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.
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.
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.
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.
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.
Develop a national industrial strategy in partnership with the private sector, including identification of key sectors, support measures, and coordination mechanisms.
Simplify business registration, update laws, and establish industrial arbitration councils.
Expand training, develop women-friendly zones, and launch targeted financing for female entrepreneurs.
Fund industrial research labs and foster private-sector innovation partnerships.
Rehabilitate industrial zones with solar energy, logistics hubs, and streamlined port access.
Create an Industrial Finance Fund and expand concessional credit for SMEs.
Enforce pollution controls, incentivize clean tech adoption, and integrate safeguards into industrial planning.
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.
This policy brief explores the potential role of innovation-driven enterprises (IDEs) — high-growth ventures built around scalable models and technology — in contributing to economic resilience in Yemen. While IDEs are not yet prominent in the national economy, their emergence in other fragile contexts, including Somalia, Gaza, Rwanda, and Iraq, suggests they could present a viable contribution to economic recovery and diversification. Stakeholders should thus explore the conditions that could support the growth of such enterprises in Yemen, and what incremental policy reforms could begin to lay the foundation for innovation-led development.
Drawing on 19 stakeholder interviews and comparative international experience, the following policy brief examines the persistent barriers — including legal ambiguity, lack of early-stage capital, weak infrastructure, and gendered access constraints — that limit IDE emergence. It identifies opportunities for targeted, realistic interventions that could support IDE development even within Yemen’s current political and economic limitations. These include regulatory reforms, donor-backed financial tools, diaspora engagement platforms, and inclusive startup support initiatives.
While Yemen’s recovery trajectory remains uncertain, developing an enabling environment for IDEs represents a pragmatic opportunity to support job creation, attract capital, and build economic resilience — particularly in more stable regions. The policy tools outlined here do not require sweeping reform; they can be piloted incrementally, adapted locally, and coordinated across donors and national actors. Unlocking this potential will depend on Yemen’s ability to engage its entrepreneurs, leverage its diaspora, and create pathways for innovation to emerge even amid crisis.
Yemen’s export sector has long suffered from structural weaknesses, but the ongoing conflict has triggered a dramatic collapse. Between 2013 and 2023, annual exports were down 90%, mainly due to disruptions in oil and gas exports, which historically made up 80% of the country’s export revenues. While non-hydrocarbon exports—such as coffee, honey, fish, fruits, and vegetables—have grown in relative importance, they remain small in absolute value, constrained by systemic challenges in governance, infrastructure, finance, technical capacity, and women’s participation. However, non-hydrocarbon export industries’ relatively modest contribution to exports masks their crucial role in supporting general socioeconomic wellbeing through job provision and local development.
It is thus incumbent upon the Yemeni government, private sector, and international stakeholders to pursue a two-pronged strategy to revitalize the country’s export sector, prioritizing the restart of oil and gas exports in the short term to regain macroeconomic stability, while building a diversified, resilient, inclusive, and sustainable export economy in the medium- to long-term.
Key challenges include:
Tailored recommendations for each stakeholder group include:
Scaling up exports in Yemen is both urgent and feasible. It requires collaborative leadership, long-term commitment, and a clear vision grounded in sustainability, innovation, and inclusive growth.
The construction sector in Yemen, despite being significantly impacted by political and economic crises and the effects of war, continues to be a crucial sector for the country’s recovery and reconstruction efforts. Within the wider context of the construction sector in Yemen, this brief presents a comprehensive analysis of the contracting sector, which covers the physical work carried out on the production site such as constructing, renovating, or repairing buildings and structures, as well as other heavy constructions such as roads, bridges, and dams. The brief examines the state of the contracting sector before the war, its transformations over the past three decades, and the challenges it has been facing, such as security issues, ineffective legislation, and widespread corruption leading to informal activities. The brief also highlights the remarkable resilience and adaptability of the contracting sector, and argues that local contractors, with their expertise and understanding, are critical for the sector’s future and are well-positioned to play a key role in any upcoming reconstruction opportunities.
In addition, this brief explores the state of adopting green building standards in the contracting sector in Yemen, and the importance of integrating sustainable development strategies and environmentally friendly practices. Furthermore, the brief emphasizes the sector’s role in job creation, especially for youth, and analyses the role of Yemeni women in the sector and how their participation can be enhanced.
The brief concludes with recommendations for a holistic approach engaging all stakeholders. The recommendations include convening technical meetings between contracting companies and government entities, forming a national committee to formulate a strategic vision, and exploring ways to revitalize the sector so that it can effectively participate in future recovery and development phases.