Privatization in Yemen… Assets of Failure & Success [Archives:2001/39/Reportage]

September 24 2001

Imad Al-Saqqaf
Yemen Times
Taiz Bureau Chief
The National Bank of Yemen, cement plants and the Grain Corporations are all successful public enterprises which might be privatized by the government. This in spite of the fact that they play a significant role in economic development, generate great revenues and provide the government with millions of Riyals on a monthly basis. Thus, many people have been surprised by the random decisions like privatizing the National Bank of Yemen, which is one of the most important economic enterprises of Yemen which finances and implements many development projects. The Yemeni government has been severely criticized for going ahead in implementing the privatization program without taking into account the financial, administrative and legislative disturbances the Yemeni economy is going through. The privatization program can never be successful for a deteriorating economy since privatization should be accompanied by an economic, administrative and educational reform. Moreover, privatization can never succeed in an environment dominated by defraud and favoritism, and this necessitates a political reform to prevent the abuse of power.
What is the advantage of privatization?
For a deteriorating economy like that of Yemen… Will the privatization program succeed? And what are the benefits the Yemeni government is going to gain from privatizing the light industries such as Awssan Biscuit Factory, the textile factory or the Ice-cream Factory. Likewise, why is the government privatizing successful enterprises?
Dr. Mohammed Qahtan Associated Professor of economics at Taiz University said: Privatization is part of the economic reform program which Yemen has been implementing since 1995. As the Yemeni economy is suffering from significant economic disturbances which can not be solved by the government alone. Thus, the Yemeni government has asked the help of the World Bank (WB) and the International Monetary Fund (IMF) which are supporting the economic & financial reform program through carrying out what is called the economic doses. Therefore, we can say that the Yemeni government has never thought of the advantages of privatization and it is merely implementing economic procedures imposed by the International Monetary Fund and the World Bank. Hence, the economic reform program has produced an economic recession and a scary rise in the rate of the unemployment and people living under the poverty line, and this is the cost of adopting the economic reform program which relies on a series of financial and monetary policies without taking into consideration the living conditions of the country. Thus, I think that privatization is mostly imposed by the adoption of the free market economy and for the government it does not matter whether it has advantages or not. In economic terms, I think that privatizing the pubic enterprises is a necessary step towards adopting the free market economy and should be assessed from an economic viewpoint so as to know the advantages of the process of privatizing in ways that ensure qualitative and quantitative development for these enterprises in cooperation with the private sector.
Mr. Abdulmalik Mansour, Director-General of al-Barah Cement Plant said: First of all I would like to correct the second part of your question, you said that the economic situation is deteriorating and unstable and this is not true. Yes, we have some economic problems as any third world country and the government is working hard to overcome these problems. Let me go back to your question concerning the privatization whether it is in the interest of the society or not. In fact, the government has no big enterprises which need to be privatized, as what the government has is just a few cements plants and service corporations operating to meet the society needs.
As for the cement factories these three cement plants are owned completely by the government and are successful ones, providing the market with about 65% of its demands. In addition to that they provide the government with hundreds of millions of Yemeni Riyals in profits. Therefore, from my own point of view as a citizen of this country, I see no reasons or need to privatize these cements factories. Instead of privatizing these cement plants, that is, transferring public enterprises to private ones. So why don’t we let private sector invest in the field of cement industry in order to bridge the existing gab between production and consumption, which in fact exists and represents about 35% of the markets.
Ahmed Salem Shamakh, Managing Director of Shamakh Company for Tanning & Leather Industries said: Looking back to all the industrial and agricultural projects implemented within the last couple of years, they are so few owing to the economic recession the Yemeni economy is going through. From this perspective, I think that privatization in Yemen has no viability since the enterprises that are going to be privatized are outdated ones and have no economic advantages such as reputed trade marks, modern equipment or a unique product. Furthermore, theses enterprises are over-staffed and are undergoing various other problems. I think that the only advantage these enterprises have is their very good locations, however, the terms and methods of sale for these enterprises will not attract anyone except the adventurers and swindlers who might accept these terms for the sake of the location and then they will not abide by the stipulations of sale agreements, depending rather on favoritism and on their personal influence. If these public enterprises must be privatized then they should be put for a transparent public auction along with their assets with the view of having a good pricing for them without any reservations or terms. The only countries that succeeded in privatizing their pubic enterprises are the ones which upgraded their enterprises prior to putting them up for sale. Honestly speaking, such a move can never be achieved in a country like Yemen which is suffering from corruption, instability and various economic and political problems. Thus, there is no solution but to sell them in auction without exaggerating their value.
Mufeed Abdusaif, Director-General of Chambers of Commerce & Industry in Taiz, thinks that the aim of privatization is to support the state’s budget or for covering its public expenditure. However, amid the current situation of the industrial sector in Yemen there is no benefit from privatization and I don’t know what we are going to privatize! There is no big enterprises that can be privatized, and if we privatized some industrial plants or service providers, for sure, the government will fail to expand the base of beneficiaries of these plants since favoritism will dominate the situation. It is advisable for the government to follow the policy adopted by the former British prime minister, Margrette Thatcher who made some public enterprises for public auction by shares.
Privatization in Yemen… Very slow!
There are many reasons obstructing privatization in Yemen such as economic and financial disturbances, the existence of defects within the regulations and the lack of a timetable for the implementation of privatization. Dr. Mohammed Ali Qahtan believes that the reasons behind the slowdown in the privation process are as follows:
– The aims of privatization are not yet clear on the part of the government
– Public sector enterprises up for privatization have not been economically assessed since these enterprises are undergoing different problems and corruption is widely prevalent, therefore, this might have an impact on them even if they were transferred to the private sector ownership.
– The economic power of the private sector in Yemen is financially and administratively weak.
– Investment in Yemen is mostly weak.
– Corruption is prevalent at most of the government departments concerned with privatization.
Abdulmalik Mansour comments at this point saying, “I agree with you that privatization is moving slowly, because it is an new experience for the government and society alike. It contributes to regulation regarding privatization. Moreover, it contributes to the government economic policy to take such measures.’ While Mufeed Abdu Saif said that we have no new information about the progress of privatization as the government announces its steps and not about the results of the committees which have been set up for implementing these plans.
Is the private sector capable to run the crippled public sector enterprises?
The private sector in Yemen is incompetent to run the enterprises put by the government for privatization since this sector has a different and a weak experience in investment as a whole.
Mohammed Qahtan has a different viewpoint to that of Ahmed Shamakh who believes that the private sector is capable to run these enterprises, particularly regarding the utilization of the site of the enterprise for different investment activities. Similarly, Mufeed Abdu Saif thinks that the private sector corporations are not charitable societies since they mainly seek profits, thus they search for successful and not crippled projects. Thus, it is better for the private sector to construct new projects instead of purchasing crippled ones. However, the private sector can upgrade the crippled public sector enterprises through replacing the outdated equipment with new equipment.
Successful projects
Most countries of the world privatize crippled enterprises, but in Yemen it is the opposite as the successful enterprises are the ones being made for privatization. Cement plants were among the enterprises put for privatization. A committee has been set by the parliament to visit these plants, which stressed the importance of these enterprises for the Yemeni economy and that the should not be privatized. Economic sources expressed their worries about the intention of the government to privatize the al-Barh Cement Plant which is the biggest cement plant in Yemen.
Abdulmalik Mansour, Director-General of al-Barah Plant said: al-Barah Cement Plant is not absolutely one of the crippled projects as you mentioned in your question. The plant produces even more cement than is its capacity, making hundreds of million Riyals in revenues, assisting hundred of families working in this plant, contributing to the development of Taiz Governorate and seven more other governorates around the country in the form of development fees. It is unfortunate for this plant that it has lacked its own power station since it began operating, so it has to pay more than one billion Riyal for electricity bills. Moreover, the plant stops three to four hours three times a weak due to electricity black-outs. Also, the plant must pay billion and seven hundred million Riyal every year as loan installments plus interest and compound interests since 1998. Despite of all these obstacles the plant is operating well, making a lot of revenues and its production reaches maximum capacity. As far as the power station is concerned, we are on the final steps of achieving this project whose capacity is 20 megawatt.
As matter of fact, President Ali Abdulah Salleh himself is paying significant attention to the three government-run cements plants ( al-Barah, Amran and Bajel cement plants). By doing this, we as a people working in these plants will be able to double the production and improve its quality to introduce this material to the final consumers in a low price and high quality.
The general Corporation for foreign Trade and Grains is one of the successful government-owned corporations, which is making a lot of profits and has been supplying consumers with bread, particularly in the wake of the civil war of 1994. Regrettably the name of this corporation has been listed among the other public enterprises made for privatization and the administration of this corporation has been forced to evacuate its building to be the headquarters for one of the new ministries, while the building of its branch in Hudaidah has been taken by the Marine Forces. Also, in Taiz the lands and properties of the corporation have been sold to some official bodies.
The National Bank of Yemen has played a significant role in implementing and financing different development projects as well as been making profits. According to statistics, the total capital of the bank has reached to YR 1.6 billion on the last July, while the monetary reserves has reached 32 YR billion.
Up till the cabinet issued law No. 5 concerning the privatization of the National Bank of Yemen, one of the most significant economic enterprises, this is undoubtedly a wrong decision and requires reviewing, since the bank is a successful enterprise and should not be privatized.
As a whole, the implementation of privatization in Yemen amid the current economic conditions is a random and illogical decision, which will have, for sure, very negative consequences.