Construction industry problems go to the heart of Yemen's economic woes

One of the most important economic sectors in Yemen was devastated by the 2011 recession and further damaged by state corruption. The construction industry, which comprises around two thirds of the national economy, has already lost 60 percent of its contractors to other businesses due to an almost complete halt in projects in 2011 brought on by an inability of the state to pay contractors and aid in security related issues.

However, there may be hope for saving this flailing industry as the state begins to take account of the extent of damage the sector faced.  

The general manager of the Media and Awareness Department at the Ministry of General Works and Roads, Samir Al-Najjar, says the ministry has created a strategy to revive construction.

An initial government economic plan was introduced back in 2008, with an eventual goal of increasing the private sector’s share of the national economy to 40 percent by 2018.  The strategy was centered on four guiding principles: promoting a positive image, attracting investors, facilitating investments and adopting friendlier policies towards private investment.  This policy was meant to directly affect the construction sector.  However, whatever progress was made in increasing the power of the private sector was hijacked in 2011.  Now, the government says they are trying to realign themselves with the plan.

“We are reviewing the laws in order to provide better incentives for investors in this sector, we are also providing attractive aid for large construction projects,” said Al-Najjar.

He admitted there are challenges such as a shortage in financial resources, but that they are, “working on it jointly with the Ministry of Finance.” 

Rescue boat 

Recent pledges from the donor community may provide an opportunity for the government to solve its financial deficiency.

In September, about $6.4 billion was pledged to Yemen in aid at a donor conference. According to Dr. Mohammed Al-Zuaitiri, Deputy Minister of Finance, the government is hoping to use some of the money to support the construction sector and pay off the money it owes contractors for work completed. These debts amount to $180 million for state construction projects that were carried out by private contractors over the last four years. 

“The international community needs to fulfill its promises to Yemen and immediately send over a rescue boat. We specifically need them to urgently fund the development projects that were presented in the Friends of Yemen conference in New York last September,” Al-Zuaitiri said, referring to the $1.4 billion that is still pending.  

The government says without money to back their plans, the plans will remain just plans. 

Al- Zuaitiri does not just blame the 2011 crisis.  He says Yemen’s economic problems started well before that and warns they will get much worse if intervention does not take place. However, he recognizes the concerns of the donor community - funding should come hand in hand with efficient and accountable implementation on Yemen’s part.

“We already saw how the government failed to absorb the London donor conference pledges in 2006. The reason is that we did not have realistic, detailed implementation plans, and we did not have people to implement these economic recovery plans,” he said.  

“The number of people living below the poverty line is rapidly increasing. Life is hard and without investment it will become harder,” he added.

Remedies

Many agree that prioritizing the recovery of the construction sector is a non-negotiable.

“If this sector collapses, then the entire country’s economy will do so,” warned Ahmed Saeed Shammakh, an economics expert at the Yemeni Central Bank who says the government needs to compensate contractors for losses they have incurred as well as the interest on loans they had to pay to banks. 

Shammakh also wants contractors to be compensated for lost equipment and construction materials that went to waste when projects were halted.

He suggested the government pay an interest rate of 28 percent, the standard for commercial banks, on its debts to contractors. He proposed an additional 23 percent interest to compensate for damages or stolen equipment and another 10 percent for currency deterioration. Additionally, he said the government should also pay the rent for equipment and construction sites’ security the contractors had to pay after the projects were interrupted by the revolution. 

A more sustainable solution Shammakh recommended was to establish a fund to support the construction industry, similar to other sectors. This fund will provide financial cover for contractors as per an agreed mechanism.

Thousands of contractors have declared bankruptcy in the last few years and 400 Yemeni contractors have been jailed for not being able to pay back the bank loans they had taken for construction projects.