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World Bank Document PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB4381 Second Port Cities Development Project Project Name Public Disclosure Authorized Region MIDDLE EAST AND NORTH AFRICA Sector Sub-national government administration (30%); General industry and trade sector (30%); General transportation sector (20%); Power (20%) Project ID P088435 Borrower(s) GOVERNMENT OF REPUBLIC OF YEMEN Government of Yemen Sana’a Yemen, Republic of Implementing Agency Port Cities Development Program National Coordination Unit Khormaksar Public Disclosure Authorized Aden Yemen, Republic of Tel: (967-2) 239-171/2 Fax: (967-2) 239-165 [email protected]/[email protected] Ministry of Planning and International Cooperation Yemen, Republic of Environment Category [] A [ X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared March 10, 2010 Date of Appraisal March 9, 2010 Authorization Date of Board Approval May 25, 2010 Public Disclosure Authorized 1. Country and Sector Background Yemen is the poorest country in the Middle East and North Africa (MENA) Region with a Gross National Income (GNI) per capita of US$950 (2008). Almost 40 percent of Yemen’s estimated population of 22.4 million lives below the poverty line. High gender inequality, high fertility rates coupled with a population growth rate of 3 percent per annum1, makes for immense human development challenges. Yemen ranks 140th out of 182 countries on the 2009 Human Development Index (HDI), and the achievement of the Millennium Development Goals (MDGs) by 2015 appears to be difficult, with the possible exception of the goal for universal primary education. Yemen is a fragile state confronted with daunting internal and external economic challenges, Public Disclosure Authorized including conflict. Economic activity is depressed as public expenditures are declining due to a decline in revenues. Hydrocarbon resources are being exhausted. Economic distress is aggravated by the costs from internal conflict since 2004, and a growing water crisis that already 1 World Bank (2008) Development Data Platform, World Bank. ranks amongst the worst in the world2. Yemen suffers from serious shortcomings in government capacity, limiting the state’s ability to develop and implement policies, take appropriate timely actions, absorb resources, and ultimately deliver services to its citizens3. With oil currently accounting for 27 percent of Gross Domestic Product (GDP) and 90 percent of merchandise exports, Yemen’s external challenges include: fluctuations in oil prices on the world market; the global economic crisis; reduced foreign direct investment (FDI) and remittances4 especially from the Gulf; a reduction in external financing; instability in the Horn of Africa; and an increase in sea piracy which has had a negative impact on maritime and offshore activities. Diversifying economic growth by reducing economic dependence on oil is of high priority for the Government of Yemen (GoY). Despite its high contribution to GDP, Yemen’s oil sector provides employment for only about 18,000 workers and small enterprises dominate the economy. The rate at which private enterprises are created across the economy is slow, as is the amount of employment generated – only 2.5 new jobs are created per 100 enterprises5. Since the adoption of the 2006-2010 Third Development Plan for Poverty Reduction (DPPR), the GoY has scaled up its efforts to spur non-oil growth. With a focus on agriculture including fisheries, commercial ports, manufacturing, and services, the GoY has sought support from the World Bank Group (WBG), including the International Finance Corporation (IFC), to identify and support the implementation of reforms in all these sectors to enhance private sector growth in the non-oil sectors. Key Sector Issues Yemen’s rapid rate of urbanization is an enormous opportunity for growth and faster poverty reduction. About 70 percent of the value added in Yemen’s economy is located in urban6 areas that are home to about 6.7 million people. Almost one fifth of this urban population lives below the poverty line, with over half of them without access to basic urban services living in informal settlements. Urbanizing at 4.8 percent per annum - higher than the national population growth rate of 3 percent per annum - Yemen will cross the 50 percent urbanization mark by 2035, and its urban population is expected to exceed 25 million. Economic diversification at the same time that Yemen is urbanizing, presents an even greater opportunity for growth. As the country urbanizes and the economy transforms, different cities will attract production and people at different speeds7. Reforms will enhance private sector growth in the non-oil sectors, and increase economic density in and around cities already experiencing rapid growth, particularly port cities, transforming these places to regional growth centers. Entrepreneurs will locate in close proximity to high economic density places to exploit economies of scale, because these places will matter not just for access to goods and services, but 2 Yemen has one of the lowest rates of per capita fresh water availability (135 cubic meters /capita/ year compared to the MNA average of 1,250 cubic meters / capita / year). Water Sector Support Project, World Bank, Jan. 2009. 3 “Yemen’s Top 10 priorities: A Presentation Organized for Prime Minister Ali Mujawar, Friday July 24, 2009.” 4 The value of expatriate remittances ranged between US$1- US$1.3 billion per annum during the period 1995-2005 ( DPPR, 2006-2010). 5 Education Sector Study, World Bank (2005). 6 “Urban” is defined in Yemini statistics as capital Sana’a, Aden City, Capitals of Governorates, Centers of Districts, and every settled community of 5,000 or more inhabitants. 7 If current urbanization trends continue, Sana’s could be home to 4.8 million people, Hodeidah to 1.1 million, and Taiz to 1.23 million people, Mukalla to 0.61 million, and Aden to 1.57 million by 2025 (World Urbanization Prospects, 2007). also for access to ideas. As this transformation occurs, Yemen’s agglomeration index, the lowest in the MENA region, will increase8. The spatial location of this increase, however, will very likely be influenced by the availability of water resources. Coastal areas are better endowed, but coastal aquifers are also deteriorating. Five cities account for roughly half of Yemen’s urban population and the challenge of urban management, especially in these five biggest cities, will only grow. These cities are Sana’a, the capital city with 1.8 million people or about 30 percent of the urban population, Aden the primary port city with 0.59 million people, Taiz with 0.46 million people, Hodeidah with 0.41 million people, and Makulla with 0.23 million people9. Almost three quarters of the urban poor population of Yemen is concentrated in these five cities. If current urbanization trends continue, by 2025, Sana’a could be home to 4.8 million people, Hodeidah to 1.1 million people, Taiz to 1.23 million people, Mukalla to 0.61 million people, and Aden to 1.57 million people10. The demand this growth will create for employment and services is of concern, as Yemen’s informal sector is very large currently accounting for 27 percent of GDP. Except for Sana’a, however, the other cities lack an institutional arrangement that could enable an integrated and cohesive approach to development in these cities, so that their growth and poverty reduction potential could be maximized. Three of the five main cities are coastal port cities, and the impacts of agglomeration are already evident in these three cities. These port cities are Aden, Hodeidah and Mukalla and already have multimodal transport links that are critical for commerce. These three cities together are attracting more than a quarter of Yemen’s total rural-urban migration, and are growth magnets in their respective Governorates. For example, Hodeidah is home to about one fifth of its Governorate’s population, and Makulla city is home to almost a quarter of the Governorate’s population. Aden Governorate is entirely urban. Another manifestation of the agglomeration effect, is the amount of Yemen’s cargo that passes through these three cities: Aden’s port handles 62 percent of Yemen’s cargo, while Hodeidah and Makulla handle 24 and 6 percent respectively. Additionally, while Aden port has the capacity to capture a share of the regional transshipment market and therefore contribute to further economic densification, Hodeidah and Makulla already serve specific industries like grain, oil, fish, minerals etc. Rapid urban economic and population growth, however, is leading to more congestion due to inadequate economic and social infrastructure, negatively impacting the efficiency that comes with agglomeration. Infrastructure demand has exceeded supply with respect to almost all urban services in these cities. Most striking are the efficiency losses from existing infrastructure assets that are the backbone to sustain the urban economy. For example, more than half of Yemen’s fish exports come from Hodeidah Governorate – yet the port is severely congested, struggling to 8 “Agglomeration index” measures the proportion of population living in an area with a population density of 150 people/square kilometer which is also no more than an hour’s travel time from a city, thereby providing an objective measure of agglomeration, as worldwide there are no standard definitions of urban and rural. Reshaping Economic Geography, World Development Report 2009 9 Yemen 2004 Final Census. 10 World Urbanization Prospects, 2007. handle a demand that is more than six times its design capacity11. Aden’s municipal markets supply basic staple shopping needs for over almost three quarters of the city’s population which is sourced from within 100 miles of Aden12. These urban-rural linkages suggest that the multiplier effects from having a vibrant local produce market structure in Aden are significant13. Yet, congestion inside the markets makes regular cleaning impossible, and the unhygienic conditions are a public health risk.
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