Standstill over project funding in Yemen

17 July 2013

Aid promised to Yemen’s projects sector remains mired in red tape as the body charged with unlocking the funds adds yet another layer of bureaucracy

About $8.1bn in foreign aid was pledged to help rebuild Yemen in 2012, with more than $12bn in total now available to the country. After initial optimism that the bulk of the funding would be spent by the government during Sanaa’s political transition, scheduled to end in February 2014, it now looks increasingly unlikely work will start on new projects before next year.

That little of the pledged funds has been spent is not a major surprise. Foreign governments led by the Gulf states promised $4.7bn to help Yemen execute essential infrastructure projects such as power stations and upgrades to its ports during meetings held in 2006. By 2010, however, little more than 10 per cent of the promised funds had been dispersed, according to Yemen’s Planning and International Cooperation Ministry.

Sanaa blamed a string of conditions placed around the projects by donors, who complained in turn of government inaction, corruption and a lack of capacity.

Unlocking funding

Since then, a further $6.4bn has been offered to the country at a meeting held by the Friends of Yemen, an international working group of governments led by the UK and Saudi Arabia, in Riyadh in September 2012. A second tranche of $1.5bn was also earmarked during a meeting in New York later the same month.

Yemen does not have the… experience to follow the [MAF] rules. Consequently, [funding] simply will not be spent

Yemeni official involved in the Executive Bureau

Ministers and foreign officials that pledged funds in 2006 are still mindful of the problems they faced in unlocking the cash and of the issues involved in tracking aid flows in the notoriously corrupt country. Transparency International, a Berlin-headquartered non-profit organisation that tracks corruption, ranked Yemen 156 out of 176 in its 2012 Corruption Perceptions Index. The commitment to the 2006 pledge round still remains, however, meaning there is more than $12bn on offer to Yemen at the time of writing.

Assisted by foreign technocrats affiliated with the Friends of Yemen, Sanaa officials decided on two solutions to unlock the pledges. First, a set of rules unveiled at the September 2012 meeting in Riyadh, the Mutual Accountability Framework (MAF), was created detailing how the funds would be spent. Second, a new government department was formed to oversee the implementation of the framework and the dispersal of the money.

Riyadh aid pledges
Macroeconomic stability1,340
Humanitarian support648
Security, stability and rule of law399
Agriculture, tourism & fisheries345
Capacity building248
Social protection170
Good governance projects88
Transition support (elections)67
Total including other6,400
Source: Friends of Yemen

The framework, based on a set of guidelines created by the Organisation of Economic Cooperation and Development, sets out rules that mean Yemen’s government has to prove it is using the money responsibly, and that Sanaa must show it has the people in place to ensure it is used properly.

But officials with experience of previous attempts to set conditions around funding say Yemen simply does not have the manpower or experience to follow the rules. Consequently, the money simply will not be spent, at least not in the near future.

The new government department – the Executive Bureau for Aid Effectiveness – was meant to solve this problem. Officials had hoped to set up the new body, staffed with experienced technocrats, by the end of 2012. But before the department had even been officially announced, it had become a political minefield.

“The Executive Bureau was meant to implement the MAF, talk to donors and spend the money,” says a Yemeni official, who was involved in planning the bureau. “But that meant it would have to both take work away from other ministries, especially finance and planning, while telling them what to do in order to implement the MAF. That was always going to rub people up the wrong way.”

Leadership issue

Another problem, he adds, was finding someone to run the new department. To get anything done in Yemen requires political nous and connections, so the manager would have to know Yemen well. But the World Bank and the UK government, which were helping to set up the bureau and were worried about the potential for corruption, did not want political insiders with affiliations to Yemen’s elite to get the job.

Meanwhile, the Planning Ministry complained it would be weakened if the bureau oversaw the implementation of new projects, and that it would steal some of its most talented staff. The Finance Ministry likewise argued it would be weakened if the bureau was the only body involved in planning the dispersal of the funds.

Instead of a new department that streamlined the process, you got yet another layer of bureaucracy

Yemeni official

Although foreign officials muttered that planning and finance had been the principal reason for the blockages that prevented the 2006 pledges from being spent, their arguments took hold. The bureau’s responsibilities were cut back to overseeing the implementation of the accountability framework and coordinating spending plans with donors and ministries. “Instead of a new department that streamlined the process, you got yet another layer of bureaucracy,” says another Yemeni official. “It was basically bound to fail.”

Poisoned chalice

It was February 2013 before the bureau was inaugurated, by presidential decree, but little had been done to actually set it up; Sanaa did not advertise for a managing director until March. The perception among top Yemeni technocrats that the bureau would not be able to achieve much meant that few put themselves forward.

When a candidate was finally selected in June – Naji Abu Hatim, a veteran World Bank official – he turned down the job. Most of the other candidates withdrew themselves from contention. “It was seen as a poisoned chalice,” says the official.

In late June, with the clock running down on the transition and the National Dialogue Conference, a key component of Yemen’s 2011 GCC-backed peace plan, the decision was made to appoint World Bank executive Hedi Larbi to the post temporarily. Larbi, however, will get little done before the end of Ramadan in mid-August, and then will be focused on hiring new staff for the department.

Spending review

The Planning Ministry and the World Bank say about 85 per cent of the pledged funds have been assigned to projects. Donors have approved $3.5bn of that amount, while more than $2bn had actually been dispersed by the end of June 2013. But that figure includes a $1bn soft loan made by Riyadh to the Central Bank of Yemen in 2012 to help keep the economy afloat. The remaining funds largely came from pre-existing commitments from foreign governments and from international institutions such as the World Bank, which has spent $231m on several small schemes since September 2012.

In July, the World Bank pledged to fund the completion of a series of major new roads and highways, at an estimated cost of $200m.

The progress of the spending programme in Yemen will be reviewed at a meeting in Riyadh in September, after which there will be just five months before the scheduled date for a fresh round of presidential and parliamentary elections. Progress on the implementation of the accountability framework will also be discussed at the meeting, say World Bank officials. But until some kind of solution can be found, Yemen’s project billions will remain untapped.

Key fact

Yemen is ranked 156 out of 176 in Berlin-based Transparency International’s 2012 Corruption Perceptions Index

Source: Transparency International

Yemen donor-funded projects

The bulk of money pledged to Yemen in 2012 came at two meetings, in Riyadh and New York.

At the Riyadh meeting, donors pledged about $6.4bn, of which $2.9bn was committed to new infrastructure and repairs, centred on energy, roads, water, and sanitation projects along with upgrades and improvements to the country’s ports.

The bulk of the $1.9bn promised at the New York meeting will also go to infrastructure.

The government says repairs to the headquarters of state carrier Yemenia and the Trade Ministry will cost a total of $276m, while improvements to electricity infrastructure are valued at a further $308m.

Upgrades and repairs to water sanitation facilities is slated to cost $58m. A further $58m has been allocated to extend telephone and internet services to an additional 1 million homes.

There is also money available for bigger schemes, including several power plants, valued at about $400m each in the central Mareb province and in the southern port town of Mukalla, as well as and a multimillion dollar upgrade to Mukalla port itself.

The government says it has set aside $400m to repair and upgrade Aden port, which until 2012 was run by Dubai ports company DP World. Other projects Sanaa has expressed an interest in developing include a $1bn railway linking southern Yemen with Saudi Arabia.

State officials remain hopeful that, once they begin to spend the funds on offer, the private sector will be encouraged to follow suit. Accordingly, it is working on passing a long-gestating public-private partnership (PPP) law. Once the law is passed, Sanaa will start targeting $3.8bn of PPP projects.

Meanwhile, the World Bank is working on a series of small projects under its $35m Second Port Cities Development programme.

The scheme aims to improve infrastructure in the three port cities of Aden, Hodeidah, and Mukalla. The programme is in its second phase following the completion of the first phase in 2010, which focused on upgrade the port city of Aden. The World Bank is funding improvements to fishing ports in Hodeidah and an expansion of Mukalla airport. Eight firms submitted bids for the civil works package for the expansion of Mukalla airport in February. A contract award is pending approval and expected by the end of August.

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