Conflict Destabilizes Yemen’s Industrial Supply Chains

Sawt Al-Amal (Voice of Hope) – Hebah Mohammed

The industrial sector is one of the main pillars for achieving comprehensive economic and social development. The fields of industry in Yemen have multiplied ranging from the extractive industries, and the manufacturing ones such as, the rubber, plastic, and fiberglass industries, the food industries, and the construction as well as metal industries.

The structure of the economy suffers from a difficult and unstimulating economic investment environment due to the ongoing conflict that has damaged many industrial facilities. The industries appear to be quite weak, prompting “Sawt Al-Amal” to clarify the current situation of the industry in Yemen and the fields of Yemeni industry.

Extractive and Transformative Industries in Yemen

“The value chain of these industries is related to their life cycle as natural resources. It goes through several stages, including oil exploration, production and refining processes. Despite the numerous attempts to extract it, failure always accompanied those attempts until the eighties of the twentieth century, when it began to flow from the fields of Ma’rib Governorate, Shabwa and Hadhramout,” Al-Ghurbani added.

He added that the administrative system whose tasks include developing and protecting the extractive industries, especially the oil sector, is the worst work system in Yemen. It does not operate in a thoughtful manner that serves the needs of the national economy. It is also unable to develop long-term strategic plans to benefit from the available resources and protect the extractive industries from plunder and corruption in order to achieve investor confidence in the country.

Many factors in Yemen encourage the orientation towards extractive industries as a productive activity that supports the local economy and provides resources for the government’s public treasury. At the same time, it represents an attractive opportunity for the private sector to invest its money in profitable productive sectors, implying a favorable investment environment for capital.

According to the Central Agency’s reports from 2005 to 2012, “The extractive industries represented an important percentage of the GDP, which ranged between 07.26% and 5.10%. However, it is decreasing annually, and it still represents the main component of the government’s general revenues. Furthermore, the government has received significant revenues from these industries.”

According to the report of the Ministry of Industry and Trade, in May 2006, the contribution of extractive industries to the composition of the gross domestic product amounted to 971 billion and 676 million riyals last year 2021, compared to 796 billion and 794 million riyals in 2004. While the contribution of the transformative industries rose during the same period to 165 billion and 498 million riyals from 142 billion and 196 million riyals, with a growth rate of 8.82%.

The successive fuel crises lead to an increase in the costs of industrial production, including its ramifications and activities. All of them have been affected because of the continuation of these recurring crises, and the delay in supplies of oil derivatives, which causes a decline in productivity.

According to the report of the United Nations Verification and Inspection Mechanism in Yemen, there is an increase in the average monthly amount of fuel discharged for May 2022 by about 384%, reaching about 216 thousand tons, compared to the monthly average for 2021. There is also an increase of 66% compared to the monthly average since May 2016 by about 130 thousand tons.

Transformative Industries

Dr. Fawaz Al-Nadari, the head of the Department of Business Administration at the University of Ibb, explained to “Sawt Al-Amal” that the transformative industries include a group of industrial activities, such as the petrochemical industries, the gas industry, the manufacture of cement, fertilizers, aluminum, clothing, food, iron and steel, medicine, as well as the paper industry.

According to the annual report of the Ministry in 2006, the manufacturing sector is one of the sectors that occupy an important place in the Yemeni economy. Its contribution is estimated at about 10.7% of the total GDP and about 4% of total employment. The report indicated that the sector recorded an average growth of 4.6% during the period from 1991-2004, while its growth rose during the year 2005 to 8.8%.

A number of doctors specializing in economics at Ibb University confirmed that the food and beverage industries, the manufacture of petroleum derivatives, petroleum products, non-metallic products, and tobacco products dominate the manufacturing sector by more than 75%. The remaining percentage is distributed to the manufacture of paper, printing, equipment, machinery, textiles and clothing, which is considered one of the most promising industries due to the local availability of raw materials.

Industrial Facilities Face the Costly Conflict

Hayel Saeed Anam & Co Group of companies, the largest commercial and industrial group in Yemen, confirmed to “Sawt Al-Amal” through the media director of the companies, Ammar Al-Bathiji, that it is still making great efforts to face the repercussions of the high costs of production and transportation as well as its consequences on the consumer. This occurs as a result of putting pressure on expenses and rationalizing expenses, and due to the fact that they realize the danger of declining production on the stability of the market.

He explained that they are seeking to find alternatives to the continuation of local industrial production lines, and they work to provide and import production inputs. Moreover, they attempt to avoid the decrease in the supply of food and dairy commodities on which many Yemeni families depend.

Ammar confirmed that Hayel Saeed Anam & Co Group of companies have made unremitting efforts to transport raw materials and oil derivatives from abroad to provide facilities in order to ensure market stability and face the challenges of internal crises and conflicts. This is to speed up the process of development and production.

In the latest industrial survey carried out by the Ministry of Industry and Trade and the Central Statistical Organization 2020, “There are about 28 thousand industrial establishments in Yemen, 78.43% of which are very small establishments with (1-3 workers), 19.15% are small establishments with (4-9 workers), and 1 .19% are medium establishments with (10-50 workers). On the other hand, there are about 0.51% are large establishments with (more than 50 workers), and approximately 98% of the total industrial establishments belong to the private sector.”

According to economic studies and reports published in 2021, the industrial sector in Yemen operates in a difficult and unstimulating economic investment environment. It faces many challenges and obstacles, and the frequency of challenges and difficulties increases in light of the ongoing conflicts that directly affected it through the bombing and destruction of a number of industrial facilities. It was also damaged indirectly through the disruption of the stability of industrial supply chains, the availability of the necessary production elements, or in the form of increased production costs.

According to the data of the General Federation of Yemeni Chambers of Commerce and Industry, the cumulative losses in the output of the industrial sector, both extractive (oil and gas), and transformative (food and consumer goods) during the years 2015-2020 amounted to approximately $35 billion.

A number of specialists in the Yemeni economy told “Sawt Al-Amal” that the decline of the industrial sector in Yemen is due to the cessation of production operations because of the departure of foreign oil companies and the difficulty of obtaining raw materials. Furthermore, most of the decline in the output of the industrial sector was attributed to the extractive industries, which recorded an annual decline of about 15.2%. The decline in transformative industries was about 9%.

Ahmed Ali told “Sawt Al-Amal” that he had finished, at the beginning of 2015, a study to develop the company he runs and prepared to introduce machines and open new departments. However, he had to reduce production lines and lay off 40% of the company’s workforce.

Ahmed Ali, who is forty years old, runs an industrial company of the private sector, which includes four production lines for the food industry, with a total capacity of about 13 thousand tons annually, and employing 500 workers. However, the conflict and the accompanying disastrous consequences caused changes in the course of the company’s production and paralyzed it. It has also plunged the country into great losses, as described by Ahmed.

Mr. Mahmoud Nussari, director of the Nusari for Industry and Trade Co in Ibb governorate, told “Sawt Al-Amal” that most Yemeni companies and factories are resisting to survive in light of the conflicts that have paralyzed their movement and affected their productivity. This is in light of the difficulties in providing its needs in terms of production requirements and raw materials, as well as the high costs of insurance and shipping to Yemen, and the high costs of production. In addition, the impact of the weak purchasing power of Yemenis as a result of the suspension of government salaries for a large proportion of employees, affected the amount of sales produced by the industrial establishments.

He added that one of the obstacles of the industrial sector is the limited ability of business owners and small enterprises to obtain the financing sources they need for their industrial activities, in addition to the technical problems represented in the scarcity of technical and trained workers. He specifically said, “as a detergent-producing company, the obstacle is the competition of foreign commodities with local products, and the inability of the local industry to compete in the markets.”

The Minister of Industry and Trade, Abdulwahab Al-Durra, had confirmed in the annual report of the Ministry of Industry and Trade for the year 2022 that “we worked on developing and modernizing work mechanisms in the industrial zones and issuing a regulation for allocating land for industrial projects.”

The report mentioned the most prominent difficulties that the ministry faced in the year 2021, including the impact on economic and trade relations, and the cessation of production of large numbers of local food factories. This is due to the significant decline in imports of raw materials and production requirements due to the ongoing conflicts in the country.

Al-Siyaghi mentioned that great efforts are being made by the competent authorities in order to make the industrial complexes project a success and establish it on the ground in the coming years. The most prominent obstacle to the project is the difficulty in obtaining large areas of land. However, work is ongoing and Ibb governorate will witness an industrial renaissance in the coming days, as he said.

Models of Industrial Facilities Difficulties

The report issued by the Ministry of Industry and Trade in 2021 mentioned the difficulties experienced by some industrial establishments, including the “Yemeni General Corporation for Cement Industry and Marketing”, which is considered the first institution in Yemen in the field of cement industry. According to the annual report of the Ministry of Industry and Trade for the year 2021, the institution was established by Law No. 34 of 1937. In addition, the corporation has an independent personality with an industrial and commercial entity whose capital is fully sponsored by the government.

The Corporation aims to complete the implementation of Bajil cement factory expansion project, in addition to searching for alternatives to provide fuel oil to reduce operational costs and provide clinker to operate Bajil and Amran cement factories. The report mentioned the company’s most prominent achievements, which are represented by fully meeting the market’s needs. In addition, the Corporation achieved production of one million tons of the plan for the year 2021, despite the stoppage of Amran plant during the first quarter of the year 2021.

According to the Ministry’s report, the Corporation and its factories were able to achieve a production capacity of 1,050,000 tons of cement for the year of 2021, achieving an implementation rate of 95% of its production plan. The Corporation also achieved sales during the year of 2021 amounting to 1,032,000 tons of cement, with an increase of 98%, despite the market conditions affected by the prevailing security conditions.

The most prominent difficulty that the corporation faced was the suspension of Amran Cement Factory for a period of four months, due to the lack of diesel fuel. According to the ministry’s annual report for the year 2021, the proposed solutions are necessary for the Cement Corporation to continue searching for a financier to purchase a power station for Bagel plant. It is also necessary for the Cement Corporation to continue keeping pace with the operational process as planned.

Yemen Drug Company for Industry and Commerce (YEDCO)

According to the annual report of the Ministry of Industry and Trade 2021, the company was established in 1964 by Republican Decree No. 56 issued on 12-13-1965 as a joint stock company and a national institution, which works to provide medicines and pharmaceuticals. This can be done by importing local drug needs from Arab, European, Asian and American companies.

During this period, YEDCO assumed the responsibility of providing about 80% of the needs of the local drug market. The company’s factories were established on an area of ​​about 114,445 square meters, and the factories occupy about 28,660 square meters. The pharmaceutical factory was established on November 17, 1979, and it was opened for trial on September 26, 1980. On September 26, 1983, the company’s first pharmaceutical product was launched, and the company was able, during the establishment period, to produce many medicines and pharmaceuticals.

The company incurred large losses resulting from currency differences, according to which the Central Bank committed itself to settling these obligations, because foreign exchange differences amounted to approximately $11 million. Moreover, the matter worsened due to the high deficit and the great ability to provide the foreign exchange needed to open credits, which made it easier for a large number of local agents to replace the Yemeni company as the sole and exclusive distributor for the products of these companies.

General Institution for Spinning and Weaving Industry

In 1973, the organizational structure of the Spinning and Weaving Factory in Sana’a was re-structured for the development of the organizational structure with the establishment of a public institution for the weaving industry, as a general economic unit owned by the government and with an independent personality, which issued Law No. 9 of 1973 regarding its establishment.

The General Establishment for Spinning and Weaving Industry faced several difficulties, including the stopping of the spinning and weaving factory due to problems with the financier, and the stopping of the factory of the Yemeni Salt Refining and Packaging Company, due to mismanagement. The annual report of the ministry mentioned some solutions, including communicating with the higher authorities to solve the problems between the management of the Spinning and Weaving Corporation, working to provide the necessary funds to restart the factory of the Yemeni Salt Refining and Canning Company.