Ridwhan Al-Saqqaf
Aden Bureau Chief
Aden
Minister of Industry and Chairman of the General Committee for Investment, Mr. Abdulrahman Mohamed Ali Othman told a local newspaper that the priorities of his ministry during the coming period will be to set up a strategy to encourage foreign and local investment in industry. He added that the ministry will present a plan to provide facilities for investors and will work on increasing productivity levels and the quality of local products and increasing industrial exports.
The minister's statement came as the government approved a major change in one of the articles of the investment law, aimed at enabling foreign investors to purchase and use land and real estate with ease and with the protection of the state.
The change will apply to the article that restricts the freedom of foreign investors by forcing them to obtain prior permission from the General Committee for Investment before purchasing or disposing of investments. This also comes during the time in which the parliament is expected to discuss and possibly endorse the changes approved by the cabinet a few months ago regarding the investment law. These changes pave the way to minimize the steps needed to get licenses for investment and also to provide exemptions to investors.
It is worth mentioning that the above changes were encouraged by the World Bank in order to provide an appropriate and encouraging atmosphere for investors in the industrial sector. The cabinet had already last year approved a strategy to promote industrial investment with the cabinet's resolution number 133 for 2000, which was passed after the industrial survey done by the Ministry of Industry together with a number of foreign organizations. Through the survey, the industrial sector's situation in Yemen was analyzed along with a study of all the obstacles faced by investors in the industrial sector.
This comes as an increasing number of investors complain about the current situation facing industrial investments. Many of the complaints were raised through letters sent to the government, by meeting the leadership, and even in scientific, commercial, and industrial conferences held all over the country. The 4th and 5th Businessmen Conferences in Aden held in 1999 and 2000 consecutively were an occasion on which many Yemeni, Arab, and foreign investors brought this issue to the surface. The obstacles facing the industrial sector in Yemen can be summarized by the following:
- Smuggling. Thousands of products similar to ones locally produced are being smuggled in every day. Even though these products are of lower quality, they are in demand due to their lower price because they are not taxed by the state. This is the main cause that leads to flooding, which is a negative phenomenon that could potentially have a severe effect on the local economy, especially in the industrial sector.
- Customs taxes applied to imported materials used in industrial investments in Yemen are also a major obstacle facing industrial investors, because this leads to higher manufacturing costs, resulting in higher prices for the consumers. This encourages the import of ready-made products, hence discouraging the manufacturing of products locally.
- Multiple taxing (for productivity and sales). Too many taxes result in heavier burdens on the various industrial companies because they cause an increase in prices of manufactured goods, leading to less interest among the public, and more competition with imported ready-made goods serving the same purpose.
In brief, industrial development can only be achieved if industry is providing quality products at reasonable prices. Hence, if the government ever plans to encourage industrial development, it should remove all the bureaucratic obstacles facing investors in the industrial sector, and should reduce taxes paid by this sector, and work on preventing smuggling of foreign products by increasing security and enforcing the law.
Businessmen agree that if the government is sincere in its commitment to encourage the industrial sector, it should start by providing a completely structured industrial zone with a strong infrastructure that includes all the necessary services such as electricity, water, communications, transportation facilities, and sanitation facilities, all at economical prices.
However, it is unfortunate that the government has failed to implement the three industrial zones, in Aden, Hodeidah, and Mukalla, which it decided to establish in 1997, when the Minister of Industry was Mr. Mohamed Ahmed Sofan. The implementation of these projects never started despite the fact that a feasibility study of these industrial zones was made as part of a technical and scientific cooperation agreement with Egypt in the same year. The study's results showed that there was great potential for a successful industrial zone in the governorate of Aden as part of an industrial triangle between Aden, Lahj, and Abyan governorates, with an initial estimated area of 6 square kilometers which could have been expanded in the future.
Even though it is not an easy task to launch these industrial zones due to their extremely high building costs, the government could have taken some solid steps towards implementation, and should have encouraged donor countries and organizations to help support the project financially. Experts say that the project's great potential could have easily convinced these countries and organizations to provide assistance to the Republic of Yemen.
Building these zones will create employment opportunities for thousands, and will help decrease poverty. Unlike current industrial complexes, which are near housing complex, the proposed zones will be located away from cities, hence preventing environmental pollution. However, it would still be efficient to build some housing complexes within a reasonable distance of these industrial zones, which would consequently help distribute the population.
It would be smart of the government to proceed immediately with the building of these zones before the private sector, with the BOT system or with one of the systems used successfully in the region and in many Arab states, such as Egypt, which has several industrial zones.
Around 4 years have passed since the government decided on going forward with these zones. When the government made this decision , businessmen and investors were optimistic for the country's future in regard to industrial development. We are afraid that what was said was no more than propaganda used by the government to get public support for the 1997 elections, not more, not less. We are running out of time, especially as we are witnessing an increasing demand for not only three, but even more industrial zones to meet the demand of the local market, and to be able to produce goods capable of competing with foreign products in Yemen and for exporting to other countries.
The government's role is not limited to providing the atmosphere needed to attract investors and businessmen to launch their industrial projects and investments. The government's role includes monitoring the quality of the products of these factories, and making sure they meet the standards it has set up for locally produced goods. It should also verify that the raw material used in producing these goods are within quality limits. All of this should be done in an unbiased manner, regardless of this or that businessman's contributions to the overall economy of the country, simply because the health of Yemeni citizens should be on top of the government's priority list.
All of the above should only be carried out after formulating and approving a law that would organize all issues related to the industrial sector . The Yemeni Standards Committee should set clear laws that indicate the standards that must be met by local goods produced by factories in Yemen.
The above laws should not only be used to monitor the quality of goods, but should also be used to make sure that labor rights and health standards are met in these factories. It is funny to notice however, that government run services, such as the municipal cleaning services have the worst of records in terms of the health conditions of their employees. But this should not be a reason to overlook the importance of monitoring working conditions in privately run factories and industries.
The Ministry of Industry should also work in close coordination with the Ministry of Supply and Trade in monitoring the quality and standard of imported goods either to be directly sold in the market Ðespecially those that are similar to locally produced goods- or to be used as raw materials in local factories.
All of the above tasks require a lot of hard work, commitment, organization, skilled workers, and funds. This drives us to the question of whether the Yemeni Standards Committee would be able to issue the required laws, and enforce them. The issue of funds is vital-they are needed to ensure that employees working in this sector will not be bribed or taken advantage of during the process of quality inspection and assurance. On the other hand, will the Ministry of Industry start working on implementing the already available laws in this regard, and give us some answers to our questions about the long forgotten industrial zones' projects.
Will investors, businessmen, and all the Yemeni people have to wait too long for these projects to start? Let's hope not!

Tawfeek al-Shara'abi
Yemen Times
Mr. Inder K. Sud, the ex-director of the WB paid a final visit to Yemen to bid farewell to officials in the Yemeni government and friends in the private sector. His first visit to Yemen was in 1995 during what was a hard time for the whole of Yemen.
After meeting with officials and friends from the private sector, He held a press conference, met with media people and answered their inquiries about the many activities of the WB in Yemen.
In an answer to a YT question on what Yemen has achieved so far through the reforms programs, he said "Yemen has to be congratulated on what it has achieved in terms of laying the foundation for a good and solid economy. Now the foundation is there which means a stable macro economic situation and exchange rate policy. If we remember the conditions of 1995, we can see the difference.
"Yemen has also a still developing tradition of openness in the government towards elections and democracy which I think will stand Yemen in very good stead in the future. But at the same time the solid foundation of democracy can only be on the basis of growth and for that I think, much needs to be done to encourage the private sector, and to encourage private investment, Yemeni, Arab and foreign."
Regarding the privatization policy that the Yemeni government is conducting on many crippled as well as successful institutions such as the National Bank in Aden and the Aden refinery, he said "To me privatization is extremely important if Yemen is to have a bright future. The government should not do things that the private sector can do. This lesson is learnt in every country all over the world. The government should focus on things it must do such as education, health and basic services, because the private sector has to come in .
"There are many reasons for this including that the government has never had enough money, enough resources or enough capacity and the government should never replace the private sector. And even if the government is making money, when the private sector comes to take over, it will make it expand and grow, bring more investment and that is the main reason why you want privatization.
"This is why we have been actively encouraging the government to undertake privatization. The privatization program is just at its starting phase right now. The National Bank of Yemen and the Aden refinery are being privatized. Hopefully, in the future, things like telecommunication, electricity, cement factories. We have been working very closely with the government so as to have a proper system. Privatization is not a one-day decision to privatize an institution and give it to someone. Privatization needs very careful preparation. It needs openness, transparency so people can see what is being done. So I would say that the privatization program is getting started. It has not taken off yet. The groundwork has been done and I hope progress will be achieved in the future."
On economic reforms and how far Yemen has to go so as to reach it's target, he said "What we know today is that economic development is not a start and finish process. The world is changing every day. If we take the case of Yemen as an example we will find that the next step to be taken is to see what Yemen can do to attract investment. But Yemen is not the only country that wants to do that, Arab and foreign countries want to do the same thing. So you constantly have to be working on this. Economic reforms are now simplifying procedures, diversifying and deregulating the economy, privatizing. These things have to be an on going process. We don't want to worry just about today, we want to worry about the next ten years."

Saving, Investment
and Economic Growth - Part 1

Dr. Alexander Bohrisch*
a
The purpose of this article is to give a short general overview of the interrelationship between savings, investment and economic growth and to assess the situation related to Yemen with regard to savings, investment and financial intermediation. To the extent possible, statistical data from the Central Bank of Yemen and the Central Statistical Office (CSO) were used. However, care is required when interpreting saving and investment data because they may be subject to a more or less large measurement error, reflecting gaps in basic statistical information on economic activity in Yemen. Economic growth is typically measured as the annual change in total output (real GDP) or as the annual change in output per head of the population. The latter is a broad gauge to improvements in the standard of living of the population. Economic growth is a vital - albeit not sufficient - condition for lasting poverty reduction.
Historically, economic growth is a relatively recent phenomenon (and statistically evidenced for a longer period of time mainly for Europe and the United States of America). Until the year 1500 there was practically no sustained economic growth of output in Europe. This did not change much in the following centuries. Between the years 1500 and 1700 output per capita increased by a tiny 0,1% per year and between 1700 and 1820 by no more than an average annual rate of 0,2%. It is only in the last 150 years that the industrial nations experienced sustained and higher growth rates. Thus, in the United States of America, the average annual rate of economic growth per capita was somewhat more than 1.5% during 1870-1950, but rose to slightly more than 2.0% over the period 1950-1998. In fact, it is the period 1950-1973 which witnessed exceptionally rapid growth. Per capita GDP in the world economy rose at an average annual rate of nearly 3.0% and in western Europe by even 4%. These rates have since not been attained and this period is therefore also known as "Golden Age". This performance reflected the interaction of a host of favorable factors, but an important one was the surge in rates of fixed investment in response to opportunities provided, inter alia, by technological catch-up with the United States of America.
A landmark in the research on the sources of economic growth was a study published in 1956 by Robert Solow of the Massachusetts Institute Technology, a later Nobel Price Winner. Solow developed a theoretical framework which allows us to estimate the contributions of production factors (capital and labor) and technical progress to increases in output. The growth contribution of technical progress is calculated as a residual, i.e. as the incremental output which is not accounted for by changes in the traditional factor inputs. Although based on a number of simplifying assumptions, Solow's work highlighted the crucial role of technical progress in the long-term growth process.
At about the same time, some international organizations (UN, World Bank, ILO) also carried out economic growth studies. These studies pointed to the important role of education and outward oriented trade policies, which, in a more general way help to strengthen competitiveness and, therefore, economic growth. Thus, international trade will not only allow the import of capital goods but will also tend to strengthen the competitiveness of domestic firms, which, together with access to larger markets, will improve the growth performance of the economy.
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* Dr. Alexander Bohrisch is currently with GTZ (German Technical Cooperation), Sana'a Office until June 2001. Before, he has been a senior staff member of the United Nations Conference on Trade and Development (UNCTAD), Geneva, Switzerland. The views expressed in this article are those of the author and do not necessarily reflect those of GTZ.

Mahyoub Al-Kamali
The Cabinet has recently given the go-ahead for foreign investors to possess land and estates in the Republic of Yemen. In this context, Article (7) of the investment law will be amended accordingly. The cabinet move is hoped to ensure the success of foreign investments. Other laws such as civil law and estate law will also be amended to facilitate land and estate possession by foreigners and non-Yemenis.
Businessmen regard the cabinet decision as an additional feature to the investment law issued in 1991. Foreign investments are now equal to their local equivalents, they say.
The newly amended law gives foreign investors the right to possess land for their projects, residence, etc. wherever they like, providing them with an atmosphere of tranquillity and stability. It will also help both local as well as foreign savings to contribute to the money market.
According to the statistics of the Ministry of Industry, many opportunities are awaiting investors in the food industries including packing vegetables and fish, the cheese industry, oil production and honey bottling. Foreign investors can also invest in the leather industry, for example. Footwear, clothes, blankets, carpets, furniture, etc. in Yemen are also in need of paper, chemical, plastic, metal, etc. industries.
Investors in the fields mentioned above will enjoy many privileges that are guaranteed by the investment law. They can import the material needed for their industries and will also be exempted from income taxes for 7 years beginning from production date in addition to the many tax-breaks that they already enjoy.
The cabinet decision to allow foreign investors to possess land and estates to use in their projects is a step forward towards attracting foreign capital to invest in Yemen.

During the month of January 2001, the General Investment Authority gave permission to a number of investment projects in the field of industry and mining. The projects consist of 8 factories for manufacturing cement granite and marble mining and excavation at a cost of YR 50 billion, an oil refinery in Hadhramout and another in Hodeidah at an estimated cost of YR 43 billion for both.
The Authority also recommended to the House of Parliament some amendments to the current investment law. The amendments are aimed at giving investors the right to register their projects without prior permission, consequently reducing the number of steps having to be fulfilled by investors before starting their projects.

Yemen was granted 81.3 million Deutsche Marks in the form of two grants to support several developmental projects in various regions of the country. The projects include:
- DM 31 million for sanitation projects in Bajil and Beit Al-Faqih
- DM 4 million for the expansion of the water reservoir station in Ibb
- DM 36.3 million for a sanitation project in Sa'adah City
- DM 10 million for the renovation and expansion of a number of elementary schools in the governorates of Ibb and Abyan

An agreement was signed last week in Sanaa between Yemen and Somalia to promote cooperation in the field of fishery resources. The agreement states that the Yemeni Ministry for Fisheries would provide expertise in helping Somalia restructure its own Ministry of Fisheries and provide all assistance needed in this respect. The agreement also calls for fishing activities in the Arab Gulf area separating the two countries to be organized, taking into consideration the brotherly relationship between the two countries while respecting the interests and national sovereignty of the two nations according to international marine law.