Priorities for the Recovery and Reform of the Electricity Sector in Yemen

Electricity is the backbone of any economy and one of the necessities of modern life. Since even before the current war, poor electricity services in Yemen have been one of the key barriers to sustainable economic development and basic service provisions, such as water supply, health care, and education.

This policy brief presents an overview of the electricity sector and its relevant indicators prior to the conflict. It then outlines the impact of the conflict on the sector, and concludes with a set of priorities for restoring the pre-war capacity of the electricity sector, then further reforming it to improve its performance.

Immediate- to short-term recommendations include: adopting a realistic and practical recovery plan; securing funds for rehabilitating the infrastructure; reviewing the electricity tariff; reducing technical and non-technical electricity losses; purchasing electricity when needed through a competitive process and via least-cost options, such as gas and renewable energy; securing the fuel supply and the salaries of sector staff; resuming all suspended projects; finding sustainable and feasible solutions for the electricity supply in each governorate to avoid the challenges associated with the centralized grid; and installing sustainable stand-alone solar systems, compatible for connection to the national grid (when restored).

The medium- to long-term priorities include specific recommendations under five categories, relating to: the legal and regulatory framework; institutional arrangements; capacity and performance; private sector participation; and technical issues.

This policy brief was developed based on a more detailed research paper published under the same title by Rethinking Yemen’s Economy project in May 25, 2021. The full research paper can be viewed on this the Development Champions Forum website or by clicking on this link.

Background

The electricity sector in Yemen is managed by the Ministry of Electricity and Energy (MoEE) which is responsible for setting the sector policies and strategic plans, while the Public Electricity Corporation (PEC) is in charge of electricity provision, managing the electricity sub-sectors of generation, transmission, and distribution. The General Authority of Rural Electrification (GARE), established in 2009, is the body responsible for electrifying specific rural areas that are located outside the main and secondary cities.

The electricity sector activities are governed by Electricity Law No. 1 of 2009. The law stipulated several positive and ambitious measures to reform the sector and improve sector performance, such as unbundling the PEC into three corporate entities – one each for generation, transmission, and distribution – and creating an independent regulator to control sector activities. None of these measures, however, has been achieved to date.

 

Interrelations Among Key National Stakeholders

Private sector participation in the electricity sector started in 2006 and was limited to electricity generation activities. The PEC purchased the energy from private producers, based on short-term contracts, and supplied them with the fuel needed for generation. The role of the private sector was mainly to back up the PEC in bridging the electricity supply gap. In 2013, the share of purchased energy accounted for around 38 percent of overall generation, while from 2008 to 2012, the average cost of purchased energy represented around 48 percent of sold energy revenues. This indicates that the government – and the power sector in particular – incurred significant financial burdens due to purchased energy from private producers.

Until 2015, the residential sector accounted for most of the country’s electricity consumption, at 65 percent. Given the unreliability of the supply, most of the facilities in the economic sectors, such as commercial and industrial, relied on their own diesel generators as their main source, or as a backup system. In 2012, there were around 2 million subscribers in the electricity sector, and the gap in generation capacity was 376 MW. Due to limited capacity, the unserved energy demand was around 33 percent in 2011 and 25 percent in 2012. Thus, there was a need to disconnect some subscribers at peak times. The electricity tariff was heavily subsidized and was far below the high cost of supply. In 2014, the average cost recovery rate was only 33 percent (as per local market fuel prices).

The Marib I & II gas-fired power plant projects, as well as electricity interconnection projects with neighboring countries, are strategic components of the generation subsector. The Marib I gas power plant was installed in 2009 in Safer, near the gas field, supplying around 50 percent of all Yemen’s generated energy and 40 percent of its actual installed capacity (340 MW). The plant played a crucial role in enhancing generation capacity using the least-cost and locally available resources.

As a second phase, the construction of the 400 MW Marib II began in 2013, with plans to start generation in late 2014. There was also a plan to expand the capacity of Marib I & II by converting them from open-cycle gas turbines to combined cycles. Due to political unrest, the second phase was suspended. Interconnection projects with neighboring countries, namely Saudi Arabia and, via Djibouti, Ethiopia, were under discussion. These projects, however, did not materialize.

Worthy of note, too, is the country’s attempts to utilize renewable energy technologies. Yemen is endowed with significant renewable energy resources, specifically wind, solar and geothermal. Yet, although the National Strategy for Renewable Energy of 2009 set a target of 15 percent renewable energies in the generation mix by 2020, the deployment of renewable energy applications before the war was minimal. The first large-scale wind farm project, of 60 MW, was to be installed in Al-Mokha, funded by several international institutions. Again, due to the war, this project has been suspended.

Wartime Developments

Prior to the war, the installed generation capacity of the electricity sector was significantly low, at 1.5 gigawatts (GW), with the actual capacity only 67 percent of this. The main reason for this low capacity was that most of the key power plants were aging and inefficient. Electricity generation was improving steadily, however, up until 2010, with the 340 MW Marib I gas power plant mentioned above the most recent strategic project. In addition to the limited available generation capacity, losses were substantial, exceeding 40 percent in 2013. This energy loss, combined with a low bill collection rate, a significant tariff subsidy, and the purchase of electricity from expensive sources, were major issues bleeding the sector.

In terms of annual electricity consumption per capita, in 2014, this stood at 255 kWh/year. This was extremely low compared to the regional and international level, where the amounts are 2,900 kWh/year and 3,100 kWh/year, respectively. Due to stunted improvement in electricity expansion, the access rate to public electricity in 2014 was around 40 percent of the population. Furthermore, although the rural areas host around 75 percent of the Yemeni population, the electrification rate in those districts was extremely low, at 23 percent, compared to 85 percent in urban areas.

During the current war, the public electricity sector has been substantially affected by the ongoing armed conflict, suffering considerable physical and non-physical damage. The conflict and the absence of reliable infrastructure have also negatively affected the provision of other basic services, such as health, water, and education. Indeed, it is estimated[1] that during the ongoing war, about 90 percent of the population has not had access to public electricity. In 2020, only 50 percent of health facilities were functioning and they remain negatively affected by power outages up until today[2]. While around 32 percent (303 MW out of 906 MW) of the available capacity of the power plants previously connected to the national grid are still functioning, given the collapse of the grid, those power plants mainly supply local demand.

There is also a divergence between those areas controlled by the internationally recognized government and those controlled by the armed Houthi movement (Ansar Allah), in terms of electricity supply. In the former, supply has remained largely the same; the government-led supply and tariff remain subsidized, with significant reliance on purchased electricity from private producers, and with sporadic fuel grants and support from Saudi Arabia and UAE to address the limited fuel supply. In Houthi -controlled areas, electricity generation has changed to private-led supply. Several private grids are currently providing electricity through small generators.

Since the collapse of the national grid, the solar photovoltaic (PV) market has also boomed at an unprecedented rate, becoming an attainable electricity alternative. This is especially so in the northern and central governorates, where national power plants are not functioning and the price of private electricity is unaffordable for most. In December 2019, around 75 percent of the population used small solar systems as the main source of electricity.

Policy Recommendations

Despite the deteriorating situation in the power sector, especially since the start of the current war, there is an opportunity to build a stronger electricity sector in Yemen.

The following section includes priorities for restoring and reforming that sector. The applicability of these recommendations, however, relies on a highly supportive political environment and the support of international donors/lenders, as well as effective management by sector leaders.

Immediate- to Short-Term

The recommendations below are timed for the current situation and the first year following any potential peace agreement and/or political stability. The aim at this stage is to restore the sector to its previous capacity before the war and prepare a sound foundation for the reform process that must follow the initial recovery phase. The following steps are therefore recommended:

  • Adopt a systematic and executable recovery plan for infrastructure rehabilitation priorities in the generation, transmission, and distribution subsectors.
  • Secure funds, whether from government financial resources or international donors/lenders, to rehabilitate infrastructure damaged during the war; maintain power plants requiring spare parts; and other corrective and preventive maintenance.
  • Rehabilitate essential transmission lines needed to transmit power from large power plants to demand locations. These rehabilitation efforts can be timed in line with the recovery plan.
  • Look for effective, financial, and technical solutions/settlements between the relevant parties in the conflict regions to enable the re-starting of the national grid – including the main power plants, such as the Marib I gas power plant, as well as thermal power plants across the governorates.
  • Work towards the resumption of all suspended projects and regain the support of international donors.
  • Purchase electricity from private producers as needed, via a transparent and competitive process. This would preferably be via schemes that result in the PEC owning the infrastructure, such as build-operate-transfer (BOT) and build-own-operate-transfer (BOOT), when these are feasible, both technically and financially.
  • Work towards finding feasible and sustainable solutions for electricity supply in each governorate, both for the current situation and for backup in emergencies when and if the centralized system fails. This may include a demand-need assessment for each governorate. Top priority goes to those governorates/areas that have no generation assets and have thus lost access to electricity since the war started. One of the best options, especially in hot and conflict-affected areas, is to install the least-cost distributed generation systems (i.e., mini-grids), given their operational flexibility and the short time needed for installation.
  • Enhance the efficiency of the generation and distribution subsectors; reduce technical losses through proper maintenance; improve the capacity of the overloaded grids’ components; and restore the actual capacity of the power plants. For non-technical losses, it is necessary to reduce unauthorized connections to the grid, increase fee collection and develop the capacity of those who manage the billing and metering. In addition, install prepaid meters.
  • Secure sustainable salaries for the electricity sector employees and develop the capacity of the team at all levels and in all fields of specialization: managerial, technical, procurement, etc. This requires assessment and capacity building for the current staff.
  • Improve managerial practices and ensure there is an effective delegation of capacities for the skilled and qualified directors/managers who lead the departments/units. This means distributing the responsibilities among different levels of management, setting specific goals, performance indicators, and clear job descriptions. Separate the managerial and financial activities of the three subsectors to enhance accountability and pave the way for restructuring reforms.
  • Ensure decision-making autonomy for operations of the electricity sector, especially for those projects that need to be implemented in line with the sector’s strategic plans, or those that require technical and financial feasibility studies.
  • Secure sustainable fuel supplies for the power plants through local supplies, imports, and grants.
  • Determine the human resources needed and work on re-attracting the well-skilled staff who left during the war. Find replacements for the highly experienced staff who have retired during the past six years, or will retire in the near future.
  • Update and benefit from the previous studies and strategies conducted by donors and international consultancy firms, such as the Master Plan, National Strategy for Renewable Energy and the Energy Efficiency[3], and Rural Electrification Strategy.
  • Encourage consumers and service facilities to install high-quality and well-designed solar stand-alone systems that are sustainable solutions, as well as connection compatible, once the grid is again operational. This requires surveying the solar PV market, adopting quality specifications and standards, establishing labs for testing, and checking the compliance of  imported products, alongside facilitating the importation process and exemption of solar PV products from custom duties in all the country’s ports. The improvement of technical and safety awareness is also necessary, as regards the proper use of solar systems and the disposal of used components, such as batteries, solar panels, and electronic waste.
  • Review the electricity tariff based on a consultancy study that addresses its social and economic dimensions, including affordability for consumers from all sectors, demand load forecast, and others. The study should also include a timeline and achievable milestones that aim to reduce the subsidy in those areas where electricity is currently subsidized. If the study advises postponing any increase in the tariff, the government should support the PEC in finding financing channels to help cover the electricity subsidy, in order to meet its operational costs and ensure a reliable electricity supply. There is also a need for social protection mechanisms that target poor people who cannot afford the electricity tariff when the electricity tariff is unsubsidized.

Medium- to Long-Term

These recommendations are applicable during the two- to five-year period following any potential peace agreement and/or political stability. This stage focuses mainly on reforming the sector in accordance with the relevant steps taken before the war and best international practices.

In general, the success of the reform process – especially the restructuring of the sector, the creation of an independent regulator, and the degree of private sector engagement – needs a political commitment translated into an enforceable decree for reform. High-level leaders, supported by a committee of senior experts, should work on initiating, supervising, and directing the reform process so that it obtains stakeholder consensus and ensures smooth reforms leading to the establishment of a modern electricity sector.

Legal and Regulatory Framework

There are a considerable number of important laws and regulations, drafted and/or adapted before the war, that need to be enforced. The reform process can thus build on previous efforts, as well as develop new laws and decrees, to better govern the sector. The following steps are therefore recommended:

  • Approve the public-private partnership law drafted before the war, with updates if needed.
  • Amend the previous electricity laws as needed, to accommodate new changes in the sector.
  • Adopt the necessary supporting policies, regulations, and schemes for engaging the private sector in the electricity generation and distribution sector through BOT and BOOT, among others.
  • Approve the renewable energy law, supported by an updated and executable action plan, resources assessment, and mapping. In addition, issue supporting policies, incentives, and schemes to encourage the private sector to invest in clean energy through feed-in tariffs, net metering, auctions, right-to-grid access, and priority of dispatch, among others.
  • Reform the electricity tariff and adjust its structure to include, for example, different tariffs by time of use. This may include a gradual removal of the subsidy from the electricity tariff to cover actual costs and generate acceptable level of profit that can sustain operations and investments in the network. In addition, there is a need to ensure that low-income consumers will not be affected negatively by increased tariffs.
  • Adopt energy efficiency action plans, including measures to reduce energy consumption in the electricity sector, as well as other sectors. Include specific measures for electrical equipment, buildings, lighting, and minimum energy performance standards and labels for appliances (e.g., air conditioning and refrigerators).
  • Adopt a law for sound waste management of electronics, solar panels, and batteries, including procedures of collection and recycling of waste.
  • Set a strategic plan that includes milestones towards liberalizing the electricity market through wholesale and retail markets. Appendix 5 of the full research paper presents the phases of competition reform.
  • Initiate the reform process through a legally binding document that gives authority to a political leader who can supervise and direct the reform process. This leader, with the support of technical and non-technical experts, needs to enforce the decrees, unify the stakeholder’s opinions, and make sure that the reforms lead to the desired outcomes.

Institutional Arrangement

The Electricity Law of 2009 included the main necessary steps for reforming the structure of the electricity sector. The following points emphasize the importance of enforcing the electricity law, as well as supplementary recommendations:

  • Create an independent regulatory entity to ensure an enabling investment environment that can promote fair competition among the stakeholders and protect the consumers. Appendix 3 of the full research paper presents a list of the regulatory performance indicators.
  • Resume and build on previous efforts to restructure the General Authority of Rural Electrification and create service providers in the rural areas.
  • Unbundle the electricity sector into generation, transmission, and distribution subsectors.
  • Set a strategic, executable plan for the horizontal unbundling of the generation and distribution components to liberalize the electricity market.
  • Create financial institutions and mechanisms to finance small- and large-scale energy project investments and provide soft loans and subsidies.

Capacity and Performance

Enhancing the capacity of institutions and individuals is key to improving the sector’s performance. Thus, the following steps should be taken:

  • Improve the governance and managerial practices of the PEC, such as implementing staff performance reviews as per predefined goals, financial auditing by a third party, ability to hire employees, and firing of poor performance employees, and others. Appendix of the full research paper presents a list of indicators for the utilities’ governance performance.
  • Develop innovative solutions to enhance the rural electrification programs. This needs to include accessible financing mechanisms for villagers to buy solar stand-alone systems, as well as mechanisms for investors.
  • Enhance the capacity of the electricity sector to deal effectively with donor-supported, large-scale projects, while also attracting new partners and projects. This should include a review of the entire donor collaboration and project implementation processes to ensure timely decisions and their implementation.
  • Enhance the capacity of training centers in the electricity sector and ensure staff development across all levels and in all fields.
  • Develop the capacity of the technical team to prepare technical and legal documents and regulations, such as standard Power Purchase Agreements (PPA), regulations needed for connecting the renewable energy project to the grid, feasibility studies, and others.

Private Sector Involvement

Perhaps counterintuitively, countries during a conflict or in a post-conflict transition phase have many investment opportunities, usually centered on the provision of unmet basic services and needs. The private sector can play an important role in infrastructure and economic reconstruction, which in turn results in several positive outcomes, such as an increase in private capital and job creation while (re)building local capacities and skills. The private sector also generates revenue for the government by paying taxes and other fees. Therefore, the following measures are recommended:

  • Adopt appropriate incentives and arrangements for attracting private sector investments. This especially applies to the technologies that generate clean energy (i.e., from renewable energy sources, namely, the solar, wind, and geothermal energy), or those with competitive prices, such as gas-fired power plants.
  • Engage the private sector in the electricity sector’s activities, especially in the generation and distribution sectors, which have significant potential for private sector participation. Appendix 4 of the full research paper presents several arrangements for involving the private sector in the electricity sector.
  • Provide fiscal incentives and guarantees to the private sector to minimize possible risks. These include: sovereign guarantees in case of premature contract termination; a take-or-pay clause in the PPA to guarantee the purchase of produced power when there is no demand; and a concerted effort to minimize risk for the private sector, especially in the initial post-war years.
  • Allocate land for electricity sector investments, especially for renewable energy projects where there are abundant resources.

Technical

Several technical recommendations are needed to improve the electricity services and their quality. The top technical priorities to enhance the performance of the generation, distribution, and transmission sectors are:

  • Improve the quality, reliability, and availability of the electricity supply by regulating the voltage level and reducing the number and period of interruptions.
  • Invest in installing power plants in line with previous plans and consider supplying the economic sectors (e.g., industrial and commercial) with a higher share of electricity generation. These sectors, especially energy-intensive industries, rely on electricity generated by diesel generators – an expensive option. Therefore, the cost of electricity produced by the PEC could benefit from the economies of scale of large power plants and generate electricity by least-cost options (i.e., gas), which in turn will be affordable for those sectors.
  • Develop the grid code for connecting renewable energy projects to the national grid.
  • Work towards the resumption of the interconnection projects with Saudi Arabia and Ethiopia.
  • Upgrade, modernize and expand the transmission and distribution infrastructure. One of the main causes of technical losses was overloading the already deteriorated or limited capacity of the electricity infrastructure. Upgrading this network will be an important step towards improving energy efficiency.
  • Develop and implement an emergency plan for the electricity supply, to counter unexpected crises and damages to the centralized grid. The plan can include installing distributed generation units in the governorates. Renewable energy power plants are preferred, to avoid the risks to fuel supply, especially during armed conflict and political instability.

 

Endnotes

 

  1.  “Overall Socioeconomic Developments,” Yemen Socio-Economic Update 20, Ministry of Planning and International Cooperation (MoPIC), November 2016, https://reliefweb.int/sites/reliefweb.int/files/resources/ yseu20_english_v8_final.pdf (accessed August 7, 2020).
  2. UN Office for the Coordination of Humanitarian Affairs (OCHA) Yemen, “Yemen Humanitarian Update” (issue 3), March 2020, https://reliefweb.int/report/yemen/yemen-humanitarian-update-issue-3- march-2020-enar (accessed August 7, 2020).
  3. The summary of the ‘National Strategy for Renewable Energy and the Energy Efficiency’ available at https://moee-ye.com/site-ar/364/
Priorities for the Recovery and Reform of the Electricity Sector in Yemen
November 11, 2021
Download Full Paper
Dwonload Full Paper

Share:

Related Pubications

Strengthening Governance in Government Plans and Economic Reforms

Executive Summary

This paper examines governance as the decisive factor shaping the success or failure of government reforms and current government plans in Yemen. It starts from a central premise: Yemen’s reform crisis is not primarily a crisis of planning or vision, but a crisis of structural weakness in the governance system that should regulate policy design, implementation, monitoring, and accountability. Yemeni experience, before and during the war, shows that reforms without a clear governance framework become formal decisions that are selectively implemented, stripped of substance, or unable to deliver sustainable impact.

The paper demonstrates that the implementation gap represents the central challenge facing government reforms—a gap resulting from overlapping mandates, multiple decision-making centers, weak institutional coordination, absence of effective accountability, lack of transparency and data, as well as the chronic disconnect between financial and institutional reforms. It also shows that corruption in the Yemeni context is no longer an isolated administrative phenomenon but has become part of deeper dysfunctions in the state’s political economy, making its treatment possible only through comprehensive governance reforms, not through discrete oversight tools.

Through analysis of a case study involving clearly formulated reforms that later stalled in implementation, the paper concludes that political decisions alone are not enough to ensure execution in the absence of an integrated governance system. Weak effective executive authority, the absence of a clear accountability chain, undeclared institutional resistance, and poor alignment between reforms and institutional capacities all contribute to disruption and operational paralysis.

Based on this diagnosis, the paper proposes a practical governance framework for reforms in Yemen. The framework treats reform as a continuous political-institutional process rather than an isolated technical or financial intervention. It is built on the need for a unified national reference for reform governance, clear mechanisms for assigning roles across institutions, a workable balance between centralization and local governance, and the integration of transparency and information systems at the core of the reform cycle. It also adopts a gradual approach that builds trust and reduces implementation resistance.

In light of this framework, the paper presents a package of practical recommendations to strengthen the governance of government reforms. These include adopting a unified national framework for institutional performance governance, strengthening financial governance through budget discipline and expenditure control, establishing a unified digital data system, and activating central and local accountability mechanisms based on clear performance standards, while also allowing regulated exceptional tools for economic crisis management. The paper emphasizes that these recommendations can succeed only through clear role distribution among the central government, local authorities, the private sector, civil society, and international partners, within a single national framework that leads the reform process without replacing state institutions.

The paper concludes that governance is not a procedural issue or an external condition, but rather the most realistic entry point for reconsidering government plans and transforming them into effective tools for economic recovery and institutional stability. Without systematically addressing governance gaps, government reforms will remain vulnerable to stumbling regardless of their technical quality or the support allocated to them. Building a clear and implementable governance system represents a genuine opportunity to rebuild trust between the state and society, improve resource utilization efficiency, and put Yemen on a more sustainable reform path.

Message to Decision Makers (Executive Note)

Why this paper now?
The Yemeni government today does not primarily suffer from a lack of plans or weak vision; it suffers from a chronic inability to convert approved decisions and plans into tangible results. Experience shows that this pattern undermines the credibility of political decision-making and reduces reforms to low-cost rhetorical commitments for actors who do not intend to comply.

What does this paper show?
This paper proceeds from a clear premise: the reform crisis in Yemen is a governance implementation crisis, not a policy crisis. Government reforms, regardless of their technical quality or political level, will not be automatically implemented in the absence of a governance framework linking decision, implementing entity, resources, follow-up, and accountability.

What does political decision-making require now?
Addressing this gap does not require launching new plans. It requires specific decisions that reorganize how reforms themselves are managed, strengthen the implementation and accountability chain, and protect political decisions from undeclared institutional disruption.

Risks of inaction
Continuing the current situation means the persistence of implementation gaps, erosion of domestic and international confidence, and transformation of reforms into accumulated political and administrative burdens. This paper presents a practical framework for reform governance without creating parallel structures or suspending accountability rules, preserving the role of state institutions and enhancing their implementation capacity.

April 30, 2026
Read More

Stability Through Investment: Reframing Yemen as a Regional Security Imperative

Executive Summary
The Republic of Yemen today faces one of the most complex investment environments in the region. This reality is the result of structural weaknesses that predated the war and were then intensified by political and institutional fragmentation, security deterioration, and economic collapse. Even so, international experience in fragile and conflict-affected states suggests that Yemen can combine high levels of risk with promising investment opportunities in sectors that can operate before full peace is achieved – provided that reforms are clear, political will exists domestically, and regional support is active.

Over the past decade, the war has produced financial and monetary fragmentation, multiple decisionmaking centers, and divergent laws and procedures. This has created two distinct economic environments: one in government-controlled (liberated) areas and another in Houthi-controlled areas. The result has been a sharp decline in confidence, weaker institutions, severe deterioration in purchasing power, and a continuing fall in the Riyal’s value, alongside rising operating, transport, and insurance costs. At the same time, many of these constraints predate the war: even before the conflict, Yemen was a difficult investment environment due to corruption, complex procedures, a weak judiciary, widespread illegal levies, and capture of state resources by influential power centers.

Despite this bleak picture, the regional and international context offers encouraging indicators that investment space can still be created, especially in government-controlled (liberated) governorates. Compared with Houthi-controlled areas, these governorates offer internationally recognized legal authority, open ports, limited but workable banking channels through official institutions, and stronger prospects for investor protection through international arbitration.

International experience in Iraq, Lebanon, Rwanda, and other conflict-affected countries shows that investment can begin gradually in sectors least affected by war, and that success in fragile environments depends on four pillars: understanding risks while limiting exposure, strong risk management, clear government reforms, and organized regional and international support. With current Gulf investment shifts toward Iraq, Lebanon, and Syria, Yemen – given its geostrategic location along major trade routes, its young population, and its strategic relevance to Gulf security – is a logical candidate to attract part of these investment flows.

There are also conflict-compatible sectors that can be entered today, such as:

  • Solar energy and electricity distribution
  • Telecommunications and digital transformation Transportation and logistics services and port development
  • Agriculture, fisheries, and food industries
  • Limited tourism projects
  • Economic and industrial zones, supply chains, and related services

These sectors operate by their nature in unstable environments and do not require comprehensive national stability, and can be a starting point.

The paper emphasizes that investment in Yemen, at this stage, cannot be treated as an unrestricted open
field. It must be governed by clear requirements, including a government commitment to supporting
investment, legislative reform, procedure digitization, elimination of illegal levies, access to international
arbitration, specialized government units for investor services, and the launch of a unified investment
window in Aden. It also requires regional guarantees and practical enablers through direct partnerships
with Saudi Arabia, the United Arab Emirates, and other Gulf countries.

Foreign investment also requires active participation by the Yemeni private sector through alliances,
stronger governance standards, audited financial statements, and partnerships with Gulf investors through joint ventures (JVs) rather than stand-alone efforts. It also calls for a new donor role that goes beyond relief to support joint investment, improve the business environment, and provide financing guarantees and blended-finance tools.

Geographically, while the analysis covers Yemen as a whole, the practical application of opportunities
focuses on government-controlled (liberated) governorates. This reflects the current impracticality of
operating in the Houthi-controlled environment, which is marked by sanctions, extortion, capital flight,
institutional destruction, tight control over companies, and the absence of minimum legal and institutional guarantees for local and foreign investors.

The paper concludes that Yemen, despite its fragility, possesses rare strength elements in the region,
including:

  • Strategic location on the most important maritime routes
  • A large and young market exceeding 40 million people
  • Low operating costs
  • Diverse natural resources
  • Growing Gulf and international interest in Red Sea and Bab al-Mandab security
  • Sectors ready to operate within 12-24 months

The paper presents practical recommendations for the Yemeni government, the Yemeni and Gulf private
sectors, and donors aimed at transforming Yemen’s investment environment from a deterrent environment into an enabling one through short- and medium-term reforms, strategic partnerships, and a limited number of high-impact model projects that can build confidence and unlock larger investment flows later.

Based on this analysis, foreign investment in Yemen is difficult but not impossible. In the right regional
context and with clear government reforms, it can become a major driver of economic stability, a lever for reconstruction, and a tool for integrating Yemen into the Gulf and wider regional economy. The most logical starting point is in government-controlled (liberated) governorates and in sectors compatible with the current conflict context, before moving to larger projects in a later political settlement phase.

April 18, 2026
Read More

SUPPORTING TRADE FINANCE IN YEMEN AMID UNCERTAINTY

The war has fundamentally altered Yemen’s trade finance system, transforming it from a reliable, unified, bank-led mechanism into several divergent, conflicting structures that have made import financing cumbersome, costly, and unstable. The conflict has led to the suspension of oil and gas exports — the country’s primary source of revenue and foreign currency — and resulted in the division of key economic institutions across regional zones of control. Specifically, the fragmentation of the Central Bank of Yemen (CBY) into rival branches (Sana’a and Aden) and the subsequent prevalence of dual currency and monetary systems has created a complex trade financing landscape. The two branches have engaged in a power struggle, issuing conflicting monetary and financial policies that weaponize all aspects of import regulation and financing.

The collapse of the formal banking system, combined with liquidity shortages, has eroded confidence in banks’ financial services and entrenched the rise of less-regulated financial transfer networks, which dominate the monetary cycle and trade facilitation. The fragmented regulatory environment has heightened the country’s vulnerability to global de-risking measures and exposed it to severe risks related to Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) requirements. Yemeni banks have struggled to access foreign correspondent banks, which has inflated import costs and exacerbated food insecurity in a country that imports up to 90 percent of its basic staples from abroad.

The US designation of the Houthis as a Foreign Terrorist Organization (FTO) and subsequent sanctions catalyzed a significant shift away from Yemen’s historically centralized financial system. The sanctions forced banks to relocate to government-controlled areas, eliminating the Houthis’ dominance over their primary operations. Today, these relocated banks are facing operational challenges due to the historic centrality of the financial system, the commercial market, and customer base in Houthi-controlled areas.

After the failure of several import financing mechanisms, the internationally recognized government, along with the Central Bank of Yemen in Aden (CBY-Aden), has recently begun implementing much-anticipated economic reforms that have stabilized the Yemeni rial. These reforms helped institutionalize a new mechanism for trade finance, culminating in the establishment of the National Committee for Regulating and Financing Imports.

 

To effectively operate on the ground, the Import Committee and CBY-Aden need to be fully empowered to curb currency destabilization and secure hard currency inflows, and to use those funds to finance basic commodity imports. The government should create a conducive business environment for banks to provide financial services and facilitate trade nationwide. Additionally, it should shift from short-term collective measures to long-term economic reforms. These should include working to access sustainable sources of hard currency to finance trade. Sustained financial support from Saudi Arabia and other donors is critical to replenishing the CBY-Aden’s foreign reserves and preserving the value of the rial.

Close coordination with international financial institutions and US decisionmaking bodies (such as the Department of the Treasury’s Office of Foreign Assets Control) is essential to enhance Yemeni banks’ capacity to comply with AML/CFT standards. Houthi authorities must suspend punitive measures against banks and traders and refrain from any future actions that could further deepen the monetary division and complicate trade financing.

In parallel, the UN and broader international community should exert immediate pressure on the warring parties to halt their weaponization of trade financing and respect the neutrality of the banking sector. They should help establish sanctions safeguards to protect humanitarian and remittance flows. As circumstances improve, the international community should support the creation of a nationwide trade financing scheme that is technically effective and insulated from political conflict.

February 17, 2026
Read More

Fostering Opportunities for E-Commerce Growth in Yemen

Yemen’s e-commerce sector holds significant potential to drive economic growth and financial inclusion, particularly for women and rural communities, but faces major challenges, including poor internet connectivity, limited digital payment systems, and the absence of legal and regulatory frameworks. The country remains heavily cash-based, with minimal access to formal banking and fragmented oversight, exposing consumers and providers to fraud and limiting sector development. Internet infrastructure is among the worst globally, with only 17.7 percent of the population online in 2024, though the recent introduction of Starlink offers hope for improved connectivity. Conflict-related damage to transportation networks further hinders delivery services. Despite these obstacles, some businesses have found success, especially in urban areas, by adapting to logistical constraints. Yemen’s youthful, increasingly smartphone-connected population, along with emerging technologies and business models, offers promising opportunities for inclusive e-commerce growth—provided that policymakers invest in digital infrastructure, enact protective regulations, and create a supportive environment for online enterprise.

Select Recommendations

  • International organizations should focus on investing in satellite services like Starlink, and the government should focus its efforts on a successful rollout.
  • International development institutions should support a more cohesive regulatory framework with significant oversight and enforcement capabilities.
  • The Central Bank in Aden should strengthen its governance and improve regulatory gaps, such as e-commerce regulation.
  • The government and international organizations should aim to raise digital literacy and consumer awareness, especially of vulnerable and disenfranchised populations.
  • International donors and NGOs should support cybersecurity measures to improve trust in digital spaces and foster e-commerce growth.
  • Government entities should collaborate with the private sector to improve infrastructure, educate consumers, and incentivize digital payments.
  • The Ministry of Water and Environment should include environmental protections as part of the regulatory framework for e-commerce.
September 15, 2025
Read More

Made In Yemen: A Strategy For Industrial Recovery And Economic Growth

Historically, Yemen’s industrial sector has been characterized by small-scale, private initiatives, with 78% of establishments employing fewer than four workers and dominated by food, metal, and textile industries. Yemeni industry’s reliance on imported inputs and weak infrastructure left it vulnerable even before the 2015 escalation of war. Post-conflict damage has been extensive, with losses exceeding $35 billion, industrial output collapsing, and over half the workforce displaced. Legal frameworks exist but lack consistent enforcement. Gender disparities remain stark, with women accounting for just 1–6% of industrial employment. Environmental degradation further complicates recovery, driven by outdated laws and limited compliance capacity.

Despite this, some local industries have demonstrated resilience, particularly in informal light manufacturing. Drawing from regional and international models of industrialization, this RYE Policy Brief identifies viable paths for industrial renewal anchored in local resources, community participation, and adaptive governance.

Key Recommendations:
  • National Industrial Strategy:

Develop a national industrial strategy in partnership with the private sector, including identification of key sectors, support measures, and coordination mechanisms.

  • Regulatory Reform:

Simplify business registration, update laws, and establish industrial arbitration councils.

  • Women’s Inclusion:

Expand training, develop women-friendly zones, and launch targeted financing for female entrepreneurs.

  • Innovation & R&D:

Fund industrial research labs and foster private-sector innovation partnerships.

  • Infrastructure Development:

Rehabilitate industrial zones with solar energy, logistics hubs, and streamlined port access.

  • Access to Finance:

Create an Industrial Finance Fund and expand concessional credit for SMEs.

  • Environmental Sustainability:

Enforce pollution controls, incentivize clean tech adoption, and integrate safeguards into industrial planning.

September 8, 2025
Read More

Unlocking Climate Finance for Fragile States: The Case of Yemen

Yemen is vulnerable to climate change and affected by ongoing conflict, facing worsening environmental crises such as water scarcity, degradation of arable land, and an increasing frequency of extreme weather events. The country’s capacity to address the impact of climate change is severely hampered by limited access to international climate finance. Obstacles include the absence of clear criteria for fund distribution, bureaucratic complexities that exceed local institutional capacity, an emphasis on mitigation over adaptation measures, and a preference for providing loans over grants. Fragmented governance and a decade-long climate data gap further undermine the country’s eligibility for funding. Yemen lacks accredited national institutions capable of directly accessing climate funds, which forces it to rely on international non-governmental organizations (INGOs). This reliance introduces additional layers of bureaucracy and high transaction costs.

This policy brief, based on a desk review and a two-day workshop held in Amman, Jordan, in November 2024, examines Yemen’s climate finance barriers and explores opportunities for improving its access to climate finance. The paper highlights funding allocation disparities, in which climate-vulnerable and fragile states receive disproportionately low shares of climate finance. For instance, Yemen received a mere US$0.60 per capita in adaptation finance between 2015 and 2021, compared to over US$100 per capita in stable countries during the same period.

The paper draws lessons from other countries, including Rwanda, Somalia, and Bangladesh, which improved access by utilizing national climate funds, engaging in diplomatic advocacy, and implementing community-based data initiatives. Recommendations emphasize urgent actions for Yemen’s government, including establishing a multi-stakeholder climate task force and climate fund, finalizing Nationally Determined Contributions (NDCs), and enhancing regional cooperation. For international actors, reforms such as simplifying accreditation processes, prioritizing grants, and supporting climate diplomacy are critical.

August 11, 2025
Read More

Type Your Keywords