Yemen sits at the southwest tip of the Arabian Peninsula, between Oman to the east and Saudi Arabia to the north. It overlooks the Bab al-Mandab Strait where the Red Sea joins the Gulf of Aden. The country has suffered from persistent geopolitical instability despite the 1990 merger of North and South Yemen. It has been locked in a complex civil war since 2015, with the rebel Houthi group fighting against the Yemen government backed by a Saudi-led coalition, the Islamic State and Al-Qaeda. The prolonged civil war has led to famines and humanitarian crises in the country.
Yemen is a small oil-producing country outside of OPEC. Despite this, it is one of the world’s poorest countries and has fairly large and young population compared to many other Middle East nations. Yemen allows foreign oil companies to exploit its oil fields in light of their capital and technology resources. Prior to the civil war in 2015, the oil sector accounted for 65% of its fiscal revenue and one-quarter of its GDP. Yemen’s oil exports have been suspended since early 2015, with the ongoing conflict disrupting oil production, including facilities operated by foreign investors. Small-scale oil exports from Yemen resumed in 2017. International oil companies in Yemen, such as Austria’s OMV are also looking to resume oil production in south Yemen in 2018.
Yemen’s exports are mainly gold in 2016, with UAE and Oman as the major markets. This is followed by petroleum products, with China and Thailand being the prime export markets. Yemen mainly imports wheat, machinery and equipment from UAE, Oman and China. It runs a recurrent trade deficit and its economy is also dependent on foreign aid and remittances from Yemeni workers in neighbouring Gulf countries. Agriculture is also an important sector of the Yemeni economy, employing half of the labour force. The scarcity of water remains a major challenge for Yemen in its attempt to increase its harvest.
Yemen acceded to the WTO in 2014 and is also a member of the Greater Arab Free Trade Area (GAFTA). In attending the Belt and Road Summit in Beijing in May 2017, the Yemeni delegation presented the country’s needs to rebuild and develop infrastructure, calling for investment in the energy and mineral sectors. In July 2017, China provided a grant of US$22.5 million in relief assistance to the Yemeni government. Apart from trade with Yemen, many Chinese enterprises have invested in the country, particularly in the oil fields exploration (e.g. Sinopec) and telecom infrastructure (e.g. Huawei).
Yemen’s General Investment Authority (GIA) is the national agency for FDI promotion and coordination. Incentives are offered to foreign companies investing in sectors targeted for development, including agriculture, transport, housing, tourism and industrial zones.
Yemen’s cumulative FDI stood at US$2.9 billion as at end-2016 compared with US$3.4 billion as at end-2015. According to statistics from China’s Ministry of Commerce, Chinese cumulative FDI in Yemen was US$39.21 million as at end-2016.