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Viewing cable 10SANAA107, ROYG REQUESTS U.S. FUNDING FOR TOP TEN ECONOMIC

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Reference ID Created Released Classification Origin
10SANAA107 2010-01-20 14:45 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Sanaa
VZCZCXYZ0000
RR RUEHWEB

DE RUEHYN #0107/01 0201445
ZNR UUUUU ZZH
R 201445Z JAN 10
FM AMEMBASSY SANAA
TO RUEHC/SECSTATE WASHDC 3579
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHRL/AMEMBASSY BERLIN 0126
RUEHLO/AMEMBASSY LONDON 0280
RUEHFR/AMEMBASSY PARIS 0201
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
RHEHAAA/WHITE HOUSE WASHINGTON DC
UNCLAS SANAA 000107 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR NEA/ARP AMACDONALD 
DEPT PASS TO USAID FOR CKISCO 
NSC FOR AJOST 
DEPT OF THE TREASURY FOR BMCCAULEY 
 
E.O. 12958: N/A 
TAGS: EAID ECON ENRG PREL PGOV UK FR GM AE SA YM
SUBJECT: ROYG REQUESTS U.S. FUNDING FOR TOP TEN ECONOMIC 
PRIORITIES CONSULTANCY 
 
REF: A. 09 SANAA 1375 
     B. 09 SANAA 1549 
 
1. (U) This is an action request: see paragraph eight. 
 
SUMMARY 
------- 
 
2. (SBU) Seeking to jumpstart a moribund economic-reform 
effort announced in August 2009, presidential son Ahmed Ali 
Saleh has brought in the U.S. consulting firm McKinsey and 
Company to help implement three of the Top Ten Economic 
Reform Priorities: sending Yemeni workers to GCC countries to 
increase remittance levels; eliminating inefficiency and 
corruption in the power sector; and modernizing the port city 
of Aden.  Bringing in an independent consultancy, especially 
one whose credentials are widely respected by Arab economic 
elites, may help reformist elements in the ROYG push 
difficult economic decisions through a civil service that is 
resistant to change and hardly eager to cut into the 
entrenched business interests of some of the country's ruling 
elite.  U.S. funding for McKinsey's consultant project in 
Yemen, perhaps announced in the context of the Friends of 
Yemen initiative, would help salvage an ambitious effort that 
has yet to truly get off the ground.  END SUMMARY. 
 
ROYG REQUESTS U.S. FUNDING FOR MCKINSEY PROPOSAL 
--------------------------------------------- --- 
 
3. (SBU) The ROYG, under the direction of a small investment 
committee headed by presidential son Ahmed Ali Saleh, has 
awarded a competitive tender for a policy consultancy to the 
U.S. firm McKinsey and Company to help implement three of the 
country's Top Ten Economic Reform Priorities (REFS A, B, and 
C): training Yemeni nationals to work in GCC labor markets; 
reforming the power sector by moving the ROYG away from a 
system of expensive diesel generators; and improving Aden's 
economic base with a series of real estate and 
port-modernization projects.  Since it was first announced in 
August 2009, the reform package has been slow getting off the 
ground, owing to an absence of high-level attention and a 
lack of capacity in the ranks of the civil service.  The ROYG 
will contribute USD 5 million towards the USD 8.5 million 
McKinsey proposal and is seeking the balance (USD 3.5 
million) from donor countries. 
 
4. (SBU) Deputy Finance Minister Jalal Yaqoub, accompanied by 
McKinsey partners Jorg Schubert and Gassan al-Kibsi, met with 
the Ambassador on January 9 to request U.S. funding for the 
project.  Yaqoub described the McKinsey aspect of the Top Ten 
Priorities as essential to building momentum within the ROYG 
for the implementation of the Top Ten reforms.  McKinsey's 
132-page proposal to "stimulate Yemen's economic turnaround" 
faults the ROYG for having clear vision for the future but no 
ability to implement the cavalcade of national strategies 
announced over the past 15 years.  McKinsey's 24-month plan 
would create a presidential "delivery unit," modeled after a 
similar office established by former PM Tony Blair's 
government.  The "delivery unit" would report directly to 
President Saleh, in theory making him personally responsible 
for the implementation of each reform. 
 
SENDING YEMENI LABOR TO THE GULF 
-------------------------------- 
 
5. (SBU) The plan seeks to partially return Yemen to the 
days, from the late 1970's until 1991, when almost half of 
the country's GDP came from remittances sent from more than a 
million Yemeni expatriates working in GCC countries.  This 
phenomenon was brought to an abrupt halt as these countries 
expelled Yemeni workers following Yemen's failure to support 
UN-mandated military action against Iraq in the first Gulf 
War.  Given current economic conditions in the region, the 
ROYG realizes that an arrangement of this scale is impossible 
and instead is seeking to send up to 40,000 trained Yemeni 
workers to GCC labor markets over the next two years. 
McKinsey would analyze labor demand in various GCC economies, 
 
set up background investigation procedures to assuage GCC 
countries' security fears about allowing in large numbers of 
Yemenis, and set up a vocational institute to train an 
initial target group of 200-500 workers within the first few 
months of the project. 
 
STREAMLINING THE POWER SECTORS 
------------------------------ 
 
6. (SBU) The ROYG is slowly bleeding its treasury dry with 
expensive but politically sensitive energy subsidies, gross 
inefficiencies and corruption at the Aden Refinery Company, 
and slow progress in switching the country's network of power 
plants to more efficient, cheaper, and available natural gas. 
 Members of Ahmed Ali's National Investment Committee want 
McKinsey to help wean the ROYG away from an overpriced, 
no-bid contract under which diesel generators are leased from 
a British firm and instead lease natural gas-fired 
generators.  The savings incurred would generate hundreds of 
millions of USD in revenue for the ROYG annually.  Although 
McKinsey also proposes to tackle corruption throughout the 
power sector value-chain, including the Aden Refinery and the 
sale of the ROYG's crude oil production, these reforms are 
unlikely to be implemented, as they threaten the commercial 
interests of many in the ruling class. 
 
MODERNIZING ADEN 
---------------- 
 
7. (SBU) The Top Ten reform item that has seen the least 
progress is stimulating economic growth in Aden.  McKinsey 
proposes to help disparate government agencies coordinate 
their efforts in Aden, something the ROYG has proven 
incapable or unwilling to do thus far, and help launch six 
flagship economic projects over the next two years.  These 
proposed projects include attracting regional air traffic to 
Aden's airport, modernizing the Port of Aden's "Cargo 
Village" to accommodate bigger import-export operations, and 
creating a large real estate development in the downtown 
area.  While some of the Aden proposals may exceed the ROYG's 
current abilities, given the short timeframe (two years) 
envisioned, even the perception of forward movement on the 
southern front would be a vast improvement over the ROYG's 
largely rhetorical efforts thus far to improve Aden's 
economy.  This initiative also would address one of the 
long-standing grievances that has fueled the southern protest 
movement. 
 
COMMENT AND ACTION REQUEST 
-------------------------- 
 
8. (SBU) Post requests that the Department explore ways to 
fund the balance of McKinsey's bill to the ROYG, up to USD 
3.5 million.  Having a team of independent, third-party 
experts oversee the Top Ten Reforms package might end some of 
the bureaucratic rivalries that have thus far slowed the 
implementation of policy changes that Saleh blessed when the 
package was announced last August.  An exhaustive 
quantitative analysis of the inefficiencies in Yemen's power 
and labor sectors is beyond the current abilities of the 
national bureaucracy.  Through a USAID grant, we are 
currently helping the ROYG increase civil service capacity by 
designing a civil service "executive corps," to be drawn 
primarily from members of the educated Yemeni Diaspora 
willing to return home to support the process of economic 
reform.  Funding a consultant to implement some of the ROYG's 
other Top Ten Economic Priorities -- perhaps announced in the 
context of the Friends of Yemen process -- would cement the 
U.S.'s role in supporting reform in Yemen.  END COMMENT AND 
ACTION REQUEST. 
SECHE