Ismail Al-Ghabiri,
Yemen Times

Small industrial enterprises Yemen account to 31,738, or 95% of the total industrial institutions, constituting 48% of the total labor force in this sector. The industrial survey and analysis conducted by the ministry of industry in 1996 had shown that there was a dysfunction in the small businesses, where food industries come in the first place and there was a drop in the level of its participation the economic indicators. Small enterprises participation in economic shares amounts to 25% of production value, 48% of employment value, 21% of wages value and 32,6% of the additional value. Most of those industries are concentrated in Sana'a and Ibb and in less amount in other governorates. This sector depends on personal activity and without definite direction or program. In addition to this, production of this sector for the local market is mostly characterized by the imitation along with absence of the idea of exportation due to bad quality of its products.

First of all there must be an illustrative definition of small enterprises as a basis from which we can move to explore the essence of the subject. Concepts and criteria differ about defining small industrial enterprises. Among these prevalent criteria are those of labor and capital. Or as some define them as industries that form a productive unit employing ten workers and the value of production machines used in it amounts to 1-2 million riyals and that of a production unit, the value of its machines exceeds 2 million riyals and uses ten workers. As for the criterion of development unit depended for small industries, it is the criterion of the invested capital that does not exceed a sum of 200 thousand dollars.

Out of this we can infer that the tendency towards such industries has increased nowadays. The main reason is the big challenge facing big businesses and their incapability of keeping pace with the technological development and the fierce competition of prices and quality, the present policy of openness is now imposing, added to that the big businesses failure to realize the balance between the economic and social requirements and the difficulty of implementation and adjustment with the goals for which they have been built. Against this situation the importance of the tendency of light industries increased because of their ability to depend on limited materials and due to their having social and economic dimension and concept.
The reality of small enterprises and handicraft in Yemen is weak and simple. It is still confined to old stereotype and has not been upgraded to the level of small enterprises that have largely developed. It could not reach a high quality or achieve developed growth. This conclusion is based on indicators of the first industrial survey of 1996. If we look at the geographical distribution of small industrial enterprises, we find that they are concentrated in the cities of Sana'a and Ibb, and this could be attributed to population density. The woman role in this field is mainly confined to work depending on the skill of careful use of hands such as sewing and embroidery. Woman labor in this field forms 2.4% of the total volume of labor, i.e., 1258 employees.

Among the reasons behind weakness and inability of these industries in Yemen are attributed to their dependence on self efforts without any specified program. This sector did not rise to the level of small industrial enterprises due to its incapability of providing big industries with their needs of materials and therefore those industries are mainly dependent on importing their needs from abroad. Moreover, this sector cannot benefit from products of big enterprises because of non-existence of integration and absence of modern technology, added to that is that these these industries based on handicraft profession based on individual skills.

To develop this sector and make publicity for it abroad, industrial zones or industrial complexes must be founded without making it sustain large sums of money for buying pieces of land and for erecting buildings and also prevent its random spread in Yemen. To enable this sector to develop and be qualified to play an effective role in the national economy, we have to amend the commercial banks credit policy by allotting part of their funds for financing this activity through easy conditions regarding interest rates and encouraging the establishment of associations patronizing small enterprises. There must be encouragement of of founding a social fund in which the government must participate through financing houses, associations, industrialists and assistance from sisterly and friendly countries.

To develop this sector in order to participate in the process of development, the state should take a host of measures represented by the following:
1- Systematic arrangements represented by founding a supervising party to regulate its work and activity.
2- Promoting its products by holding commercial markets and exhibitions through different information media.
3- Improving the level of production by creating qualified and well-trained cadre capable of dealing with advanced technology and activating the role of woman, also by training and qualification.
4-The geographical distribution of the handicraft industries must be according to the aims of those industries.
5- Distributing the utilities on industries dependent on local raw materials and industries feeding medium and big industries.
6- Developing and adjusting the financing policy of local funding institutions and the foreign donors.

Mohammed al-Maitami
Associate Professor of Economics,Sanaa University
Visiting scholar - University of California , Berkeley

It is probably necessary to begin my 10 limited minutes of presentation by restating the most basic principle of macroeconomics which says that the political, social and military fate of any nation depends greatly upon its economic success. Today there is no area of economics more vital to a nation's success than its macroeconomic equilibrium and macroeconomic performance.

It is also necessary to restate the most basic tenet of the institutional economics, which says that a functioning national market can not exist without a modern and strong state - without effective legal, administrative, and regulatory institutions, maintained by the state.
We all have seen the overall deterioration of the Economic Reform Program (ERP) The Rate of the real GDP growth was (-) 0.2%. Core inflation - 75%, budget deficit - 17% of GDP, account balance (-) 12% of GDP, GDP per capita $ 265, unemployment 25%, population under line poverty 21%, dramatic fluctuation of Yemen currency from 30 R/D to 140-160 R/D.

Since 1995 Yemeni government began to implement a large-scale program of reform. The Program was formulated in cooperation with the IMF and the World Bank and it is considered a liberal program aimed at making the market the dominant regulator of the economy. Unfortunately, the outcome of this reform is not encouraging even though 1995 and 1996 were nominally successful years for the program. Any shocks have reversed previous optimistic expectation and revealed the underlying weaknesses of the program. The ERP program has put the cart before the horse.

Of course, there are objective and subjective determinants of the current situation. In terms of the objective determinants, we may include the economic backwardness of the country, scarcity of human capital, capital and technology. Also we could include the international economic situation, particularly the present Asian economic crisis, which directly effects Yemeni economy. For example, oil revenue has decreased to roughly 30% of 1997's level and budget deficit has risen this year to 13% because 95% of Yemeni exports are oil products, and 76% of Yemeni exports go to southwest Asian countries. In the subjective factors we initially include the absence of a modern and strong state. Lawlessness, corruption and bribery are widespread in Yemeni institutions and this poses a major obstacle to any corrective program and more generally to any development program in Yemen.

All economic and social indicators point to the Economic Reform Program, in spite of the achieved successes in the fields of monetary and fiscal reform in 1995 and 1996. Even those successes have dissipated in the years of 1997 and 1998 as a result of first external shock.

Let us look in brief at the main economic indicators, which were the subject of the reformation process: real GDP growth, the rate of inflation, budget deficit, national account balance, the coefficient of investment. What do these indicators show us? The real GDP growth increased from -0.2 1994 to 5,1% and 4.3% in 1995, 1996. But it fell again to 3.6 and 2.5 in 1997 and 1998. Core inflation fell from 75% in 1994 to 20%, 10% and 5% in 1995, 1996 and 1997 respectively, but it rose again to 55% in 1998. The budget deficit as percentage of GDP was reduced from 17% in 1994 to 6%, 4%, and 2% 1995, 1996 and 1997 respectively. Currently it is rising again to 12%. The deficit in the national account balance fell from - 11.6% in 1994 to - 10,1%, 3,5%. - 1,5% in 1995, 1996 and 1997 respectively. but it is rising again to 10.0% in 1998. The exchange rate rose from 125-130 R/D the average designed level drawn by program to 160 R/D in 1999. Investment coefficient is less more 4 time than planed. The standard of living is falling according to UN sources. GDP per capita is less than $ 240. Unemployment is more than 35%. The percentage of the population living under the poverty line is more than 50%. The Majority of infrastructure is deteriorating rapidly. We are witnessed of growing of collapse of Yemeni national industry. More than 30 firms were closed within the last two years, more than 5000 industrial worker were fired. The main sector in Yemen-agriculture produced only 13% of GDP, while 56% of the labor force in concentrated in this area.

There are in my viewpoint two major factors standing behind the impeding of the ERP: First- the fragility of the Yemeni state and Administrative Anarchy. Second- Theoretical weaknesses in the design of the ERP. I am not going to focus my presentation on the first factor. There are possibly others who will address this factor. I would prefer to concentrate a little bit on the second factor. No doubt that without reforms the Yemeni people would be in far worse condition. There is also no doubt, that our people have faced far greater hardship than the current hardship resulting from the implementation of the reform program. These are facts with which it is difficult to argue. At the beginning of reformation process there were some positive results which we have previously mentioned. Those achievement were realized initially with financial support from abroad. But the main goals of growth and sustainable development (real GDP in material sectors, Coefficient of investment, unemployment remain static.

The question of investment has not made any significant progress. Investments in Yemen has been due to the lack of an appropriate environment for investment. The FIAS report fro Yemen of June 1997 stated that "..constrained public budget, low income level, decentralized population and difficult physical environment; under-developed legal system and weak institutional capacity; underdeveloped local capital markets; and (most critically) Yemen's high political risk rating, as well as.....(the fact that) the state, the government of Yemen is still viewed as weak, unreliable and lacking credibility."

At the first external shock these achievements disappeared, because of lack of cohesion of the program. The architects of the economic reform program assumed that the problems of the Yemeni economy consisted primarily of government deficit, negative balance of payments, sharp fluctuations in the value of the Yemeni Rial and the existence of an inefficient and unproductive public sector. Based upon these assumptions the economic reform program anticipated that simply relieving the pressure on the balance of payments, reducing the government deficit through cutting expenditure and cutting government subsidies, making social services cost effective and privatizing the public sector business will allow these market forces mobilize and establish the proper levels of investment, production, consumption, importation and exports in light of current resource endowments. The program ignores that the deeper roots of the economic crisis which are not restricted to financial and monetary policy, but rather these are merely symptoms on the surface of more fundamental and ongoing contradictions and difficulties in the material production and administrative-political management. The question arises today, is it possible for the market to operate effectively in the absence of the state or even in its presence, but in a weak and fragile condition, 

The answer for this question comes from the world bank itself in the statements made in the report of the World Bank in its yearly meeting held in Hong Kong on the 23-26 of September 1997: "In the absence of an effective state it is impossible to produce any economic or social progress...and without protection from theft and violence and repressive behavior by the state and without a fair judiciary which is able to enforce its rulings, it is difficult for markets to grow and develop. The final address by James Wolfensohn, President of the World Bank Group, to the Board of Governors of the World Bank Group, at the Joint Annual Discussion on October 6-8 1998, confirms our believes that any economic reforms and measures "...if they do not fight corruption and put in place good governance, if they do not introduce social safety nets, if they not have the social and political consensus for reform, if they do not bring their people with them, their development is endangered and will not last."

By: Mutahar Al-Ashmory

Of course, the budget of a state must be accurate in its figures and estimates. Discussion of every institution must be carefully studied through associating each year's budget with that of the previous one. Proceeding from the fact that we have already entered the 21st century and the third millennium- an age of information, technology and computer- a stage that has overcome the possibility of committing mistakes in the state budget, then committing a mistake or let it happen is something regrettable, particularly in Yemen.

What has aroused my attention is a news regarding a tendency for the privatisation of the National Company for Tobacco and Matches "Kamaran". As much as I was surprised by the new drive of privatization, I was astounded by the news that contained information in regard to the budget of the company. This information is presented by the Ministry of Finance indicating that the company has showed a mark-down in its revenues for 2000, estimated at YR10 million.

I have been very much interested in following the conditions of the company as part of my interest in the privatization campaign, especially regarding successful state institutions. I have written about privatization and said that privatizing the tobacco Company was a grave mistake implying a tendency against the public interest. Capitalist countries such as Canada or South Korea or Jordan usually makes the industry and importation of tobacco the responsibility of the state as its being considered a highly profitable merchandise. They may redouble cigarettes prices according to certain social policies.
However, with the statistics presented by the Ministry of Finance in the general budget, it becomes quite difficult to defend such a national establishment in the face of Privatization.

After weeks of investigation, I could uncover the underlying mystery of this puzzle that agitates me for a while. It was a grave mistake made by the Ministry of Finance and its staff who used figures different from those presented by the company. These figures are far much different, for billions were replaced by millions and millions and thousands by hundreds and by very small coins. I can't say for certain whether this mistake was done intentionally or was an oversight. However, what is apparent is that this has negatively affected the public sector and has been used much for the privatization drive which appears like a monster eating away many successful organizations of the public sector. The news was not a mistaken on, but unfortunately it was based and derived from wrong information given in the state budget presented to the parliament.

It is true that we have stepped into the third millennium that is characterized by and considered to be the age of information, technology and computer. This makes the possibility of making such mistakes very unlikely to happen. However, making such a mistake and in the general budget of the state is a sorrowful event and means a lot, for it may have never happened in the 19th century.
Any accountant or a trainee in the financial or accounting work would never believe the revenues of a company go down from YR 11 billions to YR 1 billion within a year. It is also quite unbelievable that a public organization spends and earns YR1 billion. What is more unreasonable and unacceptable that such procedures and standards used in discussing budgets to be ratified, are adopted by the ministry of finance and its experts.

The real budget of the company for 2000 presented to the Ministry of Finance was YR11,126, 000,000. This means that there was not any kind of fall back in the company's activities nor a slump in its revenues. On the contrary, the activities have prospered and developed, especially as Mr. Tawfeek Saleh, a qualified and competent personality, is the chairman of its board of directors.
As we are dealing with a very important issue of public interest, I very much trust Mr. Alawi Al-Salami, minister of Finance who has showed his understanding of this horrible mistake. He made those responsible for it hold accounted. He has also followed the procedures to correct the mistake and to make a new report that would be presented to the Parliament. Though this won't compensate the harm that has befallen the company, it will disclose a fact and prove that the public sector is not at all that depicted failure, and that what it needs is sincere people and commitment.

What has happened may be the result of "privatization drive" plague that tends to spoil all the successful organizations of the public sector.
What I want to stress in this context is that we are not against privatization , as a modern economic concept, but refuse to use it as a slogan to destroy the public interest, as it was about to happen to the National Tobacco and Matches Company. Irrespective of all the aggressive campaign launched against the company, we express our appreciation of the good efforts and achievements of the Administration of the company and all its workers.

From Al-Thawrah Newspaper