private sector: vital role in times of war

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G GDP $ $ $ Y YEMEN YEMEN SOCIO-E ECONOMIC SOCIO-E ECONOMIC UPDA A TE GDP $ YEMEN MEN SOCIO-ECONOMIC S UPDATE UPDATE YEMEN 2018 SOCIO-ECONOMIC UPDATE Ministry of Planning & International Cooperation Economic Studies & Forcasting Sector Issue (35) July, 2018 With their ancient cultural heritage, Yemenis have man- aged to establish prosperous civilizations that played an important role in the East-West trade. They have distin- guished themselves throughout history with their entrepre- neurial spirit which endowed them with long experiences that enabled them to accumulate capital and build effective partnerships with the regional and international private sec- tor. The private sector played a major role in leading the economic activity prior to the war by contributing over 50% of GDP and providing employment for 69.4% of total employed population (1) . It was also a major contributor to the public budget deficit through treasury bills and Islamic Sukuk. During the ongoing war, the private sector has be- come more important and provided an excellent example in supporting humanitarian relief efforts and responding to market demands for goods and services. While the public sector reached a state of collapse, the already weak private sector continued to perform its development role, includ- ing the provision of education, health, water and electricity, and importation of fuel and other commodities even at high prices, thereby emphasizing that it has greater flexibility and better ability to cope with war conditions. The private sector has been struggling to survive despite the deep wounds and violent shocks it sustains day by day, most notably the negative repercussions of the public fi- nance crisis, liquidity crisis, physical damages, economic losses in enterprises and restriction of internal and external transactions. To mitigate the challenges and risks facing the private sector, it is important to reach an economic settle- ment to distance the private sector from war and conflict in order to ensure the continuity of the economic activity and improve the livelihoods of people. INTRODUCTION Private Sector: Vital Role in Times of War First: Economic, Social and Humanitar- ian Role of the Private Sector. Second: Main Difficulties and Risks Fac- ing the Private Sector. Third: Priority Interventions. F ACTS AND INDICATORS The parallel exchange rate in mid-September 2018. 33% of retirees in the GAIP with- out pensions since March 2017. YER 600 / USD Over 41,000 Retirees ** people in need of humanitarian assistance in 2018 *. people displaced (IDPs & re- turnees) as of September 2017. 22.2 million 3 million * people are food insecure in December 2017. Cumulative decline in real GDP during 2015-2017. 6 in 10 * 47.1% 90% of the population lack access to public electricity. Sources: * UN Agencies. ** General Authority for Insurance and Pensions (GAIP), 2017. *** WB, June 2016. 24.3 million *** IN THIS EDITION: GDP $ $ YEMEN YEMEN SOC CIO-ECONOM MIC SOCIO-ECONOMIC UPDA TE U U UPDATE GDP $ $ YEMEN YEMEN SOCIO-ECONOMIC The Gross Domestic Product (GDP) refers to the value of final goods and services produced by the society over a given period of time. By distributing the real GDP into public and private sectors, it’s noticed that the contraction rate in the pub- lic sector (-31%) was higher than the private sector (-18%) during the years of 2015-2016 (2) . Thus, the private sector’s contribution to the real GDP increased from 62.3% in 2014 to 70% in 2016 (Figure 1). This reflects the private sector’s stronger immunity and better ability to cope with war condi- tions compared to the public sector, which reached a stage of almost total collapse, especially after the division of state economic institutions since late 2016. Therefore, the already feeble private sector became the main player in the Yemeni economy, along with the international and national organiza- tions that endeavor to fill part of the vacuum left by the public sector in delivery of basic social services. This requires sup- porting the private sector and strengthening its role in turn- ing the wheel of economic growth and generating work and income opportunities now and in the future. First: Economic, Social and Humani- tarian Role of the Private Sector: • Role of the Private Sector in Economic Activity: 70.0% 66.9% 62.3% 62.6% 64.3% 64.6% 63.0% 2012 2011 2010 2013 2014 2015 2016 Pre-war During war GDP – Public sector (YEM billion) GDP – Private sector (YEM billion) GDP of private sector to GDP (%) 1000 1200 1400 1600 1800 0 200 400 600 800 Figure (1): Size of private sector and its share in the real GDP ($billion & %) Source:CSO, National Accounts Bulletin 2016.

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Page 1: Private Sector: Vital Role in Times of War

GGDP $$$ YYEMENYEMEN SOCIO-EECONOMICSOCIO-EECONOMIC

UPDAATE

GDP$

YEMENMEN

SOCIO-ECONOMIC

SUPDATE

UPDATEYEMEN 2018SOCIO-ECONOMIC

UPDATE

Ministry of Planning & International Cooperation

Economic Studies & Forcasting Sector

Issue (35) July, 2018

With their ancient cultural heritage, Yemenis have man-aged to establish prosperous civilizations that played an important role in the East-West trade. They have distin-guished themselves throughout history with their entrepre-neurial spirit which endowed them with long experiences that enabled them to accumulate capital and build effective partnerships with the regional and international private sec-tor.

The private sector played a major role in leading the economic activity prior to the war by contributing over 50% of GDP and providing employment for 69.4% of total employed population(1). It was also a major contributor to the public budget deficit through treasury bills and Islamic Sukuk. During the ongoing war, the private sector has be-come more important and provided an excellent example in supporting humanitarian relief efforts and responding to market demands for goods and services. While the public sector reached a state of collapse, the already weak private sector continued to perform its development role, includ-ing the provision of education, health, water and electricity, and importation of fuel and other commodities even at high prices, thereby emphasizing that it has greater flexibility and better ability to cope with war conditions.

The private sector has been struggling to survive despite the deep wounds and violent shocks it sustains day by day, most notably the negative repercussions of the public fi-nance crisis, liquidity crisis, physical damages, economic losses in enterprises and restriction of internal and external transactions. To mitigate the challenges and risks facing the private sector, it is important to reach an economic settle-ment to distance the private sector from war and conflict in order to ensure the continuity of the economic activity and improve the livelihoods of people.

IntroductIon

Private Sector: Vital Role in Times of WarFirst: Economic, Social and Humanitar-ian Role of the Private Sector.Second: Main Difficulties and Risks Fac-ing the Private Sector.Third: Priority Interventions.

Facts and IndIcators

The parallel exchange rate in mid-September 2018.

33% of retirees in the GAIP with-out pensions since March 2017.

YER 600 / USD Over 41,000 Retirees **

people in need of humanitarian assistance in 2018 *.

people displaced (IDPs & re-turnees) as of September 2017.

22.2 million 3 million *

people are food insecure in December 2017.

Cumulative decline in real GDP during 2015-2017.

6 in 10 * 47.1%

90% of the population lack access to public electricity.

Sources: * UN Agencies.** General Authority for Insurance and Pensions (GAIP), 2017.*** WB, June 2016.

24.3 million ***

In thIs edItIon:

GDP $$ YEMENYEMENSOCCIO-ECONOMMICSOCIO-ECONOMIC

UPDATE

UUUPDATEGDP $$ YEMENYEMEN

SOCIO-ECONOMIC

The Gross Domestic Product (GDP) refers to the value of final goods and services produced by the society over a given period of time. By distributing the real GDP into public and private sectors, it’s noticed that the contraction rate in the pub-lic sector (-31%) was higher than the private sector (-18%) during the years of 2015-2016(2). Thus, the private sector’s contribution to the real GDP increased from 62.3% in 2014 to 70% in 2016 (Figure 1). This reflects the private sector’s stronger immunity and better ability to cope with war condi-tions compared to the public sector, which reached a stage of almost total collapse, especially after the division of state economic institutions since late 2016. Therefore, the already feeble private sector became the main player in the Yemeni economy, along with the international and national organiza-tions that endeavor to fill part of the vacuum left by the public sector in delivery of basic social services. This requires sup-porting the private sector and strengthening its role in turn-ing the wheel of economic growth and generating work and income opportunities now and in the future.

First: Economic, Social and Humani-tarian Role of the Private Sector:• Role of the Private Sector in Economic Activity:

70.0%

66.9%

62.3%

62.6%64.3%64.6%

63.0%

201220112010 2013 2014 2015 2016Pre-war During war

GDP – Public sector (YEM billion)GDP – Private sector (YEM billion)

GDP of private sector to GDP (%)

1000

1200

1400

1600

1800

0

200

400

600

800

Figure (1): Size of private sector and its share in the real GDP ($billion & %)

Source:CSO, National Accounts Bulletin 2016.

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Issue (35) July, 2018 Page 2 Yemen Socio-Economic Update

At the level of the main economic sectors, the private sector used to dominate the real GDP of the Agriculture sector by 100%. This highlights the vital role of the private sector in Yemen’s national economy, especially since the Agriculture Sector provides about 20-25% of the total food commodities available in the country, and spreads geographically in rural areas where pockets of poverty are concentrated in Yemen. Table (1) indicates the growing contribution of the private sector to man-ufacturing, construc-tion and services sec-tors during the war, despite the numerous damages and chal-lenges facing it(A). This means that the private sector is more resilient and has greater ability to absorb shocks and adapt to the repercus-sions of the ongoing war, compared to the public sector.

The private sector plays a vital role in the social and humanitarian fields, where it used to provide em-ployment for 20% of the total employed population, according to the Labor Force Survey 2013-2014. If all laborers in the non-public sector are considered as private sector employees, the private sector’s contribu-tion to the employment of workers will increase to 69.4% (Figure 2 ).

Findings of the quick survey on the crisis’ impact on employment and labor market— conducted by the Central Statistical Organization and the International Labor Organization (ILO) in three governorates (Am-anat Al-Asemah, Hodeida and Aden) in November 2015 indicated that total number of jobs in the three governorates decreased by about 132,000 (12.8%) between 2014-2015.

Although not representative, if this were replicated nationally that would equate to 600,000 total job losses. The agriculture and services sectors were at the forefront of the most affected sectors by job losses. The loss of jobs was partly compensated by an increase in the construction workers by 8% due to the start of reconstruction activities in Aden and the resort of some residents to maintain the purchasing power of their money in the form of real estates (Table 2).

Despite the negative repercussions of the ongoing war on enterprises, a survey conducted in 2017 re-vealed that all employers reported that they retained majority of their workforce through negative adapta-tion strategies such as the reduction of salaries and working hours(5). This is in contrast to state employees, who haven’t received monthly salaries in most of the Yemeni governorates since late 2016. Private activi-ties have become a haven for the state employees and a source of income for many of them.

• Social and Humanitarian Role of the Private Sector:

* Include wholesale and retail trade, restaurants, hotels, transportation, storage, communications, finance, insur-ance, real estate, personal services, community services and government services.

Source:Central Statistical Organization, National Accounts, 2016.

Description/ Year2010 2011 2012 2013 2014 2015 2016

Pre-war During war

AgriculturePublic sector 0 0 0 0 0 0 0

Private sector 100 100 100 100 100 100 100

ManufacturingPublic sector 37.1 39.4 41.2 39.5 61.2 60.8 47.8

Private sector 62.9 60.6 58.8 60.5 38.8 39.2 52.2

ConstructionPublic sector 61.2 58.7 56.1 61.6 55.6 53.6 53.2

Private sector 38.8 41.3 43.9 38.4 44.4 46.4 46.8

Services*Public sector 25.7 31.5 32.6 34.0 35.7 37.7 33.3

Private sector 74.3 68.5 67.4 66.0 64.3 62.3 66.7

Table (1) Private Sector contribution in the Main Economic Sectors at constant Prices (%)

(A)The increase in the private sector contribution to GDP is not attributed to the raise in the absolute value of the private sector’s GDP, but to the fact that the public sector is declining more than the private sector.

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Issue (35) July, 2018 Page 3 Yemen Socio-Economic Update

In education and health, the private sector had 899 basic and secondary education schools out of 16,730 school in 2016. In addition to 101 universities and colleges in high education accommodating 83,177 stu-dents out of 310,340 student in 2014(3). The private sector owned over 60% of the country’s health facilities in 2014(4). Since late 2016, the collapse of the public education and health system has been accelerated by the ongoing war repercussions, including the salary crisis for state employees, suspension of operating costs of public facilities in most of the governorates, while the private sector continued to provide education and health services to people. However, these services remain inaccessible by many low-income people due to their high costs. Private companies facilitate the flow of medical supplies to pharmacies and health facili-ties nationwide. Most international and national humanitarian organizations operating in Yemen relied on Yemeni companies to get medical supplies for the cholera response during April-September 2017 because of the ability of the private sector to import the needed supplies urgently.

Item/Year 2014 total

2015 total

Absolute change

Percentage change

2014 share

2015 share

(thousands) (Percent)

Agriculture 146.8 73.9 -72.9 -49.7 14.2 8.2

Industry 74.2 71.2 -2.9 -4.0 7.2 7.9

Construction 57.7 62.3 4.6 8.0 5.6 6.9

Trade 324.3 277.0 -47.2 -14.6 31.4 30.8

Treansport 151.1 123.1 -28.0 -18.5 14.6 13.7

Other Private Services 86.1 100.1 14.0 16.3 8.3 11.1

Private Services 561.4 500.2 -61.2 -10.9 54.4 55.6

Public Services 191.5 191.9 0.4 0.2 18.6 21.3

Services 752.9 692.1 -60.8 -8.1 73.0 76.9

Total 1,031.5 899.5 -132.1 -12.8 100.0 100.0

Employer7%

20%11%

Private Sector Employees

31%

Puplic Sector Employees

31%

Own-account worker

Contributing family workers

Table (2) Composition of and impact on employment by sector in Sana’a City, Al-Hodeida, and Aden

Figure (2): Employed Population by Status in Employment, Labor Force Survey 2013-2014

Source:ILO, 2016, Yemen Damage and Needs Assessment, Crisis Impact on Employment and Labor Market..

Yemen imports most of its food needs from abroad. According to the UN Logistics Cluster, commercial imports accounted for 96.5% of food commodities that entered the country during January-March 2017, while INGOs have imported 3.5%(5). Humanitarian organizations rely on the private sector to provide sup-ply chain services such as transportation, storage, customs clearance and re-shipping services. Private enterprise owners provide Humanitarian organiza-tions with various goods and services, including au-tomobiles, generators, food baskets and cash transfer services.

For sure the reliance of INGOs on local companies to carry out more of their activities and continuity to purchase from inside Ye-men increases the employ-ment and income opportu-nities and allows foreign exchange to flow into local markets, thereby supporting the national currency.

Source: Logistic Cluster and WFP, Snapshot on shipping, Food and fuel imports, March 2017.

Source : UNDP and Connecting Business Initiative, Private Sector Organizations/Companies Engagement in Emergency Pre-paredness, Response and Recovery, Preliminary Survey Results, August 2017.

43,7681,262,616

-525,689

FOOD (mt)

FUEL (liters)

Commercial Humanitarian

0 5 10 15 20

Shelter Support

Support for Women

Electricity

Education

Awareness

Feeding Programme

IDPs Livelihoods

Non-Food Items

Health Services

Food

Financial

Figure (3) Commercial vs humanitarian imports (Jan 2017 - Mar 2017)

Figure (4) Type of Assistance Provided to Conflict Affected Persons in August 2017

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Issue (35) July, 2018 Page 4 Yemen Socio-Economic Update

In May 2017, the World Bank estimated the funding requirements for reconstruction and recovery in Ye-men at about $88 billion, including the reconstruction cost of physical assets of $25 billion(7)(B). Despite the lack of updated and comprehensive data on war damages to the private sector enterprises, findings of a rapid survey conducted by the Small and Micro Enterprise Promotion Service (SMEPS), in cooperation with UNDP in six governorates (Abyan, Taiz, Hajjah, Aden, Sa’ada and Sana’a) during August-September 2015, indicated that 26% of enterprises were forced to shut their doors, 95% of the closed enterprises sus-tained partial and complete damages(8).

Second: Main Difficulties and Risks Facing the Private Sector:

1. Physical Damages of the Ongoing War:

(B)These estimates do not necessarily reflect the total magnitude of current war damage and losses because the damages are increasing day by day and the survey methodology is deficient in terms of the geographical and sectoral coverage. Additionally, damages weren’t examined on the ground, but the assessment methodology was mainly based on remote data collection.

Out of its social responsibility towards the society, the private sector implements charity projects and provides hand of assistance to charities and the poor. For example, the private sector established the Yemeni Food Bank in 2017 as an independent humanitarian civil society organization to combat hunger in Yemen. At the inauguration ceremony, businessmen donated about YR300 million.

According to a questionnaire conducted by UNDP on 53 private organizations in Yemen in August 2017, 81% of these organizations were providing assistance to conflict affected persons(6). These organizations reported that the most important types of assistance they provide include financial services, food and health services (Figure 4).

At the governorate level, enterprises operating in Taiz and Aden were most affected by 95% and 90% respectively (Figure 6). By governorate and the degree of damage (complete/partial), it’s noticed that the highest incidences of complete damages have been recorded in enterprises operating in Sa’ada governorate by 43% of the total affected businesses surveyed in Sa’ada (Figure 5).

In May-July 2017, the International Labor Organization (ILO) conducted an assessment of the damages to small and medium-sized enterprises in Sana’a city and its outskirts, which included 460 businesses (73% small enterprises and 27% medium enterprises). The assessment shows that the majority of these projects were affected by the war in 2015(9). However, enterprises that remained closed were less than 10%, while 41% of businesses resumed their operations partially. Findings of the survey revealed that 5% of the busi-nesses were completely destroyed; 22% sustained significant damages to human, material and economic as-sets and 58% sustained limited damages. While some of the enterprises sustained physical damages, most of them (97%) sustained economic losses such as disruption of work, loss of expected revenues and a decline in the number of workers and customers(9).

Abyan Taiz Hajjah Aden Sa’dah Sana’a

41%

95%

85%90%

58%

69%Sana’a

Sa’dah

Hajjah

Taiz

20%-80%43%- 57%

14%-86%

25%-75% Aden 23%-77%

Abyan10%-90%

Complete damage per governorate.Partial damage per governorate.

Figure (6) Percent of businrsses report physical damage because of war

Figure (5) Incidence of physical damage be-tween partial and total across governorates (%)

Source:SMEPS & UNDP, Impact of the Yemen Crisis on Private Sector Activity, Aug.-Sep., 2015

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Issue (35) July, 2018 Page 5 Yemen Socio-Economic Update

The average financial com-pensation required for a medi-um-sized enterprise to resume its operations was estimated at $40,541, while small entrepre-neurs need $18,108 on average. Most of the required funding covers materials and assets(9). In order to recover, small entrepre-neurs reported that they needed to borrow money while medium-sized entrepreneurs were more interested in getting equipment and operational capital to resume their operations.

The ongoing war has severely affected the basic infrastructure in large parts of the country, including roads, bridges, land, sea and airports and imposed severe restrictions on movements of people and inter-nal and external trade, thus raising the costs of the private sector. For example, armed confrontations in Haradh-Al-Tawal area resulted in the closure of the Al-Tawal Port since May 2015, the most important land port, thereby forcing people and goods to pass through Al Wadeeah land port, which is more than twice the distance far from the highly-populated areas in Yemen(10). It takes more time, effort and money and poses higher risks compared to using usual roads.

2. Restrictions on Internal and External Transactions:

Most of the commercial shipments were referred to Aden Port and then had to pass through several checkpoints along the roads before reaching traders’ warehouses in Sana’a and other cities. This delays the shipments add high financial costs, including customs duplication. Not to mention the increase in internal transportation costs on such shipments that may be higher than the cost of shipping due to the monopoly of the Syndicate of Heavy Transport Trucks Drivers for the internal transportation from Aden Port(10). Table(3) indicates the approximate transporting costs for 20 ft. and 40 ft. containers (or their equivalent) from Aden/Hodeidah to Sana’a in 2017, compared to the pre-war period. These fees have undoubtedly increased cur-rently.

Shipping of goods to Yemen is very expensive and shipments that used to take a month prior to the war need three to four months now due to the delays in entry and clearance of ships in Yemeni ports and the imposition of additional insurance premiums due to war risks at $500 per shipment equivalent to 20 feet and $1,000 per shipment equivalent to 40 feet. The insurance costs are even added to shipments going to Aden despite the city being declared as a safe area, i.e., not a subject of the UN Verification and Inspection Mechanism for Yemen (UNVIM)(10).

Pre-conflict During the conflict Price increase

20 ft. 40 ft. 20 ft. 40 ft. 20 ft. 40 ft.

Hodeidah – Sana’a 150,000 230,000 250,000 340,000 66.67% 47.83%

Aden – Sana’a 230,000 310,000 315,000 430,000 36.96% 38.71%

Table (3) Transport Costs for 20 ft. and 40 ft. Containers Before and During Conflict

* Since the war broke out payments are required at various checkpoints along transport routes; however, these are not included in the above pricesSource:Ala Qasem and Brett Scott, Deeproot Consulting, Navigating Yemen’s Wartime Food Pipeline, November 2017.

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Issue (35) July, 2018 Page 6 Yemen Socio-Economic Update

Figure (7) Average delays in entering ports in July 2018

Port delays refer to the time span between arrival at anchorage area and berthing; it does not include the time

elapsed while awaiting clearances.

IMPORTANT

Sources: Logistics Cluster, WFP, WSS reports

The operational status of ports as shown on the map is based on information provided by Wilhelmsen Ship Services AS.

ASH SHIHR* No berths in Jul

MUKALLA

BALHAF

ADENOPEN

CLOSED

MOKA

AL HUDAYDAH

RAS ISA (SBM)

RAS ISA (SHORE TANKS)

SALEEF

Source:Logistics Cluster and WFP, Yemen Humanitarian Imports Overview, July 2018.

In addition, air freight costs have increased because insurance companies impose 200% as insurance fees on Yemen Airways(10). Airports in Sana’a, Aden, Hodeida, Mukalla, Seiyun and Taiz sustained damages. Air flights were resumed only at Aden and Seiyun airports, with international flights limited to Cairo and Amman, while other airports in Hodeida, Taiz and Mukalla remain closed. In Sana’a, only UN humanitar-ian flights are allowed to land at the airport. This hinders shipping the goods of the private sector and the transfer accumulated foreign currency balances of the private sector and banks to and from Yemen.

In addition, strict limitations have been placed on cash transfers between areas under the control of the parties to the conflict. The majority of correspondent banks suspended dealing with Yemeni banks in US dollar remittances and opening documentary credits due to the classification of Yemen as a high-risk area. This greatly affects the provision of banking services such as international remittances and commercial fi-nancing, which are vital to the good performance of the economy and to enable the private sector to import goods and services. Foreign banks that agree to open documentary credits require cash insurances by 100% of Yemeni bank balances for these credits, thereby raising the prices of imported goods.

The private sector has a close interrelationship with the public finance. on the one hand, it is a major con-tributor to the public budget through the payment of taxes and fees, purchase of treasury bills and Islamic Sukuk and provision of hydrocarbon revenues produced by foreign companies. On the other hand, the public expenditure is a key driver of the private sector’s activities and demand for its products and services, thereby improving employment and income levels in the economy as a whole.

3. Public Finance Crisis:

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Issue (35) July, 2018 Page 7 Yemen Socio-Economic Update

Figure (8) Implications of the Public Finance Crisis on the Private Sector

Suspension of salaries in most gov-ernorates, as well as the social welfare assistance and pensions. This affects in-come levels and leads to a contraction in the demand for private sector products.

Suspension of fuel subsidies and disruption of the op-erating expenses for public facilities in large parts of the country, including water and electricity through the public grid. This raises the production, transportation and storage costs; contributes to the low productivity and revenues of the private sector and reduces its capacity to expand and generate employment and income opportunities.

Freezing the projects of the Public Investment Program, which has greatly affected the contracting sector and its activities.

Non-payment of hundreds of billions arrears owed to the contracting sector and suppliers.

Non-payment of domestic public debt interests and instal-ments, thus depriving investors in treasury bills from the returns of their financial investments and leaving the banking sector vulnerable to a severe liquidity crisis, which has adversely af-fected entrepreneurs.

Placing further tax and customs burdens on the private sector and undermining the confidence between the public and private sectors.

However, the collapse of public finance system as a result of the ongoing war have had a heavy impact on the private sector. The ratio of public revenues to GDP declined from 31.4% in 2014 to 16.1% in 2016 due to the disruption of hydrocarbon exports, suspension of donor support to the public budget and contraction of tax revenues. Under pressure from the declining revenues, the ratio of public expenditure to GDP de-clined from 36.1% in 2014 to 30.1% in 2016(11). The situation worsened further with the division of public finance and collapse of the public budget following the relocation of the Central Bank of Yemen (CBY) to Aden in September 2016. This had disastrous consequences on the public and private activities. Figure (8) clarifies the transmission channels of the public finance crisis to the private sector in more details.

The liquidity crisis has contributed to the nonpayment/reduction of wages and salaries and the layoff of some workers from enterprises, thereby reducing their purchasing power for food and non-food staples and deepening the contraction in demand for the private sector’s products. As a result, the economic activity has deteriorated and unemployment and poverty rates have increased.

Additionally, the foreign exchange liquidity crisis has led to growing obstacles and higher costs on the private sector and restricted its ability to import goods and services such as wheat, rice, sugar, medicine and fuel. The direct purchase of U.S dollar by goods’ importers from the parallel exchange market puts strong pressure on the exchange rate, thereby increasing the cost of imported goods. For example, the retail prices of food commodities reached to 39%-104% in May 2018 compared to what it was in pre-crisis period af-fected among other factors by the foreign exchange scarcity(12). This poses a threat on food security in the country and requires securing trade finance facility for basic commodities and fuel at a fixed exchange rate.

The banking sector is currently facing a severe liquidity crisis, where about 65% of bank’s total assets are out of control and unavailable for use in the form of government securities, balances (deposits and required reserves) at the CBY and loans offered to the private sector in danger of default(13). Therefore, banks are unable to meet the demands of their clients (business owners) in a timely fashion. This has affected the activities of those clients, weakened their confidence in the banking sector and made them prefer to keep liquidity outside banks. Not to mention the emerging challenges of the liquidity crisis, such as the large difference between the payment in cash and check or refusal to accept checks, low exchange rate of the earlier series of U.S. banknotes (before 2006) compared to the new series, in addition to the increase in the percentage of non-performing loans which reached 52.5% of the total loans and facilities of banks to the private sector in December 2017(13). Therefore, banks demand large guarantees on credit, which hinders the private investments.

4. Aggravation of the Liquidity Crisis:

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Issue (35) July, 2018 Page 8 Yemen Socio-Economic Update

Yemen is ranked 186 among 190 countries worldwide in the World Bank’s Doing Business Indica-tor-2018 (Figure 9). This places Yemen among the top five worst countries on the map of the world’s Do-ing Business. The countries that are worse than Yemen are South Sudan, Venezuela, Eritrea and Somalia. Yemen’s rank has significantly dropped from 101 in 2012 to 186 in 2018, making it difficult for Yemen not only to attract foreign investments, but also to regain the national migrant capital and foreign companies that left Yemen due to the conflict.

5. Deterioration in Doing Business:

Figure (9) Trend of Yemen Rank in Doing Business Indicator at World Level During (2010-2018)

2014 2015 2016 20172010 2011 2012 2013 2018

190190189189189185183183183

186179170

137133129

101105104

200

180

160

140

120

100

80

60

40

20

0

Yemen Rank Total No. of countries (Worst World Performance)

186Yemen, Rep.

187South Sudan

188Venezuela, RB

189Eritrea

190Somalia

By comparing Yemen’s rank with the countries of Middle East and North Africa Region in the main indicators of the Doing Business, it’s noted that Yemen scored the worst performance in indicators of trad-ing Across Borders, getting electricity and credit. In addition to the deterioration of Yemen’s rank in other indicators such as ease of doing business and dealing with construction permits. This reflects the suffering of the private sector inside Yemen.

Indicator Yemen RankWorst regional performance Best regional Performance

Rank Economy Rank Economy

Ease of Doing Business Rank 186 185 Libya 21 UAE

Starting a Business 163 167 Libya 31 Oman

Dealing with Construction Permits 186 186 Yemen, Syria, Libya 2 UAE

Getting Electricity 187 187 Yemen 1 UAE

Registering Property 82 187 Libya 10 UAE

Getting Credit 186 186 Yemen, Iraq, Libya 90 UAE, Saudi Arabia, Egypt, Iran

Protecting Minority Investors 132 186 Djibouti 10 UAE, Saudi Arabia

Paying Taxes 80 167 Egypt 1 UAE, Qatar

Trading Across Borders 189 189 Yemen 53 Jordan

Enforcing Contracts 140 175 Djibouti 12 UAE

Resolving Insolvency 156 168 Saudi Arabia, Iraq, Libya 63 Tunisia

Table (4) The Republic of Yemen and the MENA Region: Doing Business Indicators, 2018

Source: World Bank Group, Doing Business Report, 2018. http://www.doingbusiness.org

Page 9: Private Sector: Vital Role in Times of War

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Issue (35) July, 2018 Page 9 Yemen Socio-Economic Update

Traditional policies and interventions are no longer useful to encounter the challenges and risks that plague the Yemeni private sector in light of the ongoing war and conflict in the country. In this context, the Chamber of Commerce and Industry expressed its views for the solution by presenting the private sector’s initiative for economic settlement between the parties to the conflict to ensure the continuation of economic activity and enhancement of livelihoods in Yemen. This edition highlights the terms of this initiative as fol-lows:1- Ensuring the independence and impartiality of the CBY and unifying its administration under one inde-

pendent and neutral leadership, or at least ensure full and direct coordination between the CBY struc-tures in Sana’a and Aden if it is not currently possible to unify the administration.

2- Ensuring full freedom of land, sea and air transport, focusing on:

3- Neutralizing all sovereign state revenues, by focusing on:

Third: Priority Interventions:

● Facilitating the foreign trade movement by opening all land, sea and air ports without exception to al-low the flow of the private sector’s goods and the movement of businessmen and travelers.

● Facilitating the movement of travelers, businessmen and goods between different areas of Yemen, as well as neutralizing all seaports, airports, roads and bridges from military operations.

● Restoring the full operational capacity of Yemeni ports, including Hodeida Port, by repairing the dam-ages and expediting ships unloading and entry to the ports, and abolishing the monopoly of the Syndi-cate of Heavy Transport Trucks Drivers for the internal transportation from Aden Port.

● Directing all oil and non-oil sovereign resources, including foreign aid, to one party such as the CBY or an agreed upon special fund under a neutral Yemeni leadership and the supervision of the international community (EU and / or IMF and WB).

● Agreeing on aspects to spend these revenues, most importantly paying the monthly salaries and wages of all state employees throughout Yemen according to the 2014 payrolls and providing the inevitable operating expenses for the health and education sector at all stages.

4- Neutralizing electricity from war and conflict by focusing on:

5- Resuming hydrocarbon production and exports by focusing on:

6- Mobilizing donor support for agricultural, fisheries and livestock activities and improving livelihoods of citizens.

7- Neutralizing the private telecommunication companies from war and conflict, focusing on:

● Neutralizing electricity plants and networks from war and conflict, and imposing international sanc-tions on saboteurs.

● Re-operating the public and local power plants.● Providing periodic maintenance for the power plants and repairing and maintaining the electricity

transmission networks.● Ensure the safety of engineers and technicians and their freedom of movement between different areas

throughout Yemen by the parties to the conflict.

● Rehabilitating and operating the oil and gas facilities to ensure the resumption of hydrocarbon produc-tion and exports.

● Rehabilitating and operating the Aden and Marib refineries, thus supplying the local market with nearly half of its fuel needs.

● Paying all financial obligations and taxes of the telecommunication companies to the CBY or the spe-cial fund as agreed.

● Enabling employees and engineers of the telecommunications companies to move freely between all Yemeni areas for the maintenance of transmission stations and equipment.

● Coordinating between the concerned authorities on how to control these companies and releasing their equipment held in some ports.

Page 10: Private Sector: Vital Role in Times of War

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Annex: Map of access roads in Yemen:

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LT: 7

-10 d

ays

505 n

m

LT: 3

0 h

ours

249 n

m

LT: 3-4 days

703 nm

LT: 3 days

1922 nm

Ex. P

ort S

udan

Ex. Dubai

Ex. Salalah

LT: 7

-10 d

ays

733 n

m

LT: 12 hours

176 nm

'

'

'

'

Mokha

Aden

IBB

ABYAN

AL BAYDA

AL JAWF

AL DHALE'E

AL MAHWIT

AL MAHARAH

TAIZZ

HAJJAH

HADRAMAUT

DHAMAR

RAYMAH

SHABWAH

SA'ADA

SANA'A

AMRAN

LAHJ

MARIB

D j i b o u t iD j i b o u t i

E r i t r e aE r i t r e a

E t h i o p i aE t h i o p i a

S a u d i A r a b i aS a u d i A r a b i a

S o m a l i aS o m a l i a

Ash Shi�r

Shabwah

Makshela

Bayt

Shurayfah

Qurayr

Fardet Nahem

Hamle

Huth

Wadi Mure

Sa'ada

Osaifera

Attar

Rasyan

River

Tanah River

Al Daragah

Mankkah

Shiras

Al Rakwah

Al FaishAl Zeham

Al Madraj I

Makhsan

Al Madraj II

Obal

Alkasabah

Alaman Wadi

Khifa

Albdah

Hawari

Al Saifi

Khaiwan

Barakan

Karah

Zeham

Ar Rawnah

Al Mabraz

Z'arwan

Ash Shaykh

Salim

Ar Ramadah

Quta‘ah

Madinat

ash

Shirq

Jirdan

Imran

Al 'awban

Dhubab

Dar Salim

Salak

Dar

Bayt ‘Ukaysh

Ayn al

Juwayri

‘Awwayn

At Tannan

As Sali

‘Arasi

Al Qurayyah

Al Qanawis

Am Khudayrah

Al Khaymah

Al Jarba’

Am ‘Ayn

Al ‘Aws

Al ‘Aram

Ad Dimnah

Dhalie

Al Kharshah

Bi’r

Bashah

Maqrabah

Az Zilah

Sanaban

As Sawm

Ma'all al

Ghathamah

Ash

Shahili

Al Qasabah

Al Baradah

Najd Qusaym

Al Muqdar

Al Khalil

Ash Shamsarah

Al 'anakah

Al Asluf

As Sabal

Mu‘ayin

al Ghaythi

As Sudd

Masliqah

Za‘linAd Dalil

Al Badiyah

Bayt Ma‘tan

Ar Rizwah

At Tayn

Al Lati

Ibn Tawwah

Madaran

Al Masawi‘ah

Ma'all Bissin

Laffat al

Mujir

Al ‘Anaqah

Dhi Yurwak

As Sadah

Al Maswa

As Suwaydi

Al Jabal

Sanawi

Al Sawab

Mandabah

Bayt Shabanah

Ash Shi`bah

Al Harajah

Thabrah

Ghuraf

Al Buq' Thamud

Sayhut

Rada`

Quflat `Udhr

Ni`aydah

Mukayras

Mayyun

Kamaran

Jidr

Huth

Al `Abr

Hawra

Harrah

Barat

Balhaf

As Salif

Ar Rawdah

Al Mansurah

Al Mafraq

Loheiya

Al Khabr

Ghuraf

Al `Anad

Falaise

As Saymar

Al Hammadi

Kharaz

MOKHA

RAS ISSA

BALHAF

Taizz

Hodeidah

ADEN

LOHEIYA

MUKALLA

SALEEF PORT

BERBERA

BOSASO

DJIBOUTI

HODEIDAH

Sana'a

Ibb

DhamarAl Mukalla

Ash Shihr

Ad Dis

Zinjibar

Zabid

Yarim

Tarim

Abs

Shibam

Shafar

Seiyun

Sa'ada

Rida'

Raydah

Al Qutay'

Ma'rib

Ma`bar

Lawdar

Lahj

Khamir

Jiblah

Ja`ar

Hays

Haradh

Hajjah

Al Habilayn

Ghayl Ba

Wazir

Damt

Bayt al Faqih

Bayhan

Bajil

Az Zaydiyah

At Turbah

Al Tuhayta'

Ataq

Ar Rahidah

Amran

Al Qa`idah

Al Misrakh

Al Marawi`ah

Al Mansuriyah

Al Mahwit

Al Mahabishah

Al Khawkhah

Al Jarrahi

Al Huzum

Al Hazm

Al Qatn

Al Bayda

Al Dhale'e

Al Jabin

Al Marhinah

Maqbanah

Dahyan

Ad Dahi

Qa`tabah

Sihar

Ahwar

50°3'E47°53'E45°45'E43°36'E

17°30'N

15°21'N

13°11'N

11°3'N

±

YE

ME

NA

cces

s C

onst

rain

ts a

s of

22

Ma

y 2

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hf 0 80 16040

Kilometers

G u l f o f A d e n

Re

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ea

Ex. B

erb

era

Date Created: 22 May 2018

Contact: [email protected]

Website: www.logcluster.org

Prepared by: YEM CO GIS Unit

Map Reference:

YEM_OP_LC_AccessConstraints_2018_A3LThe boundaries and names and the designations used on this mapdo not imply official endorsement or acceptance by the UnitedNations.

Data Sources: UNGIWG, GeoNames, GAUL, WFP, LC

© OpenStreetMap Contributors and OCHAS o m a l i aS o m a l i a

*Detour might not be accessible during rainy season.

!\ National Capital

!! Major Town

!Intermediate

Town

! Small Town

! Village

International

Boundary

Governorate

Boundary

Coast Line

Road Closed

Road Difficult to

access

Road Open

Primary Road

Secondary Road

Al Faish Al Madraj IAl Madraj IIAl SaifiAl Zeham Alaman Wadi KhifaAlbdah Alkasabah BarakanFardet NahemHawariKarahKhaiwanLahemanMakhsan Obal OsaiferaSa'ada Shiras ZehamAl RakwahAl-HadidBayt ShurayfahMakshelaMankkahQurayrTanah River

Restricted-LightRestricted-LightRestricted-LightRestricted-LightRestricted-LightRestricted-LightRestricted-Light

Al DaragahAttar HamleHuthMawkaahRasyan RiverWadi Mure

ClosedClosedClosedClosedClosedClosedClosed

Name StatusBRIDGE

RestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestrictedRestricted

THIS MAP NEEDS YOUR HELP

IF YOU HAVE UPDATED ACCESS INFORMATION

CONCERNING ACCESS, PLEASE CONTACT THE LOGISTICS

CLUSTER INFORMATION MANAGEMENT OFFICER

DISCLAIMER

THE INFORMATION DISPLAYED ON THIS MAP CAN CHANGE

AT ANY TIME DUE TO THE CURRENT SITUATION IN YEMEN.

THE LOGISTICS CLUSTER CANNOT GUARANTEE THE

ACCURACY OR COMPLETENESS OF THE INFORMATION

DISPLAYED AND ACCEPTS NO LIABILITY FOR RELIANCE ON

THE DATA. PLEASE TAKE CARE TO VERIFY THE

INFORMATION BEFORE USE.

PLEASE ALSO NOTE THAT THE MAP REFLECTS ONLY

CONFIRMED INFORMATION RECEIVED BY THE CLUSTER,

AND DOES NOT COVER ALL ACCESS ISSUES IN YEMEN. THE

MAP DOES NOT REFLECT THE POLITICAL SITUATION OR

ADDRESS SECURITY ISSUES.

Restricted: alternative

access aside the

bridge*

Restricted-Light: alternative

access aside the bridge

(Soft Vehicles only)*

Closed

Sea Route Open

Sea Route Closed

!c Port Closed

!c Port Functional

Airport Closed'Airport Functional'

From To StatusROAD

Al Hudaydah (Al Jarrahi) Al Hudaydah to Al Mukha via HaysAl Hudaydah (Hays) Al Hudaydah (Al Khawkhah)Sana'a (Khwlan) Marib (Sirwah/Marib City)Sana'a (Nihm) All routes in Nihm districtAbyan All routes in Zingibar districtAl Bayda All routes in Al BaydaAl Hudaydah (Al Mansuriyah) Al Hudaydah via Zabid/Al Jarrahi/Rida' (Ibb)Al Jawf All routes in Al JawfAmran All routes in AmranDhamar Al Bayda (Rada and Damt - Al Dhale'e)Hajjah All routes in HajjahHajjah (Abs/Hajjah) Sana'a via Amran/ShibamMarib (As Sawm/Dhi Yurwak) Al Bayda (Madaran)

TaizzAl Baradah/Ash Shamsarah/Al Muqdar/Al Misrakh/Taizz City

Taizz Taizz City/Al Asluf - Ar RawnahAl Qa'idahTaizz (Dhubab) Taizz (As Suwaydi)

ClosedClosedClosedClosed

Restricted Restricted Restricted Restricted Restricted Restricted Restricted Restricted Restricted

Restricted

RestrictedRestricted

Source: https://logcluster.org/map/yemen-access-constraints-map-22-may-2018

Page 11: Private Sector: Vital Role in Times of War

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Issue (35) July, 2018 Page 11 Yemen Socio-Economic Update

Key Sources:1. Central Statistical Organization, Labor Force Survey 2013-2014.2. Central Statistical Organization, National Accounts, 2016.3. Central Statistical Organization, Statistical Yearbook, 2014. 4. Ministry of Public Health and Population, Annual Statistical health report, 2014.5. Ali Al-Azaki, Sana’a Center for Strategic Studies, International Aid Organizations and the Yemeni Pri-

vate Sector: The Need to Improve Coordination in Humanitarian Crisis Response, March 2018.6. UNDP & Connecting Business Initiative, Private Sector Organizations/Companies Engagement in

Emergency Preparedness, Response and Recovery, Preliminary Survey Results, August 2017.7. World Bank, toward blueprint for the recovery and reconstruction of Yemen, May 2017.8. SMEPS & UNDP, Impact of the Yemen Crisis on Private Sector Activity, Aug.-Sep., 2015.9. ILO and Afcar for Consultancy, Small and Medium-Sized Enterprises Damage Assessment in Sana’a

City and its Suburbs, July 2017.10. World Bank Group, Yemen policy note 3: Private sector readiness to contribute to reconstruction and

recovery in Yemen, May 2017.11. Ministry of Finance, Government Finance Statistics, 2016.12. WFP, YEMEN Market Watch Report, Issue No. 24, May 2018. 13. Central Bank of Yemen, Monetary and Banking Developments Data, 2018.14. Ala Qasem and Brett Scott, Deeproot Consulting, Navigating Yemen’s Wartime Food Pipeline, Novem-

ber 2017.

Contact PersonFor more detailed information about items in this update please contact:

Mr. Abdulmageed Albatuly Email: [email protected] Tel.:+967 771 555 730 www.mpic-yemen.org

“This monthly update is supported by UNICEF YCO”