Robert Hindle, WB Country Manager gives his perspective before leaving YemenWorld Bank demands more reforms [Archives:2004/773/Business & Economy]

September 16 2004

Robert Hindle, The World Bank's Country Manager based in Yemen, will be finishing his stay in the country at the end of this month. The World Bank not only takes on the role of providing money for development projects but also offers advice and analysis for countries to make progress in development. Hindle has been working closely with the Yemeni government concerning numerous areas of development, especially in economic reform, for nearly three years.
Hindle, who has been working with The World Bank for 30 years, will fill the post as head of The Integrity Unit at The World Bank's headquarters in Washington, D.C. The department focuses on eliminating the mishandling of funds that are handed over by The World Bank.
Hindle spoke with Peter Willems about progress that has been made in Yemen during his stay and areas that he believes need more work in the future.

Q – What progress has been made on economic reform in Yemen during your stay?
A – My observation of the past three years is that the government has made genuine progress in some areas, but to be honest, not enough in the interest of the people in Yemen. The government has been successful in managing the security situation, and the security situation is important. There needs to be security and peace for economic development to happen.
The second thing is the government has succeeded in continuing to improve its democratic responsiveness. Everyone agrees that the elections were reasonably well managed. The government did a good job of registering people. Obviously, there are always things that can be done better, but it was certainly positive.
On the economic reform side, however, their accomplishments have been more modest. There are some good things. I think Yemen warrants genuine compliments for how it has been proceeding with regard to educational reform. That has been reflected in what the international community has done in terms of providing grants to help the government. Once again, a lot needs to be done, but there has been genuine progress.
The government can take genuine satisfaction in the functioning of the social fund, which is delivering lots of benefits to the people of Yemen. I think the government can take some satisfaction in at least articulating its strategy for poverty alleviation in terms of the poverty reduction strategy, which is actually quite good.
Q – What are some areas you think need more attention?
A – One of the dilemmas is that despite having a good strategy, not everything has been carefully implemented. One of the things worth particular attention has been continued difficulties in the health sector. There is some evidence that the country may be facing a deteriorating health situation, primarily in terms of infant and maternal mortality rates. It is not clear, but the overall delivery system is still not reaching all the people, particularly those in the rural areas. Many Yemenis have said that there are clinics available, but there might not be a staff or proper facilities. So, one of the things to focus on in the near term is better health care.
A second area where some progress has been made, but not enough, is recognising the seriousness of the water crisis. All of us from the outside really do see this as a crisis. It is not absolutely certain that all Yemenis see this as a crisis. Managing water better so that in fact Sana'a does not have to be abandoned in the medium term because there is insufficient water is something the country needs to deal with. Our view is that it is already a crisis.
The third thing which the society really needs to come to terms with is the use of qat. I understand the social and cultural elements of it, but understanding them does not mean that we and Yemenis should ignore the pervasive negative impact of qat chewing. Some of the negative effects, for example, are family income, the water supply, health problems and how qat chewing often serves as a divisive element in many families, not bring families together but separating them.
We are also very concerned about the medium-term economic stability of the country because we do not believe the present high price of oil will continue. Given the fact that we know that oil production is going down and the government depends on oil royalties for 85% of its budget, we are very concerned to have the government take decisions now on finding alternative ways to fund the budget.
There is a real need for improved courts, the judicial system, which implies also having professionally trained police who can help in the legal system. There is much to be done in terms of civil service reform. That is obviously difficult because part of the problem is low salaries. Another part of the problem is that the government needs – over time – to put in place an ethical code on how civil servants should work and how the civil service system operates.

Q – Are there some areas you believe need to be dealt with immediately?
A – There are some issues that should be dealt with that will determine what Yemen looks like 20 years from now. One is education, and as I said they are doing well on that. The second is water management, and they are not doing very well on that. And, three, it is what I call reform of the public service. While there are some positive signs, it is not moving quickly enough. If I could say the three things I would love to see happen as quickly as possible to make sure that this is a successful country, those are the three.
Education is critical to help bring down the population growth rate because what is happening now is that the economy is not growing fast enough to compensate the population growth rate, so people don't feel better off. Education is directly related to that.
What makes great economies is education, particularly making sure everyone is educated. The next thing that makes a great economy is openness to the world, to make sure your economy is integrated with the rest of the world. The third thing that makes a real difference is an effective public administration.
Water is linked not only to over-extraction because of qat, but if you think about the scenario of Yemen, unless water is managed better, the population is going to start moving out of the highlands and into lowlands. You can imagine what social strains it will cause, aside from the simple cost of people deciding on their own that there is not enough water in the highlands and start moving into the lowlands.

Q – What sectors in the Yemeni economy are most promising for the future?
A- In terms of what we call the sources of growth – right now, Yemen depends on oil for income, and in terms of its GDP, the largest part of the economy is what is called services. That is mostly the government, restaurants, barbershops, travel agencies, and so forth. You can have a successful economy based on services. One example is Switzerland where you have a large proportion of the economy dependant on banking. Over time, the United States has evolved to have a higher proportion of its economy in services. But when you are starting out, you cannot depend on services.
Yemen needs to evolve from a service and oil based economy into something else. The prerequisite to that is making sure the business environment in Yemen is such that they can attract honest business people who are going to feel confident working in Yemen. Part of that has to do with good courts and the legal system. Part of it has to do with making sure business people are not hassled for bribes and all of those things.
One sector that can be very profitable is tourism. Yemen should be doing more to attract investment in tourism. If one looks at what the Omanis have done in terms of bringing people in to Salalah and Muscat, there is no reason Yemen cannot do the same thing. What they have done is make sure people who invest in hotels can do it very easily without too many problems. One of the largest and best hotels in Muscat is run by a Yemeni who chose to invest in Muscat rather than in Yemen. That needs to change.
One of the virtues of tourism as well is that it creates huge numbers of jobs. That is something Yemen desperately needs. Plus, businesses related to tourism will pay more taxes and people will pay more taxes so it begins to replace the oil revenue that supports the budget.
Recognizing the water crisis, there are lots of places in the Tihama where there is sufficient water to produce high quality vegetables and fruits for the regional market. If you go to Dubai and enter a supermarket, you will see tomatoes and onions that have come from Australia. That is crazy because Yemen can produce the same thing. It requires people to invest, to establish the marketing chain, to make sure the quality is there, when the supermarket orders a crate of vegetables it is delivered on time and so forth. This country has the best agricultural environment in the Gulf region.
Another sector that has a lot of potential is fish. What is needed is improving the way the fish are handled and treated, and there is no reason why Yemen can not deliver fish, not only to the Gulf, but also to Europe. For example, a way to make money is to put fresh tuna on a charter plane and have the tuna delivered overnight to Frankfurt. That is where the money is, and it is a real opportunity.
Non-oil mining is another area, which includes in part stones. You look around Yemen and you see not only has it got the quality of the stones, but also the workmanship. You then ask yourself, 'Why is the world buying Italian marble and granite at the cost of Italian labor and Yemen is not exporting these things?' Once again it is a case of attracting investors and exploiting what is a natural opportunity.
One of the services that Yemen can develop is the port of Aden and the port of Hodeidah. There is no reason at all why Yemen cannot be making more money on the basis of those two ports. Once again, think about what Dubai has done in terms of its port facility. That is less convenient than Aden and Hodeidah because of location. Aden is physically a much better port than Dubai. Dubai has succeeded in putting in an efficient, well-run port, which means that people come in and build processing and transshipment facilities that create all sorts of jobs. Aden should do the same thing, and they can do it.
The big picture is in the replacement of oil and Aden is going to be one of the immediate places where you can get growth. For instance, if you put in place tomorrow effective port management and integrate the container terminal and the port of Aden under one management, you will within a year get many more ships. Being the successful transit hub creates a lot of jobs. Also within a year people will be saying that they want to set up a business in the free zone. The infrastructure in Aden is set up very well. You will create jobs, more people will move to Aden, and ultimately it will be the city growing providing jobs, providing a tax base for the government, and so forth.
During my three years of being here, it has been the case that Aden is now coming up. If you look at the investments being made in city services, it is in fact a place which is going in the right direction.

Q – There are rumors that The World Bank threatened the Yemeni government to end offering funds or pulling out of Yemen. Is this true?
A – First, not only do we not institutionally threaten governments, but I personally never threaten governments. It is not a good way of doing business, and we do not do it. We are going to present to our board of directors in two weeks a $65 million loan to Yemen for basic education. It is fair to say, though, that we think the government needs to do much more than it has in terms of economic reform. We have certainly said to the government that in the medium term, they cannot expect the same level of support in the absence of reforms that they would get with reformation. I don't call that a threat. I call that a statement of the realities of the world. For us around the world, we reward countries that reform. We don't punish countries that don't reform, but they do get less money.