BREAKING THE CYCLE OF POVERTY IN YEMEN BY ISLAMIC INSPRATION Mohamed Abdul-Rahman Hashem Al- HebshiHead of Agricultural Economic Section,

Agricultural Economics & Extension Department,Faculty of Agriculture, Sana’a University

Republic of YemenP.O. Box. 23368, Sana'a, ROYEmail: malhebshi@hotmail.com

Tel.00966531188016Introduction: -

Yemen is important to world trade and economy due to its strategic location at the Bab el-Mandab strait linking the Red Sea and the Gulf of Aden as well as its oil and natural gas resources. However, poverty is one of the major constraints that prevent the country from participating actively as is supposed to be. Poverty isa phenomenon that is not an outcome of economic process done. Rather, it is a result of economic, social, cultural, and political factors that interact with each other through a range of institutions customary practices, poor administrative capacity, norms, and values. Hence, in order to eradicate poverty, it is important to take into consideration such factors.

Yemen’s 19 million people remain on average among the

poorest in the world. The gross national product per capita

does not exceed US$460,. About 42 percent of households

live below the poverty line, and approximately 33 percent

are unemployed. In addition basic health indicators remain

risky, despite of same improvements over the last decade.

Infant mortality rate is among the highest in the world,

which stands at 76 per 1000 and a high fertility rate

fuels a population growth rate of 3.3 percent. Education

indicators are also low, the adult literacy rate is only 48

The World Fact Book 2003

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percent and the enrollment ratio for basic education is 78

percent. The gender gap is among the widest in the world,

with only 55 percent of primary-school aged girls attending

school and a 15 percent higher child mortality rate for

girls. In addition, Yemen’s major water supply, at 2 percent

of the world average, leaves 90 percent of the population

with less than minimum standards of water supply. Poor

access to safe drinking water and poor sanitation especially

affect girls and women in rural areas, who must walk for

hours every day to collect domestic water.

Therefore, the objective of this study is to illustrate

the vicious circle of poverty in Yemen and suggest some

applicable recommendations that can play a role in breaking

the cycle of poverty in Yemen.

Methodology of the Study:-In this paper the researcher depended on available studies, the official documents and survies especially that conducted by the World Bank, (Report No. 21418-YEM, The Republic of Yemen, Economic Growth: Sources, Constraints and Potentials, 31 May 2002).And the Family Budget for the year 1999, UNDP publications,As well as several poverty studies in Yemen.

The Objective is to point out the initial point to brake the poverty cycle in Yemen. The situation in Yemen can be axplained by the following:-1. High Support Burden Ratio: The survey, 1999 indicated that one household worker is used to support five to six persons on average, which reflects the presenceof high dependency ratio and the bigger size of the families .

2. High Population Growth:As known that high fertility rate of Yemen, which resulted in a high rate of population increase in-spite of the fact that total

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fertility rate has fallen recently. The population growth rate amounts to 3.3% for Yemen. The high fertility rate assures a growing labour force in the medium term. 3. Large Family Size: The family size is considered to be one of the causes of poverty.The size of the poor household is higher than the average family size of Yemen, about 9 persons for the poor compared to 6.5 persons for the national average.

4. Low-Labor force Participation Rate: Labour force participation rate in Yemen is low compared with that of other Arab States, primarily due to the low participationamong women, (The participation rate is defined as the share of the population between the ages of 18 and 60 years who are eitheremployed or unemployed but seeking job) poor men join the labour force sooner than nonpoor males who instead remain in school or college to secure better educational qualifications, and better jobs.

5. Low Women’s Participation Rate:Women’s participation in development is quite low for both the poor and the non-poor, which does not exceed 18% on average.

6. Low Productivity:Yemen like other Arab countries suffers from low productivity, which ends up in low return to labour, and low wages. The overall productivity is declining gradually in Yemen, and some other Arab countries for various reasons.

7. Unemployment:The unemployed in Yemen are mostly fresh graduates and unskilled labour force. The data in Yemen showed that the unemployment rate is considerably high and amounts up to 33% while others viewed it very much less. Table (1) shows that private sector prefer foreigners employees are increased by 13.5 % while Yemeniemployees are decreasing by 8.7% Yearly. The structure of employment changed significantly too away from the public sector to private services and agriculture. However, growth of the laborforce surpassed the growth of employment, thereby increasing the level of total unemployment to 35% of the total labor force.

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Table ( 1 ) Demonstrate the size of employment in the private

sector in Yemen

Nationality 1995 1998 1999Average annual

rate ofGrowth %

Yemeni 83,704 63,783 58,259 -8.7Foreigner 15,393 22,536 25,589 13.5Total 99,097 86,319 83,848 -4.1Source: Ministry of employment, training& creativityvocationnal, Sana’a 2000

8. Inadequate Access to Assets:The poor have limited access to assets and credits which preventsthem from the possibility of increasing their income, and capabilities. The poor are unwilling to obtain credits from banks and other sources, because they don’t have knowledge skillsand experiences of running business, and taking risks. Only less than 0.5% of the farmers has access to the Cooprative and Agricultural Credit Bank, also only 7% of the total credit in the last ten years located to the agriclutral sector which included 52% of the employments and about 70% of the people depend on it as the main income sources.

9. Inadequate access to main Social Services such as: education, training, health, and transport. Yemen is one of thepoorest countries in the world with a poor standard of public health and education, a high population growth rate of more than 3.3%, a low degree of service accessibility. Yemen is ranked number 148 out of 174 countries on the “Human Development Index” and number 76 out of 85 countries on the “Human Poverty Indicator”. 10. Lack of empowerment (human poverty) of the poor, and lack of capabilities:which links the poor too, and involve them in the developmental process of the country in their communities and outside. 11. Unequal Distribution of Income and Assets:In Yemen no data is available on income distribution, but expenditures distribution showed that the expenditures share of the lowest 22% of the population (Bottom quintile) never exceeded

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750 YR per capita per month compared to 4300 YR per capita per month for the top quintile, which means that high inequality, andincome expenditure disparities are clearly noted and recorded. Data on assets distribution is not available, and not reliable ifany, land holding is still manning through the tribal system of the community, and a clear defined registration of land ownership is still absent, which creates more pressure and conflict between society’s factions. Lourans Curve ( see the graph 1) measurement of equity distribution of income and consumption in Yemen indicated that 90% of the population are spending more then their income, while only 10% their income grater then their consumptions.

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Graph (1) Lourans Curive Measurement for Equity Distribution of

Income and Consumption in Yemen

12. Low Rate of Growth of GNP per Capita:The average annual growth rate of GNP in Yemen was negative over a long period of time. Macro economic policies have great impact on the rate of growth of GNP, and of GNP per capita, and the reduction of GNP per capita during first half of 1990’s affect negatively poverty size indirectly through different channels such as:Raising the prices of goods and services, which affect the cost of living of the households and has resulted in wide poverty prevalence.Reducing the employment opportunities in the economy.Increasing inequality in income distribution, and wealth.Poverty is that level of income which is inadequate to meet the basic Human needs of a household in a satisfactory accepted

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manner in Yemen the income per day is 0.575 cent wich is blow the poverty line by about 50% ( see the table ( 2) )

Table (2) : Poverty Indicators in YemenFood Total

Yemen

Rural

Urban

Yemen

Rural Urban

YR/capita/month

2,101

2,103

2,093

3,210

3,215 3,195

US/capita/month

11.29

11.31

11.25

17.25

17.28 17.17

US/capita/Day

0.376

0.377

0.375

0.575

0.576 0.376

% of Poor 17.6 19.9

10 41.8 45 30.8

Poor People(mm)

2.9 2.5 0.4 6.9 5.8 1.2

Poverty Gap 4.5 5.2 2.1 13.2 14.7 8.2Severity OfPoverty

1.7 2 0.7 5.8 6.7 3.2

Sours: Ministry of Planning and Development, Pverty Srvay 1999

13 .Inadequate transfers and subsidies to the poor and vulnerable groups in Yemen: The Social Safety Net Programme is a part of state intervention to protect the poor and the low income groups, and to compensate them for the unequal distribution of income, and for the negative economic impacts. The work of these safety net institutions and NGOs has neither been effective nor active, and the targeting system of this network requires better planning andcoordination among involved agencies. No doubt that perfect targeting and perfect subsidy systems directed to the target beneficiaries are the best way to reduce poverty and raise the income of the poor to a level where they can meet their human basic needs, and raise their standard of living. But as the World Bank always indicates that designing and evaluating the

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effectiveness of the Safety Nets would require examining both itsinformal and formal components, which has not been done in Yemen so far.

14. Qat Consumption is one of the principle causes of poverty inYemen, considerable size of many household budgets go to buy qatwhich meet non of the human basic or secondary needs.Here I will quote what Mr. Qasem Saleh has writen in Yemen Times–Journal, Sunday July 11, 2004 - Issue: (753), Volume 13, “I ama Yemeni who is thinking all the time about the way Yemenis are living and how they will survive in 10 or 15 years because all our neighbors are progressing very quickly and building their countries and starting strong foundations, while our homeland mostly sleep in the dark. I believe that one of our problems is QAT, which consumes our workers’ lives by consuming between 6 and10 hours a day throughout the year doing nothing.

15. Poor administration, and strong tribal system, and failure ofmaintaining sustainability :As shown in a survey of 947 firms, randomly selected within eachof 5 governorates. ( Sana’a, Aden, Taiz, Hodeidah and Hadramout) in Yemen, was carried out in November 2001 by the World Bank – Yemen. Poor governance manifests itself in a number of ways in table (3) and Graph(2) ranking the administrative obstacles that private sector firms are suffer from an environment characterizedby weak governance and corruption, major administrative obstacles, high taxes and inefficient tax administration and unfair business practices; the majority of firms are small,( see tables, 4 , 5 and 6), service oriented workshops operating in imprisonment domestic markets with few opportunities for profitable expansion; the investment climate is viewed as a high-risk and characterized by lack of a level playing field for foreign and domestic firms; small firms face relatively minimal difficulties in entering a market, but face significant obstaclesto growth in value-added and specialization as a result of high levels of risk and uncertainty in the general investment climate,unfair business practices, administrative obstacles and costly and uncompetitive infrastructure services; access to electricity,land and legal services is difficult and costly, together with high transactions costs associated with incidences of crime and theft, insufficient internal transport networks and others; and, larger firms tend to do better because they are able to internalize the risks, in part through conglomeration and building up in-house capacity in critical inputs. Larger firms

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also tend to benefit from well-entrenched networks of influence as well as access to external markets and finance.

Table (3) Obstacles to Business and Profitable Expansion(% of firms indicating moderate to very severe constraints: valid

responses)

Rank

Obstacles %

1 Macroeconomic instability

86.1

2 Corruption 82.1

3 Tax rates 784 Economic policy

uncertainty73.3

5 Unfair competition 67.7

6 Smuggling and dumping 67.3

7 Crime, theft and disorder

67.1

8 Electricity 63.5

9 Tax administration 61.3

10 Legal system & disputesettlement

57.9

11 Access to Land 48.8

12 Cost of financing 45.5

13 Access to financing 33.9

14 Customs & regulations 33.7

15 Roads and Ports 29.5

16 Skills & available workers

24.4

17 Business licensing 24.2

18 Telecommunications 17.2

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19 Labor regulations 15.6

Source: Private Sector Survey, November 2001, the World Bank.

Graph(2) : Obstacles to Business and Profitable Expansion(% of firms indicating moderate to very severe constraints: valid

responses)

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TABLE (4) : RANK 1 OBSTACLE BY FIRM SIZE(Percent of Firms ranking Obstacle as No. 1)

Small Medium LargeRank

Obstacle % Obstacle %Obstacle

%

1 Electricity 19.3 Tax rates 17.41

Smuggling/dumping

23.8

2 Tax rate 18.4 Electricity 15.5 Macroeconomicinstability

12.9

3 Macroeconomicinstability

15.0 Macroeconomicinstability

11.63

Corruption 11.9

4 Smuggling/dumping

9.6 Smuggling/dumping

10.3 Tax rates 8.9

5 Access to land 9.05

Corruption 7.1 Electricity 8.9

Source: Private Sector Survey, November 2001, the World Bank From table (4) we can see that small, medium and large firms are suffering from electricity as obstacles witch reflected the poor infrastructure or basic services, other obstacles in the table (4) are management issues witch reflecting the weakens of the management in Yemen.

Firms Identifying Corruption as a Moderate to Severe Obstacle:-The credibility of the public sector in its role in regulating private activity is one of the most important steps in allowing Yemeni firms, especially those that are small, to grow. In the 2001 survey of private firms, more than 80% of all firms responded that corruption was a significant problem, with firms in Sana’a and Hodeidah being the most concerned about the issue Graph(3) As reported by the firms, informal payments are almost essential to obtain public services, licenses and permits, and when dealing with the tax authorities. To a lesser extent, informal payments were reported as needed for customs and land/construction permits.Graph(3) : Percentage of Firms Identifying Corruption as a Moderate to Severe Obstacle

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Firms Identifying Tax Administration as a Moderate to Severe Obstacle:-Again, for example, the Yemeni tax administration has been singled out by investors andfirms as creating a substantial obstacle to growth. In the survey, over three out of five firms identified tax administration as a major barrier to growth (Graph(4). There are clear regional differences, with, once again, the extent of the problem being highest in Sana’a and Hodeidah, and the lowest in Hadramout. In addition, foreign investors have traditionally described the tax system as highly complicated and corrupt, demonstrated by anecdotal evidence that different tax officers frequently visit a firm to collect the same tax (sometimes even on the same day), leaving investors with little choice but to paythe tax again or to bribe the tax collector. Delay is another form of soliciting bribes, as tax collectors can delay in examining the accounting files of the firm for up to 2 years if investors refuse to offer bribes.Graph(4): Percentage of Firms Identifying Tax Administration as a Moderate to

Severe Obstacle

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Legal System and Dispute Resolution as a Moderate to Severe Obstacle:-Recent studies from other developed and developing countries suggest that new, small private firms are more dependent on the functioning of formal legal systems in commercial litigation. Yet, a surprisingly large number of firms in Yemen rely on informal mediation to resolve payment disputes, which while more expedient, is notnecessarily more efficient or predictable than formal court appeals. In the survey,58% of them cite it as a major obstacle to business Graph(5). Thus, better formal legal and contract-enforcement systems are needed to reduce the high cost and uncertaintyassociated with informal dispute resolution in Yemen.

Graph(5) : Percentage of Firms Identifying Legal System andDispute Resolution

as a Moderate to Severe Obstacle

THE ADMINISTRATIVE DEFORMATION:-The situation of the administrative system of the Government is apparently more difficult when the administrative deficiencies are summarized as follows:

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1 Inflated organizational and functional structure of the Government.2 Misallocation of main power.3 Selection and appointment to public employment is free of competence and suitability.4 The failure of a large number of public and mixed sector enterprises.5 Conflicting and inter twining responsibilities among the ministries, and the respective authorities and corporations affiliated with them, and poor coordination amongst them.6 Duplicity (of functions) between the governorate leadership andthe ministry branches in the ministries and districts.7 Multiplicity and extension of lines of authority.8 Absence of employee files.9 Absence of the clear delineation of the government employment and distribution according to their organizational formations.10 Lack of statistical data on government employees, their geographical distribution and employment and qualification part oculars.11 Redundancy, excessive employment and ghost workers.

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16. Conclusion:- Poverty is a phenomenon which is not an outcome of economic process done. Rather, it is a result of economic, social, cultural, and political factors that interact with each other through a range of institutions customary practices, poor administrative capacity as it is explains in graph (7).Yemen is one of the poorest countries in the world with a poor standard of public health and education, a high population growth rate of more than 3.3%, a low degree of service accessibility and widespread poverty with an estimated 42 % of the population living under the household poverty line. Yemen is ranked number 148 out of 174

POVERTY

Economic&Administrati

onCorruptions

WeakAdministration

Guest

HIGH DEPENCYRATIO

MarketFailure

LOW INCOME

LOWPARTICIPATION

LOWPRODUCTIVITY

LOWWAGES

Extremism & ViolenceRegionalism

Squeezed Middle Class Gender Bias

POOR ACCESSTO RESOURCES& SERVICESDUALISM

THREATTO SAP& OTHER

REFORM PROGRAMMES

THREAT TO DEMOCR.& NORMA -LIZATION

THREAT TOCOHESION UN-STABILITY

MARGIN LIZATION

UN-SUSTAINABLE DEVELOPMENT

Graph ( 7) The Vicious Circle of Poverty In Yemen*

* -

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countries on the “Human Development Index” and number 76 outof 85 countries on the “Human Poverty Indicator”. As explaining, poor governance manifests itself in a number of ways in Yemen, corruption and inefficiency in the interaction of public officials and private businesses; poor performance of the public sector in terms of deliveringessential services. poor administrative capacity, norms, and values; which are the keys factors to understanding poverty and to formulating action plans to eradicate it. The initial point to brake the poverty cycle in Yemen is real will being policy to supporting economic and administrative reforms, improving administrative capacity byimplementing policy measures. Reform of the legal and Islamic Inspirations judicial systems and strengthen the enforcement of their rules.

17- References :-Al-Hebshi, Mohamed Abdul-Rahman, PRODUCTIVE AND ECONOMIC SECTORS IN YEMEN, Ministry of Socal Affars & Labor, Sana’a, October 2001

Al-Hebshi, Mohamed Abdul-Rahman & Others , Poverty Reduction in Yemen: THE COMPARISION BETWEEN AGRICULTURAL CREDIT AND MICROFINANCE SCHEMES, Jurnal Ekonomi Dan Bisin, volum2, Nomor 1 April 2003.

Al-Hebshi, Mohamed Abdul-Rahman, Sustainable Rural Development & Poverty Eradication Strategy for ROY, Submitted to the Agricultural, Fishery and Water Resources committee in the Shura Council. ROY, Sana’a, 10/10/2001

Al-Hebshi, Mohamed Abdul-Rahman, The Implications of Family LaborAllocation on Resource Conservation Practices in the Kuhlan Affarand Wadi Sharis Area, Yemen, Natural Resource Management Researchworkshop, ICARDA Egypt (4-8 May 1997).

Abdul-Malik Al-Gabaly, POVERTY AND ENVIRONMENT IN YEMEN, Ministryof Social Affairs & Labor, Sana’a, October 2001

Abdo Ali Othman & Others, SOCAIL DISPARITES AND POVERTY IN THE YEMEN SOCIETY, Ministry of Social Affairs & Labor, Sana’a, October 2001

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Fuad Abdul-Galee Al-Salahi, RELATION BETWEEN HUMAN POVERTY & SOCAL RESOURCES, Ministry of Social Affairs & Labor, Sana’a, October 2001

Khadija Al-Hassami, POVERTY AND WOMEN IN YEMEN, Ministry of SocalAffars & Labor, Sana’a, October 2001

James Rawley, Resident Representative of the UNDP-Yemen, UN sketches apocalyptic scenario of Yemen’s future, Yemen Times Monday June 21, 2004 - Issue: (748), Volume 13 , 21 June, 2004

Mohammed Abdul-Aziz Sa’ad, ADMISTRATION AND POVERTY, Ministry of Socal Affars & Labor, Sana’a, October 2001

Mohammed Al-Afandi, THE ROLE OF ZAKAH AND TRUST IN POVERTY ERADICATION, Ministry of Socal Affars & Labor, Sana’a, October 2001

Naif Mohammed Al-Haidari & Others, PERCEPTION AND VIEWS OF THE POOR ABOUT THEIR POVERTY AND THEIR COPING STRATEGIES, Ministry ofSocal Affars & Labor, Sana’a, October 2001

The World Fact Book 2003

World Bank, Report No. 21418-YEM, The Republic of Yemen, EconomicGrowth: Sources, Constraints and Potentials, 31 May 2002

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