The private sector plays a vital role in turning the wheel of economic activity in Yemen, as it contributes about 53.7% of the Gross Domestic Product (GDP) as of 2014 (apart from its contribution to the oil sector). The private sector provided employment opportunities for around 19.6% of the total employed population (The percentage would increase to 69.4% when all non-public sector employees are considered as private sector workers). In the field of investment, the private sector contributed about 65% of the total investment in 2013. Moreover, in sectors such as health care, more than half of the services are provided by the private sector. Thus, without a viable private sector, the economic and humanitarian consequences could be disastrous2. Worth noting is that the majority of privately owned establishments (95 percent) in Yemen are classified as micro and small enterprises, employing less than five employees.
Since the recent turmoil, over a quarter (26%) of all enterprises in Yemen have closed due to war. The most affected have been women owned enterprises where almost half have been forced to close (42%), including those operating in the vital health sector, further compounding the struggle of the average Yemeni citizen to access basic health services. As much as 95% of the businesses that have closed did so due to physical damages on the business enterprise due to armed conflict or airstrikes, in fact only 7.6% of business that closed did so for other reasons than physical damages3. Damages on the businesses includes stock, machines, storage facilities and the building itself.
In the access to finance issue, it is revealed that the overwhelming majority of businesses (73%) have had no access to finance since the war broke out. Structural constraints to the financial sector and limited geographical outreach are contributing factors to an underdeveloped supply of financial services resulting in a widening ‘missing middle’ of SMEs and high demand for additional credit facility by all businesses surveyed. The latest Business Climate Survey (BCS) report released by SMEPS (Q3 2015), finds that business peers, friends and family, are currently filling the finance supply gap and informal moneylenders who collectively account for 80% of all loans provided during the war (conflict loans). Assisting businesses understand their priorities and areas of focus through skills training and consulting in business continuity, can lead to improved firm level productivity and provide a demonstration effect that can improve Yemeni private enterprise competitiveness overall in the early recovery and post conflict situation.
During the 2015 conflict, provision of inputs and raw materials has remained highly uncertain especially for the manufacturing sector, since most of the intermediate goods of the sector are import-based and the lack of fuel and water further prevents the companies from optimal use of their capacity. In addition to low technology acquisition level, informality stands as another fundamental issue for the manufacturing activities of Yemeni firms. UNDP estimates that 91 percent of businesses in Yemen are not formally established. Less-friendly business environment and regulations further impede the growth and efficiency of the manufacturing establishments.
Brave comes to enhance the resilience of the private sector, as the engine of sustainable growth, against the impact of ongoing conflict.