Political Factors and Their Influence on FDI in Yemen: A Report

This report analyzes the political factors influencing Foreign Direct Investment (FDI) in Yemen, drawing on interviews and case studies to understand the impact of government policies, war, and corruption on the national economy. The analysis explores the role of the government in business activities, the effects of the ongoing war on the economy and business investments, and the pervasive issue of corruption. The findings reveal that the political instability and conflict significantly deter foreign investment, affecting sectors like coffee export, tourism, and mining. The report highlights the challenges faced by Yemen in attracting FDI and suggests that the country's high-risk environment, coupled with the lack of a stable political climate, hinders economic growth and development. The study emphasizes the need for political stability and the eradication of corruption to create a favorable environment for foreign investors, ultimately fostering economic progress.

Running head: POLITICAL FACTORS INFLUENCING FDI IN YEMEN
Political Factors Influencing FDI in Yemen
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POLITICAL FACTORS INFLUENCING FDI IN YEMEN
Data Analysis:
The following chapter has been structured on the basis of the chosen themes that have
been discussed through the interview process. Two different segments have been taken into
consideration while analyzing the data. First, the primary data were collected through the process
of interview; second, collective information has been retrieved from a case study associated with
the topic. In fact, the political intervention in Yemen’s national economy and its position in the
global economy can be related with each other. In order to analyze the interview response by six
different interviewees, three different themes have been chosen. Following is the list of themes:
i) Role of Government for Business Activity
ii) War in Yemen and its Effect on National Economy
iii) Corruption in Yemen
Depending on the aforementioned themes a cognitive understanding of the political
scenario in Yemen has been developed. The predominant force of the analysis has
encompassed the thought process of political consolidation with the foreign companies.
However, it has been observed through the process of the interview that Yemen is devoid
of enthralling foreign investment that leads to certain dwindle of overall graph of the
national economy. From the literature review, it has been evidently understood that the
national economy of Yemen is highly dependent upon the intervention of the companies
from Middle East- specifically the UAE. This chapter of the paper is going to be
segmented into two different sections-
i) Primary Data Analysis
ii) Secondary Case Study Analysis

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However, it needs to be noted that no statistical data has been retrieved in order to analyze the
issue.
i) Primary Data Analysis (Qualitative):
Six different interview respondents have been chosen in order to find out how
impactful this would be in terms of making a proper decisive data record. The
respondents provided their individual response on the questions based on the
aforementioned theme.
Theme 1: Role of Government for Business Activity:
Upon this theme, there have been several comments. The first interviewee, a business
leader has succinctly demonstrated his view that the Government of Yemen ought to shoulder the
responsibility to handle the internal economic flow of the country. As a matter of fact, this has
been taken into certain consideration pertaining to the effective understanding of the process
where there is a clear understanding that in most of the issues, the procurement studies the
process of different understandings with the effective culture.
In the second interview, the respondent did not succinctly comment on the Government’s
effective role on the business activity of the country. However, the response did not deny the
fact.
The third respondent, a senior political affair officer has considered the question a
broader one since this particular theme is embodied with different theories in terms of political
and economic perception. However, it has remained quite conspicuous that the Government of
Yemen has not remained effective in controlling the business process in national level. There has
been continuous inter regional conflict between the North and the South of Yemen. The

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obligation of the government can hardly be avoided as it constitutes of several dire activities in
both national and international level. The third respondent has focused on the implementation of
the legal environment in the business process within the country.
According to the fourth respondent, the government of any country like Yemen, can
single handedly control taxation and regulation of the country’s business activity otherwise,
the business process ought to be kept aside without much intervention.
The fifth respondent focused on the social contract of the government with the
business organizations which would persuade them to follow certain business rule. This
particular contract, according to the response, needs to be built between the government, the
people and the business. In this process different theories can be interpreted to analyze the
role of the government in terms of controlling the business process with ease.
The theories that have been taken into certain consideration are:
i) Theory of Monopolistic Advantage: government’s control over the economy in
prevalence
ii) Oligopoly theory of advantage: government’s perception and role play on market
control
iii) Product life cycle model: whether the government plays a role of important
determinant in the market
iv) Eclectic theory: conceptualizing ownership advantage

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According to the US department of State, the investment climate in Yemen has undergone
slight improvement in past three years. The growth has been more than 5 % in the overall
economic performance. With the agreement of the Government of Yemen to join WTO (World
Trade Organization) in 2014, this has been quite impactful in the national economy of the
country.
According to most of the responses, the Arabian intervention in the country has
reportedly disrupted the situation, which would, perhaps, be tackled by the effective in the entire
understanding of the process. The US companies- both tertiary sectors and the major corporate
manufacturing ones- after 2015, relatively show interest in investing in the Yemen economy so
as to gain effective profit from the country. However, there is an authentic reason for backing out
by those companies, and that has been continuous civil war. As a matter of fact, this has been
taken into certain consideration that the US Department of State has been showing more interest
to the investment of the country with special concentration upon specific threats from terror
groups that have been prevalent in the Arabian Peninsula. Threat from AQAP (Al-Qaeda in the
Arabian Peninsula) has been shattering the hope of the foreign investors in the country. It has
been noticed that there has been mere intervention of the Government in terms of creating a
strong focus in the basic economic infrastructure. However, post 2015 era has undergone
certain change with the implementation of US foreign Corrupt Practices Act. It has been
observed that the federal government of Yemen has not taken any stern action in terms of
eradication corruption from its root in business sphere.

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POLITICAL FACTORS INFLUENCING FDI IN YEMEN
Theme 2: War in Yemen and its Effect on National Economy and Business:
Uninterrupted environment leads to effective business progress in an economy. The
environment does not only constitute of the core economic and political scenario, but it also
relates to the national social attributes.
The respondent of the first interview has considered the war in Yemen as the
major hurdle to the business investment. It has been earlier specified that Yemen had witnessed a
succinct economic recovery period in 2014. However, post 2014-15 sessions has been shattered
with continuous vehement war that originated from the clash within the country. During the war,
the living condition of the people in the country has become quite adverse- both economically
and politically. The currency value of Yemen has been affected by this process thus creating an
effective value for the entire case. As a matter of fact, this has been taken into certain
consideration pertaining to the effective understanding of the issues that was highly imperative in
cross cultural countries. The Central Bank of Yemen kept struggling to cope up with sudden
downfall of the currency value. However, such certain downfall highly affected the business
process in both national and international level. More than the war, constant threat from the
Houthi rebels has also collapsed the process of business investment thus discouraging the foreign
investors in terms of both the security reasons as well the as the economic focus this has been a
continuous focus with the effective understanding of the process.
Saudi Arabia, on the other hand does not intend to provide adequate aid and
assistance to Yemen that is shattered during the War. According to the first interviewee, the war
has stood as an unbreakable hindrance in front of the export of potential Yemeni goods such as
coffee. Though foreign investors from China and USA had earlier shown interest in investing
capital in the country, constant threat of the war has been thwarting their business venture thus

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leading to utter failure. Yemen has a huge potential of coffee export for which it can build a
strong supply chain with the foreign companies for the processing. The country’s business
venture has also been in front when the foreign investors from the Middle East and Asia were
interested in pursuing business in this particular industry- such as coffee processing. Yemen has
potential in mining industry as well. As a matter of fact, this has been a matter of interest in
terms of creating a basic value for the entire understanding with the effective situation. Since this
has been taken into certain consideration pertaining to the effective understanding of the fact that
most of the investing countries are afraid of their huge business loss due to the ongoing agitation
and war, foreign direct investment (FDI) remains only a dream for Yemen. The first interviewee
has also observed the fact that tourism industry has high potential in the country to flourish.
However, tourism in the country has been blocked due to certain political and social turmoil and
war has only added an extra blockage to it.
According to the response of the second interviewee there has been a strong
apathy from the foreign investors to invest capital in Yemen due to finalize the basic
understanding of the case. This has been taken as a ride concern that most of the basic
understanding in this aspect has been taken into certain consideration pertaining to the effective
war fair. The second interviewee has also observed that any small business activity associated
with FDI in the country is hampered by the ongoing war. Nin this regard it can be stated that in
most of the cases there has been a strong reason for the investors to take off their face from the
industrial expansion in the country. This is how it has been taken into certain consideration that
in most of the cases it needs to be taken into certain account that the FDI inflow in the country
might get a fairer review after the war is over in near future, however, the respondent has doubt

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pertaining to the assurance that there would be no war in the future and he has kept the
Government of Yemen absolute responsible for this case.
According to the response of the third interviewee, there is a hope that would
drive the country to its successful FDI practices. This has remained quite important a segment
with growing population rate as demand is always increasing though there is no adequate supply
of products such as oil and other essential commodity in the market.
According to the response of the fourth interviewee, “Yemen is currently a high
risk environment and will only attract investments of a speculative nature: companies may be
looking to buy into certain areas”. The interviewee has focused on the industries such as
fisheries, mining and oil. As a matter of fact, this has been depending on the real speculation and
hope of the foreign investors that the environment in Yemen would improve gradually. As a
matter of fact, this has been taken into certain consideration pertaining to the fact that there is a
clear understanding of the environment that is highly affected by ongoing war. Yemen has
undoubtedly turned in to a threatening warfare thus concerning about the extravagant
understanding of the issues. Quoting the response of the interviewee, “In the immediate sense,
there are – ostensibly – three governments – the Huthi-led Government in Sana’a, the
Government in Exile led by Hadi, and a new Southern Transitional Council. In the North the
key power-brokers also include Ali Abdullah Saleh and his entourage”, it can be stated that the
basic problem lies in this fact that the country’s ongoing political turmoil is not only affecting the
market structure, but it is also shattering down he basic consequence of how the war would focus
on the basic limit. There is a chance to fight with the effective cause of the war.

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Theme 3: Corruption in Yemen:
In this regard, the response from the first interviewee can be quoted,
“Unfortunately the government under Ali Abdullah Saleh was only interested in a corrupt and
nepotistic dynasty and, aided and abetted by Saudi for many years, perpetuated a siphoning off
of the oil and gas wealth (admittedly not on the scale of other nearby country deposits) to the
ruling elite “. Taking this into account it can be stated that corruption in Yemen among the
political groups has highly affected the market stakeholders i.e. the middle class and the lower
class customers. Despite being economically backward a country, Yemen has only remained
favourite for its internal elites. Such discrimination has highly demoralized the basic interest in
FDI as the capital in the country is less.
The second interviewee has observed that corrupt administrative system in Yemen
can be held responsible for being the barrier against FDI in the country. From the case study it
can also be stated that this has been taken into certain consideration pertaining to the effective
fact from the entire case in terms of creating a transparent business environment.
Even the third interviewee has identified corruption in the administrative circle as
major hurdle for economic development in Yemen. This has remained quite important a fact that
corruption in association with the war has been threatening the lives of the citizens as well as the
development of economic status of the country as it closes the door for the foreign investors to
perform transparent business in the country. This has remained an effective threat.
The fourth interviewee has observed that there is a corruption in considering
human resource has been a major issue in the country. To be quoting the response, “The over-
arching bias of the oil and gas industry in FDI. The O&G industry has typically inflated wages

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and skewed the nature of employment with disastrous results. By paying drivers salaries that are
double that of teachers with thirty-year’s experience they have produced a highly competitive
market for jobs in the oil sector – with all the nepotism and corruption that comes alongside this
bias”. Taking this response into account, it can be stated that in most of the cases there has been
corruption in every level. Even the poorest labourers are not exempted from such malpractices.
This is how the FDI in Yemen is highly threatened.
Conclusion:
From the aforementioned information and the responses it can thus be concluded that the
foreign policy in the country is highly hindered by several threats. This has remained quite strong
which needs to be fought in a gradual manner. The conclusion can be drawn on the basis of the
themes discussed above:
Theme 1 (discussion and conclusion):
The first theme dealt with the role of the government of Yemen in ensuring effective
foreign direct investment policy in the country. The discussion was based on the responses and
the case study. As a matter of fact, this has been quite effective a fact that the Government of
Yemen has been a regulatory body that has itself shattered the foreign investors’ interest to
pursue business in the country because of apathy to the intention of the development of national
economy. On the other hand, the constant conflict within the government bodies have been
affecting the basic changes as it has been taken into certain account that in most of the cases this
has remained quite impactful in the process of FDI. From the discussion on the first theme i.e. it
has been focused on the matter that in most of the cases the Government was itself shattered with
the ongoing political turmoil and threat from the terror groups- specifically ISIS and AQAP.

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Theme 2 (Discussion and Conclusion):
As a matter of fact, the most important factor pertaining to the resistance towards Foreign
Direct Investment (FDI) has been taken into certain consideration pertaining to the effective
understanding of the fact that most of the foreign investors are highly restricted due to the war in
Yemen. The discussion on this particular theme was developed on the basis of the responses as
well the as the case study. War in any country would distract business practices. The World
Wars can be taken as most paradigmatic example of economic destruction. Yemen’s economy
has significantly dwindled during the war period despite its sudden rise in the session 2013-14.
In this regard it can be stated that there is a clear understanding of the factor pertaining to the
effective chance on the war that was highly affected by most of the practices. It has been
observed that the Government of Yemen has failed in controlling the vehemence of the war that
has adversely affected the foreign investors from showing utter interest to invest large scale
capital in the country. As per the discussion with the interviewee, it has been conceptualized that
the war has become the greatest threats of all. FDI needs a friendly environment in an economy.
Yemen undoubtedly has great potential in terms of attracting the major companies in the country.
With such greater potential, it also has the scope for certain economic development. However,
war does not provide simplest of platform to the companies where they could sow the seed of a
branch.
Theme 3 (Discussion and Conclusion):
Having analyzed the theme, i.e. corruption in Yemen, it can thus be concluded that this
has remained quite effective a fact for the external quality of industrial development through
FDI. It has already been discussed that in most of the cases the Yemeni economy is shattered by
the continuous rage of war. However, this has remained in the hand of the Government or the

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administrative circle that is itself alleged with corruption. The level of corruption has been a
major issue pertaining to the effective understanding that this has been quite an important factor
for the entire concept with the basic understanding of the fact in terms of creating an effective
understanding with the general issue. As a matter of fact, in most of the cases, there has been a
constant threat from the government in terms of providing opportunity to the greater number of
the labourers. Class division on the basis of economic status has remained a major threat in the
Yemen society. The government decisions have often seemed to be biased too the elites thus
eradicating the rights of the common middle class people who comprises major population in the
country. Such divisive attitude of the administrative circle has not only worsened the economic
situation of the people, it has also shattered the trust of them in terms of providing adequate
human resource to the foreign companies who intend to invest in the country.
Recommendation:
Considering the analysis and the discussion in the conclusion, several corrective
measures can be recommended pertaining to the comparative discussion of this particular issue.
It has been observed that the sole responsibility lies upon the shoulder of the government of
Yemen and the associated administrative bodies. This has remained quite effective in terms of
creating a major scope for the foreign investors. The economic pattern of the country needs to be
changed. At first the Government ought to be specific in terms of selecting the need of the
market. From stringent agro based economy, the Government needs to focus on liberalising the
pattern. It has been observed that nationalization has so far been failure specifically in Yemen as
the government organizations in the country has sunk in corruption. Its link with the world trade
Organization needs to be strengthened so as to confirm its strong support from the capitalist
groups. Since the United States has already focused on the rectification of trade relation with