The ongoing political tensions and instability have also taken a toll on business and the wider economy. The construction sector, in particular, has been badly hit, forcing the laying-off of labourers and reducing employment opportunities for casual workers. Local media report the Yemen General Authority for Investment (YGIA) as stating that construction has been postponed on five plants financed by Yemeni and Gulf investors. The projects, covering steel, cement and sugar production, are worth a total US$900m and the temporary loss of employment for scores of workers at the plants will cause considerable economic distress among local communities. Encouragingly, however, the YGIA claims that it registered more investment projects during the first quarter of 2011 than in the same period of 2010. Most of these are unlikely to go ahead, however, until the political situation is resolved.

Another sector to have been affected is banking. Banks have long suffered from low levels of deposits, but in recent months they have had to cope with high levels of withdrawals, as Yemeni savers have looked to transfer their funds into hard currency or even send their money overseas (April 2011, Economic performance). As a result, the Central Bank of Yemen (CBY) has imposed strict limits on the withdrawal of foreign currency, and businesses can only withdraw US$10,000 a day. In order to help banks meet the increased demand for funds, the CBY has reduced the reserve requirements on foreign-currency deposits to 10% from 20%, not least to provide sufficient liquidity for banks to cover letters of credit for imports.

Lack of funding as well as the deterioration in the political climate has in any case slowed external trade. Insurance premiums on Yemeni-bound freight have risen considerably, deterring all but the most essential of goods. According to the Ports of Aden Authority, throughput at the port has decreased considerably since the outbreak of unrest. There has been a considerable decline in vessel calls at Aden port, with 100 ships docking at the port in March, compared with 133 the previous month. In April, only 83 ships had docked up to the 24th of the month.

In turn, this has affected Yemen's retailers. The March edition of the Yemen Economic Journal reported that retail and wholesale sales in Sanaa had fallen by 37% over the month. This report was supported by a particularly downbeat interview with the trade and industry minister, Hisham Sharaf, on April 25th, in which he claimed that the unrest had cost the country some US$4bn-5bn over the past three months-equivalent, on an annualised basis, to 40% of GDP.

Declining imports also affects the government accounts, through reduced tax and customs revenue. Combined with the social welfare package and pay increases that the president offered early on in the crisis (March 2011, Economic policy), this will put the fiscal account under severe strain this year, particularly given that it already suffers from a large chronic deficit. Overall, economic growth in Yemen this year is likely to be severely impaired. Certainly, the economy has stagnated over the last quarter and we have already lowered our projection for real GDP growth in 2011, to 2.7%-below the rate of population increase. However, our growth forecast could be revised down further should the unrest continue.