MENA Transition Fund Supports the Establishment of Special Industrial Zone in Al-Hodeida

A Joint Social and Economic Assessment (JSEA) for Yemen conducted in October 2012 by the World Bank, UNDP, EU and Islamic Development Bank (IsDB), highlights the adverse impact of the 2011 political turmoil and the sharp economic contraction on the poverty rate, livelihood and employment prospects. By the end of 2011, the national poverty rate in Yemen increased to 54.5% from the already high level of 42% by end-2009. Unemployment rose from 16% in 2005 to 18.2% in 2010. The JSEA concluded that economic growth conceived within an inclusive development strategy can create conditions for maximum impact on poverty reduction and job creation. Given the rapidly dwindling oil and gas reserves, a major government goal is to raise investments in the non-oil manufacturing sector through promoting SMEs. The JSEA also supports this approach as the most feasible route to achieve medium-term economic recovery and growth, which will also contribute towards economic diversification, poverty reduction and job creation goals.

Steps to support economic recovery and foster job creation in Yemen can only take place in an environment of relative peace and stability. As indicated in the JSEA, among the five largest cities in Yemen during the 2011 conflict, Al-Hodeida governorate (the third largest) remained peaceful with no damage to public or private properties. Al-Hodeida is home to 11% of Yemen’s population. Pre-crisis urban poverty rate in Al-Hodeida was estimated at 22%. As the agro-industrial capital of Yemen, the city is known for its dynamic business environment, and possession of good physical and social infrastructure including the second largest port; an international airport; primary road network connections to Saudi Arabian borders; new water treatment facility; two private refineries; one university hosting 15,000 students; 6 vocational training centers; and 20 cooperatives and over 15 bank branches. Given these socio-economic and spatial advantages, in 2006, the government designated a 4km square land site for Al-Hodeida Special Industrial Zone (SIZ). This site is situated about 400 km north of the Aden Free Zone and about 250 km south of Jizan Economic City in Saudi Arabia. However, due to a variety of challenges, no progress was made in the establishment of Al-Hodeida SIZ.

Under the Transition Plan for Stability and Development (TPSD), which was adopted in 2012, the government assigned high priority to various technical, policy and legislative related activities that will ensure the establishment of Al-Hodeida SIZ. Funded by the MENA Transition Fund established under the Deauville Partnership, the government and the IsDB, a dedicated technical assistance (TA) intervention for the ‘Preparation and Implementation Support Project for The Special Industrial Zone (SIZ) in Al-Hodeida’ has been formulated. In close coordination with relevant Government authorities, this TA aims to: (i) deliver a comprehensive & implementable public-private partnership- (PPP) based package for Al-Hodeida-SIZ; (ii) establish a legal entity ‘SIZ Administration Agency’; and (iii) deliver an integrated institutional support and capacity building package to the ‘SIZ Administration Agency’.

The TA is designed to strengthen institutional capacity of public and private sector agencies that will be involved in the implementation of various sub-component level activities. Execution of various sub-components will be carried out through a participatory and multi-stakeholders approach. In this way, the TA will engender capacity enhancement for government staff and public agencies involved throughout the project life cycle, particularly in areas of project preparation / financing, PPP arrangements, legal and regulatory framework and SIZ implementation issues.

The TA is transformative in nature in at least two respects. First, Al-Hodeida SIZ will demonstrate the potential for ring-fenced improvements in economic governance. SIZ developers and operators will be Yemeni private sector companies. This will demonstrate pilot implementation of the recently developed PPP framework. Furthermore, SMEs in SIZ will acquire land parcels which will be well regulated and dispute free. As a result, SMEs will benefit from less onerous regulatory burden and administrative decentralization. Second, the building of wide-ranging technical capacity during the implementation phase of Al-Hodeida SIZ is designed to showcase good governance with replication potential elsewhere in Yemen. With the expected involvement of Al-Hodeida Chamber and local private sponsors in the development and operation of the SIZ, such an approach will impart a broad-based technical capacity to the relevant Government agencies. Therefore, it is expected that the government will be in a better position to replicate the Al-Hodeida-SIZ model in other industrial zones across Yemen as well as to execute other PPP-based infrastructure projects. At implementation completion, the outcome of this TA is expected to include the establishment of the first PPP-based SIZ in Yemen in the port city of Al-Hodeida. The SIZ will provide job creation opportunities, SMEs development and investment climate improvement. As a major development project in the six additional governorates, it is expected that additional business activities will be ignited around the Al-Hodeida SIZ. Given its relative size to the total area city of Al-Hodeida (80 km square), the SIZ project will also accelerate other infrastructure, residential and commercial real estate development activities.