The International Finance Cooperation (IFC), the financing arm of the World Bank Group, is working to bridge the financing gap left by the break-up of the Yemeni central bank and the exodus of financial assets and capital from the war-ravaged southern peninsula country, its top regional official told Inc. Arabia.
“It’s obvious that the private sector community and their capacity has been impacted on a highly negative basis, by the unfortunate destruction of infrastructure in the country which closed many businesses,” Saad Sabrah, country head for Yemen at the IFC, said.
“It [the war] has also caused the capital flight of many businesses that have decided to shut down and leave the country.”
In August, the internationally recognized, and UAE and Saudi coalition-backed government decided to ‘clone’ the Central Bank of Yemen, which was headquartered in Sana’a at the outbreak of the war.
This resulted is two central banking entities, one based in the north of the country, controlled by Iran-backed Houthi forces, who seized power from the government in 2014, and one in the south, run by the government of President Abd Rabbuh Mansur Hadi.
“Right now, unfortunately, the Yemeni central bank has been split into two entities, one in Sana’a and one in Aden,” and that has led to a situation where the central banking system is paralyzed, said Sabrah.
As a result, food importing merchants have gone underground to borrow money from the black market to cover purchases, while many of Yemen’s 300,000 SMEs (small to medium-sized enterprises) have been forced to shutter their businesses, Sabrah said.
“At the eco-system level, it has also created problems with the employment rate,” he added.
According to him, the unemployment rate has drastically increased, as a good portion of jobs were provided for by the private sector, which has been adversely affected by the war.
The country’s largest importers of critical food commodities, like wheat, rice, and sugar, have reached a deadlock with the international banking community, who are no longer issuing letters of credit to facilitate the financing of imports, he explained.
This has created a humanitarian catastrophe with seven million Yemenis close to starvation, a figure that will impact the country’s future demographics, the UN warned in February.
“Seven million Yemenis do not know where their next meal will come from and are ever closer to starvation” in a country of 27 million people, said Jamie McGoldrick, the UN’s humanitarian coordinator for Yemen.
The IFC is trying to alleviate this growing crisis.
“Right now we’re trying to define ways to support the food crisis in the country by offering finance to one of the local banks in Yemen, to help the largest importers of critical food commodities,” Sabrah explained.
“We’re in the process of defining a bridging mechanism to help them finance these needs by offering the private sector community in Yemen, namely the banks and importers of these products a way of providing the financing they need on a temporary basis.”
The IFC hopes their scheme will be rolled out in the next two to three months.
“You have to remember that the situation in the country is quite difficult and it’s not easy for anyone to do business in such a volatile situation.”
He lists the risks of doing business in the country as spanning from financial to political, to reputational.