The riots that broke out in Yemen in February 2011 weakened the country's dictatorial regime and pushed it forward towards democratisation. At the same time, the change brought a halt to the steady inflow of FDI that has been on the increase since 2005, according to Mehboob Vadiya, partner at Veritas Solicitors, which offers corporate representation services in Yemen with its associate the Law Offices of Sheikh Tariq Abdullah.

Mr Vadiya says that foreign investor confidence was shattered by the political instability, and in the months following the outbreak of the riots, incumbent investors pulled out of the country and prospective investors held back. He adds that it may take years for Yemen’s inbound FDI to recover to its pre-conflict peak, stating that the immediate future remains bleak for the Yemeni population as the highly complicated political situation remains unresolved. 

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Retracting appeal

According to Mr Vadiya, most of Yemen’s foreign investors are from the Middle East, with some from Japan and South Korea, and a smaller number from Germany, the US and the UK. The World Bank also has a presence in the country. Most foreign investments concentrate on oil, gas and other minerals, but sectors including telecommunications had also been attracting interest before the riots. 

“Investors [were] put off by the conflict,” says Mr Vadiya, who adds that the withdrawal of investment from the country is more prominent among prospective investors than among those that have already invested in the country. “Foreigners wishing to invest in Yemen have to obtain an investment licence. It is similar to a planning permission, and it grants the holder the right to invest in the project specified within five years of issuing. In 2011, the approximate number of investors obtaining investment licences halved compared to 2010, from about 200 to 100,” he says.

Mr Vadiya says that while this decline in interest has mainly been caused by the political instability, the global economic downturn has also played a part by denying investors the funding they need. 

Long-term vision

Speaking of what the political change will mean for the future, Mr Vadiya says while it is good for democracy in the long run, it is bad for investment in the short term. “The one-party dictator rule has been [in Yemen] for 30 years. It may have been corrupt, but regrettably it [helped] in terms of stability. Investors know who they are dealing with, how to deal with them and what they will get. Now no one knows what will happen. It will take years for new institutions to take root and for stability to return. Until that happens, it is unlikely investment will rebound to its pre-conflict level.”

However, he emphasises that Yemen is a country of opportunities. The country’s export sector is underperforming, producing only a fraction of what it is potentially capable. “Opportunities are still there,” says Mr Vadiya, “and investors are still there.” He believes more investment will come from China, which remained relatively unscathed throughout the financial crisis, and therefore is in a stronger financial position to exploit the capital-intensive project opportunities that Yemen offers. 

“The  economic downturn is likely to continue for a few years. The high unemployment rate is also not likely to improve in the near future. The level of poverty is likely to increase until the economy stabilises and  democracy establishes its roots," he says.