Merging the two banks won't solve the crisis but it will exacerbate the problem of financial and economic division.

Abdullah Al-Shadli (South24) 

The latest leaks related to the fate of the Yemeni crisis and the economic path resulting from the expected deal between the parties have stirred concerns about the economic integration with the Iran-backed Houthi militia in North Yemen. This is related to risks and ramifications on the economic situation in South Yemen.

Saudi media outlets revealed earlier what they described as "the final touches for a transitional peace stage" in Yemen, sponsored by the United Nations (UN). This includes political, military, and economic paths including a total ceasefire, opening all ground, aerial and maritime ports, the merger of the Central Bank of Yemen itself and completing the prisoner exchange.

These leaks came simultaneously with the first formal declared visit made by a Saudi delegation, led by the Saudi ambassador to Yemen Mohammed Al Jaber, to Sanaa to conduct talks with the Houthis. This also came concurrently with the Southern Transitional Council (STC) statements in which it warned from "touching the resources of South Yemen" although it stressed its support for the Saudi moves.

On April 6th, STC official Adel Al-Shabahi talked about some points being discussed for the possible deal. This includes “a transitional phase for two years in which the Central Bank and revenues will be unified, and an agreement will be made on the form of the state.” Al-Shabahi did not specify the position of the STC to which he belongs.

The move to merge the Central Bank in Aden with the Central Bank controlled by the Houthis in Sanaa constitutes the most prominent move as part of the expected economic path. Economic experts and observers warn of the ramifications and economic impacts and even the political ones on South Yemen related to this decision. This is in addition to doubting the ability of this step to bring about any improvement in the economic situation in the country. 

Merging the two banks

Economist and Professor of Economics at Hadramout University, Dr. Mohammed Al-Kassadi, ruled out merging the Central Bank in Aden with its peer in Sanaa as part of any economic path in any upcoming agreement. He believes that the separation of the monetary policy in the governmental areas and those controlled by the Houthis has become clear.

He told "South24 Center": "The Houthi revenues from the telecommunications sector alone amount to about 36 billion riyals, not to mention other resources, such as revenues from the Port of Hodeidah and zakat taxes. The Houthis want to devour all revenues, and although they have many resources, they refuse to pay the salaries of employees in the areas they control".

On the other hand, economic expert Majid Al-Daeri expects a decision to bring the Central Bank back to Sanaa, restore the main banking operations to what they were and the selection of a consensual governor to manage the bank. They may share the members of the Board of Directors and agents of the bank".

However, he added that such a move "may lead to a swell in the number of employees". He told "South24 Center": "The merger decision means that Aden's Bank will be a mere branch like before. Resources will be collected from the revenue institutions in Aden and transferred to Sanaa".

Dr. Omar Bagardana, the Chairman of the "Knowledge Center for Research and Strategic Studies" believes that "merging the two banks won't solve the crisis but it will exacerbate the problem of financial and economic division".

He told "South24 Center": "Merging the two banks will restore the same tools that dominated the scene during the war period and benefited from them to manage the economic scene. This means more crises and more problems. This procedure will produce a single financial authority that has the powers to control all exports and imports of South and the national economy".

He added: "These powers will likely be in the hands of influential figures from the tools of the former regime which will be re-exported to the scene".

Risks

The risks of the expected or recently leaked economic path are not limited to the economic aspects only, but also extend to the political aspects. The move to merge the two banks is likely to spark political division. It may also enhance the influence of the Houthi movement in North and increase the risks of its control of more resources.

Therefore, Dr. Al-Kassadi believes that STC must refuse to unify the economy and merge with the Houthi economy. He said: "It is better to maintain the status quo as the state of monetary and financial division enhances the efforts for the independence of South and the building of an independent state".

Al-Kassadi does not conceal his concerns that the economic merger would be used in favor of North. "They may seize the wealth of South Yemen and exploit the high population density" according to him.

In this regard, Al-Daeri said: "The Houthi economy is a war economy based on levies, black markets, currency speculation, money laundering, smuggling and customs taxes. They lack a solid economy which can be merged with the economy of South or with the Central Bank in Aden".

He added: "Most of the financial revenues in the Houthi areas do enter the framework of their state budget, and they do not have a state budget. They do not pay any salaries or provide any services to citizens in their areas". 

Dr. Bagardana warns of the risks related to merging with the Houthi economy. He added: "Such a move will bring Southerners back to square zero again as whoever controls South's exports and imports will follow the methodology of the former regime. Since the Houthis took control of Sanaa in September 2014, the group has implemented financial and economic policies amid accusations of plundering public and private funds. In recent years, the group has imposed restrictions on the entry of new cash editions from government areas, causing a large gap in the price of the Yemeni riyal". 

On March 23rd, the Houthis issued a law that prohibited "usurious transactions''. The Law banned monthly interest from bank deposits, amid warnings of the repercussions of this step on the banking system in all of Yemen.

The Houthis are making financial and economic reforms in North Yemen according to their religious vision. This includes allocating about 20% of the wealth in their regions for the benefit of the dynasty to which the Houthi Leader Abdulmalik Al-Houthi belongs. This measure is being followed so far in the Northern areas according to local sources.

Moreover, the Houthis previously refused to implement the economic part of the Stockholm Agreement on Hodeidah [2018], which stipulated the allocation of the port's revenues to pay the salaries of employees in the Houthi-controlled areas, which has not been done so far.