New Market Report Now Available: Yemen Infrastructure Report Q4 2013

While some revisions to historical data by the Yemeni statistical authorities have led us to make modest adjustments to our forecasts, our subdued growth outlook for the country's construction sector remains in place. Over the medium term, we expect persistent political uncertainty, weak government infrastructure spending and an unattractive investment climate to weigh on headline construction growth. We are forecasting the sector to expand by 0.9% and 1.2% in real terms in 2013 and 2014 respectively.

Key developments in the sector:

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* Recent events in Yemen underscore the impact of ongoing insecurity on the country's energy sector. In August alone the following incidents were reported: five soldiers were killed in an attack on Yemen's liquefied natural gas (LNG) facility operated by French international oil company (IOC) Total; an unconfirmed number of individual were thought killed after their helicopter - inspecting a crude oil pipeline - was shot down by gunmen.
* Despite gradual improvements in the security situation over the coming years, BMI's country risk analysts expect security risks to remain elevated, which will contribute to below potential real GDP growth over the coming years. We forecast Yemen's economy to expand 3.1% and 4.5% in real terms in 2013 and 2014, respectively.
* Recent developments give cause for cautious optimism with regards to social infrastructure in the country. Following reports that growing numbers of Yemeni nationals are seeking medical treatment overseas, the government has stated that it plans to boost healthcare provision across the country. In addition, Yemen's educational sector is set to benefit from the Social Fund for Development (SFD), with an expected US$245.4mn in funding which includes 471 educational projects.
* Yemen announced plans to carry out a study for the construction of a water and gas desalination plant in the area of Moon Bay. The plant, which will entail an estimated cost of US$200bn, is likely to be the largest facility of its kind in the Gulf region. The geography around the Moon Bay area holds the most suitable water characteristics for desalination. The project will offer job opportunities to 4mn Yemenis within the next 10 years.

With the 34-year rule of President Ali Abdullah Saleh at an end, we point to the colossal social, economic and political challenges that his successor will face. We emphasise that the risk of widespread political instability will remain high for many years to come.

On top of its political troubles, over the next 10 years Yemen must face slowing oil production and the ongoing depletion of its water resources. Under these circumstances, its economic outlook is far from positive.

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