Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No:50330 - YE

EMERGENCY PROJECT PAPER

ON THE

EUROPEAN UNION FOOD CRISIS RAPID RESPONSE FACILITY

UNDER THE

GLOBAL FOOD CRISIS RESPONSE PROGRAM

IN THE AMOUNT OF EURO17.5MILLION

TO THE REPUBLIC OF YEMEN

FOR THE

EMERGENCY SOCIAL SAFETY NET ENHANCEMENT PROJECT

December8, 2009

Human Development Sector Unit

Middle East and North Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

1

CURRENCY EQUIVALENTS

(Exchange Rate Effective September 14, 2009)

Currency Unit / = / Yemeni Rial (YR)
US$1.00 / = / YR 202
Euro 1 / = / US$1.45

FISCAL YEAR

January 1 / – / December 31

ABBREVIATIONS AND ACRONYMS

CA / Cash Assistance / LIP / Labor Intensive Program
CAS / Country Assistance Strategy / MENA / Middle East and North Africa
CBY / Central Bank of Yemen / MIS / Management Information System
CDD / Community Demand-Driven / MM / Mitigation Measures
COCA / Government's Supreme Audit Institution / MOF / Ministry of Finance
CSO / Civil Society Organizations / MOPIC / Ministry of Planning and International Cooperation
DA / Designated Account / MOSAL / Ministry of Social Affairs and Labor
DPPR / Third Development Plan for Poverty Reduction (2006-2010) / PFS / Project Financial Statement
EC / European Community / PMT / Proxy Means Testing
ESSN / Emergency Social Safety Net Enhancement Project / PWP / Public Works Project
FM / Financial Management / ROY / Republic of Yemen
GFRP / Global Food Crisis Response Program / SC / Steering Committee
GOY / Government of Yemen / SFD / Social Fund for Development
HBS / Household Budget Survey / SOEs / Statement of Expenditures
HHs / Households / SWF / Social Welfare Fund
IDA / International Development Association / TA / Technical Assistance
IDP / Internally Displaced People / WA / Withdrawal Application
IFAD / International Fund for Agricultural Development / WB / World Bank
IFR / Interim Financial Report / WFP / World Food Program
Vice President: / ShamshadAkhtar
Country Director: / A. David Craig
Sector Director :
Sector Manager: / Steen Lau Jorgensen
Roberta Gatti
Task Team Leader: / Afrah Al-Ahmadi

Republic of Yemen

Emergency Social Safety Net Enhancement Project

table of contents

Emergency Project Paper

  1. Introduction………………………………………………………………………………..……2
  2. Emergency Challenge: Country Context, Recovery Strategy and Rationale for Proposed

Bank Emergency Project……………………………………………………………………….3

  1. Bank Response and Strategy: The Project……………………………………………………..6

D. Appraisal of Project Activities……………………….…...…………………………………... 9

E. Implementation Arrangements and Financing Plan…………………………………………...16

F. Project Risks and Mitigating Measures……………………………………………………..…18

G. Terms and Conditions for Project Financing ……………………………………...... 21

Annexes

Annex 1.Detailed Description of Project Components………………………………………….…22

Annex 2.Results Framework and Monitoring………………………………………...... 25

Annex 3.Summary of Estimated Project Costs…………………………………………………….29

Annex 4.Financial Management and Disbursement Arrangements………………………………..31

Annex 5.Procurement Arrangements………………………………………………………………42

Annex 6.Implementation and Monitoring Arrangements………………………………………….47

Annex 7.Project Preparation and Appraisal Team Members………………………………………50

Annex 8.Environmental and Social Safeguards Framework………………………………………51

Annex 9.Economic and Financial Analysis………………………………………………………..53

Annex 10.Documents in Project Files……………………………………………………………….58

Annex 11.Statement of Loans and Credits…………………………………………………………..59

Annex 12.Country at a Glance………………………………………………………………………60

Annex 13.Map……………………………………………………………………………………………………62

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Emergency Project Paper

Republic of Yemen

Emergency Social Safety Net Enhancement Project

Data Sheet

Date: December 8, 2009
Country Director: A. David Craig
Sector Manager/Director: Steen Lau Jorgensen
Lending instrument: Emergency operation / Team Leader: Afrah Al-Ahmadi
Sectors: Social Protection
Themes: Global Food Crisis Response
Environmental screening category: B
Type of Operation:
New Operation [ X ] Additional Financing [ ] Existing Financing (restructuring) [ ]
Financing type: Loan [ ] Credit [ ] IDA Grant [ ] Other [ X ] Global Food Crisis Response Trust Fund (Global Food Crisis Response Program Framework)
Project ID: P117038 / Total Amount: Euro 17.53 million
Proposed terms: Grant / Expected implementation period: 18 months
Expected effectiveness date: December30, 2009 / Expected/revised closing date: June 30, 2011
Recipient: Republic of Yemen / Responsible agencies: Social Fund for Development and Social Welfare Fund
Development Objective: The objective of the project is to contribute to the reduction of the negative impact of food price volatility on the poor and vulnerable in selected areas, and support the protection and building of community assets.
Short Description: Scale-up existing cash-for-work program to provide 6-9 months employment to approximately 12,000 of the unemployed poor households; and providing direct cash transfer for 12 months to an additional 41,000 of the eligible poor.
Financing Plan (Euro million)
Source / Local / Foreign / Total
Recipient(Euro 0.03)
Trust Funds (Euro 17.5)
Total / 0.03
17.30
17.33 / 0.00
0.20
0.20 / 0.03
17.50
17.53
Estimated disbursements (Bank FY/Euro million)
2010 / 2011
Total IDATrust Funds / 11.00 / 6.53
Does the emergency operation require any exceptions from Bank policies?
Have these been approved by Bank management? / Yes [ ] No [X]
Yes [ ] No [ ]
Are there any critical risks rated “substantial” or “high”? / Yes [] No [ X ]
What safeguard policies are triggered, if any? / OP/BP 4.01
Significant, non-standard conditions, if any:

REPUBLIC OF YEMEN

EMERGENCY SOCIAL SAFETY NET ENHANCEMENT PROJECT

  1. Introduction

1.This Project Paper seeks the approval of the Vice President, for the Middle East and North Africa Region, to provide a grant financed under the European Union Food Crisis Rapid Response Facility in the amount of Euro 17.5 million to the Republic of Yemen (ROY) for the proposed Emergency Social Safety Net Enhancement (ESSN) Project to reduce the negative impact of food price volatility on the poor and vulnerable.

2.The global food crisis has severely affected Yemen. The doubling of wheat prices in the last year, together with the rise in the prices of rice and maize, threaten to increase the share of the population living in poverty to levels last seen in 1998. Yemen imports more than three-quarters of its food needs, and recent droughts have further increased the population’s vulnerability to high food prices.

3.The proposed support will help respond to the situation by: (i)carrying out a labor intensive workfare program initiated under the Global Food Crisis Response Program (GFRP)to provide cash to communities most seriously affected by the food crisis to help mitigate the impact of increased food prices through temporary work opportunities while building and protecting community infrastructure assets; and (ii) providing cash transfers topoor households in flood, conflict and child-trafficking affected areas that are not yet enrolled in the Social Welfare Fund (SWF)program. It is estimated that approximately 12,000 households within the communities most seriously affected will benefit from the workfare program and 41,000 households will benefit from the cash transfer, which will help them to cope with the crisis over a 12-month period.

4.This European Commission (EC) Trust Fund-financed operation complements, expands and builds on the early lessons learned from the US$10 million additional financing provided to the ROYthrough the International Development Association (IDA) Food Crisis Grant in 2008. The IDA Grant funded the establishment of the labor intensive program and provided institutional support to the cash transfer program. The ESSN Project will expand the labor intensive program benefits to additional poor communities, while simplifying and improving program targeting and delivery based on the lessons learned. The SWF will implement the project cash transfer component using the improved targeting and administrative capacity previously supported by the IDA Grant. The World Food Program is also supporting the Government of Yemen (GOY) with an Emergency Food Distribution Project that is benefiting from the improved targeting methodology introduced as a pre-requisite for the SWF direct implementation of this operation.

B.Emergency Challenge: Country Context, Recovery Strategy and Rationale for Proposed Bank Emergency Project

Country Context

5.The ROY, with a population of about 23.6 million people, and a GDP per capita of about US$930, is among the poorest countries in the world. Forty percentof the rural population and 20%of the urban population live below the poverty line. Despite steady progress at the macro level, Yemen has some of the worst social indicators in the Middle East and North Africa (MENA) region: a 28% literacy rate among women, 18% malnutrition, girls’ primary enrollment at 55%, and access to safe water at 31%. Poverty is pervasive in rural areas, where much of the population resides. The dispersion of the population and the difficult topography pose a serious challenge to delivering social services: Yemen has around 35,000 official villages (with approximately 136,000 human settlements), many with less than 100 households, which makes the provision and maintenance of social services very expensive. The country’s fiscal revenues depend heavily on the oil sector for nearly 75% of income and production forecasts indicate that existing reserves will be depleted in 8-10 years. Yemen is an oil-dependent economy with oil revenues projected to decline, with no short to medium-term alternative income sources to deliver social services.

6.Yemen is suffering from multiple challenges, compounded by the global food crisis. Recent drought conditions, combined with energy, fertilizer and food price increases, have already imposed great hardship and rising expenses on the Yemeni population, particularly in rural areas. The sharply rising prices of imported food and fertilizers, in particular grain, have exacerbated the difficulties for the poor. The country now faces a significant food shortage and high food prices.

7.Domestic cereal production covers only 18% of the country’s cereal consumption. With an average 2.5 million tons of cereal imported every year, a large proportion (73%) of the population lives in rural areas and most of them (90%) are farmers – but remain net buyers of cereal. The increase in wheat prices from US$196 per ton in June 2007 to the current US$440 per ton has resulted in an additional US$600 million burden on Yemen. Because Yemen is a country highly dependent on wheat as a staple, the result is an increased vulnerability to unstable food prices.

8.The rise in international food grain prices in the context of meager percapita growth in Yemen has the potential to reverse the poverty reduction achievements of the last seven years.If not mitigated with income transfers, the doubling of wheat prices in the last year,compounded with the increase in prices of rice and maize, is projected to increase the proportion of the population living in poverty over the 1998 level. Estimated per capita real consumption growth indicates a decline of 1% per year in the last two years. This would take place in a context of already severe child malnutrition (32% of poor children are severely stunted and 14% are severely underweight).

9.Yemen also suffers from emergencies brought about by natural disasters as well as societal issues such as child trafficking and armed conflict. The October 2008 Category 3 storm and floods that hit Hadramout and AI-Mahara Governorateshad a devastating impact. The disaster caused the death of 73 persons, scores of injured, destruction of 2,826 houses and huts and partial damage to another 3,679 houses, and the displacement of about 25,000 people. The issue of child trafficking is estimated to affect approximately 600/700 children every yearand is rooted in poverty. Governorates bordering Saudi Arabia(Hajja, Al-Mahwet, and Hodeida) are particularly at risk due to the openness of the border. Poor families send their children to work in Saudi. Studies, supported by UNICEF, indicate that children in these circumstances are forced into a life of begging and abuse. With support from UNICEF, a Joint Yemen – Saudi Committee was established to develop a National Plan aimed at combating child trafficking. The GOY has instigated an extensive awareness campaignthrough radio/TV/Posters and taxi drivers to inform all citizens about the evils of this practice. Cabinet has recently approved stiff penalties (7 year prison terms, fines) for perpetrators. Recent conflict in the northern areas of the country has created an emergency situation with a reported estimate of 100,000 Internally Displaced People (IDPs). The conflict restricts the provision of necessary government services to assist the poor and vulnerable.

Sector Context

10.Last year’s severe global food, fuel and financial crisis (FFF crisis) deeply affected Yemen. However, given the high population growth (1.78%) over the same period, an increase in the numbers of poor would see an additional 1 million people falling below the poverty line. The 2007 Poverty Assessment found that poverty is spread across regions with poverty rates varying between 5.4% and 71% among governorates. The highest poverty levels are in the rural areas of the country ―i.e.,Amran, Shabwah and Al-Baida governorates ―and the lowest levels in the urban areas ―i.e.,Al-Maharah and Sana’a City governorates. The fact that Yemen imports more than three-quarters of its food requirementshas implications for both urban and rural poverty. Moreover, the recent drought, floods and increased fertilizer prices have added further to the rural population’s vulnerability. As a consequence, the already large intra-governorate poverty heterogeneity is expected to increase.

11In response to these multiple challenges, the Government has developed and is implementing a Poverty Reduction Strategy. One of the four main pillars of the strategy intervention is to protect the poor and vulnerable through a comprehensive social safety net program. Yemen has developed a multi-tier safety net, including highly successfulcommunity-driven programs (notably under the Social Fund for Development (SFD) and the Public Works Project (PWP)), and the provision of defined benefits to limitedcash transferto the poorest (through the Social Welfare Fund (SWF)). Altogether, public financing for these safety net programs is still quite modest, representing only 0.6% GDP if compared to similar low income countries, which spend between 1.5% and 2% of GDP on safety nets programs.

12.Yet the largest share by far of social expenditure is consumed by an expensive and untargeted subsidy system (essentially for energy products). Yemen’sDevelopment Program for Poverty Reduction (DPPR) takes a cautious approach to this politicallysensitive issue, and focuses on the need to strengthen existing programs. Still, the Government is aware that in an increasingly constrained fiscal environment, it may not be possible to delay for much longer the necessary reform of the subsidy system, an issue which is likely to take some degree of prominence in the coming period.

13.To cope with the present crisis in light of its budget limitations, the GOY requested donor financial assistance. Last year, the ROY received US$10 million from the Food Crisis Response Trust Fund – financed out of World Bank Surplus to support a SFD workfare program to mitigate the impact of the food crisis. A small component (about 10%) of the grant was allocated to support and develop the SWF administrative capacity and targeting system.

14.Social Fund for Development (SFD). Given the lack of capacity to deliver basic social services to the population, the Government, with support from the World Bank, created the SFD in 1997. This Fund is tasked with providing improved access to basic social services for the poorest Yemenis, while setting an example of an effective, efficient and transparent institutional mechanism operating within Yemen. Through its first and second phases,the SFD has supported long-term development for the poor and encouraged innovative and participatory approaches to delivering social services. Since its inception, the SFD has scaled up its operations, receiving financing of US$80 million in its first phase, US$175 million in its second phase, and US$670million in its current third phase. The third phase is supported by a large number of donors, including the Arab Fund for Economic and Social Development, Departmentfor International Development (DFID), European Commission, Islamic Development Bank, Government of Italy, IFAD, KfW, Government of the Netherlands, OPEC Fund, Saudi Fund for Development, US Food Aid, and UNESCO.

15.Social Welfare Fund (SWF). The SWF is the largest public cash-transfer-based social safety net in Yemen. It was established in 1996 by Presidential Law No. 31 and has gradually expanded to provide cash transfers to almost onemillion poor and vulnerable Yemeni households. In response to the food crisis in the last year, with high prices for basic foodstuffs coupled with rising prices for energy commodities, the Government doubled the maximum level of benefits under the SWF to YR 4,000 (US$20) per case per month and has decreed that the number of beneficiaries will be doubled to at least 1.5 million households as soon as possible. This expansion would permit coverage of nearly all those below the poverty line. However, the impact of the oil crisis on government revenue has delayed the implementation of the Government’s commitment to expand SWF coverage.

16.The SWF program has suffered in the past from a combination of low benefits and poor targeting, resulting in chronically low coverage of the poor and little impact on overall poverty. The 2007 Poverty Assessment concluded that the SWF covered only 13% of the poor population and nearly two-thirds of beneficiaries were not poor, according to the national poverty line. As a result of these findings, the GOY has authorized a program of fundamental reforms to SWF, including improving the targeting of the poor, strengthening the service delivery capacity, and implementing a new legal and policy framework. Technical assistance has been provided by the EC for several years, and recently the World Bank has begun to provide complementary guidance on program targeting and its reformed design. The implementation of the SWF reforms and program expansion are entering a critical period requiring immediate technical assistance, capacity building and training support.

17.In 2008,the SWF launched a national survey, completed recently, to identify the poor and vulnerable in Yemen in order to improve targeting and expand the program. It is expected that, in order to ensure access of all poor households, the SWF will support an open application process, whereby applying and assessing applicants’ eligibility for SWF support would be a continuous process. Eventually, between 7 and 10 million Yemenis may be recorded, making the SWF database the most comprehensive national record of poor and vulnerable individuals available in Yemen. Such a national database can be useful to target and coordinate other funds and benefits across a range of social programs.