The Republic of Yemen has experienced steady development in the recent past and its Gross Domestic Product (GDP) per capita is approaching US$1,000. By many aspects, Yemen is unique. It is still a rural country (with more than 70 percent of the population living in the countryside). It has about 140,000 villages and small settlements spread out all over the territory, many of which still need road access and harbor most of the country's poor (40 percent of the total population). Given the uneven distribution of population, transport demand varies enormously between different parts of the country. It is highest by far in the densely populated mountainous northwest part of the country and generally very small in the vast low density eastern part. Transport is essential to ensure that the rural areas participate in the main stream of economic and social life. Transport is also essential for trade, which is a key to the future of the economy. This is reinforced by the fact that most of the population is located away from the coastal areas, including the capital city, Sana'a, in some of the most difficult terrain one could find in any country of the world. This report comprises three main parts: (i) a broad assessment of the situation of the Yemeni road sector and a comparison with countries similar to Yemen; (ii) an analysis of the sector's main issues; and (iii) an agenda for reform.