A multi-armed economy: How Houthis reap massive public revenues without providing services
During the first two years of Yemen’s civil war, in 2015 and 2016, the salaries of state employees continued to be paid despite a significant shortage of government revenues amid the cessation of oil exports and a spiraling economy. The warring parties had agreed to insulate financial institutions from the conflict, so governorates continued to deposit their revenues in the Central Bank of Yemen’s (CBY) main branch in Sana’a to ensure the continuation of salary payments to all state employees in the country. But during these two years, foreign exchange reserves totalling about $4.8 billion were depleted, as well as more than 1 trillion Yemeni Riyals (YR) in local currency. The Houthis were accused of exploiting the agreement to keep financial institutions out of the war and using the bank’s reserves to fund their military efforts.
In September 2016, the president of Yemen’s internationally recognized government, Abdu Rabbo Mansour Hadi issued a decision to transfer the headquarters of the CBY from Sana’a to the southern coastal city of Aden, which was named the interim capital after Hadi escaped Houthi-imposed house arrest in Sana’a in early 2015. Following the relocation of CBY headquarters to Aden, the Houthis stopped paying the salaries of civil servants.
The internationally recognized government stated that it would take responsibility for the payment of government salaries if all of the governorates in the country agreed to deposit their revenues in the CBY’s Aden branch. The Houthi de facto government in Sana’a rejected this offer and began to form its own independent economy based on the public revenues in its areas of control.
Since then, about 1 million employees, including 135,000 teachers, in Houthi-controlled areas have received a partial month’s salary a few times per year, if at all.
Based on interviews with multiple government officials and economists familiar with this file, in addition to relevant local and international documents and investigations, Almasdar Online examined the development of the Houthi-run economy. The report highlights the revenue-generating bodies, whether official economic institutions that existed before the war, or newly-established ones, that the Houthis have used to accumulate massive sums of money in unfair and illegal ways.
Based on these findings, the report estimates the financial returns that the Houthi group has achieved while abandoning its obligations toward spending on public services and paying the wages and salaries of state employees.
The attempt to quantify Houthi revenues was extremely challenging due to the high levels of secrecy in Houthi-controlled sectors of the economy.
The Undersecretary of the Ministry of Finance for Revenue Affairs, Naji Jaber, told Almasdar Online that the internationally recognized government has no data about the amount of money that the Houthis receive from economic institutions under their control, despite the fact that the Houthis dominate many state institutions and vital economic sectors, which they have used, along with newly-created parallel economic tributaries, to finance their war efforts.
“The Houthis confiscate state resources in their areas of control, which are supposed to go to the Central Bank of Yemen to pay state obligations, including salaries,” economic researcher Waheed Al-Fawdaei told Almasdar Online. He said that some of this money goes to finance the war, and some of it is used to undermine the legitimate government economically through money-laundering activities involving currency speculation, money transfer networks and companies importing oil derivatives.
Al-Fawdaei pointed out that in addition to collecting the revenues of government-controlled institutions, the Houthis have confiscated the money and property of their political opponents, imposed an array of levies on the private sector by force to fund the war effort or support sectarian religious activities and fostered thriving black market or parallel economies.
The Houthi political elites who control various aspects of the war economy, such as humanitarian aid activities or the oil derivatives trade, have become the wealthiest members of society.
Tax and customs revenue
The volume of state tax revenues declined from 586.4 billion YR in 2014 to 474 billion YR the following year, while customs revenues dropped from 111.5 billion YR to 66.8 billion YR, according to an internal government document issued by the Ministry of Planning and International Cooperation in 2016. During the same period, the amount of of wages and salaries paid shrank from 927.8 billion YR to 915 billion YR due to the shortfall in the state's public revenues.
The Houthis have continued collecting a large portion of state tax revenues because their areas of control include most of the economic infrastructure and the majority of the country’s population.
Employees in financial institutions in Sana’a told Almasdar Online that the total amount of taxes that Houthis currently collect in their areas of control is more than twice what the internationally recognized government collected in all governorates before the war.
Based on conservative estimates by Almasdar Online sources and the UN panel of experts 2021 report on Yemen, the Houthis are thought to have collected about $1.8 billion, equivalent to more than 1 trillion YR, in taxes and customs in 2019. Instead of paying long overdue salaries and wages with these revenues, which amounted to about twice as much as 2014 salary and wage obligations, Houthi authorities spent a large part of the tax revenues on war operations.
Taiz governorate as a model
The main industrial and commercial activity in Yemen that remains under Houthi control is located in the Al-Hawban area of Taiz governorate. Factories and traders in Al-Hawban area pay more than 10 billion YR per month in taxes, according to a former official in the local tax authority.
An official in the Taiz branch of the CBY told Almaasdar Online that the salaries of employees in the civil, military and security sectors in Taiz governorate has amounted to nearly 10 billion YR in recent years. That means taxes collected by the Houthis from Taiz’s commercial and industrial sector are sufficient to pay the salaries of its employees on a monthly basis.
An official document shows that the Houthis collected customs duties at the port of Hodeidah totalling nine billion YR in just one month in 2017. Estimates indicate that the revenues from customs at the same port subsequently doubled, with the increase of international aid shipments and fuel imports. In 2020, Hodeidah and Saleef ports received about 60 percent of the total food imports to Yemen, according to the UN.
In addition to goods arriving to Yemen through the Houthi-controlled ports of Hodeidah and Saleef on Yemen’s Red Sea coast, the group charges customs fees on goods that reach Houthi territory over land from government-held areas. Because traders transporting goods in the latter category have already been charged by customs once when arriving at non-Houthi-controlled ports, they effectively have to pay for customs fees twice in the same country.
To collect these fees, the group has established customs checkpoints on internal roads used for transporting goods throughout Houthi-controlled areas. These checkpoints – which are in addition to existing custom departments located in the cities of Dhamar, Amran and Sana’a that were mandated to deal with custom paperwork before the war but were inactive – are stationed in Dhi Naeem and Afar in Al-Baydha governorate, Maitam in Ibb governorate, Al-Hazm in Al-Jawf governorate, Harf Sufyan in Amran governorate, Saqam area in Maqbna district in Taiz governorate, Jabal Ras in Hodeidah governorate, Al-Rahda in Taiz and Shawaba area in Arhab district in Sana’a governorate.
The collection of customs fees is not limited to imported goods. The Al-Rahda customs checkpoint in Taiz, for example, charges fees based on the amount of fuel inside a fuel trucks’ tanks.
Houthis customs centers (Almasdar Online)
In May 2018, the Houthis changed the name of the General Administration of Zakat Duties to the General Authority for Zakat and attached the body to the Houthi-run Supreme Political Council, which represents the highest political authority in the group.
Before the war, zakat (an obligatory religious tax) was distributed among the budgets of local authorities at the governorate and district levels as a main source of funding for infrastructure and other development projects. The Houthi reorganization of the body redirected these funds to the central government, depriving the local authorities of a primary source of financing.
Shamsan Abu Nashtan, who was appointed to head the Houthi-run Zakat Authority, announced investments in development projects worth more than 75 billion YR during the year-and-a-half between the date of its establishment and the end of 2020. The figure raised questions about how much zakat was actually collected, given that the Houthis are not known for investing considerable revenue sums back into development work.
At the beginning of the holy month of Ramadan in 2021, Houthi authorities launched a wide-scale zakat collection campaign targeting traders, companies, shops and private sector institutions. The Houthis deployed 6,200 community committees in areas under its control to collect zakat and prevent merchants from distributing in ways of their own choosing, as is customary. During the campaign, hundreds of commercial facilities were temporarily closed in the capital Sana’a, according to an eyewitness, who said the Houthis transformed Mogadishu Street, a major market for computers and electronics accessories, into what looked like a military barracks on one of the nights of Ramadan. Security forces spread throughout the street, compelling the merchants to hand over a copy of their accounting records, which the Houthis used to obtain estimates of how much zakat to impose on each shop.
Before launching the wide-scale campaign to collect zakat, Houthi authorities amended zakat laws to impose a tax of one-fifth (khums), or 20 percent, on the revenues of many productive sectors of the national economy. Most of these tax revenues are given to Hashemites, or those claiming descendance from the sons of Fatima, the daughter of the Prophet Muhammad, which includes the ruling Houthi family. The economic reform is one of many Houthi policies that benefit Hashemites at the expense of other segments of Yemeni society, in effect enshrining discrimination by granting privileges on ethnic and sectarian grounds.
In addition to campaigns targeting business owners and amending the khums zakat laws, Houthi authorities raised the individual zakat obligation, known as Zakat Al-Fitrah, from 100 YR to 550 YR, while raising the zakat of medium-sized and large corporations from 1,300 YR to about 25,000 YR, according to a report issued by the Center for Studies and Economic Media.
The internet and communications sector is almost entirely in the hands of the Houthis, given that the main telecom companies are based in Sana’a. While the revenues generated from this sector are unclear due to the lack of transparency and the absence of official financial figures, the UN panel of experts report in 2021 states that telecommunications companies are the main source of revenue for the Houthis in Sana’a.
One of the only revenue figures cited by Houthi officials during the war came from a statement by Julidan Mahmoud Julidan, Minister of Communications in the government of the Houthi alliance former President Ali Abdullah Saleh, who said in a press conference in Sana’a that mobile phone companies had paid 98 billion YR to his ministry between December 2016 and July 2017 (amounting to about $159 billion per year).
Houthi-collected telecom revenues come from several sources in the sector. In addition to controlling most of the revenue of companies that were nationalized during the war, such as Sabafon, the Houthis also collect taxes on the profits of public and private telecommunications companies as well as fees for renewing licenses for private companies.
According to the financial report of the Yemen Mobile, of which the state owns about 76 percent, the company's revenues between 2017 and 2020 exceeded 513 billion YR. The report noted that the company's revenue nearly doubled between 2016 and 2020.
As for internet service revenues, the number of users in Yemen reached about 7.2 million in 2019, according to statistics issued by the Houthis. If we calculate that a single user spends 1,200 YR per month on internet, the annual revenues of this service would exceed 104 billion YR. It is worth noting that the telecommunications sector suffers from a major deterioration and neglect, as revealed by a recent report.
Despite the repeated promises made by the legitimate government to retake control of the telecommunications and internet sector, it remains under the control of the Houthis.
Control over the telecommunications sector is the subject of controversy amid accusations that government officials are complicit in obstructing the transfer of companies to Aden. These accusations grew when SabaFon faced difficulties trying to relocate its headquarters to Aden and connecting its network to the telecom infrastructure there.
A spokesman for SabaFon’s office in Aden, Abdullah Al-Awadi, told Almasdar Online that it is the only telecom company that has transferred its operations outside of Houthi control, noting that this proves that it is possible to do so both from a technical and administrative standpoint.
Al-Awadi added that the telecommunications sector not only provides the Houthis with financial resources, but also gives the group battlefield advantages through the weaponization of the internet and phone communications.
Civil Aviation Authority
The General Authority for Civil Aviation and Meteorology remains under the control of the Houthis, operating under the administration of the group from its headquarters in Sana’a, despite previous government directives to transfer the authority to Aden.
A source in the aviation body told Almasdar Online that international airlines regularly pay more than $3 million in monthly fees to pass through Yemeni airspace.
The source clarified that the crossing of every plane through Yemeni airspace, or the landing of planes on Yemeni territory including those from the United Nations, takes place in return for a fee and is credited to the aviation authority's accounts at the Agricultural Cooperative Credit Bank (CAC Bank) in Sana'a.
At the end of January 2021, the Houthis created the General Authority for Endowments to supervise endowment properties and investments. The new entity was independent of the existing Ministry of Endowments and Guidance, whose name they changed to the Ministry of Guidance, Hajj and Umrah Affairs.
Following the changes, the Houthis appointed a religious figure named Abdulmajid Abdulrahman al-Houthi, who is referred to as Al-Allamah or Islamic scholar in the group's media, as head of the newly-established General Authority for Endowments.
Abdulmajid Al-Houthi said that he was tasked with recovering endowment funds that had not been paid, of which registered endowments amount to more than 100 billion YR. He noted that there are also unregistered funds related to influential merchants who used endowment lands and resources for decades without paying for them.
Residents in Sana’a told Almasdar Online that endowments authority employees delivered notices to citizens who live in residential homes built on endowment lands asking them to pay the rents of the lands on which their homes are built as soon as possible. Prior to issuing the notices, the Houthis raised land rental rates. The sources added that some residents of the neighborhood were told to pay sums estimated in the hundreds of thousands of YR because they had stopped paying years ago, and that they could not pay the bills in light of the cessation of monthly salaries.
"I told the endowment employee that the state must hand over our salaries that have been suspended for years, and we will commit to handing over the endowment rents," another person from the same neighborhood said.
The new endowments authority established an arm called the Investment and Resource Development Sector, which aims to study the investment situation of all endowment properties in all governorates, reserve any investment land for the authority, whatever its status, and either terminate the contracts immediately or when the contracts expire.
There are no statistics available on the total revenues of the new endowment authority, but the office of its predecessor in Sana’a announced that it generated annual revenues of 3.6 billion YR in 2020, an increase of 1.5 billion YR in 2019. These numbers were before the establishment of the new authority and its campaign to collect endowment revenues.
Yemen and Houthis revenue vs obligations (Almasdar Online)
Real estate monopoly
Control of the economy in Houthi-held areas has been largely divided up among influential Houthi leaders close to the group’s leader, Abdulmalik Al-Houthi. Public tensions over control of the lucrative real estate market illustrate the competition between these figures for access to different parts of the economy.
Before the establishment of the General Authority for Endowments by a decision of Houthi President Mahdi al-Mashat, who heads the Supreme Political Council, Muhammad Ali al-Houthi, another senior leader on the council, had established the so-called Justice System, which is an entity that seeks control over judges, court secretaries and notaries of real estate sales and purchases. Mohammad Ali Al-Houthi published an order to the Houthi Minister of Interior, Abdulkarim Al-Houthi, banning any real estate transactions without a license.
The text of the order, which Mohammad Ali Al-Houthi posted on Twitter to the Houthi interior minister and security officials, stated that no one can trade in real estate unless he gets permission from the Minister of Justice and should be limited to a certain area.
The real estate market is one of the largest financial sectors in Yemen, generating huge revenues for the Houthis. In 2019, real estate transactions in Houthi-held areas were estimated at more than $2 billion, according to a report issued by the Center for Studies and Economic Media.
A source familiar with the issue said that Houthi control of land and real estate will enable the group to accumulate wealth by building suburbs to be distributed to loyalists and used in other strategic ways.
Humanitarian aid revenue
In December 2018, the UN World Food Program issued a statement accusing the Houthis of stealing food from the mouths of the hungry at a time when children were dying because they did not have enough food.
This rare public reprimand highlighted one of the most lucrative arms of the Houthi-controlled economy. Most international organizations have chosen to stay silent about Houthi exploitation of aid out of fear that it would result in reduced funding from international donors.
The Houthis’ manipulation of aid work goes far beyond diverting food shipments to the black market or front lines and tampering with the lists of aid beneficiaries to benefit Houthi loyalists. The group has tried to establish complete control over the management of operations, reflected in constant attempts to interfere in local and intertaional NGO staffing and directing the NGOs to work with specific companies or agents affiliated with the group.
The head of the Center for Studies and Humanitarian Media, Muhammad Al-Maqrami, said that one of the early steps the Houthis took to gain control over the aid sector was to confiscate the property of local organizations that it did not trust and support those that complied with its policies.
In April 2018, the Houthis established the National Authority for the Management and Coordination of Humanitarian Affairs and Disaster Recover (NAMCHA), before reforming it in November 2019 and changing the name to the the Supreme Council for the Management and Coordination of Humanitarian Affairs (SCMCHA). The decisions transferred authority over lucrative humanitarian operations away from the Ministry of Planning and International Cooperation (MOPIC).
Like other lucrative sectors of the economy, SCMCHA is overseen by a close affiliate of Abdulmalik Al-Houthi. Houthi leader Ahmed Hamed, who is also the director of the office of Al-Mashat, the head of the Supreme Political Council, heads the humanitarian oversight council.
SCMCHA seeks to control all aspects of the work of aid organizations in Houthi-controlled areas. Examples include forcing humanitarian organizations to rely on SCMCHA-authorized organizations to carry out field surveys and collect data on which humanitarian assessments are based and beneficiary lists are created. As a result of this practice, the UN is unable to verify the data underpinning the oft-cited characterization of Yemen as the “world’s worst humanitarian crisis.”
In a previous investigation, Almasdar Online showed how the WFP’s largest food aid project in Yemen, about 60 percent of which is distributed through a local partner, the School Feeding and Humanitarian Relief Project of the Ministry of Education in Sana’a, was exploited to support Houthi fighting fronts or perpetuate black markets.
The Houthis have established numerous locally-affiliated organizations and forced international organizations to use them to distribute aid. They include the Yemen Thabat Organization, the Future of Yemen, Watan Al-Ahrar and the Bunyan Foundation. These organizations receive funding from international and regional institutions and allocate part of the funding to support the families of Houthi fighters.
The Houthis have also taken control of nonprofit organizations and associations operating in their areas of control, most notably the Social Charitable Society, affiliated with the Islamist Islah political party. Although the organization announced the eventual transfer of its headquarters to Aden, the Houthis kept the organization's name and logo in English in the hope that international donors would continue working with it. The Arabic name was slightly changed.
The judicial guard
In recent years, Houthi authorities have reformed the judicial system under the group’s control to confer formal legitimacy over the seizure of money, assets and real estate of the group's opponents, as well as to provide cover for money laundering operations.
Using a legal concept called “preventative detention,” the judicial guard has the authority to confiscate the assets and properties of any detained person and deal with them as if he is the owner.
The Houthis assigned Saleh Misfir Al-Shaer as the so-called judicial guard in order to control the money and property of anti-Houthi political leaders and strengthen the parallel, underground economy of the group. Al-Shaer, a poet, is described as the economic arm of Abdulmalik Al-Houthi, and is sanctioned by the UN Security Council and the US Treasury Department for his leading role in building a hidden financial empire that has seized more than $100 million worth of assets taken from Yemeni businessmen, politicians, activists and officials whom the group considers its opponents. Multiple sources indicate that the assets seized by the Houthis are much greater than this figure.
A recent report issued by SAM Organization for Rights and Freedoms revealed that the assets of the Houthi-seized Al-Mawarid Company for Educational Services amount to more than $108 million dollars, including university buildings in Sana’a and other areas controlled by the Houthis, the University of Science Hospital, one of the most prominent hospitals in Yemen, Ibn Al-Haytham Hospital, and hospital and university warehouses.
In addition to running the network involved in transferring the stolen property of Houthi opponents, Al-Shaer is an arms dealer responsible for logistical support in weapons smuggling.
Al-Shaer has been tasked with supervising the seizure of SabaFon mobile phone company, the Al-Saleh Social Development Foundation, the Social Reform Charitable Society, the University of Science Hospital and University of Science and Technology, Siblas Hospital and the Yemen Armored Company, in addition to numerous bank accounts.
The powers of the judicial guard resemble nationalization efforts.
Abdulmajid Sabra, a Sana’a-based lawyer, said that a committee affiliated with the Supreme Political Council begins the process of taking possession of these assets and real estate even before obtaining judicial orders from the Houthi-controlled courts. In an interview with Almasdar Online, he said that the target of the confiscation process may be a political, military or media figure, sometimes a businessman or an ordinary citizen. It does not matter whether the person is an expatriate outside the country or present in Houthi-controlled areas. The seizures have happened in all governorates under the control of the Houthis, Sabra said.
In addition to the seizing of assets, the judicial guard is involved in looting the revenues of targeted companies and institutions. The Houthi sale of land belonging to Al-Mawarid Company for Educational and Health Services, which owns the University of Science and Technology in Sana’a in February 2022, is an example.
Oil derivatives trading
The war has weakened Yemen’s fragile economy and fostered an underground economy in which parallel economic entities operate to finance the war.
The decision to raise the prices of oil derivatives, which was taken by the Supreme Revolutionary Committee (predecessor of the Supreme Political Council) formed by the Houthis after they seized power in July 2015, was of particular importance in paving the way for a thriving black market, because it completely removed government subsidies and allowed fuel products to be sold in local markets at international prices.
This decision enabled private-sector companies, particularly companies established by the group, to import oil, sell it to the state oil company, and distribute it at black market prices for huge profits. The proceeds of these sales funded the Houthi war efforts.
The UN panel of experts reported that between May 2016 and July 2017 the Houthis earned up to $1.27 billion from distributing oil derivatives on the black market, and that the fuel was one of the Houthis' main sources of revenue.
From the beginning of its rise to power following the coup in late 2014, the Houthis established oil companies that are used as a cover for the investments of high-ranking Houthi leaders involved in importing and selling fuel. These include companies affiliated with the group’s spokesman, Abdulsalam Salah Falita, known as Mohammed Abdulsalam, who spends most of his time in Oman.
The 2019 report of the UN panel of experts indicated that Iran provided the Houthis with oil shipments worth $30 million per month.
In November 2021, a report issued by the Regain Yemen Initiative, which tracks funds looted by the Houthis, revealed the group’s establishment of about 30 oil companies affiliated with its top leaders who have exclusive powers to import through the ports of Hodeidah and Saleef.
The report indicated that the Houthis generate huge amounts of revenue from its trade in the fuel markets, pointing out that these revenues currently exceed 30 billion YR per month, with profits per liter reaching about 100 riyals (the daily consumption in Houthi areas is 10 million liters), distributed between customs fees, a sales tax and war effort levies.
The report pointed out that the Houthis have worked to exclude existing Yemeni businessmen and support loyalists, and have established oil companies with the aim of circumventing US and UN sanctions, as well as to finance their wars to prolong the conflict in the country.
Domestic gas sales
The Houthis have other revenue streams from which huge sums are generated, including domestic gas revenues. A senior official in the Yemeni Gas Company said that the estimates of the group’s profits from selling domestic gas in 2021 exceeded 350 billion YR from gas cylinders coming from Ma’rib governorate alone. The source indicated that the company in Marib, which produces nearly 90 percent of the domestic gas distributed in the country, sells a gas cylinder for 1,200 YR, while the Houthis sell it at prices ranging from 8,000 to 12,000 YR in their areas of control.
In a report by the Capacity Assessment Project, it was mentioned that a total of 75 LPG trucks leave Marib’s Safer fields daily, each carrying 2,200 gas cylinders with a total of 165,000 cylinders. Of the daily LPG production, 70 percent (115,500 gas cylinders) is transported by truck to Houthi-controlled areas and the remaining 30 percent (49,500 gas cylinders) is sent to legitimate government areas.
These markups of gas are in addition to royalties, unofficial fees, war effort taxes and forced donation campaigns to support the growing list of Houthi commemorative days, such as Martyr’s Day, Ghadeer and the Prophet’s Birthday. This comes at a time when famine is spreading in the country, employees have been deprived of their salaries in areas under its control for years, and the humanitarian crisis has intensified.
Edited by Casey Coombs