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Reducing Conflict through the Provision of Affordable Water and Increased Employment in Taiz

Chapter 6: Taiz Economic Revitalisation; Capturing the Water Dividend

Dr Christopher Coles (Coles Development Consulting Ltd)

Contents

Contents ................................................................................................................................................ 1

Executive summary ............................................................................................................................... 3

1. Introduction ...................................................................................................................................... 4

1.1. Background and approach ................................................................................................................. 4

1.2. The political economy of water in the Middle East ........................................................................... 6

1.3. Youth employment and economic development in Yemen .............................................................. 6

1.4. Yemen: competitiveness and the ease of doing business ................................................................. 7

Figure 1. Yemen’s performance on the key pillars of the Global Competitiveness Index 2012-13 in relation to other factor driven economies ............................................................................................ 7

2. Methods ............................................................................................................................................ 7

3. Conceptual framework ..................................................................................................................... 8

Figure 2. Pathways of wealth and employment generation through economic activity in relation to enhanced availability of better quality water: direct, indirect, induced and dynamic. ........................ 9

Figure 3. Hypothetical pathways through which secured availability of cheaper, higher quality water to Taiz may bring about industrial growth ............................................................................................ 9

4. Results ............................................................................................................................................. 10

4.1. Characteristics of Taiz industry and the role of water ..................................................................... 10

4.1.1. Productive industries – food processing, plastics, paper, soap and detergents and cement .. 10

4.1.2. Health care ................................................................................................................................ 10

4.1.3. Tourism services ........................................................................................................................ 11

Table 1. Average annual water use for six companies sampled in Taiz governorate, with a description of products and notes on sourcing. ................................................................................. 12

Table 2. Summary of annual water use data for hospitals sampled in Taiz........................................ 13

Table 3. Summary of annual water use data for hotels sampled in Taiz. ........................................... 13

Table 4. The origin of guests at a major four-star hotel (Hotel 1) in 2010 and 2102. ........................ 14

4.2. The competitiveness pathway ......................................................................................................... 14

4.2.1. Productive industries – food processing, plastics, paper, soap and detergents and cement .. 14

Table 5. Daily water consumption for the HSA group of companies, 2008-13 ................................... 15

Figure 4. Total annual water consumption in 11 HSA group companies, 2008-2012. ....................... 16

4.2.2. Health care ................................................................................................................................ 16

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4.2.3. Tourism services ........................................................................................................................ 16

4.3. The growth circuit ............................................................................................................................ 17

4.3.1. Indirect employment................................................................................................................. 17

Table 6. Returns to water for irrigated agriculture and Industry in the Upper Wadi Rasyan catchment ........................................................................................................................................... 18

4.3.2. Direct employment ................................................................................................................... 18

4.3.3. The water industry .................................................................................................................... 19

Table 7. Estimated growth requirement for employment of additional employees, and numbers of additional employees of different cadres per unit of growth for three Taiz companies that supplied salary and output data. ....................................................................................................................... 20

Table 8. Employee equivalents of estimated savings from cheaper water supply for three Taiz companies. .......................................................................................................................................... 21

Table 9. Employment estimates for the Taiz water industry looking ahead ...................................... 22

4.3.4. Induced and dynamic effects .................................................................................................... 22

4.4 The productivity pathway ................................................................................................................. 23

Table 10. WHO summary of requirement for water service level to promote health ....................... 23

4.5. Human resources overview for Yemen and Taiz industries ............................................................. 24

4.5.1 Technical and vocational training in Taiz ................................................................................... 25

Table 11. Government run Technical and Vocational Training institutes in Taiz. .............................. 26

4.6. Policy approaches to sustainable industrial growth and employment generation in Taiz. ............. 27

4.6.1. Industrial relocation as an option? ........................................................................................... 27

Table 12. Forward-looking comparative analysis of electricity and water use in Taiz and Mokha (a coastal settlement). ............................................................................................................................ 27

4.6.2. Employment generation – broadening and deepening the industrial base ............................. 28

4.6.3. Models for replication and scaling ............................................................................................ 28

5. Discussion and conclusions ............................................................................................................. 29

6. Bibliography .................................................................................................................................... 30

Appendix 1. Questionnaire ................................................................................................................. 31

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Executive summary This study, based upon fieldwork carried out in Taiz in April 2013 and subsequent correspondence and discussions, examines the linkages among the quality and availability of water supply in the Governorate, and industrial growth and employment. It took place in the context of the proposed new desalination and piping scheme to supply Taiz with high quality water at around half the price of that currently transported by truck from the existing ‘pilot’ desalination facility in Mokha.

Taiz is one of the most water insecure cities in the world and, like much of the region, has little hope of fulfilling its ‘big water’ requirements (i.e. including water needed for food production) internally. On the other hand, supplies of ‘small water’ for residential and industrial use are diminishing, driving up costs and creating instability, which in itself diminishes the city’s capacity to improve water security.

At the same time, the Middle East has one of the highest employment rates of any world region, the global economic crisis coinciding with a growing youth bulge – in 2012, 21.7% of Yemen’s population was aged between 15-24 years. This has precipitated a severe youth employment crisis, and the quality of what work is available has worsened. Among the effects of this scenario are high and rising levels of discontent, manifested in increased violence, crime and theft. The country’s low education enrolment rates compound these problems, and Yemen also has one of the widest gender gaps in human development in the world.

The Yemen also has one of the world’s least enabling business environments, performing badly in terms of its macro economy, investment and legal structures, financial markets and level of innovation. However, it has output markets with good potential, including a growing export component, despite the constraints.

This study conceptualizes hypothetical pathways of enhanced industrial growth (and, therefore, increased employment) through better water provision – looking at the direct effects of engagement within industries; indirect employment and income effects in supply and distribution chains; induced effects, where direct employees spend money in the local economy; and dynamic effects, which include increased skill levels and improved infrastructure as the result of changes in primary industrial activity.

Taiz's main industries are manufacturing of foods, chemicals, plastics, paper and cement. By far the largest tourism markets are domestic business and health visitors, and international business guests, with a smaller domestic leisure component. Security concerns and political instability mean that the international leisure sector is now very small. The health sector is formed of mixed public and private facilities, the latter including one international standard general hospital.

Of the productive industries surveyed, dairy, juice and canned products consumed the greatest amount of water (1.3m m3/annum), followed by and cement (365k m3/annum) and ice production (around 86k m3/annum), with others at much less significant levels. However, water represented only a very small proportion of total operating costs (around one percent or less), even for high-use industries.

Similarly, for most health care facilities the potential cost savings from ‘new water’ would be relatively modest, at least while groundwater can still be obtained. However, security and quality of supply is critical in the industry for clinical purposes, albeit in relatively small quantities.

High-end hotels would gain significant cost savings through cheaper quality water and a reliable supply, due to their relatively high per-visitor consumption. Lower end establishments would gain relatively little in the short-term, but this situation may change as well water becomes increasing scarce and more expensive, and as high quality water becomes increasingly expected by hotel guests .

In terms of indirect effects, the very high proportion of imported inputs means that industrial expansion has weak links with employment in supply chains. These links are stronger within distribution networks because Taiz’s industries make a very significant contribution to the domestic economy, with several positioned as market leaders.

Induced effects are also likely to be strong, with a cheaper, better quality and more reliable water supply delivering greater disposable income through costs savings (for many income bands, and those currently

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dependent on tankers), better health and higher productivity at household level. There are well-documented links between water service quality, public health and economic growth.

Dynamic effects are also important – infrastructure development that secures the short- to medium-term water supply to Taiz’s economy would allow for continued investment and skills development through expansion of private-sector led vocational training services, and greater efficiency in public services, including the water industry itself.

Our projections for direct industrial employment gains (with indirect, induced and dynamic effects impossible to quantify within the scope of such a survey) through a) industrial growth, and b) costs savings reveal that the benefits could be significant, at least for certain industries. However, by far the most important issues are those of security and quality of supply, greatly outweighing the dividends of cost savings.

The main returns on investment in greater availability of higher quality water would be:

• A much more attractive business environment, stimulating industrial expansion and diversification; industry is a much more water-efficient economic base than agricultural development.

• Greater employment, better health and enhanced productivity, which reduce discontent, conflict and instability. All business leaders cited insecurity as the binding constraint on economic growth within the Governorate.

The deepening water crisis in Taiz has led to major industries examining the possibilities of partial expansion on the coast. Although there is some evidence that this strategy may complement new water production and supply to Taiz in the medium- to long-term, the lack of social infrastructure there (except in large cities such as Hodeida and Aden which however face other issues) means that this is not a viable short-term solution, and more work would be required to evaluate its costs and benefits over time.

Within Taiz’s human resources profile, there is a very strong local component within the workforce below management and specialist level, which has been supported by an exemplary private-sector led vocational training initiative that addresses the key issues of assisting youth to make the transition between the formal and informal economies, and matching the supply of skills and capacities to market demand. In addition, Silatech was developing a promising, scalable and sustainable model for ‘employability’ development within the construction industry, currently suspended following this recent period of unrest. Sourcing and developing higher-level skill sets remain a challenge, and public sector institutions lag behind their private counterparts in this respect.

Of the industries examined in detail in our survey, plastics recycling and business / health tourism emerged as key areas for further analysis in terms of their strong economic linkages and potential for outreach and inclusive growth (in the case of recycling), and high quality, skilled employment generation (in the case of tourism). In addition, other promising emerging industries, some of which are already proving attractive to young women, include personal services (for example hairdressing and beauty care, photography and financial services), carpentry and crafts, mechanics and small-scale food processing.

In conclusion, new water, coupled with investment in high quality, market-led vocational training, has the potential to reduce insecurity, instability and discontent in Taiz, facilitating diversified industrial growth, enhanced productivity and increased competiveness and, thus, establish the kinds of virtuous circles conceptualised in this report.

1. Introduction

1.1. Background and approach

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Taiz is the main centre of industry in Yemen, directly employing over 25,000 people and indirectly contributing to the livelihood of many, if not most, other households in the city. Industrial activity accounts for around one quarter of Taiz’s total water usage, and this proportion will rise if water availability means healthy industrial growth outstrips population growth. Taiz’s manufacturing and service industries include applications that not only use a relatively high volume of water but also have very stringent requirements for water quality – for example in food production and health care.

The Hayel Saeed Anam (HSA) group of companies made a joint investment in a pilot desalination plant in the coastal town of Mokha, which feeds the major part of the water requirements of its Taiz factories, hospital and hotel. This study is taking place in the context of a proposed new and much larger desalination plant on the coast (also at Mokha) and pipeline to Taiz, a scheme that is projected to supply water at less than half the unit price of the current desalination facility (high costs mainly due to the need to use road transport).

The extent to which water availability and quality is actually constraining industrial growth in Taiz has until this study been unclear. This study aims to provide some answers to this general question and, specifically, investigates the potential impact of a more abundant reliable, cheaper (for many) and better quality water supply upon growth and employment in key water-intensive industries comprising:

• Food processing • Soap and detergents • Cement • Tourism • Health care

However, in regional economic development there are clearly more issues than the quality and availability of one raw material, and the dynamics of the water-industry relationship must be understood within the context of the wider business ‘ecosystem’. Businesses are driven by markets, and governed by the environment in which they operate. Therefore, a major thread of this study is how water issues interact with business drivers, constraints and opportunities to create growth, wealth and employment.

I begin by setting this specific case against the more general context of water (in)security in the Middle East region and its political economic implications. This is followed by a brief summary of the region’s youth employment and economic development context. I then describe the business environment and competitiveness context for Yemen, outline the fieldwork methodology, and introduce the conceptual framework of the study and hypotheses for testing.

The main body of the report follows, presenting an assessment of the role of water as a constraint for industrial growth and employment alongside other enablers, such as human resources, market dynamics and the political economy. In addition, I consider the implications of the necessary restructuring for employment within the water industry itself, and I provide a high-level overview of potential innovative new industries for Taiz given enhanced water provision. Finally, I end with the main conclusions of the study.

Cooking oil plant, Taiz

Drinks factory, Taiz

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1.2. The political economy of water in the Middle East

The interplay between water resources and political economies have been described extensively in seminal works by Tony Allan (1994, 1996, 2001), who observed that rapidly rising populations have coincided with a water insecurity situation that has existed, and progressively worsened, since 1970. Allan states that, while populations are able to increase the availability of ‘small water’ for domestic / business use through re-use and manufacture (desalination), the ‘big water’ for food production may only be obtained by international trade (the concept of ‘virtual water’ – offsetting the large requirement for food production by importing it from elsewhere), a situation that is problematic given the instability that continues to characterize the region.

Allan concludes that there is cause for optimism regarding city (including industrial) water, which constitutes only around 10 per cent of the total water budget, but that the future provision of ‘big water’ can only be achieved through successful participation in the political economy of the international food trade.

One of the implications of this broadly accepted truth is that economic growth in Taiz needs to focus upon applications of ‘small’ municipal water and not on an agricultural base – Allan predicts that by 2050, doubled demand for food through population increase will mean that 60% of the required water will come from outside the region (as virtual water). This study, then, is focused upon how the better provision of municipal water may contribute to the stable political economies required to achieve water security, for instance through employment and economic growth.

1.3. Youth employment and economic development in Yemen The Middle East has one of the highest employment rates of any of the world’s regions, exceeding 10% in 2011 and 2012, well above the world’s average of 6.2% in 2012 (ILO, 2012). Moreover, the global economic crisis has coincided with a growing ‘youth bulge’ in many countries (Ortiz and Cummins, 2012), including Yemen. Indeed, Yemen is among the top 10 countries in terms of the proportion of its population that is aged between 15-24 years, with 21.7% in 2012.

The youth employment to population ratio in the MENA region has been the lowest in the world since 1991, Yemen being ranked at 38th globally with a ratio of 26.5 in 2010 (Ortiz and Cummins, 2012). In addition, employment quality has worsened, with youth progressively more likely to be engaged in part-time and temporary work. The effects of this situation include hunger and malnutrition, poor health, lower school attendance and higher child labour rates, ‘wage scars’ (damaged future employment and earning prospects), domestic violence, and social instability. The latter is of particular concern in Yemen – an ILO (2011) study linked unemployment with global levels of discontent (the Arab Spring being a particularly pertinent example), manifested in increased violence, crime and theft.

Compounding Yemen’s youth employment issues are its very poor educational enrolment rates1

1 However, in urban Taiz and Ibb governorates over 80% of females and 95% of males had attended school at some point, the highest proportion in the country (Assad et al., 2009).

and quality (lack of focus on critical thinking and other job-related skills; World Bank, 2007), and one of the largest gender gaps in human development in the world (Assad et al., 2009). These are allied with intense pressure on natural resources from a rapidly growing and predominantly rural population. Other factors that contribute to youth exclusion from employment in Yemen include qat use, which adds an economic burden and reduces productivity, and social practices including young marriage, which effectively excludes girls from further educational development.

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1.4. Yemen: competitiveness and the ease of doing business

Growth and employment in Yemen’s industries is enabled, or otherwise, by its business environment. Yemen, low-income country that is highly dependent upon declining oil resources for revenue (population 24.8m, GNI/capita US$1,070), scores rather poorly on the 2013 World Bank/IFC Doing Business Index, ranked 118 of 185 nations (World Bank/IFC, 2013). It was rated particularly poorly (in relation to its overall standing in the index) in terms of protecting investors (rank 139), and getting credit (including the strength of legal rights and the depth of credit information indices and coverage of registries; rank 167).

Yemen is regarded as one of the least competitive economies in the world, according to the latest Global Competitiveness Index 2012-13 (World Economic Forum, 2012). In comparison with the average performance of equivalent (factor driven) economies, it performs particularly badly in terms of its macroeconomic environment (rank 140), financial market development (rank 143) and innovation (rank 144). The only area in which it outperforms its peers is in market size (rank 80), particularly in terms of export (figure 1).

Figure 1. Yemen’s performance on the key pillars of the Global Competitiveness Index 2012-13 in relation to other factor driven economies2

Scores are on a 5-point index scale where 0 is the worst performance level and 5 the best.

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Source: World Economic Forum

The top five most problematic factors cited by business leaders in the survey were, in descending order of importance: policy instability, corruption, inadequate supply of infrastructure, inadequately educated workforce and access to financing. This, then, is the context in which this analysis of industrial growth potential takes place.

2. Methods

Fieldwork in Taiz took place from 6 to 11 April 2013 and consisted of semi-structured interviews with company representatives and other key informants. A follow up questionnaire was distributed to all companies interviewed immediately after the fieldwork period (Appendix 1).

On-going discussions with key informants and industry experts have taken place since the fieldwork period.

2 Economies in the first phase of development, with competitiveness and exports predominantly based upon basic factor conditions such as low-cost labour and unprocessed natural resources. Factor driven economies are highly sensitive to world economic cycles, commodity prices, and exchange rate fluctuations.

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3. Conceptual framework Economic activity generates wealth and employment through a number of pathways (Figure 2). There are direct impacts of increased employment and productive work generated; the indirect effects on stimulating supply and distribution chains (and, in turn, more employment and increased incomes); the induced effects of spending wages gained from employment in one industry in others within the local economy and, hence, the stimulation of additional enterprise; and dynamic secondary effects on the local economy through improved infrastructure, skills, human and resources and innovation, for example.

Figure 3 applies this framework to the Taiz context and generates hypothetical pathways (or results chains) through which the secure provision (that is, greater availability that is assured into the future) of cheaper, higher quality water to industry and the wider population in the Governorate (the ‘small’, municipal water to which Allan referred) may generate industrial growth.

They may be summarized as follows:

i) the ‘competitiveness pathway’ (red), in which the provision of better quality water with secured availability enhances competitiveness in the market, driving growth;

ii) the ‘growth circuit’ (green) in which industrial growth itself stimulates economic activity through employment, income and consumer demand for industrial products (direct, indirect and induced effects), thereby generating more growth in a positive feedback loop. The growth circuit it itself connected more directly to the provision of cheaper water as reduced household costs result in greater disposable income;

iii) the ‘productivity pathway’ (yellow), in which better quality water reduces the frequency of absenteeism and increases productivity through better health.

The results section presents evidence for the extent to which these pathways could be traced in Taiz.

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Figure 2. Pathways of wealth and employment generation through economic activity in relation to enhanced availability of better quality water: direct, indirect, induced and dynamic.

Figure 3. Hypothetical pathways through which secured availability of cheaper, higher quality water to Taiz may bring about industrial growth

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4. Results This section begins by describing the main characteristics of each focal industry and the way it utilizes water. It then presents the evidence for the relationship between water supply and economic growth, organized by the hypothetical pathways described above.

4.1. Characteristics of Taiz industry and the role of water

4.1.1. Productive industries – food processing, plastics, paper, soap and detergents and cement

The heaviest water use industries in Taiz are ice and drinks production (Table 1). The majority of other food producers use relatively small (although fairly substantial in absolute terms) quantities in their processes, representing very small proportions of total costs – typically a fraction of one per cent with a maximum value in our survey of 1.6% for confectionary production. Energy is overwhelmingly the greatest input cost, with labour and transport also representing significant outlays. Water sourcing by companies 1 to 4 in the survey (which belonged to the same group) is balanced between wells and the shared Mokha desalination facility to varying degrees. The remaining firms in the sample use a combination of their own and third party wells at significantly lower unit costs than HSA

desalinated supply, but with additional processing costs for the fraction of water used in applications where higher standard water is required).

Food ingredient-quality water needs to meet much higher standards than that used for cooling, cleaning and sanitation, which is commonly untreated. Boiler water for steam-based operations also needs high levels of purity in order to minimize plant maintenance and repair costs – salt deposits cause significant and costly damage to industrial plant. The irrigation requirements of some factory grounds are met by recycled grey water. Some plants also supply water and electricity to neighbouring communities, where many of their employees reside.

As with the tourism and health industries, respondents stated that water was available to meet current, and even expanded, needs but that interruptions of supply were costly both in terms of time and money. This was the motivation for the construction of the pilot Mokha desalination facility by the HSA group – prior its existence, shortages were more common. The necessary treatment to required standards adds additional costs, which, although relatively modest, contributes to limiting competiveness (section 4.2 below).

4.1.2. Health care

Taiz has a large, international-class private general hospital, several large state general hospitals and a number of smaller private facilities, some of which are specialised. The ‘market’ is Yemen-wide, with strong links with the accommodation sector. Private sector clinics reported relatively low ‘sales’, allied to a mushrooming in the number of facilities and strong competition, but the state services are seriously stretched in terms of resources. The bulk of water is used in cleaning and sanitation, with relatively small volumes allocated for drinking and use in medical procedures, including operations and dialysis. The quality of water for clinical use needs to be very high and on-site processing to the required standards is necessary.

Table 2 summarises survey data collected for four Taiz hospitals, with notes on the sourcing arrangements operated by each facility. Water consumption is determined by the number of patients served and the nature of the services offered – clearly outpatient services consume less water than overnight admittances. None of the hospitals interviewed stated that water availability was a problem in that at present they are able to source it from somewhere at all times. However the time and logistical costs incurred were

Ice factory, Taiz

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burdensome, with supply threatened by diesel shortages. The public hospital is reliant upon Local Corporation (the Taiz utility) water and is considering drilling its own well to give better reliability of supply.

4.1.3. Tourism services

Tourism3

Clearly, water use is related to the number of rooms in a property and the extent to which they are occupied (Table 3). It is used in cleaning, laundry, irrigation, sanitation (lower quality water) and drinking (kawther or bottled water for lower and higher end establishments, respectively). Irrigation and sports facilities (especially swimming pools) use large amounts of water, which is reflected in the relatively high consumption of hotel 1 in relation to its occupancy rate (the other hotels do not have grounds or swimming pools).

in Taiz is dominated by business and health visitors, with the previous small international leisure market now very much reduced. In addition, there is a Yemeni leisure market whose main interest is in the local mosques, monuments and mountain areas.

Hotel 1, a high-end property patronised by better-off Yemeni leisure and business visitors, has a significant contingent of overseas business guests and a small leisure market (Table 4). Its water is sourced from the Mokha facility at the same price as its sister companies.

The lower end market that patronizes hotel 2 is 99% Yemeni, with the remainder being mostly HSA technicians from Pakistan, The Philippines and China. Around 40% are patients and their families, 20% are NGO staff, 3% are leisure visitors and the remainder are on general business, including qat sellers. It ships water for general use from wells using its own tankers, processing it in its own small plant, and purchases kawther water for drinking. It reported significant losses at times through leakages as well as generally poor quality.

Hotel 3 is more leisure-oriented, although few foreign guests were visiting in recent times. In the past, the ratio was around 60:40 foreigners to Yemenis, comprising leisure tourists (most of the foreign market) and business and medical visitors. This hotel also has its own tanker and full-time driver, which used to make up to 15 round trips to wells per day when the hotel was full. Well water is filtered on the premises and bottled water is supplied for drinking.

3 Defined by the UN World Tourism Organization as ‘a social, cultural and economic phenomenon which entails the movement of people to countries or places outside their usual environment for personal or business/professional purposes. These people are called visitors (which may be either tourists or excursionists; residents or non-residents) and tourism has to do with their activities, some of which imply tourism expenditure.’

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Table 1. Average annual water use for six companies sampled in Taiz governorate, with a description of products and notes on sourcing.

Company Products Average water use Notes

m3/annum YR/m3 $/annum* $ saving/annum**

1 Dairy, juice, canned foods 1,310,552 2,000 6,106,954 2,826,650 21% wells; 79% Mokha 2 Pasta, chocolate, cosmetics, noodles, snacks, printing 73,335 1,500 & 2,000 628,912 287,185 32% wells; 68% Mokha 3 Sponge, plastics, cartons, tissues 53,152 910 & 2,030 271,978 42,846 83% wells; 17% Mokha 4 Biscuits, cake, confectionary 61,510 630 & 2,030 371,134 140,197 53% wells; 47% Mokha 5 Ice, biscuits, juice, plastics, putty, paints 8,616 − 15,776,000 None 5% own wells, 95% other 6 Cement (state-owned) 365,000 300 255,126 None 65% own wells; 35% other

*Inclusive of processing costs **Assumes similar desalinated water/well water proportions and a new water cost of YR1,000/m3

Source: survey data

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Table 2. Summary of annual water use data for hospitals sampled in Taiz. Hospital Beds Ave occ. rate Staff Average water use

Nurses Dr.s Consultants Other m3/day m3/annum YR/m3 Cost, $/annum $ saving/annum

1 120 70% + outpatients 180 60 30 280 50 18,341 800 & 1800 87,508 17,221 2 (30) 20% 12 7 0 16 0.76 3,200 750 11,184 0 3 32 78% 35 11 0 10 10 3,650 500.0 8,504 0 4 550 80% 440 230 50 100 135 49,275 170.0 38,269 0

Source: survey data

• Notes: • Hospital 1 (private, general) has 5 emergency beds, 6 operating theatres, 3 ITUs and performs cardio-thoracic surgery, MRI and CT scans. Well water (39m3/d) is

cheaper than that from Mokha (4.5m3/4dd). Costs are weighted averages. • Hospital 2 (private, outpatient eye hospital) has beds for recovery only. Uses tankered well water for general purposes and an additional 20l/day from kawther for

operations. • Hospital 3 (private, general). Stated that dependency upon diesel for transport was more problematic than water shortage per se. • Hospital 4 (public, general) uses 30m3/day for dialysis from kawther if government supply fails; desalinated using own plant.

Table 3. Summary of annual water use data for hotels sampled in Taiz. Hotel Class Rooms Ave occupancy rate Staff Average water use

Non-mgt Mgt Snr mgt m3/day m3/annum Price/l, YR Cost, $/annum $ saving/annum

1 4* 135 20% 85 10 10 45 16,425 1800 137,768 76,537.74 2 2* 91 100% 15 2 1 20 7,118 1750 58,041 33,166 3 3* 64 0-50% 20 4 1 14 5,175 900.0 21,703 0

Source: survey data

Notes:

• Hotel 1 water use roughly approximates to 1,111 litres/guest/day assuming 1.5 guests per room at 20% occupancy. This figure of course includes non-variable uses such as irrigation of grounds.

• Hotel 2 also uses 300l/day of own processed kawther water for drinking at a cost of YR3-4k/yr (c. $18) maintenance. • Hotel 3 has its own tanker and, therefore, pays only YR500/m3 at the well plus transport costs.

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Table 4. The origin of guests at a major four-star hotel (Hotel 1) in 2010 and 2102.

Source: survey data

4.2. The competitiveness pathway As a general point, in the future Yemen Federation that the National Dialogue is discussing, a senior government official stated that a future Taiz with cheaper, better quality water would be in a good position to compete for investment with other regions for investment, particularly given its central geographical position and relatively well educated workforce.

In relation to the coastal plain, where desalination facilities are located, Taiz is an attractive place to live due to its cooler climate. Indeed, many employees in the coastal town of Mokha live in Taiz and travel back there at weekends. This is partly why industrial development has occurred in Taiz rather than around the port area.

The current arrangement of trucking desalinated water to Taiz for industrial use adds greatly to the unit cost. However, the availability of this water from the Mokha pilot fills a gap and gives security of high quality supply in the context of a dropping water table and unreliable wells. In addition, several companies have invested in water recycling plants that capture and treat industrial grey water for irrigation and sanitation use, and more such facilities are planned. This section explores the potential implications for economic growth of further expansion of the availability of cheaper, high quality water.

4.2.1. Productive industries – food processing, plastics, paper, soap and detergents and cement

Industry in Taiz and that in Yemen in general, mainly supplies the domestic market, although exports to nearby African countries and the GCC are gradually increasing. The companies in the survey are significant players in the Yemeni market; company 4, for example, holds 70% of the market for biscuits, confectionary 4 Yemeni visitors were in Taiz for leisure (60%) and business (40%), and the remainder, except the Chinese, who were on a tour, were all business visitors.

Country of origin 2010 % 2012 %

Yemen4 6,951 60.9% 7,545 54.2%

Egypt 420 3.7% 1,332 9.6%

India 336 2.9% 429 3.1%

Italy 414 3.6% 376 2.7%

Jordan 539 4.7% 306 2.2%

Turkey 208 1.8% 302 2.2%

Saudi 289 2.5% 204 1.5%

USA 175 1.5% 172 1.2%

Germany 295 2.6% 131 0.9%

China 131 1.1% 66 0.5%

Philippines 316 2.8% 45 0.3%

Netherlands 151 1.3% 21 0.2%

Other 1,187 10.4% 2,980 21%

Total 11,412 100% 13,909 100%

Food processing plant, Taiz

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and cake, but some dried goods are in strong competition with imports and company 2 commands only 20% of the market for noodles. The domestic market is price sensitive and competes with cheap (up to 35% cheaper) imports of finished goods from Saudi Arabia, China, Turkey and Egypt. Industries in these countries enjoy support from their governments including subsidized (and even free in some cases) power and low taxes, in addition to the local availability of raw materials. According to our key informants, foreign companies also benefit from tax breaks in Yemen.

Costs and, therefore, prices and competiveness are driven by the price of inputs. The assumed reductions of water input costs that would occur in several industries once desalinated water is available via the pipeline would enhance competitiveness. However, water represents a small proportion of the cost base in Taiz’s manufacturing industries – even where it is consumed in high volumes, its relatively small unit cost means that it is dwarfed by the costs of other inputs, most notably energy and other raw materials. Therefore, reducing the cost of water would not lead to the kind of step change in competitiveness required to compete on price with cheap imports. However, given that profit margins for the industries surveyed are estimated at 10 to 20%, a 1% saving may be important and could potentially be invested in expansion. This is discussed further in section 4.3 below.

Taiz’s industry is growing as the market continues to expand – even if market share remains static, growing overall demand means that ever greater output volumes are required. Indeed, several of the industries interviewed have ambitious expansion plans, some of which are already in the process of implementation. However, for growth in market share, improvements in competitiveness are required, and this has prerequisites, including:

• Lower costs • Higher productivity • Better quality • Better-functioning political and regulatory enabling environment Cheaper, better quality water would contribute to the lower cost element to some extent, both through reduced purchase price and reduced processing costs. However, in all but the ice production industry these gains would be modest and are not universal. Those companies that continue to obtain their water predominantly from wells would enjoy no short-term cost benefits (at least for as long as well water is cheaper than desalinated water). However, a more important issue is security of supply – as the water table continues to drop, organisations relying upon boreholes risk an ever more difficult struggle to source the water they require, with costs likely to rise sharply as supply diminishes below the level of demand. This situation is already critical – Sanabani sought to drill a new well to supply their factories in western Taiz, but after considerable expenditure the well proved dry.

Another component of competitiveness is efficiency, and improving efficiency of water utilization complements efforts to find new sources. The HSA Group’s investment in water recycling technology and more efficient machinery may have contributed to a relatively small increase in overall water consumption (Table 5, Figure 4), despite its continuing growth. In 2012, desalinated water marginally became the company’s chief source, a decline that is presumably explained by increasing scarcity. The JFA 2010 water use survey estimated some 1,500m3 per day for all other industries. Assuming the relative proportions of water use across industries in Taiz have remained similar (68% HSA, 32% other), we would extrapolate total industry daily water use in 2013 to 4,700m3/day.

Table 5. Daily water consumption for the HSA group of companies, 2008-13

2013 figure were extrapolated from nine months’ data. Source: HSA company data

Year Total daily water consumption, m3

2008 2,605 2010 3,208 2011 2,876 2012 3,171 2013 3,196

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Figure 4. Total annual water consumption in 11 HSA group companies, 2008-2012.

The graphic distinguishes water sourced from the HSA desalination plant and that from other sources. Note that 2013 figures cover nine months only and are extrapolated to the full year.

Source: HSA company data

4.2.2. Health care Taiz’s HSA-owned international class private hospital is a draw for some very highly qualified medical professionals and the industry is expanding (e.g. with the construction now underway of the massive Qatar-funded Medical Centre off the Airport Road, although there is some suggestion from falling occupancy rates that the pace of this growth may be outstripping demand. As part of the HSA group, it has access to desalinated water from the Mokha pilot scheme.

Like any other industry, health businesses need to minimize costs, but the critical nature of water supply for medical use has meant that most hospitals have taken measures to secure their own supplies from wells, meaning that the cost savings obtainable from switching to supply from a new desalination scheme would be relatively modest or absent. However, as with the productive industries, reliance upon well water is a risky strategy as increasingly wells are running dry.

4.2.3. Tourism services

The tourism market is predominantly Yemeni business and health visitors, with smaller numbers of nationals on leisure trips (the numbers are higher in higher end establishments). Foreigners are also mainly business and health guests, with smaller numbers visiting friends and relatives (VFR) and on leisure trips.

Yemen is not currently an attractive destination for western tourists and, even if and when the political environment stabilises, it is likely to remain a small-scale niche offering for ‘adventure’ and cultural speciality markets at least until better quality tourist infrastructure is in place.

Yemen is in competition with regional destinations such as Jordan and, until recently at least, Egypt, and, out of region, Ethiopia, which have better-developed infrastructure, and,

Bottled water plant, Mocha

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arguably, stronger branding and better reputations. These countries are also more accessible from most of their markets. The availability and quality of water is, therefore, not currently a major driver in this market, particularly because foreign tourism in Yemen is not of the high-volume mass-market kind requiring large resorts and the resources they imply – in a study of 17 mass-market destinations, Tapper et al. (2011) reported that “it is evident that the tourism sector consumes significant proportions of the water in the municipal mains supplies in both small islands and in semi-arid countries”.

However, Taiz does have a comparative advantage within the country as a business, health, and, to some extent, (Arab) leisure destination, and there is perhaps some potential to develop these services for regional markets, particularly in health care. Enhancing competitiveness would require major changes in the business environment, including support industries such as IT, transport and financial services, and, above all, long-term stability. Reduced conflict over water resources and improvements to public health have the potential to enhance stability, but care would need to be taken to develop this industry in a water efficient manner.

Higher-end business hotels, catering for higher-income national and foreign guests, with their relatively heavy use of water, would see significant cost reductions from water priced at half current levels and, if these savings were passed on to customers or invested in providing a better quality product, this could potentially increase Taiz’s competitiveness in this market.

The lower value domestic business tourism market is less sensitive to the political climate than risk-averse western leisure tourists. In addition, this market tends to require less water than higher-end consumers, volumes that are currently obtained cheaply from local sources. Therefore, the cost dividend of switching supply to piped, desalinated water would be small. However, it is unclear to what extent even customers at lower-end establishments would be prepared to tolerate water with up to three times WHO recommended maximum salinity levels, or that which is polluted, once there is a clean water alternative.

4.3. The growth circuit 4.3.1. Indirect employment

Supply chain links are very weak – the vast majority of raw materials are imported, mainly from Saudi Arabia, China, the EU, Australia and New Zealand. Therefore, without major economic restructuring to produce the inputs that are currently imported, bearing in mind that in many cases Yemen has a comparative disadvantage, there is relatively little scope for local growth within this linkage due to increased demand from elevated production. This is also true of input chains in tourism, health and productive industries.

There is now local production of dates, figs, raisins, pomegranates, limes, lemons and oranges, all of which do fairly well in drier environments, but agriculture is a ‘big water’ industry, as described in section 1.2 above, implying that the continued import of a large range of these goods will be inevitable. In addition, Yemeni agriculture returns far less in employment and economic terms for a given volume of water input than industry (Table 6).

Food processing plant, Taiz

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Table 6. Returns to water for irrigated agriculture and Industry in the Upper Wadi Rasyan catchment

(in which Taiz is located).

Water use, Mm3/yr

Net income, M$/yr

Returns to water, $/m3

Jobs provided Jobs/Mm3/yr

Irrigation 30 0.22 0.014 600 20

Industry 2 61 32 12,700 6,350

Source: Handley, unpublished data

There is a need, therefore, to diversify the economic base into innovative, relatively low water use industries, as illustrated in section 4.6 below.

Distribution chains are much stronger in terms of employment generation due to the dominance of domestic marketing channels. Larger industries have regional sub-offices and extensive distribution, wholesale and retail networks.

4.3.2. Direct employment

The HSA group, which comprises companies 1-4, hotel 1 and hospital 1, employs a total of 12,000 staff in Taiz and 20,000 in the whole of Yemen. The number of employees dropped by 200 in one company as management changes and restructuring revealed over-employment and inefficiencies. This was achieved through retirement and natural wastage. However, it does underline the reality that increased employment through industrial expansion is not a given; indeed, technological improvements while introducing new skills areas, have also been reducing labour requirements since the industrial revolution.

Table 7 examines employment and wage data supplied by three Taiz companies in relation to their total output. Although production may be a somewhat crude indicator of employment levels, there is a clear relationship between output and the number of operatives required in a productive industry and, in turn, the number of supervisors and staff in progressively higher levels of management. The interpretation of the Tables is that it would require a 17-50% increase in output, depending upon the company, to hire an additional senior manager, a 0.1-4% increase to hire an additional member of the ancillary staff, a 0.1-0.4% increase to hire an additional operative, and so on.

These calculations were then turned on their head to estimate the approximate number of employee equivalents for a given percentage increase in output. The large inter-company variation in these estimates reflects large differences in their respective reported wage structures.

In addition, we can express the implied cost savings that companies 1, 2 and 4 (those that supplied detailed employment data) would make at our estimated unit supply price in terms of employee equivalents (Table 8). It is here that we see the magnitude of potential cost savings in real terms, albeit that only companies currently sourcing significant proportions of their water requirements from the desalination plant in Mokha would benefit in this way.

The following caveats apply to these data and the estimates derived from them:

They assume a linear relationship between growth and employment; as mentioned above, efficiencies may mean that this is not the case. Any expansion also requires capital investment.

The data for company 1 seem to greatly underestimate the salary levels of staff at the lower end of the pay scale, generating some rather inflated potential employment estimates.

Desalination plant, Mocha

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In reality, staff are recruited across the variety of roles in proportions that vary according to business practices and commercial and technical requirements; obviously, recruitment only at one level is unrealistic.

4.3.3. The water industry

There are currently around 900 staff employed by the local water corporation (LC), including staff employed in the extraction areas as part of the ‘compensation’ for taking local water, meter readers, complaint handlers, maintenance workers and managers. It is estimated that there are around 700 tankers (see Chapter 2), which operate as solo ventures with a maintenance supply chain, and around 23 kawthers, each employing around two to three people. Thus, estimated employment is presently in the region of 1,350. There are a limited number of private networks each employing staff numbering in single figures.

This number of staff at the LC is likely to reduce as the organization undergoes essential reforms and, particularly if smart metering replaces traditional meter readers. The proposed new scheme would impact those operating kawthers and tankers. We expect kawthers will in time lose their role as the main processor of drinking water (being considerably more expensive than the new desalinated supply and less good quality) but still play a role as local distributors of water in smaller containers (5 to 20l), and that tankers will still be required in order to provide clean water to non-networked areas in the first phase, as well as continuing to source water from cheap local wells. Table 9 explains these scenarios in details, with projected numbers of employees in the present scenario and with new water.

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Table 7. Estimated growth requirement for employment of additional employees, and numbers of additional employees of different cadres per unit of growth for three Taiz companies that supplied salary and output data. Company 1. Output 183,743MT/annum

Role No. Total salaries, $ Ave salary, $ MT/employee % increase/employee new employees/1% growth

Senior management 2 27,889.10 13,945 91,872 50 0.13

Middle management 13 20,602.53 1,585 14,134 8 1.16

Junior management 41 12,827.81 313 4,482 2.4 5.87

Supervisor 48 8,627.31 180 3,828 2.1 10.22

Operative 236 4,413.22 19 779 0.4 98.26

Ancillary 1,372 4,180.32 3 134 0.1 603.05

Total 1,712 78,540.28 Company 2. Output 18,536MT/annum

Role No. Total salaries, $ Ave salary, $ MT/employee % increase/employee new employees/1% growth

Senior management 3 7,859 2,620 6,179 33 0.70

Middle management 15 28,781 1,919 1,236 7 0.96

Junior management 42 48,049 1,144 441 2 1.61

Supervisor 153 114,361 747 121 1 2.46

Operative 1,321 452,928 343 14 0 5.36

Ancillary 27 6,838 253 687 4 7.26

Total 1,561 658,817

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Table 7, continued.

Company 4. Output 161,495MT/annum Role No. Total salaries, $ Ave salary, $ MT/employee % increase/employee new employees/1% growth

Senior management 6 111,960 18,660 26,916 17 0.10

Middle management 14 307,424 21,959 11,535 7 0.08

Junior management 43 580,748 13,506 3,756 2 0.14

Supervisor 236 2,048,238 8,679 684 0.4 0.21

Operative 801 3,606,157 4,502 202 0.1 0.41

Ancillary 1,349 4,748,907 3,520 120 0.1 0.52

Total 2,449 11,403,434 Source: survey data

Table 8. Employee equivalents of estimated savings from cheaper water supply for three Taiz companies. Company $ saving/annum Employee type

Ancillary Operative Supervisor Jnr mgt Mid mgt Snr mgt

1 2,826,650 942,217 151,157 15,727 9,034 3,368 203

2 287,185 1,134 838 384 251 150 110

4 140,197 40 31 16 10 6 8 Source: survey data

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Table 9. Employment estimates for the Taiz water industry looking ahead

For assumptions underlying this table, see chapter 2. 15. It should be stressed that the numbers given here are broadly indicative only.

By the time of the arrival of desalinated water and following a settling down period (c.2018), it is assumed in this table that a number of things will have happened:

– a slimmer LC following the much needed reforms

– a major shift in tankers supplying households but filling at desal filling stations vs groundwater wells,

– the beginning of the decline of kawthers and their shift towards acting as splitters (i.e. selling water to retailers in smaller containers

– employment needed (higher quality jobs relating to the desal plant, pipeline and the management of distribution in greater Taiz.

By 2026, a decade after the arrival of desal in Taiz, we expect these trends to continue while overall demand continues to rise – both because of population growth and because of higher expected per capita consumption. We expect networked connections to rise, both within the LC operation and with private networks, which accounts for the further decline in overall employment in this sector.

4.3.4. Induced and dynamic effects In terms of induced effects, we can assume, although we cannot easily measure, that greater employment levels would lead to increased spending in other areas of the economy, including increased demand for housing, food, consumer goods and services. In addition, the fact that the overwhelming majority of tourists are business and health visitors implies that industrial growth in Taiz would be accompanied by an accompanying expansion of the accommodation sector. Although not included in this survey, this would also apply to restaurants, transport services and other wider economic linkages of tourism.

Employment in the water sector 2013 2018 2026

numbers employment numbers employment numbers employment

LC 1 828 1 500 1 600

Ground Water Protection zones 0 0 4 20 5 25

Sewage treatment plant 0 0 0 0 1 20

Wells supplying Hh 96 192 30 60 10 20

Tankers supplying Hh from wells 535 1070 170 340 60 120

New water filling stations supplying Hh 0 0 40 80 30 60 Tankers supplying Hh from filling stations 0 0 360 720 240 480

Kawthers (including tankers) 25 200 15 120 5 40

Private networks 2 14 10 120 25 350

Desalination plant (Mokha) 1 20 1 40 1 50

Power, Pipeline and pumps 0 0 1 40 1 50

Taiz desal distribution agency 0 0 1 30 1 35 Tankers supplying industry from Mokha desal 70 140 0 0 0 0

Tankers supplying industry from wells 50 100 30 60 20 40

Totals 2564 2130 1890

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With regard to dynamic effects, several factories have already extended their water and power infrastructure to local communities, and private vocational training facilities have elevated local skill levels. As with induced effects, dynamic effects are not directly related to the availability and quality of water; rather, without water there can be no industrial growth (and indeed eventual forced industrial relocation) and, therefore, these effects would be reduced.

4.4 The productivity pathway We sought evidence for the effects of poor quality water on human health from Taiz’s medical professionals. There is no support for a link between water quality and kidney stones, with the condition distributed across socio-economic groups and geographical areas, and causes that include qat chewing, dehydration, infection, parasites and a genetic predisposition.

Relatively high fluoride concentrations cause browning of tooth enamel (known locally as Taizi teeth), but may also have a strengthening effect. In addition, the reverse osmosis process does not alter the presence of halides in water, which can have a bactericidal effect, however as the source here is sea water, the level of fluorides in water consumed would be expected to much less than the Taizi ground water that originally caused the problem.

However, water supply has well documented effects on human health in two ways – quantity (service level) and quality. WHO (2003) estimated, for example, that 7.5 litres of water per day meets the requirements of most people under most conditions, and that the quality of this water must represent a tolerable level of risk. This does not include water used in small-scale productive (non-domestic) activities, which is hard to distinguish and integral to the well-being and livelihoods of poor households. Poverty alleviation through economic activity requiring water may have important indirect health benefits. The relationship between water service level and human health is explored further in Table 10.

Table 10. WHO summary of requirement for water service level to promote health Service level (& litres/consumer/day)

Access level Needs met Level of health concern

No access (quantity collected often below 5l/c/d)

More than 1,000m or 30 minutes total collection time

Consumption – cannot be assured Hygiene – not possible (unless practiced at source)

Very high

Basic access (average quantity unlikely to exceed 20l/c/d)

Between 100 and 1,000m or 5 to 30 minutes total collection time

Consumption – should be assured Hygiene – hand washing and basic food hygiene possible; laundry/bathing difficult to assure unless practiced at source

High

Intermediate access (average quantity about 50l/c/d)

Water delivered through one tap on-plot (or within 100m or 5 minutes total collection time)

Consumption – assured Hygiene – all basic personal and food hygiene assured; laundry and bathing should also be assured

Low

Optimal access (average quantity 100l/c/d and above)

Water supplied through multiple taps continuously

Consumption – all needs met Hygiene – all needs should be met

Very low

Source: WHO (2003).

Desalination plant, Mocha

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In most countries, the principle risks to human health associated with the consumption of polluted water are microbiological in nature (although chemical effects are also important) – “an estimated 80% of all diseases and over one-third of deaths in developing countries are caused by the consumption of contaminated water, and, on average, as much as one-tenth of each person’s productive time is sacrificed to water-related diseases” (WHO, 1997).

Poor quality water will also add significant costs to household budgets beyond the simple costs of water, through damage to pipes, tanks and appliances such as washing machines and boilers (which have significantly shorter lives when used with saline water). And women and girls, who carry the burden of water collection, are particularly impacted in terms of their available time for self-developmental and schooling activities, restricting their ability to contribute to the wider economy.

A doctor in one of Taiz’s public hospitals explained that in the local context, a shortage of water leads to a deterioration in cleanliness, allowing pests to multiply and increasing the incidence of infections, bad food, skin problems, respiratory issues and kidney problems, either through insufficient drinking or use of lavatories without water. The presence of bacteria such as Escherichia coli can also be problematic in high concentrations and particularly for the young, elderly and the sick.

Thus, there are clear links between water supply and public health, and strong evidence for productivity and economic gains through a more reliable supply of high quality water to households.

4.5. Human resources overview for Yemen and Taiz industries

A study of wage and non-wage competitiveness of the Yemeni workforce concluded that they have strong positioning in the delivery of personal services, semi- and higher-skilled construction, hospitality and retail support, and semi-professional roles, although the latter two sub-sectors scored less highly on non-wage competitiveness (McKinsey and Ministry of Planning and International Cooperation, 2010).

More generally, the same survey found that Yemeni workers lack a strong work ethic and professionalism, may be difficult to control, and had the wrong skills for employers. This weak linkage between supply and demand occurs because although the demand for skills is increasingly derived from the private sector, it has very little influence on what skills are trained for due to existing education and employment practices (Dhillon et al., 2010).

Although the work was commissioned to inform labour export strategies, the findings are relevant to the domestic labour market. Another key finding was that 70% of Yemeni labour is informal; it therefore lacks the skills and discipline than become habitual through formal employment. However, in certain areas, Yemenis excel – they were said to be superior to Gulf state counterparts in some craft skills and at leadership and management roles.

Underlining the point on informality, Silatech (2011) noted that there is a lack of a structured entry process into the formal sector of the economy for those who start outside it, making this transition very difficult or impossible. Silatech works to facilitate youth employment across North Africa and the Middle East through the provision of career guidance, skills development, and direct linkages with existing employment opportunities. It works mainly through technological platforms and capacity building of local organisations.

In Yemen, Silatech undertook a pilot project to increase employability in the construction sector, which, as noted in the McKinsey and MOPIC (2010) study, is an area of particularly high potential for the country’s labour market. The programme established a ‘SilaQual’ accredited construction skills training centre at Sana'a Community College, with 13 qualified public sector trainers who trained 1,500 Yemeni youth over its duration. The training centre became self-sustaining within six months, and employers and trainees paid for training and qualifications offered to international standards. However, scale-up of this initiative has been put on hold due to the prevailing climate of insecurity and instability.

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Taiz industries have a diverse skills requirement. Many have their national and regional headquarters in the Governorate and employ the full range of functions from ancillary support staff, such as cleaners and factory operatives, to executive level managers. Although higher education and training is generally weak at the national level, the Taiz population is relatively well educated and skilled, with good quality high schools, a university and a concentration of technical training centres. This is reflected in the fact that a high proportion of employees originate from the area, particularly below senior management level.

However, in common with the rest of the country, there are significant human resources gaps. The hardest ones to fill locally are in specialist fields and senior management functions. Plugging them is not a short-term undertaking and will require significant investment in training systems and institutions. In the short-term, the temporary import of highly skilled labour is not necessarily a bad thing if it elevates the local human resources pool through skills, technology and practice transfer. However, for this to occur there needs to be concerted and deliberate systematization of this process so that capacities are transferred and the level of skills imported reduces over time.

Youth employment focussed programming to stimulate SME start-ups in Taiz tends less to be engaged with water-intensive traditional industry but, rather, with more innovative small enterprise incubation. The GIZ-funded Private Sector Development Project, which is being implemented in partnership with Local Councils, the Chamber of Commerce and the Taiz Department of Economic Development, is an example of this.

Training services are also provided by vocational education facilities such as the Saeed Institute (see below) or Government-funded providers, supplemented by in-service training. In the case of health services, qualified professionals are ‘imported’ from abroad. Often, this is on a temporary visiting basis, with doctors, for example, visiting from Europe and the wider region, particularly Jordan.

4.5.1 Technical and vocational training in Taiz A particular success of the Silatech construction pilot was in overcoming weak supply and demand linkages and the lack of interaction between the private sector and the rest of the economy. The ability of the private sector to step in and fill gaps in Government service areas will become increasingly important as foreign exchange earnings from declining oil output continue to decrease (see Hill et al. 2013). Another excellent model for replication and scaling up is that of the Saeed Institute in Taiz. The Institute was set up in 1987 to fill skills gaps within the Group’s own businesses through the delivery of one-year courses. In 2006, it changed its policy and the Institute began to recruit trainees to supply the wider industrial base in Taiz (that is, no longer only the HSA workforce), gaining recognition from the Ministry of Vocational Training. It is financially self-sustaining, earning income from fees. There is a scholarship scheme for poorer trainees and senior HSA personnel make personal contributions to ensure students from poorer families can attend.

It currently has 450 students, with 29 teachers, who are all Yemeni except one long-term Sudanese and one long-term Egyptian. Courses cover three areas: ‘mediatronics’ (electrics, electronics, mechanics, computing), electrical installation, and the food industry. The latter is especially for women and feeds HSA’s food factories. They vary in duration from short courses of one week to three months, two-year courses at the Institute, and three-year courses at the Academy.

Some courses prepare trainees for migration to Saudi Arabia (see the McKinsey and MOPIC 2010 study on labour export to GCC countries), which were designed as the result of examining gaps in their curricula in comparison to Saudi courses, and is offered as a two-month add-on qualification that is recognized in Gulf states. To this end, the organisation keeps a database of all graduates and offers the GCC extension course to any who remain unemployed.

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Unlike Government-run institutes (see below), this facility can run courses and design curricula flexibly, according to demand. To inform this, they have regular meetings with factories, and close links with the head of the HSA Board. In future, there are plans for new curricula on car mechanics, medical equipment maintenance, air conditioning and refrigeration. It has also held a course on meter reading and maintenance for the water industry.

Overall, an estimated 30% start their own business, 20% go to government, 40% to the private sector and 10% emigrate, mostly to Saudi Arabia and other GCC states. HSA now selects its workforce from all vocational training centres. Around 5% of Institute and Academy graduates go on to work with HSA, with many getting further training in other local factories and going on to work there. In Yemen, a graduate of the centre would earn around 50,000YR/month, placing them in the modal income band for Taiz5

Government-run vocational facilities in Taiz fall into two categories – a) those that recruit from secondary schools, and b) those that recruit from intermediate school (Table 11). There are a total of approximately 5,550 vocational students in Taiz governorate. However, with the state run facilities less able to respond to demand than the HSA Institute and Academy, not all of these will enjoy good employment prospects.

. In Saudi Arabia, they would earn around double this wage.

Table 11. Government run Technical and Vocational Training institutes in Taiz.

Name Number of students

Comments

Category A

Taiz Trading Institute 1,200 (800 male, 400 female)

Focus on business and management

Hawban Technical Institute 1,100 Fall from 1,500 after capacity bl Al-Janad Technical Institute 100 Focus on accounting and computer

programming

Al-Sinna 100 Focus on trading

Category B

Al-Hassib 1,200

Turbah 200

Al-Barakani 500

Haifan 700 Source: survey data

Category A recruit from secondary schools, and Category B from intermediate schools.

Also working on the youth employment problem in Yemen is the Small and Micro Enterprise Promotion Service (SMEPS), a young SME development agency established in 2006 as a subsidiary of the Social Fund for Development (SFD). It is a (quasi) public-sector body, that uses a ‘market oriented approach’ to build the capacity of MSMEs. It has been highly successful in its approach to date – identifying new business areas or reviving older ‘traditional’ ones - but has yet to focus on Taiz.

5 Around 34% of Taiz households are placed in income band II, earning 30,000 to 60,000 YR/month (source, JFA household survey see Chapter 2)

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4.6. Policy approaches to sustainable industrial growth and employment generation in Taiz.

4.6.1. Industrial relocation as an option? Due to concerns about future of Taiz with its deepening water crisis, and advantages conferred by Hodeida with its deep-water port facility, the HSA group is examining the strategy of expanding some industries there. Although more water and electricity are used on the coast, it is on balance cheaper there at present (but not so significantly), and this will remain the case for as long as water is still available from coastal wells, which are threatened by saline intrusion if over-extraction occurs (Table 12).

Locating industry near a desalination plant would save on the energy required for pumping or transporting water into the uplands, but in the short-term there is limited social infrastructure, such as housing and schools, on the coast. HSA will not invest in areas where no infrastructure is present (but this is not the case for the major coastal city of Hodeida).

Table 12. Forward-looking comparative analysis of electricity and water use in Taiz and Mokha (a coastal settlement).

Water YR/m

Assumptions Electricity YR/m

Assumptions Total spend YR/m

Taiz 6000 Assumes family water spend per month broadly unchanged after arrival of desal (although in practice behaviour will vary by income band)

1500 Some savings on household electricity bill through less pumping of water to rooftop tanks (more water supplied by LC and private networks)

7500

Mokha 1500-3000

Water use greater on coast for bathing, washing clothes and drinking, but water much cheaper. Water bill likely to increase once city starts to grow and desalinated water will need to be used to avoid saline intrusion into existing wells Sewerage costs likely to increase (water consumption in Hodeida has led to severe sewerage problems)

4000 Electricity use on the coast much higher mainly due to air conditioning (and pumping due to higher of water use)

5500-7000

The issue is further complicated by the consideration of how relocation might change the carbon footprint of supply and distribution networks. For instance, shipping in raw materials to the coast may have a reduced impact but this may be balanced by greater energy expenditure in freighting goods to other major population centres in the highlands including Taiz itself.

In conclusion, while there may be some longer-term advantages in a coastal shift (but more work needs to be done to evaluate this more systematically) the implied timescale is well beyond the short-term issues of the water crisis and growth in Taiz.

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4.6.2. Employment generation – broadening and deepening the industrial base This study has identified several emerging areas of the Taiz economy that are in the realms of ‘small water’ – that is, they generate considerably better returns to water than agriculture-based growth dependent on big water (see Table 6 in Section 4.3.1). They also represent diversification and expansion of the current industrial mix. Opportunities (all of which require feasibility studies) include:

1) The plastic recycling industryis in its early stages of development in Taiz. It has a large market in China and involves large numbers of lower-income people in the supply chain, unlike most of the current traditional industries, which import the majority of their raw materials. Particular attention would need to be paid to energy efficiency, given its potentially high cost and carbon footprint implications. Plans are currently being made to build a recycling centre at Barah on the way to Mokha.

2) Business and health tourism, which are the dominant service industries in Taiz. Their current and potential contribution to the economy needs to be understood so that they may be addressed strategically in terms of public policy and human resources planning. Health tourism (along with various types of international leisure tourism that have become non-viable in the current security environment) was identified some time ago as a key growth sector for the city (Taiz Centre for Research and Feasibility Studies, 2007).

3) Other services, such as information technology, transport and finance, which have strong inter-sectoral linkages with tourism, hospitality and health. These industries have strong potential in Taiz if they receive the necessary support in developing their human resources bases. In addition, the GIZ SME development programme is promoting a new range of enterprises including photography, hairdressing and beauty care, carpentry, mechanics and small-scale food processing, ensuring that these opportunities are accessible to young women.

4) In agriculture, there are some possibilities to explore dryland-adapted crops such as figs, dates and aloe. The latter is a water-efficient plant that thrives in arid environments with a diverse range of value added applications. Yemen potentially has a comparative advantage in this crop, including a number of indigenous species whose commercial potential has yet to be determined. If aloe production were found to be promising, then a complementary processing industry would be required. The Taiz 2025 Master Plan (Louis Berger Group, 2005) also identifies crafts as an important sector, including hand-made textiles and leather goods, doors and windows made from wood and aluminium, traditional silver and gold jewellery, wrought ironwork and embroidery, millinery and related designs.

4.6.3. Models for replication and scaling Silatech’s research and pilot in the construction industry where the labour force has a comparative advantage, represent a scalable and sustainable model. The pilot quickly became sustainable and effective, and it is supported by the extensive research on skill sets and behaviours of Yemen’s labour force performed by McKinsey for MOPIC, which had a strong focus on the construction sector.

However, Yemen’s business environment remains constrained by security issues, which increase costs and de-incentivise investment. To date, the scaling up of this promising pilot is on hold.

The Saeed Institute and Academy is an excellent example of how successful an innovative, private sector led approach to skills development and capacity building for employability can be. It has the following key features:

It is financially sustainable but offers subsidies to increase access to more disadvantaged groups, allowing them to make the difficult transition from the informal economy to the paid labour force. It matches supply and demand based upon market requirements. It is flexible and responsive

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5. Discussion and conclusions

The short-term benefits of improved water quality and availability are clear. This report has outlined some of the pathways through which improved supply may lead to enhanced productivity and efficiency, quantifying some potential employment gains that may arise through both direct and indirect cost savings, and increased growth and competitiveness.

These benefits would be manifest at the level of the household economy, in addition to at the industrial scale, and they go beyond basic cost savings, which were demonstrated to be of less importance even for more water intensive products – than the fundamental issue of availability. Commercial concerns for the future are underlined by recent decisions to expand two plants in Hodeida rather than in Taiz. The quality of the investment environment outweighs simple issues of unit cost, although clearly these cost savings would be expected to rise dramatically in the context of increasing scarcity. Competitiveness in Taiz, and Yemen generally, is constrained by a suite of factors including high energy costs, weak legislative, policy and regulatory environments, and instability.

The recent Chatham House report (Hill et al. 2013) on the relationships between business, investment and conflict amplifies the point that security is the main constraint to growth, competitiveness and, therefore, employment and wealth creation in Yemen. General dissatisfaction with services is exacerbating insecurity problems. JFA’s own analysis (see Chapter 3) assesses how two successive dry years is likely to create a ‘tipping point’ of major civil unrest as water availability shrinks rapidly and prices soar. The public health implications of more plentiful, better quality water are also apparent.

Accepting Allan’s (2001) hypothesis that the ‘big water’ security problem is not one that can be successfully tackled within the region simply through efficiencies and new production, and Handley’s assertion that industry is a highly productive way to convert water into jobs and income (Handley 2001), it is vital that the industrial base is deepened and broadened. The expansion of highly skilled service industries have a major role to play in this transition, and this report has proposed some areas for development in this respect, in addition to successful models for matching human capacities to the skills demanded by the market.

In the longer-term, there will be a need to examine the issue of depolarization of growth away from major centres such as Taiz so that employment and income are distributed more widely, addressing the drivers of conflict across impoverished, resource-poor rural areas, where agriculture is becoming increasingly difficult as bore holes dry up. Indeed, there is frequent small-scale conflict surrounding water rights in Taiz’s peri-urban zone.

In addition, any new strategy for ‘small’ industrial water needs to balance supply from new production with better demand management, and there is some evidence that this is already happening within Taiz’s productive sectors.

Small-scale desalination facility, Taiz

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6. Bibliography Allan, J. A. (1994). Overall perspectives on countries and regions. In Water in the Arab World: Perspectives and Prognoses. Edited by P. Rogers and P. Lydon. Cambridge, MA, Harvard University Press. Allan, J. A. (1996). The political economy of water: reasons for optimism but long-term caution. In Water, Peace and the Middle East: Negotiating Resources in the Jordan Basin. J. A. Allan, (ed.). London, Tauris Academic Publications. Allan, J. A. (2001). The Middle East Water Question: Hydro-politics and the Global Economy. London, Tauris Academic Publications. Assad, R., Barsoum, G., Cupito, E., and Egel, D. (2009). Youth Exclusion in Yemen: Tackling the Twin Deficits of Human Development and Natural Resources. Middle East Youth Initiative Working Paper 9. Dubai and Washington, D.C., Middle East Youth Initiative. Dhillon, N., Djavadm, S., Dyer, P., Youfef, T., Fahmy, A., & Kraetsch, M. (2010). Missed by the Boom, Hurt by the Bust; Making Markets Work for Young People in the Middle East. Dubai and Washington, D.C., Middle East Youth Initiative. Handley, C.D. Virtual Water Everywhere and Barely a Drop to Drink. Unpublished article. Handley, C.D (2001) Water Stress: Some Symptoms and Causes, a case study of Taiz, Yemen, SOAS ILO (2011). World of Work Report (2011). Making Markets Work for Jobs. Geneva, International Labour Organisation. ILO (2012). Global Employment Trends (2012). Preventing a Deeper Jobs Crisis. Geneva, International Labour Organisation. Hill, G., Salisbury, P., Northedge, L. and Kinninmont, J. (2013). Yemen: Corruption, Capital Flight and Global Drivers of Conflict. London, Chatham House. Louis Berger Group (2005). Revising and Updating the Master Plan of Taiz for the Year 2025, Final Report. Washington, D.C., The Louis Berger Group. McKinsey and MOPIC (2010). Executive Summary Presentation on Yemen Priority 2, GCC Labour. Sana’a, Ministry of Planning and International Cooperation. Ortiz, I, and Cummins, M. (2012). When the Global Crisis and Youth Bulge Collide. Double the Jobs Trouble for Youth. United Nations Children’s Fund (UNICEF), New York. Silatech (2001). Building Jobs: Impact of Real Estate Projects in Yemen. Silatech Discussion Paper. Doha, Silatech. Taiz Centre for Research and Feasibility Studies (2007). Summary of the Study on Investment Opportunities in Taiz Governorate. Taiz, CRFS. Tapper, R., Hadjikakou, M., Noble, R. and Jenkinson, J. (2011). The impact of the tourism industry on freshwater resources in countries in the Caribbean, Mediterranean, North Africa and other regions. London, Tourism Concern and Environment Business and Development Group. WHO (1997). Guidelines for drinking-water quality. Vol. 3 Surveillance and control of community supplies. 2nd ed. Geneva, World Health Organisation. WHO (2003). Domestic Water Quantity, Service Level and Health. Geneva, World Health Organisation. World Bank (2007). Yemen: An Integrated Approach to Social Sectors Towards a Social Protection Strategy; Phase 1 Report. Middle East and North Africa Region Human Development Department. Washington, D.C., The World Bank. World Bank and IFC (2013). Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises. Washington, D.C., The World Bank. World Economic Forum (2012). Global Competitiveness Report 2012-13. Geneva, World Economic Forum.

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Appendix 1. Questionnaire Business name

Product marketing & % costs that are water

Total output (MT/annum) Yemen market (MT/annum) Export (MT/annum) Yemen market share, % Water as % total costs

Product 1

Product 2

Etc…

Annual water use and cost (water + processing + transport) per product category

Kawther – water + transport Well (own) – water + transport Well (other) – water + transport

Mokha plant – water + transport

Estimated processing costs

Product 1 m3 @ YR/m3 m3 @ YR/m3 m3 @ YR/m3 m3 @ 1.8YR/m3 YR/m3

Product 2 m3 @ YR/m3 m3 @ YR/m3 m3 @ YR/m3 m3 @ 1.8YR/m3 YR/m3

Etc… m3 @ YR/m3 m3 @ YR/m3 m3 @ YR/m3 m3 @ 1.8YR/m3 YR/m3

Staffing: number and average salary per category

Senior management

Middle management

Junior management

Supervisor

Operative

Ancillary (cleaner, guard etc)