Where does money fund for subsidies go? [Archives:2000/34/Business & Economy]

August 21 2000

Yemen is suffering a lot from diferent economic problems including unemployment, lack of investment, inflation, smuggling and many others.
Dr. AbdulRahman Bafadel is a very outstanding economist. He has got a PH.D. in Industrial Engineering from France. He was the MInister of Trade and Supply(1993-94) and Minister of Fisheries (1995-1996). He is now member of the parliament and the head of the Islah carcus. Mohammed Bin Sallam of Yemen Times met Dr. Bafadel to highlight various economic issues and filed the following interview.
Q: The government issued new bank notes of YR 500 and YR 1000. Some economic sources say the government is planning to issue new bank notes of YR 5000 and YR 10,000. How will it affect the national economy in general?
A: Printing currency with very high values such as 500, 1000 and more will have its influence negatively on our economy.
First, it facilitates black market traffic of our currency towards neighboring countries. Secondly, it eliminates low value currency such as one riyal, five riyals which have already disappeared. It might lead to the elimination of ten riyals as well as twenty. Thirdly, it increases inflation. Fourthly, it leads to price increase and limited salary people will suffer more by having two or three bank notes to spend for the whole month.
Q: Smuggling is dangerous to the national economy. What are the reverse affects, hazards and economic damages of this phenomenon?
A: Smuggling is one of the most economy disasters. It is enough for this government to resign. In a debate held by government they announced that 70% of goods in the market come through smuggling; not only that, but a list of names of smugglers was presented to the government. However, nothing was done.
The Minister of Finance himself declared on Wednesday 17.11. 1999 in a debate held in the Finance committee of the parliament that smugglers are protected by high post leaders in the government.
The minister and the government REQUESTED those high post authorities to give up protection of smugglers. ( I wonder why this government should stay in power, smuggling is her policy that damages our economy severely?
Q: What is the economic value of treasury bonds and how do you assess them? Are you of the view that these measures can solve the economic crisis in the country?
A: Such policy is fictitious. It will lead sooner or later to economy collapse. Firstly, it liquidated investment, increased idleness and jobless labors. Such high rate guaranteed profit margin lead private sector to abandon business, industry, agriculture, real estates as all are risky without guarantee to have such profit margin. Moreover the Central Bank gives profit against no work. People sleep without no effort to do and they get guaranteed profit. That is why Islam forbids interest as Islam encourages those who work but not who sleep. Those who take risk are not those who want guaranteed profit.
The biggest question that we pose here for the Central Bank as well as World Bank authorities, who has been the advisor of the Central Bank is Where does such billions of local currency are invested so as to get such fixed high rate of profit? Does such high amount of private sector billions is invested? At least to create jobs? Moreover, the creation of the bourse will lead to severe economic situation, for the simple reason that such activities are not real in a sense that money is not exploited in industry or agriculture or anything that will flourish the economy and provide job opportunities for all categories of man power.
Q: In your point of view, what are the main flaws that have affected the Yemeni economy and led to the visible deterioration and how do you think we can solve them?
A: Governments shortcoming as well as killing mistakes for Yemens economy as per budget alternative presented to the parliament by the opposition parties: Baath, Nasserist, independent and Reform party (Islah) during budget discussions are:
1) Budget deficit was put as 34 billion meanwhile after verification we found the following:
a) Oil barrel price was US $ 17 only, but today it is $ 29. We requested them at that time to modify it to US $ 21 as an average, but they refused. They claimed that oil price will shoot down.
b) We requested them calculate dollar price YR 160, they refused. The government insisted to consider it YR 155 only for the dollar. It claimed that dollar price will shoot down.
c) Quantity share for government is around 92 million barrel but not 85 mb as government claimed. So oil income is more by 78 to 80 billion YR to what government stated.
2) Government budget for 2000 showed interest to be paid is YR 28b which means selling treasury shares at YR 165b with interest rate 17%.
3) Economic Units based in sectors are all negative as shown by the government budget:
profit from agriculture & fisheries sector: – 35.2%. (negative)
Profit from industrial sector: – 4.7% (negative)
Profit from construction sector: – 34.6%. (negative)
Profit from commercial sector: – 92.4%. (negative)
All this indicates corruption policy carried by the government . It recognizes not only corruption but also encouraging it.
What solutions and remedies they have taken? Simply nothing.
4) In brief: YR 80b from oil + YR 11b of wheat subsidy in 2000 (nothing in principle for 2000) + YR 28 baccredited for fictitious jobs and multi-job posts non engaged, all this will lead to YR 84b profit rather than YR 34b as deficit.
Q: How do you assess privatization? Do you think it serves the national economy in this critical stage?
A: We believe that it will lead to more problems and severe standard of living as well as increase in unemployment.
In fact, the government has no transparency at all. They want to do it alone away from the parliament. Maroc created a Ministry for Privatization. Our government created an office!! The mechanism to execute privatization is not clear. Our main problem in public sector is MANAGEMENT. Unfortunately, the government wants to sell all in all fields in all governorates. Some say they have already nominated those who will buy cement factory in Amran, Bagil and Barh in Amran, Hodeidah and Taiz governorates respectively. This is an example of the governments corruption. Such non-defined methods and mechanisms will lead to more poverty, more jobless people etc….,
If foreigners are allowed to go into privatization, situation will be worse. We might loose country sovereignty and even foreign economic lobbies to manipulate the society politically. Worst is the engagement of Jewish tourists in privatization. Another Palestine situation will take place for Yemeni people. Government office for privatization has full freedom to evaluate assets, to make tenders, to choose clients, to define conditions, etc. It is expected that assets will be sold with tenth of their prices which will mean big loss for the country. Really, we are pessimist towards the process of privatization due to mechanisms and environment, besides corruption factor that leaves nothing for the country.
Q: Could you please brief us on the reasons that make foreigners avoid investment in the country and what are the obstacles facing investment?
A: Investment in Yemen lacks every thing. The government has done nothing towards the creation of good environment for investment. Security reinforcement comes first, efficient judiciary , commercial tribunals are a must, laws for investment need to be developed, governmental investment needs to be eliminated . The only large scale investment is in oil fields which goes to previous governments and not the current one. Aden Free Zone project is going very slowly. We started this project in 1993-1994; yet time goes quickly, work goes so slow!!
The presidency did too much to create stability for the government to work. The agreement with Saudi Arabia should lead to smooth business relation as well as free movement of Yemeni as well as Saudi Capital towards Yemen. The government unfortunately is paralyzed by corruption and lack of administrative as well as technical cadre to grasp this fruitful occasion.
Its policy is based on loans and taxes. Loans that go to unknown resources with only 20% to 30% for the defined projects. The taxes, on the other hand, proposed by the World Bank nobody knows where it goes. Individual income decreases with time, and development is negative. As published by the government that one third of the nation gets two thirds of national income meanwhile two thirds of the nation share only one third. Tax system with corruption policy lead to severe living standard mainly government staff with exception of high posts and poverty covers large sectors in the country. Individual income does not match with the increase in prices such as electricity, water and telephone more over elimination of subsidies, all lead to a big question mark for the government: Where does money fund for subsidies go? And worst of all different taxes on the shoulders of the citizen namely: income tax (16%) Real estate tax, sales tax rejected by chambers of commerce, production tax, and consummation tax, etc. God knows what comes next for taxes. Once again where all these taxes go? !
To cut it short, we think that this government has achieved nothing economically, neither for trade nor for investment, nor for national individual income. All is negative with negative development. If we refer to World Bank report in July 2000 they stressed that : poverty increases, non-work ability and jobless people on the rise, oil reserve decreases, water resources decreases, and corruption is there. Why should this government stay in position?!