As part of the “Rethinking Yemen’s Economy” initiative, the Development Champions Forum met in Amman, Jordan, between April 29 and May 1, 2017, to discuss practical interventions necessary to address the multiple and varied economic challenges facing Yemen. These challenges were identified within three main, if overlapping, categories; the food security crisis, the problems faced by the banking industry, and the collapse of basic service delivery.

In regards to the food crisis, the Development Champions’ recommendations called on the international community to move quickly in  fulfilling all aid pledges. The champions also emphasized that aid should be cash-based rather than in-kind assistance whenever possible. They called on all parties to the conflict to work towards removing the logistical and financial obstacles affecting the importation and distribution of food and medical supplies, and to urgently improve the management of major commercial entry points, such as the ports of Hudaydah and Aden.

Regarding the banking sector, the Development Champions’ called on all parties to work towards a united and functioning Central Bank of Yemen (CBY), and stressed on depositing all public revenues in CBY accounts. The champions recommended that international aid funds should be directed to support Yemen’s foreign exchange holdings, in order to facilitate food and medicine imports.

Regarding public service delivery, the champions recommended to focus support on empowering local authorities and building their capacity in service delivery, as well as engaging the Yemeni diaspora in supporting critical service sectors and encouraging international and local NGOs to provide keys services where required.

Introduction:

Over the past six years Yemen has been experiencing a period of widespread destabilization, which intensified in September 2014 and resulted in full-blown civil war and international military intervention in early 2015. While the violence has been vicious and destructive, by far the most damaging consequences for the wider Yemeni population have been how the conflict has undermined the systems by which the country functions – devastating the economy, social integration, the humanitarian situation and developmental progress. The result is that millions of people in Yemen are now enduring severe economic deprivation and near-starvation.

In an effort to identify practical and realistic interventions to address the most critical challenges currently facing Yemen, a diverse array of Yemeni social and economic development experts from the public, private, and academic fields gathered for the first Development Champions Forum in Amman, Jordan from April 29 until May 1, 2017. The Forum was part of the “Rethinking Yemen’s Economy” initiative, which aims to identify the country’s economic, humanitarian, social and developmental priorities in light of the ongoing conflict in Yemen, and to prepare for the post-conflict recovery period. The recommendations from the Forum are intended to guide the policy interventions of the international community, regional powers, the Yemeni government and all relevant stakeholders in Yemen.

This brief outlines the priorities identified by participants of the Development Champions Forum as the most critical issues facing Yemen today, and their recommendations for addressing these priorities in the short term. It should be noted, however, that participants widely acknowledged that the underlying cause of the immense suffering facing Yemenis is the ongoing war, and without an end to the war all of the following recommendations will be limited in effect and ultimately unsustainable.

The Food Crisis

Background

Prior to the current crisis Yemen was already the poorest country in the Middle East and North Africa and highly food insecure, with imports accounting for almost 90% of the country’s staple foods. The ongoing conflict has severely curtailed commercial imports and humanitarian aid deliveries from reaching Yemen, while violence within the country and widespread fuel shortages have disrupted internal food distribution networks. These obstacles to food delivery have decreased food availability and dramatically increased food costs, while the conflict has simultaneously devastated per capita purchasing power through the almost complete suspension of normal economic activity, and the consequent increased unemployment and loss of income.

The cumulative result is that in February 2017 the United Nation’s Food and Agriculture Organization (FAO) declared Yemen the “largest food security emergency in the world”; as of May 2017, the United Nations Office for the Coordination of Humanitarian Affairs (OCHA) stated that 17 million people in Yemen required food assistance, with 7 million of these facing a “food security emergency” – this is the Phase 4 classification on the UN’s Integrated Food Security Phase Classification (IPC) index and the last step before the declaration of famine and humanitarian catastrophe. There are 2.2 million children suffering severe acute malnourishment, with one child dying every ten minutes of preventable causes. Almost every governorate along Yemen’s western and southern coast is suffering a food security emergency.

Despite the High-Level Pledging Event for the Humanitarian Crisis in Yemen in Geneva in April – during which various countries and organizations made pledges amounting to $1.1 billion – as of May 9, 2017, donors had delivered funds amounting to only 18.3% of the United Nation’s $2.1 billion humanitarian appeal for Yemen for 2017.

In light of these circumstances, the Development Champions recommend the following:

1. Countries and organizations that made pledges at the high-level pledging event in April must quickly honor these pledges and deliver the funds to the UN.
2. In conjunction with the need for immediate humanitarian aid and the distribution of food and medicine to the neediest and poorest sections of society, the international humanitarian response must integrate a development lens into humanitarian assistance: supporting the economy, sustaining livelihoods, creating new job opportunities (while preserving existing ones), and promoting entrepreneurship.
3. There is a need for the international community to support functional national development and welfare institutions – such as the Social Fund for Development, the Public Works Project, the Social Welfare Fund and active civil society organizations – and ensure that these institutions, and any funds they receive, are protected from political polarization by the current conflict.
4. When providing humanitarian aid, cash transfers should be given priority whenever possible, rather than the distribution of in-kind items that distort local market mechanisms. In this context, participants would like to remind the donors and INGOs of the recommendations of the High Level Panel on Humanitarian Cash Transfers. If in-kind humanitarian distribution is necessary, priority should be given to purchasing these in-kind items from local manufacturers and suppliers to ensure sustaining local job opportunities and mitigating the collapse of the Yemeni private sector.
5. Modern technology should be utilized in the distribution of cash aid, as it can help minimize costs, corruption and/or the duplication of aid delivery. These technologies could include mobile E-Money and fingerprint technologies.
6. Women should be specifically targeted and empowered when providing cash transfers, as participants believe that Yemeni women are more cautious spenders, as per the survival needs and priorities of their families, than men.
7. Platforms and mechanisms for coordination, consultation and experience sharing between the Yemeni private sector, donors and the organizations working in the relief sector should be established. There is as yet no mechanism for such collaboration and coordination, and such could rapidly and significantly benefit humanitarian efforts in Yemen.
8. Transparency, monitoring and evaluation capacities of civil society organizations need to be promoted  to ensure that humanitarian aid is delivered effectively and efficiently to those in need.
9. Innovative mechanisms should be explored through which donors can help reduce the costs borne by food importers, in turn helping to lower the market price of food. To this end the Development Champions recommend:
   • Accelerating the setup of the Trade Finance Facility for Food Imports announced by the World Bank Group in April 2017 to assist importers in securing foreign currency for food imports to Yemen.
   • Creating a mechanism or a facility by the donors to cover the costs of Country and War Risk Insurance for shipments to Yemen.
10. The management of the ports of al-Hudaydah and Aden need to be improved in order to increase the efficiency of their operations. Challenges facing importers at the ports also need to be addressed, such as the monopoly over transportation and trucking services, and the need for new cranes to increase offloading capacity.
11. Freedom of mobility between major cities needs to be ensured by pressuring the various warring parties to secure the main roads and control checkpoints, in turn facilitating commercial and civilian movement.

Challenges Facing the Banking Sector

Background

Security and political instability in Yemen since the early 2000s, the country’s association with terrorism and arms smuggling, as well as weak governance and judicial structures, made Yemen a “high-risk” country for the global financial system. Shortly after 2010, American banks then began closing the accounts of Yemeni banks in the United States, which increased the burden and costs foreign banks sustained when dealing with Yemeni banks. With the start of the current conflict and Yemen coming under UN Chapter 7 jurisdiction, large European and American banks ceased to interact with Yemeni banks completely, compounding the burden and costs of international transfers to and from Yemen.

Yemeni banks were then prohibited from sending physical cash to foreign correspondent banks, leading to a large decline in the accounts of Yemeni banks at these foreign correspondent banks. Yemeni commercial banks became unable to meet the needs of Yemeni importers, in turn driving importers to the black market and money exchangers to buy and sell currency and make international payments, drawing liquidity out of the Yemeni banking sector. Yemeni banks became both unable to honor customer requests to withdraw cash – leading to further hoarding outside the banking system – and had no domestic currency to deposit at the Central Bank of Yemen. These multiple, interrelated and mutually reinforcing factors helped instigate a severe public sector cash liquidity crisis in mid-2016.

A further central challenge facing Yemen’s banking sector is the deterioration of the Central Bank of Yemen’s (CBY) ability to steward the economy. As a result of the armed conflict the Yemeni government lost the vast majority of its revenue resources – such as oil exports, which had been the government’s main source of foreign currency – leading to the depletion of foreign reserves through two years of war. Following the relocation of the CBY headquarters from Sana’a to Aden in September 2016, the CBY also lost the capacity to perform most central bank functions.

In light of these circumstances, the Development Champions recommend the following:

1. Priority should be given to the rapid restoration of oil and gas production and export, as it is the main source of revenue for Yemen, while ensuring that all state and public sector revenues across Yemen (revenues of oil and gas sales, taxes, customs, revenues of public companies, etc.) must be directed to the CBY and its branches in all governorates (as has been the case historically).
2. The central bank has to be re-established as a single, cohesive institution. All parties thus need to recognize the relocation of the CBY headquarters to Aden, where the functions of government accounts management, liquidity management, and the management of external reserves should be administered. The remaining CBY functions should be under the supervision of the CBY leadership but remain in Sana’a, where long-invested-in human resources and institutional capacity reside. Such a separation of duties is necessary due to the fact that the current legitimate seat of the CBY is in Aden, but it is unable to fulfill most functions of a central bank, and building a new institution in Aden with the required capacities would take years. To this end the Development Champions recommend:
   • Taking urgent steps to rebuild trust between the two CBY units in Sana’a and Aden. These steps could include efforts by economics experts respected by all local sides to support the work of the CBY, build consensus, and propose solutions that could restore the CBY’s stewardship of the Yemeni economy. For these efforts to succeed, it is critical that the CBY leadership is permanently based inside Yemen where it can effectively communicate with banks and various economic sectors, and fully administer its functions.
   • Allowing the technical management to exercise its functions independently and free from interference, political or otherwise, in its work.
   • Urging donors, especially GCC countries, to boost the external reserves of the CBY by depositing foreign currency in its accounts and provide direct support to finance the state budget deficit, which would allow the government to avoid financing the budget from inflationary resources that could exacerbate Yemen’s humanitarian crisis.
   • Urgently reactivating the CBY’s clearing house functions.
   • Urging members of the Saudi-led coalition to allow Yemeni banks to transfer surplus cash in foreign currency abroad.
   • Taking steps to secure CBY transfers of physical cash between cities either by plane or land.
3. INGOs currently receive aid money in foreign currency, but need to disburse it in Yemeni rials for their local operations in Yemen. The banks can only provide them with Yemeni rials at the official exchange rate, which is currently at least 45% lower than the black market rate. In effect this means the end beneficiaries receive only 55% of aid money while some banks benefit from the difference. On the other hand, food importers face extreme challenges in securing foreign currency to pay for their food imports. Therefore, the Champions recommend:
   • Establishing a special exchange rate by the CBY for INGOs operating in the country that is lower than the black market rate but higher than the official exchange rate.
   • Establishing a special fund to deposit transfers of humanitarian and development aid grants in foreign currency, and have these funds accessible by importers of basic commodities in Yemen, while INGOs have access to the equivalent amounts in YER at the agreed exchange rate with the CBY in Yemen. The special fund can be managed by an international institution in close coordination with the CBY in order to direct it towards the importation of basic commodities (food, medicine…etc).
4. The Financial Information Unit (FIU) at the CBY has to be re-activated and a technical team appointed to attend the international Financial Action Task Force (FATF) meetings. Such measures are important to begin the process of removing Yemen from the “high-risk” category, which would reduce the obstacles Yemeni banks face when interacting with the global financial system
5. At least some commercial bank deposits currently held at the CBY need to be released to allow commercial banks to pay the interest on customer deposits in cash, thus restoring confidence in the banking sector.

The Collapse of Basic Public Services

Background

Basic public service delivery in Yemen has long been inconsistent and focused on urban areas; for instance, even before the current conflict almost none of rural Yemen was connected to the national electricity grid. Since the beginning of the current crisis, however, two factors in particular have led to an almost complete erosion of most public services. First, the steep loss in public revenues: Oil exports – previously two-thirds of government revenue – have been stopped completely due to the conflict, with tax and tariff revenue also plummeting amidst general economic collapse; in response, the government authorities cut all non-essential spending in 2015 and focused expenditures on continuing to provide public sector salaries only. Second, the discontinuation of public sector salaries in September 2016 due to a severe public sector cash liquidity crisis (mentioned above): as of May 2017, the vast majority of Yemen’s 1.2 million public servants have not received their salaries for seven months.

Public service delivery has thus been decimated, helping to undermine many of the systems Yemenis depend upon. For instance:  garbage has piled in the streets uncollected and waste management systems have broken down in many cities, helping to create a rapidly spreading cholera outbreak; roughly half of Yemen’s public healthcare facilities are no longer operational, and major shortages in staff and medicine have left those still open only partially functioning; the UN has also reported that some 4.5 million school children may not finish the school year because of the disruption in public education.

In light of these circumstances, the Development Champions recommend the following:

1. Encourage and facilitate the work of local and international NGOs, as well as community initiatives, to provide basic services to the poorest and low-income citizens.
2. Find mechanisms to engage the Yemeni diaspora in supporting key sectors, such as healthcare and education.
3. Transfer more power from the central authorities to the municipalities regarding basic service provision and concentrate international support efforts on local authorities, as they are more effective bodies operating closer to beneficiaries.
4. Support public service delivery in stable governorates to create models for other governorates to aspire to; seeing that peace brings dividends in stable governorates can motivate other governorates towards peace.
5. Provide emergency solutions to address the chronic problems facing reliable electricity provision, taking into account the severe problems faced during the summer months in coastal areas. In addition, discourage government authorities from generating high-cost diesel electricity and encourage cheaper and more sustainable alternatives.
6. Provide mechanisms to finance and equip alternative energy (solar power) usage in agriculture, schools and households.
7. Monitor humanitarian and development aid to ensure the fullest possible coverage across the country, in particular prioritizing the most affected areas that donors often overlook or avoid.
8. Support the rejuvenation of Yemen’s transportation networks. Specifically:

• Maintain the Road Maintenance Fund and provide emergency support for the protection and maintenance of the central road network.
• Reopen all airports, specifically Sana’a Airport, al-Hudaydah Airport and al-Mukalla Airport.
• Increase the efficiency of seaports – such as Aden, al-Hudaydah, al-Mukalla and Mocha ports, as well as land border crossings, especially the highly important al-Wadi’a border crossing.

As part of the “Rethinking Yemen’s Economy” initiative, more than 20 of the leading socioeconomic experts on Yemen converged for the second Development Champions Forum on January 14-16 in Amman, Jordan. Among the urgent topics of discussion was the deterioration of the value of the Yemeni rial (YR), the magnifying impact this is having on the humanitarian crisis, and the need to re-empower the Central Bank of Yemen (CBY) as the steward of the rial and the economy generally. This policy brief is an outcome of those discussions, and the recommendations it includes collectively underline the need for the CBY to function in a more coherent, assertive manner – whereby its various branches operate as a united entity that is able to draft and implement monetary policies for Yemen as a whole. This paper includes further input from the Development Champions following the announcement by Saudi Arabia on January 17 of a $2 billion deposit to the CBY.

Background

The primary reason Yemen is experiencing the world’s largest food security emergency is that millions of people cannot afford to buy the food available in the local market. The ongoing conflict has spurred myriad factors contributing to this crisis, such as general economic collapse and widespread loss of livelihood, restricted naval and air access to the country and internal transportation challenges that are inflating costs for importers. Imports and international trade have also been stifled financially: Yemeni commercial banks have been facing difficulties in transferring foreign currency banknotes abroad due to the air restrictions on Sana’a airport, while American and most European banks have closed the accounts Yemeni commercial banks held abroad due to compliance concerns regarding obligations to international money laundering and counter-terrorism financing standards.

In addition to these factors, the depreciation of the rial has severely impacted purchasing power in Yemen. Prior to the current conflict, the exchange rate was at YR 215 to US$1. By mid January 2018, the rial was trading at YR 530 to US$1 (before the $2 billion Saudi deposit was announced). For in-depth analysis on the the depreciation of the YR and the major contributing factors, see the Sana’a Center for Strategic Studies’ (SCSS) October economic bulletin: Renewed rapid currency depreciation and diverging monetary policy between Sana’a and Aden.

Recommendations to the Central Bank of Yemen (CBY)

• Carry out the CBY’s full legal mandate, in accordance with Law 14 of 2000 and the amendments of 2003.[1] This includes managing any and all Government of Yemen foreign currency accounts.
• Regulate domestic currency printing and monitor distribution so as to ensure the optimal balance between easing the cash liquidity crisis and creating further downward pressure on the rial’s value. The guiding metric in this equation should be per capita purchasing power relative to basic commodities, which the CBY should seek to maximize.
• Establish specific coordination mechanisms with Yemeni banks, money exchangers and large private sector actors regarding currency stabilization. The primary immediate need for such coordination relates to the CBY’s deployment of the $2 billion deposit announced by Saudi Arabia; coordination between the CBY, banks, money exchangers and private sector actors should seek to magnify the stabilizing impact of these foreign currency reserves and their ability to facilitate basic commodity imports, while simultaneously minimizing the rate at which the CBY expends these reserves.
• Enact monetary policies, legal procedures and coordination mechanisms with Yemeni banks and large private sector actors to curb the ability of currency exchanges and speculators in carrying out coordinated currency market manipulation. Identified violators of the set policies and procedures should face legal action, including the possible imposition of sanctions.
• Begin providing commercial banks with the interest due on treasury bills in order to boost market liquidity and to encourage banks to pay interest on their customer deposits. Given the large proportion of Yemeni bank assets held in treasury bills, interest paid on these would inject significant liquidity into the banking sector, in turn empowering banks to regain customer trust.
• CBY leadership must relocate permanently to Yemen. Current circumstances in Yemen represent a challenging operating environment; however, CBY leadership operating from abroad – as is currently the case with senior management largely based in Amman and Riyadh – is insufficient for effective central bank management. A properly functioning central bank is not possible without the physical presence of CBY leadership on location in Aden.
• Draft and circulate monthly, quarterly and annual reports amongst domestic, regional and international stakeholders that include the balance sheets of banks operating in Yemen and data that maps the level of liquidity in the local market in order to enhance transparency.
• Re-activate the Financial Information Unit of the CBY:
  • Although the new FIU will be located in Aden, it should seek ways to carry out its responsibilities throughout the country, including Sana’a, to maximize effectiveness.
  • The FIU should resume its regular meetings and coordination with the Middle East & North Africa Financial Action Task Force (MENAFATF), among other organizations, to ensure that Yemeni bank processes and practices are in compliance with international standards.
  • Yemeni banks were largely forced to close their accounts abroad because of the compliance risk these posed for foreign banks. Reactivating the FIU would be a positive step toward reducing that compliance risk and allowing Yemeni banks to reopen accounts abroad.

Recommendations to the Government of Yemen (GoY)

• Refrain from holding foreign currency accounts outside of the CBY, as per Yemeni law. (Currently the GoY holds an account at Ahli Bank in Saudi Arabia, where revenues from oil exports have been deposited until recently).
• Improve government revenue collection mechanisms – such as those related to taxes, customs duties, and oil and gas revenues – and ensure that these funds are deposited in government-held accounts at the CBY. Effective anti-corruption measures should also be considered among the primary means to improve government revenue collection.
• Draft and circulate private monthly, quarterly and annual economic reports amongst domestic, regional and international stakeholders to enhance transparency. In particular, this should include data concerning government revenues and expenditure. The national budget should also be shared with the Yemeni Parliament when it reconvenes.
• Refrain from covering governmental expenditures through inflationary means, such as printing domestic currency in the absence of economic expansion.
• Cancel previous instructions that insisted on the collection of state revenues in cash, which pulled cash from local banks and reduced liquidity. Instead, enforce the use of cheques in the collection of state revenues. The use of cash in state revenue collection also leads to heightened levels of government corruption and increases the risks of doing business, given the highly insecure environment.
• Re-activate the National Committee to Combat Money Laundering and Terrorism Financing. The operations of this committee have been suspended since the onset of the conflict. Reactivating this committee would be a positive step toward reducing Yemen’s compliance risk.
• Form an advisory team to assist the government with fiscal and economic policies, in coordination with the CBY.
  • The advisory team should consist of representatives from state institutions, prominent economists and representatives from all major sectors of the economy.
  • This team can also act as an advisory council on Yemeni socioeconomic affairs for the GoY, and regional and international stakeholders.
• Given the significance of natural resource revenues for Yemen’s GDP and government expenditure, the GoY must look to increase oil and gas production and exports in view of reaching pre-conflict levels.
• Engage actively with the Saudi government to explore options for waiving or at least reducing taxes/fees that the Yemeni diaspora are obligated to pay in Saudi Arabia, thus enabling the Yemeni diaspora to send additional remittances to Yemen.

Recommendations to the Saudi-led coalition member states and the international community:

• Mobilise additional foreign currency deposits from GCC countries to support the CBY in stabilizing the YR, facilitating imports of basic commodities and facilitating the resumption of basic public service delivery.
• Assist Yemeni banks in providing trade finance facilities to Yemeni importers purchasing basic commodities abroad.
  • Allow the resumption of flights to transfer Yemeni commercial banks’ foreign currency banknotes to their accounts in Manama, Bahrain.
  • Accelerate the establishment of the Trade Finance Facility for Food Imports that the World Bank Group announced in April 2017.
• Provide technical support and capacity-building assistance to the CBY to allow it to fulfil its mandate as a central bank.
  • This capacity building and technical support should include training, consultancy teams and/or advisers to help improve internal processes and systems. For example, the installation and use of modern IT systems would help the CBY manage the national budget, international transactions and other central bank duties.
• The coalition members that control access to Yemen’s Red Sea ports should not grant oil importation clearances unless the importer submits all the appropriate documentation regarding the mechanism of payment for the shipment (for example, documentary credit, commercial transfer, etc).
  • This will serve two purposes: it will help rein in the leverage money exchangers exert over the currency market and help deter illicit oil shipments.

[1] For details please see: CBY, “Law No. 14 of 2000 on the Central Bank of Yemen”, available at: http://www.centralbank.gov.ye/App_Upload/law14.pdf (accessed February 3, 2018).

The current humanitarian crisis in Yemen has been precipitated by almost three years of civil war and regional military intervention, with the United Nations declaring the country the world’s largest humanitarian emergency in January 2017. At the end of last year the UN Office for the Coordination of Humanitarian Affairs (OCHA) released its 2018 Humanitarian Needs Overview (HNO) in which it reported that roughly 22.2 million Yemenis were in need of some kind of humanitarian protection or assistance, of which 11.3 million were in acute need. This included 17.8 million Yemenis who were food insecure, of which 8.4 million were severely food insecure and at risk of starvation. Some 16 million people were without access to safe water and sanitation; 16.4 million had limited or no access to healthcare, with almost half of the country’s hospitals and clinics essentially out of operation. Both the lack of clean water and limited health care have in turn helped catapult the number of suspected cholera cases in Yemen to more than 1 million. As of December 2017, more than 1,800 schools were damaged or destroyed, which, compounded by three quarters of public school teachers going unpaid for more than a year, had left roughly 2 million children out of school.

The humanitarian crisis in Yemen is immense and complex, involving a vast array of interrelated and overlapping factors. What is clear, however, is that while international humanitarian actors have been dramatically scaling up operations to address this crisis since 2015, it is overwhelmingly the Yemeni private sector that has stopped the dire situation from being unfathomably worse. Yemeni business owners – in facilitating everything from imports, to transportation logistics and cash aid distributions – have prevented the country from sliding into mass famine. Private sector businesses have similarly offered a measure of relief from state collapse, which has been precipitated by the evaporation of government revenues and suspension of most public sector operating expenditures, such as salaries for most of Yemen’s 1.2 million civil servants.

Private Sector Role in Mitigating the Humanitarian Crisis

Yemen has historically depended on imports to meet as much as 90 percent of the population’s food needs. According to the UN’s Logistics Cluster, between January and March 2017 commercial importers accounted for 96.5 percent of the more than 1.3 million metric tons (mt) of food entering the country; humanitarian actors accounted for the remaining 3.5 percent. With regard to fuel over the same period, commercial importers accounted for almost all of the 526,000 mt arriving to Yemen. As OCHA states in the 2018 HNO: “Just as humanitarian assistance cannot compensate for public institutions, it also cannot replace commercial imports and functioning local markets to meet the vast majority of Yemenis’ survival needs.”  

The erosion of government services has seen, among other things, public sector electricity production essentially fall to zero across most of the country. In response, commercial businesses have facilitated the rapid widespread adoption of solar power for households in many areas, while also providing access to industrial generators, equipment, parts and expertise to maintain the functionality of various water systems and health care facilities in major Yemeni cities, notably Sana’a, Hudaydah and Taiz. Many private medical facilities have also remained open — often offering free services to those unable to pay — in areas where public clinics have closed, while Yemeni businesses have also facilitated the flow of medical supplies to pharmacies and public, private and humanitarian facilities around the country.

An August 2017 United Nations Development Program survey of 53 small, medium and large private sector organizations in Yemen, across all industrial sectors, found that four out of five were assisting conflict-affected persons in the country. These organizations reported that the largest forms of assistance they provided were financial, food and health services.

This author’s own survey of Yemeni business owners in November 2017 found that all respondents saw themselves as engaged in trying to mitigate the humanitarian crisis.[1] These actions ranged from cash distributions, to food basket preparation and distribution, to supplying medical equipment for the cholera campaign. Despite the limited market demand for their commodities, all business owners interviewed said that they had kept the majority of their workforce – though through negative coping strategies, such as decreasing salaries and benefits, as well as reducing working hours – and that they considered sustaining these workers as part of their overall efforts toward mitigating the crisis.

The majority of the business owners believed and were involved in corporate social responsibility (CSR) activities as part of their contribution to humanitarian action; one reported having a charitable foundation, while the rest distributed support through their companies. Regarding the latter, for aid distribution purposes the companies had developed and maintained databases of beneficiaries using informal networks of families, friends and neighborhood connections. Typically, company staff with experience in humanitarian relief delivered the support. The business owners said these CSR activities predated the current conflict, though, since the current conflict began, the level of CSR activities they engage in has fallen somewhat.

Relations with International Humanitarian Actors

Private businesses have also played an essential role in the distribution of international humanitarian aid in Yemen, including both cash transfers and physical goods. For instance, through 2017 one Yemeni microfinance bank recorded some 1.5 million cash transfers worth approximately 29.5 billion Yemeni rials to humanitarian aid recipients across Yemen.[2] In another example, in 2015 humanitarian agencies had 63 trucks carrying relief supplies, including food baskets and medicine, stranded in Sana’a due to the fighting. Private sector business networks intervened, facilitating negotiations between belligerent parties on the ground, resulting in the trucks being released and the aid reaching four besieged districts in Taiz and another four in Aden.[3]

Author interviews with Yemeni business owners and a number of international humanitarian agencies’ staff indicated that humanitarian actors rely on the private sector to provide supply chain services such as transportations, warehousing, and clearing and forwarding services.[4] April through September 2017, most humanitarian actors active in the cholera response effort also relied on Yemeni businesses to source needed medical supplies.[5] This was due to the urgency of the crisis and international humanitarian actors’ inability to quickly procure the needed supplies from outside Yemen.

Business owners surveyed for this paper said that they are providing UN agencies, international and local nongovernment organizations with various goods and services, such as vehicles, generators, spare parts and maintenance, food baskets and blankets, and distribution services. In one instance, a business owner described how he had helped establish and was continuing to coordinate a working relationship between an INGO and a local NGO. A further example is that of another business owner, who operates a medical insurance company and who used his in-country networks to help Marie Stopes International be able to support 1,000 medical patients in Sana’a, suffering from ailments such as diabetes, high blood pressure and chronic kidney problems, through the local NGO Hamunat al-Yemen. Through the system they developed, Hamunat al-Yemen would identify beneficiaries amongst disadvantaged populations and, based on the medical insurance company’s advise, direct them to pharmacies to receive medicine paid for by Marie Stopes International. As of this writing, the three parties were planning to launch a new phase of the project to target more poor patients.

In regards to the procurement process, surveyed business owners generally stated that they won their contracts with international humanitarian actors through a tendering processes; one stated, however, that he provided commodities for INGOs through his “personal network.”

The Need for Better Coordination

Surveyed business owners identified several difficulties in dealing with international humanitarian actors, notably in regard to communication with UN agencies and INGOs. These difficulties primarily concerned the tendering process and follow-through; common complaints were that points of contact with INGOs were often unclear, as were INGO standards and requirements. Consultation with the private sector regarding the targeted communities was also often lacking, meaning much of the value-added expertise and capacities of the private sector were going underutilized.

Business owners also described a process in which some INGOs limited their outreach to pre-selected suppliers and rarely offered new businesses the opportunity to bid on tenders. Transparency in the INGO process of vendor selection was thus identified as an area requiring improvement to ensure strong trust and better coordination between INGOs and the private sector. The business owners also noted that the procurement policies of UN agencies and INGOs at times oblige or encourage direct procurement from outside Yemen.

The business owners generally agreed that there needed to be a coordination mechanism established between the private sector and humanitarian actors that would help encourage local procurement and harness the opportunities for a mutually beneficial relationship. The UNDP survey from August 2017 indicated that there was some confusion regarding whether such a coordination mechanism exists: 57 percent of business owners answered “no” to the question: “Is there a coordination platform dedicated to private sector’s humanitarian assistance and recovery efforts in Yemen?” However, all respondents of the UNDP survey said they believed that such a coordination mechanism was necessary, with almost all saying they would participate in the platform if it did exist.

Operating in a Devastated Economy

Even before the current conflict erupted, Yemen was among the poorest and least developed countries in the Middle East and North Africa; since the conflict began the situation has deteriorated substantially. Yemen’s Ministry of Planning and International Cooperation reported that Yemen’s gross domestic product declined 14.4 percent in 2017 which, following contractions of 15.3 percent in 2016 and 17.6 percent in 2015, equals a cumulative economic contraction of 40.5 percent since the beginning of 2015. As a result of this economic collapse private sector operations have sustained significant losses. Commercial businesses have on average cut operating hours by half, with layoffs estimated at 55 percent of the workforce. This shift has been spurred by surging costs, due to insecurity and shortages of inputs, and falling demand for goods and services, with public purchasing power tumbling on the back of widespread livelihood loss and domestic currency depreciation.[6] A general shortage of foreign currency in Yemen and liquidity challenges related to the domestic currency have also presented importers with increased challenges and costs.[7]

Since the Saudi-led military coalition began to intervene in the Yemen conflict in March 2015, it has imposed severe restrictions on imports entering Yemen. Business owners surveyed by this author said these restrictions have had a crippling impact, leading to a significant increase in shipping and insurance costs for imports. Among other significant challenges they noted were: increased customs tariffs after goods are offloaded, the long procedures for releasing shipments, the unsafe road transportation networks in Yemen, and the difficulty in making money transfers with foreign business partners.

On November 6, 2017, the Saudi-led coalition escalated the import restrictions to a complete closure of all ports, with the immediate impact in Yemen being huge price surges for almost all basic commodities and shortages of many, particularly fuel. Over the subsequent month, the coalition eased restrictions somewhat, allowing imports to resume normally in areas of Yemen’s south held by forces affiliated with the internationally recognized Yemeni government, and later allowing limited UN deliveries to Hudaydah seaport and Sana’a airport, both in Yemen’s north and held by Houthi forces. The Saudi-led coalition announced on December 20 that it was allowing Hudaydah port to reopen to commercia.

Looking Ahead

The number of private Yemeni enterprises engaged in business relations with international humanitarian actors has increased over time, with the scaled up aid efforts becoming new business opportunities in the country and creating a competitive market.[8] There is, however, vast untapped opportunities for both parties in creating better cooperation and coordination mechanisms.

The private sector actors – especially businesses involved in importation, distribution, retail and transportation, in addition to the business conglomerates – have a great deal of potential value-added to offer international humanitarian actors in informing the design and implementation of humanitarian support, which would significantly boost the impact of the humanitarian crisis response in Yemen. Yemeni businesses could increase the efficiency and reach of foreign aid funds by allowing humanitarian actors to capitalize on the private sector’s business networks across the country, their ability to adapt to changing dynamics within local communities, and their ability to navigate between the belligerent parties.

Additionally, the business humanitarian actors are currently bringing the Yemeni private sector is helping many companies stay operational, maintain current employees, and at times create new employment opportunities. Humanitarian actors channeling more of their business through the Yemeni private sector and pursuing local procurement would further help local companies maintain current employees and create new jobs, thereby boosting local employment, local purchasing power and stimulating a positive cycle of market demand. More foreign aid funds spent in Yemen would also provide much-needed foreign currency to the local market, which in turn would help stabilize the domestic currency.

A leading UN agency in Yemen supported such increased cooperation and coordination between international humanitarian actors and the Yemeni private sector. In response to this author’s queries, a World Food Program logistics official stated that:

Considering the vital role that private businesses play in the country and their resilience, humanitarian actors can help to facilitate the private sector importation of commodities and supplies by considering them in the humanitarian procurement process from outside the country. A private sector lead will support the effort to avoid local economy collapse and the further deterioration of the humanitarian situation in the country.

Recommendations

• International Humanitarian Actors (IHA) should form a common platform that includes the Yemeni private sector, local authorities and civil society organizations to coordinate the humanitarian response. It is important to ensure transparency at the level of this platform.
• IHA must renew their suppliers and contractors to give new opportunities to the Yemeni private enterprises.
• IHA should, as much as possible, rely on the Yemeni private sector to procure, import and distribute humanitarian response materials. This would also help local suppliers obtain foreign currency.
• IHA should provide direct cash assistance to beneficiaries to purchase their needs from the local market, as the private sector secures more than 90 percent of the food imported to Yemen.
• IHA should ensure that anti-corruption systems are in place in humanitarian response operations.
• IHA should ensure that representatives of the Yemeni private sector with which they interact and coordinate are the most capable and effective parties to contribute to the humanitarian response, and not limit coordination to official bodies such as the Federation of the Chamber of Commerce, but also explore options such as the Yemen Business Club and others.
• The Yemeni private sector should find a mechanism to better represent itself in coordination operations with donor organizations, and/or rebuild sound governance within the Federation of Yemen Chambers of Commerce and
• Yemeni businessmen outside the country should set up a business council abroad to coordinate with IHAs and contribute to the response.

Notes:

[1] This author distributed a qualitative survey and received responses between November 22-29, 2017, while also conducting several in-person follow-up interviews between January 1-4, 2017. Five of the seven respondents owned networks of large companies – defined as having more than 50 employees and overseas branches – involved in various economic sectors including financial services, manufacturing, fast-moving consumer goods, transportation logistics, and education. One survey respondent owned a medium-sized company – defined as having between 10 and 50 employees with branches across the country – operating in the area of ‘power solutions,’ selling and servicing generators and renewable energy equipment. The last of the six survey respondents owned a small company, with between four and nine employees, based in Sana’a and with distribution channels in other Yemeni cities, operating in the field of healthcare and pharmaceutical products. In general the business owners were asked about their understanding of the current humanitarian crisis, their role during the crisis, their relationship with humanitarian actors and their suggestions regarding that relationship.

[2] Author interview with al-Amal Bank Operations Manager, January 4, 2018. Importantly, microfinance industry proponents in Yemen say that humanitarian actors’ engagement of microfinance institutions in the aid response — while crucial to address the immediate survival needs of the population — also poses an unintended challenge to the industry’s future survival. While the majority of microfinance clients — micro-entrepreneurs — and their surrounding communities are in need of the support humanitarian aid programs are channeling through the microfinance banks, industry members say this ‘free money’ is transforming the role these institutions play and the necessary culture they have built in the industry over several decades. The industry players have essentially left their core business model of providing microfinance products — for which customer repayment is required — to being agents of social cash transfer services, without there being a clear differentiation between the two for clients. Microfinanciers say this will impact the recovery of microfinance industry in the long run, particularly when humanitarian actors cease making transfers through microfinance institutions.

[3] Author interview with World Food Program Logistics Officer, December 31, 2017.

[4] Author interview with World Food Program Logistics Officer, December 31, 2017.

[5] Author interview with Dr. Adel Al-Emad, Chairman of Medical Insurance Specialist Company and Mr. Ali Jubari, Advisor to the Federation of Chambers of Commerce, December 2017.

[6] For details, please see: Ala Qasem and Brett Scott, Navigating Yemen’s Wartime Food Pipeline, Deeproot Consulting, November 29, 2017, http://www.deeproot.consulting/single-post/2017/11/29/Navigating-Yemen%E2%80%99s-Wartime-Food-Pipeline; Amal Nasser and Alex J. Harper, Rapid currency depreciation and the decimation of Yemeni purchasing power, Sana’a Center for Strategic Studies, March 31, 2017, http://sanaacenter.org/publications/analysis/89

[7] For details, please see: Mansour Rageh, Amal Nasser and Farea Al-Muslimi, Yemen Without a Functioning Central Bank: The Loss of Basic Economic Stabilization and Accelerating Famine, Sana’a Center for Strategic Studies, November 2, 2016, http://sanaacenter.org/publications/main-publications/55

[8]  Author interview with World Food Program logistics official, December 31, 2017.

* This policy brief was prepared by the Sana’a Center for Strategic Studies, in coordination with the project partners DeepRoot Consulting and CARPO – Center for Applied Research in Partnership with the Orient.

* Note: This document has been produced with the financial assistance of the European Union and the Embassy of the Kingdom of the Netherlands to Yemen. The recommendations expressed within this document are the personal opinions of the Development Champions Forum participants only, and do not represent the views of the Sanaa Center for Strategic Studies, DeepRoot Consulting, CARPO, or any other persons or organizations with whom the participants may be otherwise affiliated. The contents of this document can under no circumstances be regarded as reflecting the position of the European Union or the Embassy of the Kingdom of the Netherlands to Yemen.

The second Development Champions Forum of the “Rethinking Yemen’s Economy” initiative recently brought together more than 20 of the leading socio-economic experts on Yemen to discuss the most critical challenges facing the country. Among the key topics included were the need to increase the coverage and efficiency of the campaign international humanitarian organizations and United Nations agencies are undertaking to address Yemen’s humanitarian crisis. Among the major issues the Development Champions identified during discussions were:

• The need for international humanitarian actors to increase their coordination with local authorities, civil society actors, and the Yemeni private sector;
• The importance of decentralizing the humanitarian response and the many benefits of prioritising cash transfers to beneficiaries over the direct provision of food stuffs; and
• The importance of prioritising assistance to the most vulnerable populations, in particular internally displaced peoples.

The Development Champions also proposed various policy recommendations for international humanitarian actors, the Government of Yemen, the de facto authorities in various parts of the country, as well as Saudi-led military coalition member states and the international community; these recommendations are discussed below.

Background

The United Nations Office for the Coordination of Humanitarian Affairs reported in the 2018 Humanitarian Needs Overview (HNO) for Yemen that 22.2 million people – 80 percent of the population – were in need of humanitarian assistance or protection at the end of 2017, of which 11.3 million were in acute need. This included 17.8 million people who were food insecure, of which 8.4 million were “at risk of starvation.”

The humanitarian response efforts last year included eight UN agencies, 36 international non-governmental organizations (INGOs) and 147 national non-governmental organizations. The challenges facing these humanitarian actors have been profound, primary among them being the immensity of the crisis. Yemen is currently experiencing the largest humanitarian emergency in the world, the scale and scope of which are severely challenging humanitarian actors’ capacity to assist all those in need, as are the range of needs and the geographic area across which they are spread.

In addition to this, humanitarian actors’ abilities to operate in Yemen and access those in need face severe constraints. Among the many challenges humanitarian actors regularly cite are:

• Bureaucratic delays (including approval times for food, fuel and medical imports to pass the Saudi-led military coalition blockade of Hudaydah port, separate visa procedures for humanitarian staff to enter northern and southern areas of Yemen, prolonged waiting times for visa approval, excessive restrictions and permit requirements to travel in Houthi-controlled areas of the country, etc.);
• Destroyed or nonexistent infrastructure (including roads, bridges, telecommunications networks, food storage facilities, etc.);
• Security challenges (including checkpoints, armed groups diverting and hijacking of aid convoys, active ground battles, air strikes, etc.); and
• Financial challenges (including the widespread liquidity crisis, volatile currency exchange rate and rapid price fluctuations).

All of these factors have also heavily impacted humanitarian actors’ ability to conduct needs assessments, monitor outcomes and gather other data critical to implementing timely evidence-based programming. The warring parties’ sensitivities to such data collection, in particular in Houthi-controlled areas, has also often led them to actively block such activities.

While the Humanitarian Country Teams (HCTs), Clusters, and Inter-Cluster Coordination (ICC) between the international humanitarian actors are well established and functioning, there is limited coordination with the Yemeni private sector and with other local actors. This creates an inherent gap between the demand and supply of aid supplies within the country. It misses the opportunity for the humanitarian actors to address their current inability to stock food and supplies at sites around the country and potentially increases costs of delivery as the humanitarian actors try to build their network and infrastructure for delivering aid to locations where they did not operate previously.

Recommendations for International Humanitarian Actors

• Expand the concept of ‘humanitarian response’ to include recovery efforts. Ongoing humanitarian emergency interventions should help lay the foundations for the near-term rehabilitation of locally provided essential services and help improve the livelihood opportunities for populations in need. This is crucial for long-term national stability and to avoid entrenched aid dependency in Yemen.
• Increase efforts to coordinate with local authorities, civil society actors, and the Yemeni private sector through participatory planning and implementation processes (while recognizing that potential for local coordination varies widely across Yemen depending on local circumstances). This would help ensure a more effective, comprehensive and integrated humanitarian response, while also reducing international humanitarian actors’ operational costs and human resources burdens. Humanitarian actors should regard increased coordination with the Yemeni private sector in particular as an opportunity to circumvent obstructions in aid delivery and management and to speed aid delivery efforts; (please see International Aid Organizations and the Yemeni Private Sector: The Need to Improve Coordination in Humanitarian Crisis Response for detailed recommendations).
• Establish in-country negotiation teams mandated to maintain strong communication channels with the belligerent parties to facilitate unimpeded access for humanitarian aid delivery to all areas of the country. Such efforts should leverage increased coordination with local authorities, civil society actors, and the Yemeni private sector. These efforts should also include a program to educate cadres of the warring parties of their obligations under international humanitarian law.
• Decentralize the relief effort through the creation of relief centers or ‘hubs.’ These hubs should be distributed across the country according to both ready access to humanitarian imports – whether by land, sea or air – and proximity to the largest concentrations of populations in need.
• Develop a comprehensive risk management framework, as well as a unified monitoring and evaluation system that reviews the humanitarian response as a whole. Such would allow for accurate needs assessments and help identify strengths, weaknesses, opportunities and threats within the current aid delivery model. It would also increase transparency and accountability in aid delivery, which in turn would help forstall donor fatigue.
• Generally prioritize cash transfers over food baskets in the delivery of humanitarian aid to beneficiaries. Cash transfers have positive multiplier effects for local economies, assisting small vendors and the market as a whole to keep running, while also strengthening local credit systems and community-level resilience.
• Prepare and implement a plan to build and empower national staff capacity to take on senior decision-making positions, with a core principle of this to be gender-inclusive. This would contribute to more flexible and effective humanitarian operations.
• Conduct local level needs assessments for humanitarian interventions and ensure the delivery of aid to targeted groups according to their needs. This should take into consideration the various geographic and demographic differences, as well as the deteriorating economy and escalating armed conflict.
• Ensure the implementation of fair aid distribution mechanisms, with a specific focus on women who are the breadwinners for their families, given that the conflict has further marginalized women’s ability to access employment, services and aid.
• Monitor the efforts of local civil society actors and NGOs working in the humanitarian response effort to identify opportunities to invest in local capacity building and collaboration. Individual INGOs should develop a partnership strategy that ensures long-term local resilience and capacity handover.

Recommendations for the Government of Yemen

• Obligate the Higher Committee for Humanitarian Relief to take up its supervisory and coordination role in promoting wider and more effective coverage in the humanitarian response and prevent duplication of efforts. This includes: develop and implement a proactive plan to coordinate with and support international organizations and UN agencies in the humanitarian response; assist humanitarian actors in securing the smooth import of humanitarian supplies, visas for foreign staff to enter the country, safe areas to house staff and supplies, and secure transportation corridors through conflict zones; facilitate humanitarian access to communities in need – including internally displaced peoples – and carrying out field surveys to identify specific needs in various areas; coordinate with the technical bodies in Sana’a to ensure more effective aid monitoring and coordination.
• Actively pursue policies to prevent armed groups and belligerent parties from interfering with the activities of humanitarian organizations operating in Yemen, recognizing that the situation aid organizations face varies widely depending on the areas in which they operate.
• Prioritize and initiate the rehabilitation and reconstruction of basic infrastructure necessary to increase the flow of humanitarian aid to Yemen and to facilitate its movement across all governorates.
• Help build the capacity of local authorities and remove legal and procedural restrictions that may inhibit their ability to support international organizations in responding to the humanitarian crisis.
• Actively engage with the Saudi government regarding waiving or reducing taxes and fees for the Yemeni diaspora in Saudi Arabia and granting them a temporary exception from the latest expat employment restrictions, which would allow for increased remittances to Yemen.

Recommendations for the de facto authorities in Yemen

• Remove bureaucratic obstacles that complicate and delay the entry of humanitarian aid workers to Yemen.
• Remove travel permit restrictions for humanitarian aid workers within Yemen and facilitate their secure and unimpeded access to populations in need. This includes preventing the extortion of aid workers at checkpoints.
• Remove restrictions imposed by staff within the Sana’a-based Ministry of Planning and International Cooperation that are limiting humanitarian organizations’ ability to carry out needs assessments and monitor humanitarian aid delivery.

Recommendations to Saudi-led coalition member states and the international community

• Allow the resumption of commercial flights to Sana’a International Airport. This will facilitate the travel needs of those requiring urgent medical attention outside the country, as well as help facilitate the movement of humanitarian aid workers and supplies in and out of northern Yemen.
• Permanently lift restrictions on commercial and humanitarian importation of food, fuel, and medical supplies to all ports in Yemen, in particular the Red Sea port of Hudaydah.
• Undertake steps to restore the functional capacities of the Central Bank of Yemen, as detailed in the Rethinking Yemen’s Economy policy brief entitled: Restoring central bank capacity and stabilizing the rial. Among many other positive outcomes, this would help stabilize the price of basic commodities in the market and thus increase the effectiveness of humanitarian aid cash transfers to beneficiaries in Yemen.