Yemen Infrastructure Report Q3 2009

At this stage, we are forecasting the construction industry value to rise from YER119.9bn (US$0.6bn) in 2008 to YER167.4bn (US$0.8bn) in 2013 representing a compound annual growth rate (CAGR) of of 6.94% over the forecast period. A big problem over the next few years will be a reduction in public revenues as a result of the fall in oil prices. In December 2008, it appeared that the government was planning to cut expenditure by 50% but, as further details emerged, it was revealed that the decree would in fact cut expenditure by only around 4%. Nevertheless, BMI sees total government expenditure falling by more than 20% y-o-y in 2009, largely due to a sharp fall in the fuel subsidy bill (concomitant with lower energy prices). In addition, we expect cuts to the capital expenditure side of the budget, which could well hurt Yemen's long-term growth prospects. As reported by the Saba News Agency in April 2009, the International Finance Corporation (IFC) is calling for Yemen to implement a public-private partnership (PPP) investment programme to aid the economy and also help national development. The IFC claims that a greater partnership between the public and private sectors could produce US$1.6bn to be spent on transport infrastructure projects. Despite the efforts of donors, Yemen’s development goals have yet to be realised and it is estimated that there is a deficit of US$2.3bn in the country’s investment programme. This is a serious figure as Yemen needs to invest around 7-9% of GDP per year in order to sustain current levels of development. In 2008, BMI estimated that Yemen had a total GDP of US$27.8bn, and therefore needs investment of US$1.9- 2.5bn per year to support infrastructure. Power outages remain a serious problem throughout Yemen. In May 2009, as reported by the Yemen Times, a generator broke down in Aden resulting in power shortages. The output of Aden’s Power station fell from 260MW to 185MW as a result of the problem, and electricity blackouts are expected to increase throughout the summer as demand for energy increases. The main problem in Yemen is that the current power stations are old, which results in breakdowns and other technical problems. The daily shortage in the capital of Sana’a is estimated at 50MW. Yemen’s prime minister has recently urged the Ministry of Electricity to accelerate the construction of the US$49mn 500MW Marib Power Station, which is expected to begin production by the end of 2009. When operational, the plant should save the country approximately US$1.5mn per day, as power will not have to be purchased from other suppliers. Further savings will be generated because the plant is gas-fired. Yemen spends around US$1bn on oil derivatives to fuel its power sector each year. In terms of the wider economy, like almost all countries across the globe, Yemen's economy will slow in 2009. BMI is projecting real GDP growth of 2.6% this year, down from an estimated 4.4% in 2008. Over the course of the five-year forecast period (out to 2013), we see economic expansion averaging 3.0%.