More than two years ago, the suicide of a Tunisian street vendor named Mohammed Tarek Bouazizi set off a string of protests that eventually led to regime change and promises of reform throughout the Arab world. Unfortunately, the root causes of Bouazizi’s frustrations have still not been addressed in countries like Yemen.
In 2011, after having his wares confiscated for failing to pay a bribe, Bouazizi succumbed to the pressures of poverty and desperation, committing suicide by self-immolation. This tragic act led to what later became known as the Arab Spring, arguably the greatest geopolitical realignment since the fall of the Berlin Wall.
But the millions of street vendors and others who work in the informal sector have not yet realized the promise of democracy. They remain vulnerable to extortion, harassment, and other forms of abuse. By not addressing the root causes of the Arab Spring, emerging democracies such as Yemen risk losing the popular support and legitimacy that are essential to a thriving democracy.
After researching the conditions under which Bouazizi worked, Peruvian economist Hernando De Soto wrote that for Bouazizi “to create a legal enterprise he would have had to establish a small sole proprietorship. This would require taking 55 administrative steps during 142 days and spending some $3,233 (12 times Bouazizi’s monthly net income, not including maintenance and exit costs).”
A similar study has not been conducted in Yemen, but the challenges facing a vendor like Bouazizi trying to enter the formal economy would certainly be at least as great there. Yemen ranks far below Tunisia in the World Bank’s Doing Business data, which indicates that starting a business in Yemen would take at least 40 days and nearly nine times the average national monthly income. However, street vendors earn well below the average monthly income and the actual amount of time it would take to start a business may be greater due to problems of corruption, security, bureaucracy etc. – which are difficult to represent in reports based on official business registration procedures. In any case, the barriers to moving into the formal economy remain insurmountable for the majority of street vendors in Yemen, as in most other Arab countries.
Most estimates value Yemen’s informal economy at between 25 and 30 percent of GNP and suggest that 70 percent or more of employed Yemenis work in the informal sector. This means that most of Yemen’s workforce is ignored by formal politics and that a large portion of the potential tax base is not contributing to the provision of government services like education, policing, health care, and infrastructure. If democracy is to succeed, government protections and services must reach the informal sector, and this sector must deliver tax revenues back to the central government.
Stability in Yemen requires a well-functioning central authority, which requires a robust tax base. By bringing Yemeni street vendors (and other informal sector workers) into the formal economy, the central government can broaden the tax base significantly, as informal transactions are estimated to make up nearly a third of Yemen’s economy. Increasing tax revenues will increase the capacity of the state to promote stability and provide services to its citizens, which should lead to greater economic productivity, greater tax revenues, and increased government capacity – a virtuous cycle of stability and productivity. Simultaneously, reducing informality will reduce corruption and grievance, both of which undermine national stability.
Behind Yemen’s huge informal sector are complex problems with governance institutions, policies, and practices. The World Bank ranks Yemen at 118 out of 185 countries in this year’s Doing Business index – seventeen points lower than in 2012. Yemen’s specific rating for starting a business dropped 46 points, and other indicators have fallen as well. The average Yemeni earns $938 per year, and official unemployment stands at 35 to 40 percent, so it is imperative to reform the business environment to increase economic productivity and employment. As the problem of informality is so large, it is an ideal place to begin broader economic reforms.
As the link between citizens and government, Yemen’s local civic organizations and business associations must press for reforms to reduce the costs and indignities of starting and running a business. There is already room for action: with Yemen’s National Dialogue process — where various political factions are meeting to discuss the most important national challenges before writing a new constitution and holding elections — well underway, the time is ripe to effect change.
Matthew Godwin is Program Assistant for the Middle East & North Africa at CIPE.