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With support from: MENA MDTF THE MIDDLE EAST & NORTH AFRICA MULTI DONOR TRUST FUND 3 1 CONTENTS CONTENTS 1 ACKNOWLEDGEMENTS 2 EXECUTIVE SUMMARY 4 RECOMMENDED ACTIONS FOR INTERVENTIONS 5 METHODOLGY & REPORT STRUCTURE 10 PART ONE: COUNTRY CONTEXT 14 PART TWO: FINDINGS OF THE 2018 SURVEY 16 SUMMARY OF KEY FINDINGS 16 IMPACT ON FIRM CLOSURE AND RELOCATION 17 IMPACT ON SALES 18 IMPACT ON EMPLOYMENT, WORKING HOURS, AND CUSTOMER LOSS 20 IMPACT ON INPUTS AND COSTS 22 IMPACT ON FINANCING AND CASH MANAGEMENT 25 IMPACT ON INVESTMENTS AND ARREARS 28 PART THREE: COMPARISONS BETWEEN 2012 AND 2018 FINDINGS 30 PART FOUR: RECOMMENDED OPTIONS FOR INTERVENTIONS: 34 RESILIENCE AND REVITALIZATION OF PRIVATE SECTOR ACTORS 35 PRIVATE SECTOR INVESTMENT IN RESTORING PUBLIC GOODS 37 STRENGTHENING COORDINATION AND COLLABORATION WITH PRIVATE SECTOR ACTORS 38 REFERENCES 41 ANNEX (1) 42 2 ACKNOWLEDGEMENTS The Impact of Conflict on Private Enterprises Report is an Advisory Services and Analytics (ASA) product financed by the Middle East & North Africa (MENA) Multi Donor Trust Fund (MDTF) and led by Sami Sofan (Private Sector Development Analyst). Core WBG team members included Abdulhakim Al-Aghbari (Senior Highway Engineer), Amir Althibah (Research Analyst), Kurt Ambroze Hagemann (Consultant), and Abdulhakim Nasher (Consultant). The team would like to thank Marina Wes (Country Director, the Arab Republic of Egypt, the Republic of Yemen, and Djibouti), Poonam Gupta (Country Program Coordinator, the Arab Republic of Egypt, the Republic of Yemen, and Djibouti), Raja Bentaouet Kattan (Country Manager, the Republic of Yemen), Najy Benhassine (Director, Finance Competitiveness and Innovation Global Practice), Jean Pesme (Practice Manager, Finance Competitiveness and Innovation Global Practice), Nabila Assaf (Practice Manager, Finance Competitiveness and Innovation Global Practice) for their advice and support. Finally, generous financial support from the Middle East & North Africa (MENA) Multi Donor Trust Fund (MDTF) is gratefully acknowledged. Escalating 3 in March 2015, the conflict spanning across Yemen has resulted in massive casualties, a wave of internally displaced persons, substantial infrastructure damage, and hampered service delivery across both the economy and society. The private sector was among those that were severely impacted by the conflict.  80% of firms experienced a  25% drastic drop in sales of firms closed as a result of the conflict  20% of firms relocated their  30% operations, domestically and abroad of firms changed from small to micro enterprises  20% of firms lost full-time  22% employees of firms had shrunk from either large to medium, or medium to small  27% of firms lost part-time employees  22 Million People the equivalent of 75 percent of  the population of the Republic of Yemen are in need of humanitarian  protection or assistance 4 EXECUTIVE SUMMARY Escalating in March 2015, the conflict effectively or plan ahead for the future. spanning across Yemen has resulted Prior to the conflict, the private sector in massive casualties, a wave of constituted 50% of GDP and provided internally displaced persons, substantial employment for around 69.4% of the infrastructure damage, and hampered total employed population.2 Currently, service delivery across both the with the private sector in disarray, the economy and society. Key infrastructure economic pain is widespread and deeply including major roads and bridges have felt: the cumulative real contraction of been destroyed, power lines have been GDP between 2015 and 2018 is estimated debilitated, and oil and gas production at $49.8 billion3. Twenty five percent of ground to a complete halt for months, (25.18%) firms surveyed in the 2018 Rapid only to resume roughly a year after the Assessment Survey closed as a result of start of the conflict. In total, according to the conflict. The security issues in conflict the 2018 Humanitarian Needs Overview, zones, economic devastation and financial approximately 22.2 million people— the recession, and the shelling of firms were equivalent of 75 percent of the population the main reasons for firm closures. of the Republic of Yemen—are in need of Additionally, many firms experienced some manner of humanitarian protection shrinkage: 29.7% of surveyed firms or assistance.1 changed from small to micro enterprises, and 22% had shrunk from either large to The business climate across Yemen medium, or medium to small. has dramatically deteriorated as a result of the conflict, and businesses Interruptions of key service provisions throughout the country experienced like electricity and loss of a customer severe disruptions that for many firms base are among the major constraints constituted a force majeure situation, experienced by surviving firms since hindering their ability to either operate 2015. Over 80% of firms experienced a 1 United Nations Office for the Coordination of Humanitarian Affairs, 2018 Humanitarian Needs Overview—Yemen (https://reliefweb.int/report/yemen/yemen-2018-humanitarian-needs-overview-enar). MoPIC (2018): Yemen Socio-Economic Update. Issue (35), July 2018. 2 MoPIC (2018): Yemen Socio-Economic Update. Issue (39), December 2018. 3 5 drastic drop in sales signaling further the dire financial situation. Taken with risks of closure if the conflict continues. reduced sales, the reduction in working Additionally, disruption of domestic and hours is curtailing local employment. In imported supplies, high supply costs, loan 2018, the firms surveyed experienced a restrictions, and substantial spending loss of workers reaching an aggregate on taxes and other regulatory fees have contraction of around 20% of their full- placed a heavy burden on the shoulders time employees and 27% of their part-time of the private sector. These factors, employees compared to employment combined with stark security threats, have levels prior to the 2015 conflict. pushed almost 20% of firms to relocate RECOMMENDED OPTIONS FOR their operations, both domestically INTERVENTIONS and abroad. Financially speaking, firms have diminished access to the banking Addressing these challenges requires system, relying heavily on cash payments substantial effort by the GoY and the and on money exchange companies international community to support for conducting financial transfers and the resilience of the private sector and business transaction. Over 97% of prevent its further deterioration and enterprises surveyed pay employees in losses. The loss of private sector wealth cash, and roughly 68% also pay suppliers and activity of this magnitude is part and in cash. These trends likely indicate a parcel to the food insecurity, poverty, lack of trust in the banking sector, the public health issues, and defunct service decimated capacity of the of the local provision that plagues the war-fatigued financial system, or a combination of both. population. As such, both in the future post- conflict setting and at present, engaging Employment and operations have been and revitalizing the Yemeni private drastically curtailed by the conflict. On sector is a crucial and indispensable step the operations front, a substantial 32% towards the successful reconstruction of the firms experienced nonoperational and recovery of Yemen, and the long- days resulting from both the conflict and term well-being of the population. The the inability of workers to make it to work, recommended actions for intervention with nonoperational days ranging from include options that support the resilience less than 10 to over 50 days. In tandem, and revitalization of private sector actors, working hours have also plummeted, in increase its participation in recovery some cases by more than 50%, seemingly and restoring services, and strengthen a reflection of market demand and 6 its coordination and collaboration with confidence and stability need to be the government and international returned to Yemen’s banking sector, community. The incorporation of the the backbone of any robust economy or following recommendations in the design private sector activity. The GoY and the of new operations or programs tailored international community need to scale- to supporting the resilience and recovery up existing interventions targeting the of the Yemeni private sector would resilience of financial intermediaries contribute immensely to the revival, in the country and such interventions health, prosperity, and inclusiveness of should be sustained, scaled-up, the Yemeni economy as a whole. and extended across the board to struggling financial intermediaries Support The Resilience & Revitalization of in the country. After the conflict has Private Sector Actors stabilized and reconstruction begins in ¡¡ Establish an Early Recovery Financing full, actions needs to be taken by the Facility (ERFF) for small and medium GoY and the international community enterprises (SMEs) (Short-Term). to support the extension of wholesale Recovery financing will be instrumental facilities to banks and microfinance in the immediate term to enable institutions in order to inject liquidity enterprises to recover from both and facilitate the resumption of credit physical and non-physical losses and and equity finance toward the private access immediate working capital. An sector. enterprise recovery financing facility ¡¡ Establish A Challenge Fund and/ would provide recovery financing or Venture Capital Firm/Start-up (grants, lines of credit and partial credit Incubator and revamp Yemen’s guarantees) to enable local enterprises information and communication to restore their economic activities and technology (ICT) infrastructure provide essential goods, services, and (Medium-Term). After the conflict jobs within their communities. subsides, establishing a challenge ¡¡ Support Yemen’s banking sector Fund for SMEs in Yemen, or a Venture recovery (Short-Term). Given the Capital Firm/Start-Up Incubator could paucity of investment, credit, and help address both the shrinkages financial intermediation, as well as and closures of SMEs by providing the over-reliance on cash payments necessary seed and growth capital. and on money exchange companies, It is also essential to revamp the 7 information and communication and from the Yemeni diaspora - and technology (ICT) infrastructure and provide coverage against traditional introducing broadband access to SMEs political risks (war and civil disturbance, throughout the country. Adequate ICT expropriation, breach of contract, and infrastructure supports a wide range of transfer restrictions). It will serve to business operation as well as facilitate de-risk investments, including any business transactions and finances. potential IFC investments under the Private Sector Window (PSW), as Maximize Finance for Development through well as risks resulting from business attracting Private Sector Investments in transactions in Yemen (such as public Support of Restoring Public Goods contracts for infrastructure or the ¡¡ Establish an Investment Guarantee provision of other goods, services and Financing Facility (IGFF) to help and works). The pipeline for such mobilize private sector capital for a guarantee facility is expected to high-risk infrastructure projects emerge as reconstruction activities (Short- and Medium-Term). begin in earnest and is expected to Considering that service disruptions be focused in the energy, transport, remain the largest stumbling block construction, agriculture, and urban to the successful operation of local construction sectors. businesses, combined with the ¡¡ Execute a deeper analysis and unlikelihood of the post-conflict assessment of the employment government having the resources situation in the Yemeni private sector. necessary to finance the infrastructure While this survey was able to partially needs of the country post-conflict, cover employment and provide the international community needs findings, it was only able to scratch to support the establishment of a the surface; much more remains guarantees and financing facility to be discovered and is necessary to enable local private sector and for the successful revitalization of FDI participation in the immediate the Yemeni job market. As such, in restoration of public goods. The IGFF coordination with the International would be used to provide protection to Labor Organization (ILO), a deep-dive investors and contractors engaged in should be undertaken to assess the business in Yemen. It will be designed true extent of the effects of the conflict to cover investors - foreign, domestic, on private sector employment with a 8 focus on multi-causal explanations donors and government agencies. As for both causes for unemployment an immediate measure, the GoY and and barriers to restoring job security. the international community should further support and engage proactively Strengthening Coordination, and with the Cluster specifically in helping Collaboration with Private Sector Actors secure the buy-in of the private ¡¡ Engage in public-private discussions sector in Yemen’s reconstruction on regulatory reform in Yemen and recovery efforts. In the medium- and on increasing private sector and long-term, such engagement participation in recovery and would also contribute to reforming reconstruction efforts. The conflict the business environment and has degraded the general business championing favorable policies that environment and the business promote exports and attract private community continues to suffer from sector capital and investment Without regulatory unpredictability and from a doubt, the recovery and expansion substantial spending on taxes and of the private sector is critical for other regulatory fees. Such regulatory economic growth and stability in challenges are likely to continue post-conflict Yemen. The international post-conflict if structured discussion community, in partnership with among public and private sector the Government of Yemen, should stakeholders does not take place. develop a plan of action considering Thus, the facilitation of Public-Private the above solutions to ameliorate Dialogue (PPD) is indispensable. The the challenges faced by local Yemeni GoY and the international community businesses and pave the way towards should continue its engagement restoring a dynamic economy that with the recently-established Yemen delivers for all. The international Private Sector Cluster. Founded in community and the GoY should take collaboration with the WBG, the Yemen heed of these recommendations and Private Sector Cluster gathers private design new projects tailored towards sector institutions from around the supporting the resilience and recovery country and advocates for the sector, of the Yemeni private sector that also supports the emerging needs in the bolsters the health, prosperity, and country, and acts as a coordination inclusiveness of the Yemeni economy platform that enables the private as a whole. sector to collaborate effectively with 9 Table (1): Summary of Constraints and Interventions Measures Constraints Intervention Measures Support the Resilience & Revitalization of Private Sector Actors: ¡¡ Establish an Early Recovery Financing ed ion al Facility (ERFF) for small and medium iat nci Lac ment Decreas enterprises (SMEs) (Short-Term). Sales ed na f ko rm Fi ¡¡ Support Yemen’s banking sector recovery est or te of Ac (Short-Term). ct Inv In ine Fi ces e gs y na s in bilit ¡¡ Establish A Challenge Fund and/or cl nc to k De n a Venture Capital Firm/Start-up Incubator e Ba Inst sh on ca y iance rel emon (Medium-Term). SME Over s and anies & s closu e n t ¡¡ Revamp Yemen’s information and hrin re kag s CONSTRAINTS paym ge comp n es excha communication technology (ICT) infrastructure (Medium-Term). Maximize Finance for Development through attracting Private Sector Lack of Service Lack of Provision Investment Investments in Support of Restoring Public Goods ¡¡ Establish an Investment Guarantee and Financing Facility (IGFF) to help CONSTRAINTS mobilize private sector capital for high- risk infrastructure projects (Short- and Medium-Term). Political and ¡¡ Execute a deeper analysis and Unemployment Security Risks assessment of the employment situation in the Yemeni private sector. Degraded business Strengthening Coordination, and environment Collaboration with Private Sector Actors ¡¡ Engage in public-private discussions Cumbersome on regulatory reform in Yemen and on taxes and fees increasing private sector participation in Restrictive recovery and reconstruction efforts. regulations 10 METHODOLGY & REPORT STRUCTURE To assess the effects of the 2011 crises and the 2015 conflict on Box 1.1. The 2012 survey was based on a stratified random sampling that was created from the earlier sample of 500 local enterprise, two surveys firms utilized for the 2010 Investment Climate Assessment were undertaken, the Rapid Enterprise Survey conducted by the World Bank. The sample Assessment Survey of Impact of followed the below stratification, the scope of which was Conflict in Private Enterprises in maintained in the sample used for the 2018 rapid survey: Yemen, 2012 and 2018. The 2012 Location: The sample was distributed over six main assessment surveyed the effects governorates and across; 6 main strata; Sana’a, Hodeidah, Taiz, Aden, Al-Mukkala and Ibb. of the 2011 civil strife on business and serves in many cases as a Size: A sub strata under each main stratum was created; cogent point of comparison with ¡¡ First sub-strata: small establishments (5-19 employees); the timely 2018 assessment. The ¡¡ Second sub-strata: medium scale establishments (20- 99 employees) 2012 survey was undertaken with ¡¡ Third sub-strata: large scale establishments (100- over the objectives of: employees) i) establishing the impact Sector: The sample represented some of the most important sectors in the economy, including wholesale and retail trade, of the conflict(s) on transport, manufacturing, health construction and hotels. local private enterprise, As is customary, the sample will not include financial services with a particular focus firms, farms or utilities due to the different nature of their on sales, employment production functions. figures, financing, and investment; ii) creating a firm understanding of the expectations of local businesses over the next two years regarding the aforementioned indicators, and; iii) gaining an understanding of the kinds of assistance most valued by firms. The survey covered 200 firms from six major governorates in Yemen: Sana’a, Aden, Taiz, Ibb, Hodeidah, and Al-Mukkala. 11 Out of the 200 firms, 199 successfully contact information. As such, the survey completed the survey, indicating a success used replacement firms from the 2012 rate of 99.5% assessment, matching the size, sector, and location of the main sample. Following up on the 2012 assessment, the 2018 Rapid Assessment Survey The 2018 assessment in total reached utilized a methodology based on the out to 274 firms and conducted 141 2012 survey to conduct further analysis successful surveys over the period of of the targeted indicators in the 6 years August to September 2018. In comparison in between surveys. As such, the 2012 to the baseline of the 2012 survey, the data collection tools were reviewed and 2018 survey found that 69 firms of the adapted, and the list of the 200 firms total 274 (25.18%) had closed, 40 refused surveyed in the 2012 assessment were to be surveyed, and 24 refused upon used as a sample scope for the number screening (Table 1). Of the 141 completed of businesses required to be surveyed surveys, small firms represent 67.3%, under the 2018 survey. While the initial medium 21.2%, and large 11.3%, with data collection plan for the 2018 report manufacturing firms constituting 54% focused on using phone contact data and service firms making up 46% (Table due to security concerns, ultimately the 2). Geographically, Amanat Al Asimah team conducted face-to-face interviews represented 24.1% of firms surveyed, with selected large businesses to ensure Al-Hodeida 21.2%, Taiz 16.4%, Aden a higher likelihood of response. The represented 15.6%, Hadramuat 13.4%, intended scope necessitated a minimum and Ibb 9.2% (Table 3). of 120 completed questionnaires from the 200 businesses surveyed in the 2012 Table (1): 2018 Interview Results assessment, and followed the design of STATUS NO. OF FIRMS the 2012 assessment regarding business sizes (small, medium, and large), sectors Open/ complete interview 141 (active sample) (wholesale and retail trade, transport, manufacturing, and hotels), and locations Closed 69 (Sana’a, Hodeida, Taiz, Aden, Al-Mukalla, Refused 40 and Ibb). However, the minimum sample failed to be reached due to Screener Refusal 24 many firms being shut down, owners Total 274 refusing interviews, and/or outdated 12 Table (2): Characteristics of The Sample Per Firm Size FIRM SIZE FREQUENCY % FIRM ACTIVITY FREQUENCY % Small 95 67.37% Manufacturing 76 54% Medium 30 21.27% Services 65 46% Large 16 11.34% Total 141 100% 141 100% Table (3): Distribution of Sample Across The Targeted Locations LOCATION MANUFACTURING SERVICES TOTAL % Aden 9 13 22 15.6% Al-Hodeida 19 11 30 21.2% Amanat Al-Asimah 15 19 34 24.1% Ibb 7 6 13 9.2% Hadramaut 12 7 19 13.4% Taiz 14 9 23 16.3% Total 76 65 141 100% The assessment tool (questionnaire) used the objectives of the 2018 rapid survey. in 2012 assessment were modified to fit The final version of the questionnaires 13 used for the data collection, included the assessment questions organized into five sections to determine the impact of the conflict on firms’ sales, employment, investment, and financing. See Annex(I) for the complete set of questionnaires. The findings of both surveys were used as a basis for the given analysis. While incorporating some analysis from the 2012 assessment for comparison, the majority of analysis on this report is based off of the 2018 survey due to its timeliness and expanded scope. PART ONE COUNTRY CONTEXT In 2011, protracted conflicts in Yemen devastated the already struggling economy and caused large numbers of causalities, widespread poverty, and one of the largest humanitarian crises in the world. The 2011 crisis represented the culmination of simultaneous political, social, and economic challenges that resulted in a contraction of 12 percent of GDP that year. The severe fuel shortages resulting from the crisis, along with the repeated attacks targeting power transmission lines and the overall deteriorated security situation, seriously disrupted the operations of many economic sectors. Difficult as they may have been prior to 2015, those economic challenges do not compare to the current dire situation that has occurred as a direct consequence of the conflict that began on March 2015. The 2015 conflict has resulted in massive casualties, a wave of internally displaced persons, substantial infrastructure damage, and hampered service delivery across Yemen. Key infrastructure including major roads and bridges have been destroyed, power lines have been debilitated, and oil and gas production came to a complete halt for months, only to resume slightly a year after the start of the conflict. In total, according to the 2018 Humanitarian Needs Overview, approximately 22.2 million people— the equivalent of 75 percent of the population 15 of the Republic of Yemen—are in need of some manner of humanitarian protection or assistance4. The business climate across Yemen has dramatically deteriorated, and businesses throughout the country have suffered extensively. The private sector constituted 50% to GDP and provided employment for around 69.4% of the total employed population.5 Currently, with the private sector in disarray, the economic pain is widespread and deeply felt: the cumulative real contraction of GDP between 2015 and 2018 is estimated at $49.8 billion6. At present, the 2015 conflict has collapsed the main productive sectors of the Yemeni economy. Among the major factors stifling businesses include: (i) currency devaluation; (ii) fuel and power cuts; (iii) road blockages; (iv) security unrest; (v) lack of foreign skilled workforce; (vi) political instability; (vii) scarcity; (viii) improbability and volatility of the availability raw materials, and; (ix) unbearable logistical and tariff costs. This devastation has resulted in an amalgam of constraints and challenges, which include public finance and liquidity crises, physical damages, economic losses, and the large-scale restriction of internal and external transactions. 4 United Nations Office for the Coordination of Humanitarian Affairs, 2018 Humanitarian Needs Overview—Yemen (https://reliefweb.int/report/yemen/yemen-2018-humanitarian-needs-overview-enar). MoPIC (2018): Yemen Socio-Economic Update. Issue (35), July 2018. 5 MoPIC (2018): Yemen Socio-Economic Update. Issue (39), December 2018. 6 PART TWO FINDINGS OF THE 2018 SURVEY SUMMARY OF KEY FINDINGS Findings from the 2018 survey indicate that the business community in Yemen experienced constraints that for many businesses constituted a force majeure, hindering their ability to either operate effectively or plan ahead for the future. The top constraints to doing business were service disruptions (31.2%), loss of customers and supplies (25.5%), financial problems (16.3%), and business services problems (9.2%). Moreover, 69 (25.18%) of the total 274 firms had closed, citing security issues in conflict zones, economic devastation and financial recession, and the shelling of firms as the main reasons for closure. These and other forces have also forced 17% of surviving firms to relocate within Yemen. Sales have plummeted, and business operations have taken a steep hit. Over 80% of firms reported a decrease in sales averaging around 54.4%. Of the firms that export, 78.5% stated a decrease in sales averaging 79.17%, and 85.8% of firms noted 17 a conflict-related jump in prices. Business operations have also slowed, with 31.9% of firms experiencing non-operational time, 44.7% reporting a decrease in working hours, and 53.9% noting a change in the number of permanent workers. In addition, the lion’s share of firms (76.6%) lost important customers and contracts from the conflict. Supply chains have been disrupted, with 60.3% of participants facing the interruption of domestic supplies, and 53.9% noting disruptions in imported supplies. Most firms (75.2%) report a spike in the cost of supplies. Businesses are finding it hard to finance themselves, and financial intermediation is in decline. Restrictions to both accessing any source of credit (61.7%) or foreign exchange (65.9%) under the crisis was reported by the surveyed firms. Most firms (71.6%) do not have credit, half of firms have observed an increased cost of financing, and 53.9% of firms bemoan an average 45.05% increase in the share of late and nonpaying customers, all of which taken together put heavy financial pressure on local businesses. Financial intermediation has been undermined, with 47.5% of firms relying on money exchange companies and only 13.5% utilizing the banking system. The conflict has also increased the overreliance on cash; 97.2% of firms pay employees in cash, and suppliers, also, are overwhelmingly paid in cash (68.1%). Lastly, investment has taken a hit, with only 13.5% of firms making investments since the conflict began in 2015. IMPACT ON FIRM CLOSURE AND RELOCATION Figure (4): Biggest Constraints to Doing Business (By Percentage) Service Interruptions 31.2% Physical Damage & Insecurity 7.8% Transport Problems 3.5% Loss of Customers & Suppliers 25.5% Loss of Staff 0.7% Financial Problem 16.3% Business Services Problems 9.2% Others 2.8% 0 5 10 15 20 25 30 35 18 Under the pressures of the conflict, many firms have closed their doors. Sixty-nine (25.18%) of the total 274 firms have closed. Among the main reasons for these closures are: i) lack of security; ii) economic recession, and; iii) the shelling of firms (Table 5). Security (40.6%) and economic issues (33.3%) were responsible for the largest percentage of closures. Medium size firms (46%) experienced the most closures, followed by large (33%) and then small (27.94%). Geographically, the regions most affected by closures were Taizz (48.89%), Al Hudaydah (43.40%), and Amanat Al Asimah (28.26%). Figure (5): Reasons for Firm Closure Economic recession/ Financial problems 36 Other 18 Lack of raw materials 8 Security/conflict zone 38 In addition to closures, many firms have been forced to relocate to survive. Of the firms interviewed, while 78% did not change their location, 17% changed or were in the process of relocating within Yemen, and 2.8% had plans to relocate outside of the country. Moreover, of the 17% who have moved or are moving within Yemen, 41.7% chose Sana’a and 20.8% Ibb. Only a handful, four firms, moved outside the country to Oman, India, and Dubai. IMPACT ON SALES The conflict has caused a sizeable distortion in local sales, stifling business. Approximately 80.9% of 2018 respondents reported a decrease in sales. Small firms experienced the largest decrease in sales (85.7%), followed by medium-sized (74.1%) and then large-sized (62.5%). The average rate of reduction for sales was 54.48%. On exports, of the 9.9% of firms under the study who export, 7.14% noted a decline in sales ranging from 20-29%, with 78.5% stating a decrease in upwards of 50%. However, some firms constituting 14% of exporting firms noted a price increase of 10-19% since 2015. 19 Figure (6): Domestic Sales (Increased/ Decreased) 120 114 100 80.9% 80 60 40 22 16 11.4% 15.6% 20 7 5% 0 Increased No Change Decreased Increased & % is not Known Freq % Prices have spiked, while imports have fallen. Of the firms surveyed, the 12 firms who expressed a concrete decrease in the percentage of exports, the average decrease in exports was 79.17%. Regarding the cause of price changes, 85.8% of firms noted a price increase due to the conflict, while 8.5% observed no change and 5% actually observed a decrease. Of the 54% who adjusted prices upwards, the rate of increase exceeded 50%, while 15% noted an increase of 20-29%, and 13% stipulated an increase from 40-49%. Figure (7): Price Adjustments Goods/Services (Increased/ Decreased) 140 121 120 100 85.8% 80 60 40 22 20 12 8.5% 7 15.6% 5% 0 Increased No Change Decreased Increased & % is not Known Freq % 20 IMPACT ON EMPLOYMENT, WORKING HOURS, & CUSTOMER LOSS Employment has been degraded as a result of the war. The 2018 study demonstrates that 22% of the surveyed employ temporary workers. Of those, over the two-month period before being surveyed, 67% utilized less than 10 temporary laborers a day, 16.1% used 21-30 a day, and 9.6% used 10-20 daily. More strikingly, 53.9% noted a change in the number of permanent workers, demonstrating that the volume of permanent workers dropped 4,900 in 2014 and 3,938 in 2018, a change of -20%. On average, large firms lost 13.67 full-time workers, medium firms 12.72, and small firms 5.93. Notably, on average, tourism lost 39.1 employees, metal products 11.83 workers, non-metallic mineral products 11.8, wholesale 10 employees, and garments 7.28. Regarding part-time employees, the number decreased by 1,830 in 2017 and 1,322 in 2018, indicating a change rate of -27%. Figure (8): Percentage Change in Permanent Workers 90 80 79 70 60 53.9% 50 48 40 34% 30 20 13 9.2% 10 4 2.8% 0 Yes (%) No Change Don't Did Want Change Know to Answer Freq % With employment, the everyday operations of firms have also declined. In the 2018 study, 31.9% of firms experienced non-operational time due to civil conflict and mobility issues for employees, with non-operational periods varying significantly: 35.5% of firms experienced less than 10 non-operational days, 22.2% of firms had 21-30, and 20% of firms were closed for over 50 days. 21 Compared to 2015, 47.5% of respondents said that working hours remained unchanged, and 44.7% noted a decrease in working hours, with 6.4% observing an increase. Notably, Taiz (73.9%), Al Hudaydah (56.7%), and Ibb (53.85%) observed a decrease in operational hours, while Aden (13.64%) and Amanat Al Asimah (12.12%) noted an increase in hours. Firms in Taizz expressed a 47.67% decrease, in Amanat Al Asimah a 37.25% decrease, and in Ibb a 36% decrease. Large (50%), medium (25.9%), and small (49%) firms experienced a decrease, though 12.5% of large, 7.4% of medium, and 5.1% of small experienced an increase. Small firms were impacted most (40.26%), followed by large firms (29.38%) and then medium firms (28.13%). Across the various sectors, food processing (57.9%), non-metallic mineral products (53.8%), and garments (52.6%) noted the most widespread decrease in working hours, while other manufacturing (20%), wholesale (18.2%), and garments (10.5%) saw an increase. Metal products (50%), garments (45%) tourism (44.17%), and non-metallic mineral products (35.83%) were hit the hardest. Working hours reduced by more than 50% were observed by 45.6%, and 21% believe working hours decreased by 30-39%. Figure (9): Firms Who Lost Key Customers & Contracts 110 108 100 90 80 76.6% 70 60 50 40 29 30 20.6% 20 10 3 2.1% 1 0.7% 0 Yes No Don't Did Not Want Know to Answer Freq % 22 The lion’s share of firms experienced losses in customers and contracts. Most of the sample – 76.6% - lost important customers and contracts from the conflict. Large (75%), medium (74.07%), and small-sized firms (76.6%) were all significantly affected. The same applies to firms by sector, with metal products (84.21%), wholesale (81.82%), and retail (78.39%) the most impacted. Geographically, while all firms were heavily affected, firms in Taiz (91.30%), Amanat Al Asimah (81.82%), and Al Hudaydah (80%) were hit the hardest. Figured (10): Firms Who Lost Customers & Contracts, By Size 80 75% 74.7% 76 76.6% 70 60 50 40 30 20 20 12 10 0 Large Medium Small No of firms % of firms in category IMPACT ON INPUTS AND COSTS Delays abound and disruptions to imports and supply chains are commonplace. The conflict has resulted in widespread disruptions to local supply chains, with 60.3% of participants facing the interruption of domestic supplies. Roughly 49% of firms note a delay of less than 10 days, 32% a delay from 10-20 days, and 10% a delay exceeding 50 days. Regarding imported supplies, 53.9% noted disruptions, with 38.1% of that population estimating additional days for the arrival of goods over 50 days and 22.3% from 10-20 days. Regarding sector-level import disruptions, fabricated metal products 23 (68.42%), garments (63.16%), and wholesale (63.64%) were the three most-affected sectors. Indeed, as a result of the conflict, imports fell from an all-time high of US$ 15.98 billion in 2013 to US$ 7.18 billion in 20177. More recently, clashes at the crucial port of Hodeidah have drastically impeded imports due to flare-ups in the fighting. Since 2015, imports have been restricted from entry into Yemen and also their distribution both delayed and obfuscated by the warring parties8. Figure (11): Disruptions to Imported Supplies in Days ADDITIONAL DAYS TO RECEIVE NO. OF FIRMS SUFFERS DISRUPTIONS % IMPORTED SUPPLIES IN IMPORTED SUPPLIES Lower than 10 9 11.8% 10 -20 day 17 22.3% 21-30 day 10 13.1% 31- 40 day 1 1.3% Higher than 50 29 38.1% Don’t know/ did not answer 10 12.1% Total 76 100% Fiscal pressure on businesses has accumulated in the form of costs for supplies, security, and other fees. Since 2015, 75.2% of firms have reported that the cost of supplies have increased. Of those who marked an increase, 71% of the population noted an increase upwards of 50%, while 6.4% was unable to determine the rate of change, and 7.1% had indicated conversely a fall in prices. Geographically speaking, firms in Al Hudaydah (93.33%), Taizz (87.33%), Ibb (78.95%) Amant Al Asimah (72.73%) noted an increase in the cost of supplies, while an 80% and 73.38% increase were noted in Al Hudaydah, and Amanat Al Asimah, respectively. In addition to supplies, other costs have also increased: 26.2% of the sample observed an increase in the costs of security, of which 56.7% noted an increase of over 50%. What’s more, 20.6% of firms suffered additional losses from theft and vandalism, and taxes and other payments to state agencies increased from 2015 according to 56.7% of the reviewed. Uhttps://tradingeconomics.com/yemen/imports 7 Mhttps://www.amnesty.org/en/documents/mde31/8505/2018/en/ 8 24 Figure (12): Disruptions in Imported Supplies As A Result Of The Conflict 80 76 70 60 53.9% 50 42 40 29.8% 30 22 20 15.6% 10 1 0.7% 0 Yes No No Don't imports Know Freq % Figure (13): Disruptions in Domestic Supplies As A Result Of The Conflict 90 85 80 70 60.3% 60 54 50 38.3% 40 30 20 10 2 1.4 % 0 Yes No Don't Know Freq % 25 Figure (14): Cost of Supplies Figure (15): Spending on Taxation or (Increased/Decreased) Other Payments to The State Compare With 2015 or Local Authorities Increased Increased 56.7% 75.2% No Change No Change 9.9% 24.1% Decreased Decreased 10.6% 2.8% IMPACT ON FINANCING AND CASH MANAGEMENT Access to finance has been greatly restricted. Further restrictions to financing and cash management have arisen since 2015: 61.7% of participants noted some manner of restrictions, mild or significant, in access to any source of credit under the current crisis. In addition, a total 65.9% of firms note some form of restrictions, significant or moderate, in accessing foreign exchange (FX). Figure (16): Obtaining Credit Compared to 2015 Significant restrictions 48.9% Mild restrictions 12.8% Easier 2.1% Don't know 29.1% Did not want to answer 1.4% As usual 5.7% 0 5 10 15 20 25 30 35 40 45 50 26 Figure (17): Ease of Obtaining Foreign Currency As Compared to Before 2015 Don't know Did not want to answer 29.83% 1.40% As usual 2.80% Mid restrictions 18.42% Significant restrictions 47.55% Credit is both hard to come by and increasingly sourced by informal means, while nonpayment abounds. In 2018, 71.6% of firms did not have credit. In spite of this, 50.4% of firms were not dependent on any form of loans, while 19.9% relied on bank loans, 15.6% relied on loans from suppliers or advance payment from customers, and 2.9% counted on personal loans or microfinance. Family and friends, at 14.2%, were also a large source of support to firms. What’s more, 50% of firms claim that the 27 cost of financing has increased and 62.5% observed that the volume of cash payment obligations to suppliers has increased. Regarding nonpayment, 53.9% of firms bemoan the increase in the share of late and non paying customers, 19.9% expressed a decline in arrears, and 14.2% noted no change in comparison with 2015. On average, the share of late and nonpaying customers increased by 45.05%. The conflict has caused both the non-usage and apparent skepticism in the formal banking sector. This is reflected in the fact that 47.5% of the surveyed rely on money exchange companies for money transfers. Roughly 32% do not approach banks, only 13.5% utilize the banking system, and even fewer – less than 1% - use ATMs. Half of large firms have access to a functioning bank branch, while 18.5% of medium firms and 6.1% of small firms had the same access. For small firms, 51% indicated a reliance on money exchange companies, and 38.78% indicated having no access to any branch. Moreover, financial transactions in Yemen overwhelmingly depend on cash payments over banking transactions: 97.2% of firms pay employees in cash, with just 2.1% operating through the banking system. Suppliers, also, are overwhelmingly paid in cash (68.1%), or through cash transfer through money exchange companies (20.6%). Only 7.6% of suppliers are paid through the formal banking system. Figure (18): Regular Access to Banks No access to any braanch 32.6% Hawala (exchangers) 47.5% Access to functioning bank 13.5% Access to ATM 0.7% Don't know 3.5% Did want to answer 2.1% 0 5 10 15 20 25 30 35 40 45 50 28 Figure (19): Mode of Payment (Suppliers & Employees)      68.10 % 7.80 % 20.60 % 2.80 % 0.70 % In cash Through banking Hawala system Don't know Did not want to system answer PAYMENTS TO SUPPLIERS % PAYMENTS TO EMPLOYEES %    97.2 % 2.10 % 0.70 % In cash Through banking Hawala system system IMPACT ON INVESTMENTS AND ARREARS Widespread uncertainty has both caused investment to plummet and arrears to balloon. The conflict has taken toll on the investment climate and business confidence. Only 13.5% of firms have made investments since the outbreak in 2015, compared to the 84.5% who have abstained from investing. Most notably, geographically speaking 40.9% of firms in Aden and 26.3% of firms in Hadramaut boosted investment. By firm size, 56.3% of large firms, 14.8% of medium, and 6.1% of small firms made investments. The sectors that made investments most consistently were food processing (31.6%), tourism (30%) and other manufacturing (20%). A sizeable 61.7% of those surveyed canceled their plans to invest, while 36.9% upheld their plans (Figure 20). Fortunately, only 17% of the sample had non-paid government debt, and 77.3% did not have government arrears. However, for those affected by arrears, 8.3% were affected severely, 29.1% moderately, and 25% substantially. 29 Figure (20): Investments Made Since 2015 Vs. Investment Plans Cancelation Yes Yes 61.70% 84.40% No 36.90% Don't Know No 13.50% Don't Know 2.10% 1.40% Investment Made Planned Investment Is Canceled PART THREE COMPARISONS BETWEEN 2012 AND 2018 FINDINGS A myriad of obstacles have persisted between 2012 and 2018, resulting first and foremost in shrinkages. As such, results from the 2018 survey indicated a significant change in the size of businesses compared to the 2012 data: 51% of the sample has experienced a change in size, with 29.7% shrinking from small to micro (<5 employees), and 22% shrinking from large to medium, or medium to small. Among the main reasons for firm shrinkage due to the conflict are: i) financial recession and substantial depreciation of the Yemeni Rial (YER) to the U.S. Dollar; ii) a spike in the price of raw materials; iii) electricity shortages and the high price of petroleum necessary for powering generators, and; iv) diminished market demand. For those few firms that increased in size during this time frame, however, this can be likely be attributed to conflict-related population shifts. The city of Ibb, for instance, as a non-conflict zone 31 experienced a large influx of people fleeing the conflict, bolstering supply and demand as a development factor for the city. Table (21): Size Change (Small to Micro) ADEN AL-HODEIDA SANA’A HADRAMAUT TAIZ IBB TOTAL No. Of Firms 4 14 9 2 10 3 42 (29.7% of the sample) Percentage 9.52% 33.3% 21.43% 4.8% 23.8% 7.14% 100% Table (22): Size Change While some parity exists between assessment Among the Sample periods, on balance, the current civil conflict in Yemen appears to have had a more detrimental FROM TO NO. OF FIRMS impact on local businesses than the civil strife in Medium Small 21 2011. The status of exporters and credit-holders Large Medium 1 remained relatively consistent, as in the 2012 Small Medium 4 analysis in which 89% of firms indicated that they Medium Large 4 did not export, roughly 10% of 2018 firms export, Small Large 1 and in 2018, 71.6% of firms did not have credit, Total 31 compared to 73% in 2012. Regarding sales, the (22% of the sample) current period has proved more detrimental; 71% of participants in 2012 identifying a sizeable decrease in sales, while 80.9% of the 2018 respondents noted a similar drop. In addition, the investment climate as of 2018 appears to be in a worse state than 2012, as in 2012 investments decreased from only 30% of firms between 2010 and 2012, while a meager 13.5% of firms have made investments between 2015 and 2018. The recent conflict also more strikingly affected employment and operations. In particular, 53.9% of firms in 2018 noted a change in the number of permanent workers, demonstrating that the volume of permanent workers dropped 4,900 in 2014 and 3,938 in 2018, a change of -20%. Regarding part-time employees, the number decreased by 1,830 in 2017 and 1,322 in 2018, indicating a change rate of -27%. Comparatively, according to the 2012 study, 38% of firms noted a decrease in employment, while 14% noted an increase. Of the 199 firms surveyed in 2012, jobs were permanently eliminated for 1,133 full-time employees and 209 part-time employees since 2010. In the 2018 study, 31.9% of firms experienced non-operational time due to civil conflict 32 and mobility issues for employees, with non-operational periods varying significantly: 35.5% experienced less than 10 non-operational days, 22.2% had 21-30, and 20% of firms were closed for over 50 days. Meanwhile, 41% of 2012 firms experienced a decrease in the number of hours, in total amongst the 199 firms surveyed 10,633 days of production/operations were lost due to infrastructure interruptions, 2,967 due to civil disorder, and 207 to labor strikes. The sectors who lost the most days of production/operations were non-metallic mineral products (3,551 days), other services (3,038 days), and retail (1,946 days). By size, small firms lost the most days (6,588), followed closely by medium firms (6,173), and then large firms (1,046). RECOMMENDED OPTIONS 33 FOR INTERVENTIONS SUPPORT THE RESILIENCE AND REVITALIZATION OF PRIVATE SECTOR ACTORS  1 2  PRIVATE SECTOR INVESTMENT IN RESTORING PUBLIC GOODS  3 STRENGTHENING COORDINATION AND COLLABORATION WITH PRIVATE SECTOR ACTORS PART FOUR RECOMMENDED OPTIONS FOR INTERVENTIONS Undoubtedly, the conflict in Yemen has devastated the Yemeni business environment, problematizing both the effective operations and future planning for the success and health of businesses. Businesses face tremendous challenges and constraints. The prolonging of conflict, coupled with inaction to address the aforementioned constrains, not only undermine private sector activities in the country and drastically decrease the chances of their survival, but also threaten the health of the Yemeni economy. As such, the findings of this report indicate the need for a sound and integrated program design aimed at addressing the top constraints facing the private sector, and ultimately enabling its recovery. Grouped into three categories, the recommended options for intervention presented below revolve around addressing the market failures 35 arising from conflict that severely impact private sector operations. Interventions have been identified that: i) encourage the resilience and revitalization of private sector actors; ii) encourage investment in restoring public goods, and; iii) strengthen coordination and collaboration with private sector actors. The below interventions will enable early private sector recovery and contribute to the overall recovery of Yemen’s economy and restoration of livelihoods. Notably, the proposed interventions aim to “prime the pump” for private sector investment and activity in Yemen. These measures will help de-risk doing business in Yemen for both Yemeni and foreign businesses alike, and provide financial and technical support to maximize the benefit of the momentum generated by reconstruction and recovery for the Yemeni private sector to promote an inclusive and sustainable recovery. The interventions will support the resilience of local enterprises still operating in the country, aid in the recovery and revitalization of the struggling firms, and attract private sector capital from local investors, the Yemeni diaspora, regional businesses, and beyond. By reducing risks to lenders on guaranteed transactions, these efforts will also contribute to revitalizing the financial sector which is essential to overall private sector recovery and growth. SUPPORT THE RESILIENCE AND REVITALIZATION OF PRIVATE SECTOR ACTORS Addressing the following private sector constraints: SME closures and shrinkages; access to finance; lack of investment; decreased sales; decline of financial intermediation; banking sector instability; overreliance on cash payments and money exchange companies. The following interventions are recommended to encourage the resilience and revitalization of private sector actors: Establish an SME Early Recovery Financing Facility (Short-Term). By many metrics, the conflict has had the most devastating impacts on small businesses: small businesses demonstrated the least investment and access to credit and were hit hardest by diving sales numbers. Medium-sized firms, meanwhile, experienced the most closures. Recovery financing will be instrumental in the immediate term to enable enterprises to recover from physical and non-physical losses and access immediate working capital. An enterprise recovery financing facility would provide recovery financing (grants, lines of credit and partial credit guarantees) to enable local 36 enterprises to restore their economic activities and provide essential goods, services and jobs within their communities. The governance structure and implementation arrangements of the facility should build on the implementation mechanisms already established under the various WB/UN emergency projects with an emphasis on choosing competent local institutional partners to lead the implementation of the facility. The financing instruments will be determined on the basis of the market failures targeted by the intervention (i.e., physical damages, increase in risks, etc.) and financing needs of financial institutions (i.e., liquidity, risk mitigation instruments, etc.). There may also be a case for expanding this form of recovery grants to MSMEs that have already been forced to close and wish to re-open or even to entrepreneurs who wish to start a business. Support Yemen’s banking sector recovery (Short-Term). Given the paucity of investment, credit, and financial intermediation, as well as the over-reliance on cash payments and on money exchange companies, confidence and stability need to be returned to Yemen’s banking sector, the backbone of any robust economy or private sector activity. The GoY and the international community need to scale-up existing interventions targeting the resilience of financial intermediaries in the country, and these interventions should be sustained, and extended across the board to struggling financial intermediaries in the country. Since 2015, the World Bank has been extending support to Yemeni financial intermediaries and microfinance institutions in the country to support their resilience and enable them to continue to provide financial services to their estimated 92,000 active clients in urban and rural areas. Additionally, the World Bank and other development partners supported the establishment of a Loan Guarantee Program, the first ever in the country, to support the extension of guarantees to SME clients and to reduce the collateral requirement of commercial and Microfinance Banks in Yemen. After the conflict has stabilized and reconstruction begins in full, actions needs to be taken by the GoY and the international community to support the extension of wholesale facilities to banks and microfinance institutions in order to inject liquidity and facilitate the resumption of credit and equity finance toward the private sector. Establish a Challenge Fund and/or Venture Capital Firm/Start-up Incubator and revamp the information and communication technology (ICT) infrastructure (Medium-Term). 37 After the conflict subsides, establishing a Challenge Fund for SMEs in Yemen, or a Venture Capital Firm/Start-Up Incubator could help address both the shrinkages and closures of SMEs by providing necessary seed and growth capital. It is also essential to revamp the information and communication technology (ICT) infrastructure and introduce broadband access to SMEs throughout the country. Adequate ICT infrastructure supports a wide range of business operation as well as facilitates business transactions and finances. PRIVATE SECTOR INVESTMENT IN RESTORING PUBLIC GOODS Addressing the following private sector constraints: lack of service provision; political and security risks; lack of investment; unemployment The following interventions are recommendations to encourage private sector investment in restoring public goods: Establish an Investment Guarantee and Financing Facility (IGFF) to help mobilize private sector capital for high-risk infrastructure projects (Short- and Medium-Term). Considering that service disruptions remain the largest stumbling block to the successful operation of local businesses, combined with the unlikelihood of the post-conflict government having the resources necessary to finance the infrastructure needs of the country post-conflict, the international community needs to support the establishment of a guarantee and financing facility to enable local private sector and FDI participation in the immediate restoration of public goods. The IGFF would be used to provide protection to investors and contractors engaged in business in Yemen. It will be designed to cover investors - foreign, domestic, and from the Yemeni diaspora - and provide coverage against traditional political risks (war and civil disturbance, expropriation, breach of contract, and transfer restrictions). It will serve to de-risk investments, including any potential IFC investments under the Private Sector Window (PSW), as well as risks from business transactions in Yemen (such as public contracts for infrastructure or the provision of other goods, services and works). The pipeline for such a guarantee facility is expected to emerge as reconstruction activities begin in earnest and is expected to be focused in the energy, transport, construction, agriculture, and urban construction sectors. The guarantee and financing facility could be administered by the Multilateral Investment Guarantee Agency (MIGA), as in the Afghanistan Investment Guarantee Facility, by a 38 commercial bank or agent, or by a Gulf Cooperation Council (GCC)-based entity, such as the Islamic Development Bank’s Islamic Corporation for Insurance of Investments and Export Credits (ICIEC) or the Arab Investment and Export Credit Guarantee Corporation (Dhaman). The design of this facility would benefit from lessons learned on similar International Development Association-financed guarantee facilities in crisis settings such as Afghanistan, Bosnia & Herzegovina, Palestine, and Albania. The facility could follow a similar model to the Conflict-Affected and Fragile Economies Facility (CAFEF) in West Bank and Gaza but with greater funds, availability solely to Yemen, and with lower rates such that local and diaspora investors would also have access. The GCC countries are one potential source of financing for such a facility. Execute a deeper analysis and assessment of the employment situation in the Yemeni private sector. While this survey was able to partially cover employment and provide findings, it was only able to scratch the surface; much more remains to be discovered and is necessary for the successful revitalization of the Yemeni job market. As such, in coordination with the International Labor Organization (ILO), a deep-dive should be undertaken to assess the full extent of the effects of the conflict on private sector employment with a focus on multi-causal explanations for both causes for unemployment and barriers to restoring job security. STRENGTHENING COORDINATION AND COLLABORATION WITH PRIVATE SECTOR ACTORS Addressing the following private sector constraints: degraded business environment; restrictive regulations; cumbersome taxes and fees The following interventions are recommendations aimed at strengthening coordination and collaboration with private sector actors: Engage in public-private discussions on regulatory reform in Yemen & on increasing private sector participation in R&R efforts. In addition to the conflict degrading the general business environment, the business community continues to suffer from regulatory unpredictability and from substantial spending on taxes and other regulatory fees. Such regulatory challenges are likely to continue post-conflict if structured discussion among public and private sector 39 stakeholders does not take place. Thus, the facilitation of Public-Private Dialogue (PPD) is indispensable. This approach has been demonstrated to be effective in other post-conflict contexts. For example, a post-completion evaluation of the Nepal Business Forum Phase I (NBF) undertaken by the Independent Evaluation Group (IEG) further confirmed the usefulness of a PPD in a conflict-affected state. The IEG found the objective to promote PPD around private sector reforms in the context of a country’s struggle to establish democracy appropriate. Under this project, the PPD objectives have been broadly met. In addition, by August 2012, during the second phase of this project, over 41 recommendations of 120 coming from the PPD had been implemented. Two of these reforms have delivered US$5.67 million in private sector cost savings, notably in an environment of significant political turmoil and previously little public-private or even private-private dialogue. Such an approach would be beneficial applied in the Yemeni context. As such, the GoY and the International community should continue its engagement with the recently established Yemen Private Sector Cluster. Founded in collaboration with the WBG, the Yemen Private Sector Cluster gathers private sector institutions from around the country and advocates for the sector, supports the emerging needs in the country, and acts as a coordination platform enabling the private sector to collaborate effectively with donors and government agencies. As an immediate measure, the GoY and the International Community should further support and engage proactively with the Cluster specifically in helping secure the buy-in of the private sector in Yemen’s reconstruction and recovery efforts. In the medium- and long- term, such engagement would also contribute to reforming the business environment and championing favorable policies that promote exports and attract private sector capital & investment. Without a doubt, the recovery and expansion of the private sector is critical for economic growth and stability in post-conflict Yemen. The international community, in partnership with the Government of Yemen, should develop a plan of action considering the above solutions to ameliorate the challenges faced by local Yemeni businesses and pave the way towards restoring a dynamic economy that delivers for all. The international community and the GoY should take heed of these recommendations and design new projects tailored towards supporting the resilience and recovery of the Yemeni private sector that also bolsters the health, prosperity, and inclusiveness of the Yemeni economy as a whole. 40 Table (1): Summary of Constraints and Interventions Measures Constraints Intervention Measures Support the Resilience & Revitalization of Private Sector Actors: ¡¡ Establish an Early Recovery Financing ed ion al Facility (ERFF) for small and medium iat nci Lac ment Decreas enterprises (SMEs) (Short-Term). Sales ed na f ko rm Fi ¡¡ Support Yemen’s banking sector recovery est or te of Ac (Short-Term). ct Inv In ine Fi ces e gs y na s in bilit ¡¡ Establish A Challenge Fund and/or cl nc to k De n a Venture Capital Firm/Start-up Incubator e Ba Inst sh on ca y iance rel emon (Medium-Term). SME Over s and anies & s closu e n t ¡¡ Revamp Yemen’s information and hrin re kag s CONSTRAINTS paym ge comp n es excha communication technology (ICT) infrastructure (Medium-Term). Maximize Finance for Development through attracting Private Sector Lack of Service Lack of Provision Investment Investments in Support of Restoring Public Goods ¡¡ Establish an Investment Guarantee and Financing Facility (IGFF) to help CONSTRAINTS mobilize private sector capital for high- risk infrastructure projects (Short- and Medium-Term). Political and ¡¡ Execute a deeper analysis and Unemployment Security Risks assessment of the employment situation in the Yemeni private sector. Degraded business Strengthening Coordination, and environment Collaboration with Private Sector Actors ¡¡ Engage in public-private discussions Cumbersome on regulatory reform in Yemen and on taxes and fees increasing private sector participation in Restrictive recovery and reconstruction efforts. regulations 41 REFERENCES United Nations Office for the Coordination of Humanitarian Affairs. 2018. 2018 Humanitarian Needs Overview—Yemen. December 2017. https://reliefweb.int/report/ yemen/yemen-2018-humanitarian-needs-overview-enar. Yemen, Ministry of Partnership and International Cooperation (MoPIC). 2018. Yemen Socio-Economic Update. Issue (35). July 2018. Yemen. Yemen, Ministry of Partnership and International Cooperation (MoPIC). 2018. Yemen Socio-Economic Update. Issue (39). December 2018. Yemen. Trading Economics. 2019. Yemen Imports. https://tradingeconomics.com/yemen/imports World Bank Policy Notes Series. 2017. Economic, Fiscal and Social Challenges in the Early Phase of a Post Conflict Yemen. Washington, DC: World Bank. World Bank Policy Notes Series. 2017. Private Sector Readiness to Contribute to Reconstruction & Recovery in Yemen. Washington, DC: World Bank. Small and Micro Enterprise Promotion Service (SMEPS). 2015. Rapid Business Survey, Impact of the Yemen Crisis on Private Sector Activity (2015). Yemen. Amnesty International. 2018. Yemen: Stranglehold: Coalition and Huthi Obstacles Compound Yemen’s Humanitarian Crisis. 22 June 2018. 42 ANNEX (1) FCV Rapid Assessment Survey Questionnaire READ THE FOLLOWING TO RESPONDENT BEFORE PROCEEDING. This survey is intended to understand the impact of the recent conflict on the private sector. It is a follow up to the survey you participated in back in 2012 which was also completed by Prodigy Systems. The information collected is confidential and responses will be grouped in the analysis. The names of participating firms and respondents will not be used in any document based on the survey. Your answers should reflect only your experience of doing business in your country. Please note we are interested in the experience of your business(es) inside Yemen. A) BASIC INFORMATION (2012 DATA TO BE COMPLETED BEFORE INTERVIEW, 2018 TO BE UPDATED FROM INTERVIEW) 2012 DATA 2018 DATA Country: Questionnaire ID: 2012 DATA 2018 DATA Company / Establishment Name Q 0.1 Q 0.2 Street Address Q 0.3 Q 0.4 City Q 0.5 Q 0.6 Phone Q 0.7 Q 0.8 Email Q 0.9 Q 0.10 43 NAME OF PERSON POSITION MOBILE NUMBER EMAIL ADDRESS SURVEYED Q 1.1 Q 1.2 Q 1.3 Q 1.4 Q2) Are you the owner of the company or one of the owner's?     Don't know Did not want to Yes No (spontaneous) answer (spontaneous) 1 2 9 10 Q3) Are you the manager of the company?     Don't know Did not want to Yes No (spontaneous) answer (spontaneous) 1 2 9 10 Q4) Would you be willing to speak with us again to discuss these issues in more detail?     Don't know Did not want to Yes No (spontaneous) answer (spontaneous) 1 2 9 10 IF NO, END SURVEY LOCATION/ GOVERNORATE GOVERNORATE 2012 GOVERNORATE 2018(Q5.2) Sana'a 1 1 Aden 2 2 Taiz 3 3 Hodeidah 4 4 Mukalla 5 5 Ibb 6 6 CITY / TOWN 6.1 6.2 2012: 2018: (_________________________________________________) (_________________________________________________) (_________________________________________________) (_________________________________________________) (_________________________________________________) (_________________________________________________) 44 INDUSTRY TYPE SECTOR 2012 (Q7.1) SECTOR 20128 (Q7.2) Food processing Textiles Garments Chemicals Plastics & rubber Manufacturing Non metallic mineral products Basic metals Fabricate metal products Machinery and equipment Electronics (31 & 32) Other manufacturing Wholesale Retail Services IT Hotels & restaurants Other services Construction Transportation Q8. SIZE (NO. OF EMPLOYEES) SAMPLE SIZE Small (>=5 and <=19) 1 Medium (=20 and <=99) 2 Large (>=100) 3 B) IMPACTS OF THE CONFLICT Q9) Is your business currently operational in Yemen? I.e. opening its doors or producing actively?     Don't know Did not want to Yes No (spontaneous) answer (spontaneous) 1 2 9 10 45 Q10) Business closure reasons? Q10.1 Business closure due to security reasons _______________________________________________________________________________________________________ Q10.2 Business closure due to finance problems _______________________________________________________________________________________________________ Q10.3 Business closure due to the ahortage/lack of raw material availability _______________________________________________________________________________________________________ Q10.4 other reasons _______________________________________________________________________________________________________ Q10.4 specify other reasons _______________________________________________________________________________________________________ To what extent have you experienced the following problems in your business in the last two months from 1 to 5, from 1 being "not at all", 2 being "very little", 3 being "to a moderate extent", 4 being "to a large extent". and 5 being "severely"?      Not at all Very little To a moderate extent To a large extent Severely 1 2 3 4 5 Water & Waste Q11.1 1 2 3 4 5 Water Service Interruptions Q11.2 Electricity 1 2 3 4 5 Q11.3 Natural Gas 1 2 3 4 5 Fuel supply (diesel/ Q11.4 1 2 3 4 5 gasoline) Q11.5 Phone, Internet, Post 1 2 3 4 5 Garbage collection/ Q11.6 1 2 3 4 5 disposal 46      Not at all Very little To a moderate extent To a large extent Severely 1 2 3 4 5 Damaged or looted Q11.7 building, equipment, 1 2 3 4 5 Physical damage & insecurity computers, etc. Loss of documents/ Q11.8 1 2 3 4 5 records/ data Losses in inventory or stock due to Q11.9 1 2 3 4 5 damage, theft, or vandalism Physical insecurity at Q11.10 1 2 3 4 5 or around premises Transport insecurity- Q11.11 inter-city roads, air, 1 2 3 4 5 Transport problems etc. Transport damage- Q11.12 inter-city roads, 1 2 3 4 5 airports,etc. City street closures, Q11.13 checkpoints or loss 1 2 3 4 5 of public access Q11.14 Loss of customers 1 2 3 4 5 Loss of customers and suppliers Q11.15 Loss of suppliers 1 2 3 4 5 Negative publicity/ Q11.16 image of your 1 2 3 4 5 country or your area Loss of staff: Q11.17 1 2 3 4 5 managers Loss of staff Loss of staff: skilled Q11.18 1 2 3 4 5 workers/technicians Loss of staff: Q11.19 1 2 3 4 5 unskilled workers 47      Not at all Very little To a moderate extent To a large extent Severely 1 2 3 4 5 Problems accessing Q11.20 1 2 3 4 5 Finance problems credit Problems accessing Q11.21 other banking 1 2 3 4 5 services Increase in accounts Q11.22 1 2 3 4 5 receivable Q11.23 Customs delays 1 2 3 4 5 Business services problems Problems with Q11.24 business licensing 1 2 3 4 5 and permits Q11.25 Corruption 1 2 3 4 5 Q11.26 Other (specify) 1 2 3 4 5 Q12) write any extra notes _______________________________________________________________________________________________________ _______________________________________________________________________________________________________ _______________________________________________________________________________________________________ _______________________________________________________________________________________________________ _______________________________________________________________________________________________________ _______________________________________________________________________________________________________ _______________________________________________________________________________________________________ 48 Q13 Of the categories of issues in the previous questions please specify the single biggest constraint to your ability to do business [Surveyor: read the options to the respondent below]: Service interruptions 1______________________________________________________________ Physical damage and insecurity 2______________________________________________________________ Transport problems 3______________________________________________________________ Loss of customers and suppliers 4______________________________________________________________ Loss of staff 5______________________________________________________________ Finance problems 6______________________________________________________________ Business services problems 7______________________________________________________________ Other (please specify) 8______________________________________________________________ Don't know (spontaneous) 9______________________________________________________________ Did not want to answer (spontaneous) 10_____________________________________________________________ Q14) Has your company moved, or is it in the process of moving any operations to a different location as a result of the conflict?     Yes No Don't know Did not want to 1 2 (spontaneous) answer (spontaneous) 9 10 Q15) IF yes the company moved to different location specify(write) the location? _______________________________________________________________________________________________________ Q16) Compared to before the conflict in 2015 have your domestic sales:     Increased Did not provide % Remained the Decreased 1 (spontaneous) same 3 4 2    Did not provide % Don't know Did not want to answer any part (spontaneous) (spontaneous) of the questions(spontaneous) 5 9 10 Q17) If domestic sales Increased /decreased provide the estimated Percentage __________________________________________________________________________  49 Q18) Compared to before the conflict in 2015 have your exports abroad:     Increased Did not provide % Remained the I did not expect either 1 (spontaneous) same in 2015 or today 4 2 3    Did not provide % Don't know Did not want to answer any part (spontaneous) (spontaneous) of the questions(spontaneous) 5 9 10 Q19) If exports abroad Increased/decreased provide the estimated percentage __________________________________________________________________________  Q20) Compared to before the conflict in 2015 have you adjusted your price of goods /services sold as a result of the conflict?     Increased Did not provide % Remained the Decreased 1 (spontaneous) same 3 4 2    Did not provide % Don't know Did not want to answer any part (spontaneous) (spontaneous) of the questions(spontaneous) 5 9 10 Q21) If goods-services prices Increased/decreased provide the estimated Percentage __________________________________________________________________________  Q22) Compared to before the conflict in 2015 has the typical amount of time your business is open and operational on a regular basis:     Increased Did not provide % Remained the Decreased 1 (spontaneous) same 3 4 2    Did not provide % Don't know Did not want to answer any part (spontaneous) (spontaneous) of the questions(spontaneous) 5 9 10 50 Q23) If business operational time Increased/decreased provide the estimated Percentage __________________________________________________________________________  Q24) Compared to before the conflict in 2015, have you lost key customers or contracts as a result of the conflict?     Yes No Don't know Did not want to 1 2 (spontaneous) answer (spontaneous) 9 10 Q25) Did your firm suffer any extra losses from looting, theft or vandalism crimes since the beginning of the conflict in 2015?     Yes No Don't know Did not want to 1 2 (spontaneous) answer (spontaneous) 9 10 IF NO, DON'T KMOW, OR DID NOT WANT TO ANSWER GO TO D1 Q26) If yes, what was the approximate value of these losses as a percentage of your annual sales in 2016?    Yes % is known Don't know Did not want to 1 (spontaneous) answer (spontaneous) 9 10 Q27) IF YES provide annual sales in 2016 estimated Percentage __________________________________________________________________________  D) INPUTS AND COSTS Q28) Do you currently suffer any disruptions in domestic supplies as a result of the conflict?     Yes No Don't know Did not want to 1 2 (spontaneous) answer (spontaneous) 9 10 51 IF NO, DON'T KNOW, OR DID NOT WANT TO ANSWER GO TO D3 Q29) If yes, how much longer (how many more additional days) does it typically take to receive domestic supplies compared to 2015, before the conflict?    Yes & no of Don't know Did not want to days is known (spontaneous) answer (spontaneous) 1 9 10 Q30) If yes no' is known Specify the additional days to get domestic supplies __________________________________________________________________________ Days Q31) Do you currently you suffer any disruptions in imported supplies as a result of the conflict?      Yes No No imports Don't know Did not want to 1 2 3 (spontaneous) answer (spontaneous) 9 10 IF NO, NO IMPORTS, DON'T KNOW, OR DID NOT WANT TO ANSWER GO TO D5 Q32) If yes, how much longer (how many more additional days) does it typically take to receive imported supplies compared to 2015, before the conflict?    Yes & no of Don't know Did not want to days is known (spontaneous) answer (spontaneous) 1 9 10 Q33) If yes Specify the additional days to receive imported supplies __________________________________________________________________________ Days Q34) Compared to before the conflict in 2015 have the cost of your supplies:     Increased Did not provide % Remained the Decreased 1 (spontaneous) same 3 4 2 52    Did not provide % Don't know Did not want to answer any part (spontaneous) (spontaneous) of the questions(spontaneous) 5 9 10 Q35) If cost of your supplies Increased/decreased provide the estimated Percentage __________________________________________________________________________  Q36) Compared to before the conflict in 2015 has your spending on security for your business:     Increased Did not provide % Remained the Decreased 1 (spontaneous) same 3 4 2   Don't know Did not want to answer any part (spontaneous) of the questions(spontaneous) 9 10 Q37) If spending on security Increased/decreased provide the estimated Percentage __________________________________________________________________________  Q38) Compared to before the conflict in 2015 has your spending, either officially or unofficially on taxation or other payments to the State or local authorities     Increased Did not provide % Remained the Decreased 1 (spontaneous) same 3 4 2    Did not provide % Don't know Did not want to answer any part (spontaneous) (spontaneous) of the questions(spontaneous) 5 9 10 Q39) If officially or unofficially on taxation or other payments Increased/decreased provide the estimated Percentage __________________________________________________________________________  53 E) FINANCING AND CASH MANAGEMENT Q40) What is your assessment of the ease of obtaining credit from any source as compared to 2015 before the conflict?       Easier than As Mild Significant Don't know Did not want to answer before usual restrictions restrictions (spontaneous) (spontaneous) 1 2 3 4 9 10 Q41) What is your assessment of the ease of obtaining foreign currency as compared to before the conflict in 2015?       Easier than As Mild Significant Don't know Did not want to answer before usual restrictions restrictions (spontaneous) (spontaneous) 1 2 3 4 9 10 Q42) In 2015 before the conflict, what was your primary source of credit for this establishment?      Credit from suppliers or An informal Banks Micro-finance Friends advances from customers lender 3 institution or family 1 2 4 5     Do not Other Q42 Don't know Did not want to have credit (please specify) (spontaneous) answer (spontaneous) 6 7 9 10 Q43) At this time, what is your primary source of credit for this establishment?      Credit from suppliers or An informal Banks Micro-finance Friends advances from customers lender 3 institution or family 1 2 4 5     Do not Other Q42 Don't know Did not want to have credit (please specify) (spontaneous) answer (spontaneous) 6 7 9 10 IF "DO NOT HAVE CREDIT" GO TO E7 Q44) Do you currently use credit to provide working capital or for investments?      Working Investment Both Don't know Did not want to capital 2 3 (spontaneous) answer (spontaneous) 1 9 10 54 Q45) Has your cost of financing changed due to recent events related to the conflict?     Increased Did not provide % Remained the Decreased 1 (spontaneous) same 3 4 2    Did not provide % Don't know Did not want to answer any part (spontaneous) (spontaneous) of the questions(spontaneous) 5 9 10 Q46) If cost of financing Increased/decreased provide the estimated Percentage __________________________________________________________________________  Q47) Since the start of the conflict in 2015, have your outstanding cash payment obligations (i.e. accounts payable) to suppliers:     Increased Did not provide % Remained the Decreased 1 (spontaneous) same 3 4 2    Did not provide % Don't know Did not want to answer any part (spontaneous) (spontaneous) of the questions(spontaneous) 5 9 10 Q48) If outstanding cash payment obligations Increased/decreased provide the estimated Percentage __________________________________________________________________________  Q49) How has the share of late or nonpaying customers changed as a result of the conflict?     Increased Did not provide % Remained the Decreased 1 (spontaneous) same 3 4 2    Did not provide % Don't know Did not want to answer any part (spontaneous) (spontaneous) of the questions(spontaneous) 5 9 10 Q50) If nonpaying customers Increased/decreased provide the estimated Percentage __________________________________________________________________________  55 Q51) What kind of physical bank branch do you have regular access to?      No access to Access to a Access to a functioning Don't know Did not want to any branch functioning ATM only bank branch (spontaneous) answer (spontaneous) 1 2 3 9 10 Q52) How do you pay suppliers?       In cash Through the formal Through the Other Q52 Don't know Did not want to directly banking system hawala system (please specify) (spontaneous) answer (spontaneous) 1 2 3 4 9 10 Q53) Has your company made any investment in building, plant or equipment since the beginning of the conflict in 2015?     Yes No Don't know Did not want to 1 2 (spontaneous) answer (spontaneous) 9 10 Q54) Did your company cancel any planned investment in building, plant or equipment due to the conflict?     Yes No Don't know Did not want to 1 2 (spontaneous) answer (spontaneous) 9 10 Q55) Does your company have nonpaid government arrears?     Yes No Don't know Did not want to 1 2 (spontaneous) answer (spontaneous) 9 10 Q56) To what extent have the nonpaid government arrears impacted your company?     Severely To a large To a moderate Very 1 extent extent little 2 3 4    Not at all Don't know Did not want to answer 5 (spontaneous) spontaneous) 9 10 56 F) EMPLOYMENT Q57 How do you pay your employees?       In cash Through the formal Through the Other Q57 Don't know Did not want to directly banking system hawala system (please specify) (spontaneous) answer (spontaneous) 1 2 3 4 9 10 Q58) Has your business had any days in which it was fully or significantly non-operational in the last 6 months due to employees being unable to come to work?     Yes Did not provide No Did not want to answer any part 1 days (spontaneous) 2 of the questions(spontaneous) 3 10 Q59) If YES, Specify the days in which it was fully or significantly non-operational __________________________________________________________________________ Days Q60) Have you increased the use of temporary, non-permanent workers since the beginning of the conflict in 2015?     Did not want to answer any part Yes Did not provide No of the questions(spontaneous) 1 number 2 10 3 Q61) Estimated number of temporary workers employed daily during last one to two months __________________________________________________________________________ Days The following question refers only to permanent workers (including management) of your establishment. Permanent workers are defined as all paid workers that are employed for a term of one or more years and/or have a guaranteed renewal of their employment contract and work full day Q62) Equal number of employees in 2014 and 2018   Equal no' in Unequal no' in both years both years 1 2 57 Q63) Since the start of the conflict in 2015, has the number of people employed at your establishment      Increased Remained the Decreased Don't know Did not want to 1 same 3 (spontaneous) answer (spontaneous) 2 9 10 Q64) What was the average number of permanent workers in:    Yes the number Don't know Did not want to is known (spontaneous) answer (spontaneous) 1 9 10 Q65) If yes the average number of permanent workers in known TOTAL Q 65.1 2014 Q 65.2 2015 Q66) What has been the percentage change in permanent workers at your establishment between the start of the conflict in 2015 and now? Enumerator: please record percentage change and whether increase or decrease     Yes the percentage Remained the Don't know Did not want to of change is % same (spontaneous) answer (spontaneous) 1 2 9 10 Q67) IF YES, the percentage of change is known __________________________________________________________________________  Q68) What was the average number of part time permanent workers in:    Yes part time workers Don't know Did not want to can be provided (spontaneous) answer (spontaneous) 1 9 10 Q69) If yes the average number of part time workers is known TOTAL Q 69.1 2014 Q 69.2 2015 58 H) QUESTIONS FOR THE ENUMERATOR Q70) What degree of confidence do you have in their replies?    Low Medium High 1 2 3 Q71) How many calls did it take to complete the interview?    One Two More than 2 1 2 3 Q72) How long did the interview take in minutes? _________________________________________________________________________ Minutes The survey ends here Thank you for your cooperation 59