AGENCE FRANÇAISE DE DEVELOPPEMENT GROUP ACTIVITY IN YEMEN

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1 1 July 2009 AGENCE FRANÇAISE DE DEVELOPPEMENT GROUP ACTIVITY IN YEMEN AFD Group has been authorised to operate in Yemen since the country became part of France s Priority Solidarity Zone (PSZ) in February Prior to the opening of an agency, until the autumn of 2007 AFD s activities in Yemen were supervised by AFD s regional agency for the Horn of Africa based in Djibouti. AFD opened an agency in Sana a in November The Establishment Agreement was signed on 4 December Strategy and prospects for AFD operations In March 2007, the French Minister for Cooperation signed a Partnership Framework Document (PFD) between France and Yemen in Sana a for the period The PFD provides for: the French Embassy in Sana a to continue activities in cross-cutting sectors: governance, cultural diversity, academic and scientific cooperation. enhanced French cooperation in the sectors of agriculture and food security on the one hand, and infrastructure on the other hand. AFD s operations in Yemen under its sectoral competences consequently focus on these two sectors: agriculture and infrastructure. a. Agriculture A project benefitting from a EUR2.9M grant is currently being implemented in the livestock raising sector with the Ministry of Agriculture (General Department for Animal Resources): the project to support the development of livestock raising areas in Yemen (PADZEY). An extension of the project has just been signed, and it will continue until the end of A project benefitting from a EUR grant to develop market gardens in Socotra, with the French NGO Triangle Génération Humanitaire, was signed in January The sharp fall in grant resources allocated to AFD which began in 2008, is continuing in 2009 and will continue in 2010, combined with the fact that priority is given to Sub-Saharan Africa or crisis countries (Yemen is not recognised as such by the CICID - the French Interministerial Committee for International Cooperation and Development) means it is necessary to withdraw from this sector which cannot bear the cost of loans, apart from small periodic operations using specific resources: coffee (funds from the TCBP - the Trade Capacity Building Programme), or microfinance in rural areas (microfinance envelope) for extremely low amounts. AFD in Yemen 14/09/2009 1

2 b. Infrastructure The bulk of infrastructure projects can bear the cost of sovereign loans (to the State), or nonsovereign loans in the case of loans to public or private companies for which AFD s resources are much less limited than for grants. An initial EUR26M project was approved in the electricity sector in November 2007 and was signed on 17 November Two other projects are currently being prepared in this sector. The examination of the public investment program which was presented to the Yemen Consultative Group in London in November 2006 underscored that the electricity sector, where production and distribution capacities are well below the sharply rising demand, was an important priority with considerable financing needs. Opportunities for projects via non-sovereign loans have also been identified in the telecommunications sector. c. Other sectors Three other types of operation are envisaged in addition to the infrastructure and agriculture sectors: - financing from the French Global Environment Facility (French GEF) in addition to other donors activities; - Trade Capacity Building Programmes (TCBPs) to support the development of exporting sectors; - support to the microfinance sector via AFD s microfinance facility. In addition, the agency has already identified private partners (MTN Yemen, Coca Cola Yemen, Al-Sewedi cables) to whom PROPARCO (AFD s private sector financing arm) could have offered financing at market conditions. Unfortunately, these projects have not been implemented for various reasons. Several projects are, however, currently being studied. 2. Financial products applicable to Yemen Yemen belongs to the group of Least Developed Countries (LDCs) where AFD supports States via grants or concessional loans. AFD had envisaged over 90M of new commitments for the period , mainly in the form of sovereign loans. However, the commitments that were officially announced on several occasions will not be met. Indeed, sovereign risk is considered high in Yemen (rated red light in terms of debt viability by the IMF and World Bank), and in December 2008 the French Treasury and Economic Policy General Directorate (DGTPE) informed AFD that sovereign loan financing would have to be stopped. This position was confirmed during an interministerial meeting held at Matignon, the Prime Minister s Office, on 12 June An exemption was, however, accepted for the allocation of a USD50M loan for a rural electrification project cofinanced with the World Bank and the Islamic Development Bank as it was considered that the project had already taken off. However, AFD will not be able to respect its commitments for a 60MW wind farm project, which is also in the preparation phase and was also to be cofinanced by the World Bank and the Islamic Development Bank. Alternative solutions to finance this project, for which AFD had pledged to provide a USD50M loan, are currently being explored with the Arab Fund following the initiative of the French Foreign Ministry (MENA: Middle East North Africa). AFD in Yemen 14/09/2009 2

3 AFD will still be able to allocate non-sovereign loans (i.e. direct loans with no State guarantee) to solvent companies in the public market sector or to private companies, at concessional rates if an interest rate subsidy is justified, or otherwise at near market conditions. Contacts have been established with Yemen Telecom (PTC) and its international communications subsidiary Tele Yemen, and a study on the development of Internet will be financed by the Study and Capacity Building Fund (SCBF), once the ToR have been defined by a consultant mission. This study may lead to the allocation of a sizeable loan to finance a program to develop Internet which is sorely lagging in Yemen. Finally, PROPARCO may participate in financing the private sector via loans, equity investments and guarantees. Its future activities will be facilitated when a PROPARCO officer is permanently assigned to the Cairo agency in September AFD operations in Yemen AFD operates in its two concentration sectors: Agriculture: the PADZEY project that aims to increase income for small-scale livestock farmers in two agricultural regions: Wadi Mawr (Tihama) and Taez. The project was transferred to AFD from the French Ministry of Foreign Affairs in June 2005 under the reform of the French aid system. In December 2005, it benefitted from an additional of financing from AFD (for a total of almost 2.9M in project support). The PADZEY project has two sub-objectives. The first is to improve the quality of animal production and livestock raising practices. The second involves enhancing production practices and, consequently, the added value of livestock by-products in order to improve the way in which they are marketed. Local financing for a small amount, in the form of a grant, which was signed with the NGO Triangle on 21 January 2009 to support the development and promotion of sustainable agriculture adapted to its environment on Socotra Island. Electricity infrastructure with the SCADA project, financed by a 26M loan signed on 17 November 2008 with the Yemeni State for the modernisation of the distribution network. It involves replacing the current management and control system for the electricity network which has become obsolete. The SCADA/EMS (Supervisory Control and Data Acquisition/Energy Management System) project involves replacing the existing centre by the construction of a new national control centre and five new local centres. The project aims to eventually improve the quality of electricity supply all over Yemen and, particularly, to reduce power cut duration, an important parameter for economic activities, and improve electricity services for the population. The environment with 1M of French GEF financing in the form of a grant allocated on 1 July 2008 for a project to preserve marine biodiversity on Socotra, an island which has just been listed as a World Heritage Site by UNESCO. Finally, a Study and Capacity Building Fund (SCBF) in the form of a 1M grant was signed in late 2007 with the Yemeni authorities to finance the identification and preparation of future projects. An initial contract for an environmental and social impact assessment has AFD in Yemen 14/09/2009 3

4 already been signed for the preparation of the rural electrification project. Two further contracts are expected to be signed soon for the preparation of the wind farm project: for an environmental and social impact assessment similar to the rural electrification project; for the feasibility project to upgrade this project to 60MW. Projects under study include: A USD50M (roughly 34.5M) rural electrification project, the preparation of which took longer as a result of the debate on the conditions for AFD operations in Yemen. The appraisal mission has now been scheduled for early November and approval by AFD s decision-making authorities is expected in January This project aims to improve access for rural populations to electricity and gas services that are sustainable both financially and from an environmental perspective. It is also worth noting that the preparation of the 60 MW wind farm project for the same amount has been dropped (except for the studies mentioned above for which the bid invitations are underway). As it has also been mentioned above, AFD will not be able to finance the project. A project to support a new promising microfinance institution: Al-Amal Microfinance Bank (AMB), for which the appraisal mission has just been conducted. It may benefit from 1M of financing in early 2010 under AFD s microfinance facility. A project to support Yemen s coffee industry has just been identified and may benefit from a 1.5M grant under the Trade and Capacity Building Program (TCBP) endowed by the French Ministry of Finance. The appraisal mission has been scheduled for the period of October AFD operations in Yemen in figures A total of 31.6M has been allocated to Yemen by AFD in the form of grants and loans: In millions of euros Total at Commitments Disbursements AFD in Yemen 14/09/2009 4

5 Contacts In Sana a: AFD Sanaa Trade Center, 4th floor Algier Street P.O Box Christian Flamant / Director flamantc@afd.fr Simon Goutner / Project officer goutners@afd.fr Tel: Fax: In Paris: AFD 5, rue Roland Barthes Paris cedex 12 Myriam Kawakibi Regional Coordinator kawakibim@afd.fr Tel: Fax: AFD in Yemen 14/09/2009 5