Ethiopia - International University of Japan · 2007-07-20 · In 1962 Ethiopia abrogated the...

COUNTRY PROFILE 2002

EthiopiaThis Country Profile is a reference work, analysing thecountry’s history, politics, infrastructure and economy. It isupdated annually. The EIU’s quarterly Country Reportsanalyse current trends and provide a two-year forecast

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EIU Country Profile 2002 © The Economist Intelligence Unit Limited 2002

1


Contents

3 Basic data

4 Politics4 Political development6 Constitution, institutions and administration8 Political forces

11 International relations and defence

15 Resources and infrastructure15 Population16 Education and health17 Natural resources and the environment17 Transport and communications and the Internet19 Energy provision

19 The economy19 Economic structure21 Economic policy26 Economic performance27 Regional trends

28 Economic sectors28 Agriculture and forestry30 Mining30 Manufacturing32 Construction32 Financial services33 Other services

34 The external sector34 Trade in goods36 Invisibles and the current account36 Capital flows and foreign debt39 Foreign reserves and the exchange rate

40 Appendices40 Regional organisations43 Sources of information46 Reference tables46 Population46 Government finances46 Money and credit47 Interest rates47 Gross domestic product at factor cost47 Gross domestic product by expenditure47 Gross domestic product by sector48 Prices48 Coffee production and exports, domestic figures48 Exports48 Imports49 Main trading partners

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49 Balance of payments, IMF estimates50 Balance of payments, national estimates50 External debt, World Bank estimates51 Net official development assistance51 Foreign reserves51 Exchange rates

Ethiopia 3

© The Economist Intelligence Unit Limited 2002 EIU Country Profile 2002

Ethiopia

Basic data

1,098,000 sq km

63.5m (2000 mid-year estimate)

Population in ‘000 (1999 official estimates)

Oromo (Federal Region 4) 21,694Amhara (Federal Region 3) 15,850SNNPR 12,132Somali (Federal Region 5) 3,602Tigray (Federal Region 1) 3,593Addis Ababa (capital) 2,424

Temperate on plateau, hot in lowlands

Hottest months, April-May, 10-30°C; coldest month, December, 5-23°C; driestmonth, December, 5 mm average rainfall; wettest month, August, 300 mmaverage rainfall

Amharic, Orominya, Tigrinya, Afar, Somali and others. English and Amharicare mainly used in business

Metric system; also 1 gasha=40 ha, 1 kend=0.5 metres, 1 frasoulla=17 kg

The birr, previously the Ethiopian dollar=100 cents. The single, legal exchangerate is determined by a weekly auction. Average exchange rate in 2001:Birr8.33:US$1. Rate on March 25th 2002: Birr8.36:US$1

3 hours ahead of GMT

January 7th (Christmas), January 19th (Epiphany), March 2nd (Battle ofAdowa), May 6th (May Day), September 11th (New Year), September 12th,Good Friday, Easter, Eid el Fitr, Eid el Ahda, Maulid. The Ethiopian calendar has13 months (see The economy)

Land area

Population

Main regions

Climate

Weather in Addis Ababa(altitude 2,450 metres)

Languages

Measures

Currency

Time

Public holidays

4 Ethiopia


Politics

The federal government of Ethiopia is dominated by the Ethiopian Peoples’Revolutionary Democratic Front (EPRDF), which evolved from a coalition ofTigrayan-dominated rebel groups that defeated the previous government in1991 after a protracted civil war. Following four years of transitional govern-ment, a federal republic was proclaimed after elections in mid-1995. TheEPRDF suffered a serious internal schism in 2001.

Political development

The Ethiopian state was created by Christian highland rulers, largely through atwin process of political subjugation and economic exploitation of outlyingpopulations in the late 19th and early 20th centuries. The imperial crownprince, Haile Selassie, established ascendancy over regional feudal lords from1916 to 1930, when he became emperor. He was driven into exile when thearmy of fascist Italy invaded and occupied Ethiopia between 1936 and 1941;Italy had already tried to capture the country in the 19th century, but wasdefeated by Ethiopian forces at Adowa in 1896. Nevertheless, it consolidated itsholdings on the coast and the highland plateau to the north of the Tekezeriver, creating the colony of Eritrea. The failure of the League of Nations to haltthe Italian invasion, coupled with Italy’s use of chemical weapons, generatedwidespread international sympathy for Ethiopia. Following the country’sliberation by allied forces in 1941, Haile Selassie returned from Britain andruled until his overthrow in 1974. Eritrea was federated with Ethiopia in 1952,after ten years under a British mandate and intense but inconclusive politicaldebate over its status. Ethiopia’s status as an independent African state allowedHaile Selassie to secure Addis Ababa as the headquarters for the newly createdOrganisation of African Unity (OAU) in 1963.

In 1962 Ethiopia abrogated the UN-sponsored federation with Eritrea andunilaterally annexed the federal Eritrean state, provoking Eritrean separatists tolaunch a guerrilla war. One year later Ethiopia became embroiled in a war withnewly independent Somalia over the eastern region of Ogaden. Peasant revoltsfollowed, underlining the need for land reform. The discontent was fuelled bycorruption among feudal officials, rampant inflation and unemployment.Unrest was brought to a head by revelations of government indifferencetowards the 1972-74 famine, which claimed an estimated 200,000 lives. InJanuary 1974 a series of strikes and mutinies in the armed forces prompted theresignation of the prime minister of the previous 13 years. This event markedthe beginning of what evolved into a coup by army officers.

Civilian groups lacked the cohesion to mobilise support amid the unrest of1974, and the embryonic Provisional Military Administrative Council (PMAC,or Derg in Amharic) filled the power vacuum, beginning 17 years of militaryrule. The deposal and murder of Haile Selassie in September 1974 marked thebeginning of three years of conflict, both within the military and throughout

The Derg

War in Eritrea andimperial demise

The Ethiopian state

Ethiopia 5


the country. In Eritrea rival nationalist guerrilla movements made significantterritorial gains, while the Derg was racked by internal power struggles. InNovember 1974 there was a purge of the new government, along with theexecution of 57 senior officials of the old regime. The military governmentthen proclaimed Ethiopia a socialist state. By November 1977, following afurther series of purges, Colonel Mengistu Haile Mariam had establishedcontrol of the Derg.

Colonel Mengistu’s rise to power was partly aided by civilian opposition to theold regime, and he used the Marxist-Leninist ideology of left-wing students tolegitimise his rise to power. However, the civilian left was divided and some leftAddis Ababa to launch a rural rebellion in the northern province of Tigray,forming the nucleus of the movement that was to win power in 1991. Themilitary quickly tired of the student intellectuals, and vociferous debate degen-erated into violence in 1977-78; leftist students launched an armed urbancampaign, provoking the brutal eradication of all opposition. At a conservativeestimate, 100,000 people were killed and several hundred thousand more fledto the US and western Europe, establishing a trend of youth emigration.

The government extended its control over the population through a series ofambitious reforms. Land was nationalised and a network of peasant and urbandweller associations was established. Known as kebeles, these have been retainedby the EPRDF. Following the Soviet model, a Workers’ Party of Ethiopia (WPE)was created in 1984, and in 1987 the People’s Democratic Republic of Ethiopiawas promulgated under a new constitution. As the Derg completed itsmetamorphosis of Ethiopia into a Marxist-Leninist state, Soviet support waveredand the integrity of the centralised state was challenged. Two years of militarydefeats in Eritrea and Tigray, a failed military coup in May 1989, and the gradualdesertion of his Soviet allies fatally weakened Colonel Mengistu.

The EPRDF, a newly created coalition dominated by the Tigray People’sLiberation Front (TPLF), pushed deep into Shoa province in July 1990. InFebruary 1991 it launched a decisive assault through central and westernprovinces, while in the east Eritrean forces closed in on Assab and Asmara. ByMay 1991 Sub-Saharan Africa’s largest army had been crushed and ColonelMengistu fled to Zimbabwe. EPRDF forces took control of Addis Ababa where,in July 1991, they convened a conference to endorse a transitional charter andEritrea’s de facto independence. The charter became the legal basis of four yearsof interim rule under an EPRDF-dominated legislature, with an executiveheaded by the leader of the TPLF, Meles Zenawi. The transitional governmentimplemented extensive economic reforms and a radical form of federaldevolution to nine new regional states along predominantly ethnic lines.Devolution and the drafting of a new constitution were accompanied by aseries of elections, and the Federal Democratic Republic of Ethiopia wasproclaimed in August 1995. Yet in practice power is highly concentrated, thelegacy of decades of centralised, hierarchical Marxist party structures operatingwithin a broader authoritarian, closed political culture. Political turmoilbetween rival factions within the EPRDF during 2001 heightened centralisationand further eroded any separation of powers within the government. In

The red terror

Overthrow of Mengistu

6 Ethiopia


practice there are neither checks on executive power, nor mechanisms for thesmooth transfer of power.

Eritrea gained de jure independence in May 1993. Its status remains aprominent issue in Ethiopian politics, owing to historical links between theleaders of Tigray and Eritrea, which adopted a common stance on manyregional issues after 1991, and the fact that secession is controversial amongsome Ethiopian opponents of the EPRDF. In May 1998, however, the alliancebetween Eritrea’s and Ethiopia’s Tigrinya-speaking leaderships ruptured.Tension over monetary and trade relations and a border dispute erupted intowar. War had profound regional and domestic implications, being the catalystfor a serious split within the EPRDF. (See Political forces and Internationalrelations and defence for more information on the Ethiopian-Eritrean war andits consequences.)

Important recent events

August 1995: The constitution of the second republic is inaugurated; the FederalDemocratic Republic of Ethiopia is created, with a bicameral legislature and ceremonialpresidency. Meles Zenawi forms a new government.

May 1998: Economic tensions and clashes on the border trigger war with Eritrea, withmass mobilisation and rearmament on both sides.

February-June 1999: Debilitating fighting comes to stalemate.

May 2000: Stalemate is broken by mass Ethiopian offensives.

June 2000: Both sides sign an interim settlement brokered by the Organisation ofAfrican Unity.

December 2000-April 2002: A formal peace agreement between Ethiopia and Eritreais signed in Algiers on December 12th 2000. This enables the UN Mission for Ethiopiaand Eritrea (UNMEE) to supervise the disengagement of forces, and establishes a 25-kmdeep Temporary Security Zone in April 2001, paving the way for a decision on borderdemarcation in April 2002.

Constitution, institutions and administration

Ethiopia’s first constitution was drafted in 1931. A revised constitution waspromulgated in 1955, incorporating limited reforms drawn from the moreprogressive constitution then operating in Eritrea, although the latter wasabrogated along with the federation in 1962. In 1974 the constitution wassuspended and replaced by a series of military decrees until the constitution ofthe People’s Democratic Republic was promulgated in 1987. This was, intheory, accompanied by a limited form of regional autonomy.

Eritrea

Ethiopia 7


The July 1991 transitional charter was supplemented by a series of decrees,notably on regional government. A Constituent Assembly was elected byuniversal suffrage in June 1994. The federal constitution, which had beendrafted by a committee, was endorsed in December 1994 and came into effect inAugust 1995, creating the second republic, formally known as the FederalDemocratic Republic of Ethiopia. Under this constitution, Ethiopia is afederation of nine states governed by two federal assemblies: the legislature,known as the Council of Peoples’ Representatives (CPR), and a smaller,supervisory senate, the Federal Council (FC). The constitution follows theEPRDF’s blueprint for ethnic federalism, under which elections for 14 newlycreated regional assemblies were first held in July 1992. The number of regionswas subsequently reduced; there are now nine autonomous regional statecouncils (municipal councils for Addis Ababa and Dire Dawa). The regions aredistinguished primarily along linguistic lines, with five groups (Oromo, Amhara,Tigrayan, Somali and Afar) having designated regional states. Ethiopia’s federalconstitution allows for the secession of individual regions or linguistic groups,termed nationalities.

The federal constitution provides for an independent judiciary. However, mostjudges serving under the Derg were sacked and, although in theory the regionshave extensive judicial powers, devolution has tended to weaken judicialautonomy further. The cabinet, last restructured by the prime minister inOctober 2001, comprises 18 ministers. Ministries are loosely grouped underfive umbrella “super” ministries such as the Ministry for Capacity Building andCo-operation and the Ministry for Infrastructure Development, and are headedby leading EPRDF loyalists. In keeping with the notion of ethnic federalismwhich underpins the constitution, the cabinet includes representatives fromthe country’s principal nationalities. Yet important decisions, notably overeconomic policy and security, continue to be made by EPRDF staff outside theformal cabinet. Disagreements over accountability and corruption within theparty were central to the EPRDF schism of 2001.

Each of the nine regional state councils has a chairman and an executivebureau, in effect mirroring the federal cabinet structure in the regions. Apowerful, central Security, Immigration and Refugee Authority (SIRA) wascreated in 1995; at the same time the functions of the interior ministry weredevolved to the regions. SIRA, the domestic security service and the armedforces are controlled by senior EPRDF staff. A Federal Revenue AdministrationBoard supervises regional finances, the head of the board holding the rank ofminister. The Disaster Prevention and Preparedness Commission, formerly theRelief and Rehabilitation Commission, has the task of co-ordinating foodsecurity efforts, including famine early warning, the maintenance of foodreserves and distribution of emergency food aid.

Under the 1995 federal constitution the new regional authorities have, intheory at least, wide-ranging economic powers. Provisional legislation in 1992created the administrative framework for a unique brand of “ethnicfederalism”, under which 14 new regional states were created, largely accordingto linguistic criteria. Five south-western states were subsequently amalgamated,

Regional devolution

Key agencies

The judiciary and cabinet

The second republic

8 Ethiopia


leaving nine states, including the city-state of Harar, formally recognised in theconstitution. Addis Ababa has a special autonomous status (although it is alsothe capital of Oromo region under its Oromo name of Finfine). Dire Dawaadministers its own budget and is in effect a second metropolitan region. Thenew regional boundaries redraw the previous provincial divisions throughwhich the highly centralised governments administered the country formuch of the 20th century. The bulk of the population continues to use thesehistoric, geographic provincial names—Gonder, Shoa or Hararghe—in pref-erence to the new ethnic labels. The boundaries of subregional units, woreda,remain largely unaltered.

Political forces

The Ethiopian Peoples’ Revolutionary Democratic Front dominates all theformal institutions of the federal republic. It holds 90% of the seats in theCouncil of Peoples’ Representatives and its members control all the majorregional state councils, giving it an easy majority in the Federal Council, theupper house, whose members are nominated indirectly by the regions. TheMay 2000 national elections coincided with military offensives againstEritrea—and were therefore completely overshadowed—and confirmed theEPRDF’s electoral dominance.

The EPRDF

Ethiopia 9


Main political figures

Meles Zenawi: Prime minister and leader of the Tigray People’s Liberation Front (TPLF).

Seyoum Mesfin: Minister of foreign affairs; key power-broker within the TPLF andleading ally of Meles in 2001 internal party wrangles.

Tewolde Wolde-Mariam: Vice-chairman of the TPLF and the Ethiopian People’sRevolutionary Democratic Front (EPRDF); senior figure in the minority faction of theTPLF central committee suspended in March 2001.

Neway Gebre-Ab: Economic adviser to the prime minister who has been heavilyinvolved in multilateral issues and liberalisation.

Kassu Illala: Since October 2001 he has been minister of infrastructure development.He oversees economic policy and is considered to favour a dirigiste approach.

Teklewolde Atnafu: Governor of the National Bank of Ethiopia (the central bank); rolehas increased since investigations into corruption in state-run Commercial Bank ofEthiopia (CBE) in late 2001.

Girma Wolde-Giorgis: Elderly, ceremonial president with limited powers.

Friction within the EPRDF will continue to be the main determinant of policy.The TPLF is the core of the EPRDF. Formed by Marxist Tigrayan students whosplit from the civilian left during the revolution and launched a rural-basedstruggle against the state from Tigray, the TPLF mobilised non-Tigrayan groupsafter several military victories, and in early 1990 it announced the creation ofthe EPRDF. Its junior ally, the Ethiopian People’s Democratic Movement(EPDM), was later transformed into an explicitly Amhara group to match thecountry’s new ethno-political template, and in most regions the EPRDFfostered surrogate people’s democratic organisations (PDOs), the largest ofwhich is the Oromo organisation, the OPDO.

Tigrayan dominance of the EPRDF is overwhelming. Differences within theTigrayan leadership over its relationship with the Eritrean People’s LiberationFront (EPLF) contributed to the start of the war in May 1998. Divisionsresurfaced over the terms of the peace deal signed with Eritrea in December2000, rekindling deeper divergences over the significance of foreign economicassistance and policy conditionality.

Both the TPLF split and the domestic regional equation are further complicatedby the fact that during the 1990s the core Tigrayan and Oromo components ofthe EPRDF developed powerful commercial wings, interlocking investment andtrading conglomerates with the political bodies.

In the most significant crisis to face the government since coming to power in1991, rumbling discontent within the Tigrayan core of the EPRDF erupted intoopen rebellion in March 2001, when 11 of the 30 strong TPLF centralcommittee were suspended. By October the faction headed by Meles and the

Dissention within theEPRDF

10 Ethiopia


foreign affairs minister, Seyoum Mesfin, appeared to have quashed therebellion, silencing the dissidents via imprisonment on corruption charges.The dissidents included the party’s most senior figures in its home province ofTigray and the crisis dangerously undermined its reputation among bothcivilian and military supporters. The crisis also dented broader EPRDF strategy,as the leadership of the TPLF’s surrogate Oromo ally was decimated by purgesand corruption charges.

Civilian opponents of the EPRDF are weak, divided and ineffectual. In late1992 Addis-based opponents formed the Coalition of Alternative Forces forPeace and Democracy in Ethiopia (CAFPDE). CAFPDE lacks a clear policyagenda, has boycotted elections and has proved incapable of mobilising masssupport. This is despite a number of factors in its favour, such as: widespreadmalaise among the educated, cosmopolitan urban classes; a fiercely anti-government private press; clumsy repression of both press and urbanopponents by the government; anti-EPRDF sentiment among many exiles inthe US; the desire of liberal donors to foster a loyal opposition; and the internalschisms within the EPRDF.

Rural regional forces opposed to the EPRDF have continued to present a threat.The OPDO controls the state council of Oromo region, but a regionally basedopposition force, the Oromo Liberation Front (OLF), operates from this region.In May 1991 the OLF initially allied with the EPRDF. However, its leadershipquickly found itself outmanoeuvred and left the transitional government priorto regional elections in June 1992. Its exiled leadership, which rejects thelegitimacy of the OPDO, is in disarray, although guerrillas loyal to the OLFhave mounted sporadic attacks on government installations, notably inHararghe, and by 1999 had established bases in neighbouring Somalia. Othersmaller armed Oromo factions also operate.

Similar rivalries over legitimacy exist in the numerically smaller Afar andSomali regions, where the EPRDF had difficulties promoting its own surrogate.The alienation of Ogadeni Somali clans has caused problems for the metro-politan region of Harar and the trading city of Dire Dawa, and has exacerbatedfriction with militia forces based in the Somali Republic. The administration ofEthiopia’s Afar region is complicated by the fact that there are sizeable Afarpopulations in neighbouring Eritrea and Djibouti.

Main political forces

Government

Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF), formed in 1990

Main constituents of the EPRDF

• Tigray People’s Liberation Front (TPLF; weakened by serious internaldivisions since March 2001);

• Oromo People’s Democratic Organisation (OPDO);• Amhara National Democratic Movement (ANDM, formerly Ethiopian

People’s Democratic Movement).

Oromo Liberation Front

The opposition

Ethiopia 11


Allied to EPRDF

• Ethiopian Somali Democratic League (ESDL).

Opposition

Urban

• Coalition of Alternative Forces for Peace and Democracy in Ethiopia(CAFPDE).

• All Amhara People’s Organisation (AAPO).

Rural

• Oromo Liberation Front (OLF; uneasy alliance with EPRDF until 1992; nowprincipal rural insurgency; inconclusive negotiations with EPRDF in 1997).

• Afar Revolutionary Democratic Unity Front (ARDUF; limited presence inAfar region).

• Ogaden National Liberation Front (ONLF; movement split in 1995, rumpnow allied to ESDL in Somali region administration).

• Islamic Front for the Liberation of Oromia (IFLO; a faction with allegedlinks to Islamic groups in Somali Republic, including Al-Ittihad. The EPRDFholds Al-Ittihad responsible for numerous violent acts within Ethiopia;since 1996 the EPRDF has conducted regular retaliatory raids against Al-Ittihad bases in Somalia which have effectively quashed the group).

International relations and defence

After taking power in 1991 the EPRDF government assumed a leading role inregional relations. Several regional diplomatic initiatives were conducted inconjunction with the TPLF’s erstwhile rebel allies, the EPLF. These includednegotiations over the Sudanese and Somali conflicts, notably within thecontext of the regional Inter-governmental Authority on Development (IGAD;see Appendices: Regional organisations). However, Eritrea and Ethiopia’sdiplomatic alliance came to an abrupt end in May 1998, when a trade andborder disagreement escalated precipitously into full-scale war.

During the struggle to overthrow the regime of Ethiopia’s former Marxistdictator, Colonel Mengistu, the rebels were led by the TPLF. Despite occasionaldisputes, the TPLF worked closely with the EPLF, who were fighting for theindependence of the state of Eritrea, which was annexed by Haile Selassie in1962. Both sets of leaders were from the same Tigrinya-speaking area whichstraddles Ethiopia and Eritrea. The two leaderships remained close afterEritrean independence in 1993, but this relationship became a source of resent-ment for many non-Tigrayans in Ethiopia who were suspicious that theirleaders’ Tigrayan allegiance was overriding their allegiance to Ethiopia.

Eritrea introduced its own currency, the nakfa, in 1997, breaking the de factocurrency union that had existed up to that time. Disagreement over Eritrea’sexchange-rate regime and subsequent bilateral trade relations then contributedto mounting tension during early 1998. However, both the ferocity of thefighting that ensued and the vitriolic war of words reflect deep-seated notionsof prestige and national pride, rather than material or territorial ambitions.

The dispute with Eritrea

From allies to enemies

12 Ethiopia


Chronology of the war with Eritrea

May 6th 1998: Fighting breaks out around a disputed border post near Badme, andEritrea occupies Badme and Shiraro.

May-June 1998: Eritrea seizes Zala Ambassa and Tsorena in further fighting.

June 1998-January 1999: Both sides build up their military capabilities. With USbacking, the Organisation of African Unity (OAU) proposes an interim settlement whichEthiopia accepts. Mass expulsions from Ethiopia begin of people of Eritrean origin.

February-March 1999: In renewed offensives Ethiopia recaptures Badme on February9th; Eritrea then accepts the OAU peace plan. Subsequent battles on the Tsorena-ZalaAmbassa front are inconclusive.

May-June 2000: Following ten months of intensive but inconclusive internationaldiplomacy, Ethiopia launches an offensive and recaptures all territory lost to Eritrea inmid-1998. Ethiopian troops occupy large areas of central and western Eritrea. Eritreaaccepts an amended settlement agreement, allowing for a ceasefire and the insertion ofan OAU-UN buffer force on Eritrean soil.

December 2000-April 2001: A formal peace agreement is signed in Algiers onDecember 12th 2000. The UN oversees the withdrawal of troops from occupiedterritory and in April 2001 creates a 25-km demilitarised Temporary Security Zone underUN supervision.

February-April 2002: Tensions rise as announcement of border commission ispostponed and UN Security Council delegates visit region.

Unstable peace between Eritrea and Ethiopia, Dec 2000–April 2002

A formal peace agreement between Ethiopia and Eritrea was signed in Algierson December 12th 2000. By April 2001 a multi-national military interpositionforce, the UN Mission in Ethiopia and Eritrea (UNMEE) had secured thewithdrawal of troops and established a 25-km Temporary Security Zone as aprecondition of implementation of what were intended as three substantiveaspects of the peace agreement.

• An investigation by an impartial body appointed by the secretary-generalof the Organisation of African Unity (OAU) into the origins of the events of6th May 1998 which were the catalyst for the slide to war over the subsequentweek.

• The creation of a neutral boundary commission, based in The Hague.Each side appointed two non-national commissioners to the five-memberbody, with a fifth appointed by the UN. The commission is charged withdelimiting and demarcating the disputed border, which is based on colonialtreaties of 1900, 1902 and 1908, in accordance with international law. Thecommission concluded its hearings in December 2001. An initial announce-ment of its ruling, scheduled for mid-February 2002, was postponed fortwo months.

Ethiopia 13


• The creation of a claims commission, also based in The Hague, toinvestigate claims arising from the destruction of civilian property during thewar. This explicitly includes claims arising from deportations. The commission,like that investigating the boundary, is composed of five members with twonon-nationals appointed by each side. It is mandated to decide via bindingarbitration on all claims.

By 2002 the investigation and claims commission had made little progress. Thesuccess of the agreement, as perceived by both governments and the UN,hangs largely on the outcome of the boundary commission. The commission’sruling in mid-April 2002 will jeopardise both the ceasefire and the UNMEE if itfails to decisively arbitrate between rival claims across both the Badme and theZala Ambassa-Tsorena fronts.

The loss of access to Eritrea’s ports made Ethiopia’s relationship with tinyDjibouti critically important. Two-thirds of Ethiopia’s merchandise tradetransited through the Eritrean port of Assab before May 1998. Overnight, thistrade—including all of Ethiopia’s petroleum imports—switched to Djibouti’sport. While political and economic ties are thus necessarily tight, significanttensions persist over both port transit regulations and fees, and broader policytowards Somalia.

Ethiopia shares a vast southern border with Somalia. Ethiopia’s sparselypopulated Somali region is also inhabited by ethnic Somalis. Since 1996

Terrorism spotlight onSudan and Somalia

Ties with Djibouti increasein importance

14 Ethiopia


Ethiopian troops have repeatedly entered Somalia in pursuit of Ethiopian-Somali and Oromo groups hostile to the EPRDF. US concerns over the possibleuse of Somalia by Islamic militants post September 2001 enhanced Ethiopiansurveillance of, and intervention across, its Somali border. Ethiopia iseffectively opposed to the current transitional national government in Somalia,supporting opposition groups, some Somali warlords and the secededSomaliland region. There is speculation that Ethiopia can better maintain itsdominance in the Horn of Africa if Somalia is in continual chaos. Egypt alsohas a significant stake in regional affairs. In recent years Ethiopia’s relationswith Egypt have been strained by disagreements over Ethiopia’s right to use thewaters of the Blue Nile for irrigation and hydroelectric projects. Since 1991Ethiopia has established closer economic ties with the states of the Arabianpeninsula, while maintaining relations with Israel.

Relations with Sudan deteriorated following allegations of Sudanese complicityin a failed assassination attempt against the Egyptian president, HosniMubarak, in Addis Ababa in June 1995, after which Ethiopia secured limitedUN sanctions against Sudan. However, in late 1998 links with the regime inKhartoum were swiftly restored in an attempt to isolate Eritrea.

US military and intelligence co-operation with Ethiopia were boosted by theUS desire to combat transnational Islamist links after September 2001; Ethiopiahelping facilitate US surveillance of neighbouring Somalia. This included themonitoring of coastal movements by the German navy based out of Djibouti.Such US concerns helped reverse the impact of the 1998 Ethiopian-Eritreandispute, which significantly undermined US regional policy, loosely referred toas the “Greater Horn of Africa Initiative”. On a tour of Africa in March 1998the then US president, Bill Clinton, referred to the Ethiopian and Eritreanleaderships as being part of a move towards new, more enlightened Africangovernments. However, the war with Eritrea placed strains on US-Ethiopianrelations, not least because the hostility of the EPRDF to the Islamist adminis-tration in Sudan was reversed by the war. (See Appendices for information onthose regional organisations of which Ethiopia is a member.)

Many troops from the Ethiopian army were re-employed in 1998-99 during the1998-2000 border war; the EPRDF doubled the size of its armed forces,mobilising an estimated 250,000 men against Eritrea. Casualty figures began tobe issued only in March 2001. Unconfirmed but plausible Ethiopian pressestimates suggest that 123,000 Ethiopians were killed, principally in the twomajor assaults of Feb-June 1999 and May-June 2000. In 1991 Ethiopia’s armywas estimated to be Sub-Saharan Africa’s largest at 450,000 under the Derg.

Military forcesa

Army 250,000

Air force 2,500

Total 252,500

a Ethiopia’s navy, berthed in Djibouti from 1991, was auctioned off in 1996 to an unknown buyer.

Source: International Institute for Strategic Studies, The Military Balance, 2001/02.

US-Ethiopia ties enhancedin wake of terror attacks

The war has led to massmobilisation

Ethiopia 15


Resources and infrastructure

Population

In mid-2000 UN population figures suggested that Ethiopia’s population stoodat 62.9m, making Ethiopia Sub-Saharan Africa’s second most populous nation(after Nigeria). National and IMF International Financial Statistics figures suggesta population of around 63.5m in mid-2000. With a projected growth rate of2.3-2.4% per year between 2000 and 2025, Ethiopia’s population is projected toreach 113m by 2025, although the impact of AIDS—an estimated 10.6% of thepopulation were HIV-positive at the end of 1999, according to UNAIDS—islikely to reduce the population growth rate. The population is stilloverwhelmingly rural, with only 15% of the population living in towns andonly Addis Ababa and Dire Dawa having populations over 1m. (See Referencetable 1 for historical population data.)

While data on migration is non-existent, outward migration to both Arabianand OECD countries, largely of the educated middle class, is significant. Severalhundred thousand Ethiopians have settled in the US over the past two decades,concentrated largely around Washington and Los Angeles. Significant numbersalso live in the EU.

Population structure, 2000

m % of total

Male 31.2 49.5Female 31.6 50.5

0-14 years 28.4 45.215-59 years 31.5 50.160+ years 3.0 4.7

Total 62.9 100.0

Source: UN.

Ethnic and linguistic identity has been given explicit political significanceunder the current federal constitution. This recognises nine “nationalities”,which provide the framework for the federal state. However, none of theregions are totally ethnically homogeneous; Ethiopia contains a large numberof distinct peoples with vastly differing concepts of identity. The transitionallegislature formally recognises 64 major ethnic groups, although scholarshave identified more than 250 distinct languages in Ethiopia. Of these,Oromo speakers are the largest single group, spread throughout the centraland southern areas, followed by the speakers of Amharic and Tigrinya. Othersignificant groups include Somalis, Afars and Gurages. Amharic and Englishremain the de facto languages of state, although greater emphasis is nowbeing placed on regional languages in schools and the official media. Regionsare free to choose their own language of administration, although in practiceseveral have retained Amharic for convenience. Despite the state’s traditionalassociation with Orthodox Christianity, the Ethiopian population is splitfairly evenly between Christians and Muslims. The post-1991 administration

16 Ethiopia


made progress in establishing official parity of esteem and recognitionbetween Christians and Muslims.

Education and health

With around 30m people under 16 years of age and based overwhelmingly inthe countryside, the provision of education is a major challenge. Governmentspending on education and health, in part funded by cuts in militaryexpenditure, increased considerably after 1991, and accounted for 13% of totalspending in 1996/97 (fiscal year beginning July 8th). However, as militaryspending on the war with Eritrea increased, education expenditure wassqueezed during 1998-2000, and school facilities and enrolment rates are stillwell below those of other least-developed countries. UN statistics suggest thatonly 52% of children are enrolled in primary school and that only 12% attendsecondary school. Secondary education is mostly only obtainable in urbancentres. The transitional government began education reforms, which are nowbeing implemented. These altered the structure of secondary and highereducation, encouraging students to take vocational rather than narrowacademic training, and boosting regional technical colleges.

Education statistics(% of population)

Adult literacy rateMale 44Female 33

Primary school enrolment (gross)Male 52Female 52

Primary school enrolment (net)Male 43Female 28

Secondary school enrolment (gross)Male 14Female 10

Source: UNICEF.

With the second highest number of HIV infections and deaths from AIDS inAfrica (after South Africa), the pandemic is a significant threat to the country’sfuture. In mid-2001 the Ministry of Health put at 3m the number of peoplewho are HIV positive, estimating that 1.7m people will have died from AIDSrelated causes by 2002. The biggest strain is currently at the household level,where loss of work combined with treatment costs are proving an excessiveburden for average people. Without an extensive healthcare system, healthyfamily members must often take care of the sick, therefore increasing theeconomic burden on the family.

HIV/AIDS

Ethiopia 17


Comparative social indicators, 1998

Sub-Saharan Ethiopia Uganda Kenya Nigeria Africa

Population (m) 61 21 29 121 627

Life expectancy at birth (years) 43 42 51 53 50a

Female illiteracy rate (%) 70 46 27 48 49a

Malnutrition (% of under-five-year olds; 1992-98) 48 26 23 39 33a

Infant mortality (per 1,000 births) 107 101 76 76 92a

a Regional average.

Source: World Bank, World Development Indicators.

Natural resources and the environment

Ethiopia has abundant natural resources, but much agricultural land is un-productive, water shortages are endemic and major rivers are prone to seasonalflooding. Agricultural land in densely populated areas of the highlands hasbeen deteriorating steadily in recent decades. Accelerated deforestation has ledto severe soil erosion in regions where people are dependent on marginal, rain-fed agriculture. This has spurred a series of environmental initiatives by thegovernment, including a National Conservation Action Plan, with measures forselective reforestation. An Environmental Protection Agency has also beencreated, and Ethiopia is taking tentative steps towards establishing a bio-diversity strategy.

Aside from agriculture, livestock and forestry, Ethiopia has undevelopedmineral resources. In the past six years private foreign interest in the mining ofgold and other precious metals, and oil and gas exploration, has increased (seeThe economy).

Transport and communications and the Internet

Ethiopia’s inadequate and unreliable transport infrastructure remains asignificant barrier to economic growth. The rehabilitation of the roadinfrastructure has been established as a core element of the country’s economicreform programme, with more than 20% of the capital budget allocated toroad construction and repairs in recent years. The spindly network of poorlymaintained roads radiating out from Addis Ababa to the provinces is largely alegacy of the Italian occupation of the 1930s. The two main roads going norththrough the highlands have suffered from decades of neglect and heavy wearfrom military and food convoys. Major roads are now being resurfaced andupgraded, and a network of local feeder-roads is being constructed, facilitatingboth market access for farmers and swifter distribution of food aid in times ofshortage. The 1998-2000 border war had a paradoxical effect, spurring newroad construction north to Tigray and Djibouti, while eroding highways viaextensive use. Road congestion in and around Addis Ababa was eased by the2002 opening of a metropolitan ring road.

18 Ethiopia


The Eritrean port of Assab was the principal port of entry and exit forEthiopian trade until May 1998, when the border conflict resulted in thediversion of all Ethiopian cargo to Djibouti, whose port authorities respondedswiftly to the crisis. Nevertheless, port-handling equipment and warehousingfacilities need upgrading to cope with the greatly increased flows of goods.Investment in the road linking Djibouti to Ethiopia via Galafi is also required ifthe volumes of general merchandise and petroleum trucked to Ethiopia are tobe sustained.

Despite the loss of sovereignty over its home berths in 1991, EthiopianShipping Lines (ESL) continues to thrive and expand, operating from Djibouti.Like the national carrier, Ethiopian Airlines (EAL), it is managed efficiently.

Ethiopia’s only railway, the 850-km link via the southern market centre of DireDawa to Djibouti, is in urgent need of rehabilitation to improve capacity,reliability and safety. Although EU and French funding has been made avail-able, progress on agreeing and implementing improvements has been slow.

Addis Ababa is a major regional hub for air traffic. Its pivotal location betweenAsia, the Middle East and Africa has been central to the wide range of servicesand sound reputation built up by EAL. The gradual expansion of EAL’spassenger and cargo services in recent years is accompanied by an upgrading ofBole airport in Addis Ababa, scheduled for opening in 2002. There are otherinternational airports at Dire Dawa and Bahir Dar. The Civil Aviation Authorityhas embarked on a programme to upgrade the extensive network of smallregional airports. Air transport has long played an important role in internaltravel because of Ethiopia’s mountainous terrain, and until 1998 passengervolumes were rising rapidly because of demand from foreign tourists.

Despite economic liberalisation, television and radio remain under governmentcontrol. As part of its policy for devolution the government is encouragingbroadcasting in local languages and the formation of regional radio stations;the first private radio station was scheduled for licensing in 2002. The printmedia reach only a small fraction of the population, which is unsurprisinggiven the levels of poverty, low literacy rates and the fact that newspaperdistribution barely extends beyond the capital. The numerous official govern-ment and party newspapers espouse predictably anodyne views. Private weeklyand monthly newspapers and magazines have flourished since 1991. Most arein the Amharic language, and their sales are concentrated overwhelmingly inthe capital. Although the government has harassed and imprisoned scores ofindependent journalists and editors, the expanding scope, variety andcirculation of private publications testify to the sector’s vibrancy.

Ethiopia’s telecommunications networks remain basic; there were an estimatedthree main lines per 1,000 people in 1996. The Ethiopian TelecommunicationsCorporation (ETC), in partnership with Sweden’s Eriksson, launched a mobilephone service in 1999 for Addis Ababa and its environs. While the ETC has amonopoly over Internet provision, which is both expensive and under-developed in Ethiopia, communication with the large diaspora and support

Djibouti replaces Assabas key port

Growing air traffic

The government tries tocontrol the press

Telecommunicationsare rudimentary

Ethiopia 19


from foreign donors are acting as catalysts for increased Internet use in boththe capital and provincial towns.

Energy provision

Ethiopia has poorly developed energy resources. Its greatest potential forenergy generation, from hydroelectric sources along the Awash and Nilevalleys, remains largely untapped. The African Development Bank is financingfeasibility studies into the construction of hydroelectric installations along theBlue Nile, although these plans have caused controversy with Ethiopia’sdownstream neighbours, Sudan and Egypt. Once operational, such dams couldproduce sufficient electricity for the north of the country and potentially allowfor exports. Petroleum imports were estimated at more than 1.1m tonnes in2000, and crude oil and petroleum products account for about 15% of thecountry’s total import bill. Fuel subsidies have been gradually reduced, leadingto sharp increases in the price of kerosene, which is used by many in urbanareas for cooking.

Primary energy balance, 2001(m tonnes oil equivalent)

Oil Electricity Other Total

Production 0.00 0.45a 11.90 12.35

Imports 1.12 0.00 0.00 1.12

Exports 0.00 0.00 0.00 0.00

Primary supply 1.12 0.45a 11.90 13.47

Transformation outputb 0.00 0.15 0.00 0.15

Losses & transfers –0.02 –0.48 –0.05 –0.55

Final consumption 1.10 0.12c 11.85 13.07

a Input equivalents on an assumed generating efficiency of 33%. b Transformation input andoutput, plus energy industry fuel losses. c Output basis.

Source: Energy Data Associates.

The vast majority of energy needs are met from natural sources. Firewoodcutting has denuded vast tracts of highland woodlands in the course of onegeneration, greatly exacerbating soil erosion. Around Addis Ababa and othertowns particularly, firewood and charcoal are relatively scarce and expensivefor the bulk of the urban poor.

The economy

Economic structure

The Ethiopian economy is highly dependent on agriculture, which accountsfor almost 45% of GDP. An estimated 85% of the population gain theirlivelihood directly or indirectly from agricultural production. Coffee exportsaccount for 50-60% of foreign-exchange earnings, although regional sales ofchat, the second main foreign-exchange earner, have increased.

An agriculturallydependent economy

20 Ethiopia


Following growth in the 1990s, services accounted for a larger portion ofeconomic activity than agriculture for the first time in 2000. The composition ofservices earnings has shifted gradually in response to economic liberalisation,with limited growth in the building, transport and tourism sectors. Agriculturalactivity is uneven in geographical distribution. A grain surplus is producedlargely in the central and western regions, while the northern highlands are farmore vulnerable to variations in rainfall. Coffee production is prominent incentral and southern areas. Pastoralism predominates in the east and south-eastlowlands, notably among Afar and Somali peoples. Geographical barriers tointer-regional trade are accentuated by the fact that all major roads converge onthe capital, and agricultural distribution and marketing are predominantlyfocused on Addis Ababa. Current road-building programmes are designed tofacilitate inter-regional transfers of grains and other produce.

Main economic indicators, 2001a

GDP growth (%) 7.5b

Consumer price inflation (%) –7.8b

Current-account balance (US$ m) –300c

Merchandise exports fob (US$ m) 502c

Merchandise imports fob (US$ m) 1,300c

Exchange rate (av; Birr:US$) 8.33d

Population (m) 65c

a Fiscal year ending July 7th. b Official estimate. c EIU estimate. d Actual.

Source: Economist Intelligence Unit.

Counting time: the Gregorian and Ethiopian calendars

Ethiopia uses a calendar in which the year begins in mid-September and contains12 months of 30 days plus a 13th month of five or six days. The Ethiopian calendar (EC)is roughly seven years and eight months “behind” Western Gregorian calendars;2001/2002 is thus 1994 EC, while 1995 EC will begin in September 2002. However, theEthiopian fiscal year begins on July 8th and all domestic economic statistics areproduced on an annual July 8th-July 7th basis; 1994 EC in National Bank of Ethiopiastatistics therefore refers to July 8th 2001-July 7th 2002. Hourly time in Ethiopia isconventionally expressed as beginning at 6 am; 1 am is thus equivalent to 7 am in theWest, 6 am to 12 noon etc. However, all businesses and ministries use the conventional24-hour clock.

Origins of gross domestic product, 1999/2000a

(% of total)

Agriculture & forestry 43.2

Industry 11.5

Services 45.3

GDP at factor cost 100.0

a Fiscal year ending July 7th; provisional figures.

Source: National Bank of Ethiopia, Annual Report.

Ethiopia 21


Industry accounts for almost 12% of economic activity. Manufacturing isconcentrated around Addis Ababa and Dire Dawa. The government is fosteringattempts to boost the manufacture of consumer goods in regional capitals suchas Mekelle and Bahir Dar, but efforts at industrialisation have remained slow.

Comparative economic indicators, 2001a

Ethiopiab Ugandac Kenya South Africa Italy

GDP (US$ bn) 6.1 5.8 10.2 108.7 1,072

GDP per head (US$) 94 256 337 2,444 18,644

Consumer price inflation (av; %) –7.8 2.4 1.0 5.8 2.7

Current-account balance (US$ m) –300 –500 –300 200 2,600

Merchandise exports fob (US$ bn) 0.5 0.36 1.7 31.7 251

Merchandise imports fob (US$ bn) 1.3 1.2 3.1 27.5 232

a EIU estimates. b Fiscal year ending July 7th. c Fiscal year starting July 1st.

Source: Economist Intelligence Unit, CountryData.

Economic policy

Although there has been a complete reorientation of economic policy since1991, Ethiopia’s economy faces severe structural problems; the most critical ofthese is food insecurity. Near-total dependence on rain-fed agriculture, lowfertiliser use and susceptibility to pest damage, coupled with extensivehighland soil erosion, have resulted in low and erratic yields. Policies toimprove early-warning systems for famines, and the establishment of localfood security reserves, are designed to tackle the short-term effects of cropfailure and have both domestic and donor support. Marked fluctuations inagricultural output determine growth trends. Crop failures in 1997-99 werefollowed by much improved harvests in 2000/01, when agricultural growth of13.2% was recorded. This prompted GDP growth of 7.5% in 2000/01, withbuoyant harvests underpinning similar growth forecasts for 2001/02. Yetsustainable growth and stable rural livelihoods require radical changes inproduction methods. Liberalisation has prompted improved productionincentives and more efficient marketing for agricultural produce, but fertiliserand pesticide use, and consequently crop yields, remain among the lowest inSub-Saharan Africa. Paradoxically, improved agricultural output, whileboosting national food security, drives grain prices down and undermines ruralincomes and peasant farmers’ ability to afford improved inputs.

Key measures of economic reform and donor support

January 1992: The World Bank approves a 30-month economic recovery andreconstruction programme worth US$657m.

October 1992: An economic reform programme is launched: the birr isdevalued by 60%, a liberal investment code is published and the IMF grantsSDR50m (US$70m) under a structural adjustment facility.

December 1992: Extensive debt relief is granted by the Paris Club of officialbilateral creditors.

Agriculture underpinsgrowth trends

22 Ethiopia


February 1995: First privatisations take place.

July 1995: Official and auction-determined exchange rates are unified.

October 1996: The IMF awards a three-year, SDR88.5m enhanced structuraladjustment facility (ESAF) loan.

December 1996: A consultative group of official creditors pledges US$2.5bnin assistance covering the fiscal years 1996/97-1998/99 (July 8th-July 7th).

January 1997: The Paris Club grants a debt-restructuring deal on Naplesterms.

January 1998: The World Bank announces US$500m in loans for the roadand energy sectors.

July-September 1998: The IMF formally restores ESAF lending after a nine-month wrangle over the pace of financial sector reform; donors andgovernment publish a policy framework paper for 1998-2001. New lending issuspended owing to war with Eritrea.

March 2001: The IMF agrees an initial US$121m loan under its povertyreduction and growth facility. This follows a US$400m World Bank loan forreconstruction agreed in December 2000.

November 2001: Ethiopia eligible for heavily indebted poor countries debtrelief.

January 2002: Arrests of senior Commercial Bank of Ethiopia officials andprivate businessmen damage both investor confidence and ties with IMF.

Cyclical instability in agriculture is heightened by the Ethiopian economy’sother main structural weakness: dependence on coffee for foreign-exchangeearnings. Despite improvements in the quality and quantity of coffee exported,volatile international coffee prices have exacerbated overall erratic economicgrowth. After price instability in the mid-1990s, higher world prices and anincrease in export volumes boosted coffee export earnings significantly in1996/97. Modest growth was sustained in 1997/98, but sharp falls in bothexport volumes and earnings, influenced by declining world prices, wererecorded in subsequent years. Earnings were estimated at only US$170m in2000/01, a 62% fall over four years.

Assessed against the background of Ethiopia’s war-battered economy in 1991,and the incoming government’s inexperience in economic management, theeconomic reform programme has been relatively smooth and successful.However, this has not assuaged the frustrations of domestic investors and thedonor community at the slow pace of reform and partial policy implemen-tation. The lack of economic experience of the ruling Ethiopian Peoples’Revolutionary Democratic Front (EPRDF), and its virulently anti-capitalistrhetoric, were quickly overcome, although important policy decisions have inpractice relied on a few overworked individuals.

Economic policymakers remain cautious over the pace of reform. Financialsector reform and privatisation have been slow and relations with donors at

Successful market reforms

Ethiopia 23


times tense. The 2001 schism within the EPRDF, combined with subsequentwidespread corruption allegations and arrests, heightens both caution andpolicy uncertainty.

Corruption in Ethiopia

Corruption in Ethiopia poses various problems for the business environment in thecountry, as patronage networks are firmly entrenched and political clout is often used togain economic prowess as well. There are fears that the government is using the issue ofcorruption to silence dissenters within its ranks by having them charged and arrested. Itis unlikely that the current anti-corruption campaign will discover and neutralise the rootcauses of corruption in the country, but it will reduce corruption among those not ingood standing with the government.

In May 2001 the prime minister’s office created the Federal Ethics and Anti-CorruptionCommission (FEACC) to handle all charges of corruption against public and privateindividuals in Ethiopia. The government’s stated intention is to target only the “big fish”involved in corruption and root out its main causes.

In July 2001 the government arrested several prominent Tigray People’s Liberation Front(TPLF) dissenters on charges of corruption. In October 2001, after months of doubt andlegal delays, the government filed charges against some of the politicians andbusinessmen that were arrested following the splits within the ruling party and thesubsequent allegations of corruption levelled against senior figures linked to thedissidents. A number of politicians and private businessmen have been charged with aseries of crimes linked to the privatisation of state-owned breweries and hotels. Alsocharged was the former head of the Ethiopian Privatisation Agency, Beshah Azmite.Several other high-profile corruption cases are also under way, notably against theformer vice-chairman of the TPLF, Tewolde Wolde-Mariam, and leading members of theOromo People’s Democratic Organisation.

The scope and scale of the government’s anti-corruption campaign dramaticallyescalated on January 2002 with the arrest of over 40 senior figures at the CommercialBank of Ethiopia (CBE). Those detained include the president and half a dozen vice-presidents, as well as senior figures from the loans and risks department and 13 private-sector businessmen. The arrests have significant implications, both for Ethiopia’s financialsector and its relations with leading international donors.

Since the “ownership” of the reform programme was established—and asmultilateral donors’ resistance to the government’s insistence that land mustremain public and that regional devolution is non-negotiable waned—theEPRDF adopted what in practice was a fairly standard structural adjustmentprogramme (SAP). In 1992 a US$657m World Bank-led economic recovery andreconstruction programme (ERRP) was launched, followed later that year bystructural adjustment credits from the IMF. Co-operation and co-ordinationbetween donors, and relations between the donor community and the gov-ernment in general have been smooth, although in late 1997 the IMF sus-pended disbursement of enhanced structural adjustment facility (ESAF) fundsowing to disagreements over the pace and scope of financial sector reforms.While donor relations in public remained cordial throughout the 1998-2000

24 Ethiopia


war with Eritrea, major donors scaled down the extent of their involvement. Adesire to rapidly increase structural lending levels and promote Ethiopia as ashowcase for poverty reduction strategies is manifest among donors, and wasstrengthened by qualification for debt reduction under the IMF-World Bank’sheavily indebted poor countries initiative (HIPC) in November 2001.

The 1998-2000 border war with Eritrea and the arrests of senior officialsfollowing the schism within the EPRDF in 2001 have both served to derail thedivestiture programme. The gradual shift to private ownership is beingoverseen by two government agencies, the Ethiopian Investment Authority(EIA) and the Ethiopian Privatisation Agency (EPA). Prior to the arrest ofmanagers from both the EPA and EIA in 2001, 163 privatisation projects hadbeen approved by 1998. More than two-thirds of the projects approved arelocated in the Addis region, suggesting that the move towards a marketeconomy may reinforce existing regional imbalances.

Despite amendments to the already liberal investment code in June 1996 andmid-1998, foreign direct investment (FDI) in Ethiopia remains minimal. Thetelecommunications and energy sectors were thrown open to foreign investorsin 1998. Between 1993 and 2000, 231 FDI projects, with capital of aroundBirr11bn (US$1.3bn), were approved. While implementation of FDI projectsaccelerated markedly in 1999/2000, only 105 such projects were operational,with a capital of Birr3.5bn. More significantly, the vast majority of the“foreign” investment to date has been by the Midroc group, controlled bySheikh Mohammed Hussein Alamoudi of Saudi Arabia, who has an Ethiopianmother. The EPA’s main task is the sale of the manufacturing and agriculturalconcerns owned by the government. In addition to the sale of state-ownedenterprises, the EPA is responsible for processing claims to propertynationalised by the Derg in 1975.

The privatisation programme began in 1995 with the sale of small retail outletsand medium-sized hotels and restaurants. The disposal of state farms and agro-industrial plants proved more problematic, in part because of continuedwrangles over the allocation of land titles by regional authorities. A further 114state-owned enterprises, notably hotel chains, state farms and plantations, areslated for sale in the 2001-03 economic programme agreed with the IMF inmid-2001. However, problems with brewery sales in 2000, coupled withpersonnel changes linked to the schism within the Tigray People’s LiberationFront (TPLF) in early 2001, are likely to further delay privatisation plans.

After a lacklustre start, the authorities began to promote Ethiopia morevigorously as a location for FDI in early 1998, but these efforts werespectacularly undermined by the war. In 1999 a new guide for potentialforeign investors in Ethiopia was published; it is available athttp://www.ipanet.net/unctad/investmentguide/ethiopia.htm. Although com-mitted to the Multilateral Investment Guarantee Agency (MIGA), in 1999Ethiopia’s membership was delayed by disagreements over outstanding com-pensation claims by foreigners whose property was nationalised in the 1970s.However, the government has promised to look into claims madeby foreigners.

Privatisation has been slow

Ethiopia 25


Foreign investment in Ethiopia

Approved projects Projects in operation Investment capital

No. of projects Birr m No. of projects Birr m

1996/97 42 2,268 14 237

1997/98 81 4,106 38 1,349

1998/99 30 1,380 27 1,098

1999/2000 54 1,627 18 317

Sources: Ethiopian Investment Authority; National Bank of Ethiopia, Annual report.

Plans to both reduce and redirect government expenditure (towards education,health and infrastructure) were badly dented by the 1998-2000 war. Govern-ment expenditure leapt from 24% of GDP in 1996/97 to 34% in 1999/2000,prompting a total budget deficit of 15% of GDP. Since the end of the conflict inmid-2000 spending has been sharply curtailed. Preliminary estimates for2000/01 suggest that total government expenditure fell by 13% to Birr14.9bn(US$1.8bn), with an overall fiscal deficit of Birr4.9bn. Current fiscal reformsaim to improve implementation capacity and shift expenditure from militaryto social programmes. Taxation reforms are under way, with value-added tax(VAT) scheduled for introduction in 2003.

The public expenditure review published in August 2000 estimated thatdefence expenditure had leapt to 10.3% of GDP during the two years of war,having averaged around 3% during 1992-98. Its share of overall governmentexpenditure soared from an average of 12% in 1992-98, to 30%. The fiscalimpact of war has also undermined recent improvements in data reporting andtransparency. With peace secured, reductions in government expenditure, andthus the fiscal deficit, are central to economic stabilisation, policy reform andpoverty reduction. Although war expenditure did not drastically underminerecurrent social spending, capital budgets were hit, although overall levels ofexpenditure on health, education and social services are still substantiallyhigher in 2000 than in the early 1990s. The other significant impact of the warwas on deficit financing. The cost of the war, combined with the suspension ofmost external economic assistance, caused domestic borrowing to leap to 9.4%of GDP in the year to July 2000 (see Reference table 2 for budget data).

Government budget(Birr bn)

Estimate Budgeted1999/2000 2000/01

Revenue 10.0 9.2

Grants 1.7 0.8

Expenditure 17.2 12.8a

Current expenditure 13.8 6.3 Capital expenditure 3.4 3.1

Fiscal balance –5.4 –4.9

a Includes special programmes for demobilisation and reconstruction.

Source: National Bank of Ethiopia, Annual and Quarterly Bulletins.

War dislocates governmentexpenditure plans

26 Ethiopia


Economic performance

Economic policy was characterised by continuity and caution between 1992,when the reform programme was formally launched, and the outbreak of warin May 1998. Although both growth and policy planning were undermined bythe recurrent drought, the reform process followed a steady, if sluggish, path.This gradual pace of reform, reflecting the characteristic caution of Ethiopianbureaucrats, greatly contributed to stability despite a progressive devaluationand the dismantling of domestic price and foreign trade controls. However, thedislocation resulting from two years of war with Eritrea has partly jeopardisedthe gains of the 1990s, in terms of the negative impact both on governmentfinances and on policy stability and donor support.

Gross domestic producta

(% real change)

Annual average2000/01 1996/97–2000/01

GDP 7.5 4.4

a Fiscal years ending July 7th.

Source: IMF.

Sustained economic reform, in formal macroeconomic terms at least, has beenachieved with a degree of stability that few involved in its planning dared topredict. However, its attainment of the underlying aim of improving basicsocial services, reducing poverty and laying the foundations for sustainableeconomic growth is far less certain. Real GDP growth averaged 4.4 % per yearbetween 1996/97 and 2000/01 according to Ethiopian and IMF data. However,these aggregate figures reflect favourable climate and harvests rather than thediscernible, unambiguous impact of policy changes. Thus real growth rates of4.5% and 7.5% over the past two years are largely a result of improvedharvests. Nevertheless, the government has maintained an exceedinglycautious fiscal policy and controlled monetary growth, despite record domesticborrowing caused by rising military expenditure and the withdrawal of foreignassistance owing to war after 1998. (See Reference tables 5-7 for data on GDP.)

Successive devaluations and liberalisation measures had little impact on officialmeasures of inflation, which remain determined largely by movements in grainprices. Improved harvests in recent years have prompted falls in aggregateprices, with the Addis retail price index (RPI) recording a fall of 7.3% in2000/01. Over the previous five years average price inflation fell by 4.5% peryear, down from an average 11% in 1992-95. Government and IMF inflationtargets of 5% for 2001/02 will be easily met as grain prices continued to fall inlate 2001. However, doubts persist over the accuracy of official measures ofinflation, because of regional discrepancies, data collection problems and theimpact of cyclical fluctuations in grain prices. (See Reference table 8 for IMFInternational Financial Statistics price data, indicating higher inflation in thelate 1990s).

Economic targets havebeen met

Inflationary pressuresare contained

Ethiopia 27


Inflation(% change)

Average2000/01 1996/97-2000/01

Consumer pricesa –7.3 –4.5

a General retail price index for Addis Ababa.

Source: National Bank of Ethiopia, Quarterly Report.

Future economic development needs to be evaluated against four distinct setsof self-declared aims: short- to medium-term macroeconomic adjustment;ongoing structural reforms; the longer-term priorities of food security andpoverty reduction; and the official yet nebulous notion of “agricultural-development led industrialisation”. This notion loosely underpins both thefive-year National Development Plan outlined in late 2000, and the govern-ment’s poverty reduction strategy—an interim poverty reduction strategy paper(PRSP) was produced in early 2001. Domestic consultation on the PRSPcontinued throughout 2001/02, with a final paper scheduled for approval inMay 2002. The government has been habitually wary of dialogue with privateand non-governmental actors. Yet during 2001 disputes within the EPRDF overcommercial policy, coupled with a more assertive private press, appeared toincrease the scope for consultation and compromise around both the PRSP andissues such as land tenure and private-sector input into policymaking.

Both pre-war policies and the new PRSP make provision for structural reforms,including the further deregulation of foreign-exchange controls, movementtowards market-determined interest rates and additional privatisations. Donorswould also like to see greater openness towards foreign investors, fundamentalreform of the banking sector and greater security of land tenure, as well asclearer land allocation procedures in both rural and urban areas. However, bothinvestor and donor confidence was temporarily set back in 2001 by allegationsof corruption and will take some time to recover. Arrests of senior EPRDF andbanking sector officials derailed financial sector reforms and delayed povertyreduction and growth facility (PRGF) loan disbursement. Longer-term foodsecurity and poverty reduction are inextricably linked to overall economicgrowth trends, and are also dependent on rainfall and harvests. Food securityreserves and streamlined distribution networks have greatly enhanced famineprevention. However, progress cannot be sustained unless irrigation is increased,agricultural extension services improved and environmental decay halted.

Regional trends

On paper, Ethiopia’s regional governments have very extensive economicautonomy. The constitution limits the federal government’s influence oneconomic policy to monetary matters, questions concerning land ownership,the regulation of foreign trade and investment, interstate commerce, andnationwide transport policies. All other economic powers are devolved to theregions. Regional and federal tax-raising powers are defined by the con-stitution; theoretically regions can determine both the base and rate of

The war seriously affectsmacroeconomic targets

The regions’ economicpowers are untested

28 Ethiopia


taxation. Clarifying confusion or disputes over fiscal matters is the prerogativeof the upper house of parliament, the Federal Council, itself controlled byregional representatives. In practice, however, the regions remain politicallysubservient and financially dependent on the EPRDF-dominated centralgovernment. This dependency was highlighted by the war and the subsequenttensions which emerged within the TPLF in early 2001.

The central government raises 85% of domestic revenue and controls allforeign assistance. The regions are responsible for more than 40% ofexpenditure, the bulk of which is regional administrators’ wages, althoughincreasing numbers of capital projects are being implemented at the regionallevel. With the exception of the capital, Addis Ababa, which has a wide taxbase, all regions are financially dependent on hefty subsidies from centralgovernment, accounting for some 23% of the 1999/2000 budget. To date, allfinancial allocations to the regions have been made by the central government.

Economic sectors

Agriculture and forestry

Officially, the agricultural sector generates around half of Ethiopia’s GDP;around one-tenth of this is from forestry. However, production is pre-dominantly in the hands of peasants working individual smallholdings, andmuch agricultural activity is unrecorded by official statistics. Official sourcesshow that only one-fifth of arable land is cultivated and that virtually all ofthis is watered only by rain. This increases food risks as the regions vary widelyin their rainfall. Reducing vulnerability to famine and achieving greater foodsecurity have been priorities in recent years, as well as preventing soil erosionand overcrowding in the marginal highland agrarian areas. Food productionper head fell steadily in the three decades to 1991, increasing Ethiopia’sdependence on imports, much of it in the form of emergency food aid.

Significant improvements in agricultural output in 2000 were consolidated bybuoyant harvests in 2001, greatly strengthening overall food security. Never-theless, the food deficit for 2002 is estimated at 557,000 tonnes, necessitatingfood assistance for 5.2m people. Given local regional grain surpluses, the gov-ernment and donor agencies will continue to encourage internal purchases ofgrain both to supply new assistance and replenish crucial emergency reserves.

A variety of policy measures have been adopted to boost agricultural outputand enhance food security. These range from a better famine early-warningsystem to improved agricultural extension services and more widespread use offertilisers. Fertiliser use remains the lowest in Sub-Saharan Africa. The greatestimpact on farm production since 1991 has been the near-total deregulation ofagricultural marketing: competition between merchants has resulted inimproved farm-gate prices for grains and coffee in many areas. There are twograin harvests: the minor belg harvest in the highlands after the small rains inmid-year, which accounts for about 10% of the crop, and the main meher har-vest in November-December, after the principal rainy season in July-September.

Food security is the priority

Ethiopia 29


Some 80% of food production is cereals, maize, teff, barley and sorghum. Teff,a fine highland grain, forms the staple diet of many Ethiopians and is used tomake injera bread, while sorghum is the principal lowland crop. Pulses andoilseeds are also grown extensively. Whereas grains are for domestic con-sumption, pulses, oilseeds and, to a lesser extent, fruits such as melon havebeen exported to neighbouring countries. The revival of commercialagriculture since 1991 has been slow. The sale or private management of statefarms has proved problematic, and other plantations, such as those in theAwash valley, face shortages of inputs. As the government has lifted barriers tolabour mobility, and with commercial agriculture now permitted, significantseasonal migration of farm labour is likely to reappear. The sparsely populatedsouthern and eastern regions are largely pastoral. The livelihood of pastoralistswas seriously damaged by successive droughts in the late 1990s and byoutbreaks of Rift Valley fever, which caused countries in the Arabian Gulf toimpose an import ban on livestock from the Horn.

Coffee (of the arabica variety) has accounted for between 55-70% of totalexport earnings over the past two decades. On average, officially recordedvolumes of coffee exports have fallen in recent years as drought and lowinternational prices have hurt production. However, a record 2.22m 60-kg bagswere exported in the 1997/98 coffee marketing year (October-September),around half of which were handled by private merchants. After a decline inexports in the subsequent two years, export volumes managed to rally in2000/01, despite the collapse in world prices. Private-sector activity is likely toexpand rapidly in coming years as the state increasingly limits its activities toagricultural extension services, in particular replanting ageing bushes andcontrolling coffee berry disease, which is thought to have afflicted one-third ofbushes in the 1980s. Coffee is grown largely in the southern areas, mainly inOromo region.

Little coffee is processed domestically. Investment in washing and hullingfacilities has been minimal, and private coffee growers and merchants are onlynow beginning to examine ways of increasing the value added within thecountry. Attempts are also under way to promote premium coffees, notablyHararghe, generally considered one of the world’s finest. (For a historical serieson coffee production and exports, see Reference table 9.)

Coffee production and exportsa

(‘000 tonnes unless otherwise indicated)

1999/2000 2000/01

Productionb 226 235

Exports 118 119

Export earnings (US$ m) 265 170

a Coffee years October-September. b Estimate; total domestic consumption and volumes smuggledare unknown.

Sources: International Coffee Organisation; Ministry of Agriculture; Ethiopian Coffee and Tea Authority.

In many areas coffee cultivation is in direct competition with a second majoragricultural export, chat. Chat is a mild stimulant harvested from a shrub

Limited diversification ofagricultural exports

30 Ethiopia


(Catha edulis), the fresh leaves of which are chewed, principally in Somalia andDjibouti, although in increasing quantities in Ethiopia as well. Chat’simportance as a source of export revenue steadily increased during the 1990s,eclipsing revenue from hides and earning over US$75m in 1999/2000.Domestically, chat is a major source of revenue in the south-eastern areas, withthe bulk of the crop being ferried daily by air and truck to Djibouti andSomaliland via Harar and Dire Dawa. For farmers it offers far quicker returns oninvestment than coffee, although much of the sale price accrues to themerchants and distributors. The government is not keen to be seen to officiallypromote chat sales. Official export promotion policies centre on improvementsin the processing of coffee, hides and skins, as well as on encouraging exportdiversification into horticultural crops such as fresh flowers (exported withnotable success by neighbouring Kenya) and spices.

Mining

To date, mining has been of only marginal importance to the Ethiopianeconomy. In 1993/94 gold mining and quarrying accounted for just 0.3% ofGDP. However, by 1996 several foreign mining companies had been awardedconcessions to prospect for gold and other precious metals. In 1997 thegovernment awarded the licence to operate the country’s largest existing goldmine, at Lega Dembi, to the Ethiopian-Saudi Alamoudi group. Smaller mines inthe south-western Adola gold belt produce an estimated 400 kg/year, while LegaDembi has an estimated output of 3 tonnes/year (t/y), although the gov-ernment claims that output could quadruple under private control. Reserves areconservatively estimated at 60-200 tonnes. Gold exploration along the westernborder with Sudan and in Tigray region has been halted by the war with Eritrea,but activity is expected to resume as security in the region improves and foreigninvestors feel more confident. Government projections suggest that, with aUS$150m investment in gold exploration, Ethiopia’s annual gold output couldreach 30 t/y. Substantial reserves of coal, iron ore, tantalum, bicarbonate andpotassium were also partly prospected under the Derg, although a number ofsignificant deposits are in inaccessible locations. Limestone, clay and marble areproduced in large quantities, and the output of non-metallic minerals has beenboosted by the upsurge in construction activity since 1991.

Manufacturing

Manufacturing industry accounts for just under 5% of GDP and, despiteeconomic reforms, the size and structure of the sector has changed little in thepast several years. The bulk of manufacturing is still state owned, but a cautiousprivatisation process is under way. The government has abandoned centralisedplanning, and is committed to promoting private manufacturing basedprimarily on agricultural processing, and to the establishment of medium-scalemanufacturing in regional capitals. More than 40% of manufacturing output isaccounted for by food and beverages, particularly the processing of vegetableoil and flour products, and the production of soft drinks and beer. As with allindustrial sectors, the bulk of production is concentrated in Addis Ababa, more

Gold attracts foreigninvestment

Manufacturing sectorremains in state hands

Ethiopia 31


specifically in the southern suburbs. Beyond the capital there are flour mills inthe regional capitals of Bahir Dar and Awasa, sugar is refined around theplantations of Metahara and Wonji, and beer is produced at both Bedele andHarar in the south. In 1998-99 French and South African companies beganbuilding new breweries in the country. The country’s only cigarette factory isin Addis Ababa.

The textile sector comprised 19 publicly-owned and 14 privately-owned textilesand clothing factories operating in 1999, employing 26,000 people, 31% of allmanufacturing employees. Finished clothing represents only 15% of output,the bulk of production being textiles and yarn. Seven textiles factories arelocated outside Addis Ababa. All plants, several of which have relativelymodern equipment, are due for privatisation, to which the government is nowcommitted during 2002/03. Ethiopia’s qualification for the US Africa Growthand Opportunity Act (AGOA) trade terms in 2001 will likely help to spurinvestor interest in the sector, as new trade opportunities are created.

In recent years Ethiopia has lost its claim to have the largest herd of livestockin Africa. Export revenue from hides and skins has fallen over the past fiveyears due both to drought in pastoral areas and limited investment in tanningand the processing and manufacture of leather goods. Privatisation began in1996 with the sale of three tanneries and four garment factories. In addition tothe major tanneries, leather and shoe factories, there are also increasing num-bers of small and medium-sized companies producing shoes and leather goods.

In the early 1970s Ethiopia’s small industrial base was largely foreign ownedand managed; Asmara in Eritrea had a more sophisticated (and largely Italianowned) industrial infrastructure than Addis Ababa. Ten years after the changeof government and economic policy, the private sector is dominated by twointerlocking conglomerates: one set of companies is associated with anEthiopian-Saudi entrepreneur, Sheikh Mohammed Hussein Alamoudi, and theother with members of the ruling party or regional government bodies. Thepredominance of party-owned companies, often working closely with EthiopianPeoples’ Revolutionary Democratic Front (EPRDF) regional authorities, in keysectors is bitterly resented by independent, private entrepreneurs. The viabilityand future of such “para-party” companies was thrown into doubt in 2001 bythe spate of corruption enquiries, arrests within the EPRDF and questions overunsecured loans made by the Commercial Bank of Ethiopia (CBE) to such firms.

Industrial ownership and employment, 1997/98 Ownershipa Employmentb

Public Private No. % of total

Food & beverages 54 170 25,720 27.6

Textiles 19 14 25,093 26.9

Leather & footwear 7 50 7,589 8.1

Garments 4 22 4,190 4.5

Tobacco 1 0 898 1.0

Total incl others 155 607 93,216 100.0

a Number of companies with over ten employees. b Total employment, public and private sectors.

Source: Central Statistical Agency, manufacturing survey, May 1999.

Sales of textiles andleather-processing plants

Structural changes slow asthe EPRDF’s role is queried

32 Ethiopia


Construction

The construction sector has seen rapid growth since 1991. Hundreds ofcommercial buildings, most noticeably small and medium-sized hotels, havebeen constructed throughout Addis Ababa. Urbanisation of only 15% isastonishingly low and urban populations are likely to grow markedly in thecoming decade, fuelling further construction. The growth in the constructionsector is also evident in several provincial towns, particularly regional capitalssuch as Mekelle and Bahir Dar, where newly formed state councils have engagedin major public works. Rapid growth was aided by the fact that constructionwas one sector where a number of private companies continued to exist underthe former military government, the Derg. These have now been supplementedby a new stratum of private construction enterprises with links to the rulingparty; these have been particularly successful in winning public contracts,especially for road construction in the regions.

Financial services

Private financial institutions have been re-established only since the mid-1990sand the authorities have approached financial liberalisation extremelycautiously. Ethiopia’s numerous private banks and insurance companies werenationalised following the revolution in 1974, giving the CBE a virtualmonopoly on retail banking. A single, state-owned insurance corporation, anagricultural and industrial development bank, and a housing and savings bankwere created. The National Bank of Ethiopia (NBE, the central bank) wasestablished in 1964. The central bank is charged with regulating the privatefinancial sector, although its supervisory powers remain largely untested. Boththe NBE and the CBE operated efficiently and prudently under the Derg, andtight control of the money supply resulted in minimal inflation for much ofthe 1980s. Since 1991 the NBE has held Treasury-bill auctions and overseen thegradual liberalisation of foreign-exchange markets. Moves to legalise market-determined foreign-exchange trading in both private- and state-sector financialinstitutions began in 1997. In August 1998 the Ministry of Finance announcedthat all transactions under Birr500,000 (US$71,500) would be handled by theretail banking sector, and in October 2001 regular foreign-exchange auctionswere replaced by an interbank market.

The liberalisation of foreign exchange and interest rates are in line withcommitments made to the IMF, although with so few small banks, the CBE’spredominant role persists. Legislation for the establishment of private banksand insurance companies, but not the privatisation of existing institutions, waspassed in January 1994. Legislation limits ownership of financial institutions toEthiopian nationals. By 2002 six private banks and eight private insurancecompanies were operating alongside the CBE and two far smaller state-ownedbanks. As in the private distributive and manufacturing sectors, several of thenewly established companies are owned directly or indirectly by politicalgroups belonging to the ruling EPRDF coalition. The IMF made the auditingand restructuring of the CBE a condition of continued programme lending in

A building boom

Troubled CBE dwarfsprivate financial sector

Ethiopia 33


mid-2001. Although a management deal (with the State Bank of India) wasbrokered, this collapsed as the National Ethics and Anti-CorruptionCommission arrested 40 senior CBE officials in January 2002 as part of theirdeepening enquiries into the awarding of unsecured loans.

Although the legislation for a formal stockmarket has not yet been passed,active, but informal, equity markets did exist in Ethiopia before the 1974revolution, and today private issues of shares are commonplace. A private-sector steering committee has been established to push for a stockmarket, but itis unclear whether the government will heed these demands in the near future.It is unlikely that anything will move ahead until troubles in the CBEare resolved.

Other services

Notwithstanding state control of much retail activity, private traders flourishedunder the Derg, often on the parallel market. Recent tariff reforms have beendesigned to bring much of this trade back into legal channels, but informaltrade persists. Nevertheless, deregulation has stimulated private trade, but, as inother sectors, this has often been in the form of new corporations linked tomembers of the ruling EPRDF.

Tourism has the largest growth potential of any economic activity in Ethiopia,given the country’s wealth of historical and natural sites. Because of statesocialism, civil war and famine, by 1990 tourist arrivals were far below the75,000 visitors registered in 1973. In the 1990s earnings from tourism steadilyrose as both government officials and private entrepreneurs began to invest inimproving Ethiopia’s image abroad and its dilapidated domestic tourisminfrastructure. However, the revival was seriously affected by the 1998-2000conflict with Eritrea. Nevertheless, the official tourism body claims that withinten years the country could receive as many as 700,000 visitors per year. Thiswould be broadly comparable with the tourism industry in neighbouringKenya, which has far fewer obvious tourist attractions, but vastly superiortourism infrastructure. Numerous small and medium-sized hotels have beenconstructed privately in Addis Ababa and regional resorts in recent years.Selective privatisation of the shabby state-run facilities has been painfully slow,although the national Ghion chain is scheduled for sale in 2002.

Visitors currently fall into three categories, with north Europeans accountingfor the bulk of the most lucrative and potentially fastest-growing of these.However, the second and largest group of visitors are diaspora Ethiopians, whomake extended visits from western Europe and North America. This categoryalso accounts for the majority of financial remittances—most of which areunrecorded in official statistics—entering the country. In early 2002 thegovernment eased visa and immigration restrictions for these returnees in a bidto encourage both travel and investment by non-resident Ethiopians.

The third category comprises short-term visitors to Addis Ababa from thebusiness, aid and diplomatic communities. Ethiopia’s status as a regional

No official stockmarket yet

The expansion of tourism ishalted by war

34 Ethiopia


capital, housing the African Union (formerly the Organisation of AfricanUnity) and the Economic Commission for Africa (ECA), as well as delegationsfrom most African countries, has meant that there has always been a premiumon high-class hotel space. A large new Sheraton hotel opened in 1998. Suchimproved facilities may also lead to a renewed flow of visitors from theArabian peninsula.

The external sector

Trade in goods

The health of Ethiopia’s external sector is overwhelmingly dependent on theperformance of coffee, which in recent decades has generated two-thirds of allexport earnings. Despite considerable invisible earnings and significant flowsof aid in recent years, Ethiopia’s current account and overall balance ofpayments are largely determined by fluctuations in both domestic output andinternational coffee prices, currently on a downward trend. Ethiopia is uniqueamong African coffee producers in having considerable domestic demand forcoffee: only about one-third of the total crop is exported in any one year.Because of uncertainty over the figures for domestic consumption, extensivesmuggling and the fact that coffee is produced entirely by smallholders, figuresfor both domestic production and exports are notoriously unreliable (seeReference table 9).

Foreign trade 1999/2000(% of total)

ExportsCoffee 54.0Chat 15.6Leather & leather products 7.2Gold 6.5Oilseeds 6.4

ImportsCapital goods 29.2Consumer goods 26.8Fuel 15.5Semi-finished goods 12.7Raw materials 1.2Miscellaneous 14.4


Export earnings rallied in the early 1990s as a result of the post-warresumption of economic activity. The volume of coffee exported has stabilisedat between 100,000-125,000 tonnes per year yet earnings have been erratic,leaping by more than 40% in the 1996/97 fiscal year (July 8th-July 7th) butdeclining steadily since 1997/98. Earnings from coffee slumped belowUS$200m in 2000/01.

Coffee prices and terms oftrade collapse

Ethiopia 35


With world coffee prices forecast to stay low, the outlook for the balance ofpayments remains bleak, with only earnings from chat buoyant. The import ofcapital goods under the economic recovery programmes has led to a sub-stantial expansion of imports and a steadily worsening balance of trade sincethe mid-1990s (see Reference tables 13 and 14 for historical data on thebalance of payments). Although the trade balance improved in 1997, largearms purchases produced a deficit of US$749m in 1998 and US$797m in 1999.The absence of arms imports saw the trade deficit shrink to US$645m in 2000.

Although Ethiopia has abundant supplies of hides and skins, the quality is low,with very little value added domestically and prolonged drought in southernand eastern pastoral areas decimating herds in recent years. Attempts are beingmade to remedy this, with better care and collection of raw hides and thepromotion of improved tanning and processing of leather. Some tannerieswere privatised in 1996. The establishment of new joint ventures with foreignmanufacturers should lead to a greater volume of finished leather goods beingproduced for export.

Gold exports have risen markedly following the sale of the largest mine to theAlamoudi group in 1997, generating export earnings of Birr260m (US$31m) in1999/2000. There is additional potential for agricultural export diversification,both by boosting exports of oilseeds and pulses, and developing the largelyuntapped potential of horticultural exports such as vegetables, flowers andfresh spices. (See Reference tables 10 and 11 for a breakdown of exports andimports by commodity.)

Despite the government’s former allegiance to the Soviet bloc, Western coun-tries were Ethiopia’s principal export markets even under the former militaryregime, the Derg. The US imported the largest share of Ethiopia’s arabica coffeeuntil 1986, and both Japan and Germany were also major customers.

Main trading partners, 2000a

Exports to: % of total Imports from: % of total

Germany 17.8 Saudi Arabia 25.0

Japan 10.8 US 9.2

Djibouti 10.5 Italy 6.7

Saudi Arabia 7.7 India 5.8

Italy 6.5 Germany 4.0

US 5.1 Russia 3.5

a Derived from partners’ trade returns, subject to a wide margin of error.

Source: IMF, Direction of Trade Statistics.

Germany remained Ethiopia’s largest export market throughout the late 1990s,largely owing to coffee imports. The true volume of trade with neighbouringSudan and Djibouti, and to a lesser extent Somalia, is understated in officialfigures owing to significant transit and contraband flows. Trade with Sudanwas suspended in 1995, but is set to recover markedly with the opening of theroad to Port Sudan in early 2002. The government is actively promoting tradelinks with the states of the Arabian peninsula, Japan and China. By 1998 Saudi

Germany, Japan and US aremajor export markets

36 Ethiopia


Arabia was Ethiopia’s largest trading partner, largely because of oil imports.Between 1998-2000 armaments imports reconfigured trade patterns: trade withRussia abruptly increased in 1998/99, and Belarus, India and Turkey allreported new trade ties with Ethiopia. A combination of large flows of aid,much of it earmarked for import-intensive capital projects, have led the US andwestern European countries to revive their commercial presence in AddisAbaba in recent years. (See Reference table 12 for historical data on thedestination of exports and origin of imports.)

Invisibles and the current account

Ethiopia has healthy invisibles earnings. Following a collapse in 1991-92,caused by the upheavals of the end of the civil war, earnings from servicescredits rose to US$506m in 2000, just higher than services debits. Privatetransfers have also steadily increased in recent years, a trend which willintensify as migration to, and remittances from, OECD countries accelerates.These helped offset steadily mounting debt-service payments in the late 1990s.

Buoyant services sector earnings stem largely from the transport revenue ofEthiopian Airlines (EAL) and, to a lesser extent, Ethiopian Shipping Lines (ESL),both of which are efficiently run. In addition, tourism receipts, estimated atUS$50m in 1995, appear to have increased steadily until mid-1998, when theEthiopian-Eritrean war severely set the sector back.

Current account, 2000(US$ m)

Merchandise trade balance –645.4

Services balance 15.5

Income balance –34.2

Private & official transfers balance 680.2

Current-account balance 16.2

Source: IMF, International Financial Statistics.

Capital flows and foreign debt

The prevalent impression that Ethiopia has historically been a major aidrecipient is false, as Ethiopia received only very modest amounts of assistanceuntil the mid-1980s. With a population of around 63m, current annual per-head aid flows remain minuscule at around US$11 per person. In 1985 aidflows (as measured by the OECD) doubled as compensation claims withWestern donors were settled and significant amounts of food aid arrived toalleviate the famine of 1984-85. The 1990s saw significant changes in both thevolume and nature of aid received by Ethiopia. The emergency assistance ofthe 1980s, largely in the form of food aid, was replaced by longer-termcommitments of development assistance from both bilateral and multilateraldonors within the framework of an overall economic reform programme.Disbursements rose strongly to reach US$1.1bn (net) in 1991. However, until1991-92 the vast majority of aid was in the form of emergency food aid. Italy

Ethiopia 37


was one of the few countries outside the Soviet bloc to provide large projectassistance to Ethiopia. In 1992 the US$657m emergency rehabilitation andreconstruction programme was launched under the auspices of major multi-lateral donors, and over the next six years Ethiopia received significant pledgesof assistance from key multilateral donors. Total assistance was maintained atmore than US$1bn (net) per year until 1995, before tapering off in 1996 and1997 in part because of improved harvests and a reduction in emergency foodaid needs.

Net aid averaged only US$660m over the three years to 2001, with thesuspension of long-term programme assistance being only partly offset by risesin humanitarian assistance for victims of the border war and famine (forhistorical data on aid flows see Reference table 16). The recovery to almostUS$700m in 2000 was sustained in 2001 as donors resumed disbursement,although these rises also reflected increased emergency needs as a result ofboth drought and dislocation from the war. According to OECD figures,bilateral aid increased by 17% in 2000, to US$380m. Significantly, the USincreased its annual assistance by 70% to US$130m in 2000 and further risesare anticipated in 2001/02.

The decline in aid flows in 1995-97 in large part reflects lower emergency andfood aid requirements. Donors responded to higher food aid needs in 1998-2000, despite the fact that the war with Eritrea was causing concern anddoubts. Nevertheless, donors have a positive view of the government’s integrityand its capacity to use assistance efficiently. The World Bank, the US Agencyfor International Development (USAID) and the EU have made substantialmedium-term investments in Ethiopia in recent years, and in early 2001, withthe war apparently settled, key donors appeared eager to recommence andexpand earlier successful donor-government partnerships. Ethiopia has beenthe largest single recipient of EU aid under successive Lomé conventions.

Despite a further liberalisation of the investment code in 1996 and 1998, andcampaigns to attract foreign investors from both OECD economies and theArabian peninsula since 1994, foreign direct investment (FDI) in Ethiopiaremains low. By 2000 only 107 FDI-funded projects, worth Birr5bn (US$600m),were operational. Apart from interest in mining and hydrocarbons, investmentin the agro-industrial and tourism sectors shows the most promise. Aninconspicuous, but nevertheless significant, amount of investment comes fromexpatriate Ethiopians who are beginning to reinvest at home, notably inproperty and the retail trade. This is likely to increase further in coming yearsdespite the dislocation resulting from war and problems of securing land. Inearly 2002 the government began a drive to encourage non-resident Ethiopiansto invest in the country, streamlining bureaucracy and immigration formalitieswhile offering them investment incentives identical to domestic investors (seeThe economy, Economic policy).

Reductions in the burden of debt service were negotiated during 2001 with theParis Club and as part of the World Bank-IMF heavily indebted poor countries(HIPC) initiative, for which Ethiopia was granted eligibility in November 2001.

War prompts doubts aboutaid flows

FDI is slow to pick up

HIPC debt reductionsecured

War interrupted aid flows

38 Ethiopia


This will generate anticipated annual savings of US$96m in coming decades,offsetting the trade deficit and reducing the overall current-account deficit. Asa result, Ethiopia’s overall external debt will be reduced by 47% whencombined with existing debt relief mechanisms, and the intention is to bringthe net present value of Ethiopia’s debt to export earnings ratio down to 150%.When implemented this should reduce debt service as a percentage of exportearnings from 17% in 2000 to 7% by 2003, with immediate savings ingovernment revenue redirected towards poverty reduction programmes.

Benefits from HIPC are conditional on the completion and implementation ofboth the poverty reduction strategy paper (PRSP) and the ongoing povertyreduction and growth facility-supported economic reform process. In Ethiopia’scase the debt/export earnings ratios built into HIPC may well be jeopardised bythe continued fall in coffee earnings.

Ethiopia: effects of debt relief on external debt and debt service(US$ bn unless otherwise stated)

2000/01 2001/02 2002/03 2003/04

Before traditional debt reliefa

Total debt stock 5.6 6.1 6.5 6.6Net present value 3.3 3.5 3.6 3.7Total debt service (US$ m) 222 163 162 182

After traditional debt reliefa

Total debt stock 5.3 5.9 6.3 6.7Net present value 2.7 2.9 3.0 3.2Total debt service (US$ m) 189 158 164 176

After enhanced HIPC debt reliefTotal debt service (US$ m) – 105 74 85

a Traditional debt relief includes Paris Club rescheduling, bilateral and commercial institutions.

Source: IMF, Decision Point Document for the Enhanced Heavily Indebted Poor Countries Initiative (HIPC), October 2001.

In the 1990s debt owed to states of the former Soviet bloc was a source ofconsiderable confusion over both its total volume and its current US dollarvalue. Statistics for 1993/94 from the National Bank of Ethiopia (the centralbank) suggested that some 18% of all bilateral debt, excluding that owed inroubles to the former Soviet Union, was owed to former Comecon states. Aportion of this was owed to East Germany, and has subsequently beencancelled by reunified Germany. The entry of Russia into the Paris Club in1997 facilitated negotiations over the rouble debt, and in December 1998Russia reported that negotiations were taking place within the Paris Club onEthiopia’s debt. The government’s September 1998 policy framework paper,prepared jointly by the IMF and the government, anticipated that the bulk ofthis debt, then estimated to have a face value of US$5bn, would be cancelled.The cancellation of this debt in 1999 lowered Ethiopia’s total external debt toUS$5.55bn in 1999 from US$10.35bn in 1998. Simultaneously, short-term debtfell to US$96m and interest arrears on long-term debt were cut to US$71m.However, Ethiopia’s trade and debt ties to Russia were further complicated in1998-99 by purchases of arms believed to total almost US$200m.

Cancellation of Soviet debt

Ethiopia 39


The impact of a substantial write-off of Ethiopia’s rouble debta

1997/98 1998/99 1999/2000 2000/01 2001/02 2002/03

Principal repayments 355.1 517.1 506.8 342.3 182.9 176.9

of which: to Russia 206.6 360.5 345.4 188.0 38.1 35.5

Interest payments 109.2 87.8 112.5 113.6 108.6 105.6

of which: to Russia 44.4 18.5 10.2 4.8 3.0 2.2

Total debt service before debt relief 464.3 604.9 619.3 455.9 291.5 282.5

Total debt service after debt relief 110.8 163.4 177.2 184.0 187.4 191.6

a Data from Ethiopia’s policy framework paper, released in September 1998.

Source: IMF.

Foreign reserves and the exchange rate

Over the past five years Ethiopia has cautiously devalued the birr and movedtowards a market-determined exchange rate; periodic, partly managed foreign-exchange auctions gave way to an interbank exchange market in October 2001.This remains dominated by the CBE, although private banks are handling agrowing share of remittances of foreign exchange. Under the Derg theexchange rate was fixed at Birr2.07:US$1. The official rate was initially devaluedin October 1992. In May 1993 fortnightly foreign-exchange auctions began,providing a means of allocating foreign exchange to importers and enablingthe central bank gradually to devalue its exchange rate by releasing varyingamounts of foreign currency. The auction rate was then applied to most foreigntransactions. The rates were unified at Birr6.25:US$1 in July 1995. InSeptember 1998 liberalisation was cautiously extended when moves towardsmarket-determined interest rates, via an interbank market for Treasury bills,were announced.

Since 1992 the reforms appeared to have been remarkably successful; a major,yet gradual, devaluation of the birr was achieved, with minimal inflationaryconsequences, and on the parallel market the rate of the birr gradually fell,narrowing the premium for unofficial foreign-exchange transactions. Eritreaintroduced its own currency, the nakfa, in December 1997, ending six years ofde facto currency union with Ethiopia. The Ethiopian monetary authoritiesused the occasion to issue new birr notes. Suspicions and tension over thecurrency switch appear to have fuelled mistrust between the former allies. Thewar itself helped weaken the birr. By late March 2002 it was trading atBirr8.56:US$1 (see Reference table 18 for exchange-rate data).

Ethiopia’s official reserves position has strengthened considerably in the courseof the 1990s, reflecting the improvement in the country’s external position.However, by November 2001 the IMF estimated foreign-exchange reserves atUS$406.3m, 38% down on 1996. This represented just four months of importcover, down from 7.7 months in 1995/96 (see Reference table 17).

End of a fixed exchangerate

40 Ethiopia


Appendices

Regional organisations

Based in Lusaka, Zambia, Comesa is the successor organisation to the regionalPreferential Trading Area (PTA), and came into force on December 8th 1994after the 12 member states ratified the integration treaty. Comesa, a weakerrival to the Southern African Development Community (SADC), now has 20members: Angola, Burundi, Comoros, Democratic Republic of Congo (DRC),Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius,Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia andZimbabwe. The Comesa region has a total population of around 385m and acombined estimated GDP of US$165bn. Mozambique and Lesotho withdrewfrom Comesa in 1997 and Tanzania in 2000, to concentrate on theirmembership of the SADC. South Africa’s decision not to join the organisationhas given the SADC the stronger hand.

The original PTA, launched in 1981, aimed to liberalise trade and encourage co-operation in industry, agriculture, transport and communications. Comesa’sprincipal aims build on these ideals; its main goals are to eliminate thestructural and institutional weaknesses of member states and to promote thepolitical security and stability necessary for sustained development, bothindividually and collectively as a regional bloc. These aims are to be achievedthrough monetary union with a single currency and a common central bank.The creation of a free-trade zone on October 31st 2000 was to be a major steptowards achieving these goals. However, by the end of 2001, only nine of the20 members had agreed to participate fully (Djibouti, Egypt, Kenya,Madagascar, Malawi, Mauritius, Sudan, Zambia and Zimbabwe). They haveremoved all barriers to intra-regional trade, though they retain tariffs onimports from outside Comesa. A customs union is to be created by 2004, andfull monetary union achieved by 2025.

The most recent figures, for 1998, give total intra-Comesa trade asUS$4.2bn;intra-Comesa trade as a proportion of total trade ranged from 3.2% for theSeychelles to 17.1% for Kenya. Over the past 30 years the share of intra-regional trade in total exports has actually fallen, from 9% in 1970 to 7.7% in1998 (although these figures do not capture high levels of illegal crossbordertrade), lower than the average of 10.5% for the whole continent. Reasons forthe low level of intra-Comesa trade include a lack of political commitment andweak balance-of-payments and foreign reserves positions. In some cases thereare hardly any official trade links between member states; and Kenya, Malawi,Uganda, Zambia and Zimbabwe accounted for 58% of the total trade betweenmembers of Comesa in 1998.

As industry and manufacturing are generally poorly developed, many membersare unprepared to reduce tariffs further for fear of undermining local industries(Tanzania’s main reason for leaving) or fiscal revenue. A further constraint hasbeen the strict and cumbersome rules of origin, which are open to conflictinginterpretations and not due to be harmonised until 2004. In addition to these

Common Market forEastern and Southern

Africa (Comesa)

Ethiopia 41


impediments, progress towards free trade will be further hampered by politicaltensions between member states.

Regional free-trade areas like Comesa aim to increase intra-regional commerce,leading to higher economic growth rates; but they attract criticism from manywho feel that this cannot be achieved while supply-side constraints—such aspoor infrastructure, inefficient transport links, weak education and skills levels,and cumbersome bureaucracy—remain. Comesa has concentrated on tradeintegration, but the lack of uniformity in investment codes and regulatoryarrangements has been an impediment to crossborder trade and investment. Itis hoped that a trade and investment framework agreement signed with the USin late 2001 will help the free-trade area to run more smoothly. But thecommitment to Comesa of many of its members is weak; the administrationbudget is heavily dependent on Kenya and Zimbabwe; and meetings arefrequently cancelled. Moreover, attempts at promoting crossborder investmentand monetary harmonisation have been superseded by initiatives from EastAfrican Community and the SADC.

Under the old PTA system, a multilateral clearing facility was established and aPTA unit of account (UAPTA), equivalent to the IMF’s SDR, was used to settledebts between members every two months, the balance being payable in USdollars. In 1997 the UAPTA was replaced by the Comesa dollar, which is peggedto the US dollar. A Comesa court was officially opened in March 2001,although it had been established three years earlier. In theory, the court, whichaims to be an independent arbitrator in trade-related disputes, has jurisdictionover national courts, but in practice it does not have the powers to enforce itsrulings. Comesa also set up the African Trade Insurance Agency (ATI), in 2001.Funded by a US$5m start-up loan from the World Bank, the ATI aims toprovide political risk cover for investors in all member countries. Otherinstitutions are the Comesa Trade and Development Bank, formerly the PTATrade and Development Bank, and the PTA Reinsurance Company.

The Inter-governmental Authority on Drought and Development (IGADD), thebrainchild of the president of Djibouti, Hassan Gouled Aptidon, wasestablished in January 1986 with six East African members: Djibouti (where thesecretariat is based), Ethiopia, Kenya, Somalia, Sudan and Uganda. Its aim wasto co-ordinate and channel funding into agricultural development and thealleviation of drought and desertification. Progress on development andenvironmental projects was slow, but the organisation made headway as aforum for regional politics and facilitated the successful reconciliation ofSomalia and Ethiopia in 1988. However, regional events in 1991 underminedIGADD: the presidents of Ethiopia and Somalia were overthrown, Eritreagained independence, and the self-proclaimed Somaliland Republic emerged.

Although IGADD gained a seventh member, Eritrea, in September 1993, it hadlittle success in its attempts to help resolve internal conflicts in Sudan andSomalia. Thus in March 1996, at a summit in Nairobi, IGADD renamed itselfthe Inter-governmental Authority on Development (IGAD) and adopted a newcharter proclaiming conflict resolution to be its priority. IGAD also pledged topay more attention to economic integration. However, with the outbreak of

Inter-governmentalAuthority on Development

(IGAD)

42 Ethiopia


war between Ethiopia and Eritrea in May 1998, Sudan’s increasingly tenserelations with both Eritrea and Uganda, and Ethiopia and Eritrea supportingvarious factions in the civil conflict in Somalia, the organisation was severelyhandicapped in the late 1990s.

IGAD’s fortunes improved slightly in 2000 with the establishment of atransitional government in Somalia—a deal brokered by Djibouti rather thanby IGAD—and the uneasy, UN-monitored peace between Ethiopia and Eritrea.However, the prospect for long-term reconciliation in both cases is not good,and Ethiopian military activity continues in Somalia. The organisationcontains two countries suspected of having links with international terrorism—Somalia and Sudan—and its most recent summit, in Sudan in January 2002,pledged to push forward reconciliation efforts in both these countries’ civilconflicts. In recent years, little has come from the organisation’s mediationefforts. US diplomacy (in the context of the region’s higher profile) hasencouraged IGAD to merge its Sudanese peace initiative with an Egyptian-Libyan effort, but whether greater international support will make anydifference remains to be seen. There are regular discussions on economicintegration and infrastructural co-operation, but given the tension between thegroup members they are unlikely to produce substantive action.

The 37-year-old Organisation of African Unity (OAU), based in the Ethiopiancapital, Addis Ababa, has now been superseded by the African Union (AU).Following ratification of the constitutive act of the AU by Nigeria on April 26th2001—completing the requirement that two-thirds of member states do so—the new body came into force on May 26th. The annual assembly of heads ofstate and government of the organisation was held in the Zambian capital,Lusaka, on July 2nd-11th 2001, formalising the formation of the AU, althoughthere is to be a one-year transitional period to allow it to become fullyoperational. The formation of the AU had been agreed at the 36th annualassembly of the OAU, held in Togo in July 2000. The AU is expected to have anexecutive council of ministers and an assembly comprising the heads ofmember states. Ambitious plans have also been outlined for the eventualformation of a pan-African parliament, a Union Court of Justice, an Africancentral bank, an African monetary fund and an African investment bank. It isunclear when member states will be in a position to begin seriousimplementation of these measures. Common defence, foreign andcommunications policies, based loosely on those of the EU, are also envisaged.The AU’s founding statements stopped short of ending the OAU’s principle ofnon-interference. This has been a major hindrance in the resolution ofconflicts on the continent but is strongly supported by member governments.

The OAU was founded in Addis Ababa in May 1963 by 32 African nations topromote solidarity and higher living standards, to defend the sovereignty ofmember states, and to eliminate colonialism. Another 21 signatories joinedsubsequently, the last being South Africa in 1994. Morocco left in 1985,following the admittance of the disputed state of Western Sahara as a memberin 1984. The OAU’s general secretariat had an annual budget of roughlyUS$31m, which the AU will inherit. As with the OAU, the foreign ministers ofmember states of the AU will meet twice a year to discuss the implementation

African Union(Organisation of African

Unity)

Ethiopia 43


of the organisation’s accords. The issues raised are dealt with at the annualassembly of heads of state, which meets in June or July. The annual conferenceis hosted by the member state that is due to hold the chairmanship of theorganisation for the next year. The Zambian president, Frederick Chiluba, tookover the chairmanship from President Gnassingbé Eyadéma of Togo in July2001. The organisation’s secretary-general is Amara Essy, Côte d’Ivoire’s foreignminister for most of the 1990s, who replaced Salim Ahmed Salim in September2001 but is mandated to serve only until May 2002.

The OAU held three extraordinary conferences of heads of state: the first wasin 1970 to discuss the Angolan crisis; the second, in 1980, sought to addressthe continent’s economic problems; and the third, in 1990, attempted toaddress the problem of African external debt. The AU carries forward the aimsof the OAU, which included the creation of an African economic community(AEC) according to the Lagos Plan of Action drawn up in 1980. Originally thiswas scheduled to be in place by 2000, but at the 27th summit of heads of statein Abuja, Nigeria, in June 1991, this target was postponed to 2025. The AECtreaty, signed at the summit, outlined six stages, including the removal of tariffand non-tariff barriers to trade and the establishment of a continent-widecustoms union by 2004. A commitment was also made to establish an Africancommon market, with a central bank and single currency, by 2031.

The possibility of establishing a military force to observe and monitor cease-fires negotiated by the OAU has been considered. Although the OAU neverreached an agreement to deploy peacekeeping forces, it did undertake observermissions—something the AU is expected to do also. Conflict resolution cameto dominate the annual summit of OAU heads of state from the mid-1990s,with the crises in the Great Lakes, Democratic Republic of Congo (DRC),Somalia, Sierra Leone, and Ethiopia and Eritrea. From 1999 the OAU wasinvolved in conflict mediation in Somalia, Ethiopia and Eritrea, Comoros, andthe DRC where four member states—seven at the height of the fighting—areinvolved in the conflict. Although the OAU did not intervene during thegenocide in Rwanda in 1994, it was the only international institution toquickly recognise the gravity of the crisis and to condemn events openly at anearly stage. The OAU was criticised as being ineffectual—little real actionresulted from its policy decisions—and for years it was hampered by severebudgetary difficulties. These problems are likely to continue and it is unclearhow the AU’s institutions will be any more effective than those of the OAU.

Sources of information

Although the quality and scope of Ethiopia’s economic statistics haveimproved since 1991, continuity, coverage and timeliness all leave much to bedesired. The primary sources of public economic data are the quarterly andannual reports of the National Bank of Ethiopia (the central bank). More up-to-date individual series are published, notably the Addis Ababa retail price indexand other series compiled by the Central Statistical Agency (CSA). TheEconomic Policy Advisory Unit of the prime minister’s office has issuedperiodic economic reviews, although these have a restricted circulation. The

National statistical sources

44 Ethiopia


Investment Office of Ethiopia publishes data on private investment. Growinginterest in Ethiopia from foreign research bodies, universities, bilateral aidagencies and non-governmental organisations is gradually expanding the dataavailable on rural and urban economic conditions, but this informationremains largely the preserve of specialists. In early 2000 the EthiopianEconomics Association, a forum grouping many of Ethiopia’s considerablebody of professional economists, working both in Ethiopia and internationalbodies, produced a comprehensive and up-to-date Annual Report on theEthiopian economy. This provides current data and debates in an accessibleform for the first time. Both government-owned and private newspapers areunable or unwilling to critically analyse published economic data, althoughthe English-language Addis Tribune (also available online) has provided criticalcommentary on economic changes. Addis Ababa university’s Institute ofDevelopment Research and Economics also produces economic research, oftenin conjunction with foreign donors. The lack of regional data has been anobstacle to policy formulation by the new regional authorities.

Official GDP statistics provide only a crude idea of economic activity inEthiopia. Only since 1991 have more extensive rural economic surveys led to abetter understanding of both rural grain markets and non-market activity. Inurban centres the bulk of economic activity is in the informal sector, with mostpeople engaged in petty trading or artisanal production in firms with fewerthan ten employees. (See Reference tables 5-7 for historical data on GDP.)

Timely international data are increasingly being made available by the WorldBank and IMF electronically, although Ethiopian government sensitivity overaccess to data persists. Such sensitivity has been heightened by strains in thedonor community owing to the war. The IMF and World Bank produce internaldocuments which form the basis for lending decisions by the institutions’boards of directors.

The main international sources are:

Energy Data Associates, Bishops Walk House, 19-23 High Street, Pinner,Middlesex, HA5 5PJ

IMF, Direction of Trade Statistics (annual)

IMF, International Financial Statistics (monthly)

IMF, Staff Country Report (occasional)

OECD, Geographical Distribution of Financial Flows to Aid Recipients

World Bank, Global Development Finance (annual)

Addis Tribune (English-language independent weekly), Addis Ababa

Addis Zemen (Amharic official daily), Addis Ababa

Befekadu Degefe and Berhanu Nega (eds), Annual Report on the EthiopianEconomy, Vol. 1. 1999/2000, Ethiopian Economics Association, AddisAbaba, 1999

International statisticalsources

Select bibliography

Ethiopia 45


Christopher Clapham, Continuity and Change in Revolutionary Ethiopia,Cambridge University Press, Cambridge, 1988

Martin R Doornboos et al (eds), Beyond Conflict in the Horn, James Currey, 1992

Ethiopia Herald (English-language official daily), Addis Ababa

K Griffin (ed), The Economy of Ethiopia, St Martin’s Press, London, 1992

Bereket Kebede and Mekonen Tadesse, The Ethiopian Economy: Poverty andPoverty Alleviation, Addis Ababa, 1996

John Markakis, National Class Conflict in the Horn of Africa, CambridgeUniversity Press, Cambridge, 1987

Negarit Gazeta (Amharic, official gazette), Addis Ababa

Mekonen Tadesse and Abdulhamid Bedri Kello (eds), The Ethiopian Economy:Problems of Adjustment, Addis Ababa, 1994

Graham Hancock, Sign and the seal, Touchstone Books, New York, 1993

IMF, Ethiopia Letter of Intent, Memorandum of Economic and Financial Policies, andTechnical Memorandum of Understanding, December 31, 2001

IMF, HIPC Decision Point Document for the Enhanced Heavily Indebted PoorCountries (HIPC) Initiative, October 2001

UN Industrial Development Organisation (UNIDO), Ethiopia: New Directions ofIndustrial Policy, Geneva, 1991; Ethiopia: Accelerating Industrial Growth ThroughMarket Reforms, Geneva, 1996

Getachew Yared and Abdulhamid Bedri Kello (eds), The Ethiopian Economy:Problems and Prospects of Private-Sector Development, Addis Ababa, 1994

Bahru Zewde, A Modern History of Ethiopia, James Currey, 1991

Addis Tribune: www.addistribune.ethiopiaonline.net—contains local andregional news articles from the local press

UNMEE site: www.un.org/Depts/dpko/unmee/body_unmee.htm—containsinformation regarding UNMEE operations and mandates

Ethiopia news site: www.ethiopiadaily.com/—contains news articles from localsources

National Bank of Ethiopia: www.telecom.net.et/~nbe/index.html—containsreports and statistical information on the Ethiopian economy

Ethiopian Privatisation Agency: www.telecom.net.et/~epa/—contains infor-mation regarding privatisation statistics and opportunities in Ethiopia

Ethiopian Investment Authority: www.ethioinvestment.org—contains infor-mation on investment statistics and past and current investment opportunitiesin Ethiopia

Websites

46 Ethiopia


Reference tables

These reference tables provide the most up-to-date statistics available at the timeof publication.

Reference table 1

Population(m; mid-year estimates)

1996 1997 1998 1999 2000

Total 56.37 58.12 59.88 61.67 63.49 % change 3.1 3.1 3.0 3.0 3.0


Reference table 2

Government financesa

(Birr bn)

1995/96 1996/97 1997/98 1998/99 1999/2000

Tax revenue 4.72 5.36 5.26 5.59 7.64 of which: income & profits 1.65 1.74 1.65 1.66 1.88 sales & excise 0.96 1.07 1.18 1.20 1.46 customs 1.81 2.16 2.22 2.37 3.85

Total revenue incl others 6.97 7.88 8.40 9.45 12.09

Current expenditure 5.58 5.72 7.01 10.14 13.80 of which: defence 0.72 0.83 2.09 4.23 n/a education 0.94 1.03 1.13 1.24 n/a health 0.33 0.33 0.40 0.45 n/a

Capital expenditure 3.70 4.30 4.27 4.79 3.43

Total expenditure 9.28 10.02 11.28 14.93 17.23

Balance –2.31 –2.14 –2.88 –5.48 –5.14


Sources: Ministry of Finance; National Bank of Ethiopia, Annual Report.

Reference table 3

Money and credit(Birr m unless otherwise indicated; end-period)

1996 1997 1998 1999 2000

Money (M1) 9,273 10,087 9,304 10,524 11,409 % change, year on year 0.0 8.8 –7.8 13.1 8.4

Quasi money 6,699 8,224 8,488 8,477 10,002

Money (M2) 15,972 18,311 17,792 19,001 21,411 change, year on year 9.4 14.6 –2.8 6.8 12.7

Foreign assets (net) 4,445 5,264 5,547 4,501 4,348

Domestic credit 16,769 18,031 19,596 24,803 28,678 Claims on govt 7,782 7,721 8,608 11,837 15,237 Claims on private sector 6,449 8,007 8,694 11,216 11,836 Claims on other financial institutions 744 713 682 952 829


Ethiopia 47


Reference table 4

Interest rates(%)

1996 1997 1998 1999 2000

Treasury-bill rate 7.22 3.97 3.48 3.65 2.74

Deposit rate 9.42 7.00 6.00 6.32 6.68

Lending rate 13.92 10.50 10.50 10.58 10.89

Government bond yield 13.00 n/a n/a n/a n/a


Reference table 5

Gross domestic product at factor costa

(Birr m unless otherwise indicated)

1993/94 1994/95 1995/96 1996/97 1997/98

Total at current prices 28,329 33,885 37,938 41,465 45,204 Per headb (Birr) 515 598 648 689 729

Total at constant 1980/81 prices 11,910 12,645 13,990 14,768 14,835 % change, year on year 1.6 6.2 10.6 5.6 0.5

a Fiscal years ending July 7th. b EIU estimates based on UN population estimates.

Sources: IMF, International Financial Statistics; Economist Intelligence Unit.

Reference table 6

Gross domestic product by expenditurea

(Birr m; current prices)

1993/94 1994/95 1995/96 1996/97 1997/98

Private consumption 23,748 27,942 31,291 32,831 35,472

Government consumption 3,155 3,675 4,158 4,526 6,251

Gross capital formation 4,294 5,569 7,246 7,049 7,927

Exports of goods & services 3,223 4,852 4,962 6,731 7,251

Imports of goods & services –6,091 –8,154 –9,719 –9,672 –11,866

GDP at market prices 28,329 33,885 37,938 41,465 45,035



Reference table 7

Gross domestic product by sector(% of GDP; unless otherwise indicated)

1995/96 1996/97 1997/98 1998/99 1999/2000

Agriculture 51.5 50.7 45.7 44.7 43.2

Industry 10.6 11.0 11.2 11.7 11.5

Service sector 37.8 38.5 43.1 43.6 45.3

GDP at current market prices (Birr m) 37,938 45,238 49,268 55,686 59,598

GDP at 1980/81 factor cost (Birr m) 13,987 14,714 14,543 15,461 16,280


48 Ethiopia


Reference table 8

Prices(period averages)

1996 1997 1998 1999 2000

Consumer price indexa (1995=100) 94.9 97.2 99.7 105.5 105.5 % change, year on year –5.1 2.42 2.57 5.81 0.0

a General retail price index for Addis Ababa.


Reference table 9

Coffee production and exports, domestic figuresa

(‘000 tonnes unless otherwise indicated)

1996/97 1997/98 1998/99b 1999/2000b 2000/01b

Production 228 230 232 226 235

Domestic consumptionb 90 95 98 95 95

Exportsc 108 125 100 118 119

Export earnings (US$ m) 355 453 319 265 170

a Fiscal years ending July 7th; does not include movements in stocks (smuggling etc). b Estimates. c As recorded at port.

Sources: Ethiopian Coffee and Tea Authority; IMF.

Reference table 10

Exports(Birr m)

1995/96 1996/97 1997/98 1998/99 1999/2000

Coffee 1,724 2,307 2,890 2,112 2,137

Hides & skins 321 372 348 243 286

Chat 174 218 272 444 619

Pulses 77 87 103 101 80

Petroleum products 83 10 0 0 0

Oilseeds 42 74 315 271 255

Gold n/a n/a n/a 174 260

Total incl othersa 2,539 3,486 4,142 3,637 3,957

a Excluding gold after 1997/98.

Source: National Bank of Ethiopia, Quarterly Bulletin.

Reference table 11

Imports(Birr m)

1994/95 1995/96 1996/97 1997/98 1998/99

Road vehicles 1,015 1,393 1,117 795 1,390

Food & live animals 906 572 37 72 558

Machinery & aircraft 710 854 1,415 1,099 1,373

Metal & metalware 563 709 973 969 1,417

Crude petroleum 522 445 76 166 2

Petroleum products 471 485 1,427 2,099 1,306

Fertilisers 343 330 173 51 377

Electrical materials 286 328 636 776 1,032

Total incl others 6,546 7,708 8,505 9,338 11,702

Source: National Bank of Ethiopia, Quarterly Bulletin.

Ethiopia 49


Reference table 12

Main trading partners(US$ m)

1996 1997 1998 1999 2000

Exports fob to:Germany 130 121 149 74 92Djibouti 36 45 44 47 54Japan 53 66 60 58 54US 67 53 38 38 26Italy 33 46 47 31 33Saudi Arabia 47 50 52 31 39France 15 19 19 20 19

Imports cif from:Saudi Arabia 114 104 357 354 439Italy 136 106 115 121 119Germany 79 111 91 99 68India 38 61 82 86 99Japan 89 116 91 91 56Russia 1 2 2 85 61US 59 53 81 79 156

Source: IMF, Direction of Trade Statistics.

Reference table 13

Balance of payments, IMF estimates(US$ m)

1996 1997 1998 1999 2000

Goods: exports fob 417.5 588.3 560.3 467.4 486.0

Goods: imports fob –1,002.2 –1,001.6 –1,309.8 –1,387.2 –1,131.4

Trade balance –584.7 –413.4 –749.4 –919.8 –645.4

Services: credit 377.2 390.7 428.8 476.6 506.2

Services: debit –349.8 –394.2 –482.3 –447.7 –490.7

Income: credit 41.2 24.2 21.0 16.6 16.2

Income: debit –75.2 –65.5 –58.0 –44.1 –50.4

Current transfers: credit 679.0 425.5 589.8 499.7 697.9

Current transfers: debit –7.5 –7.6 –15.7 –20.2 –17.7

Current-account balance 80.2 –40.3 –265.8 –465.2 16.2

Capital account balance –1.7 –0.8 0.0 0.0 0.0

Financial account balance –499.6 241.2 –23.5 54.3 156.6

Errors & omissions 44.1 –627.9 75.6 405.1 –212.3

Overall balance –465.0a –427.7 –364.9a –5.8 –39.6

Financing (– indicates inflow)Movement of reserves 20.0 192.1 178.9 –49.7 –84.5Use of IMF credit & loans 21.2 0.0 16.9 –9.7 –13.0Exceptional financing 423.8 235.6 169.1 65.2 137.0

a Does not sum in source.


50 Ethiopia


Reference table 14

Balance of payments, national estimatesa

(Birr m)

1995/96 1996/97 1997/98 1998/99 1999/2000

Exports fob 2,607 3,891 4,141 3,636 3,958 of which: coffee 1,724 2,307 2,889 2,112 2,134 leather & leather products n/a n/a 347.7 243.1 286.5

Imports cif 8,862 8,505 9,338 11,702 13,116

Trade balance –6,255 –4,614 –5,196 –8,065 –9,158

Net servicesb 415 653 656 622 808

Net private transfers 1,980 1,677 2,180 2,171 3,341

Current-account balance –3,860 –2,282 –2,360 –5,271 –5,008

Public transfers 2,747 1,469 1,793 1,598 2,368

Capital account balance –30 –1,025 595 1,739 1,137

Net errors & omissions 1,141 –714 –183 1,580 –1,043

Overall balance –2 –2,553 –155 –353 –2,546

a Beginning 1997/98 data pertain to the period July 8th-July 7th; prior to that, data pertain to July 1st-June 30th. b Beginning 1997/98 includesrouble-denominated debt and debt service to Russia.


Reference table 15

External debt, World Bank estimates(US$ m unless otherwise indicated; debt stocks as at year-end)

1995 1996 1997 1998 1999

Public & publicly guaranteed long-term debta 9,774 9,484 9,427 9,618 5,360 Official creditors 9,180 9,130 9,074 9,268 5,231 Multilateral 2,340 2,486 2,460 2,629 2,741 Bilateral 6,839 6,643 6,614 6,639 2,490 Private creditors 596 354 353 350 130 of which: banks 253 27 25 20 16

Short-term debt 461 502 565 626 96 of which: interest arrears on long-term debt 437 481 541 603 71

Use of IMF credit 74 92 87 107 95

Total external debt 10,308 10,077 10,079 10,352 5,551

Total debt service 154 348 100 113 147 Principal 91 292 52 65 92 Interest 63 55 47 48 55 of which: short-term debt 1 1 1 1 2

Ratios (%)Total external debt/GNP 180.3 168.9 159.0 160.4 86.9Debt-service ratio, paidb 19.1 42.2 9.5 11.3 16.8Short-term debt/total external debt 4.5 5.0 5.6 6.0 1.7

a Long-term debt is defined as having original maturity of more than one year. b Debt service as a percentage of earnings from exports of goodsand services.

Source: World Bank, Global Development Finance.

Ethiopia 51


Reference table 16

Net official development assistancea

(US$ m)

1996 1997 1998 1999 2000

Bilateral 445.4 373.7 365.1 325.0 379.5 of which: US 56.0 60.0 53.2 77.4 129.8 Germany 81.4 58.3 63.5 37.5 38.6 Japan 50.2 37.3 26.1 40.4 34.0 Netherlands 60.2 35.4 36.8 31.2 25.7 Norway 25.4 26.7 26.7 23.9 23.6

Multilateral 369.1 197.6 282.2 303.1 298.4 of which: World Food Programme 16.6 22.3 16.1 19.9 36.0 International Development Association 127.5 49.9 55.9 136.8 115.6 EU 51.8 40.7 115.0 82.8 69.0 UN High Commissioner for Refugees 12.8 17.7 17.0 17.6 16.3 African Development Fund 78.6 23.8 30.6 28.6 22.2

Total incl others 817.3 578.5 660.4 643.1 693.0 Grants 593.2 508.8 549.0 465.3 552.1

a Disbursements minus repayments. Official development assistance is defined as grants and loanswith at least a 25% grant element, provided by OECD and OPEC member countries andmultilateral agencies, and administered with the aim of promoting development and welfare in therecipient country.

Source: OECD Development Assistance Committee, Geographical Distribution of Financial Flows to Aid Recipients.

Reference table 17

Foreign reserves(US$ m unless otherwise indicated; end-period)

1997 1998 1999 2000 2001a

Foreign exchange 491.4 501.0 448.7 297.1 406.3

SDRs 0.1 0.1 0.0 0.0 0.2

Reserve position in the IMF 9.5 10.0 9.7 9.2 9.0

Total reserves excl gold 501.1 511.1 458.5 306.3 415.5

Golda 0.4 0.4 0.3 0.3 0.3

a End-Nov.


Reference table 18

Exchange rates(annual averages)

1997 1998 1999 2000 2001

Birr:US$ 6.71 7.12 7.75 8.21 8.33

Birr:£ 11.09 11.78 12.48 12.40 12.00

Birr:SDR (end-period) 9.26 10.56 11.16 10.83 10.57


Editors: Christopher Eads (editor); Paul Gamble (consulting editor)Editorial closing date: March 25th 2002

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

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