea exports to the rest of of the world but only with difficulty to Japan itself. The deficit rose to $8.5bn in 1993 as earlier rapid growth in exports to Japan went into reverse(EIU, Country Profile 1994-95, South Korea; 41-42). Major trading partners of Korea shown as following Table 4.

Korea established formal diplomatic relations with the North Yemen on August 22, 1985 in the mid-1980s and has been maintaining friendly relations with her till recent years. Although admitting the great significances of economic cooperation between two countries, the economic relations has not been performed so much since the establishment of diplomatic relations of mid-1980s. We can easily imagine that it depends upon the differences of economic scale, and/or that of economic structure. As you see, Korea has rapidly industrialized under the Economic Development Plans, had been implemented since the early 1960s, and its imports have kept growing at a brisk pace. Korea's share of total world exports rose from a mere 0.05% in 1962 to 2.1% in 1990, boosting Korea to 12th rank among all countries. Korea's export structure has undergone striking change during the past decades. As a result of rapid industrialization, manufactured goods now accounts for more than 90% of total exports.


Exports to:	1991	1992	1993	Imports from:	1991	1992	1993
USA Japan Hong Kong Germany Singapore Taiwan Indonesia India Thailand UK	25.8 17.2 6.6 4.4 3.8 2.2 1.9 0.7 1.9 2.5	23.6 15.1 7.7 3.8 4.2 3.0 2.5 0.6 2.0 2.4	22.1 14.1 7.8 4.4 3.8 2.8 2.5 2.2 2.1 2.0	Japan USA Germany Saudi Arabia Australia Indonesia Malaysia Canada Singapore France	25.9 23.2 4.5 4.0 3.7 2.5 2.3 2.3 1.3 1.7	23.8 22.4 4.6 4.6 3.8 2.8 2.2 1.9 2.2 1.7	23.9 21.4 4.7 4.5 4.0 3.1 2.3 2.0 1.8 1.8

0Source: EIU, 1994, EIU Country Profile; South Korea and North Korea 1994-95, P. 44.

As consequences of the above reasons, even if two countries had a good relations, the economic relations has not been improved, and alienated from Korea's traders among the Middle Eastern countries. Frankly speaking, Yemen has become known to Koreans widely through the unification of 1990. Despite Yemen has a great potential market for Korea, most of Koreans avoided and hesitated to trade, and/or to invest to Yemen by the reason of political unstability. In my opinion, the reason why Koreans hesitate is that they did not know her exactly. Yemen, has the area of Approximately 555,000 sq km, and the population of about 12m., is a big country among the Middle East countries. Furthermore, she has a plentiful mineral resources such as crude oil, gold, aluminium, gypsum and salt and her people are skillful with their fingers very rarely in the Middle East. Yemen is also a agricultural country, produces qat, millet, cotton, sesame, rubber, sorghum, and especially coffee. Rarely in the Middle East, Yemen developed the fishery industry.

The North Yemen's trade before unification has been characterizes by an 0ever-increasing level of imports and negligible exports. Since the mid-1970s exports have not covered even as much 3% of the value of imports. Until 1977 the major exports were coffee and cotton. And Japan was the YAR's major supplier until 1988, providing 18.5% of all imports in 1983. In 1988 the USA became the major supplier. Other important suppliers are Saudi Arabia, France, Germany, Italy, UK, and Netherland. Meanwhile, the trade deficit grew in the South Yemen during the 1960s, and in 1970 the Government introduced austerity measures to reduce imports by over ￡7m. In 1971 and 1972 both imports and exports declined but the value of imports, particulary of petroleum products, rose steeply after 1973 as a result of increased petroleum prices and general inflation. Her main commodities exported(excluding petroleum products) are cotton, hides and skins, fish, rice and coffee. The chief imports((excluding petroleum) are manufactured goods for development projects, clothing, foodstuffs and livestock. Petroleum products are now chiefly exported to markets in Africa and Asia rather than Europe(The Middle East and North Africa; 961-967).

One of the Yemen's economic priorities is to expand exploration for Petroleum reserves in the border area. Petroleum is Yemen's single most important economic resources. In relation to this, Petroleum will play a great role in the economic development of Yemen in the future. Thus, the future of Yemen may guaranteed by Petroleum. As you see in Table 2, Yemen's Principal exports are Food, beverages, live animal, and Raw materials. Its Principal imports are food, beverages, Manufactured goods, Machinery, transport equipment, Mineral fuels, and lubricants. Yemen's foreign trade heavily depends on a few developed countries, USA, Japan, especially European countries(UK, France, Germany, Italy, and Australia), and Saudi Arabia, Kuwait and Iraq in the Arab Countries. Table 5. shows the Yemeni imports by economic block and selected countries.

As a part of economic cooperation, Korea has been offered the grant, and invited some persons for technical training and studies on Korea since 1982. In 1994 Korea offered the grant of $70,000, cars and computers in the field of economic aid. Korea also offered the grant of $20,000 in order to rehabilitate damages during the civil war,

invited two trainees in 1994. In the field of petroleum industry in Marib, Yukong was0 participated in the consortium of the petroleum industry in coalition with Hunt and

Exxon. In the field of construction, some general trading company, which head by

Hundai, Dawoo, and Sunkyung, extended their business to Yemen. Now all of them withdrawn their offices from Yemen, leaving a small liaison office.

In 1992 Korea's exports to Yemen reached $49.3m. and its imports from Yemen recorded $2.3m. According to KTA's report, it is known that the numbers of the exporters to Yemen are about 130 and the numbers of importers are about 20. The main items of Korea's exports are tire, one-time injection, condom, stationery, all kinds of textiles, hot or cold rolling, printed matter, TV monitor, and refrigerator. And that of Korea's imports are petroleum, petroleum product, Aluminium products, rubber and salt.

As we see the above mentioned facts, Korean trade with Yemen tends to concentrate in a confined items such as tire, one-time injection, daily commodities, and some machineries. In case of imports, the importers tend to concentrate in a few large enterprises. There are another commodities in order to trade with Yemen. Especially the products of coffee, gypsum, salt, fishery, paper products, communication tools, and electronics are available for trading with Yemen. As a matter of fact, Yemeni government needs investment instead of exchanges of goods. In addition, it is important that in order to promote business relations with Yemen, Koreans have to invest and/or to cooperate in the fields of economic development projects such as Aden Free Zone plan.


countries years	1989	1990	1991	1992
Arab World U.A.E Saudi Arabia Egypt	4,576,264 293,817 2,481,467 71,388	4,350,662 701,615 1,518,020 97,894	7,563,027 1,573,939 1,460,373 215,886	6,651,574 2,559,581 2,311,965 300,642
Asia(non-Arab) Japan China South Korea North Korea	4,783,899 1,429,996 661,840 389,366 2,104	4,574,353 766,756 769,404 459,208 -	6,875,335 1,567,542 856,716 249,657 -	10,167,419 2,172,044 912,622 530,426 8,566
African Countries Ethiopia Kenya Zimbabwe	66,354 24,549 22,738 15,120	43,805 4,977 35,153 840	871,959 820,019 33,116 17,810	214,300 121,373 60,015 31,581
EEC United Kingdom West Germany France Netherland	5,807,307 1,046,614 750,025 1,537,933 695,795	6,054,478 1,094,238 974,451 1,293,985 763,302	5,888,266 1,218,033 1145,804 645,482 944,403	8,741,347 1,713,618 1,058,931 1,099,573 1,340,683
Other Europe Switzerland Austria Cyprus	387,649 87,496 114,947 42,510	407,208 61,901 92,692 27,581	246,022 22,531 83,328 38,044	345,713 84,083 126,677 41,795
European Socialist USSR Romania Yugoslavia	1,558,886 1,023,173 97,534 159,705	993,837 711,360 5,213 32,945	610,054 229,135 119,968 136,427	589,604 252,063 165,736 25,240
AmericanCountries USA Canada Brazil	1,269,932 1,127,392 22,454 94,119	1,295,551 1,039,637 98,637 121,289	1,881,326 1,335,077 1,335,077 379,603	3,717,530 2,858,220 2,858,220 652,650
Australia,Pacific Is. Australia New-Zealand Not Stated	880,633 828,655 51,978 1,970	1,054,357 984,373 69,984 92,839	856,592 789,576 66,650 24,754	615,387 614,877 510 32,737
Grand Total	19,332,894	18,867,090	24,314,326	31,075,611

As have ever seen earlier, the situation of unified Yemen has been rapidly changing since the civil war of 1994, and the advanced countries, especially USA, Japan and European countries are strengthening their advance in the form of economic cooperation.

As a matter of fact, Yemeni needs investment instead of exchanges of goods. In addition, it is important that in order to promote business relations with Yemen, Koreans have to invest and/or to cooperate in the fields of economic development projects such as Aden Free Zone plan. Furthermore, the government hopes to develop the country as an Asian Model, which Japan, Taiwan, and Korea had invested heavily in the rapid development of skills for members of their workforce. The government believes that the return on this investment can be seen by the increased productivity of the workforce as well as the higher wage levels associated with the advanced technological output. In relation to it, we have so many experiences in the Middle East, and the Arabs also know Korean companies' capabilities well. Considering this circumstances, the potential for the economic cooperation between Korea and Yemen will be very high.

Yemeni economy has a great potential, and her market will play a great role for us to enter into neighbouring Arab states in the future. It, however, seems that the economic cooperation between two countries will not be bright in the near future. At any rate, Yemen is a very important country to Korea at present time. In line with it, the most important thing to promote economic cooperation is to understand, and to narrow the gap of cultural differences between Korea's Confucianism and Yemen's Islamic tradition. Secondly the economic cooperation in the development of oil, fishery, and mining fields is helpful in order to promote, and extend economic relations between two countries. Thirdly Korea must find her way into participating in Yemen's Aden Free Zone to cooperate each other. Lastly, if a political stability in Yemen comes, and the above mentioned situations are filled up in the future, economic relations between Korea and Yemen will be changed for the better.

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Fritz Piepenburg. 1987. New Traveller's Guide to Yemen. Sana'a: Yemen Tourism Co.

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