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Yemen: Corruption, Capital Flight and Global Drivers of Conflict

Chatham House Report
Ginny Hill, Peter Salisbury, Léonie Northedge and Jane Kinninmont, September 2013

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  • Far from being on a guaranteed path towards a secure, prosperous future, Yemen confronts serious risks of political instability and a looming resource crisis, forced by the rapid depletion of the oil reserves that underpin the state budget.
     
  • The interim government of Yemen has committed itself to political and economic reforms, but may struggle to push them through in face of the resistance of incumbent elite interests.
     
  • A small elite forms Yemen's political economy: around 10 key families and business groups with close ties to the president control more than 80 per cent of imports, manufacturing, processing, banking, telecommunications and the transport of goods. The substructure of the pre-uprising political economy has remained largely intact throughout the transition, with all evidence pointing to internal 'rebalancing' between elite beneficiaries as opposed to radical change.
     
  • Further blockages to Yemen's development include outward capital flows facilitated by tax havens, which dwarf international aid inflows. For every dollar spent on aid in Yemen between 1990 and 2008, another $2.70 left the country.
     
  • Failure to achieve significant reform in the oil-based patronage system represents the greatest risk to a successful outcome for the transition. Successful elections – if elections are held at all – will not necessarily translate into an immediate sense of improved political legitimacy, and policy-makers therefore need to prepare for future political unrest and scenarios where Yemen becomes poorer and hungrier.
     
  • The report recommends that Western and Gulf donors need more effective strategic planning to reconcile the differences and trade-offs between short-term security and counterterrorism priorities and longer-term political and economic development objectives.
     
  • To avert Yemen's economic collapse and promote its political stability, donors in Yemen need to mainstream political economy analysis and improve their understanding of elite incentives. Tackling illicit financial flows from states like Yemen to tax havens should be a global priority, including in the post-2015 global development agenda.
This report is the culmination of a major, multi-year research project led by the Chatham House Yemen Forum, involving intensive fieldwork in Yemen, expertlevel workshops and detailed consultation with donors, diplomats, defence ministries and civil society organizations. 
 
More about the Yemen Forum.
Yemen Key Facts
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