Even before the events of 2014 and 2015 that led Yemen into the ongoing civil war, its economy was fragile. The years of hardship that have haunted the country ever since have been devastating. Yemen is now rated as one of the hardest places in the world for businesses to operate and is last or near last in a host of global business competitiveness indexes. From January 25-27,2021 the seventh Development Champions Forum, held virtually, focused on this dire national situation. To help address local economic challenges, the Development Champions discussed the possibility of establishing Local Economic Councils. According to their analysis, between the existing community-level local development committees (which guide targeted, small scale infrastructure investment from development funds such as the Social Fund for Development and the World Bank) and the Supreme Economic Council (which guides sector-led state investment at a national level), a space exists for a governorate-level body to drive development by guiding investment to serve local needs and strengthen ties between the governorates and the private sector.
Even before the events of 2014 and 2015 that led Yemen into the ongoing civil war, its economy was fragile.[1] The years of hardship that have haunted the country ever since have been devastating. Yemen is now rated as one of the hardest places in the world for businesses to operate[2] and is last or near last in a host of global business competitiveness indexes.[3] On a national level, stressors have included the interruption of oil and gas exports, suspension of donor development support and drop in remittances.[4] In addition, there has been a bifurcation of monetary policy and financial regulation between rival central banks, a general shortage of foreign currency in the market to finance imports, a major depreciation in domestic currency value that has eroded local purchasing power, and widespread loss of livelihoods and income.[5] Damage to vital infrastructure has also been widespread and public finances are in disarray.[6]
The devastating results of this economic collapse cannot be overstated. Poverty and hunger are rife.[7] According to UNICEF,[8] “Yemen is the largest humanitarian crisis in the world, with more than 24 million people – some 80 per cent of the population – in need of humanitarian assistance, including more than 12 million children.”
The Development Champions (DCs) are senior Yemeni experts and professionals from various backgrounds, with established expertise in development and economy. The seventh Development Champions Forum (DCF7), held virtually on January 25-27, 2021, discussed how within this clearly dire national situation, businesses still operating in Yemen today face considerable local-level challenges. The forum considered challenges both unique to, and shared by, the country’s various governorates,[9] regarding areas such as vital infrastructure. Roads, power, fuel supplies, water, and access to communications across the country are often either below standard or not functioning at all.[10] Issues raised also included: a lack of skilled workforces and training opportunities; governorates’ lack of decision-making powers required to react to their specific circumstances; inadequate oversight of funds available to invest in local economies; and scarcity of microfinance opportunities.[11]
Yemen’s local authorities are, for the most part, weak clients of the central authority,[12] and require more resources to cover local development needs.[13] The implementation of the Local Authority Law in 2000 devolved responsibility for providing local services to the district-level local councils within each governorate, to be paid for by revenues generated through taxation. Economic collapse and lack of access to national wealth generated by oil and gas sales has left the councils in many cases unable to fund basic services required by their populations, let alone stimulate economic development.[14] Measuresagreed upon in the National Dialogue Conference to strengthen the autonomy of governorates and their local councils are still waiting to be implemented.[15]
As a possible solution , the Development Champions discussed the idea of a possible establishment of Local Economic Councils (LECs)that. According to their analysis, between the existing community-level local development committees (LDCs) (which guide targeted, small scale infrastructure investment from development funds such as the Social Fund for Development (SDF) and the World Bank)[16] and the Supreme Economic Council (which guides sector-led state investment at a national level),[17] a space exists for a governorate-level body to drive development by guiding investment to serve local needs and strengthen ties between the governorates and the private sector.
The LECs, as envisioned by the Development Champions, would comprise experts drawn from the private sector, academia, NGOs and local authorities, who would both assess the real needs of the governorate’s economy, and advise the local governor and relevant local offices on how best to address them.
Amongst others, the LECs could work on plans to improve local productivity in areas of priority in the governorate and will have to market their ideas to donors and the private sector to facilitate and mobilize funding to reach those in need. Unlike the LDCs, which are project-based temporary structures, LECs would focus on future development plans and implementation at the governorate level.
For example, if access to finance is found to be a major productivity barrier that needs to be addressed in a given governorate, the relevant LEC would advocate for extending microfinance services to the governorate. The LEC could target microfinance stakeholders such as the SFD, Yemen Microfinance Network, microfinance institutions and donors, with needs assessments, studies and presentations and a clear message that facilitating microfinance in the governorate is feasible and a priority.
LECs would also be well placed to better facilitate private-sector bids for large-scale operations currently under the purview of the central government, such as power production and waste management, which could open the door for more significant investments.
Creating these credible, transparent bodies that could present a clear economic vision for their areas would also provide a more appealing environment for international donors looking to sponsor development projects, train workforces and distribute aid.
The Development Champions stand ready to support in drafting clear legal mandates for the implementation of the LECS. Both the nature of the mandates and the structure of each LEC should be flexible, decided by the local authorities depending on their needs. Once formed, the day-to-day running of the LECS should be left to their members.
Located in the east of the country, Hadramawt (population 1.7 million officially, and 3 million anecdotally[18]) is geographically the largest governorate in the Republic of Yemen. Its 28 districts cover some 193,000 square kilometers, around 36 percent of Yemen’s landmass. The governorate’s capital, Mukalla, is considered Yemen’s third largest seaport.[19]
Economic activity in Hadramawt is hampered by general insecurity, especially in the valley and desert areas, in addition to specific conflicts between the components of the central authority, local authority and the Southern Transitional Council (STC). However, with the exception of some limited confrontations with Al-Qaeda in the Arabian Peninsula – most notably, the military operations to drive the extremist group out of Mukalla in 2016 – the governorate has not seen major military operations and has thus largely kept its economic infrastructure intact during the war. This leaves the governorate in an excellent position for economic development, if the appropriate policy steps are taken. Its coastline allows access to well-stocked fishing grounds; the governorate is rich in agricultural land with fertile soil and is known for animal husbandry and beekeeping. Hadramawt is rich in minerals, including gold, and the area currently produces some 65 percent of Yemen’s oil.[20]
Hadramawt is a national outlier, enjoying relative stability and comparatively greater economic resources than other governorates in the country. Local government here functions at a much higher level than elsewhere and already has some working relationships with the private sector.[21] As a result of the weakened power of the central government, Hadramawt has since 2015 exercised a reasonable degree of autonomy. The governorate takes a share from oil export revenues as well as from local financial resources. Compared to other governorates, Hadramawt’s infrastructure was not damaged by the fighting and enjoys a reasonable degree of security and stability.[22]
A Hadramawt LEC comprising members of the private sector, academia, NGOs and local government would be well placed to create locally focused initiatives and economic partnerships that would stimulate growth. For example, the governorate has a well-established fishing industry but without investment it is unable to be exploited to its full potential. Similar to national trends, many fishers still use small artisanal vessels, which are inefficient, and only moderate landing and storage infrastructure exists.[23]
Fisheries interventions in Yemen prior to 2015, of which Hadramawt was a part, came in the form of policy support to improve efficiency of the domestic and export marketing of fish and in the form of infrastructure support, such as the construction of fish-handling facilities, fish-receiving stations, engine maintenance, and net-repair facilities. In addition, efforts were made regarding capacity building for the fishermen in the areas of marine engineering navigation and fish-processing technology and for government fisheries personnel.[24] However, these projects were limited and there have been no studies regarding their sustainability. The LEC could coordinate and advise development partners on existing as well as future interventions, based on consultations with the Yemeni Seafood Exporters Association (YSEA)[25] and the local fisheries’ associations in Hadramawt.
Meanwhile, the LEC could advocate for bringing further microfinance into the governorate, which would help fishers invest in more modern boats, improve landing stations and establish a broad ecosystem of related businesses, such as fish farms, canning factories, boat builders and deep-sea fishing companies.[26]
In addition, DCF7 found that poor catch quality, poor hygiene standards and a lack of quality management systems within fishing companies were affecting productivity.[27] Assistance is needed in improving the quality of fishing and exporting practices based on international requirements, as well as awareness and monitoring campaigns to insure against overfishing. A close partnership with INGOs, facilitated by an LEC, could also help to introduce new fish-based food products, which would create local business, as well as help to mitigate malnutrition at the national level.
Similarly, an LEC could help facilitate targeted investment in Hadramawt’s agricultural sector to help with the significant problems currently caused by a lack of energy and fuel. For example, DCF7 members suggested that an investment fund of around 10-30 million United States dollar (US$) would help farmers move from diesel to solar power and increase productivity.[28]
In the event of smaller-scale successful outcomes, the LEC could further guide the governorate to work with the private sector to develop more investments that entail major infrastructure improvements. For example, DCF7 members suggested LECs could investigate the merits of establishing an oil refinery or expanding export facilities to allow for exploitation of the governorate’s mineral resources.[29] In the longer term, the council could guide the governorate to invest strategically in education, ensuring an educated workforce capable of staffing the governorate’s nascent industries and elevating them to higher levels.
Taiz, located 256 kilometers south of the national capital, Sana’a, is Yemen’s most populous governorate. With an estimated 3.5 million[30] to 5 million[31] people, the area holds about half of the population currently living under the control of the internationally recognized Yemeni government.[32]
Any economic activity in Taiz must overcome extreme challenges. The governorate is one of the worst affected by the ongoing war, having been an active frontline in the conflict throughout the war. Six of its 23 districts are currently held by the armed Houthi movement (Ansar Allah).[33] Its eponymous principal city has seen the second highest proportion of damage of all Yemeni cities, according to the World Bank's 2020 assessment, and suffers from a suffocating siege that has been in place for more than five years. The city ranks second worst for functioning services in the country, has suffered the worst damage to housing stock of any city in Yemen, has seen significant damage to its medical infrastructure and has no public access to electricity and very little public access to water.[34] More than 80 percent of the governorate is food insecure.[35]
The Taiz districts with large manufacturing plants and industry are controlled by the de facto Houthi authorities. Additionally, the coastal districts, although liberated, are still under the influence of the United Arab Emirates. Military interference in the coastal districts is limiting the effectiveness of the fishing sector.[36] Consequently, investment momentum is nearly suspended. Internal sources of investment are insignificant and, since 2015, all sources of external funding have dried up.[37]
The DCF7 believes that economic rejuvenation in Taiz will be limited without a peaceful solution to the fighting and the unification of its authorities under the state. However, the DCF7 has called the economic environment in Taiz “encouraging despite the current blockade and war,” given the adaptability and resilience shown by the businesses still in operation, and called for “urgent intervention in the field of commerce” to assist them.
With the right investment and opportunity, the DCF7 suggests that Taiz would be able to exploit diverse resources and bolster economic activity, with a focus on agriculture, livestock, fishing, and the manufacturing of, for instance, paint and foodstuffs.
The World Bank estimates that between US$44.5 million and US$54.5 million is required for the full rehabilitation of Taiz city.[38] An LEC would be well-placed to ascertain the most suitable sectors to target and the most efficient methods with which to do so.
Exploring channels for adequate financial resources to build suitable infrastructure would be a key directive for an LEC in Taiz, as would facilitating economic partnerships with the private sector in order to achieve an economic boost, especially in sectors with untapped capacities – such as industry, fisheries and mineral wealth.[39]
For instance, improvements in transportation infrastructure would help reduce the current high prices of goods and rehabilitation of power infrastructure would be crucial to drive down the crippling cost of electricity. An LEC would be well placed to guide investment into small-scale initiatives that would reap tangible benefits for local producers. For example, microfinance arrangements to allow the governorate’s farmers and other businesses access to solar power would be of great benefit, as would schemes to help reopen small factories and support artisanal producers.[40]
A transparent, integrated LEC could also help restore trust in the local authorities, which, according to the World Bank,[41] have been eroded over recent years, particularly regarding long-standing issues over garbage collection and sewers. Such issues might be alleviated with private-public partnerships.
In the continuing absence of steps to empower governorates and their local councils, as recommended by the 2013-2014 National Dialogue Conference,[42] the DCs propose that emergency measures be taken to create a mandate for LECs. The central authority should create a legal framework – informed by the proposals of an independent legal consultant – to allow for the creation of LECs in each governorate; it should then validate their mandate. If, or when, the NDC recommendations eventually become law, the LECs could be absorbed into the structure of the local councils, perhaps as economic advisory committees. In order to establish the credibility of the LECs as a viable concept, the DCs recommend a three-year trial phase in which councils are implemented in two governorates.
The work of the LECs will be greatly aided if their governorates have funds to invest in development. The existing system does not encourage governorates to effectively collect funds, and any money available is redistributed without sufficient awareness of each governorate’s needs.[43] At the DCF7, the governor of Taiz suggested that centrally collected funds should be redistributed in a more practical manner, whereby the poorer governorates receive a more generous contribution. Delegates also called for budget caps on autonomous spending – currently set at YR50 million – to be lifted, to allow governorates more flexibility to develop their own infrastructures as they see fit.
The political divisions of the center are reflected on the governorate level, with appointments often politicized. The LECs must remain apolitical if they are to succeed in gaining the trust, and thus investment, of a wary private sector. Many private investors are ready to support projects, but they fear that projects will be shut down centrally.
Endnotes