Yemen’s Water & Sanitation Sector

1. Yemen’s Water & Sanitation Sector Selected Key Sector Issues Update January 2006 Gerhard Redecker KfW-Office Sana’a January 2006

2. Contents Some reminders - Water and poverty in the PRSP - Water and relevance in MDGs - Water sector benchmarks - Water demand and supply pattern Sector finance - Real cost of water and the Yemeni scenario - NWSSIP investment plan and finance needs - MDG financial needs assessment - NWSSIP & MDG sub-sector finance allocation - NWSSIP & MDG annual funding requirements - MWE draft investment budget 2006 - Present vs. NWSSIP & MDG urban unit costs Agriculture – what is at stake? - Employment and economy - Land distribution - Cropping and productivity - Water use

3. Water and poverty in the PRSP … poor water management creates poverty… (World Bank CWRAS, Jan 2005) • …efficient and equitable water resources management is critical to poverty reduction… • Urban water and sanitation • scarcity of water resources • low service coverage • water pollution • Agriculture / Irrigation • water resource capture unsustainable • water mining practices anti-poor • water rights pattern exacerbate inequalities • agricultural water use key to reduce poverty • Environment • environmental degradation (erosion) drives poverty • water pollution affects the poor more • climate change affects the poor more, since they much depend on rain-fed agriculture • environmental health problems affect the poor most • … all these “externalities” are hidden costs imposed by the better off on the poor… Note: The PRS progress report for 2003-2004 makes little or no reference to respective achievements

4. Water and relevance for MDGs

5. Targets in service coverage Urban Water Coverage Achievement 47% Urban Sanita-tion Coverage Achievement 23%

6. Water demand and supply pattern (NWSSIP) Minimum health impact threshold

7. Sector finance (1)Real cost of water and the Yemeni scenario

8. Sector finance (2)NWSSIP investment plan and finance needs

9. Sector finance (3)MDG financial needs assessment

10. Sector finance (4)NWSSIP & MDG sub-sector finance allocation

11. Sector finance (5) NWSSIP & MDG annual funding requirements

12. Sector finance (6)MWE draft investment budget 2006 vs. NWSSIP • Mixed emotions • Urban bias continues with 79% of sector investment share, rural water grossly neglected • No recurrent budget information available • GoY share as per NWSSIP was USD 85.8 mn p.a., this budget only allocates USD 83.8 mn, thus the USD 111.8 mn annual finance gap is not addressed at all; in addition, inflation is not factored in • However, MWE budget is not inclusive of public investment outside MWE (such as MAI), so total sector related budget is definitely higher, but not known • Specified donor contributions (external finance) is incomplete; donor MTEF is not finished

13. Sector finance (7)Present vs. NWSSIP & MDG urban unit costs • MDG and NWSSIP finance needs scenario unrealistic • Includes 1% pa inflation on USD basis to the 2009 horizon, differentiates geographic and density • No inflation for the full 2015 horizon • Gross cost incl. consultants and 20% technical / financial contingencies

14. Agriculture (AG) and irrigation – what is at stake? (1) Employment and economy • AG value added share in GDP declining from 21.4% in 1993 to 15% in 2004 • AG value added growth rate increasing from 4.4% in 1993 to 5.9% in 2003 • AG economically active population share declining from 60.1% in 1993 to 50.4% in 2003 • AG represents 54.1% of total employment in 2004, and supports 2/3 of rural livelihood • AG female employment share increased from 39.9% in 2003 to 42.9% in 2003 • Average annual production value of the agricultural rural household was USD 1.270 in 2002 • High value crops are not labor-intensive: 1990-1999 labor productivity increase marginal, but land productivity increase > 50% (mainly due to irrigation)

15. Agriculture (AG) and irrigation – what is at stake? (2) Land distribution • Agriculture in Yemen is undertaken on some 1.08 million hectares; average size of operational holding was 1.36 has in 2002 • Concentration process of land holdings: more land for less, crowding out the small marginal farmers; From 1993 – 2000, average holding size decreased by 28.5%, and arable land per person has dropped 35% from 1985 to 2000 (Ø 900 sqm in 2000) • Size of used land correlates with food insecurity of households: at < 1000 sqm holding, food insecurity is highest (23%); some sources indicate general food insecurity above 50% for all • In 2004, 11% of cultivated land is under Qat

16. Agriculture (AG) and irrigation – what is at stake? (3) Cropping and productivity • From 2002-2004, 24% growth of agricultural products added value was recorded • Cereal production volume share still above 50%, but declining at an Ø 2.4% per year since 1995; share in added value insignificant; meanwhile, > 80% of cereals imported • Aggregate citrus production increased 20% pa between 1991 and 2003 • In 2004, Qat stands for 25% of AG labor force, 41% (USD 1.6 bn) of overall AG products added value (COCA) • Lion’s share of AG added value produced by water intensive crops (for each kilo of bananas, Yemen exports 24 liters of virtual water)

17. Agriculture (AG) and irrigation – what is at stake? (4) Water use • Most of cultivated area still directly rain-fed (55%), but on a declining path (since 1975 its share reduced to almost half), and with little or no sector support • Share of (rain-fed) spate and spring-fed irrigation low, but mostly stable • Groundwater irrigation share exploded from 5 – 45% • Lift irrigation monetized agricultural economy in detriment of marginal farmers • Non-food crop Qat consumes 30% of irrigation water • Overall irrigation efficiency low (< 40%) • Small holdings most affected by water poverty, since in Yemen water rights follow land rights • Declining water tables boost investment cost for pumping, favoring the larger farmers • Traditional water management practices acceptance on the decline