DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION
Public Disclosure Authorized Not For Public Use Fii n
Rerort No. 98a-YAR
Public Disclosure Authorized ECONOMIC DEVELOPMENT
IN
THE YEMEN ARAB REPUBLIC Public Disclosure Authorized
June 18, 1973 Public Disclosure Authorized
Regional Office for Europe, Middle East and North Africa
.^is report was prepared for official use only by the Bank Group. It m.ay not be pubLished, nuoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. Currency Equivalents
Free IMarket RateU / 1972 Average March 1973
1 Yemeni rial $0.20 $0.22
1 US Dollar 5.0 rials 4.50 rials
-/ No par value has been communicated to the IMF. lLowever, thLe Yelmen Arcab)Rpbi g-e n17 to a provisional rate of US$1 = YR5. Most free ar-ket transactions took place at that rate during 1972. Following the devaluation of the dollar in February 1973, the rial appreciated to a rate of $1.00 = YR4.50. TABLE OF CONTELITS
Page No.
MAP
BASIC DATA
I TNTRfWDUCTONo...... 1
TT mrITOUCTTRAL C-ARACT3RRSTT.S...... 1 Resources and the Origin of Production.. . . . 2 PFpla_tion and Social Se-tnira ...... Macroeconomic Features..... 6 Connfrainta to Develment . . *. . . . 8
TTT _R_RMT RECYOJMTr_ nlR_VTfOPM_iJWTS ...... 10 Developments in the Ptvblic Finances ...... 12 Balance of Pymp-n-ts Developments . . . 13 Reserves and External Debt ...... 1
Mvwoau' Pr'5vea smdi G-t31t = = . ... ,- -... 15 Sectoral Developments and Projects ...... 16
ANNEX I: THE CURRMT POSITION AND PROSPECTS OF YEM'S
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This report is based on the findings Of an economic
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A.I -da ft"vIA-jSFssStt j J 44 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~46' l&URT nATA - VVLW Afl&R rR=MTT,Tr AREA POPULAT ION DENSITY Roughly 190,000 sq. km. 5-6 million (1972 est.) about 30/sq. km. r.LLoJ w (1960-70) POPULATION CHARACTEF¢STICS HEAITH Life expectancy: est. 30-40 years Population per physician: 20,000 est. I uant mortality: about 50% r0pUiLatIon per h ospiUUUal eda. NUTULLEJ' EDUCATIOUN Widespread malnutrition and Literacy: EtSi. i)^ protein deficiency School enrollment(l 9 72 ): 133,500 UNP PE;i CAP1TA Pi 1972i $ 7 0-$yU9 OuTrI:uT AND LABOR FOUlEE % of GDP % or Labor Force Agriculture 7-80 80-90 Other sectors 20-30 10-20 GoVERNMBNT FINANCE (millions of rials) Prov. Est. Fr69 FY70 FY1 Fr72 Revenues 52 73 98 151 Expenditures 122 129 171 234 Oarrent Balance -70 -56 -73 -83 Development expenditureal/s2! -5t _ 3 Overall Balance -93 -137 -156 -139 Domestic bank financing 70 45 37 -j2 External financing 23 92 119 171 MONEY AND CREDIT (millions of rials) J u n e 1969 1970 1971 1971 1972 Money supply 190 230 292 269 374 Quasi money 5 8 32 36 45 Credit to private sector 19 29 70 55 108 Net claims on government 118 151 110 141 109 1/ Eqnivalent to foreign project and commodity aid. BALANCE OF PAYMENTS ($ millions) Jan.-June 1969 1970 1971 1972 Exports 5 6 6 - T- o s -66 -89 -72 -48 Invisibles and worker remittances 42 45 47 36 ~.dLi tLLL UVJiI.LV%A1.LL.IJ 6J CULLiQ Current Balance -11 -20 -13 5 7,T-IJUIAL --- 4 -.L IjO.J 1/ I-a-A II n-mlnebary capita'1/ '3 Reserves, changes (- increase) - -10 -18 -14 Reserve Position ($ millions) Net; I'WOUI'vFe ^fL keitalu-" DMB U750LW 9 1(t.-e (of which: Free Reserves) ( 1) ( 7) (23) (32)(June) RATE OF EXCHANGE (U.S. J per rial) Free market rate (average) 22 18 19 20 MERCHANDTSE EJr-OR S (MR-co-rded)-"YUY_ -average, VL Coffee 104 o Qat o.6 16 Cotton O6 16 Hides and skins 0.5 14 Other Oo6 L6 Total 3.7 100 EXTERNAL DEBT, June 30, 1972 U5$m1n. Public debt, incl. guaranteed 246 of which: disbursed (14) , Debt service due 1972/73, est. 10 3 Debt service ratio, 1972/73 est. 12% a' IBRD/IDA LENDING US$m1n. IBRD DA Outstanding and disbursed - - Undisbursed - 7.7 Outstanding incl. undisbursed - 7.7 1/ Includes SDR's aid errors and omissions. T/ Only about 50-60% of estimated total merchandise exports are recorded. 1/ Tlis estimate was provided to the IBRD in Sept./Oct. 1972, at which time data on the debt and debt service burden were still being assembled from various agencies. 4/ The debt service ratio is estimated on the basis of debt service as % of projected 1972 exports (including unrecorded) and net invisibles and remittances. I. INTRODUCTION 1. This report supplements and updates the IBRD/IDA "Memorandum on the Current Economic Position of the Yemen Arab Republic" (EMA-50a), dated April 20, 1972. That memorandum described the principal economic develonments since the issuance of the basic report entitled "The Economic Development of the Yemen Arab Republic", dated October 16, 1970. In con- traRt tn the undntinc emnhaqis of the Anril 1972 memorandum. this oresent report focuses more on the structural characteristics of the economy, and on the nrnhlems and nrosnerts for orowth= One annex to this renort summarizes the findings of the agricultural sector specialists on the economic mission of Septemhpr/ptncr 19792 Annther Annex desc-rihes the stattus of develonment planning and aid coordination, and a third annex describes the programs of nr4npinal do,nors of fvrei4n aid to Vemen. 2. This report makes no nttemPnt to ea1,unte the implications of the merger agreement concluded at Tripoli on November 28, 1972 between the Yemen Arab Repub-lic (YVAD ni the Peoples' Demvcrticj Republic of VYman (PnRpv) That agreement calls for the creation (within 18 months) of a single Yemeni state w 4i-t anoe presider.t, or,e captal, -n4 -4 nifie legistive, executiv and judicial institutions. In principle, unification could have significant ecor.om-ic ber.efits fLor both1 parties, though existir.g wide differences in political and economic policies, systems and institutions will have first to lUe reconciLLeJU. II. STRUCTURAL CHARACTERISTICS LLI.)X1&6 L A¢L dU AtpUUU.L±.. \1LLt&L6LUL LIL.L1 L=UICLI LOb 1MLUAL6 LS& A. L. developed of those twenty-five countries officially designated as "least developed" by the Uniteu N'ations. Un±ike most such couritr'Lte s, Yemen. LiS long been fully independent. But it also remained almost completely isolated rrom the rest of the world, until the overthrow of the Imam anu the found'ng of the present republic in 1962. The Imam followed a deliberate policy of u±scouraging contact wiLtn Lth ouLsiue wordu, anu the lack UL interInl trars- port and communications facilities also kept many parts of the country isolated from each other. Since the Revolution, the Yemen governLment has been much more outward-looking, and considerable progress was made in port, airport, and especially road construction over tne past decade. Development of the primary highway system should be completed by 1974, with the completion of the Sana'a-Saada road to northern Yemen and the paving of the Sana'a-Taiz road (see map). In spite of this progress, however, the secondary and feeder road network is still in an early stage of development, and Yemen remains extremely underdeveloped in virtually every other form of economic and social infrastructure. 4. It is difficult to quantify the degree of Yemen's underdevelopment and to judge adequately the country's economic performance and prospects. There are few demographic, economic or social statistics, and much of the -2- data published in the country's rirst Statistical Yearbook cannot be con- sidered reliable. There has never been a population or agricultural census, and very little has been done in terms of soil, water or mineral surveys. As of October 1972, there were no basic topographical maps, no national budgeting process, and only very limited data on production, distribution, prices or productivity. Even the data on external trade remain very un- reliable, owing to considerable trade which is smuggled or unreported for other reasons. There is also very little published information on Yemen's social and cultural traditions or institutions. Improvement of the informa- rion base is obviously a sine qua non of development planning, and in this area the Yemeni authorities remain gravely handicapped. Resources and the Origin of Production 5. Yemen's known natural resources are meager in quantity and poor in quality. Agricultural land and water are both very scarce, and the pressure of population on the land has led to a high rate of emigration to other Arab countries. Arable land is estimated at five million hectares, of which two million hectares are considered cultivable. As nearly 90 percent of the cultivable land is not irrigated, the adequacy of rainfall is the principal constraint to production. Agriculture accounts for perhaps three-fourths of Yemen's GDP and provides employment for an estimated 80-90 percent of the labor force. The majority of farmers own their farms, but their holdings are generally very small and total smallholder ownership may not exceed about 10 percent of the total cultivated area. About 15-20 percent of arable land is state- or privately-owned waqf land (donated to religious trusts) generally leased to farmers. The balance is in the form of large-sized individual ownerships, also generally leased. 6. Yemeni farmers are industrious and skillful, and land and water resources are carefully used, with well-planned terracing and small irrigation works. But the agricultural sector remains basically subsistence-oriented, and its development is constrained by an archaic system of land tenure. The use of fertilizers, improved seed varieties, etc., is extremely restricted. Cereals are the staple food crop. Very modest amounts of coffee, qat (a mild narcotic leaf), cotton, and hides and skins are exported. Agricultural ex- ports account for over 90 percent of Yemen's total exports, which in turn account for less than two percent of GDP. Agricultural exports have long been stagnant, and there seems little prospect for much growth in the near future. Food imports, on the other hand. have mounted rapidly in recent years, due in part to the drought conditions of 1969-70. But these imports were not sufficlent to prevent famine in some narts of the country. Imnroved rainfall in the past two years has narrowed the food gap in the countryside, hitt higher ilrhnn onnninnntinn has caused fono imnnrts (nther thnn cereals) to continue to rise. Foodstuffs constituted almost half of total reported im- ports in 1971. There is no natinnnl nariculturnal 0ytpnsion servrice no organized agricultural credit of any kind except for cotton, and there are only limited research and extension activities inderw throniigh three modest UNDP/FAO projects. There has been little public investment in the agricul- tural sector to date, and of such investment, virtually all financing has - 3 - been from external sources, primarily the USSR, German Democratic Republic, Federal Republic of Germany, and the UNDP/FAO. 7. The country is divided by topography and rainfall into five major zones: (1) the Tihama region (coastal plain) borders the Red Sea and occupies about 10 percent of the country. Agricultural production is concentrated in the eight major wadis (valleys of seasonal streams whose catchments are in the mountains). All of the cotton and much of the marketed grain surplus is produced in the Tihama. (2) The Western Slopes comprise perhaps 20 percent of the country between the coastal re-gion and the mountain plains. Farming is carried out on heavily terraced slopes and small alluvial strips in the bottom of mountain gorges. Cereals, fruits and vegetables, coffee and qat are the major crops, and livestock graze on the mountain sides. (3) the Midlands, between 1000 m. and 2500 m. benefit from up to 1000 mm. of rainfall and is the most productive agricultural region in Yemen. It com- prises about 10 percent of the country. (4) the Highlands, above 2500 m. produces wheat, barley and sorghum and dry grazing. (5) The Eastern Slopes, reputedly a rich agricultural region many years ago, is now largely a desert. A much more detailed description of the structure of Yemen's agriculture is provided in Annex I. 8. Yemen's known non-agricultural resources are very limited. Forestry and especially fishing may have some potential for growth, but are currently of little economic importance. Unlike other countries of the Arabian peninsula, no oil resources have been proven, and except for rock salt (production of 120,000 tons in 1972), no minerals are being exploited= Small deposits of coal and copper of doubtful commercial value are known to exist. 9. Because of this scarcity of natural resources, the small scale of the monetized economy, and the lack of technical and managerial skills, manufacturing industrv was virtually non-existent until about five years ago. Since then, a number of factories have been built in the main cities, mostly with forei2n aid. These are mainly in agricultural goods processing (tex- tiles, tobacco, soap), consumer goods (soft drink bottling, confectionaries, furniture), and building materials (cement, bricks and tiles). There are also some artisan and handicrafts workshops and service enterprises. State enterprises account for over one-third Of the total number of in.dustrial enterprises. There are liberal incentives to both domestic and foreign private investment; including duty and tanx exemptions. 10. In 1972., Yemen'a industrial sector consisted of eight manufacturing plants, four soft-drink bottling plants, eight metal/furniture/fitting work- shons. seven machinerv and!or automobile reair workshops, thirteen construc- tion materials manufacturing workshops, and eleven other workshops manufac- turing miscellan.eous goods a.nd material-s. T.he mir,ing secttor con.sists oil or.e salt mine (providing the only non-agricultural export, valued at about $500,000 in 1971), and five organized quarries for buIlding materials.*In addition, there were eleven small electricity generation stations and two urban water supply plants. - 4 - 11. Employment in industry (excluding artisans and electricity) was estimated at about 6,000 at the end of 1971 -- less than half of one percent of the labor force. The value added of Yemeni industry in 1971 was perhaps 2 percent of GDP. (See Tables 8.1 and 8.2). Yemen's industry will remain for some time in a rudimentary stage of development, but there are some promising prospects for industrial expansion in some lines of agricultural processing and light manufactures. 12. Tourism is another sector with a negligible base, but considerable potential for growth owing to the country's favorable mountain climate, fine scenery, unique architecture, and the presence of antiquities. Betore the Revolution, tourists were discouraged from entering the country. In the past decade, the civil war and the lack of amenities were additional deterrents to tourism. But this situation is changing rapidly as tourism is now being encouraged, and new facilities are becoming available. Trans- port connections with Europe are still somewhat difficult, but completion of the Sana'a International Airport (now under construction) should improve Yemen's accessibility. Yemen could also prove attractive to growing numbers of Arab tourists. Several new hotels have recently been opened, and com- Dletion of the primary highway network in 1974 should facilitate the devel- opment of this sector. With appropriate promotional activity and the devel- opment of a few basic tourist services (buses for touring, training of guides, etc.) tourism may be expected to play an increasingly important role in the economy in coming years. Population and Social Sectors 13. Yemen's population in 1972 was officially estimated at 6 million. Private estimates are somewhat lower. The most densely-populated areas are the rainfed highlands, particularly the Ibb/Taiz region, where densities are probably about twice the national average (about 30 persons per square km.') ElseIwhere - in the desert and semi-desert areas in the east, and in the region between the mountains and the coast in the west - the population is snnarse1 distributed. Only a few hundred thousand Yemenis live in cities or large towns. The small village economy predominates, as there are few nromadic tribes. 14. The population growth rate is not known, due to the lack of demo- graphic data. Both birth and death rates are presumed to be relatively high. There are no family planning programs, e4ither public or nrivate- and health care facilities are minimal. Infant mortality is estimated at about 50 percent, 14fe expectancy at about f-ln0 yanrs, and the natural increase in population at somewhat over 2 percent annually. Migration data are not available, but the number of Yemenis resident in Saudi Arabia and the Culf has been estimated at up to one million. The land shortage continues to cause large numbers of lemeniLs to leave thle countryside, but in recent -ears a greater nroortin have found employment in Sana'a, Taiz and Hodeida. An influx of immigrants from the Peoples' Dem.ocratic Repb- of Yemen haas also cronntributpd tn the rapid growth of those cities, and investments by those immigrants in con- struction and other sectors 1as created zdditional new Jobs for migrants from the countryside. - 5 - 15. There is widespread malnutrition in Yemen, though the extent of caloric, protein, and vitamin deficiency has not been quantified. Malaria, eye disease, gastro-intestinal infections, tuberculosis, smallpox and nutri- tional diseases are widespread. it is not known to what extent the wide- spread chewing of qat represents a health problem. The lack of sanitation and public health facilities renders Yemen subject to serious epidemics;. In 1971, for example, there was an epidemic of cholera, and diseases such as typhus remain a danger. As of 1972, there were only some 230 physicians in Yemen (about one per 20-25,000 persons), of whom 100 were foreign. Pop- ulation per hospital bed is estimated at over 1,500. 16. The shortage of skills of every kind is a critical constraint to Yemen's development. The literacy rate is currently estimated at 5-10 per- cent. Prior to 1962, there were only Islamic schools, and the civil war (1962-70) impeded the development of a secular education system. Despite these obstacles, by 1972 Yemen had 124,700 students enrolled at the primary level, 8,100 at the secondary level, and 700 at the higher level, with en- rollment ratios (expressed as percentages of the estimated age group popula- tion) of 12 percent, 1 percent and 0.2 percent, respectively. In 1970/71, nearly two-thirds of all primary school students were enrolled in the first two grades, less than 10 percent in the fifth and sixth grades. However, this enrollment structure was not so much a function of high dropout rates as of the recency of establishing the school system. 17. Primary education is not compulsory in Yemen, and is not expected to become so for some years, owing to a lack of buildings and teachers. However, the demand for public education is growing rapidly. The curriculum at the primary level puts greatest emphasis on traditional studies; religion and Arabic now account for 50 percent of teaching time. A new curriculum has been devised, but its application has been delayed because of the short- age of suitably qualified teachers. In 1972 there were about 3.150 Yemeni teachers and 47 foreign teachers at the primary level, but according to a UNESCO survey, only 8 percent of the permanent teachers held a teacher's certificate, and another 1 percent had a secondary education. At the second- ary level, the entire teaching staff (about 460 in 1972) are expatriates, with the exception of about 60 Yemeni teachers of religion. 18. Education at the secondary level is divided between preparatory or lower secondary (80 percent of enrolled students) and upner secondary (20 percent). Among the preparatory level schools, there are three women's teacher training colleges plus the Russian-built schools which offer some prevocational education. The only real technical training now available is at the Sana'a Technical School (enrollment 180; capacitv 4t50). built and assisted by the People's Republic of China. Despite the overwhelming reliance of Yemen on agriculture, there is no agricultural training institut,t-e Teacher training is mainly in the form of rapid-training emergency schemes requiring only primarv school completion for admi-i onn. 19. Education at the post-secondary level within Yemen is limited to somie contemporary ar.d Islamic law training (- studer.ts) and secondary teacher training (140 students in 1971/72). A growing number of Yemeni stuUdents are pursu±LrLg seconduary and higher education abroad. In the nine- year period 1964-72, about 1,400 Yemenis went abroad for study. Although only 400 returned, the government reports that nearLy aLl of the Ye-er.is r.GW studying abroad plan to return to Yemen. Adult education and literacy pro- gram are just beginning. in 170U/,. LIheLre Were 'JUU erLur e sLUL UtLs L:i eight literacy classes in the towns. 20. In striking contrast to the poverty and stagnation of the rural sector is the relative prosperity and rapid recent growth of the urban centers, where a construction boom is underway and where a surprisingly wide variety of imported consumer goods are available. Tnis gap is not expiained Dy tne transfer of resources from the rural to the urban sector, nor by the exist- ence of clearly superior industrial technology in the towns. The recent growth of urban consumption and construction is rather a result of large inflows of remittances, foreign project aid, cash grants and loans from abroad, and of the spending of savings accumulated both by Yemenis during the long civil war and by the relatively well-ott emigrants trom Southern Yemen. 21. Although it appears likely that both worker remittances and foreign project aid will continue, there is no assurance that the recent high levels of budgetary support will continue indefinitely. Thus, the growing prosper- ity of the urban sector and the government's ability to maintain a certain level of social services are precariously dependent on regional politics and on the attitudes of potential aid donors. Macroeconomic Features 22. Without national accounts, a description of Yemen's principal macroeconomic features must be very limited. A variety of estimates of per capita income have been made, generally without reference to specific estimates of total income or total population. A recent government document placed 1971 GDP at about $340 million and total population at 5.8 million. Adding net workers remittances of about $50 million would bring GNP to $390 million and per capita GNP in 1971 to $67. Another estimate, however, places the 1970 per capita GNP at $80. Given the growth of the past two years these estimates would imply a per capita GNP of approximately $70-90 in 1972. 23. Because it is often useful to express quantities as shares of GNP, calculations in this report are based on an assumed 1971 GNP of $400 mil- lion. On this basis, the following table provides an indication of the share of GNP constituted by a number of variables in 1971: -7- Variable /1 Share of GNP, 1971 (Z) Exports 2 Imports 18 Net invisibles and worker remittances 12 Grants i Current deficit 3 Official loan disbursements 5 External public debt (June 1972) 61 (disbursed) (36) Tax revenues 6 Current expenditures 12 (Defense, security and loyalty payments) ( 7) Development expenditures /2 3 Government savings -4 External financing 9 Money supply (end 1971) 13 Quasi money supply (end 1971) 2 /1 Budgetary data used in the calculations are for 1971/72, converted at YRls 5 = $1.00. /2 Equivalent to foreign project and commodity aid. 24. This table serves to highlight some of the special characteristics of the Yemen economy. For example, imports are seen to be nine-fold exports, creating a trade deficit equivalent to about 16 percent of GNP. The current deficit in the balance of payments, however, is 3 percent of GNP, as the larRe inflow of worker remittances finances most of the resource gap. Ac- cording to balance of payments data, total external financing amounted to 6 percent of GNP in 1971. According to fiscal accounts, however, the share of foreign financing rose in FY1971/72 to 9 percent, of which one-third consisted of prolect and commodity loans directed to financing development projects and programs and the remaining two-thirds were cash loans and grants. 25. As may be seen from the fiscal data, current expenditures at 12 percent of GNP were twice the share of tax revenues. Defense, security and loyalty payments claimed over half of current expenditures and 7 percent of GNP -- a relatively heavy burden. In contrast, government development ex- penditures were estimated at only 3 percent of GNP -- and these were almost entirely foreign-financed. The extent of past foreign financine is suggested by the high external debt. In view of the dominance of the subsistence economy; the money supply was equiivalpnt to only 1 npercent of GNP and cur- rency in circulation in 1971 represented 86 percent of the total money supply. A vprv lnwt supnlv of time and savings deponits reflertQ both th conuntrvy' poverty and its lack of savings intermediaries. Total claims on the private sector by the bankir.g s-stem were euivalent to less than 3 oprcentof ON?. 26. These ratios illustrate the limited economic role of the govermient, and the dependence upon foreign aistan- f both tho fiscal and hlance nf payment positions. The limited economic role of the government to date reflects mainl1y theM country's povert- an.d limited administrative ca-acit- * UZCTflZ.LJ~L .L~t. t&n1 tO Moreover, ecnnomic as well as political integration has been hindered by a h eritage of triaI dfferencesA4 accentuated by religious groupings. In fact the end of the civil war left some tribal sheikhs in a stronger and more nUdepen.der.t position thlan before. This fragm.entat4 of power, combined wi th a lack of institutions and trained cadres at the central government level, hias so f'ar greatly lim,ited the government's. ability tooformulate national economic objectives, to tax and otherwise direct the economy, and to carry out a program of economLicL development. Constraints to Development 27. T'e most serious constraiLntLs to Yemen's Udevelopment- are the s scarcities of: agricultural land and water; mineral resources; skills; modern institutions; and information about the economi'c and social base. Yemen does not now suffer from urban congestion, slums, overt unemployment, labor strife, etc. Yemen has also been favored in recent years with considerable aid from abroad, in support of both current and capital expenditure. Hence, for the present, limitea absorptive capacity rathLer LtIhan capitaL scarcity effective constrains the rate of investment. 28. There is a great need for pre-investment work, covering not only basic resource surveys but also social research. It is not only Yemen's soils, minerals, water resources and population which are largely unknown, but also the land tenure situation, income distribution, consumption patterns and preferences, etc. All of these data would of course be useful to Yemen's planners and policy makers. 29. In light of the predominance of agriculture and the limited near- term prospects for growth in other sectors, the improvement of living stand- ards for the vast majority of Yemenis will depend mainly on improvements in agricultural productivity. However, there are a number of major constraints to development of agriculture, including: (a) erratic rainfall coupled with absence of a basic knowledge of water resources and irrigation facilities; (b) extreme deficiencies in basic institutions and skilled manpower; (c) the low level of technology and the lack of social overhead infrastructure-- feeder roads, etc.; and (d) other complex socio-economic and political in- stitutions inherent in a centuries-old, basically tribal society. 30. The government is currently devising a development strategy with the assistance of an IBRD/Kuwait Fund planning team (see Annex II). The draft development program is expected to be ready before mid-1973. It ap- pears at this stage that the program will emphasize agricultural development as its first priority. The strategy within the sector is expected to focus on: (a) development in the medium-to-longer run in the Tihama region of cereal, grain and cash crop (i.e. cotton) production; (b) more immediate increases in the Midlands/Highlands region of cereal production; (c) estab- lishment of national agricultural research, extension and credit services; and (d) improvemenLt o' agricultural planning and administrative capacity. 31. The important task of institution-building is beset with a number of problems. Yemen is beginning with an extremely underdeveloped administra- tive -machinery, no tradition of a civil service, and little concept ot manage- ment principles. A lack of specialization and division of labor characterizes government organization, and some imported organizational forms of modern government do not reflect local realities. The high degree of political and financial autonomy characterizing various regions restricts the central govern- ment's power to implement general policies. As will be indicated in Chapter II, however, considerable progress has been made in developing the capacity of several new Yemeni institutions such as the Central Bank (assisted by an IMF advisory team), and the Central Planning Organization (CPO), among others. Still, a number of ministries exist mainly in form, not in function. The government has received foreign assistance in institution-building as well as in more strictly technical capacities. But as bilateral and multilateral aid donors provide increasing numbers of foreign experts and advisors in response to the pressing need for their services, the government must be cautious that dependence on this support does not become excessive. 32. There is a shortage of Yemeni counterparts to work with foreign experts and advisors. This is mainly because of the severe shortage of skills, the relative attractiveness of salaries in the private sector, and the existence of opportunities for work or study abroad. Training of Yemenis therefore warrants highest priority. The large education project soon to be launched (see para. 65) will make an important contribution to this aim. An effort is also needed to devise incentives (and ways to finance them) to attract skilled Yemenis now employed in other Arab states to return to work in their homeland. Reform will also be required in public administration, where there is a need both to develop a tradition of personal accountability and to differentiate salaries according to skill and performance. 33. It may be expected that Yemen's forthcoming development program will provide a framework and focus for the use of both domestic and foreign aid resources. In principle, this should in itself answer the increasingly pressing need for government coordination of the diverse foreign aid programs. There will also be a continuing need for coordination both of projects and of the various technical assistance programs. It is expected that the CPO will continue to be responsible both for recruiting aid from abroad and for channelling its use in a coordinated manner. For a description of the prin- cipal foreign aid programs in Yemen, see Annex III. - 10 - III. RECENT ECONOMIC DEVELOPMENTS 34. T.e s4tu-atiorn of only a decade, ago was described in a recent Government loan request as follows: "Prior to the overthrow of the Imam in 1962 modern social, political and economic institutions simply did not exist. The nrimitive money economy was based on the Maria Theresa silver dollar. Apart from corcenr.ations in two or three ancient towns, the population was engaged almost entirely in subsistence agriculture. There were no factories, few workshops, no paved roads, no urban water or sewerage systems, no health services, and no secular schools. Th'ere -were no represer.tative pollitical 4nstitutions ar.d public administration was whimsical and mainly an arbitrary system of tax co'±lect'Lon. T.here was very little contact Wth the outside world, and the limited external trade was in decline. In brief, the society, polity and economy were medieval. .he first seven years of the new Republic were wracked by civil war, drought and famine, so it is only nIow that conditions are favourable for an organized and sustained effort at development. Already there are signs in the tow-Lws anU countryside of a growing confidence in the future." 1/ 35. Even as the civil war was coming to an end in 1969-70, Yemen was beset with a serious drought and famine, and clashes with the Peoples' Democratic Republic of Yemen continued to divert attention and resources away trom the fundamental tasks of political and economic institution- building. Despite these problems, however, coalition governments have made considerable progress since early 1970 in introducing basic elements of modern administration and economic management, establishing constitutional procedure, and extending governmental control and services tnrougnout the country. Within the past eighteen months, for example, Yemen has elected its first national legislature, established a central bank, organized a national planning and statistical agency and a public works authority, and improved its revenue performance. Four commercial banks began operation in 1971-72 (bringing the total number to five), and the government has been successful in soliciting increased external assistance from Eastern, Western and Arab sources. Developments on the diplomatic front in 1972 of particular economic significance included the resumption of diplomatic relations and aid from United States and conclusion of an economic cooperation agreement with Mainland China. The year also witnessed a deterioration of relations with the Peoples' Democratic Republic of Yemen. Air and road links between the two Yemens were cut in August 1972, with adverse effects on the economies of both countries. However, as noted earlier, an agreement signed in November 1972 between the governments of the Yemens points to a merger of the states, and may result in their giving greater attention to economic development. 1/ From "Request of the Yemen Arab Repub,lic for Financing of du-cation. Facilities", Central Planning Organization, July 1972, Chapter I, para. 1.2. 36. The improvement in Yemen's overall economic situation in the past three years has beenr attributable to a n.umber of factors, inLcluding the ending of the civil war, a substantial inflow of capital and entre- preneurs from Southern Yemen, favorable rainfall, and large injections of foreign aid -- including large cash grants and loans for current budgetary outlays as well as commodity and project assistance. These developments con- tributed to a rapid growth in government current expenditure, progress on a number of development projects, stabilization of the Yemeni rial in the free market, the building up of convertible foreign exchange reserves, and as indi- cated above, a growLh of confidence wnich stimulated private investment in con- struction, trade, service enterprises, and, to some extent, in light industry. The irLcreased economic activity was also partly attributable to progress made by the government in its efforts to establish institutions where none existed before, anud to pursue realistic economic policies, notwithstanding the many constraints on its capacity to direct and control the economy. 37. The following table provides a summary of the changes in external and government accounts over the past two and one half years: A S-u-MIARY OF EXTERNAL ANXD GOVERNMENT ACCOUNTS Jan-Jun A. Balance of Payments ($ millions) 1970 1971 1972 Exports 6 6 4 Imports -89 -72 -48 Invisibles and worker remittances 45 47 36 Cash and commodity grants 18 6 13 Current Balance -20 -13 5 Non-monetary capital 30 31 9 Reserves, changes ( - increase) -10 -18 -14 B. Reserve Position ($ millions) Net reserves of Central Bank 80 95 100 June (of which: Free Reserves) ( 7) (23) (32) Act. Prov. Ext. C. Government Accounts /2 (Rials, millions) FY70 FY71 FY72 Revenues 73 98 151 Expenditures 129 171 234 (of which: defense and loyalty payments) (88) (118) (145) Current Balance -56 -73 -83 Development Expenditures /3 81 83 56 Overall Balance -137 -156 -139 Domestic bank financing 45 37 -32 External financing 92 119 171 /1 Including SDR and errors and omissions. /2 Fiscal year ending in June of indicated year. /3 Equivalent to foreign project and commodity aid. - 12 - 38. The inter-relationship between balance of payments and fiscal de- velopments can be seen from the table. Current revenues more than doubled in the past two years, despite fundamental social and political constraints on the government's revenue-raising capacity. Nevertheless, the current budget deficit continued to widen, as current expenditures increased even more in absolute terms. Development expenditures, as reported above, are equivalent only to foreign project and commodity aid. The difference between project aid and tota1 external financing of the public sector consists of cash loans and grants, the latter mainly from Saudi Arabia. 39. In FY1972, current and capital inflows from abroad were especially large on hoth nublic and private account. and contributed both to an accumula- tion of cash balances by the government and to continued stabilization of the rial (at RY 1 $0=2=.9 Foreign exchange reserves increased steadily from end 1969 despite a very rapid growth in imports. 40. Large rises in imports and in construction activity were not sufficient- to prevent substantial increases in consiimer prices and rents. Yemen's inflation resulted from a rapid growth of the country's money supply, which prior to 1969 reflcted i.creased net claims on government, but in recent years was due to increased foreign assets and a rapid expansion of credi4t to the private sector. Developmen.ts in Public Finance 41. Yemer's bu get, which ha.s beenr. repared xonst- farto un to now; refers almost exclusively to the current receipts and expenditures of the central goverrnuent, although expendi4ture data nclude certain canital items financed from current domestic resources. Several ministries, as well as municipalities and public corporations, reportedly withhold from the central government some of their revenues. Hence, the budgetary data are incomplete and only indicative of the activities of the public sector. 42. Taxes on international tradUe (cor.sistirg of customs duties, a 5 percent defense tax on exports and imports, a 2 percent statistical tax on imports, and a 12 percent export tax on qat) account for 65=70 percent of tax revenues, which themselves are 75-80 percent of total revenues. Excise taxes (principally on motor vehicles ana ifuels), religious taxes (zakat), taxes on wages and salaries, and profits of public corporations (monopoly tax) account for the balance of tax revenues. Non-tax revenues corsist mainly of departmental and proprietary receipts. Recent measures to in- crease domestic revenues included: (a) replacement of the 25 percent mono- poly tax by a business profit tax, with progressive rates varying from 7-35 percent; and (b) a new import tariff schedule, with higher customs duties. Defense and security claims around 50 percent of current expenditures, while extra-budgetary outlays -- including loyalty payments and relief payments related to the civil war -- account for another 18 percent. - 13 - 43. From FI1968 to FY1972, tax revenues grew at an annual average rate of 50 percent, reflecting both a high rate of domestic inflation and an increase in customs receipts resulting from depreciation of the Yemeni rial. But with expenditure growth averaging 35 percent annually over this period, the current deficit rose from YR 41 million to YR 83 million. Development expenditures, estimated from loan disbursements, rose from YR 18 million in FY1968 to YR 83 million in FY1971, but were expected to decline in FY1972 to YR 56 million. As a result, the overall deficit dropped from YR 156 million in FY1971 to an estimated YR 138 million in FY1972. A significant development was the rise in the share of external financing, from about 70 percent of the overall deficit in FY1968 and FY1970 to an estimated 123 percent in FY1972, implying a budgetary surplus for the first time of YR 32 million in FY1972. This projected surplus was largely a result of rapidly rising cash loans and grants, from YR 12 million in FY1970 to YR 36 million in FY1971 and YR 115 million in FY1972. These funds were provided mainly by Saudi Arabia, with whom relations were normalized shortly after the end of the civil war, and to a lesser extent by Abu Dhabi, Qatar, and Iraq. 44. This heavy reliance on foreign budget support to finance current public expenditures points to the inherent weaknesses of Yemeni fiscal institutions. Not only is the tax base small, but current budgetary prac- tices leave little room for restraining current expenditures or generally for pursuing a deliberate fiscal policy. Resource allocation criteria are effectively non-existent, as are expenditure controls. The shortage of trained manpower and the absence of an effective system of financial record- ing and control are maIor obstacles to improvement of budget preDaration and execution. 45. As a step towards fiscal reform, a Central Bureau of Budget (CBB) was formed in April 1972. The CBB, which is attached to the Prime Minister's office, is headed by the Minister of Treasury and is being assisted by a team of IMF advisors. There has been some debate, however, over the desir- ability of pursuing reform through the CBB rather than reforming the Ministry itself, and the short-term nrosnects for substantive reform remain uncertain. Balance of Payments Developments 46. Yemen's trade and payments data are extremely fragmentary, partic- ularly those before 1969 when private sector statiics were first recorded in any detail. Despite improved recording procedures, smuggling and import under- invoicing still result in very incnmplete data. Similarly, remittances through non-banking channels and some direct official grants are not recorded. Thus, estimates of actual total exnorts are one-third above recorded values, while imports are believed to be under-reported by around 50 percent -- despite low duties and few restrictions. In 1971-72, unrecorded remittances were estimated at around 25 percent of recorded remittances, down from 100-200 nperent in nrevious years. - 14 - 47. Yemen's exports (amounting to about 9 percent of imports on average) consist entirely of primary commodities: coffee, cotton, hides and skins, qat and rock salt. The value of exports fell in 1970, but with improved weather conditions -- and especially due to increased cotton production -- rose by 10 nercent in 1971. A continuing increase in cotton production was expected to result in another increase in exports in 1972. Yemen's imports, dominated by foodstuffs (50 percent in 1972) are subiect to wide fluctuations, depending upon the size of the food gap and the availability of commodity (food) arnnts and loann. Total imnorts rose bv 21 nereent in the first half of 1972, with food imports up 44 percent. As a result, the trade gap could amntint to $9O million in 1972 conmpared to the 1969-71 a;verqge of $69 million Although exports and transfers have both shown wide fluctuations, worker re- mittances have risen markedly, from An average $45 million in 1969-71 to nn estimated $75 million in 1972. Both the normalization of relations with Saudi Arabia arnd the improvement in banking services faciltated thisc rise. On the other hand, cash and commodity grants (mainly food aid) have fluctuated con- siderably from year to year. Trends for the first nine months of 1972 indicate that the current account balance for 1972 could show a small surplus, compared to an average annual Ade4Cict of $15 mill40n 4i 1QAQ-71 4Capital Inflows to Yemen con.sist of iv-ate- -4ta-1, -J-t 1loan-s and budget support loans. Project loans, on a disbursement basis, fell from about $18 n4 llior.n 1970 to $9 m4lliron ir. 1Q71, rni $4 mI41lr.n in the first half of 1972, the decline reflecting completion of on-going projects. On th-.'e o+.lth-er handt loans for budget sup port in.creasedC froms $8 llo ir 1970 to $12.6 million in 1971, of which $11.3 million was from Saudi Arabia and $-1.39I. IIL.L.LLU.-llior. L froumLL Iraq.LAq. Reserves an.d E"xter-na'l Dbt LAn . _ _ _ _ ---- _ : In _ __ I---L11J._ ._ In7fC 47 . Ytemle si luoregiL excllaL reseLVt::iLg LLItL CeCU Uy 911.V ULL-L.L.LULI LU I7/ by $18 million in 1971, and by $14 million the first half of 1972. These increases brought the gross foreign assets or Ltie Central Bank to about $100 million as of June 30, 1972. Of this amount, only $32 million represented free reserves, the balance being in blocked accounts with the Central Bank of Egypt. Free reserves were equivalent to 5.2 months of imports at 1971 levels. 50. The external public debt outstanding on June 30, 1972 was estimated at $248 million, of which $101 million was undisbursed. The major creditors were: Russia ($97 million), Mainland China ($45 million), the Federal Republic of Germany ($32 million), and Egypt and Saudi Arabia ($19 million each). The USSR, China, and Egypt have provided interest-free loans. German and Kuwaiti loans have been at an interest rate between 1-2-1/2 per- cent per year; other lenders have charged 4-6 percent per annum. The debt service for 1972/73 is estimated at $10 million, equivalent to 12 percent of estimated exports of goods and services including remittances in 1972. In relation to recorded exports of goods and services, the ratio would be about 25 percent. 1/ The Yemeni government is reportedly engaged in new 't T lshouldA Ub r.oteA that the are-- very t---- tive et According to an alternative source, the scheduled debt service for 1972/73 would be t.ice as high as that reported above. - 15 - bilateral negotiations for rescheduLing the debt service due in 1972/73. In late 1971, Mainland China agreed to postpone debt service on its loans until 1981, and in early 1972 a similar agreement was reached with the USSR. Repayment schedules for Yemen's debts are not available, though an indication of the term structure of the debt is provided by Table 4.1. Of the $147 million debt disbursed and outstanding as of June 1972, $91 million (mainly from the USSR, China, and Egypt) was contracted during the period 1956-64; the remainder was contracted mostly since 1969. With some of the recent debt being short-term -- particularly the $19 million outstanding and dis- bursed from Saudi Arabia -- and the pre-1964 debts expiring by 1979, serious debt problems could persist throughout the decade, unless some additional rescheduling takes place and/or new capital inflows are on extremely con- cessionary terms. 51. Yemen has an extremely limited debt service capacity. Even though most of Yemen's existing debt was contracted on quite soft terms, the cumu- lative growth of debt servicing obligations has already created a situation where even the servicing of interest payments constitutes a relatively heavy burden. As a least-developed country with an already high debt burden, but with improving economic performance and an enhanced priority for development objectives, Yemen appears to have a strong case for obtaining assistance in as concessionary a form as possible. 52. With the severe limits on the government's capacity to mobilize domestic resources for development, most aid donors will also recognize the present need to provide a very high share of local currency financing in their programs. While this need will certainly persist for some time, the government should aim at raising its own share in development expend- itures through greater efforts to increase revenues and especially to control the rise in current expenditures. Although political factors will make this a difficult task, the success of these efforts will be essential to acceler- ating the country's development and to strengthenin2 its economic indepen- dence. Money, Prices and Credit 53. Reflecting the substantial recourse of the government before 1972 to borrowing from the banking system to finance budgetary deficits, Yemen's money supply expanded at an annual average rate of 28 percent from 1968 to 1971. From June 1971 to June 1972. the increase accelerated to 39 percent; not because of increased net claims on government but rather due to the increase in net foreign assets. In FY1972; when foreian financing was ex- ceptionally large, net domestic claims on government actually declined. 54. With increased confidence in the economy since the end of hos- tilities in 1970. time and savings deposits have also gron.n rapidly, though from a negligible base. Reflecting the same improved conditions, credit to the private sector rose from YR 10 million at end 1970 to YR 38 million or. June 30, 1972. The recent establishment of four (foreign) commercial banks, following the creation of the Central Bank of Yemen on july 17, 1971, and the consequent improvement in banking services have also contributed to the ex- - 16 - pansion of credit. Despite Yemen's liberal import policies, the rapid overall monetary expansion resulted in considerable inflation, estimated at 10-15 per- cent in the year preceding June 30, 1972. Sectoral Developments and Projects 55. Agricultural production, whichL1 had suffered a ma-jor setback in the crop year 1969/70 (crop year ending June 30), recovered in 1970/71 and ex- panded in i97ij72. Tne improvement, whicn was due mainly to favorable rain= fall, was reflected in a sharp decline in food imports in 1970 and 1971. Pumps, machinery and fertilizers have been introuuced on a very modest scale in the past two years, but not by enough to significantly affect overall output or yields. The recovery in agriculture was led by cotton production, which as a result of favorable rainfall and increased acreage, was estimated at 10,000 tons in 1971/72. Coffee production continues to stagnate as a result of inadequate water supply, lack of marketing facilities, as well as competition from qat. In May 1972, the government ordered the destruction of all qat trees on state land and prohibited civil servants from chewing qat. The shortage of arable land, water, the lack of modern farming practices, and the absence of effective extension marketing and credit institutions are the major bottlenecks for agricultural growth. The performance, problems and prospects for Yemen's agriculture are described in some detail in Annex I, which also sets forth a recommended development strategy for the sector. 56. Developments through 1971 in the manufacturing and mining sectors have been described in the April 1972 report of the IBRD entitled "Memorandum on the Current Economic Position of the Yemen Arab Republic". Since early 1972, the government has created an Industrial Promotion Unit within the Ministry of Economy to carry out feasibility studies and to promote private sector investment in industry. The government has also acted to promote and/or protect private investment in certain import-substituting industries by raising import duties on selected commodities, including confectionaries, cigarettes, plastic shoes and building materials. While adequate production data are lacking, it is known that rapid growth has continued in electric power generation and in the output of textiles and construction materials. Plants recently opened include the country's first cement plant (capacity: 50,000 tons), a cigarette factory, a spinning factory and two shoe factories. Additional factories currently under construction will produce textiles, bricks, soap and vegetable oil. The salt mine at Salif is being expanded and moderni- zed with Romanian assistance, and its capacity is expected to reach 500,000 tons annually within two years. IDA is expected to appraise an industrial estate proiect in the spring of 1973. This project would provide basic infrastructure, technical and management advice and credit services for entrepreneurs on a small industrial estate in Sana'a. This project is intended both to support the development of local entrepreneurs and to ensure that manufacturing development Droceeds on an economic and coordinated basis. The estate itself would be government-owned and managed through an autonomous public body. Additional estates are anticipated in Taiz and Hodeida if the initial pilot scheme succeeds. - 17 - 57. At present no single agency or Government department is responsible for the organization or planning of the electricity sector. There are at least 10 separate public companies with a combined capacity of about 12 MW serving some 30,000 consumers. In addition there is at least 8 MW of captive plant operated by a variety of enterprises in both the public and private sectors. Total employment in the sector is about 750. Three electricity companies, responsible for public supply in the three main cities of Sana'a, Hodieda and Taiz, account for over 10 M; of capacity and supply some 26,000 consumers. The largest is the Sana'a Electricity Company (SEC) in which the government hold a 75 percent share. The Government also has a controlling influence over the second, the Hodeida Electricity Company (HEC), a wholly owned subsidiary of the Yemeni Bank, in which the Government has a 51 percent holding. At present the government has only a minority holding (17 percent) in the third utility, the Taiz Electricity Company (TEC), but this is to be increased to 49 percent in 1973. Until recently the three companies operated completely independently but, following a recommendation by the iinistry of Economy, regular meetings of their respective directors have been initiated to discuss their common problems and attempt to formulate common policies with regard to planning future development, tariffs, staff and consumer relEtions. Both the government and the companies are examining the possibility of forming a single national Board of Directors for the three companies, with the existing Boards functioning merely as local branches. 58. According to official statistics (which may not be reliable), elec- tricity production, after growing at about 25 percent per annum from 1961- 1968, stagnated for the next 2 years at about 6.2 GWh. giving Yemen about the lowest per capita production in the world of just over 1 kWh. Growth appears to have resumed in the last two years and proiections for the three main utilities imply growth rates of 25-30 percent over the next five years. For the period 1973-82, consultants to the three main sunplv comnanies have re- commended expansion programs (all diesel) totalling 65 MW; the total estimated cost, including associated distribution expansion; is about 100 million rials ($20 million equivalent). It is not clear to what extent the three companies are basing their Dresent Dlans on the consultants' recommendations. There is also great uncertainty about the sources of finance for expansion and also about the availability of the additional trained mannower that will be required. In view of these and other problems, the proposed programs for the three com- panies and present organization of the sector should be review.ed from a nation-al standpoint with the object of determining sectoral priorities and formulating a coherent strategy for the sector, 59. Data on the construction sector are extremel- scarce. There are indications, however, that the construction boom starting in 1969-70 con- tinued in 1971 and 1972, The exnanslon has been largely in private residential construction, though substantial commercial construction has also taken place. ConRtruction aetivity of the public sector has shown limited growth by com- parison. Major factors accounting for the construction boom currently under- way have been the population migration to urban areas and the influx of Yemenis and foreigners from abroad, with a resultant pressure on housing needs. Steps have recently been taken to reverse the trend towards excessive employm,,ent of - 18 - imported materials in building construction, but more needs to be done to encourage the use of available indigenous materials and skills. 60. The transport settor is developing rapidly with the help of substan- tial bilateral capital assistance. By 1974, construction of the Sana'a-Saada road (including a side-road from Amran to Hai-ah) should be completed with Chinese assistance. The Taiz-Sana'a road, being paved with assistance from Germany, may be completed by end of 1974. In addition, with Saudi assistance, feasibility and detailed engineering studies are to be completed by 1974 for roads linking Gizan and Zahran in Saudi Arabia to Hodeida and Saada. respec- tively. Feeder roads (comprising some 60 percent of Yemen's 2,300-km of roads) are to be doubled qnd extended by 1,400 km in the next five years by the newly- established Highway Authority. The absence of good secondary roads, and thLe lJ. feeder rad ystem are obvious deficiencies in the road net- LL.LM.±L±L.eU Lede roa-____ work. Variations in design and road standards, partly due to varying sources of finance, are also characteristic. The administration and maintenance of the road network also needs development. To this end, technical assist- ance to the Highway Authority was included in the !DA credit for the Taiz- Turba secondary road; that credit is also financing feasibility studies for secondary and feeder roads in other agricultural areas. See also para. 66 in Annex I. The UNDP is also engaged in training road maintenance staff. 61. In port development, the USSR has completed designs for extending the quay at the port of inodeida by 150 meters. The shallow entrance, the absence of facilities for night navigation, and lack of cargo handling facilities are some of the problems that remairn. The Kuwait Fund is assisting in the expansion of loading facilities (for salt) at the Salif Port. The government is also considering rehabilitation of the sitted up port of Mocha, as even with the planned expansion of the Hodeida and Salif ports, additional facilities will be required by the late 1970's. It is essential that the country's highway network be coordinated with the major ports. The principal development in airport construction will be the completiLon of the German- financed Sana'a international airport in 1973. 62. Two major cities in Yemen, Taiz and Hodeida, have public water supply systems operated by private cooperatives. The existing facilities, however, are inadequate to meet the present demand of the communities. The capital, Sana'a, obtains water from numerous private wells and a small cooperative water system. Water is presently available for a few hours each day, most of the wells are polluted and the water table is dropping rapidly. A UNDP/I101 preinvestment project for water supply facilities for Sana'a and liodeida is nearing completion. An IDA appraisal of the Sana'a project is currently scheduled for June 1973. The sanitary conditions of the major cities are unsatisfactory as public sewerage systems are non-existent. Health problems, including the threat of cholera, are serious. An IBRD/WHO water supply and sewerage sector study has recently been prepared. American aid is expected to finance both a water supply project in Taiz and an interim water supply project in Sana'a. - 19 - 63. There are no data on tourism development in Yemen. As was noted in paragraph 10, however, several hotels have opened in the past year, and completion of the paved primary road network and of the Sana'a airport should facilitate the growth of this sector. 64. Significant steps have been taken recently to improve Yemen's health and education services. UN, bilateral and voluntary organization programs are now active in the fields of nutrition and health services. With assistance from Kuwait, a program is underway to construct a number of clinics, dispensaries and small hospitals. However, as indicated il paragraph 13 above, the shortage of health manpower is a critical problem. A UNDP/WHO project for the establishment of a Health Manpower Institute is planned. 65. A number of Arab governments, including Abu Dhabi, Kuwait and Egypt, are,presently providing grants totalling about YR 25 million annually to assist Yemen's educational development. The governments of Iraq, Syria and Egypt are also providing teachers at their own expense. Both manpower and finance are major constraints to development in this sector. Government expenditure on education has risen substantially in recent years, but was still only about 6 percent of total recurrent expenditure in 1970/71. A related problem is the low level of teacher salaries -- YR 50-200 per month -- and the reluctance of trained teachers to teach in the villages, despite offers of substantially higher salaries. An important step in educational reform has been taken by the CPO in preparing, with UNESCO assistance, a major education project. This project will establish: a College of Education: tW.o teacher training institutes; three secondary schools with a diverse curriculum related to vocational needs; an agricultural training center: and a vocational training center. This project, estimated to cost about $12 million, is cur- rently being appraised by IDA. The German Government may particinate in the vocational training aspects of the project. ANNEX I: THE CURRENr POSITICN AND PROSPECTS OF YEMEN'S AGRICULTURAL SECTOR TABLE OF CONTENTS Page Number I. The Nature and Role of Agriculture in the Economy ...... 1 The Resource Base and Nature of Farming...... 1 Agricultural Production Trends ...... Agricultural Trade Balance and the Food Gap...... 6 II. Constraints to Agricultural Production and Development. . . . 6 Physical Constraints ...... 6 Human and Institutional Constraints...... 7 Agricultural Technology...... 11 III. A Stratega for Agricultural Development ...... 13 Agricultural Policy Obiectives and Strate7v...... 13 Potentials for Major Agricultural Commodities and Reuirementg...... Principal World Bank Group Projects Related to Agricultural TvAl nrm-nt-. =.17 IT'= A Recommended Action Prnarim for Aarirulturnl nevelopment 18 Institution Building ...... 18 Tnvestment Projects for Integrated Th.-ual DevelopT-,men.t 19 Pre-Investment Studies and Resource Surveys...... 22 Othar Survevs nnd nnfn rCollction T1evvi-rna Imrnediate Priority ...... 25 ANNEX I Page 1 THE CURRENT POSITION AND PROSPECTS OF YEMEN'S AGRICULTURAL SECTOR -/ I. THE NATURE AND ROLE OF AGRICULTURE IN THE ECONOMY The Resource Base and Nature of Farming 1. Agriculture is Yemen's principal economic sector, contributing 70 to 80 percent to GDP and employing 80 to 90 percent of the active population. Although the sector consists predominantly of centuries-old subsistence-based farming, it provides nearly 90 percent of national export earnings. Despite the predominance of the agricultural sector, Yemen is unable to feed its own population, and food imports comprise more than half of national imports. The economic future of Yemen depends largely on the success of agricultural development. 2. The total land area amounts to 19 million ha. (190,000 km ), out of which only about 2 million ha. are considered cultivable. Some 1.5 million ha. are currently cultivated, and the remaining 0.5 million ha. of cultiv- able land are fallowed. Most of the cropped area is rainfed. only about 225,000 ha. being under irrigation. There are 14 million ha. of rocky, de- sertic and rangeland areas, some 1,600,000 ha. of bush cover- and abnut 2-6 million ha. of wasteland. 3. Climatic conditions vary widely, and micro-climatic differences are locally important owing to variable mountainous topography. Patterns of rainfall and temperature are to a large extent determined by the relief. Rainfall is erratic; and annual variatinno nrnfnifndlv nffc~-t crnpping anrd production. Normally, the major rains occur in July, August and September, with minor rains in March- April nnd May. Water resources, both surface -nd underground, are not abundant. Winds are a constraint to agricultural pro- duction, particularly in the Tihama and the Tntf-rmnntnne Plains. 4. Soil characteristics varv widely, fro-m excellent to poor, with dry- ness, salinity and alkalinity occurring in places, and fertility particularly in the mountain terrarpd areas hbing surprisingly good, considering that most of the lands have been cropped continuously on steep slopes for centuries. 1/ This anex was pepared by M voon Dumouln. wing to elac of reliable data, the analysis and conclusions presented in this annex are lar g ely J d gm-er ar.-- As quliatv ir. natre ~~ b~)J ~ ~ & 4UL..UCL .LV= LL& LULALC. 1LIU51Z IjUkd1_LLLLL.LVCqunlttv data cited were obtained in large part from interviews with experts in the fielA, ndA shloull ro- le taker, to represent more than orders of magnitude. ANNEX I Page 2 5. The principal crops are sorghum, millet, barley, and wheat. How- ever, wide variations in climate, topography and soils permit the cultivation of a range of crops including coffee, tobacco, cotton, pulses, grapes and deciduous fruits, citrus, bananas, oilseeds, potatoes, maize, alfalfa and qat (Cata edulis). Livestock plays an important role by being the main source of farm work power, contributing to foreign exchange earnings through exports of hides and skins, and providing meat and milk for domestic consumption. Forestry, in the accepted sense of the word, does not exist. However, mod- erately large areas are covered by woody vegetation (shrubs) providing fuel and minor construction material, and accomplishing some soil and water con- servation. Fishery resources along the Red Sea Coast appear promising, but these have not been ascertained and neither domestic nor external fishery mnrkets hnve been well developed. Traditional fishing with locally built boats and primitive techniques exploit only the shallow waters, the main catch being npelagic snecies and shrimp; minor quantities of dried fish are exported. 6. Yemini farmers are very industrious and female participation in weeding, harvesting and threshing is considerable. Children as young as six or seven years of age assist on the farm. 7. Farming systems vary regionally according to climate, soil char- acteristics and water availability. The level of technology is low, except for some husbandry in the terraced lands of some of the mountainous areas. Use of modern production innuts in negligible, and there is no research or extension except for the limited efforts of foreign aid agencies. The land tenure system and lnAd mnnagement practives are archaic, and sharecropping is the predominant practice. Water management practices also are primitive. Yet with regard to the major crops -- mainly cereals; which occunv about 95 percent of the cultivated area -- yields in some parts of the country are reasonably high, mainly due to the intensive farm bor ints rn--ir agoriuiiltiural areas ar- ILL Thecotry ca, be di.viAe-A 4ito five cording to their resource bases, agricultural outputs, and development potentials: 2 (a) The Tihama (total land area 20,000 kmn) consists of two arid and semiarid belts, the coastal plain and the foothills, and extends from the southern border to the Saudi Arabian border ln the north. Total population is about 800,000. The main towns are Hodeida (the principal harbor), Zabid, Beit-el-Fakeeh, and Al-Marawi'ah, ard Salif. The climate is hot and humid. Annual rainfall varies between 50 mm. and 300 mm. Dry and irrigated farming are practiced. This region produces sorghuum, millet, sesame, maize, and dates (all almost entirely for subsistence), and cotton, tobacco, vegetables and fruits as cash crops. The total cultivated area, both rainfed and irrigated, varies from year to year, depending on rainfall and surface water availability. Rough estimates show that up to 600,000 ha. could be planLted andi uargLial±ly rainfed; 70,000-100,000 ha. under spate irrigation and some 25,000 ha,irrigated by grounrd and perennial water. Livestock production is important. Eight muajor wadis (intermittent streams) cross the Tihama; there is thus a potential for ANNEX I Pa-e 3 surface and groundwater development where soils are favorable. This is the ma10r area for further land development in Yemen, wIth 200,000 ha. currently estimated as the irrigation potential. (b) The Western Slopes (total land area -- 35,000 km2 ) includes the area be- tween the Tihanma and the Midla-.ds, Highlands and Intermontane Plains. Pop- ulation estimates are not available but the upper reaches are known to be densely populated. Climatic conditions, primarily rainfall and temperature, vary with the altitude. All the cultivable land on the slopes is terraced, and 4irri4gation occurs i.n gorges along the wadi banks. The main crops are sor- ghum, millet, coffee, alfalfa, bananas and papayas. The livestock popula- tion is not known, but there is intensive over-grazing. There is virtually no room for expansion of agricultural land in this region. (c) The Midlands (total land area -- 20,000 km2) extends practically from the southern buorder to the town of Qadahf and covers the Taiz governorate and adjacent areas. It is the second most populous area of the country (about 900,000 people), and also the second largest in agricultural output and poten- tial. Its eastern part is dry. Altitudes vary from 800 m. to 2,000 m. above sea level, with annual rainfall between 450 mm. and 600 mm. Climate, soils and water resources are adequate for production of cereals, pulses, potatoes, fruits and vegetables, fodder and coffee. There is some potential for af- forestation. (d) The Highlands (total land area -- 35,000 km2) can be divided ecologically into two sub-areas, the Central Highlands and the Intermontane Plains. The differentiation between these two areas is primarily with reference to climate and topography, and hence agricultural production. (i) The Central Highlands comprises most of the Ibb governorate, with a population Of about 900,000. Altitudes vary from 1,500 m. to 2,000 m. Annual rainfall is within the 600-800 mm. range. Soils are good. Water resources are mostly limited to groundwater and springs, and irrigation is not extensive. There are, however, a few wadis where surface irrigation is practiced on a small scale. Most of the cultivable area is terraced. The main crops are sorghum, wheat and barley, followed by millet, alfalfa, maize, potatoes, pulses and some fruits and vegetables. (ii) The Intermontane Plains extend from Yerim to the northern border and encompass the governorates of Rada, Sana'a and Sa'dah. Total population is estimated at 2.2 million. The urban population is concentrated in Yerim, Dhamar, Sana'a and Sa'dah; the rural areas are not densely populated. This region is characterized by a series of flat plains surrounded by mountains, or closed watershed basins. Altitudes are 2,000 m. to 3,000 m.; rainfall averages 200 mm. to 500 mm. and is erratic. Temperatures and humidity are usually low. Groundwater resources are relatively important, and there is ANNEX I F"age4 much small-scale irrigation from wells and springs. Most of the soils are marginal or poor, and the plains are practLcal- ly treeless. The crops are sorghum, wheat, barley, millet, qat, grapes, fruits anrd vegetable. Livestock, chiefly sheep and goats, is an important source of income. 2 (e) The Eastern Slopes (total land area -- 80,000 km ) is the area largest in size but poorest in agricultural resources. The slopes cover the areas between the Intermontane Plains and the Saudi Arabian border to the east. Climatic conditions are not favorable for agricultural production, as annual temperatures are high and rainfall is about 100 mm, to 200 mm. Soils gen- erally are poor. There are a few valleys where irrigated agriculture is practiced at a subsistence level. Despite existing remnants of thousand- year-old irrigation schemes, the agricultural development potential seems extremely limited. Not much is known about this remote region, and popula- tion and other basic socio-economic data are especially scarce. Agricultural Production Trends 9. Cereals include sorghum (Dura), millet (Dukhn), wheat, barley and maize, and are cultivated under both rainfed and irrigated conditions. The area planted to cereals has remained almost constant. Annual production was stagnant at about 1.1 million tons from 1964-1969, followed by a drop to 0.8 million tons in 1969. Output rose to about 1.2 million tons in 1971, and about the same level of production was expected for 1972. Dura is the prin- cipal cereal, providing some three-quarters of total grain output. Dukhn, which occupies the second largest area, is most extensively grown in years of lower rainfall. Unimproved varieties of wheat and barley are grown in the Central Highlands, generally with no modern inputs. Considering this fact, wheat yields are fairly good. In recent years, yields have increased (particularly around Taiz) owing to the limited use of improved seeds and fertilizer. Average cereal yields for several areas are as follows: AVERAGE CEREAL CROP YIELDS, BY REGION /2 Tons per hectare Sana'a Hodeida Taiz Ibb Ha_ia Other Average /a /b /c /d Sorghum and millet 0.8 0.9 1.2 1.5 1.0 0.8 1.2 Wheat 0=9 - 1.0 1.3 0.8 1.1 1.0 Maize - 1.2 1.5 2.0 1.2 1.2 1.4 Barley 1.0 - 1-4 1 8 1.0 1.2 1.3 /a Paly irrigated, mstl- rain.fed. T7 Mostly rainfed (600 mm/year average). /c All ra'Ln'ed (QOO ,.,.t/year average). 7T Mostly rainfed, with supplementary irrigation on a small scale. 1/ Production trends of the major agricultural outputs are presented in Table 7.1 in the Statistical Appendix. 2/ Source: Estimnated bv Central Planning Organization, Sana'a. ANNEX I Page 5 10. Coffee as grown mainly by smallholders, both in many scattered moun- tainous areas at altitudes of 1,000 m. to 2,400 m. and with irrigation facil- ities, usually along the wadis. The total area planted is unknown, but coffee was formerly the maior cash cronp and was the most imnortant export crop in value for the half century before 1970. Prior to World War II, an- nual coffee production was reportedly about 12,000 tons Current production is estimated at 4,000-5,000 tons per annum, of which 3,000 to 4,000 tons is exnorted. The mnin factors contributing to the drop in production include: the civil war during which plantations were neglected, aging of trees, com- petition frnm qat, poor marketing, and declining prices. The quality of Yemeni coffee ranks high in international markets, but yields are among the lowest known, averagiing about one ton/ha. per annum. 11s Since 1964, qat (a mild narotic leaf) has lbeen the secon. most valuable export crop, and the most important and actively-marketed domestic cash crop. No precise figures are available on production, yields, domestic consumption, or exports. It is reported that some 45,000 ha. are under qat cultivation and that qat Ls replacing cofLfee ecause it is more drought- resistant, requires less husbandry, and is more profitable. The recent ban on qat exports to the PDRY has reduced its export earnings considerably. The government is trying to discorage qat production and consumption, but the effectiveness of the program appears questionable at this stage. 12. Cotton 'is one of the main export crops and is grown almost exclu- sively in the Tihama Plains, always with flood and/or groundwater irrigation. T,.e area under cotton and cotton output fluctuates depending on the avail- ability of water. The records show an extreme range, from a peak production of 11,300 tons of seed cotton in 1965 to a low of 500 tons in 1967. Production was about 10,000 tons in 1971, 15,000 tons in 1972, and 16,000 tons were expected in 1973. No reliable data on yields are available, but a rough estimation indicates an average yield of about one ton/ha. in Wadi Zabid area, with a range between 0.5 to 1.5 tons/lha. depending on the level of water use and other inputs. 13. Other Crops. Yields and production of pulses, fruits and vege- tables, oilseeds, alfalfa and tobacco are low, although no reliable figures are available. Minor exports of fruits and vegetables are recorded, but most of these crops are for domestic consumption. 14. The livestock population was estimated in 1971 at roughly 10.6 million sheep and goats, 69,000 camels and 670,000 donkeys, 957,000 cattle, some poultry, and a few thousand horses. No production figures are available for meat, milk, eggs, or hides and skins. Hides and skins normally constitute the fourth largest agricultural export commodity. In 1969, however, when the export value was $0.7 million, this was the second largest export item after coffee. Livestock is a significant subsector in Yemeni agriculture in that it is the main source of farm power and an important source of protein. ANNEX I Page 6 Agricultural Trade Balance and the Food Gap Problem 15. In the absence of an organized national statistical system, in- cluding national accounts; it is difficult to derive reasonable economic indicators for any sector. However, recorded foreign trade statistics in- dicate a long-teprm inreasing fo-d deficiency in Yemen. This is one of the most fundamental problems of the country because it depends almost entirely on the agr4-Iltranl catnor A 1Q60 FA) miqRinn rpnnrtted thsat YP-men wae nparlv self-sufficient in food production; at that time, Yemen imported only some sugar, rice, dates and wheat flou,r.- Since then, the combined adverse efferts of the civil war and the 1967-69 dry years resulted in a drastic drop in agricultural output, necessitating large food imports. Rising inromes in the cities also stimulated demand. The value of food imports rose by more than 50 percent betweer. 19 65 and 1971 16.Th '1'L.- (re4orded) Cfood4 import iteomsae suge~a r, creals and cereal1 products, followed by animal products, fruits and vegetables, tea, spices and rice. The[ .on-fjooduLagricultural i,m,ports a.re toba-cco timber.and -r -cs TM. food imports fluctuate widely depending on crop harvests and external food grants, food itemrs have accounted for more than 50 percent of all recorded commercial imports in the past several years, showing annual figures of A4 Z_ 10n . 11aI. fl. 5.-k -1U-.,. U--.A - - - #--A mi4m.-, u nt -rr .- -o -... .5I j20 r.L.L.LULon. On the other .han , -p- - gri-cultural-- -exports, cr.s- ing of coffee, qat, cotton, hides and skins, have stagnated at around $3-4 million annually. ThPese figures accounted for about 90 percent of total national exports. 17. Malnutrition is considered to be severe, particularly in rural areas. It is impossible to determine the food self-sufficiency rate, al- though it is generally estimated that a normal year's cereal output provides about 80 percent of the national requirement. Witn a population growLn raLe of over 2.5 percent per annum, agricultural production must be stepped up -- especially cereal grains, which have an immediate potentiai for expansion. II. CONSTRAINTS TO AGRICULTURAL PRODUCTION AND DEVELOPMENT 18. In order to achieve economic growth, Yemen has no alternative but to develop its agricultural sector. However, local development constraints are enormous compared to those of most other agricultural nations. Some of these constraints can be overcome within a reasonable time and others will require long-term efforts involving fundamental changes in political and social structures. This annex examines only those constraints to agricul- tural production which can be overcome within the present social and politi- cal structure. These can be grouped arbitrarily into physical, human, and institutional constraints. Physical Constraints 19. The amount and distribution of rainfall are critical factors in determining agricultural development potential. In the case of Yemen, the lack of moisture for crop growth is one of the main causes of the prevalence ANNEX I Page 7 of subsistence agriculture. Because the surface and groundwater resources are limited, the irrigation development potential of the Tihama is estimated at only some 200,000 ha. In the Tihama Plains, surface and groundwater irri- gation exists on a modest scale, mainly by means of primitive diversion sys- tems (spate irrigation), but also by means of hand-dug wells and a few dril- led boreholes. There is also limited irrigation along the river valleys of the Western Slopes, and in the Highlands and Midlands. Small-scale ground- water irrigation occurs in the Highlands, Midlands and Intermontane Plains. There are no storage dams and few, if any, feasible dam sites. Except in the Tihama Plain and in the Intermontane Plains, arable land availability for further development is extremely limited, and any such development would depend on irrigation water potential. 20. Soil quality is a constraint in some areas. On the intensively cropped terraces of the Highlands and Midlands, soil fertility has been largely depleted by centuries of cultivation with minimal or no fertilizer additions. The Tihama Plain has a high proportion of sandy soils and sand dunes. In the flat parts of the Intermontane Plains; stonv soils and low water-holding capacity and infiltration rates intensify the problem of water shortage. Over-grazing and lack of suffi4rent land for natural fodder l4mit the potential of the livestock industry. 21. The primary highway network currently connects the three main towns of Sana'a; Taiz and Hodeida. Secondary and feeder roads in the farming areas have not been sufficiently developed. Thus, marketing of agricultural produce as well as timely supply of modern agricultural inputs Is difficult ir many of the agricultural production centers. In some regions, such as the High- lands' terrace fArms, the topography prohibits construction of feeder roads and limits the adoption of certain advanced farm management practices. Human and Institutional Constraints 22. The farming population is generally illiterate and modern agricul- tural skills are rare. Despite the industriousness oc Yemeni farmers, the poor state of their health -- stemming from unfavorable living conditions and widespread poverty -- const4tutes an absolutje suort=ter,. constra4L.n on UfarmU labor productivity. Emigration to foreign countries and to the cities creates seasonal shortages of manpower in some areas, particularly Uur.Lng harvest time. 23. The lack of viable institutions and-trained ri-tanpower conssti'tutes no less serious a constraint to agricultural development than the poor natu- ral resource base, anrd these tWO shortco,mings are closely related. Until now, there has been no meaningful national agricultural policy. There has been llttle public inves-mUen,t in the agriculturaL sector, most sucn Lnvest- ment having been undertaken by external aid agencies whose aggregate impact ha s been meager. Consequently, agricultural output remains largely a func- tion of weather conditions. The significant increase in farm production of the past two years reflected Doth favorable weather and recovery from the low output caused by the civil war. Institutional weaknesses are partly at- AN?.Y T Page 8 tributable to the current political and social structures, which, despite recert progress , severely limit the influence and adi.r.istrative eff icienc of the central government. 24. The Ministry of Agriculture in Sana'a is extremely weak. It is headed by a Minister, assisted by a Deputy 11i-nister and a smaall staff. There are five departments in the Ministry: Provincial Office, Planning, Plant Protection, Agricultural Services, Administration and Finance. Some regional representatives are located in governorates. The Ministry's headquarters and field offices employ some 700 people, o' whom at least 500 are laborers and only 38 who have had secondary education. A small number of the Ministry's staff is assigned to UNDP/FAO projects. The Ministry's budget provides mainly staff salaries, with no allocation for development expenditures. 1/ 25. The shortage of trained manpower constitutes a serious bottleneck to agricultural development, and this situation is expected to continue for some time. To a large extent, the future of the country's agriculture will depend on progress in this area. Aside from a small number of agricultural workers at the Wadi Sordud irrigation scheme in the Tihama and a few counterparts attached to the three UUNDP/FAO projects (see below), there is no extension service. Nor is there a single agricultural education institu- tion. Moreover, Yemen is also suffering from a "brain drain", as only one-third of the estimated 1,200 students sent abroad for training during the last decade had returned by mid 1972. 2/ The majority of those who returned are employed in the non-agricultural private sector. 26. There are a number of community development organizations, called "development boards", such as those of Ibb and Hujeira in Turba, whose ob- jectives are social, economic and educational, and in some instances include the whole spectrum of integrated rural development activities. Unfortunately, their qualified manpower and financial resources are extremely limited. Some attempts to organize farmers' cooperatives and associations are also being made. A fishermen's cooperative was established at the fishing port of Mocha. However, none of these organizations has reached the operational stage. Three UNDP/FAO projects (Highlands, Midlands and Lowlands) represent the major de- velopment activities visible in the rural communities. The lack of government resources. poor coordination and insufficient counterpart staffing have been common shortcomings of these and other projects, including the Food and Nutrition Proiect and the World Food Program. All of these have tended to be experimental or an ad hoc basis, and have failed to follow closely their orizinal terms of reference, which called for a considerable amount of pre- investment work. 1/ An annual expenditure of YR 800,000 is indicated for 1970/71, with 80 percent of this amount for salaries. 2/ Snce a substantial nronnrtion of these students emiarated in recent years, the proportion of eventual returnees is expected to be much higher. ANNEX I Page 9 27. Agricultural taxation and pricing policies have not yet been formu- lated within the context of an overall program. Traditionally, generation of government revenue has been the overriding criterion in collection of taxes, without consideration of resource allocation or other economic effects. All agricultural output is subject to the Zakat tax (10 percent of the gross value of farm output), but the effectiveness of collection depends on the administrative efficiency of each province. Some development boards in the rural areas collect additional revenues from farm owners, but the justifica- tion of these levies appears questionable. Agricultural exports taxes, which existed until recent years, imposed a 10 percent levy on export value, in addition to the Zakat tax. This tax undoubtedly had some adverse effect on the incentives of cash crop growers. The government no longer collects an export tax other than from qat. There is no agricultural price control, and prices of food items show wide fluctuations. While the trend in general food grain prices has been rising, short-run variations have been great. The upward trend in animal product prices has been especially marked 1/. 28. Except for cotton, there is no organized agricultural credit system, although an attempt was made to establish a short-term farm credit with the Yemen Bank for Reconstruction and Development; this failed mainly due to lack of funds. Farmers obtain short-term credits from traders, merchants, friends, relatives and moneylenders. at interest rates that may rise to 30 to 40 percent per annum. The Cotton General Company, which is controlled by government, pro- vides advance credit at no interest to cotton farmers in the Tihama Plain, but this is a part of the organized cotton market system wherein the Company has ex- clusive control over the Durchase and exnort of all cotton- 29. Excent for cotton, marketing is left entirplv to nrivate Rector traders, whose high profits are reflected in the wide gap between producer and cnnnlimpr nrirp - Major nrnoblems of the cirrent marketing system are: transport difficulties in the rural areas; inadequate storage systems; lack of nricing, grading and standardizatior. systems; and lack of mnvrket credit. In the main towns, some government-controlled storage buildings and merchants' storage exist. However, current losses of cereal grains from inadequate storage, particularly in the villages, seem substantial. Most of the ex- nnrted rnffee and hidea and skinc are handled hy a few merchants in N.odida Cotton is handled by the Cotton General Company, which determines purchasing nri-fcsqnriandprovidesc the far,-me,rs witih seeds nnA c-reAdit. The rCompany als n.s a ginnery in Hodeida. Qat marketing is extremely efficient. Qat is trans- c o ported swiftl-, be.t- 0 en growing areas and nsumnption centers scattered throughout the country. The efficiency of qat marketing may reflect the proftabiity f ar.d--Agown thepoer.tia - for privat+e u.arketir.g syste..s. Agro-processing facilities are limited to: cotton gins and lint processing for Cotton cloth.es manufacturing, USing locall proucd.- ro; an.A. 1/ In the past two years, the annual average retail prices of mutton and beef in Sana'a have risen by nearly 16% and 21%, respectively, while veal prices rose at an average annual rate of 29%. ANNEX I Page 10 match factory based on imported raw materials; some sweets factories which also process imported commodities; and small-scale biscuit and oilseed pro- cessing plants. Further development of agro-industry could induce agricul- tural import substitution, particularly in canned fruits and vegetables, and processing of vegetable oil. 30. Agricultural research and experimental activities are very limited. A German Federal Republic aid project in Sana'a has been carrying out experi- ments on cereals and vegetables on a 4.5-ha. farm, with emphasis on fertilizer application and distribution and groundwater use for irrigation. The results obtained from this project could be applied in the Intermontane Plains, but their economic viability appears highly questionable in view of the capital intensity of the technology employed. 31. In the Highlands, UNDP/FAO projects are carrying out field experi- ments on a farm (8 ha.) near Ibb for rainfed and irrigated crops, including cereals, forages, oilseeds and vegetables. Field experiments are also being performed on private farmers' land for new varieties of cereals, alfalfa and other crops with fertilizer application. This only began in 1971, and early results appear encouraging. 32. Since 1970, the Midlands UDNP/FAO proiect has been utilizing the Ausseifra farm (24 ha.) near Taiz for crop experiments and demonstrations. Crons grown under irri2at'-on are: bananas, cashew nuts, citrus and other deciduous fruits, vegetables, cereals and even rice. Fertilizers and plant protection measuirps are being imnlemented. So far- no conclusive results have been obtained. The same project performs field experiments at the pri- vate farm leuvel incluidina introduction of fertilizers and new wheat varie- ties (Mexican and Australian), potatoes, cereals, and tomatoes under rainfed and irrigated conditions. Farmers' res,onse and yielda obtainad are most encouraging. Farm management data are being collected on these activities. 33. In the Tihama Plains, there are several areas where field experi- ..ents are beir.g carried outf: the,JWaia id MP/VAO rn et the C-umi government-controlled farm; the Wadi Sordud irrigation scheme with USSR as- sistance; and the TTMTTDPrAO Lowl-a - The ..ost enng re= sults were obtained at Wadi Zabid on cotton, vegetables and oilseeds. 34. The land tenure system is extremely complex, and the agricultural lega.LU .Itut -Li UULULue e-, arecILt= LLtrdtoal dU.LLLUUILUJ. cl.LLLUU6~LIlhug LI hrL .LLLs no) clLLULLaccurale .L 4npormationL iLLAI& LLL available. Regardless of the impact of the current land tenure system on agricultural production, land reform does not appear likely to be feasible for some time. 35. Most small farmers own their owni farms, but their ownership amounts to only 10 percent of total cultivable land. A large share consists of large individual ownerships, normally leased to tenants. It is reproted that the State owns 2 to 3 percent; State land is farmed by tenant farmers under the supervision of the Ministry of Agriculture. Waqf land (land owned by religious or fa.-.lly trusts) is usually leased to tenant farmers and constitutes 15 per- cent of the land. The remainder is privately owned. However, this distribu- tion is not uniform throughout the country. ANNEX I Page 11 36. About 80 to 90 percent of the cultivated land is believed to be sharecropped. Conditions and arrangements governing cost and revenue sharing between landowner and tenant are complex, and vary depending on the crop, the availability and method of irrieation, and the dearee to which costs of pro- duction inputs are borne by the landowner. In general, tenants receive no more than one-third of the cron from irrigated land and one-half of the crop from rainfed land. While there is controversy over the nature of incentives under the existing sharecropping system, it appears evidentth th the iherent insecurity of tenants is a disincentive to their investment in land improve- ment. 37c The size of holdings (ownerships) varies depending on region and whether rainfed or irrigated. However, holdings are generally small, ranging from about 0.25 to 10 ha. Holdings in the T"hama, the Eastern Slopes and the Central Highlands are relatively large. In the Tihama, unusually large owner- ships of 5,000 ha. ca. be four.d. Holdings iLn m,our.tain regions are usually less than one ha. Agricultural Technology 38. The spread of modern agricultural technology -- particularly in ir- rigation, water .-,anage.en;t and application of inputs - is very limited. Gen- erally, great care is taken in soil preparation, despite the simple character of the tools and 'mplements used. Labor is the only abundant and intensely used factor in Yemeni farming. The efficient labor intensity in crop hus- uandury is one oL the major factors contributing to the current level of agri- cultural output, which is reasonable considering the absence of adequate com- pler..entary inputs. 39. For cereals, which occupy the bulk of productive lands under culti- vation, crop rotation is not usually practiced, and intercropping is common. The plant population is often poor, and large tracts of land are left fallow. Threshing and winnowing methods are primitive and result in considerable grain losses. In general, aside from the limited use of fertilizer in recent years, traditional methods of cereal grain production have not improved for generations. Considerable room for improvement exists in coffee tree hus- bandary through utilization of improved nursery seedlings, fertilizer, proper pruning, plant spacing and shadowing, and more effective use of available water. 40. There is no system of seed selection and distribution for cereals. No research on seed improvement or multiplication has been carried out, and cereal breeding is unknown. Despite coffee's significance as a cash crop, very little research has been done on coffee-planting materials. However, cotton has received some attention as seeds are imported and distributed by the Cotton General Company. 41. Throughout the country, practically every type of crop is grown under irrigation, mostly on a small scale. Other than through the limited use of diesel pumps in recent years, the scope and practice of irrigation for major crops has changed little for centuries. Although the lack of water ANNEX I Page I2 is widely recognized as one of the key constraints to agricultural develop- ment, very limited effort has been devoted to groundwater and surface water resource surveys. The studies so far carried out around Sana'a and in the Intermontane Plains have not been comprehensive. The first serious efforts in this field are being planned for the Tihama, following completion of the feasibilit- stu,dy for the T-ihsama Devellopment ProJect. TLhe audditionadL 'laud area suitable for irrigation is roughly estimated at 500,000 ha. (200,000 ha. in Tiharnna, 60,000 ha. in Central Highlands and 225,000 ha. in Western Slopes and Middle Heights). The area that can actually be irrigated is limited by availability of water; this is estimated at 250,000 ha. (200,000 in Tihama, 25,000 in Central Highlands and the rest in Western Slopes and Middle Heights). rhese estimates are subject to revision upon completion of thorough water re- sources surveys. 42. There is relatively limited application of manure, ashes, and chem- icai fertilizer; hence, Yemeni farmlands are inadequately fertilized and yields are correspondingly low. Chemical fertilizers were introduced in 1969, with the assistance of the Federal Republic of Germany. By mid-1972, some 10,000 tons of fertilizer had been imported, including that from private traders. Distribution has been carried out by bilateral aid donors, UNDP/FAO projects, the Cotton General Company, and by private merchants. The types of fertilizers distributed are: iri-K 15i/5/15; ammonium nitrate phosphate, 20/20/ 20; ammonium sulphate nitrate, 25%N; and ammonium sulphate 21%N. Selling prices to the farmers have been subsidized by some 20 percent when provided through bilateral aid and Government-sponsored programs. The quantities dis- tributed, however, are very small, and their impact on overall production has not yet been assessed. 43. Some estimates indicate that pests and diseases reduce crop produc- tion by as much as 20 to 30 percent, yet pest and disease control is not prac- ticed anywhere in the Highlands, Midlands, or Intermontane Plains. Losses to disease are estimated to be 5 to 10 percent for sorghum, and more than 15 per- cent for wheat and barley. Weeding is done by hand, and no herbicides are used. Some pesticides are used in the Tihama Plains, the most serious damage being caused by cotton pests. Bollworms and termites are spreading, and there is also a considerable grass weed problem. 44. Introduction of modern farm equipment and machinery has been limited thus far, partly because of restrictive topographical conditions such as the terrace system in the Highlands and Midlands, basin plots and diversion bunds for irrigation purposes in the plains, the small scale of farm units, and lack of capital and know-how. However, the generally low level of farm mechanization may be economically justified, given the abundance of labor in this subsistence-oriented agriculture. Tractor mechanization (mostly through traders), and water pump distribution (from bilateral donors) have been taking place in recent years. It is r2ported that about 1,200 tractors have been imported, and several thousand water pumps and engines have been distrihuted to farmers. However, some seventeen different makes of imported tractors are used inefficiently due to the lack of adequate servicing .and snare parts, A similar situation exists for groundwater irrigation equipment. The overall ANNEX I Page 13 utilization rate for farm machinery is reported to be about 30 percent. A thorough study of farm mechanization requirements is needed, and future im- ports of farm machinery and implements should take account of these points. II-L. A STRATEGY FOR AGRICULTURAL DEVELOPMENT AgiutrlPliyOjcie and Strategy 45. The dual objectives of Yemen's agricultural policy should be to attain self-sufficiency in basic foodstuffs and to generate additional re- sources for growth in other sectors. Given the limited options open for agricultural development, a reasonable strategy for achieving these objec- tives would be: (a) in the short run, to concentrate on import substitution of foodgrains through quick returns in the populated rainfed areas; and (b) in the longer run, to develop export and cash crop industries and overall agricultural self-sufficiency through expansion of surface and groundwater irrigation and through industrialization of agriculture where feasihle End appropriate, as well as by building up agricultural institutions. 46. To carry out this strategy, the government needs to establish real- istic action programs with a proper order of nriority. Yemen has special prob- lems of limited absorptive capacity for external aid and limited ability to generate domestic capital resources and to snpeedily prepare and implement development projects. These problems demand special assistance from abroad, including both canital and mnpnower. The following section will consider a recommended development strategy for implementation in the short term (defined as three-to-five-year periods) and the long term (defined as five-to=ten==year periods), assuming the availability of adequate external assistance. 47. The short-term strategy would be to concentrate on provision and distribution of basic production inputs in areas where there are ImmedIate potentials for expansion of cereal grains. These would include: improved seeds; fertilizers; nlant protection; irrigation water supply through small= scale and low-cost structures of unsophisticated design; agricultural credit; and agricultural extension particularly where immediate action can be imple- mented. Such a program could be carried out in the Midlands and Highlands. Simultaneousl, im…rovem.ent of rural living conditions, such as cor.struction of secondary and feeder roads, water and electricity supply, crop storage, a resparch and demonstr tion fa-ms, couldA be unAertaen. All these actions should be integrated into a "package" of rural development projects through intensive nro4ect preparation efforts. WM.Ele these short-term… prograr would be designed to be implemented within the existing structures of gov- ernment, local socio=economic institutions, land tenure arrangements, and the existing rural development boards, some minimal institution-building would be totecessary develop a national capacity to direct sectoral devel- ANNEX I Pane 1/. opment activities. Strengthening of the M4inistry of Agriculture should be given first priority toward this effort 1/ 4 /0 The long .term strategya w.ouldl 4n-,,r1.,. Ant' a1 1 ant A. 1 -- --- A sto v tiC LUiUU LCLlit XC W e,] W V V X _ tAi L.X 6zzL6 resource surveys; research and experiments for crop diversification and im- provemrente, includirng possible chfange in the current m.onoultural cropping pattern; comprehensive pre-investment studies which would lead to major ir- rigation Udeve'Lopment schemes iCn t"hLeLi i1namna Plains; a.id possibly other Jrriga= t-on schemes in the Intermontane Plains. Other complementary long-term actions, such as marketing and pricing policies and institution-building, could also be a part of the program. The long-term efforts must recognize that where- ver irrigation water availability 's a prerequisite to agricultural development, investment programs will be much more time- and capital-consuming than in the rainfed Midlands and H'ighlands, and may of ten require ten to ft.LLe eLa1r LtU realize their full potential. 49. Although the government has not yet established a well defined strategy for agricuiturai development, its general approacn is consistent with the above recommendations. Potentials for Major Agricultural Commodities and Requirements 50. Because of the diversity of crops involved, a review of individual crop potentials, prospects, and problems may be useful: 51. Cereals (sorghum, millet, wheat, barley and maize): Short-term prospects for increasing yields of sorghum and millet appear good even within the existing genetic population, as recent experiments on private tarms have resulted in yield increases of up to 25 percent with fertilizer applications only. 52. Coffee: Prospects for improving the coffee subsector do not appear bright in the short run. Production areas are scattered all over the Western Slopes and Midlands, plantations are small scale (200 or 300 trees is the maximum size, with average of less than 50 trees), and access to production areas is usually difficult due to topographic conditions and a lack of roads. A short-term coffee program, providing technical assistance to coffee growers for husbandry and irrigation improvements as well as use of modern inputs, could be incorporated as the main cash crop component into integrated rural development projects in the Midlands and Highlands. Until more is known, major coffee rehabilitation projects per se seem premature. However, some 40 percent of total coffee trees are said to be unproductive, and even pro- ductive trees produce less than half normal yields. These considerations suggest that there is a potential for coffee rehabilitation in the long run. The main constraints to increasing coffee production and profitability are 1/ Nore details on the recommended short-term action program for agricul- tural Aduelnpment are set forth in Part IV below. ANNEX I P;,cr 15S now on the supply side. If these constraints can be overcome, however, greater attention will also have to be aiven to improvin gdomestic and ex- ternal marketing arrangements. Yemen currently accounts for only about 0.1 percent of world exnorts. Yemen is not now a member of the International Coffee Agreement (IGA), though the Agreement in any event permits it to sell in the traditional high pr4ced .m-rkets a quantity of coffee whLih is greater than that available for export. Until now, the costs of membership in the IGA have anneared to outweigh the potential benefits. However, this situa- tion may change if some of the "special measures" intended to help the least develonped countries come to include especially favorable membership conudi- tions and benefits from international commodity agreements, as has been rec- onmmended by a group of experts conven.ed by UNLCTAD to consider this problem. 53. Cotton.: Thr.e prospects for increasing output of cotton in the Tihama Plain are promising in the long term. Probably about 40,000 ha. could be devoted to cotton production In the Tihama. Because of current groundwater development for irrigation, some increase in production can be expected within the next few years, though the ultimate potential may be many times current output when water resources are fully developed. In view of the long period required for pre-i'nvestment studies and agricultural development in the Tihama, the present government policy seems to be in the right direction. In terms o. agronLomic requirements for cotton, improvement of crop husbandry (primarily pest control) should be given first priority. Improved ginning and marketing would also be desirable. 54. Qat: Though controversial, this crop has been the most important cash crop for many farmers. The government's stated position on qat is to at least discourage consumption of qat among government employees. The medi- cal, economic, and social implications of qat consumption are extremely com- plex, and cannot meaningfully be discussed in this document. But agricul- tural planning must recognize that qat has been replacing coffee, and that the 12 percent export tax, which provides substantial Government revenue, apparently has not had much deterrent effect on qat production. 55. Fruits and vegetables: Many currently imported fruit and vegetable items (canned tomatoes, beans, vegetables, apricots, peaches, peas and citrus) could eventually be substituted by domestic production. While increased pro- duction and diversification of fruits has a long-term potential, only limited prospects exist for vegetables in the short run. Grapes are mostly consumed locally, though some are exported to bordering countries. No major export prospects are foreseen in the near future, due to the inadequate transport and nmarketing facilities. 56. Tobacco: Raw Virginia tobacco has been imported in increasing quan- tities for the cigarette-manufacturing plant in Hodeida. But substantial im- ports of foreign-manufactured cigarettes continue. Virginia tobacco has been grown experimentally for over two years in the Tihama Plains; results have not been conclusive. Other experiments indicate that tobacco may grow in the Midlands. Complete import substitution of tobacco appears unrealistic for a long time, even if this may be agriculturally feasible. ANNEX I Page 16 57. Oilseeds: Imports of oilseeds have been rising, while local pro- duction is still small. Domestically grown oilseeds are cotton seed, and sesame. Except for cotton seed, no production figures are available. Prospects for groundnuts and sunflowers are ecLcouragirng. However, oilseeds production requires further research and seems a long-term proposition. 58. Rice: Rice consumption is not great, and prospects for domestic production are limited by a lack of irrigation water. Except around Taiz, where some 1,000 ha. are classified as swamp areas, no suitable areas for rice farming have been found on a meaningful scale. However, a modest scale of rice production (2,000 to 3,000 tons per year) is conceivable as a long- term potential. 59. Sugar: A reconnaissance study for sugarcane production in the Tihama Plains pointed out that an irrigation project for 4,000 ha. of sugar- cane could provide near self-sufficiency. However, it is likely to be more profitable to devote the limited irrigation water to cotton production. In any event, further study of the potential for sugarcane production is required. 60. Animal products: Animal products, which include meat, dairy, and poultry products, constitute one of the larger import groups, while hides and skins rank fourth in exports. Although prospects are slim for Yemen to become a net exporter of animal products other than hides and skins, there appears to be room for increasing the output of animal production -- especially poultry in the short term, and meat and dairy products in the longer term. Since Yemen has few veterinarians and only the beginnings of an animal health service, control and eradication of animal diseases are urgent tasks. Such a program could be incorporated into an integrated rural development area where mixed farming (crop/livestock) is feasible, as in the Highlands and Midlands. Poultry production programs could also be part of such a project. Extension efforts as well as introduction of regulations would be needed to avoid such uneconomic practices as indiscriminate killing of female animals. Without involving maior investment, there seems to be some possibility of increasing the animal stock through animal research and extension. It is reported that sheep production in the Dhamar area can be increased by 50 percent through cross-breeding quality improvement. In any event, this specialized and important subsector requires further study before any major invesments can be undertaken. 61. Marine fish: A preliminary reconnaissance survey indicates some fishing potential in the Red Sea. Development of the fishing industry would provide an important protein source for the population through consumption of demersal fish. It would a1so result in an increase in foreign exchange earnings from crustacea, chiefly shrimps. Integrated fishery development is a long=term possibility. The first and urgent step would be to undertake a comprehensive fishery resources survey, with some internal market demand assessment. This industry would require some institution-building, since there is no key government agency responsible for the fishery subsector, other t'aL the Ministry of Agriculture. Any fishery develonment nroiect would also need external funding. ANNEX I Page 17 62. Forestry: Pntpntials for forestry development are extremely limited, and only a modest effort could be incorporated into integrated rural develop- ment pronjerts in the. Highlands and Midlands. The short-term benefits of for- estry programs may be limited to supplementing fuel requirements which are partl- competin- with livestock and windbreaks for crops. Longer=te.u. pro= spects might include woodland cover for watershed protection, and soil and water conseration. No timber industry of any meaningful scale can be fore= seen, and timber self-sufficiency does not appear to be a realistic goal. P_.owvr in the long run, IntCegrated watershed ma Principal World Bank Group Projects Related to Agricultural Development 63. The Tihama Development Project is the first major agricultural de- velopment project to be undertaken in Yemen. It is expected to be financed Dy IDA and the Kuwait Fund. Tne project consists of modernization of the existing irrigation system, covering a net area of 17,000 ha. in Wadi Zabid, and financing of a study examining the feasibility for developing 60,000 ha. from surface and groundwater in Wadi Mawr. The Wadi Zabid project works will include: construction of ten diversion weirs with gated inlets; river training works; improvement and extension of canals; and construction of con- trol structures. A flood warning radio network and a system of service roads will be included. The project will also establish institutions for agricul- tural research, extension and credit, and provide consultant services for project works and for the feasibility study. Specialists will be provided to train and advise Yemeni staff in research, extension and credit. The project will take about four years to complete, at a cost of about $16 mil- lion, including a credit component of $2.6 million equivalent. At full de- velopment in the fifteenth year, the project is expected to increase annual production of the main crops by the following amounts: cereal grains, 13,000 m. tons; seed cotton, 8,000 m. tons; oilseeds, 1,000 m. tons; and vegetables, 12,000 m. tons. The gross value of production would be increased by about $4.4 million equivalent. 64. As part of a general effort toward institution-building, the pro- posed Tihama Development Project has included the establishment of the Tihama Development Authority and the Agricultural Credit Fund. The Authority will initially be responsible for execution of the project; however, it will also eventually assume responsibility for all agricultural development programs in the Tihama. The Authority would include departments for surface irriga- tion, groundwater, agricultural research and extension, and administrative services, and would carry out training of local staff during project imple- mentation. The Agricultural Credit Fund will be created as a department of the Central Bank, with branches offices in Wadi Zabid and Wadi Mawr, in order to provide farmers and agro-business establishments with on-lending services, and to facilitate development of a nationwide credit institution. 65. An Education Project, which lhas recently been appraised by IDA, is expected to include an agricultural training center to be established at Ibb, with a total capital expenditure of about $0.81 million. This will be ANNEX I Page 18 matched by $1.15 million UNDP technical assistance. While this center would not relieve hne entire agricuLtural ,LLnpower slortages, 't Js e-ventuay expected to graduate annually about 90 extension agents, 12 animal health assistants, 30 young farmner traLnees, 10 in-service trainees, and 200 to 300 adult farmers with short-course training. In addition, the technical assist- ance component of tne project would provide 50-man-year fellowships. 66. Tne main component of an IDA Highways Project (approved in 1972) is the construction of a paved road between Taiz and Turba (about 69 km). This road crosses one of the most productive agricultural areas of the Midlands, for which a rural development project is being proposed. The Hlighway Project will cost $8.6 million and includes feasibility studies and detailed engineering for secondary and feeder roads in other agricul- tural areas; establishment and maintenance of a Highway Authority; and supply of equipment for feeder road construction and highway maintenance. While the Taiz-Turba road is of first priority for agricultural development, some of the roads proposed for feasibility studies may need to be reviewed in the light of the agricultural development action programs proposed. _/ IV. A RECOMMENDED ACTION PROGRAM FOR AGRICULTURAL DEVELOPMENT 67. The action program proposed below is by no means exhaustive, nor does it compete with agricultural development programs already underway. The following program is suggested as a minimal necessary effort in investment and institution-buLlding. It is considered technically feasible in the short and medium term. Measures which would require changes in the socio-political structure (such as land reforms) are not considered here. Institution-building 68. The Ministry of Agriculture: Within the present Ministry, a special unit of three to four expatriate advisers assisted by ten to twelve Yemeni counter-parts should be established to organize and operate the Ministry. For the next three to five years, this unit's task should include, but not be limited to: (a) coordinating and monitoring on-going field activities and projects in the agricultural sector and providing government support to them; (b) analyzing data obtained from these on-going proiects, and identify- ing further information required for long-term agricultural development plan- ning: (r) coordinating with. and assisting, the CPO in development planning and in formulating agricultural policies; and (d) taking the central role in plannning nd imnlpmentlng agricultural development action programs. 1/ Another significant element of this project is its support of a Swiss ULL.VersL i Ly LteLU WiLL.hI LZ LIsr.LL, LLmakin firLsLt.h L systeatiL efLort to co'Llect basic demographic, economic and social data in selected regions of Yemen. 111hub CUAXLULbC Is IILnteLUdU InIJL UOn1ly LU rUrnLS[1 va.luaDle inlormation abDOU present attitudes, cropping patterns, etc., but also to establish a basis fer evaluating the imupact of de-velopment projects being implemented in the areas being surveyed. ANNEX I Page 19 Investment Projects for Integrated Rural Development 69. A Midlands Subproject. This subproject would cover the areas between Taiz and Turba, including the Misrakh Plain, Wadi Dabab and Wadi Mosa valleys, and the Al Gened Plain north of Iaiz, covering some 50,000- 60,000 ha of cultivable land. Farm population estimates are not available, but the density is high (about 58 inhabitants per km4). Compared to other ares in the Midlands or elsewhere in the country, living conditions of the rural population are fair, though at a subsistence level. The climate is suitable for a wide variety of crops. Rainfall is erratic, with an estimated average of 400-600 mm. per year. There appears to be good surface and groundwater potential. iudging by permanent flows in some wadis, springs and existing wells. Soils are generally good, but there are some salinity and permeabilitv problems, particularly in the Al Gened Plain. Highway and secondary roads are limited, and feeder roads are practically non- existent. Other infrastructure Includes some rudimentary svstems for electricity (which a few villages around Turba do not have) and water supply. There i.s a regional organizatinn fnr rural develonment, the Hujeira Development Board in Turba, with limited resources. 70. The main crops produced in this subproject area are: sorghum, m…aize, coffee, and tropical…ileXbariev, and topra-ture fruits and vegetables, both rainfed and irrigated. Yields are low, and fertilizer use is limited. Other modern inputs such as selected seeds and pesticides are almost nil. Use of irrigation water needs to be greatly expanded, and in many cases the existi-g system neeAs t be rehabiflitat-eA. Some ext"ension services are being provided by UNDP/FAO. Livestock production is unknown, but there appears to be a potential for expanding dairy cattle and poult- 71. T&Ve poter,tial for agriLcuLturalJ dUeve'lop.entLL Inte r11Udj,a-s seems excellent in terms of farmers' attitudes and resource endowments: partic- ularly fertIle soiLLs, a-vailaUllty ofIwater, favorabie clA'matic conditLions for diverse crops, and agricultural market potential in Taiz (100,000 inhabitants) and 'ts governorate (600,000 inhabitants). Areas of agricul- tural development potential are estimated at 25,500 ha. (Misrakh Plain -- 10,000 ha..; M,osa -- 10 ha.;LandIn" Al Gened --3,0 Ih.I. Sur'ac' g of the two main roads, Taiz-Turba and Taiz-Al Qa'idah, is to be undertaken withexternalf.nancing. Ar.cultura data collection,, field experinents w'LiexeraLa L f±lnanc±ing.t% L ±IULUL± UdL CO.L LI L UL,L and experimental extension service to the farmers are currently being carr'Leu out by uNDP/FA0, although witn limited means and on a minor scale. Results thus far obtained show that cereal yields under rainfed could be Increased by 25 percent with imported seeds, and by up to 50 percent by adding fertilizer. Increases may even reach 75 percent with supplementary irrigation. For vegetables such as potatoes and onions, yield increases recorded on experimental farms are as high as those for cereals. 72. An integrated rural development project covering some 50,000-60,000 ha. is recommended in order to increase agricultural productivity, improve ANNEX I Page 20 rural living conditions and prepare furtlier development projects. The com- ponents of this subproject would consist of the following: (a) establishing extension farm service centers to provide technical assistance to farmers in rainfed and irrigated areas and supply them with production inputs such as seeds- credit, fertilizers, pesticides, and herbicides. These centers would provide living quarters and offices for staff. storage for inputs, and farming demonstrations; (b) creating mobile units for small-scale irrigation development, involving low-cost diversion and canal systems for siurface water and hand-dug wells for groundwater. Designs would be prepnared by mobile units. but irrigat-ion yvstePms wuild begh built with maximum use of locally available resources of Pmpent and stones, and extpnsiup farmerc' labnr Only a limited number of pumps and other equipment would be imported; (c) constructing feeder roads of minimum standards to facilitate access to isolated areas. Construction of these roads shouldA be labor-intensive; (d) constructing village water supply systems, using surface and groundwnater, b-, labor-intensive methods; (e) establ4shing a research farm, peruaps at Aussefr, near Taiz, with equipment and staff required for crop yield .im,prove-ment and dUViVe r S L LL L.i ki. J pLUVidUJAn maiLager,LacLJ neL1eeus, LtdrLnLng1 oUCda counterparts, ana assisting institution-building (farmers' associations) within he project areas; anlU (g) preparing a second-pnase program witn emphasis on increasing agricultural productivity, crop diversification, livestock development, and improvement of living conditions in the rural areas. 73. Preparation of the first phase development investment could be completed in six to nine months at an estimated cost of S50,000. The total investment cost for the first phase covering about 25,000 ha. including preparation for a further 25,000-35,000 ha. may cost $3-4 million. Imple- mentation of the first phase would take about four years, and three to four years for the second phase. The Yemen Government agrees that this sub- project deserves high priority. 74. A Highlands Subproject. The recommended areas for development are within the Ibb governorate, the second most populous governorate 2 (900,000 inhabitants), with the highest demographic density (69 per km ), ANNEX I Page 21 tile nignest rainfall (800 mm. per annum) and the most important cereal pro- duction area in the country. Some 300,000 ha. are cropped, of which 272,000 are rainfed and 25,000 irrigated. Living conditions in the villages and small towns (Ibb, Jiblah) are poor. In dry years, farmers have to relay on remittances from abroad and short-term credit facilities from local traders to buy imported food, and starvation has occurred. Migration from the farms is high. Due to the altitude (1,500-2,000 m. above sea level), relief, and rainfall, conditions in this area are ideal for cereals. The lower valleys are suitable for other crops including coffee, qat, vegetables, and alfalfa. Soils are generally good, although some drainage problems occur in the lower valleys. Only one highway crosses the area, and there are practically no secondary feeder roads. Electricity and domestic water supplv are limited to Ibb and a few other villages. Data on current yields are not available. Nevertheless, recent UNDP/FAO findings and results from fertilizer apnlica- tions indicate a significant potential for yield improvement. On the terraced lands of high elevation (which occupy a large part of the area) better seeds and more fertilizer are required, while in the valleys small- scale irrigation systems combined with flood control measures are needpd. In some instances, drainage facilities would have a considerable effect on increasing crop production. In the Ibb valley, the irrigation nptpntial seems limited, but the possibilities of improving existing primitive irriga- tion schemes and constructing new ones are Dromising; enperiallv 4 n the valleys of Wadi Dhissufal, Wadi Nachlin, and Wadi Siani. The livestock population is diversified. consistine of ram_l_ donkeys cattle goats and poultry. Endemic diseases are a major problem. The short-term livestock potential is limited. Farmers' attitudes toward the modernization of agriculture is reported to be very encouraging. 75. As in the case of the Midlands, an intergrated rural development project is suggested for the Highlnds encmpasing about 200,000 ha. under cultivation, 90 percent rainfed and 10 percent irrigated. The project would: (a) increase cereals production, primarily sorghum, maize and wheat: inrreace the production of other food crops (such as fruits and vegetables) and of coffee (as a basic cash crop) by increasing crop yields in ra4 nfed and irrigated fields; (b) establish extension farm service centers for providir.g primarily extension services to the farmers, and basic produ,tion innuts: seeds, fertilizers, pesticides and herbicides, and credit. Office space and inputs storage would be provided 4inm Ment ost of the (C) rreate mobile units for designing smuall-scale irrigation works, and advising farms on them; small river diversion and hand-dug wells for groun.dwater development would also be provided; (d) construct feeder roads of minimum standards to make isolated production areas more accessible; AXThXtVV T r.ii .AII . Page 22 (e) construct low cost water supply systems at the village _level;1 (f) estabLll a rLesearch fLLi near ILUD for crop yield arnd variety improvement, primarily for cereals; (g) provide managerial requirements and training of national counterparts, and assist in building farmers' assocations; and (h) prepare a second-phase development project to improve agricultural productivity and welfare (e.g. health and education) as well as develop handicraft and other rural economic activities. In preparation for the second-phase investment, the livestock component should be given more emphasis than in the tirst phase. 76. Preparation of the first-phase rural development subproject could take six to nine months, at an estimated cost of $80,000. Investiaent costs of the first-phase project might range from $5-6 million, and could be implemented in four to five years. The government also shares the view that this project should receive high priority. 77. Since the two subprojects are similar in nature and location, they could be treated as one integrated rural development project for the Hfighlands and llidlands. Project preparation costs could then be $100-200,000 and preparation could take six to nine months. During project preparation, attention must be given to identifying overall manpower requirements and planning and proposing the necessary steps to solve local staffing problems. The means of utilizing existing rural institutions (such as rural develop- ment boards), the influence of large sheiks, and the means for handling inputs, credits and other aspects of the project must be thoroughly studied. The first-phase total investment cost for Midlands and Highlands could be about $8-10 million. While the proposed project appears technically feasible and economically sound, the economic viability of the project and quantifi- cation of the project's impact cannot be analyzed until the project is actually prepared. Pre-Investment Studies and Resource Surveys 78. As indicated above, Yemen's development is severely constrained by a lack of information about the country's resource basis. A great amount of data collection and other Dre-investment studv are required to enlarge Yemen's currently very limited absorptive capacity. The following para- granhs suggest ome priorities for nre-investment studies and resource surveys in various regions. The priorities chosen are unavoidably arbitrary, but represent the mission's estimntes of thp import2nre of each recnmmended study as a pre-requisite to future investment planning. ANNEX I Page 23 79. First priority ought to be given to studies of the Sanata-Sa'dah and Ma'bar regions of the Intermontane Plains. These Plains comprise the flat areas around Sana'a, Ma'bar, Dhamar, Yerim and Qitab, and a series of flat depressions between Sana'a and Sa'dah. Altogether, they encompass at LeasL 60-80,000 ha. of cultivable land. Because of high elevation and generally poor soil conditions, agricultural production is at a low sub- sistence level, except where groundwater has been developed. The major constraint appears to be lack of water (rainfall, surface runoff, and groundwater). Specifically, the first priority regions are: (a) Sana'a-Sa'dah (series of depressions of unknown size). Judging from the results achieved at Umram, north of Sana'a, it appears that a reconnaissance survey of a pre-investment type should be made of soils and groundwater resources in the flat depressions north of Umram and in the wadi valleys. Main requirements would be for irrigation development and rural water supply. The Sana'a-Sa'dah highway, now being constructed, should become the spearhead for agricultural development of the entire area. The most suitable crops for this area would probably be alfalfa, barley, wheat, sorghum and vegetables. (b) Ma'bar (about 20,000 ha.). At an altitude of 2,500 m. above sea level, with low rainfall and marginal heavy soils, Ma'bar is dependent for further agricultural development on groundwater availability; the plain is a close catchment without wadi or stream. There is some small-scale irrigation (garden size) from boreholes and hand-dug wells. The main irrigated crops are alfalfa, maize, wheat, barley, potatoes, onions, apricots and peaches. The population is low. Live- stock population is limited by lack of grazing area. Judging from existing irrigated agriculture, the entire plain is worthwhile for a feasibility study for agricultural develop- ment, including livestock. The main resources to be inves- tigated are soils and groundwater. 80. Second priority is warranted for the Sana'a and Yerim regions of the Intermontane Plains and for the Tihama Plain, as described below: (a) Sana'a (unknown size). Some groundwater investigations have been carried out on Sana'a water supply needs and some experimental farms have been set up with external assistance. Because of the growing population of Sana'a and surrounding villages, a groundwater and soil pre-investment study of the whole plain may be warranted. Priority in groundwater use should be given to domestic and industrial supply; followed by vegetable garden irrigation. Agricultural development, either rainfed or irrigation! cannot be expected on a large scale. ANNEX I Page 24 (b) Yerim (5,000 ha.). With an annual rainfall of 450 mm., concentrated in June-July, and poor distribution the rest of the year, present rainfed agriculture is low subsistence. There are soil fertility and drainage problems: 20-25 percent of the land has low permeability, and every year 24-25 percent of cultivable land is left fallow because of low soil fertility., Barley and wheat are the main crops. To increase iand productivity, soil fertility should be restored with chemical fertilizers, but fertilizer application is dependent on water availability. Lack of irrigation water is therefore the main constraint. The only hope lies in groundwater development. However, prospects for finding groundwater in large quantities seem remote. A pre-investment survey of soils (including land classification) and groundwater is warranted, but prospects for irrigation development on a sizable scale appear dim. (c) The Tihama Plain (up to 200,000 ha.). This is the largest area where large-scale irrigation may be developed. Even if Wadi Zabid, Wadi Sordud and Gumcisha had been studied and developed to some extent, and given that Wadi Mawr ground- water and irrigation possibilities are currently being studied, there would still be the need for a large-scale groundwater and soils resources survey of the whole Tihama, or at least an assessment of the potential. The government itself considers the Tihama Plain development as falling in the first priority category. 81. Third priority is warranted for studies of the Dhamar and Qitab regions of the Intermontane Plains, and for the Wadi Warassan Basin and Rahida Plain of the Midlands area: (a) Dhamar (1-2,000 ha.). Some 20 hand-dug wells are being used for irrigation. Results so far are not encouraging for various reasons. The plain is a closed catchment with- out natural drainage, in a lava area; soils are heavy and alkaline with low depth. Drainage conditions are poor, and there is no aquifer to speak of, only limited accumula- tion and underground flow in cracks and fissures. The main crop is alfalfa and yields are very low due to poor soil and water quality. The Dhamar Plain may be further inves- tigated for agricultural development, but only as a last resort in the entire Intermontane Plains complex. (b) Qitab (3,000 ha.). This is another closed catchment area with erratic rainfall of about 500 mm ner annum with soils having low permeability or high calcium carbonate content. However, a series of sprinas and artificial nonds- and a few hand-dug wells may indicate some groundwater potential. The main crops grownk' are e…barley-, . alfalfa, notatoes sorghum ANNEX I Page 25 and wheat. Yields are on the low side. If groundwater can be found and developed, prospects for oilseeds and fruit trees may improve farming and living conditions of the rural population. A pre-investment study of the area is recom- mended primarily for soil and groundwater resources. (c) Wadi Warassan Basin and Rahida Plain (unknown size). The Wadi Warassan Basin. southeast of Taiz, may deserve a pre- investment survey because of its surface water resources. There appears to be a permanent flow in the wadi and remnants of an old irrigation scheme merit investigation. If further UNDP/FAO findings in the Rahida Plain are more encouraging than those obtained so far on the 10-ha irriga- tion nilt farm- an integrated rurnl development nrnip't could be conceived later on. Data on population, soils, water resources, farming and existing nrndctrtinn are not yet available. Judging from the resources availability and rnmnared tn nth-r ai-reac in the Midlands or Highlands, this area does not deserve high priority. Other Surveys and Data Collection Deserving Immediate Priority 82. Basic Maps. A set of basic maps should be prepared using modern techniques of aerial sur,eys, pho---i.ep tion and - As a minimum and to start with, particular areas of the country should be covered.LA irL,. VLU=L LI. Lrer.LLy * LpriAit: .LbhlU aLnU MiLU.LCL0, Lhama, IneLrmontar.e Plains and Western Slopes. Basic 1:50,000 topographic maps shoudl be providedU, includUing photo-interpLeion on land use, popu.lat.i census and other resources. The recently-completed aerial survey (financed by t 'UT.IK.) LSOuld fatcHLLate C0mpLtetiUn of this takS iL t1hte nteaar fLLuture. 83. nydro-MIeteorologicaL uaLa. SOUue Uaea coIlecLion 'ias DeeU IUupLe- mented in certain areas -- Wadi Zabid and Wadi Mawr. Yet processing and publication of data need to be started at government level, either within the CPO or the Ministry of Agriculture. Furthermore, new feasibility studies or resources surveys will' have to collect, process and supply a central government agency with data and other information. 84. A Population Census, Land Tenure Inventory and Land Registration neea to be carried out. 85. Fisheries. A reconnaissance survey of the country's territoriai waters, including an assessment of internal needs for demersal fish and foreign demand for crustacea, should be carried out as soon as possible. A \ThTPY TTA wn InAri Pr A 1.llJrI A J A rs LI'^.lG-- 1. As of early 1973, Yemen's development effort had not yet been coor- UinatedLevelop.UVkH1=L.L in&A a progLramLi. lh.Lb Was UUteL part-l ete ±lca' situa= tion, partly co the scarcity of trained personnel, and partly to the lack of domestic fnrancial resources. Consequently, tihe pattern of investment, train- ing, and even research has been determined largely by the donors of foreign aid acting individually and with little coordination. A major step to remedy this situation is the preparation by the Central Planning Organization of an economic and social plan to be completed in the spring of 1973. It is antic- ipated that this development program will give a new sense of purpose and direction to Yemen's development efforts and identify priority areas both for the improvement of economic management and performance and for the effi- cient use of foreign capital aid and technical assistance. 2. As a consequence of the long civil war and the diffusion of polit- ical power which led to frequent cabinet changes, Yemen's economic management in the past has been characterized by a short-term perspective and an ad hoc approach. Only a very limited number of Yemenis have had the training needed to appreciate the costs, requirements and implications of long-term develop- ment. The scarcity of skilled people at every level and the nearly complete lack of basic data and statistics has also made it difficult to prepare a strategy for development. In retrospect, however, the early priority given to transport development (beginning even before the Revolution) may be seen as appropriately reflecting the country's long-run need both for national unity and for basic economic infrastructure. 3. To meet Yemen's need for expertise in the planning field, the gov- ernment requested assistance in late 1970 from the Kuwait Fund and the World Bank. With the help of an advisory team which was sent in response, the CPO was organized in January 1972 and attached to the Office of the Prime Minister, with the Minister of State for Development as its executive head. During its short existence, the CPO has become the government's central point for con- sideration of economic and social policy, and its focal point for the conduct of relations with multilateral and bilateral foreign aid donors. The CPO has also been charged with the preparation of the first comprehensive development program for the country. 4. In May 1973, the CPO is expected to present its recommended medium- term development strategy and investment program to the Council of Ministers, after which an official program will be adopted. It is not Dossible at this time to forecast the specific objectives and requirements which the program will contain. but it iS exDected that the emnha1si will be on overcomin2 the basic constraints referred to in paragraphs 27 through 33 of the main text. 5. It may be expected that Yemen's forthcoming development program will provide a framework and focus for the use of hoth dnmentic and foreign aid resources. In principle, this should in itself answer the increasingly Dressing need for anvernmep-nt ronrdinAtinn of the diversa fo-regon aidl nrograTnmQ There will also be a continuing need for coordination both of projects and of the varintis terhnic-al programs.nisannce It is expected that the GPO will continue to be responsible both for recruiting aid from abroad and for ANNEX II Page 2 channelling its use in a coordinated manner. The problem of aid coordination is made more difficult by the diversity of Yemen's aid sources. However, there is a need for a strengthened mechanism to improve the flow of informa- tion among aid donors about their on-going and prospective aid programs, and a need for better integration at the technical level of project aid. ANNEX III : AID PROGRAMS OF MAJOR DONORS Of the on-going aid programs, that of the Federal Republic of Germany is currently the largest, with commitments totalling DM 180 million since 1969. The German program inc',udes road paving, airport construction, fertilizer distribution, and agricultural experim-entation; small number of technical advisors are also being provided in other fields. British and American aid will soon become more signifficanft though largely of a technical assistance nature. In 1973, the United Kingdom will finance an aerial survey and mapping, and a hydrologiral and soils study of the Inter Montane Plains; British technical assistance will be offered in education, veterinary medicine and health. The U.S. plans to rehabilitate the Taiz water supply sy-tem an.d to study the agricultural potential of the area north of Sana'a. The aid role of the Soviet Union has bee. Cut back in recent years, but Miainland China extended a $24 million credit in July 1972 and the Chinese aie presently constructing the Sana'-Saaadah road. In late 1972, a $19 million gr was made by the Union of Arab Emirates, partly to cover the recurrent cost of the sDA education prmaejt proee paraf.i5 andoveb. The onoirs. summary of the major projects financed by bilateral donors. YEMEN ARAB REPUBLIC Major Investment Projects 1956-1973 (Partial list onlvy Soure.t Year Annrd mate Amonit ir-7o se TTSSR 1956 13.50 mnllion uiihlP. Honeid2 port 1957 - o.i4 million grain storage 1958 L ( . I'-I ,minl lion petrol talnks 1961 0.50 million roubles 1964 65.0 million roubles Wadi Sordud agriculture cement f actor fisheries Taiz=Hodeida -ad commodities Peoples' Repub- lic, of^-r Mn;" -IR1 70. f .-.1lion Svlvss .francs H-ode idana'3 road textile factory 196L4. ~ JD. 'J I.L.LnLUII dit-es, vocationail training school, equiDment 1964 -L.15III,Illon -isf-c anala-DacaUeU roadU 1972 50.0 million Yuan (to be determined) Egypt 1963 L 1.0 million commodities .L~7vU) fl *iu IIl.1.l.lI 1964 1 3.0 million 1967 L 4h.- million currency backing l slgVi i a 196 .'J mIwo eecbr IL; u gulurduUrbU German Democrati c Repukblic 1964 $ 5.0 million Gumaisha farm 1967 a 2.7 million telecommunications Rumania 1968 $ O.26 million (suppliers salt production credit) Algeria i968 $ 4.0 million oil imports, commodities 1972 L 0.2 million teacher training, schools -2- Italy 1968 $ 1.85 million (suppliers tobacco and match factory credit) Kuwait F nd 1968 0.32 million K. Dinars Wadi Zabid aericulture 1970 0.70 million K. Dinars ) Salif salt project 1Q72 nlpus 1.20 million K. Dinars ) 1972 0.28 million K. Dinars highway project Kuwait 1970 1.8 million subscription to IBRD/IDA/IFC Federal Repub- I _1 4' t'i--, 10oAo ninnfn million imnorts 1970 DM15.0 million Sana'a airport 1071 DVM5,0 million t t 1971 DM68.0 million Sana'a-Taiz road Iraq 1971 1 3.5 million commodities, cash IBRD/IDA 1972 $ 7.7 million highways Saudi Arabia of Jeddah 1971 50.0 million Rials budget support 1972 nspecif4-ied tchr,scchools, roads, public administration United States 1962 approx $20.7 million Sana'a-Taiz road Ly962 ap-prVox '4.97 mILLUIL LTizJ -ater QAJJ-Jly 1973 approx. $ 3.0 million Taiz, Sana'a water supply, tec.hn-ical assistance Libya 1969 $ 2.8 million p-rips, teachers eqaipmaent United Kingdom 1973 approx. 0.3 million techniCal assistance Abu Dhabi 1972 $ 4.0 million television United Arab Emirates 1972 $19.0 million education, roads, etc. In addition, several schools and hospitals have been constructed and/or staffed with the assistance of the USSR, Peoples' Republic of China, Kuwait, Egypt, Iraq, Sweden, and others. Source: Central Planning Organization. STATISTICAL APPENDIX Table of Contents 1. Population and Emplovment 1.1 Population Data 2. National Accounts none ava-lble 3. Balance of Payments 3.1 Balance of Payments Estimates A 2 Rcorded TymArt- hv Princ-ipal G.nmord,ty 3.3 Recorded Private Imports by Major Commodity 3A (Geographic-al Distribution of Recorded Trade 3.5 Foreign Assets of the Banking System 4. Extr±.n~l Debt 4.1 External Public Debt as of June 30, 1972 5. Government Accounts 5.1 Government Revenues 5.2 Government Current Expenditure 5.3 Consolidated Statement of National Government Accounts 6. ,Money and Banking 6.1 Monetary Survey 6.2 Changes in Monetary Variables 6.3 Balance Sheet of Commercial Bank of Yemen 6.h Consolidated Balance Sheet of Commercial Banks 6.5 Interest Rate Structure 7. Agriculture 7.1 Area and Production of Major Agricultural Crops 7.2 Cereal Crop Yields, by Region 7.3 Production of Cotton and Cottonseed 7.4 Recorded Private Agricultured Imports and 1cports 8. Other Sectors 8R1 Tndustrial Employmnent 2nd Ofnutpnt- 1971 8.2 Volume of Output of Main Industries 9. Prices and Wages 9.1 Retail Prices of Basic Foodstuffs in Sana'a 9.2 Free Market Exchange Rate of Yemeni Rial, 1965-72 I / TABLE 1 .1 - POPULATION DATA-' Ponulation Estimate (milu ons) 5-85 (1971 ) 5.13 (1965) Population Growth Rate (est.) 2.2% Population Density (est.) 30 per sq. km. (inarable aeaN f48'4 per sq. h-u.) Population Distribution (1970) APp'D_ JjJul.Lati U.L or, IA .LLin TotaMLUd. Main Towns Population % of National ______00__ )___ (! Population Sana'a 120 1910 34 nHUdlua YU 764 13 Taiz 80 668 12 30 o59 15 HaJja 40 573 10 Saadah 30 477 8 Radaa 30 286 5 Bida 25 191 3 1/ No population census has ever been carried out in Yemen. The above estimates are based upon local authorities' tax collection records, which are not considered to be reliable or complete Source: Central Planning Organization Table 3.1: BALANCE OF PAYMENTS ESTIMATES (in millions of U.S. dollars) Jan.-June . z A4lz 4 n~7 4 (r'14 A ^I Trade Balance -37.7 -57.7 -82.6 -657 4 Exportsl/ 7.9 5.8 6-4 3-5 Imports&i -44.8 -65.6 -88.4 -72.1 -47.9 (Aid-financed) (--) (--) (-13.3) (-8.1) Invisibles and transfers 47.2 47.2 62.7 52.7 48.7 Net invisible receipts and remittances by Yemenis working abroadŽ' 30.0 42.0 45.0 47.0 36.1 Services to UAR troops4/ 15.7 - - - - Official and private cash and commodity grants 1.5 5.2 17.7 5.7 12.6 Current Balance 9.5 -10.5 -19.9 -130 _O4-3 Nonmonetary capital -10.3 10.5 29.9 29.S 8.5 Official project loans, net 9.4 13.1 17.9 8.6 7.3 Other official loans, net - - 8.2 12.6 -4.0 Balances with Central Bank of Egwpt -15.7 - 0.6 - 4.0 Errors and omisisions (including private capital -4.0 -2.6 3.2 7.2 4.2 SDR allocations - - - 1.1 1.1 Monetarv movements (-increase in assets) 0.8 - -10.0 -1-13.0 Central Monetary Authoritv( - 7-- Gold, silver and convertible fcwrAign ei-hqanoe ( n.8) ( - ) ( -6-2) (-1i o) (-7.6) SDR holdings ( - ) ( - ) ( - ) ( -1-1) (-1.1) Gommerr-i al bankR . - -3 8_25 -5.2 1/ Roc-k salt and rotton axports from riustrni data; qat estimates frnm imnort records of Peoples Democratic Republic of Yemen; for other exports, customs figures have bsen nateId by one-.third to allow for umnreon-rded (mainly sm.nugglad) exports- 2/ Based on letters of credit data fer private sector_ adiusted for estimated lgs and inflated by 33% of customs-reported imports to allow for smuggling. The source for niuhlin qre+.ntr imnnrt+.s was fe rein aeidd_qshbursman+.ts- pnmmMitw grant..s wpre Asirs inflated by 33% to allow for underestimation of actual transactions. the 3/ Banking system receipts adjusted upwards to/extent that estimated imports were financed hy unrecrded sources. /. .54nqn. d bJr ' . AJ^A,1rJ aga4 4"%t a of c"als on the.f. rentral'r Bark - Sco-nrce Cent4r'al, M-1, _k Vof --- --vA TuI esti...tes. Table 3.2: RECORDED EXPORTS BY PRINCIPAL COMIMODITYI/ (in millions of Yemeni rials) January -June 196h 1966 1969 1970 1971 '7 172 _ r_ Coffee 8.5 3.5 7.8 8.1 4.6 2.7 3.7 Qat 4.3 3.3 2.1 4.3 2.8 1.3 0.9 Cotton - 0.5 O.' - 8.0 - 1.9 Hides and skins 1.6 2.4 4.0 1.2 2.0 1.0 2.3 Rock salt - 2.0 1.4 1.5 2.4 1.6 o.6 Others 5.3 3.3 2.3 0.7 1.8 o.6 0.9 TOTAL 19.7 15.0 18.0 15.8 21.6 7.2 10.3 1/ Based on customs data, which are incomplete; see also note 3. to Table 3.1. Owing to major deficiencies in these data, considerable caution should attend their use. Source: Central Bank of Yemen. Table 3.3: REcoRDED FRIVATE IMPORTS. BY MAJOR COMMODITY1/ (In millions of Yemeni rials) Januaxsr-Jiuie 1970 1971 197T 1972 Foodstuffs2/ 116.4 81.7 38.8 56.0 Manufactured consumer goods3/ 32.6 147.0 2X.2 28.1L Raw materials and fuel 7.3 17.1 6.5 8.14 Chemicals 5. 9.4 h.5 5.3 Machinery and eauipment 8.6 14.1 10.3 7.1 Transport equipment 8.1 15.4 7.0 5=7 Total 178.4 184.8 91.3 110.9 1/ Based on customs data hic -i pI T e at the private sector, as records of imports on government accoant are not maiitaLned. See also note 'I to Table 3I %rNw-ngto major defiucinicies in these data, considerable caution should attend their use. 2/ Includes food and live animals, beverages and tobacco. 3/ Includes manufactured goods classified by material, miscellaneous manufactured goods, a-nd goods and turansactions nout classiLied according to kind. S e 9,.4Central BarL.k oP emen. Table 3.4: GEOGRAPHICAL DISTRIBUTION OF RECORDED TRADE (In thousarxis of rials) 1/ Trade Balance ExDorts Imports- Deficit (e) 1970 1971 1970 1971 1970 1971 Arah Gnonntries 8,199 7,514 50,942 61,013 -42,743 - 3,g99 African comntries 88 279 h4952 8,679 -h.86hA -8.100 Asian coiin+ries 2jo68 2;4hl 19.hh9 37.070 -17?;81 -3L507 Aoc1 ; +. e-t-nint.ri, 5,O 9.886 30o.670 19.798 -25.667 -9.912 mELorpan courntries 401 1 A29 4 8j971 h3;931 -hP_L70 -J,2i62 Americas - 19 1,304 465 -1,304 -446 Australia - - 22,161 13,883 -22,161 -13,883 Total 15,759 21,571 178,449 184,840 -462,690 -163,269 1/ Private sector imports only; see also note L/ to Table 3.3 Source: Central Bank of Yemen. TABLE 3.5 : FOREaGN ASSETS OF THE BANKING S-YSTEL (in thousanis of U.S. dollars) June ena of period 1968 1969 1970 1971 1971 1972_ Currency Board/Central Bank 75,328 74,736 80,281 95,345 79,987 100,351 Gold ianC silver 173 180 180 50 50 5( Balances with Central Bank of Egypt 73,456 73,456 72,833 72,833 72,833 68,826 No. 1 account (20,453) (20,453) (20,453) (20,453) (20,453) (20,802) No. 2 account (50,288) (50,288) (49,665) (49,665) (49,665) (45,012) Joint account (2,715) (2,715) (2,715) (2,715) (,715) (3,012) Other convertible foreign exchange 1,699 1,100 7,268 22,462 7,104 31,167 DO}' reserve position - -- (1,500) (1,500) (1,500) (1,500) SDR holdinps ------(1.070) (1.070) (2.132) Other foreign exchange (1,699) (1,100) (5,768) (19,892) (4,534) (27,535) Comnmercial banks (net) -5,145 -4,587 -727 1,824 6, 6 6,983 Total net 70;18 70,149 79,554 97,169 86,413 107,334 CLanges: Currenrv Boaaro/Central RB,nk 8 609 -592 5_54Lk I5j6), -29), 5.oo6 Cionimercial banks -2 687 558 3 86o 2 551 ?715w 5.159 Tot,ql rhpnges __7__-7W- T#1T-"'I 6. 1 6 :)ciurce: Rased on a nyvU1rori hv +the (C1n.in1rpl Rnr& of Yemen Table 4.1 EXTE~IRALDEBrT POSITION. mrE 5o, (in millions o0 US 6) I GOEFMON~T WOASS Lender ~~~~~~AmountInterest 'Lsburse,d Rnpayment Dlue but UYnpaid Beginning oT End o,f Repayment P,'.rpoe ,oanos Due in 1972 Contracted WX) Principad Interest Prn pL interest keoaYMr. Friflcipal interest auiArabia 7.205.7.0 -.- .55 9/ 1/197r2 9/1 1/ 1975 Financ,ing budget deficit 1.30 .I4 S.u.ii Arabia 12.06 6.C 12.06 - q / 5/lr71. 9/ S/ 1976 Financing budget deficit -- 1rac , ~~~~~9.12 nil. 1.23 - --- li/ 1/197r,6 undetermined Import of consu.mer goods -- Egypt U1.21 nil 11.21 4. 38 -- 6/30/1963 6/30,,/ 1973 Import of con5'"r goods 2-0 Egyp 9.10 nil 9.10 - *.- 2/30/1972 12/30O/ 1976 Cover f'or currency issue 1.i2 YugoslavIa ~~~ ~ ~~~~3.0 ~~~.34 ~ ~~.34.34 .05 - 9/26/1961. 6/22/1 1972 Sn lcrct Wesat lermany 3.10 253.1o .10 -. 01. 6/30/1968 12/1/51 1999 Import of consum~er goods -. 01 dIect Germany 1.60 2.5 1.52 -. 1 -. 01 12/31/l979 6/30O/ 2001 S~an electricity - 02i.r ,iemt lermany 21.31 1061 -. 1 .05 12/31/1983 12/31l/ 2011 Road constructiLon- Weat Germany 4.70 1.5 1.50 -. 2 - .01 12/31/1978 12/31/l 2000 Airport constrowtion -0- East. Germany 5.00 2.5 2.91. - ... 62 .25 I/ 1/ivo undetermined Investment .24 8/ East Germany 2.70 1.5 2.70 .19 .04 .16 .03 l/ 1/1968 4/ 2/ 1981 Telephc.ne syste-m .36 :03Y Kuwait .99 0.5 .47 -. - 6/30/19739 6/30O/ 2015 Zubeld Valley :project -- Euvalit 2.13, 2.0 '20 -* 7/ 1/19r72 I/ / i/ 199 e1ilhEl.-Saleef project - - Erva"i t 1.60 6.o i.6o .-. i 9 2/ 1/l973 2/ I/ 19r73 Budgetary suppart 1.60 .10 KAroai t .86 0.5 - .-- 7/ 1/1192 7/ l/ 202.1 Road construction - :nternati-al. De~el1opent 7.70 0.75 - - - 7/15/1982 1/1.5/ 2022 Road constructi-, -- Asstcia-ior. 2555 i6.5o nil 16.50-so56 - 16199Investment 1.13 - UiSfS 1.60 1.0 1.6o . .54 .05 1966I 1977 Investmient .08 .01 U S5R 78.41 nil 45.08 - .- - . .Investment M ina 18.25 nil 18.25 ...... Investsent ChIna 26.oo nil 5.30 .... I./ 0/175 12/351/ 1984 Investment-- Algeria 4.00 nil 4.00 - .- .oundetermined undetermined Imjport of consumer goods - Sul Total 245.48 152. 01 19 .23 7.00 1.18 9.03 5 6 11 OUARANlTEEDSUPP'LIER CREDITS Rur..ar.la .26 5.0 .26 .10 .02 - - 2/ 1/lsflt .9/ 1/ 1971 Machinery and equipsent .06 .01 for the salt factory Italy 1.80 1.5 1.30. . .. 2/15/19~70 12/51/ 19T1 Machinetry and equipmeant .26 .03 for the cigarette factory Suat Total 2.06 2.06 .10 .02 - - .204 G-raxnd Total 247.54 154.07 2.0 .25 7.00 1. 1A -560 . c'sz: xt-rnaL far E~par:nent. Central BankX f Y~ener I Tabl"e f.1wVnrl?fl, nrtr'tfNubr (in thousands of Yemeni rial s) Fiscal year ended June 30 196 7/60 1 068/( 1J969/70 1970/71 1971/72 Tax revenues. 24,572 37,88 56,295 '73,1 122,8'i 8 Taxes on income and profits 788 .i3 130 34 .02 Tax on salary income 171,205 1,793 2,o3L4 Tax on monopoly profits 741 1,071 2,903 ?L 1,421 TFaxes on property 127 24 127 153 154 Real est6te 127 :7 127 7-3 m Taxes on production, consumption and domestic transactions 1,798 3,523 6 204 10 159 15,h99 Motor fuel excises 900 2,730( 8 12,882 Motor vehicle excises 898 793 1,580 2,042 2,617 Taxes on international trade 16,887 25 596 3T? 349 52 It., 806340 Customs duties 11,2126 17, ,027 35,308 57 Defense tax 4,020 5,409 9,145 11,812 16,838 Statistical tax 1,653 2,334 4,177 5,544 7,787 Religious tax (Zakat) 4,279 6,004 5,136 7,185 10,756 On agricultural output 2,990 4,7390 3,189 4,654 6,677 On livestock output 265 354 436 643 816 On wealth 272 226 335 326 1,032 Poll tax 752 1,034 1,177 1,562 2,229 OtherI:' 695 1,705 2.27L ',383 12,o87.8 Nontax revenues 5,392 13,951 16,392 23, 84 5 28,3d3 Departmental revenuLes 4,532 10,553 12,86.7 20,5714 22,3014 Proprietary receipts 860 3,398 3X525 3,271 6,079 O.f which: transfers from profits of public and mixed enterprises (-_) (2.714) (2.533) (1.748) (--? TOTAL REVNIJES 29,964 51,939 72,687 97,464 151,274 1/ Includes also unsegregated receipts from other excises. 2/ Includes about YR 8 million tax arrears collected during the year. Source: Ministry of Treasury. TABLE 5.2 - GOVERNMENT CURRENT EXPENDITURES (in thousands of Yemeni rials) Fiscal year ended June 30 1967/68 1968/69 1969/70 1970/71 1971/72-_ By type of expenditure Salaries and other remuneration 37,233 48,984 59,705 73,956 106,462 Material, supplies and capital 12,614 18,825 49,313 67;909 87,486 Extrabudgetary and 2/ unallocable items- 21,324 53,936 20,023 28;807 39,855 Total 71.171 121.74L 129.0h1 170-672 233RA0 Rvr +hnctnor Defense 34,690 43,697 69,702 78,793 86,608 Seril-rit- 3,53 8 6114 10 ,22 18 18jO r'r Health 2,466 3,805 4,779 4,478 7,244 Education 1,785 1,685 5,032 10,046 10,700 Public Works 2,698 4,139 3,611 2,055 3,788 Tranp ortation a.d communication 1,797 2,784 1,646 1,560 3,793 OthUAer goverJ. zenUtU; I str .Les and departments3 - - 14,419 31,570 60,577 ubscr.iptioris to internationalU organizations4/ 10,432 6,779 9,995 1,401 DensiJons, cor.tIribut-ionas, -food - _. . . UL.LIAULJLO LJ grants and other transfers 656 684 1,178 1,189 2,682 OtherU eJ..Ji.ULL-Les inclLuy i1g extrabudgetary outlays)/ 13,116 49,558 8,454 25,729 39,852 Total 71,171 121 745 129 041 170 672 233,803 1/ Provisional V/ Includes discrepancies between monetary and budget data which are believed to arise from unrecorded expenditures, mainly payments to tribes and special defense outlays. 3/ Prior to 1969/70, included under other expenditures (including extrabud- getary outlays). 4/ Prior to 1970/71, includes some other expenditures abroad. 5/ Includes payments to the tribes, unsegregated relief payments and other outlays related to the civil war. Prior to 1969/70, also included expen- ditures of other government ministries and departments. Source: MinIstry of Treasury Table 5.3 CONSOLIDATED STATEMENT OF NATIONAL GOVERNMENT ACCOUNTS (in thousands of Yeneni riajs) Fiscal year 'ended June 30 1967/68 1966/69 1969/70 1970/71 1971/72- Revenues 29,964 51,939 72,687 97,464 151,274 -Taxrevenue 24,*72 37,988 56,295 73,619 122,891 Nontax revenue 5.392 13.951 16,392 23,845 28,383 Current expenditures 71-171 121j 745c 129-n4l 170n672 233. 083 Defense and security 38,221 52,311 79,927 92,644 105,167 Hea'LtIh andU educat ion L4,251 r,L47 7,I1 1 4, -.L4 17 944 Other2/ 28,699 63,944 39,303 63,504 110,692 Deficit on current account 41,207 69,80 56,35 73,208 82,529 Development expenditures3/ 17,559 22,901 80,526 83,185 55,778 Overall deficit 58.766 92 707 136.880 1q6.396 138,307 I,~~~~~~~~~~~~~~~~~ .. External financing_/ 5 44,789 22,90i 9Z,l05 -I ,-I-I 170,567 Commodity and project loans-/ 17,559 22,901 80,526 83,188 55,778 Cash loans -- -- 11,579 36,000 59,369 Cash grants 27,23O2/ ------55,42QZ./ DomR.stirc fininr.inp 13.977 69.8oA WLu775 37.208 -32.260 Central Bank of Yemenr- 8,923 58,645 33,651 32,660 -32,260 yoDcn 5,5 1,6 11,1°4, 4,548== 1/ ro--r s-onal 7/ Including expenditures by other government ministries and departments as well aD etrL'LaUUUgtUL1-y tApnLU1JILUtLLei. 3/ The rial equivalent of project and commodity loans utilized. 4/ Does not include grants of relief food shipments. _/ Valuation of bilateral projects and commodity loans based on average market rate during each fiscai year. 6/ Mostly budget support from Egypt. 7/ Mainly from Saudi Arabia and Abu Dhabi. F/ Prior to 1971/72 was the Yemen Currency Board. Sources: Data sapplied by the Ministry of Treasury, the Central Bank of Yemen, and IflDW. TABLE 6.1 : MONETARY SURVEY (in thousands of Yemeni rials) June end of period 1968 1969 1970 1971 1971 1972 Foreign assets (net)l/ 87,626 87;70 10o4;38 485,845 L12.o6h qi6A71 Domestic credit 76.16h 137;549 18o-676 180,086 i96§319 216Q21 Claims on Government (net) (6n-onol (118-107) (151,329) (U O,074) (141,1192) (10R,932) Claims on private RAfltOr (16,164) (19,242) (29,347) (70,012) (55,127) (107,989) Assets Iiat=T3 lities 163,790 005,K 110 o28570i(Y1. A 0- I' 753v F02 Monyr 140,042 190,-26 229,952 2910935 269,129 37-3777 Currency outside banks (131J244) (178,123) (208,526) (247,719) (230,479) (3132564) Demald der-asits fA IG7°8) (2t 0)%-. I(2l26 (44,216M.)-A (38,650A) t An 13- I >As4=mor.e;~~~~~~ ~~~~~~~~~~~~~~IvG P,246L,90 3 ,9v 36l2,?V,L 44.,762u AJ-JS - 5,3)49 40 -- a ' loc 549 3 'L 1 Forelgn assets 'valued at the official rate of Y[. a W$0.80 Vp to December 1970. Beginniing -with June 1971, foreign assets are valued at the provisional rate of x±ui 1= US$0.20. Data beginning with June 1971 are therefore not comparable with data for jre'V.LousL 'udboe. 2/ Mhe valuation dnlferenaial is kept in a biocKed account with tne Central bank of Yemen. Source: Based on data from the Central Bank of Yemen and from the Yemen Bank for Reconstruction and Development. TABLE 6.2: CHANGES IN MONETARY VARIABLES (in thousands of Yemeni rials) June end of period 196o 1969 1970 1971 1971 1972 Total money and qitasi-money 144,105 195,672 237,853 323,888 305,249 418,539 Changes in money supply 58.517 50.384 39,526 61 3 177 81,842 Currency outside banks 54,17(4 40,06 30,403 39,i853 21,953 65,o45 Demand deposits 4,343 3,505 9,123 22,790 17,224 15,997 Ch_es in quasi-money -1,362 1,183 2,655 24,052 28,219 12,809 Total changes 57,155 51j567 42 181 86,035 67,396 94,651 Factors affectingc!4wes 57,155 51,567 42,181 86,035 67,396 94,651 Net foreign assets 1/ 7,917 -56 16,768 88,075 34,075 50,083 Net claims on Government 53,754 58,307 39,322 32,778 -1,660 -1,142 Claims on private sector 1,377 3,078 10,105 33,334 18,470 37,977 Allocation of SDRs (increase -) ------5,349 -5,349 -6,214 Other items, net (increase -) -5,893 -9,762 -24,014 2,753 13,440 13,946 (In per cent) Money supply 74.4 36.0 20.8 26.9 17.0 28.0 Money and quasi-money 68.0 36.1 21.9 32.2 29.0 29.2 Claims on private sector 9.3 19.0 52.5 115.0 45.0 54.2 1/ Foreign assets valued at the official rate of YR1 1 = US$0.80 up to December 1970. Beginning with June 1971, foreign assets are valued at the provisional rate of YR1 1 = U-S$0,20 Data beginning with June 1971 are therefore not comparable with data for previous dates. o Basede: on ta rovided by-r the Central Bank of Yemen. TABLE 6.3 : BALANCE SHEE1 OF CENTRAL BANK OF YEMN / (in thousands of Yemeni rials) June ekd of period 1968 1969 1970 1971 1971 1972 Fore'ign assets2/ 94 o57 O01 4oA 1)5?7 76,726 100g3 501,757 Go-ld and Silver i165 193 193 249 -- 248 249 R>1 _n_ces with Ce-nt-rafl Bank. of Egypt 91,820 91,820 91,O41 364,166 364,166 3441,131 No. 1 account (25,566) (25,566) (2,ff66) (102,264) (102,2614) (10' 0-%\ No. 2 account (62,860) (62,860) (62,081) (248,325) (248,325) (225,061) Joint account (3,3914) (3,3914) (3,3174) "-L-)I- (13,5 7) fL,.)tU", Other convertible foreign...ex ch e 2,052.... 1,291 6,383 99,1462 22,670 137,673 SDR holdings -- -- - 5,3349 5,349 11,561 fLAMF reserve pos'or- 7,500 700 7,00 143 ri-I -uoJ.4.LILU-- n f~ O'" 7 u -,U 8,113 'JC1LJ.1s on GoveJLmueVat L&LU8 7L19 14ij9977 Al 0 f i 5691±40 Treasury bills eI0 40 125 000 135G00 1 13*0 A .4 l- A^nces ,976u3,035 i,500 3,3-40l -- i6,636 Other 2,837 3,t462 3,637 3,637 3,637 14512 Claims on commercial banks 1,454 6,1147 8,704 2,024 13,225 17,310 Assets Liabilities 139,3244 197,289 243,958 620,727 551,795 675,215 Currency issue 134,074 188,047 225s404 272,431 241,709 3269182 Currency Board/ Central Bank (131,237) (184,585) (221,767) (268,794) (238,072) (321,670) Treasury (2,837) (3,462) (3,637) (3,637) (3,637) (44,512) Government deposits -- 47,3070 8,0705 9,861 Due to commercial banks 8,399 4,579 -- 3,938 Exchange valuation account ------280,756 280,756 256,727 Allocation of SIDRs ------5,349 5,349 11,563 Capital and reserves 4,948 8,688 8,602 I55302 6,174 26,849 Other items, net 302 553 1,553 -8,o61 9,737 -9,905 _/ The Central Bank of Yemen started operation in July 1971, replacing the Currency Board. 2/ Foreign assets valued at the official rate of YR1 1 = US$0.50 up to December 1970. Beginning with June 1971, foreign assets are valued at the provisional rate of YR1 1= US$0.20. Data beginning with June 1971 are therefore not comparable with data for previous dates. Source: Central Bank of Yemen. TABLE 6.4: CONSOLDATED BALANCE SHEET OF COMMGCIAL BANES- (in thousands oi' Yemeni Eials) 1,)if .1' period 1968 1969 1970 1971 _ d7_ 1972 Cash on hard 2,830 9,924 16,878 20,712 11,230 12,61i Foreign assets 8,784 23,02 42 758 34 292 51 086 64 221 Notes and gold sovereigns on hand 245,371,*3' "37~ ` mt_~ Balances with banks abroad 6,h48 19,931 36,673 32,793 45,520 62,20el Other claims on n6nresidents 1,529 1,849 5,153 113 171 724 Claims on o,overnment2/ 22,278 28,383 37,200 20,873 39,007 17,>,t ;3aiw or- private sectateifvi '" -J '" 70 012 565 7 107 O32 of whicht Public enterprises 't1720 ,05 20 ,64) Claims on Currency Hoard/Central Bank -- -- 8,399 2,865 603 L,255 Aisets - Liabilitlies 51.153 8L.2h9 1i 1I3l 1C 7C) IC'7? $5l 07 ,0 Demand deposits 8.798 24 , 426 44216 38650 60,213 Of whichti ruulic enterprises 4,41 7,635 13,779 8,788 21,131 Time and savings deposits 7.312 15,341 23,132 31,953 36,120 4L.762 Fixid deposits 490 - 579 BW 3,007 3,276 7:343 Savings deposits 132 172 513 3,056 3,18e 2,256 avnsrkeddeposita 5.li33 10.091 iCAIR 929 c7 91 inP '20 ?7 Resident deposits in foreign currency 1,287 4,499 6,111 3,384 6,548 JJ,736 Due to Currenc, flnrd/Central I10k A77 6,210 8,ct -,4 '" Foreign liabilities 1068 .4 28,304 25.173 18,955 29,40? Balances due to banks abroad 7,37 v 5,ytIO 12,404 2,526 4,h62 5,4 36 Nonresident depoaits: In rials 1,958 4,855 5,710 3,747 --. 650 Nonresident deposits: in foreign currency 1,362 2,619 10,110 18,9o0 l1,1473 23,321 (iovernment deposits 6,137 7,913 24,485 5,406 28,382 ,,246 2 Exchange valuation differential / 2,289 12,566 11,363 -1,763 -1,412 -1,ttt Aapitai and reserves 7,660 10,866 11,854 35,692 32,954 5o,nr Other items (net) 7,152 5,596 12,688 7,310 -4,123 -11,105 1/ Through June 1971, data refer to the Yemen Bank for Reconstruction and Development, which was the only commercial bank operating in Yemen. Since September 1 771, four foreign banks were licenamu UV ujmrate in Ye-mn. june 1972 uanx tJperatan .,1 Ltlln. V4ssII KL BLre>LXO}LLUL|7, ;LXJLL -- Lt 1 tm5l rel{ data are a cons olidation of all five commercial banks. 21 Data include the proceeds of foreign loans with the appropriate adjustments made in other affected accounts. 2/ Assets and liabilities denominated in foreign currencies are reported in the YBRD records at the official rate of -li-YR3; these are revalued at market rates by the Bank at year-end, with the exception of liabilities to the Central Rank of Eupt which are maintained at the official rate. The revaluation differentials are siven in this account. 'so-LAUUI JSOCCtLsedon data providedby' +UJ' ±cWUl °-nk fo c .s t tlon ali-- wv.jlo.. a d Central -ak of mil. mAB , L 5- ympico.m pmT, m-mrm'l (per cent per annum) Sept. Jan. June June Dec.i/ June2/ 1964 1967 1970 1971 1972- 1972- Currency Board/Central Bank Discount and interest on Treasury bills -- -- 1 1 1 3 YEBRD/Commercial lBanks Debtor interest rates Advances to Government 3 3 4 4 3 4 Commercial and other advances 7 7 8 8 8- 9 Mort-gage and personal loans 10 10 11 U1 U 11 Creditor interest rates Demand deposits ------Fixed deposits 3 months 3 3 3 3 L4½ Over 3 to 6 months 3A 3½ 3A 3½h 3A 5 Over 6 to 9 months 4 4 4 4 9% Over 9 to 12 months t 4½ 14½ 143 6 Savings deposits 3 3 3 3 4 1/ Including Yemen Bank, Habib Bank, and the British Bank. 2/ Including Yemen Bank, Habib Bank, The British Bank, Arab Bank, and United Bank. Source: Central Bank of Yemen. m. TV7~? - A n'L A AX 71I-, fl r MTTfvn-r,- rVf^ ,is . Y^ . fT1rT ^TTT MTM AT f1lf^fl- TABLa 7. 1 ; JaL J PI OOFl rlwOWVl UJ.LULUU,L. UAUfnI) ( area in'000 hectares; production in '000 tons ) Average 1904_-065/l96Y0-0 1969/70 _____ 1971/72 t/ Area Production Area Production Area Production Area ProEictd0n Cereals 1,434 1,150 849 1,406 1,183 1q,382 1,237 Sorghum and millet 1,260 970 1,200 680 1,230 984 1,200 1,020 Wheat 25 25 25 -- 30 33 35 42 Barley 145 145 145 160 140 154 140 160 Maize 4 10 4 9 6 12 7 15 Pulses 40 40 50 50 50 60 50 60 Potatoes 4 20 4 20 6 35 8 48 Vegetables 8 40 8 39 10 50 11 55 Grapes 4 12 4 10 6 21 7 23 Coffee 5 5 5 4 6 4 6 5 Cotton 12 5 5 2 15 8 20 10 Tobacco 3 2 4 2 4 3 5 4 1/ Preliminary estimates. Source: Data provided by the Ministry of Agriculture and the Central Planning Organization. TABLE 7.2 : CEREAL CROP YIELSW, BY REGION ( in tons per hectare ) Sanaa Hodeida Taiz Ibb Hajja Other average Sorghum and millet 0.8 0.9 1.2 1.5 1.0 0.8 1.2 Wheat 0.9 -- 1.0 1.3 0.8 1.L 1.0 Maize -- 1.2 1.5 2.0 1.2 1.2 1.4 Barley 1.0 -- l.4 1.8 1.0 1.2 1.3 Source: Estimates of Central Planning Organization TABLE 7.3 : PRODUCTION OF COTTON AND COTTONSEED (in metric tons) Cotton Cotton lint Cottonseed 1962/63 5,517 2,075 3,853 1963/64 2.o34 748 1,389 1964/65 11,293 4,177 7,088 1965/66 1.294 477 810 1966/67 508 201 311 1967/68 3.312 271 2,057 1968/69 2,645 997 1,720 1969/70 1.879 726 1.193 1970/71 7;500 .. . 1971/72 10.000 Source: Ministrv of Arriculture. Central Planning Organization, and Food and Agriculture Organization of the United Nations, Marketing of Principal AhriThulture Cnmmoditiea in the Ymemn Arab Renublin. Rome. 1970. TABLE 7.4: RECORDED PRIVATE AGRICULTURAL IMPORTS AND EXPORTS 1964-721/ (thousands of US$) First -___QCuarter 19.6L 1965 1966 1969 19i'0 1971 1972 IK4PORTc; Sugar 2,219 3,322 3,341 6,642 4,785 5,627 2,258 Cereals 2,566 2,423 6,465 3,502 10,830 4,737 2,332 AnimELl products 1,290 991 1 ,5C4 2,927 1 ,546 630 272 F'ruits and vegetables 1,018 586 675 1,1155 1,125 61'5 917 T'ea and spices 805 932 773 874 1,017 1,16S9 210 Rice 395 377 439 51il 575 579 379 Tobac co 275 1517 336 1:37 25 8 273 138 Timber 2,085 1598 3594 468 - Others _ 3;8 65 282 4175 1 0)49 70 Total 17 7 13,9592 1IDO *711 7 Z77 EXPORTS C(offee 1,901 1,367 75;2 2,016 1,6'17 916 417 (Cotton 978 -- 723 376 - 1,753 385 Qat 966 2 ,189 686 568 868 560 93 Hides and skins 368 323 5()3 1 ,014 2.39 408 132 Fruits and vegetables 71 65 !;6 26h4 92 63 26 Others _ - 4 10 4 Total ,72 73 2,720. 20 3,710 1,057 l1/ The data pravideld by the Central Bank are bELsed on custons data, which are incomplete. Owing tic major deficiencies in these data, considerable cautiorn should attend their use. Source: 196&-1 969: FAO, unofficial estimates 1970-72 : Foreign Trade Statistics, Central Bark of Yemen TABLE 8.1 : INDUSTRIAL EMPLOYMENT AND OUTPUT, 1971 Number Number Type of Industry of units 1/ of workers 1/ 1971 Output ('000 rials) Salt and stone quarrying 15 706 1,380 Food 80 675 8,460 Beverages and cigarettes 8 342 8,684 Textiles 16 2,073 63,924 Wood and wood products 55 384 2,462 Printing and publishing 8 100 3,638 Cement and bricks 51 487 19,752 Fabricated metal products 26 262 1,259 Car servicing 67 840 3,533 Electricity 102i 387 142,959 Others 5 134 lo,804 Total 341 6,390 266,854 1/ As of December 1971, 7/ ~Nimber of nhbli ipplys1 com-panies; in addition, there are n..erous privately-owned generating units; total employment in the power sector is about 750. Sou.rce: CenSt-ral Pl-nninr Orgnnization. rPA'T-L 8.2 :VOLT.TThE. (F OTT-PLTT Pf MITU TN TSTRITRS induatry TUnit 19O7 106R 1969 1970 1971 Cotton fabrics million meters 2.8 1.9 5.5 7.6 7.4 Salt '000 Metric tons 105 88 101 85 85 Electric power million KWH .. .. 12.2 13.7 14.0 Aluminum plates metric tons .. .. 87 103 .. Paint '000 imp. gallons .. 8.0 3.6 12.5 Soft drinks million bottle.3 .. 4.3 5.4 13.4 Source: Gentral Planning Organization Table 8.3 SCHOOL ENROLLUENTS Student Numbers Enrollment Ratio W Levrel of EAucetion 1971 1972 1071 1072 Primary 88,000 124h,700 10.0 12.0 Secondary 5,600 8,100 0.9 1 D Lower Secondary (4,300) (6,300) (0.7) (0.8) Upper Secondary (1,300) (1,800) (0.2) (0.2) Higher 500 700 0.1 0.2 Total 94,100 m .§00 Sex Distribution of 1971 Enroll-ments (%Boys Girls Primary 90 10 Secondary (excl. teacher training) 99.3 0.7 Teacher Training 31 69 Composition of Teaching Staff, 1971 Primary Secondary Level Level Yemeni teachers (number) 3,099 58 of whom qualified (%) about 80 1000 Foreign Teachers 47 h06 Pupil teacher ratio 40hl 18:1 1/ As % of estimated population of age group _/ Religion teachers. TABLE 9.1 : RELAIL PRICrS oF BASIC FOOwSTIFIFS IN SAN'AAA' ( in Yemeni rials per kilogram j Average for July-Oct. Nov. Dec. March July Dec. March July 1966 1967 1969 1969 1970 1971 1972 1972 Wheat 0.28 0.35 0.70 0.82 0.73 0.70 0.75 0.85 0.60 o.88 Barley 0.28 0.35 0.70 0.82 0.58 0.65. 0.67 0.93 0.85 0.80 Sorghum 0.35 0.38 1.00 0.75 o.65 0.73 0.80 0.85 0.98 0.75 Maize 0.22 0.38 o.80 0.77 0.78 0.73 0.87 0.95 0.85 -- Lentils 0.33 0.38 0.73 0.90 n.a. 1.13 1.07 1.71 1.05 -- Rice 0.53 n.a. n.a. 2.05 2.55 2.33 2.35 2.38 2.30 2.45 Potatoes 0.25 0.20 0.60 1.00 0.95 1.00 0.95 1.20 1.00 0.75 Tomatoes 0.20 0.20 0.88 1.60 0.95 0.50 0.87 1.43 1.15 0.75 Mutton 2.90 2.90 4.50 4.50 5.95 6.48 6.10 7.00 7.00 7.00 Beef 1.13 1.85 3.00 3.00 3.38 3.65 4.05 4.15 4.50 4.88 Veal 1.50 2.22 3.50 3.50 4.08 4.15 4.50 5.20 5.50 5.90 Sugar 0.18 0.20 n.a. C.g90 0.95 1.13 1.07 1.28 1.60 1.75 Tea 3.67 3.80 n.a. 8.87 8.93 9.22 9.15 9.23 9.43 9.45 Coffee 1.78 2.25 n.a. 7.62 8.40 9.27 7.62 8.00 8.00 8.38 Eggs 2/ 0.73 0.85 1.70 3.00 3.00 3.00 3.00 3.00 3.00 3.25 1/ As Sanaa was under siege for several months during 1968, the authorities were not able 9 to gath.er stat±a+A A^tl+a for.+bit 4 cnhlnnn r',,.. 0 0 nv.. rn f..a4 a,^ rlADTV 0 2 * D1't' JA'DT1 VrUA).TP ,AAr OF VWMV?LTT 1)TAT 16O5=7-70 Exchange Rate in U.S. Y early average cents pe.- Ria 1965 Vu.a4 1966 47.3 lOt 1967 48.6 1968 32.5 1969 22.5 1970 17.7 1971 1972 (up to July) 20.0 Quarterly average 1968 - First quarter -- Second quarter -- Third quarter 33.9 Fourth quarter 30.4 1969 - First quarter 26.0 Second quarter 22.2 tMird quarter zi.7 Fourth quarter 20.1 1970 - First quarter 17.8 Second quarter 16.3 Third quarter 18.5 Fourth quarter 18.3 1971 - First quarter 18.7 Second quarter 18.8 Third quarter 19.4 Fourth quarter 19.8 1972 - First quarter 20.0 Second quarter 20.0 1/ Averages of daily buying rates operative in Sanaa. Sources: Central Bank of Yemen.