Yemen’s Water & Sanitation Sector

Gerhard RedeckerKfW-Office Sana’a

January 2006

Selected Key Sector Issues

Update January 2006

ContentsSome 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

…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

… poor water management creates poverty… (World Bank CWRAS, Jan 2005)

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

...for People

...for Food

...for Nature

...for other Use

Domestic Urban

Domestic Rural

Schools Mosques

Govern-ment

OtherTrade

Industry

Agro-industry

IrrigationAgricult.

RainfedAgricult.

Ground-water

Fauna &Flora

WATER

ClimateChange

MDG 1 / Target 1: Halve, between 1990 and

2015, the proportion of people whose income is less than 1 dollar per day

MDG 1 / Target 2: Halve, between

1990 and 2015, the proportion of

people who suffer from hunger

MDG 2 / Target 3: Ensure that by 2015,

children everywhere, boys and girls alike, will be able to complete a full course of

primary schooling

MDG 7 / Target 9: Integrate the principles of

sustainable deve-lopment into country

policies and programs and reverse the loss of

environmental resources

MDG4 / Target 5: Reduce by two-thirds,

between 1990 and 2015, the under-five

mortality rate

MDG 7 / Target 10: Halve, by 2015, the proportion of people without sustainable

access to safe drinking water

MDG 7 / Target 11: By 2020, have achieved

a significant improve-ment in the lives of at least 100 million slum dwellers / Indicator 31: urban population with access to improved

sanitation

5

Targets in service coverage

Water Sector Benchmarks

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BaseYear1994

BaseYear2000

Year2004

PRSPTarget2005

NWSSIPTarget2009

MDTarget2015(MP)

StrategicVision2025

Popu

latio

n C

over

ed

Rural WS TargetRural SAN TargetUrban WS TargetUrban SAN Target

Urban Water Coverage

Achievement 47%

Urban Sanita-tion Coverage Achievement

23%

6

Water demand and supply pattern (NWSSIP)

Water Demand & Supply Pattern

0

20

40

60

80

100

120

Target Urban l/c/d Realistic Urban l/c/d Target Rural l/c/d Realistic Rural l/c/d

Big Cities Central Montainous Zone Coastal Zone Other Areas (dispersed)

Minimum health impact

threshold

7

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

Source: Global Water Partnership TAC Background Paper No. 2 (Water as a Social and Economic Good) / own elaboration

O&M Cost

Capital Charges

Opportunity Cost

Economic Externalities

Environmental Externalities

FullSupplyCost

Full EconomicCost

Full Cost

Sust

aina

ble

Valu

e in

Use

of R

esou

rce

General Principles for Cost of Water

Operat'l.Bench-

mark

NWSSIPBench-

mark

Urban Subsec-tor Goal

Not specified

or calulated

The Yemen Reality of Urban Water

Coincides with BMZ Sector Concept

8

Sector finance (2)NWSSIP investment plan and finance needs

NWSSIP 2005-2009 Finance Needs (Total USD 1.538 million)

Cost 47 Gap 20

Cost 750 Gap 130Cost 48 Gap 23

Cost 454 Gap 275

Cost 28 Gap 22

Cost 190 Gap 70

Cost 21 Gap 19

0 100 200 300 400 500 600 700 800

IWRM

UWSS-Hw

UWSS-Sw

RWSS-Hw

RWSS-Sw

IRRIG

ENVIR

Subs

ecto

rs

USD million

Donors

GoY

$ Gap

NWSSIP 2005-2009 Funding Scenario

Goy 429 mn 28%

$ Gap 559 mn

36%

Donors550 mn

36%

9

Sector finance (3)MDG financial needs assessment

MDG Water Sector Needs Assessment (2005-2015)

0 200 400 600 800 1000 1200 1400 1600

WS Capital

WS O&M

SAN Capital

SAN O&M

Cap. Bldg.

Subs

ecto

rs

USD million

Rural

Urban

10

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

NWSSIP 2005-2009 Subsector Finance Shares

IRRIG12%

RWSS-Sw2%

ENVIR1%

IWRM3%

RWSS-Hw30%

UWSS-Sw3%

UWSS-Hw49%

MDG Costing Module Finance Shares (Total 4.124 USD million)

Sanitation55%

Cap. Bldg.4%

Water Supply41%

11

Sector finance (5) NWSSIP & MDG annual funding requirements

Subsector Finance Needs p.a.(NWSSIP vs. MDG NA Comparative Matrix)

0 50 100 150 200 250 300

Total Investment

"Softw are" / Cap. Bldg.

Urban Investment

Rural Investment

Water Supply Investment

Sanitation Investment

IWRM

Irrigation

Environment

O&M

USD million

MDG

NWSSIP

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

26,184,495(100%)355,0009,851,0002,318,80013,659,695

365,000(1%)11,000354,000Al Bayda LC

300,000(1%)300,000Hajjah LC

1,280,000(5%)600,000250,000430,000Ibb LC

2,494,500(10%)1,500,000441,000553,500Seyun LC

1,350,000(5%)140,0001,210,000Mukalla LC

1,943,000(7%)144,0001,045,000276,000478,000Hodeidah LC

1,465,000(6%)95,00023,0001,347,000Ta’iz LC

2,940,000(11%)200,0001,240,000200,0001,300,000Aden LC

5,720,000(22%)3,600,000680,0001,440,000Sana’a LC

2,746,000(11%)346,000104,0002,296,000NWSA

1,139,995(4%)925,000154,80060,196NWRA

164,000(1%)164,000EPA

3,950,000(15%)500,00050,0003,400,000GARWSP

327,000(1%)327,000MWE

TotalSelf-finance

ExternalCost-sharing

GoYAuthority

26,184,495(100%)355,0009,851,0002,318,80013,659,695

365,000(1%)11,000354,000Al Bayda LC

300,000(1%)300,000Hajjah LC

1,280,000(5%)600,000250,000430,000Ibb LC

2,494,500(10%)1,500,000441,000553,500Seyun LC

1,350,000(5%)140,0001,210,000Mukalla LC

1,943,000(7%)144,0001,045,000276,000478,000Hodeidah LC

1,465,000(6%)95,00023,0001,347,000Ta’iz LC

2,940,000(11%)200,0001,240,000200,0001,300,000Aden LC

5,720,000(22%)3,600,000680,0001,440,000Sana’a LC

2,746,000(11%)346,000104,0002,296,000NWSA

1,139,995(4%)925,000154,80060,196NWRA

164,000(1%)164,000EPA

3,950,000(15%)500,00050,0003,400,000GARWSP

327,000(1%)327,000MWE

TotalSelf-finance

ExternalCost-sharing

GoYAuthority

2006 MWE Investment Budget Shares

Urban79%

Central1%

Rural15%

Environment1%

Water Resources

4%

13

Sector finance (7)Present vs. NWSSIP & MDG urban unit costs

Gross Cost per House Connection

600

1,500

1,000

3,190

900

2,250

1,500

5,235

0 1,000 2,000 3,000 4,000 5,000 6,000

Mid 2004 NWSSIP minimum 1)

Mid 2004 NWSSIP maximum 1)

Mid 2005 MDG needs assessment 2)

End 2005 Sa'ada Tender 3)

USD

Water Sanitation

MDG and NWSSIP finance needs scenario unrealistic

1) Includes 1% pa inflation on USD basis to the 2009 horizon, differentiates geographic and density

2) No inflation for the full 2015 horizon

3) Gross cost incl. consultants and 20% technical / financial contingencies

14

Agriculture (AG) and irrigation – what is at stake? (1)

• 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)

Employment and economy

15

Agriculture (AG) and irrigation – what is at stake? (2)

• 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

Land distribution

Distribution of Landholdings 1991-2001

0

10

20

30

40

50

60

< 0.5 ha 0.5 to < 2 ha 2 to < 5 ha 5 to < 20 ha => 20 ha

% Holders 1991 % Holders 2001 % Area 1991 % Area 2001

Spatial Distribution of Farming in Yemen

010203040506070

Highlands Easternplateau

Tihama The coast

Perc

ent

% cult. Area % Farms

16

Agriculture (AG) and irrigation – what is at stake? (3)

• 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)

Cropping and productivity

CROP YER bn 2004 % in 2004Oranges 25 32.5%Grapes 21 27.3%Bananas 6 7.8%Dates 3 3.9%Others 22 28.6%

TOTAL 77 100.0%

1) 2004 Added Value of Mayor FruitsCROP YER bn 2003 YER bn 2004 % incr. % in 2004Qat 283 312 10.2% 62.9%Fruits 1) 70 77 10.0% 15.5%Vegetables 46 50 8.7% 10.1%Grains 27 29 7.4% 5.8%Forage 13 14 7.7% 2.8%Others 14 14 0.0% 2.8%

TOTAL 453 496 9.5% 100.0%

Added Value Increase of Mayor Crops

Allocation of Cultivated Land in Yemen - 2004

cash crops18%

fruit9%

vegetables7%

fodder11%

others5%

cereals50%

17

Agriculture (AG) and irrigation – what is at stake? (4)

• 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

Water use