Crisis Group Yemen Update #6

Report
from International Crisis Group
Published on 28 Feb 2019 View Original

Trendline: Putting Yemen to Work

Late February brought some hope to Yemen’s embattled population, large segments of which were on the verge of starvation at the end of 2018. The UN announced that it had both raised billions of dollars to pay for its humanitarian work over the coming year and had regained access to the Red Sea Mills, an important food storage and distribution hub outside the port city of Hodeida for the first time in five months. But without a peace deal and, in the longer term, significant economic reform, the most the UN and other organisations can do is arrest the sharp humanitarian decline of the past eight years.

Donors, led by Saudi Arabia and the United Arab Emirates (UAE), pledged a combined $2.6 billion in funding for the UN’s 2019 humanitarian plan for Yemen on 26 February. This represents a significant sum but falls well short of the $4.2 billion the UN says it needs for the single largest humanitarian appeal in its history. On the same day, the UN completed a long-delayed operation to access the Red Sea Mills, crossing from Huthi-controlled Hodeida city into coalition-controlled territory on the city’s eastern outskirts. UN staff are now assessing the condition of grain at the site for spoilage and residue from unexploded ordinance. The UN had not been able to access the Red Sea Mills compound, where the World Food Programme stores around 25 per cent of its food aid in Yemen, since September 2018. Infrastructural bottlenecks created by the conflict are almost as much of a threat to starving Yemenis as their current economic plight (see Update #2).

The huge sums of money the UN requires reveal the sheer scale of Yemen’s humanitarian crisis. According to the UN and the World Bank, around 80 per cent of Yemenis now live in poverty, up from more than 50 per cent in 2014, and require some form of aid. This represents a total of around 24.1 million people of whom 14.3 million are in acute need of help. The World Bank estimates that about eight million Yemenis have lost their jobs since the war began in 2015. The official unemployment rate already stood at more than 50 per cent in 2014. It is now likely to be far higher.

Humanitarian aid is necessary in the short term, but is ultimately a very expensive fix for a problem no amount of money can solve: an already weak and poorly managed economy that has atrophied since 2014. “The UN can’t feed 28 or 29 million people for a year, let alone forever”, a senior humanitarian official said. “Until people are earning wages and food prices are affordable, the entire country is going to be below the [poverty] line”.

Economic output measured in GDP has more than halved by some measures, while inflation has soared. The rival authorities in Sanaa and Aden have each struggled to pay salaries for an estimated 1.2 million civilian and military staff employed before the war, whose incomes underwrite the livelihoods of about a quarter of the population.

Equally worrying is that the government is prioritising salary payments to the military and security services, which have been the only employers creating new jobs since the war began. This further incentivises unemployed men to take up arms and creates huge problems for the government in the long term, leaving it with a heavily armed and expensive workforce that it will need to move off the payroll in the future.

Citing figures from the ministry of civil service and insurance, the Yemeni Development Champions – a group of economic experts – report that a little over half of the country’s 472,353 pre-war civil servants received wages from the government of Abed Rabbo Mansour Hadi in 2018. At the same time, salaries for the military and security services increased. The Hadi government now spends more on defence ministry employees than in 2014, despite high rates of defections (the military payroll was also likely heavily padded by so-called “ghost soldiers”). Official figures for the rival Huthi administration in Sanaa are unavailable, but an official based in Sanaa during the early years of the war said that the Huthis also prioritise payments to fighters. Meanwhile, some of the many Yemeni armed groups on the ground are paid directly by the Saudi-led coalition. The UAE alone pays the salaries of around 40,000-45,000 men in arms in Yemen.

The conflict has taken a sharp toll on subsistence and commercial farming – a huge if unsteady source of work in rural Yemen before the war. Shocks to the oil and gas industry, once another important engine of economic growth, have shrunk the foreign currency reserves the government used to help pay for food imports. The World Bank estimates that 35 per cent of businesses have closed since the war began, most of them citing insecurity and financial constraints. As a result of these economic hardships, household income has plummeted, often to zero, while the cost of living has shot up thanks to reduced trade and a weakened riyal.

The Hadi government hopes that it will be able to pay more wages in 2019 using revenues from oil and gas exports and savings made on fuel imports, thanks to a $60 million monthly fuel grant from Saudi Arabia. Several oilfields in the south have been producing since 2017, and the government is trying to connect other oilfields with export terminals along the south coast. The Hadi government has said it hopes to produce 110,000 barrels of oil a day in 2019 and export 75,000 barrels a day, netting about $1.7 billion in export earnings, a reasonable estimate. France’s Total may also restart a big gas export project in 2019, which would boost that income.

In a new state budget, the government forecasts that it will spend 3.1 trillion riyals ($5.6 billion) in revenues in 2019, set against estimated earnings of 2.1 trillion riyals ($3.9 billion), already indicating a deficit of more than $1.7 billion. How the state will finance this budget gap is unclear, given little domestic or international appetite to extend credit to the Yemeni government. A government official acknowledged that both budgeted spending and revenues are “unrealistic”.

Even if oil income increases, the government is still likely to keep suffering from poor economic management, a troubling prospect considering that economic grievances played a central part in the 2011 uprising and 2014 Huthi takeover of Sanaa. The country already faced successive fiscal and currency crises before the war, caused in no small part by its overreliance on oil exports, huge fuel subsidies, a massive public sector wage bill and mounting dependence on imported basic goods such as food. Simply replicating these policies only means storing up the problems of yesterday for tomorrow.

Once the war is over, Yemen will need more work opportunities to absorb ex-combatants and provide livelihoods, but how those will be generated remains unanswered. Local and international organisations have been trying to create jobs at the local level to get money into the hands of the poorest through cash transfer programmes. These kinds of projects are important and have impressive track records. The Small and Micro Enterprise Promotion Service (SMEPS), founded in 2005, estimates it helped create and sustain around 75,000 agricultural jobs in 2017 and 2018, and believes it can increase the scale of its work rapidly. The World Bank says its cash transfer programmes reach about 1.45 million households and help support 9 million people. But absent a growing economy and new avenues for employment, it is unclear how Yemen will be put back to work in the event of a peace deal.

Bottom Line: Getting Yemenis back to work is a crucial task, especially the tens or hundreds of thousands of ex-combatants who will be out of work in the event of a successful peace deal. Simply replicating the failed economic policies of the pre-war years could sow the seeds of future unrest. Donors should already be thinking about a mix of future initiatives, ranging from local job creation schemes to international support for the state budget and infrastructure development, to help Yemen’s transition to peace.

Political and Military Developments

The issue of force redeployments in and around the Red Sea port city of Hodeida and two nearby ports, Ras Issa and Saleef, still looms large. After agreeing on a plan for a first phase of redeployments on 17 February, the government of Yemen, Huthis and the coalition quibbled in public and private over details. The December 2018 Stockholm Agreement did not stipulate who would ultimately control the Red Sea trade corridor, only mentioning “local forces”, so Huthi and government of Yemen representatives are each trying to impose their interpretation of the deal. This has been a recurring theme since December.

Having agreed to postpone discussions of which “local forces” will secure Hodeida city and the three ports once frontline forces have been redeployed away from the area, the government of Yemen subsequently backtracked, telling Lt. Gen. Michael Anker Lollesgaard that they would not implement their part of the deal until the issue had been resolved. Lollesgaard, who chairs the Redeployment Coordination Committee (RCC) – a joint Huthi-government of Yemen working group formed to hammer out details of the agreement on the ground in Hodeida – and heads the UN Mission to Support the Stockholm Agreement (UNMHA), was forced to undertake yet another round of last-minute negotiations along with Martin Griffiths, the UN special envoy to Yemen, to prevent the deal’s collapse.

Then the Huthis raised their own objections. Their main issue is who will control the so-called “Kilo 8 triangle”, an industrial zone on the eastern edge of Hodeida that is currently one of the main frontlines. As part of the first phase of redeployments, the Huthis are meant to pull back 300 metres west from the area, and government of Yemen and coalition-backed forces are meant to pull back at least one kilometre east from the Red Sea Mills wheat storage and processing facility adjoining the industrial area. The Huthis want the area to be a “neutral zone” with no Yemeni security presence, but the government wants policemen loyal to Hadi to secure it, according to a government official.

The Huthis are also worried that the Yemeni government will try to renege on its part of the deal during the first phase of redeployments. They have asked Lollesgaard for more clarity on how a planned “monitoring mechanism” will confirm to the government’s satisfaction that they have redeployed their forces from the port. They also claim that if talks over a second phase of redeployments begin before the first has been completed, the government will use the discussion as a pretext to delay pulling back its forces. The UN is hopeful that it will be able to break the impasse by 1 March.

Though Huthi and Yemeni government officials have been engaged in a public spat over who is to blame for the delay in redeploying forces, they are not incapable of cooperation. Though Huthi and Yemeni government officials have been engaged in a public spat over who is to blame for the delay in redeploying forces, they are not incapable of cooperation. On 26 February, the UN travelled from Huthi-controlled Hodeida to the Red Sea Mills compound on the outskirts of Hodeida, which is controlled by the government of Yemen. For this to happen, the Huthis had to demine a section of the Sanaa-Hodeida highway leading to the Kilo 8 triangle. They had resisted doing this since the Stockholm Agreement was signed, arguing that reopening the road would allow their rivals to retake Hodeida. UN officials say that they were surprised that the UN team, which was sent to assess damage to the facility and the volume and quality of grain stored there, was able to enter and leave with little difficulty, the most encouraging signal rival forces have sent since December.

Elsewhere in Yemen, UAE-backed Security Belt forces said they pushed al-Qaeda in the Arabian Peninsula (AQAP) out of a key stronghold in Wadi Omran, in the Mudiya district of Abyan governorate. This and other recent operations are discomfiting groups affiliated with the government and not aligned with the UAE. The Security Belt and Elite Forces the UAE backs in the south are nominally under the command of the Hadi government, but in reality operate independently and have clashed repeatedly with Hadi loyalists, most notably during the January 2018 battle for Aden between the Southern Transitional Council (STC) and the government (see Update #5). The Hadi government and Islah, Yemen’s main Sunni Islamist party, which holds sway over tribal areas in the north, worry that there is a bigger agenda at play, with UAE-backed secessionist forces now pushing into border zones that once divided north and south. The day after the Wadi Omran operation, Hadi’s transport minister Saleh al-Jabwani said on social media that the government should bring lawsuits against “militias and mercenaries”, in what local media described as a clear reference to the UAE-backed troops.

Fierce clashes continued in the north between the Huthis and al-Hajour tribesmen in Hajja governorate. Some observers had predicted that the conflict, now a month old, might lead to a tribal uprising against the Huthis but thus far, the fight has not expanded significantly beyond Hajja. The Huthis meanwhile claim to have fired several ballistic missiles into Asir and Najran on 24 February, targeting Saudi troops near the border.

Bottom Line: The Stockholm Agreement has survived another week, but not without challenges. Ongoing delays in implementation are frustrating but restoring UN access to Red Sea Mills was an encouraging development. Meanwhile, ongoing tensions and clashes on the northern border and in the south are a reminder that the Yemen war is about much more than Hodeida.

Regional and International Developments

Donors pledged $2.6 billion toward the UN’s 2019 humanitarian relief plan for Yemen, with the UAE and Saudi Arabia promising $500 million each. This is in addition to the $250 million they had both announced in November 2018, meaning that the two Gulf states are funding more than half of the UN appeal.

The UN Security Council issued a presidential statement on 22 February once again requesting that the Secretary-General report on non-compliance with the Stockholm Agreement and noting that the council stands ready to consider further measures against violators. The statement came after concerted pressure from Saudi Arabia and the UAE to condemn Huthi ceasefire violations and delaying tactics. However, Riyadh and Abu Dhabi were both angry that Lollesgaard reportedly apportioned equal blame to the forces the UAE controls in Hodeida for ceasefire violations during his 22 February oral briefing to the Security Council, also suggesting that the Yemeni government delegation to the RCC was impeding progress (Lollesgaard’s briefing was held during so-called closed consultations, and there is no public record of his comments). In other news from New York, on 26 February, the Security Council extended its Yemen sanctions regime by one year and the mandate of the Panel of Experts reporting to the sanctions committee until 28 March 2020. The Council also asked the Panel to next report on sanctions implementation and violations by 28 July 2019.

In Washington, a joint resolution passed by the House of Representatives, which would direct the U.S. to “remove its armed forces from hostilities in or affecting the Republic of Yemen, except U.S. armed forces engaged in operations directed at al-Qaeda or associated forces” within 30 days of enactment, had its status as a privileged bill revoked because of last-minute amendments. The bill has been remanded to the Senate Foreign Relations Committee, where it is unlikely to be brought to a vote anytime soon. Senators Bernie Sanders, Mike Lee, and Chris Murphy plan to push legislation with similar text in the Senate, but that bill would then have to return to the House for action. This means a bill is not headed to the President’s desk for signature or veto in the near term.

The EU and the League of Arab States (LAS) held their first-ever summit in Sharm el-Sheikh, Egypt, on 24-25 February. In a joint declaration, the EU and the LAS gave their full support to the UN special envoy for Yemen and called for the implementation of the Stockholm Agreement. In November 2018, Germany’s ruling coalition rejected licenses for future arms exports to Saudi Arabia and imposed a temporary moratorium on deliveries of previously approved equipment to Saudi Arabia after the killing of Jamal Khashoggi. This moratorium will expire on 9 March. Germany is under pressure from Britain and France to exempt big defence projects from its moratorium on arms sales to Saudi Arabia.

Reacting to a recent jihadist attack in Iran by Jaish ul-Adl, which the Islamic Republic claims to be backed by the UAE and Saudi Arabia, Sadollah Zarei, the head of the Iranian Qods force’s think tank, warned that those two countries “should know that if hurting Iran from Pakistan’s soil is a ‘good opportunity’, Iran has better access to the ‘good opportunity’. If it is needed, Iran can be present in a friendly country to hurt the many Saudi and Emirati forces there and make them leave that country,” a comment that would appear to reference Yemen.

Bottom Line: The UAE and Saudi Arabia have been less vocal this week about their frustration on the slow pace of implementation of the Stockholm Agreement, either because they have been sufficiently mollified or because they recognise the limits of what Security Council members are willing to say – and the dangers of demanding that ceasefire violators be named and shamed. Bellicose rhetoric from Iran is a reminder that the alternative to slow, painful implementation of the agreement could be a more violent conflict in which Tehran is more openly involved.