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Structure and Features of the Yemeni Economy
The Yemeni
Economy
Economic Performance (1990-1994)
The Economic, Financial and Administrative Reform Program
Economic
Performance Indicators (1995-1999)
Socio-economic
Development Planning
Private Sector Activity and Development of a Market Economy
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The Yemeni Economy:
Since 1990 (after unification), the economy of
Yemen has predominantly depended on primary resources (from agriculture
and fisheries), amounting to over 25% of GDP. However, the following other
areas have also supported the economy:
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Government Services (16%) |
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Extracting Industries (14%) |
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Telecommunication (15.3%) |
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Manufacturing (including oil refining, 9.6%) |
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Wholesale and Retail (6.8%) |
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Financial Institutions, Real Estate and Business
Services (5.7%) |
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Construction (2.7%) |
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In
recent years, the Agriculture sector has seen increasing
development in the areas of plantation and livestock. Crop production
constituted 66.4% of total agriculture produce (where cereals occupy most
of the cultivable land. Major agriculture crops include grapes, bananas,
dates, cotton, tobacco and coffee. Livestock production constituted 21.5%.
The government has worked on the promotion of expansion of poultry, meat,
milk and egg production. The cultivable land is around 1,669 thousand
hectares, where 67.8% is cultivated (35% of which is rain fed). Irrigated
land through use of wells is 30%; and 17% of irrigation comes from water
streams. The government is working on maximizing comparative advantages in
favor of vegetables, fruit and coffee production. Attention is also given
to cereal production (especially wheat and sorghum) in a bid to realize a
higher degree of food security and bring down the local consumption versus
the foreign trade gap.
For
the Manufacturing sector (which includes extracting industries
except oil), the private sector owns 97% of its establishments (around
33,966) providing 115,529 job opportunities. 95% of such establishments
are small enterprises employing between 1-4 workers, making a total of
54.7% of job opportunities and contributing around 24.4% of the
manufacturing value added (MVA). Medium size manufacturing establishments
employ between 5-9 workers. They constitute around 3.7% of the total
manufacturing establishments, contributing around 7% of job opportunities
and 5.2% of MVA. Larger establishments make up only 1.2% employing more
than 10 workers. They contribute around 38.3% of job opportunities and
contribute around 70.4% of MVA. Oil has been a main activity in the Yemeni
economy.
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In terms of Oil, Yemen's retains 3.2 billions
barrels of proven oil reserves. In 1999, its contribution to the state
budget reached around 214 billion riyals (around 68% of total state
revenues). Oil exports reached around 134 billion riyals (around 90.9% of
the total exports) of which government share was 14.7 billion riyals. The
Government share has seen an increase during the last few years. Total
value of oil exports amounted to 337 billion riyals in 1999.
With respect to Energy production and water supply, around
1000 electrical establishments are spread nationwide, with 29 major
facilities. Total electricity production reached around 3,133 million
kilowatts. Yemen has also been dependent on water resources to supply
power, primarily from water wells and some springs, in addition to other
means of generation under the Public Water Authority. In terms of water
resources, approximately 1952 water supply establishments exist to
distribute water, which produce around 111 million cubic meters of water. .
The Banking sector comprises of 14 banks (9 commercial, 2
specializing in housing and agriculture and 3 Islamic). The Republic of
Yemen has sought to develop and restructure the banking sector and
establish a stock exchange market to boost the ongoing financial and
economic reform program. Attention is also directed towards the creation
of insurance companies and the mobilization of resources of insurance and
social pension funds. The government also carefully regulates money
exchange businesses and the exchange market.
Domestic trade has a vital role in Yemen's economy. Statistics
show that the number of trade establishments (around 114,050 or 49.8% of
economic activity), employ 285,406 workers (especially in the
import-export business). Foreign trade was estimated at 67.3 billion
riyals in 1999.
Tourism has also proven important for the
economy. There are 307 hotels nationwide, with tourists in recent years
spending over 526,000 nights in the country. Moreover, tourism has helped
enlarge the eating industry, with the number of restaurants growing to
over 11,000 throughout the country, centered in major provincial towns and
the capital
Transport has also witnessed substantial
achievements. There are 5955 km of asphalt roads, and around 4008 kms of
gravel roads. The number of passenger vehicles has increased to reach
301,223 private vehicles, 98,873 taxis and 423,460 general transport
vehicles. Public transportation has recently improved with the
introduction private operators. Yemeni air transport includes the Yemeni
Airlines Company and 8 airports, led by the Sana'a and Aden international
airports. The number of incoming flights into these airports reached
19,410 flights, of which 10,943 were international flights. Sea transport
has also been active at the different ports of Aden, Hodieda, Mukala,
Mocka, Nashtoon and Ras Essa. Yemen also seeks to complete the remaining
phases of the Aden Free Trade Zone, so as to further trade, industry and
tourism. The development of a number of Yemeni islands into ports and
transit stations like Soctra, Meyoon and Kamaran is underway
Education is a main pillar imperative for building the Yemeni economy,
and to provide adequate human capital and a qualified and productive work
force. Illiteracy has declined due to improved awareness and the expansion
of education. Illiteracy declined to 47.3% (31.2% among males and 64.1%
among females). Statistics reveal that public education absorbs between
62-67% of the population between the ages of 6 and15. The number of
schools for the latter age bracket has reached 10,976, with 1,235
institutes accommodating around 2.9 million pupils (33% are females).
For
secondary education, schools and institutes numbered 2,971 spread
throughout the country, absorbing 371,000 pupils of which 24% are females.
Teachers working in basic and secondary education number around 147,000
(93% being Yemeni nationals). In addition, a number of technical and
vocational institutes employ 579 teachers, and give training to over 7,000
pupils. Currently, there are 15 higher education institutions, 15
universities (of which 7 are government affiliated) absorbing more than
154,000 students (19% female enrollment), with a total faculty of 2,988
(81.7% Yemeni nationals). Sana'a University is the oldest and largest
university. University education includes many fields covering literature,
education, law, medicine, engineering, science, etc. Over 12,000 that
graduate are absorbed into the labor market.
With regard to Health Care, there are 104 hospitals in Yemen in
addition to 2,134 medical centers and clinics. There are a total of 11,365
beds, 3,800 doctors, 897 specialists, and experts in the field of
nutrition, chemistry, laboratory and social health and psychology. There
are also 2,023 x-ray technicians, assistant-physicians, and 554
pharmacists.
Demography: As of 2000, the population of Yemen is estimated at 18.3
million. Population growth remains high (3.5% annual population growth)
in spite of a slight decline therein. This is due to the high fertility
rate of 6.5 children for every woman, thus raising the economic dependency
rate (439). Demographic data show that rural population constitutes 74.4%
of the total population.
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Economic Performance
(1990-1994):
The first five years of Yemeni unity witnessed important economic
evolution. Several important factors negatively affected the Yemeni
Economy. The second Gulf War resulted in the forced repatriation of around
one million Yemeni immigrants from Saudi Arabia and Gulf States. Political
squabbles and disputes practiced by secessionists have also led to
economic deterioration. Economic performance indicators do reflect the
difficult stage that faced the Yemeni economy and could have brought it to
collapse.
GDP: economic performance showed a decline in
real GDP . Mean average growth was (-1%). All sectors contributed to this
decline except oil exploration which has grown since 1993;
State budget: the state's treasury shouldered substantial costs during
the transition period to bridge the gap in civil servants salaries and
government services nationwide. This period witnessed increasing deficit
in the state budget that reached 16.7% of GDP in 1994 due to increasing
public expenditures and inability of revenues to match up with such
increase. Financing the gap by the Central Bank was done through printing
money.
Balance of Payments: the .increase in imports and decline in non oil
exports and the decline in remittances, loans and external aid led to a
balance of payments deficit of614 million dollars in 1994 (13% of GNP).
Inflation and unemployment: stagflation prevailed during this period
resulting from high unemployment and inflation due to the previous factors
that accompanied increasing monetary supply and depletion of foreign
currency reserves (due to the negative status of the balance of payments,
foreign trade balance and decline in remittances and negative growth in
GDP). The exchange rate had also been affected. The value of the riyal
drastically dropped against the dollar in the parallel market by 557% at
an average annual rate of 54.6%. The dollar rate surpassed the 100 mark of
the riyal in late 1994 to reach 165 riyals to the dollar in June 1995.
This drastic and unexpected decline encouraged speculation and storage of
commodity.
All previous indications clearly reflect the extent of
difficulties that faced the Yemeni economy during that period coupled with
the absence of policies compatible with economic development structures
and programs. The high population growth with a weak GNP growth led to the
sharp decline in per capita income. After overcoming the brief war in the
summer of 1994, the state turned attention to economic reforms including
financial and administrative reforms. The introduction and implementation
the reform program began in the first half of 1995.
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The
Economic, Financial and Administrative Reform Program: Introduction
and Implementation.
The Unity State seemed to be missing a
clear strategy. The old strategies that prevailed before unity became
inapplicable under domestic and international changes, the absence of
external support and decline in remittances. This led the state to take a
courageous decision by launching financial and monetary measures in March
1995 in a bid to realize economic stability and then to move towards
targeting high and sustainable growth rates.
The
objectives of the economic, financial and administrative reforms can be
summarized in the following:
-realizing real growth rates
for economic sectors; -reducing rates of inflation and unemployment and
realizing a stable exchange rate;
-bringing about stable balance between the balance of payments and the
state budget;
-creating a climate conducive for attracting investment through structural
reforms;
-strengthening the role of the private sector;
-realizing further economic openness to the outside world.
The
state began a stabilization program with the aim of reducing the budget
deficit and the balance of payments through the implementation of a set of
financial and monetary policies. The state the undertook the
implementation of structural reform programs, which include the
liberalization of prices and trade, privatization of public enterprises
and the enhancement of export oriented production. The start was
encouraging. The government took a number of decisions during 1995-1999 as
follows:
1. State Budget: the program targeted the rationalization of
expenditure especially current expenditures, increasing tax pays, reducing
subsidy and the transfer of ownership of public entities to private
ownership. In order to reduce subsidies, the state moved to wards
liberalization of the exchange rate including customs exchange rate and
the gradual liberalization of prices on the imports of wheat and flour
which was completed in 1999. In spite of the success made on liberalizing
prices on oil products and fees on basic services, developments in the
world oil markets made it imperative to maintain subsidy on diesel and gas
being consumables by a larger portion of society.
The
financial reform program has also included the implementation of measures
to curb tax and customs evasion and the imposition of new taxes headed by
a sales tax, the improvement of tax and custom fees collection, a
reconsideration of their tariffs, liberalization of prices of public
service and commodity products. The government has also re-considered the
structuring of public expenditures through rationalization, reduction of
salaries and technical and economic feasibility evaluation of investment
programs.
2. Balance of Payments: to remedy the imbalance in the balance of
payments, quantitative restrictions on foreign trade and foreign currency
exchange have been removed in addition to allowing the transfer of capital
and profits outside the country. Other measures included addressing the
foreign debt and guaranteeing sufficient foreign currency reserves to
cover imports. Custom exemption not stipulated under the law and
import/export licensing have been removed, custom procedures simplified
and importers and exporters are allowed to make bank transactions with no
constraints. Some provisions under the customs and trade registration
laws have been amended. Monopoly of some of the navigation services and
activities at ports has been limited and practical measures have also been
taken to counter smuggling;
3. Monetary Polices and the Banking Sector: the reform program
targeted commercial banking entities to sort out the outstanding debt by
the public sector and government agencies. It also allowed commercial
banks to open up an account and transfer of foreign currency outside, now
that debt interest prices have been liberalized, deposit interests raised,
soft interests on government loans cancelled and legal reserves
requirements at the Central Bank reduced. In order to absorb monetary
liquidity, the Central Bank followed a public debt policy through issuing
treasury bills in weekly, monthly, 91 days and then 182 days arriving to
364 days auctions. The Central Bank had also adopted measures to address
scattered debts of banks, classified them and then allocated the necessary
funds for them. Aside from addressing the external debt through rescheduling with the
Paris Club and to strengthen structural reform of the
banking and financial sector, an assessment and proposals have been
underway to introduce legal refers covering the activity of commercial
banks, the role of the Central Bank, financing leases, taxes on bank
transactions, capital sufficiency, internal monitoring and control and
credit risks. Other measures include civil service reform in the sector,
improving the pay scale, the classification and addressing of loans,
reducing restrictions on bank borrowing, the introduction of modern
management schemes in the banking sector and finally preparations for the
creation of a stock market.
4.Other reform programs: These include
privatization, civil service reforms and the social safety net program to
reduce the negative impact of the various reform programs. These programs
have been implemented at different paces. The government is currently
undertaking the identification of large public entities to be restructured or privatized in accordance with the privatization law
regulating such operations.
The
merger of the former administrative structures inflated the civil service
system structures of the government apparatus thus weakening its
performance. The government has long been aware of the importance of civil
service reforms to back up success in economic and financial reforms. To
maintain gains, it has been imperative to introduce a modern public
administration system, a re-consideration of the role of the state and
tasks of the new government. The modernization of the civil service which
is a framework and a comprehensive vision for administrative restructuring
aims at providing highly efficient services and improving the growth of
the private sector and promotion of investment allowing the creation of
new job opportunities.
Under the civil service reform program, a civil service survey has been
implemented. The measure is vital in setting up an integrated database for
the civil service. Data centers have also been operational backed up by
complete data about civil servants in the administrative apparatus of the
state, public and mixed sectors. An integrated network links up these
centers with the main center. The government has also prepared a new
employment policy that is based on advertisement, competition and
qualification ensuring equality, justice and equal footing for all
individuals in society. A Civil Service Fund has been
established to address surplus labor through disbursement of salaries,
retirement referrals, compensation for those wishing to leave public
office, the procurement of civil service years allowing for early
retirement and the provision of training allowing for re-distribution.
The
civil service reforms coincide with the adoption of incentive policies
like the issuance of the social pension law and the start of
implementation of a reform program of the Pension Fund putting in place a
system for the purchase of the period of work and referral for early
retirement. The government is working on the restructuring of civil
service ranks, a new wages system dependent on job descriptions with the
organizational restructuring of government ministries and agencies.
The
government has also sped up the implementation of the social safety net
program through the creation and activation of special funds like the
Social Welfare Fund, the Public Works Project and the Social Fund for
Development. It also ratified the National Program of Productive Families.
All of these are effective mechanisms to combat poverty. The financial
reform program seeks to improve the collection of alms and taxes providing
resources for the social safety net. The state had also adopted a set of
measures to reform the judiciary and the security apparatus and the
creation of an investment climate attractive for Yemeni, Arab and foreign
capital. It also adopted intensive awareness programs addressing reforms
in addition to the improvement of the flow of information enabling
appropriate decision-making.
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Economic Performance
Indicators (1995-1999):
The
economic reform program made positive results applauded by international
and regional organizations. The reforms enabled the Yemeni economy to
overcome difficulties and move on the right track. The most important
achievement is realizing economic stability as shown in the following
economic indicators:
GDP Growth: economic performance during this period was characterized
with a high rate of growth of real GDP which reached 5.6% on average in
spite of fluctuation in oil production during this period. This is an
acceptable growth compared to that of the period 1990-1994. The non-oil
GDP growth in real prices reflects real improvement in economic
activities.
State's Budget: the introduction of strict measures on public
expenditure (current or investment) has continued in addition to seeking
an increase in revenues in a bid to reduce the deficit in the state
budget, reduce dependency on the banking sector and resorting to domestic
public debt resources (treasury bills) in the last two years of 1998 and
1999. Growth in money supply has seen remarkable decline due to decline
in demand especially consumption, and the government abidance by
contracting economic measures. The improvement in the state budget deficit
had an impact on the decline in . money supply growth.
Balance of Payments: the rise in crude oil prices during 1995- 1996
helped in the improvement of the trade balance. In spite of improvement in
non-oil exports, the increase in imports due to the liberalization of
foreign trade, the simplifications of custom clearance procedures, reforms
of the customs tariffs law and the decrease in value of oil exports during
1997-1998, they have all negatively affected the balance of trade
especially at the outset of 1998 which witnessed a sharp decline in world
oil prices. These factors affected the overall standing of the balance of
payments which dropped into the minus in 1998 to reach 136.8 million
dollars (2% of GNP) after it had gained a surplus of 118.9 million dollars
in the previous year.
Inflation: the effect and diversity of economic structural reform
polices and measures especially contracting policies had led to a
substantial decline in inflation. The policies had also led to a reduction
in the state budget deficit, reduction in money supply growth and an
increase in foreign currency reserve in addition to achieving positive
real GDP growth. The liberalization of the exchange rate reduced the value
of the riyal to the dollar by 36% during this period (by an average
annual rate of 14.5%). The rate of the riyal reached 160 to the dollar in
1999 which reflected a relative stability compatible with the monetary and
reform measures (interest rate, percentage of reserve, increased tax rates
and reduced government expenditure). This curbed currency speculation and
storage of commodity.
Despite the positive GDP and GNP growth, retroactive measures and the
relative stability oftl1eriyal against other foreign currencies and the
high population growth rate led altogether to a per capita income of
between $306 and $366 during this period. The per capita income increased
and decreased due to those factors and the impact of the fluctuation of
world oil prices. Overall indicators show a trend towards economic
stability due to the stabilization and structural reform measures.
The
government has focused on the implementation of the reform programs on the
basis of the legal framework suitable for a market economy. It stresses
the continuation of judicial, security and administrative reform in order
to create a environment conducive for investment especially private
sector investment. In response to the successes of the economy during this
period and the completion of the reform process, international donor
countries and agencies have expressed readiness to support the reform
programs in addition to the support of social safety net schemes tackling
the negative impact of the reforms. In order to maintain the success of
reforms, the government has sought to strengthen cooperation with the
outside world to benefit from the experiences of others and moving ahead
towards merger with the world economy.
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Socio-economic Development
Planning:
Faced with economic difficulties that restricted economic development,
Yemen had to re-consider its existing strategies and policies especially
on the macroeconomic level. Yemen resorted to planning socio-economic
development that is based on a market mechanism and a more prominent role
of the private sector in economic activity. Accordingly, it prepared the
first 5-year Plan (1996-2000). What made Yemen's experience stand out is
that the plan was done as the country was passing through a difficult
transformation emerging from the necessity to combine economic reform and
the need to maintain the economic role of the state as the sole supplier
of infrastructure and social services.
To
ensure successful efforts, the government began first by diagnosing the
strategic factors affecting the economic reality and medium and long-term
socio-economic development. It then identified pre-requisites for boosting
the institutional capacity of the government apparatus or those of the
private sector taking into account the suitable time factor for the
implementation of the plan's relevant policies under the following three
pillars:
-correction of the economic imbalance and controlling side effects in the
form of inflation and unemployment;
-increase of economic growth rate through the optimization of existing
capacity and expansion of domestic and foreign investment projects and
government development projects so as to increase income and improve the
standard of living, the development of social services like education and
health and also narrowing income and wealth disparity of individuals and
regions.
-Making use of the comparative advantages of the available human and
economic resources and undertaking the necessary structural changes and
increase of exports.
Socio-economic development strategy aims at achieving the following:
-the
development of human resources ( social, education, health, cultural,
civilization, economic and professional ) all being of strategic
importance;
- the
maximization of benefit resulting from the exploration and export of crude
oil and gas as a crucial financial resource for government current and
investment expenditures. This can be done through raising proven reserves
and expansion into new finds and increase of revenues form crude oil and
gas exports,
-the
promotion of the manufacturing industry being the sector most capable of
increasing production, exports and absorption of technology and creation
of jobs;
-paying attention to agriculture activity and fisheries which constitute a
source of income for a larger portion of the population and food
production directed towards the increasing local consumption;
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the maximization of the tourism sector. Yemen enjoys fabulous natural and
diverse features and moderate climate throughout the year in addition to
the historical wealth and civilizations. All of these create substantial
investment prospects and opportunities for an overall tourism
reconnaissance in the country;
As part of the ongoing preparations for the second 5-year Plan for the
period 2001-2005 (taking into account lessons learned from the first plan)
and maintaining the development planning process, Yemen is presently
evaluating the performance of economic sectors and constraints that
hampered the implementation of some of the objectives under the first
plan.
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Private Sector Activity and Development of a Market Economy:
Within the framework of development planning and the applicability of the
liberal approach in managing the national economy and the implementation
of the reform program, the state's role has been defined as an
instrument for removing constraints hampering the activity of the private
sector and the development of market mechanisms and sustaining economic
stability, the completion of basic infrastructure and social services so
as to encourage the private sector to undertake its prominent and leading
role in realizing economic growth.
The past decade witnessed visible openness in the government relationship
with the private sector. This was reflected in the consultations on
policies and measures which could affect the competitiveness of the
economy or local private sector and the inclusion of the private sector in
government committees undertaking the review of legislation and the
various plans and programs. The government has also given the private
sector the opportunity to take part in joint Yemeni Arab and Yemeni
foreign commissions and WTO negotiations committees. The state has also
sought to have broader private sector involvement to enable it to carry on
its hopeful role under global changes.
The Appropriate Climate
for Private Sector Activity:
The government
works on creating conditions conducive for successful private sector
investment. Democratization has been the first step for the creation of
suitable conditions for foreseen development. It has aided the adoption of
appropriate economic policies, revision of legislation and valid laws
allowing for a more efficient and clean judiciary (judicial reform
program). The administrative reform program also addresses the suitability
of the institutional setup, which poses a revision of the roles and tasks
of the government apparatus, restructuring if needed to accommodate the
requirements of the liberal approach in economic management and merger
into the world economy. Sufficient financial resources and efficient
banking apparatus and non-banking financial institutions have been an
important element in the improvement of an investment environment for the
private sector. The government undertakes the implementation of a
financial sector reform in a bid to develop relevant proper working
mechanisms.
The
private sector, out of responsibility, has moved towards:
-paying further attention to
public issues especially on macroeconomic performance and relevant
policies;
-serious and effective participation in the preparation of strategies and
socio-economic policies at the national and domestic local macro levels
and through the different stages of the decision-making process;
-revision of the performance of the private sector and diagnosis of its
points of strengths and weaknesses visa a vis economic exposure as a
result of economic liberalization policies and rules governing
globalization and the need to accommodate scientific and technological
evolution. Such revision is to include aspects of organization,
management, work mechanisms and forms of ownership and financing and other
factors that could affect the efficiency of enterprises and their ability
to compete.
Private Sector
Organizations
The commercial private sector was the pioneer in
organizing itself through a number of independent chambers of commerce and
then formed a federation of chambers of commerce. Such a union has long
been the sole representative of all economic activities and businessmen of
different activities. The union has helped bridge a vacuum for the absence
of non-commercial organizations and provided some services that
businessmen were in dire need for.
As
economic life became more complex and diverse with time, sectors of the
national economy gradually developed certain features and due to the
transformation that took place with unity and the need to meet pressing
demands, there was the need to create other business associations and
unions like the Yemeni Industrialists Association. Such private sector
entities became more active taking part in workshops and conferences and
organizing business exhibitions.
Private sector organizations tend to improve their activities and programs
through the following:
-Strengthening their research base in economic, professional and
technological fields enabling the private sector to be aware of new
changes, assessment of present conditions and diagnose constraints and
devise counter-proposals.
-Establishing and upgrading of information needs through a follow-up and
survey system ( data base systems);
-Crystallizing visions and views of the private sector towards different
issues;
-Mobilizing private sector efforts towards economic and social public
affairs;
-Organizing exhibitions promoting Yemeni products and participating in
foreign export exhibitions;
-Establishing a center providing services for investment like feasibility
studies, administrative and technological consultancies, information on
technology import markets, raw materials and exports markets, etc.
* "Republic of
Yemen, 10 Years of Achievements", a publication of the Ministry of Planning and
International Cooperation.
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