RESTRUCTURING THE ECONOMY along socialist lines and achieving
sustained economic growth were the two major economic objectives of the
Provisional Military Administrative Council when it assumed power in
l974. After the 1974 revolution, the pace of economic restructuring was
accelerated by a barrage of legislation. A key part of the effort to
reshape the economy was the implementation of Africa's most ambitious
land reform program, which included nationalization of both rural and
urban land. Most of Ethiopia's industries, large-scale agricultural
farms, and financial institutions were brought under the control of the
government, and both rural and urban communities were organized into a
hierarchy of associations. Pursuit of the military regime's second
objective--sustained economic growth--was less successful. Drought,
regional conflicts, inflexible government policy, and lack of confidence
by the private sector seriously affected the economy. Falling
productivity, soaring inflation, growing dependence on foreign aid and
loans, high unemployment, and a deteriorating balance of payments all
combined to create a deepening economic crisis. In 1990 Ethiopia had a
gross national product of US$6 billion and a per capita income of about
US$120, one of the lowest per capita incomes of any country in the
world.
Following the 1974 revolution, the socialist government developed a
series of annual plans and a ten-year perspective plan to revitalize the
war-ravaged economy. Although the annual plans helped the regime deal
with some urgent economic problems, such as shortages of food and
consumer goods, decline in productivity, lack of foreign exchange, and
rising unemployment, these plans failed to move the country
significantly closer to attaining its longterm development objectives.
In l984/85 ( Ethiopian calendar year) the military government launched a
new ten-year perspective plan, which represented a renewed commitment to
economic growth and structural transformation of the economy. However,
the economy continued to deteriorate. In response, the regime introduced
several additional reforms. For instance, the l988 Investment Code
allowed unlimited participation of the private sector in certain areas
of the economy. In January l988, under pressure from aid donor
countries, the government agreed to restructure agricultural and farm
price policies. Finally, in March l990 President Mengistu Haile Mariam
announced the end of the country's Marxist economic system and the
beginning of a mixed economy. Despite these reforms, the economy failed
to improve.
Ethiopia - Growth and Structure of the Economy
Developments up to l974
By African standards, Ethiopia is a potentially wealthy country, with
fertile soil and good rainfall over large regions. Farmers produce a
variety of grains, including wheat, corn, and millet. Coffee also grows
well on southern slopes. Herders can raise cattle, sheep, and goats in
nearly all parts of the country. Additionally, Ethiopia possesses
several valuable minerals, including gold and platinum.
Unlike most sub-Saharan African countries, Ethiopia's resources have
enabled the country to maintain contacts with the outside world for
centuries. Since ancient times, Ethiopian traders exchanged gold, ivory,
musk, and wild animal skins for salt and luxury goods, such as silk and
velvet. By the late nineteenth century, coffee had become one of
Ethiopia's more important cash crops. At that time, most trade flowed
along two major trade routes, both of which terminated in the far
southwest in the Kefa-Jima region. From there, one route went north to
Mitsiwa via Gonder and Adwa, the other along the Awash River valley to
Harer and then on to Berbera or Zeila on the Red Sea.
Despite its many riches, Ethiopia never became a great trading
nation. Most Ethiopians despised traders, preferring instead to emulate
the country's warriors and priests. After establishing a foothold in the
country, Greek, Armenian, and Arab traders became the economic
intermediaries between Ethiopia and the outside world. Arabs also
settled in the interior and eventually dominated all commercial activity
except petty trade.
When their occupation of Ethiopia ended in 1941, the Italians left
behind them a country whose economic structure was much as it had been
for centuries. There had been some improvements in communications,
particularly in the area of road building, and attempts had been made to
establish a few small industries and to introduce commercial farming,
particularly in Eritrea, which Italy had occupied since 1890. But these
changes were limited. With only a small proportion of the population
participating in the money economy, trade consisted mostly of barter.
Wage labor was limited, economic units were largely self-sufficient,
foreign trade was negligible, and the market for manufactured goods was
extremely small.
During the late l940s and 1950s, much of the economy remained
unchanged. The government focused its development efforts on expansion
of the bureaucratic structure and ancillary services. Most farmers
cultivated small plots of land or herded cattle. Traditional and
primitive farming methods provided the population with a subsistence
standard of living. In addition, many nomadic peoples raised livestock
and followed a life of seasonal movement in drier areas. The
agricultural sector grew slightly, and the industrial sector represented
a small part of the total economy.
By the early l950s, Emperor Haile Selassie I (reigned 1930- 74) had
renewed calls for a transition from a subsistence economy to an
agro-industrial economy. To accomplish this task, Ethiopia needed an
infrastructure to exploit resources, a material base to improve living
conditions, and better health, education, communications, and other
services. A key element of the emperor's new economic policy was the
adoption of centrally administered development plans. Between l945 and
l957, several technical missions, including one each from the United
States, the Food and Agriculture Organization of the United Nations
(FAO), and Yugoslavia, prepared a series of development plans. However,
these plans failed to achieve any meaningful results, largely because
basic statistical data were scarce and the government's administrative
and technical capabilities were minimal.
In 1954/55 the government created the National Economic Council to
coordinate the state's development plans. This agency, which was a
policy-making body chaired by the emperor, devoted its attention to
improving agricultural and industrial productivity, eradicating
illiteracy and diseases, and improving living standards for all
Ethiopians. The National Economic Council helped to prepare Ethiopia's
first and second five-year plans.
The First Five-Year Plan (1957-61) sought to develop a strong
infrastructure, particularly in transportation, construction, and
communications, to link isolated regions. Another goal was the
establishment of an indigenous cadre of skilled and semiskilled
personnel to work in processing industries to help reduce Ethiopia's
dependence on imports. Lastly, the plan aimed to accelerate agricultural
development by promoting commercial agricultural ventures. The Second
Five-Year Plan (1962-67) signaled the start of a twenty-year program to
change Ethiopia's predominantly agricultural economy to an
agro-industrial one. The plan's objectives included diversification of
production, introduction of modern processing methods, and expansion of
the economy's productive capacity to increase the country's growth rate.
The Third Five-Year Plan (1968-73) also sought to facilitate Ethiopia's
economic well-being by raising manufacturing and agro-industrial
performance. However, unlike its predecessors, the third plan expressed
the government's willingness to expand educational opportunities and to
improve peasant agriculture. Total investment for the First Five-Year
Plan reached 839.6 million birr, about 25 percent above the planned 674 million birr
figure; total expenditure for the Second Five-Year Plan was 13 percent
higher than the planned 1,694 million birr figure. The allocation for
the Third Five-Year Plan was 3,115 million birr.
Several factors hindered Ethiopia's development planning. Apart from
the fact that the government lacked the administrative and technical
capabilities to implement a national development plan, staffing problems
plagued the Planning Commission (which prepared the first and second
plans) and the Ministry of Planning (which prepared the third). Many
project managers failed to achieve plan objectives because they
neglected to identify the resources (personnel, equipment, and funds)
and to establish the organizational structures necessary to facilitate
largescale economic development.
During the First Five-Year Plan, the gross national product ( GNP ) increased at a 3.2 percent annual rate as opposed to
the projected figure of 3.7 percent, and growth in economic sectors such
as agriculture, manufacturing, and mining failed to meet the national
plan's targets. Exports increased at a 3.5 percent annual rate during
the first plan, whereas imports grew at a rate of 6.4 percent per annum,
thus failing to correct the negative balance of trade that had existed
since l95l.
The Second Five-Year Plan and Third Five-Year Plan anticipated that
the economy would grow at an annual rate of 4.3 percent and 6.0 percent,
respectively. Officials also expected agriculture, manufacturing, and
transportation and communications to grow at respective rates of 2.5,
27.3, and 6.7 percent annually during the Second Five-Year Plan and at
respective rates of 2.9, l4.9, and l0.9 percent during the Third
Five-Year Plan. The Planning Commission never assessed the performance
of these two plans, largely because of a shortage of qualified
personnel.
However, according to data from the Ethiopian government's Central
Statistical Authority, during the 1960/61 to 1973/74 period the economy
achieved sustained economic growth. Between 1960 and 1970, for example,
Ethiopia enjoyed an annual 4.4 percent average growth rate in per capita
gross domestic product ( GDP ). The manufacturing sector's growth rate more than
doubled (from 1.9 percent in 1960/61 to 4.4 percent in 1973/74), and the
growth rate for the wholesale, retail trade, transportation, and
communications sectors increased from 9.3 percent to 15.6 percent.
Relative to its neighbors, Ethiopia's economic performance was mixed.
Ethiopia's 4.4 percent average per capita GDP growth rate was higher
than Sudan's 1.3 percent rate or Somalia's 1 percent rate. However,
Kenya's GDP grew at an estimated 6 percent annual rate, and Uganda
achieved a 5.6 percent growth rate during the same 1960/61 to 1972/73
period.
By the early l970s, Ethiopia's economy not only had started to grow
but also had begun to diversify into areas such as manufacturing and
services. However, these changes failed to improve the lives of most
Ethiopians. About four-fifths of the population were subsistence farmers
who lived in poverty because they used most of their meager production
to pay taxes, rents, debt payments, and bribes. On a broader level, from
1953 to 1974 the balance of trade registered annual deficits. The only
exception was l973, when a combination of unusually large receipts from
the export of oilseeds and pulses and an unusually small rise in import
values resulted in a favorable balance of payments of 454 million birr.
With the country registering trade deficits, the government attempted to
restrict imports and to substitute locally produced industrial goods to
improve the trade balance. Despite these efforts, however, the
unfavorable trade balance continued. As a result, foreign grants and
loans financed much of the balance of payments deficit.
Ethiopia - Economy - Postrevolution Period
The l974 revolution resulted in the nationalization and restructuring
of the Ethiopian economy. After the revolution, the country's economy
can be viewed as having gone through four phases.
Internal political upheaval, armed conflict, and radical
institutional reform marked the 1974-78 period of the revolution. There
was little economic growth; instead, the government's nationalization
measures and the highly unstable political climate caused economic
dislocation in sectors such as agriculture and manufacturing.
Additionally, the military budget consumed a substantial portion of the
nation's resources. As a result of these problems, GDP increased at an
average annual rate of only 0.4 percent. Moreover, the current account
deficit and the overall fiscal deficit widened, and the retail price
index jumped, experiencing a l6.5 percent average annual increase.
In the second phase (1978-80), the economy began to recover as the
government consolidated power and implemented institutional reforms. The
government's new Development Through Cooperation Campaign (commonly
referred to as zemecha) also contributed to the economy's improvement. More
important, security conditions improved as internal and external threats
subsided. In the aftermath of the 1977-78 Ogaden War and the decline in
rebel activity in Eritrea, Addis Ababa set production targets and
mobilized the resources needed to improve economic conditions.
Consequently, GDP grew at an average annual rate of 5.7 percent.
Benefiting from good weather, agricultural production increased at an
average annual rate of 3.6 percent, and manufacturing increased at an
average annual rate of l8.9 percent, as many closed plants, particularly
in Eritrea, reopened. The current account deficit and the overall fiscal
deficit remained below 5 percent of GDP during this period.
In the third phase (1980-85), the economy experienced a setback.
Except for Ethiopian fiscal year ( EFY) 1982/83, the growth of GDP declined. Manufacturing took a
downturn as well, and agriculture reached a crisis stage. Four factors
accounted for these developments. First, the 1984-85 drought affected
almost all regions of the country. As a result, the government committed
scarce resources to famine relief efforts while tabling long-term
development projects. Consequently, the external accounts (as shown in
the current account deficit and the debt service ratio) and the overall
fiscal deficit worsened, despite international drought assistance
totaling more than US$450 million. Notwithstanding these efforts, close
to 8 million people became famine victims during the drought of the
mid-1980s, and about 1 million died. Second, the manufacturing sector
stagnated as agricultural inputs declined. Also, many industries
exhausted their capacity to increase output; as a result, they failed to
meet the rising demand for consumer items. Third, the lack of foreign
exchange and declining investment reversed the relatively high
manufacturing growth rates of 1978-80. Finally, Ethiopia's large
military establishment created a major burden on the economy. Defense
expenditures during this time were absorbing 40 to 50 percent of the
government's current expenditure.
In the fourth period (1985-90), the economy continued to stagnate,
despite an improvement in the weather in EFY l985/86 and EFY l986/87,
which helped reverse the agricultural decline. GDP and the manufacturing
sector also grew during this period, GDP increasing at an average annual
rate of 5 percent. However, the lingering effects of the 1984-85 drought
undercut these achievements and contributed to the economy's overall
stagnation. During the 1985-90 period, the current account deficit and
the overall fiscal deficit worsened to annual rates of l0.6 and l3.5
percent, respectively, and the debt service ratio continued to climb.
Ethiopia - Economy - Role of Government
The imperial government presided over what was, even in the
mid-twentieth century, essentially a feudal economy, with aristocrats
and the church owning most arable land and tenant farmers who paid
exorbitant rents making up the majority of the nation's
agriculturalists. Acting primarily through the Ministry of Finance, the
emperor used fiscal and monetary strategies to direct the local economy.
The various ministries, although not always effective, played a key role
in developing and implementing programs. The government conducted
negotiations with the ministries to allocate resources for plan
priorities.
Officials formulated actual operations, however, without adhering to
plan priorities. This problem developed partly because the relationship
between the Planning Commission, responsible for formulating national
objectives and priorities, and the Ministry of Finance, responsible for
resource planning and management, was not clearly defined. The Ministry
of Finance often played a pivotal role, whereas the Planning Commission
was relegated to a minor role. Often the Planning Commission was
perceived as merely another bureaucratic layer. The ultimate power to
approve budgets and programs rested with the emperor, although the
Council of Ministers had the opportunity to review plans.
After the revolution, the government's role in determining economic
policies changed dramatically. In January and February l975, the
government nationalized or took partial control of more than l00
companies, banks and other financial institutions, and insurance
companies. In March l975, the regime nationalized rural land and granted
peasants "possessing rights" to parcels of land not to exceed
ten hectares per grantee. In December l975, the government issued
Proclamation No. 76, which established a 500,000 birr ceiling on private
investment and urged Ethiopians to invest in enterprises larger than
cottage industries. This policy changed in mid-1989, when the government
implemented three special decrees to encourage the development of
small-scale industries, the participation of nongovernmental bodies in
the hotel industry, and the establishment of joint ventures.
Under the Provisional Military Administrative Council (PMAC; also
known as the Derg), Ethiopia's political system and economic structure
changed dramatically, and the government embraced a Marxist-Leninist
political philosophy. Planning became more ambitious and more pervasive,
penetrating all regions and all sectors of the society, in contrast to
the imperial period. Article ll of the l987 constitution legitimized
these changes by declaring that "the State shall guide the economic
and social activities of the country through a central plan." The
Office of the National Council for Central Planning (ONCCP), which
replaced the Planning Commission and which was chaired by Mengistu as
head of state, served as the supreme policy-making body and had the
power and responsibility to prepare the directives, strategies, and
procedures for short- and long-range plans. The ONCCP played a pivotal
role in mediating budget requests between other ministries and the
Ministry of Finance. The government also sought to improve Ethiopia's
economic performance by expanding the number of state-owned enterprises
and encouraging barter and countertrade practices.
On March 5, 1990, President Mengistu delivered a speech to the
Workers' Party of Ethiopia (WPE) Central Committee in which he declared
the failure of the Marxist economic system imposed by the military
regime after the 1974 overthrow of Emperor Haile Selassie. He also
announced the adoption of a new strategy for the country's future
progress and development. Mengistu's proposals included decentralization
in planning and a free-market, mixed economy in which the private and
public sectors would play complementary roles. The new strategy would
permit Ethiopian and foreign private individuals to invest in foreign
and domestic trade, industry, construction, mining, and agriculture and
in the country's development in general. Although Mengistu's new
economic policy attracted considerable attention, many economists were
skeptical about Ethiopia's ability to bring about a quick radical
transformation of its economic policies. In any case, the plan proved
irrelevant in view of the deteriorating political and military situation
that led to the fall of the regime in 1991.
Ethiopia - Economy - Role of Government - The Budgetary Process
Resources were allocated among the various sectors of the economy
differently in the imperial and revolutionary periods. Under the
emperor, the government dedicated about 36 percent of the annual budget
to national defense and maintenance of internal order. Toward the end of
the imperial period, the budgets of the various ministries increased
steadily while tax yields stagnated. With a majority of the population
living at a subsistence level, there was limited opportunity to increase
taxes on personal or agricultural income. Consequently, the imperial
government relied on indirect taxes (customs, excise, and sales) to
generate revenues. For instance, in the early l970s taxes on foreign
trade accounted for close to twofifths of the tax revenues and about
one-third of all government revenues, excluding foreign grants. At the
same time, direct taxes accounted for less than one-third of tax
revenues.
The revolutionary government changed the tax structure in 1976,
replacing taxes on agricultural income and rural land with a rural
land-use fee and a new tax on income from agricultural activities. The
government partially alleviated the tax collection problem that existed
during the imperial period by delegating the responsibility for
collecting the fee and tax on agriculture to peasant associations, which
received a small percentage of revenues as payment. Whereas total
revenue increased significantly, to about 24 percent of GDP in EFY
l988/89, tax revenues remained stagnant at around l5 percent of GDP. In
EFY l974/75, total revenue and tax revenue had been l3 and ll percent of
GDP, respectively. Despite the 1976 changes in the tax structure, the
government believed that the agricultural income tax was being
underpaid, largely because of underassessments by peasant associations.
The government levied taxes on exports and imports. In 1987 Addis
Ababa taxed all exports at 2 percent and levied an additional export
duty and a surtax on coffee. Import taxes included customs duties and a
19 percent general import transaction tax. Because of a policy of
encouraging new capital investment, the government exempted capital
goods from all import taxes. Among imports, intermediate goods were
taxed on a scale ranging from 0 to 35 percent, consumer goods on a scale
of 0 to l00 percent, and luxuries at a flat rate of 200 percent. High
taxes on certain consumer goods and luxury items contributed to a
flourishing underground economy in which the smuggling of some imports,
particularly liquor and electronic goods, played an important part.
Although tax collection procedures proved somewhat ineffective, the
government maintained close control of current and capital expenditures.
The Ministry of Finance oversaw procurements and audited ministries to
ensure that expenditures conformed to budget authorizations.
Current expenditures as a proportion of GDP grew from l3.2 percent in
EFY l974/75 to 26.1 percent in EFY l987/88. This growth was largely the
result of the increase in expenditures for defense and general services
following the 1974 revolution. During the l977-78 Ogaden War, for
example, when the Somali counteroffensive was under way, defense took
close to 60 percent of the budget. That percentage declined after l979,
although it remained relatively higher than the figure for the
prerevolutionary period. Between l974 and l988, about 40 to 50 percent
of the budget was dedicated to defense and government services.
Economic and social services received less than 30 percent of
government funds until EFY l972/73, when a rise in educational outlays
pushed them to around 40 percent. Under the Mengistu regime, economic
and social service expenditures remained at prerevolutionary levels:
agriculture's share was 2 percent, while education and health received
an average of l4 and 4 percent, respectively.
Ethiopia - Banking and Monetary Policy
The 1974 revolution brought major changes to the banking system.
Prior to the emergence of the Marxist government, Ethiopia had several
state-owned banking institutions and private financial institutions. The
National Bank of Ethiopia (the country's central bank and financial
adviser), the Commercial Bank of Ethiopia (which handled commercial
operations), the Agricultural and Industrial Development Bank
(established largely to finance state-owned enterprises), the Savings
and Mortgage Corporation of Ethiopia, and the Imperial Savings and Home
Ownership Public Association (which provided savings and loan services)
were the major state-owned banks. Major private commercial institutions,
many of which were foreign owned, included the Addis Ababa Bank, the
Banco di Napoli, and the Banco di Roma. In addition, there were several
insurance companies.
In January and February l975, the government nationalized and
subsequently reorganized private banks and insurance companies. By the
early l980s, the country's banking system included the National Bank of
Ethiopia; the Addis Ababa Bank, which was formed by merging the three
commercial banks that existed prior to the revolution; the Ethiopian
Insurance Corporation, which incorporated all of the nationalized
insurance companies; and the new Housing and Savings Bank, which was
responsible for making loans for new housing and home improvement. The
government placed all banks and financial institutions under the
National Bank of Ethiopia's control and supervision. The National Bank
of Ethiopia regulated currency, controlled credit and monetary policy,
and administered foreign-currency transactions and the official
foreign-exchange reserves. A majority of the banking services were
concentrated in major urban areas, although there were efforts to
establish more rural bank branches throughout the country. However, the
lending strategies of the banks showed that the productive sectors were
not given priority. In l988, for example, about 55 percent of all
commercial bank credit financed imports and domestic trade and services.
Agriculture and industry received only 6 and l3 percent of the
commercial credit, respectively.
To combat inflation and reduce the deficit, the government adopted a
conservative fiscal management policy in the 1980s. The government
limited the budget deficit to an average of about l4 percent of GDP in
the five years ending in EFY l988/89 by borrowing from local sources.
For instance, in EFY l987/88 domestic borrowing financed about 38
percent of the deficit. Addis Ababa also imposed measures to cut back
capital expenditures and to lower inflation. However, price controls,
official overvaluing of the birr, and a freeze on the wages of senior
government staff have failed to control inflation. By 1988 inflation was
averaging 7.1 percent annually, but it turned sharply upward during 1990
as war expenditures increased and was estimated at 45 percent by
mid-1991. Moreover, money supply, defined as currency in circulation and
demand deposits with banks (except that of the National Bank of
Ethiopia), rose with the expansion in government budget deficits, which
reached about 1.6 billion birr in EFY 1988/89. To help resolve this
deficit problem and numerous other economic difficulties, Addis Ababa
relied on foreign aid.
Ethiopia - Labor Force
Ethiopia's first and only national census, conducted in 1984, put the
population at 42 million, which made Ethiopia the third most populous
country in Africa, after Egypt and Nigeria. The census also showed that
by l994 Ethiopia's population would reach 56 million. According to World
Bank projections, Ethiopia will have a population of
66 million by the year 2000 (other estimates suggested that the
population would be more than 67 million).
The l984 census indicated that 46.6 percent of the population
consisted of children under fifteen years of age, which indicated a
relatively high rate of dependence on the working population for
education, health, and social services. Such a high dependency rate
often is characteristic of a country in transition from a subsistence to
a monetized economy. Because of limited investment resources in the
modern sector, not all the working-age population can be absorbed, with
the result that unemployment can become a growing social and economic
problem for an economy in transition.
The l988/89 economically active labor force was estimated to be 2l
million, of which l9.3 million were in rural areas and l.7 million in
urban areas. Estimates of the labor force's annual growth ranged from
1.8 to 2.9 percent.
The labor force's occupational distribution showed that in l990 some
80 percent of the labor force worked in agriculture, 8 percent in
industry, and l2 percent in services. These figures had changed slightly
from the 1965 figures of 86, 5, and 9 percent, respectively. Thus, while
agriculture's proportionate share of the labor force fell, the other two
sectors gained. This trend reflects a modernizing society that is
diversifying its economy by expanding secondary and tertiary sectors.
Ethiopia - Unemployment
The 1955 constitution guaranteed the right to form workers'
associations. However, it was not until 1962 that the Ethiopian
government issued the Labor Relations Decree, which authorized trade
unions. In April 1963, the imperial authorities recognized the
Confederation of Ethiopian Labor Unions (CELU), which represented
twenty-two industrial labor groups. By 1973 CELU had 167 affiliates with
approximately 80,000 members, which represented only about 30 percent of
all eligible workers.
CELU never evolved into a national federation of unions. Instead, it
remained an association of labor groups organized at the local level.
The absence of a national constituency, coupled with other problems such
as corruption, embezzlement, election fraud, ethnic and regional
discrimination, and inadequate finances, prevented CELU from challenging
the status quo in the industrial sector. Nevertheless, CELU sponsored
several labor protests and strikes during the first decade of its
existence. After 1972 CELU became more militant as drought and famine
caused the death of up to 200,000 people. The government responded by
using force to crush labor protests, strikes, and demonstrations.
Although many of its members supported the overthrow of Haile
Selassie, CELU was the first labor organization to reject the military
junta and to demand the creation of a people's government. On May 19,
1975, the Derg temporarily closed CELU headquarters on the grounds that
the union needed to be reorganized. Furthermore, the military
authorities asserted that workers should elect their future leaders
according to the aims and objectives of Ethiopian socialism. This order
did not rescind traditional workers' rights, such as the right to
organize freely, to strike, and to bargain collectively over wages and
working conditions. Rather, it sought to control the political
activities of the CELU leadership. As expected, CELU rejected these
actions and continued to demand democratic changes and civilian rights.
In January 1977, the Derg replaced CELU (abolished December 1975) with
the All-Ethiopia Trade Union (AETU). The AETU had 1,341 local chapters,
known as workers' associations, with a total membership of 287,000. The
new union thus was twice as large as CELU had ever been. The government
maintained that the AETU's purpose was to educate workers about the need
to contribute their share to national development by increasing
productivity and building socialism.
In l978 the government replaced the AETU executive committee after
charging it with political sabotage, abuse of authority, and failure to
abide by the rules of democratic centralism. In l982 a further
restructuring of the AETU occurred when Addis Ababa issued the Trade
Unions' Organization Proclamation. An uncompromising MarxistLeninist
document, this proclamation emphasized the need "to enable workers
to discharge their historical responsibility in building the national
economy by handling with care the instruments of production as their
produce, and by enhancing the production and proper distribution of
goods and services." A series of meetings and elections culminated
in a national congress in June l982, at which the government replaced
the leadership of the AETU. In l986 the government relabeled the AETU
the Ethiopia Trade Union (ETU).
In l983/84 the AETU claimed a membership of 3l3,434. The organization
included nine industrial groups, the largest of which was manufacturing,
which had accounted for 29.2 percent of the membership in l982/83,
followed by agriculture, forestry, and fishing with 26.6 percent,
services with l5.l percent, transportation with 8.l percent,
construction with 8.0 percent, trade with 6.2 percent, utilities with
3.7 percent, finance with 2.4 percent, and mining with 0.7 percent. A
total of 35.6 percent of the members lived in Addis Ababa and another
l8.0 percent in Shewa. Eritrea and Tigray accounted for no more than 7.5
percent of the total membership. By the late 1980s, the AETU had failed
to regain the activist reputation its predecessors had won in the 1970s.
According to one observer, this political quiescence probably indicated
that the government had successfully co-opted the trade unions.
Ethiopia - Wages and Prices
Prior to the revolution, the Central Personnel Agency formulated and
regulated wage policies. At the time of the military takeover, there was
no minimum wage law; wages and salaries depended much on demand. There
was, however, some legislation that defined pay scales. For instance,
Notice 49 of l972 defined pay scales and details regarding incremental
steps for civil servants. Similarly, the Ethiopian Workers Commission
had developed pay-scale guidelines based on skill, experience, and
employment. In l974 CELU asked for a 3 birr daily minimum wage, which
the imperial government eventually granted.
After the revolution, the government's policy was to control wage
growth to reduce pay scales. For parastatal and public enterprise
workers earning 650 birr or less per month (real income, i.e., income
adjusted for inflation) and civil servants earning 600 birr or less per
month, the government allowed incremental pay increases. But for those
above these cutoff points, there was a general salary freeze. However,
promotions sometimes provided a worker a raise over the cutoff levels.
Given inflation, the salary freeze affected the real income of many
workers. For instance, the starting salary of a science graduate in l975
was 600 birr per month. In l984 the real monthly income of a science
graduate had dropped to 239 birr. Similarly, the highest civil servant's
maximum salary in l975 was l,440 birr per month; the real monthly income
of the same civil servant in l984 was 573 birr.
Data on real wages of manufacturing workers and the behavior of price
indexes provide further evidence of worsening living standards after the
revolution. In l985/86 the average real monthly income of an industrial
worker was 65.6 percent of the l974/75 level. The general trend shows
that real income fell as consumer prices continued to increase. The
retail price index for Addis Ababa rose from 375.2 in l980/8l (l963=100)
to 480.0 in l987/88. This rise in the retail price index included
increases in the cost of food (27 percent), household items (38
percent), and transportation (l7 percent).
Price increases mainly affected urban wage earners on fixed incomes,
as purchases of necessities used larger portions of their pay. The
government's wage freeze and the controls it placed on job transfers and
changes made it difficult for most urban wage earners to improve their
living standards. The freeze on wages and job changes also reduced
productivity.
Ethiopia - Agriculture
Accounting for over 40 percent of GDP, 80 percent of exports, and 80
percent of the labor force, agriculture remained in 1991 the economy's
most important sector. Ethiopia has great agricultural potential because of its vast
areas of fertile land, diverse climate, generally adequate rainfall, and
large labor pool. Despite this potential, however, Ethiopian agriculture
has remained underdeveloped. Because of drought, which has persistently
affected the country since the early 1970s, a poor economic base (low
productivity, weak infrastructure, and low level of technology), and the
Mengistu government's commitment to Marxism-Leninism, the agricultural
sector has performed poorly. For instance, according to the World Bank,
between l980 and l987 agricultural production dropped at an annual rate
of 2.l percent, while the population grew at an annual rate of 2.4
percent. Consequently, the country faced a tragic famine that resulted
in the death of nearly 1 million people from l984 to 1986.
During the imperial period, the development of the agricultural
sector was retarded by a number of factors, including tenancy and land
reform problems, the government's neglect of the agricultural sector
(agriculture received less than 2 percent of budget allocations even
though the vast majority of the population depended on agriculture), low
productivity, and lack of technological development. Moreover, the
emperor's inability to implement meaningful land reform perpetuated a
system in which aristocrats and the church owned most of the farmland
and in which most farmers were tenants who had to provide as much as 50
percent of their crops as rent. To make matters worse, during the
1972-74 drought and famine the imperial government refused to assist
rural Ethiopians and tried to cover up the crisis by refusing
international aid. As a result, up to 200,000 Ethiopians perished.
Although the issue of land reform was not addressed until the l974
revolution, the government had tried to introduce programs to improve
the condition of farmers. In 1971 the Ministry of Agriculture introduced
the Minimum Package Program (MPP) to bring about economic and social
changes. The MPP included credit for the purchase of items such as
fertilizers, improved seeds, and pesticides; innovative extension
services; the establishment of cooperatives; and the provision of
infrastructure, mainly water supply and all-weather roads. The program,
designed for rural development, was first introduced in a project called
the Chilalo Agricultural Development Unit (CADU). The program later
facilitated the establishment of similar internationally supported and
financed projects at Ada (just south of Addis Ababa), Welamo, and
Humera. By l974 the Ministry of Agriculture's Extension and Project
Implementation Department (EPID) had more than twenty-eight areas with
more than 200 extension and marketing centers. Although the MPPs
improved the agricultural productivity of farmers, particularly in the
project areas, there were many problems associated with discrimination
against small farmers (because of a restrictive credit system that
favored big landowners) and tenant eviction.
Imperial government policy permitting investors to import
fertilizers, pesticides, tractors and combines, and (until 1973) fuel
free of import duties encouraged the rapid expansion of large-scale
commercial farming. As a result, agriculture continued to grow, albeit
below the population growth rate. According to the World Bank,
agricultural production increased at an average annual rate of 2.l
percent between l965 and 1973, while population increased at an average
annual rate of 2.6 percent during the same period.
Agricultural productivity under the Derg continued to decline.
According to the World Bank, agricultural production increased at an
average annual rate of 0.6 percent between 1973 and 1980 but then
decreased at an average annual rate of 2.1 percent between l980 and
l987. During the same period (l973-87), population increased at an
average annual rate of 2.6 percent (2.4 percent for 1980- 87). The poor
performance of agriculture was related to several factors, including
drought; a government policy of controlling prices and the free movement
of agricultural products from surplus to deficit areas; the unstable
political climate; the dislocation of the rural community caused by
resettlement, villagization, and conscription of young farmers to meet
military obligations; land tenure difficulties and the problem of land
fragmentation; the lack of resources such as farm equipment, better
seeds, and fertilizers; and the overall low level of technology.
President Mengistu's 1990 decision to allow free movement of goods,
to lift price controls, and to provide farmers with security of tenure
was designed to reverse the decline in Ethiopia's agricultural sector.
There was much debate as to whether or not these reforms were genuine
and how effectively they could be implemented. Nonetheless, agricultural
output rose by an estimated 3 percent in 1990- 91, almost certainly in
response to the relaxation of government regulation. This modest
increase, however, was not enough to offset a general decrease in GDP
during the same period.
Ethiopia - Land Use
Of Ethiopia's total land area of l,22l,480 square kilometers, the
government estimated in the late 1980s that l5 percent was under
cultivation and 5l percent was pastureland. It was also estimated that
over 60 percent of the cultivated area was cropland. Forestland, most of
it in the southwestern part of the country, accounted for 4 percent of
the total land area, according to the government. These figures varied
from those provided by the World Bank, which estimated that cropland,
pastureland, and forestland accounted for l3, 4l, and 25 percent,
respectively, of the total land area in l987.
Inaccessibility, water shortages, and infestations of disease-causing
insects, mainly mosquitoes, prevented the use of large parcels of
potentially productive land. In Ethiopia's lowlands, for example, the
presence of malaria kept farmers from settling in many areas.
Most agricultural producers were subsistence farmers with small
holdings, often broken into several plots. Most of these farmers lived
on the highlands, mainly at elevations of 1,500 to 3,000 meters. The
population in the lowland peripheries (below l,500 meters) was nomadic,
engaged mainly in livestock raising.
There are two predominant soil types in the highlands. The first,
found in areas with relatively good drainage, consists of
red-to-reddish-brown clayey loams that hold moisture and are well
endowed with needed minerals, with the exception of phosphorus. These
types of soils are found in much of Ilubabor, Kefa, and Gamo Gofa. The
second type consists of brownish-to-gray and black soils with a high
clay content. These soils are found in both the northern and the
southern highlands in areas with poor drainage. They are sticky when
wet, hard when dry, and difficult to work. But with proper drainage and
conditioning, these soils have excellent agricultural potential.
Sandy desert soils cover much of the arid lowlands in the northeast
and in the Ogaden area of southeastern Ethiopia. Because of low
rainfall, these soils have limited agricultural potential, except in
some areas where rainfall is sufficient for the growth of natural forage
at certain times of the year. These areas are used by pastoralists who
move back and forth in the area following the availability of pasture
for their animals.
The plains and low foothills west of the highlands have sandy and
gray-to-black clay soils. Where the topography permits, they are
suitable for farming. The soils of the Great Rift Valley often are
conducive to agriculture if water is available for irrigation. The Awash
River basin supports many large-scale commercial farms and several
irrigated small farms.
Soil erosion has been one of the country's major problems. Over the
centuries, deforestation, overgrazing, and practices such as cultivation
of slopes not suited to agriculture have eroded the soil, a situation
that worsened considerably during the 1970s and 1980s, especially in
Eritrea, Tigray, and parts of Gonder and Welo. In addition, the rugged
topography of the highlands, the brief but extremely heavy rainfalls
that characterize many areas, and centuries-old farming practices that
do not include conservation measures have accelerated soil erosion in
much of Ethiopia's highland areas. In the dry lowlands, persistent winds
also contribute to soil erosion.
During the imperial era, the government failed to implement
widespread conservation measures, largely because the country's complex
land tenure system stymied attempts to halt soil erosion and improve the
land. After 1975 the revolutionary government used peasant associations
to accelerate conservation work throughout rural areas. The 1977 famine
also provided an impetus to promote conservation. The government
mobilized farmers and organized "food for work" projects to
build terraces and plant trees. During 1983-84 the Ministry of
Agriculture used "food for work" projects to raise 65 million
tree seedlings, plant 18,000 hectares of land, and terrace 9,500
hectares of land. Peasant associations used 361 nurseries to plant
11,000 hectares of land in community forest. Between 1976 and 1985, the
government constructed 600,000 kilometers of agricultural embankments on
cultivated land and 470,000 kilometers of hillside terraces, and it
closed 80,000 hectares of steep slopes for regeneration. However, the
removal of arable land for conservation projects has threatened the
welfare of increasing numbers of rural poor. For this reason, some
environmental experts maintain that large-scale conservation work in
Ethiopia has been ineffective.
Ethiopia - Land Reform
Until the l974 revolution, Ethiopia had a complex land tenure system.
In Welo Province, for example, there were an estimated 111 types of land
tenure. The existence of so many land tenure systems, coupled with the
lack of reliable data, has made it difficult to give a comprehensive
assessment of landownership in Ethiopia. However, the tenure system can
be understood in a rudimentary way if one examines it in the context of
the basic distinction between landownership patterns in the north and
those in the south.
Historically, Ethiopia was divided into the northern highlands, which
constituted the core of the old Christian kingdom, and the southern
highlands, most of which were brought under imperial rule by conquest.
This north-south distinction was reflected in land tenure differences.
In the northern provinces--particularly Gojam, Begemdir and Simen
(called Gonder after 1974), Tigray, highland Eritrea, parts of Welo, and
northern Shewa--the major form of ownership was a type of communal
system known as rist. According to this system, all descendants (both male
and female) of an individual founder were entitled to a share, and
individuals had the right to use (a usufruct right) a plot of family
land. Rist was hereditary, inalienable, and inviolable. No user of any
piece of land could sell his or her share outside the family or mortgage
or bequeath his or her share as a gift, as the land belonged not to the
individual but to the descent
group. Most peasants in the northern highlands held
at least some rist land, but there were some members belonging to
minority ethnic groups who were tenant farmers.
The other major form of tenure was gult , an ownership right acquired from the monarch or from
provincial rulers who were empowered to make land grants. Gult owners
collected tribute from the peasantry and, until l966 (when gult rights
were abolished in principle), exacted labor service as payment in kind
from the peasants. Until the government instituted salaries in the
twentieth century, gult rights were the typical form of compensation for
an official.
Other forms of tenure included samon, mengist, and maderia land.
Samon was land the government had granted to the Ethiopian Orthodox
Church in perpetuity. Traditionally, the church had claimed about
one-third of Ethiopia's land; however, actual ownership probably never
reached this figure. Estimates of church holdings range from l0 to 20
percent of the country's cultivated land. Peasants who worked on church
land paid tribute to the church (or monastery) rather than to the
emperor. The church lost all its land after the 1974 revolution. The
state owned large tracts of agricultural land known as mengist and
maderia. Mengist was land registered as government property, and maderia
was land granted mainly to government officials, war veterans, and other
patriots in lieu of a pension or salary. Although it granted maderia
land for life, the state possessed a reversionary right over all land
grants. Government land comprised about 12 percent of the country's
agricultural land.
In general, absentee landlordism in the north was rare, and landless
tenants were few. For instance, tenancy in Begemdir and Simen and in
Gojam was estimated at about 2 percent of holdings. In the southern
provinces, however, few farmers owned the land on which they worked.
Southern landownership patterns developed as a result of land
measurement and land grants following the Ethiopian conquest of the
region in the late nineteenth and early twentieth centuries. After
conquest, officials divided southern land equally among the state, the
church, and the indigenous population. Warlords who administered the
occupied regions received the state's share. They, in turn,
redistributed part of their share to their officers and soldiers. The
government distributed the church's share among the church hierarchy in
the same manner. Officials divided the rest between the traditional
leaders ( balabats ) and the indigenous people. Thus, the loss of
two-thirds of the land to the new landlords and the church made many
local people tenants (gebbars). Tenancy in the southern provinces ranged
between 65 and 80 percent of the holdings, and tenant payments to
landowners averaged as high as 50 percent of the produce.
In the lowland periphery and the Great Rift Valley, the traditional
practice of transhumance and the allocation of pastoral land according
to tribal custom remained undisturbed until after World War II. These
two areas are inhabited by pastoralists, including the Afar and Isa in
eastern Eritrea, Welo, and Harerge; the Somali in the Ogaden; the Borana
in Sidamo and Bale; and the Kereyu in the Great Rift Valley area of
Shewa. The pastoral social structure is based on a kinship system with
strong interclan connections; grazing and water rights are regulated by
custom. Until the l950s, this pastoral life remained largely undisturbed
by the highlanders, who intensely disliked the hot and humid lowland
climate and feared malaria. Beginning in the l950s, however, the malaria
eradication programs made irrigation agriculture in these areas
possible. The government's desire to promote such agriculture, combined
with its policy of creating new tax revenues, created pressure on many
pastoralists, especially the Afar and the Arsi (a division of the
Oromo). Major concessionaires, such as the Tendaho Cotton Plantation
(managed until the 1974 revolution by the British firm Mitchell Cotts)
and the Wonji Sugar Plantation (managed by HVA, a Dutch company),
acquired large tracts of traditional Afar and Arsi grazing land and
converted it into large-scale commercial farms. The loss of grazing land
to these concessions significantly affected traditional migration
patterns for grazing and water.
In the northern and southern parts of Ethiopia, peasant farmers
lacked the means to improve production because of the fragmentation of
holdings, a lack of credit, and the absence of modern facilities.
Particularly in the south, the insecurity of tenure and high rents
killed the peasants' incentive to improve production.
By the mid-l960s, many sectors of Ethiopian society favored land
reform. University students led the land reform movement and campaigned
against the government's reluctance to introduce land reform programs
and the lack of commitment to integrated rural development. By l974 it
was clear that the archaic land tenure system was one of the major
factors responsible for the backward condition of Ethiopia's agriculture
and the onset of the revolution. On March 4, l975, the Derg announced
its land reform program. The government nationalized rural land without
compensation, abolished tenancy, forbade the hiring of wage labor on
private farms, ordered all commercial farms to remain under state
control, and granted each peasant family so-called "possessing
rights" to a plot of land not to exceed ten hectares.
Tenant farmers in southern Ethiopia, where the average tenancy was as
high as 55 percent and rural elites exploited farmers, welcomed the land
reform. But in the northern highlands, where communal ownership (rist)
dominated and large holdings and tenancy were exceptions, many people
resisted land reform. Despite the special provision for communal areas
(Article l9 of the proclamation gave peasants in the communal areas
"possessing rights" to the land they were tilling at the time
of the proclamation) and the PMAC's efforts to reassure farmers that
land reform would not affect them negatively, northerners remained
suspicious of the new government's intentions. The reform held no
promise of gain for most northerners; rather, many northern farmers
perceived land reform as an attack on their rights to rist land.
Resistance intensified when zemecha members campaigned for collectivization of land and
oxen.
Land reform had the least impact on the lowland peripheries, where
nomads traditionally maintained their claims over grazing lands. The new
proclamation gave them rights of possession to land they used for
grazing. Therefore, the nomads did not perceive the new program as a
threat. However, in the Afar area of the lower Awash Valley, where
large-scale commercial estates had thrived, there was opposition to land
reform, led mainly by tribal leaders (and large landowners), such as Ali
Mirah, the sultan of Aussa.
The land reform destroyed the feudal order; changed landowning
patterns, particularly in the south, in favor of peasants and small
landowners; and provided the opportunity for peasants to participate in
local matters by permitting them to form associations. However, problems
associated with declining agricultural productivity and poor farming
techniques still were prevalent.
Government attempts to implement land reform also created problems
related to land fragmentation, insecurity of tenure, and shortages of
farm inputs and tools. Peasant associations often were periodically
compelled to redistribute land to accommodate young families or new
households moving into their area. The process meant not only smaller
farms but also the fragmentation of holdings, which were often scattered
into small plots to give families land of comparable quality.
Consequently, individual holdings were frequently far smaller than the
permitted maximum allotment of ten hectares. A l979 study showed that
around Addis Ababa individual holdings ranged from l.0 to l.6 hectares
and that about 48 percent of the parcels were less than one-fourth of a
hectare in size. Another study, of Dejen awraja (subregion) in Gojam,
found that land fragmentation had been exacerbated since the revolution.
For example, during the pre-reform period, sixty-one out of 200 farmer
respondents owned three or four parcels of land; after the reform, the
corresponding number was 135 farmers.
The second problem related to security of tenure, which was
threatened by increasing pressure to redistribute land and to
collectivize farms. Many peasants were reluctant to improve their land
because they were afraid that they would not receive adequate
compensation for upgrades. The third problem developed as a result of
the military government's failure to provide farmers with basic items
like seeds, oxen, and fertilizer. For instance, one study of four
communities in different parts of Ethiopia found that up to 50 percent
of the peasants in some areas lacked oxen and about 40 percent did not
have plows.
Ethiopia - Government Rural Programs
Starting in l976, the government encouraged farmers to form
cooperatives. Between l978 and l98l, the PMAC issued a series of
proclamations and directives outlining procedures for the formation of
service cooperatives and producers' cooperatives. Service cooperatives
provided basic services, such as the sale of farm inputs and consumer
items that were often rationed, the provision of loans, the education of
peasant association members in socialist philosophy, and the promotion
of cottage industries.
The producers' cooperatives alleviated shortages of inputs (because
farmers could pool resources) and problems associated with the
fragmentation of landholdings. The government ordered the creation of
these cooperatives because of its belief that small farmers were
inefficient and were unable to take advantage of economies of scale.
The producers' cooperatives developed in three stages. The first
stage was the melba, an elementary type of cooperative that required
members to pool land (with the exception of plots of up to 2,000 square
meters, which could be set aside for private use) and to share oxen and
farm implements. The second stage, welba, required members to transfer
their resources to the cooperative and reduce private plots to l,000
square meters. The third stage, the weland, abolished private land use
and established advanced forms of cooperatives, whose goal was to use
mechanized farming with members organized into production brigades.
Under this system, income would be distributed based on labor
contributions.
The government provided a number of inducements to producers'
cooperatives, including priority for credits, fertilizers, improved
seed, and access to consumer items and building materials. According to
the ten-year plan, more than half of the country's cultivated land would
be organized into producers' cooperatives by l994.
Despite the incentives, farmers responded less than enthusiastically.
Farmers saw the move to form cooperatives as a prelude to the
destruction of their "family farms." By l985/86 there were
only 2,323 producers' cooperatives, of which only 255 were registered.
Some critics argued that the resistance of farmers caused the government
to formulate its resettlement and villagization programs.
A major component of the government's agricultural policy since the
l974 revolution has been the development of largescale state farms.
After the l975 land reform, the Derg converted a majority of the
estimated 75,000 hectares of large, commercial farms owned by
individuals and cooperatives into state farms. Since then, the
government has expanded the size of state farms. In l987/88 there were
about 2l6,000 hectares of state farmland, accounting for 3.3 percent of
the total cultivated area. The ten-year plan indicated that state farms
would be expanded to 468,000 hectares by l994, accounting for 6.4
percent of the cultivated land.
The primary motive for the expansion of state farms was the desire to
reverse the drop in food production that has continued since the
revolution. After the l975 land reform, peasants began withholding grain
from the market to drive up prices because government price-control
measures had created shortages of consumer items such as coffee, cooking
oil, salt, and sugar. Additionally, increased peasant consumption caused
shortages of food items such as teff, wheat, corn, and other grains in urban areas. The
problem became so serious that Mengistu lashed out against the
individual and petit burgeois tendencies of the peasantry and their
capitalist mentality on the occasion of the fourth anniversary of
military rule in September l978. Mengistu and his advisers believed that
state farms would produce grain for urban areas and raw materials for
domestic industry and would also increase production of cash crops such
as coffee to generate badly needed foreign exchange. Accordingly, state
farms received a large share of the country's resources for agriculture;
from 1982 to 1990, this totaled about 43 percent of the government's
agricultural investment. In l983 state farms received 76 percent of the
total allocation of chemical fertilizers, 95 percent of the improved
seeds, and 8l percent of agricultural credit. In terms of subsidies,
between l982/83 and l985/86 the various state farm corporations received
more than 90 million birr in direct subsidies. Despite the emphasis on
state farms, state farm production accounted for only 6 percent of total
agricultural output in l987 (although meeting 65 percent of urban
needs), leaving peasant farmers responsible for over 90 percent of
production.
The stress on large-scale state farms was under attack by Western
donors, who channeled their agricultural aid to the peasant sector.
These donors maintained that experiences elsewhere in Africa and in
Eastern Europe and the Soviet Union had shown that state farms were
inefficient and a drain on scare resources.
Ethiopia - Resettlement and Villagization
The policy of encouraging voluntary resettlement went back to 1958,
when the government established the first known planned resettlement in
Sidamo. Shortly after the 1974 revolution, it became Derg policy to
accelerate resettlement. Article l8 of the l975 Land Reform Proclamation
stated that "the government shall have the responsibility to settle
peasants or to establish cottage industries to accommodate those who, as
a result of distribution of land . . . remain with little or no
land." Accordingly, in l975/76 there were eighty-eight settlement
centers accommodating 38,8l8 households. The government conducted most
of these resettlement programs under the auspices of the Relief and
Rehabilitation Commission (RRC) and the Ministry of Agriculture. By l982
there were ll2 planned settlements populated by more than l20,000
people. The settlements were concentrated mainly in the south and
southwest. In l984 Addis Ababa announced its intention to resettle l.5
million people from the drought-affected northern regions to the south
and southwest, where arable land was plentiful. By l986 the government
had resettled more than 600,000 people to three settlement areas. More
than 250,000 went to Welega; about l50,000 settled in the Gambela area
of Ilubabor; and just over l00,000 went to Pawe, the largest planned
resettlement in Gojam and largely sustained by Italian financial
support. In addition, another 78,000 went to Kefa, Shewa, and western
Gonder.
In mid-l986 the government halted the resettlement program, largely
to fend off the negative reaction from the international community. But
in November l987 the program resumed, and in March l988 Mengistu spoke
of the need to move at least 7 million people. He claimed resettlement
would resolve the country's recurring drought problem and would ease
population pressure from northern areas where the land had been badly
overused. Western donors and governments, whom Addis Ababa expected to
help with the program, remained apprehensive of the government's
intentions, however. Some believed that the plan to resettle l.5 million
people by l994 was unrealistic, given the country's strained finances.
Others argued that resettlement was a ploy to depopulate areas of
resistance, weaken the guerrillas' support base, and deny them access to
recruits, particularly in Eritrea and Tigray. Additional arguments
against resettlement included charges of human rights violations, forced
separations of families, and lack of medical attention in resettlement
centers, which resulted in thousands of deaths from malaria and sleeping
sickness.
Although many of these charges were valid, some criticisms may have
been unfounded. For instance, the claim that the resettlement was a ploy
to depopulate the rebel areas may not have been valid, given that by
1986 only l5 percent of the 600,000 resettled peasants were from Tigray
and none were from Eritrea. More than 80 percent of those resettled were
from Welo and Shewa.
In l985 the government initiated a new relocation program known as
villagization. The objectives of the program, which grouped scattered
farming communities throughout the country into small village clusters,
were to promote rational land use; conserve resources; provide access to
clean water and to health and education services; and strengthen
security. Government guidelines stipulated that villages were to house
200 to 300 households, with l00-square-meter compounds for each family.
In 1985 Addis Ababa established a national coordinating committee to
oversee the villagization plan's implementation. By March l986, about
4.6 million people in Shewa, Arsi, and Harerge had been relocated into
more than 4,500 villages. Although the government had villagized about
l3 million people by l989, international criticism, deteriorating
security conditions, and lack of resources doomed the plan to failure.
Nevertheless, Mengistu remained committed to the villagization concept.
Opponents of villagization argued that the scheme was disruptive to
agricultural production because the government moved many farmers during
the planting and harvesting seasons. There also was concern that
villagization could have a negative impact on fragile local resources,
particularly on water and grazing land; accelerate the spread of
communicable diseases; and increase problems with plant pests and
diseases. In early 1990, the government essentially abandoned
villagization when it announced new economic policies that called for
free-market reforms and a relaxation of centralized planning.
Ethiopia - Agricultural Production
The effect of the PMAC's land reform program on food production and
its marketing and distribution policies were among two of the major
controversies surrounding the revolution. Available data on crop
production show that land reform and the various government rural
programs had a minimal impact on increasing the food supply, as
production levels displayed considerable fluctuations and low growth
rates at best.
Major Cash Crops
The most important cash crop in Ethiopia was coffee. During the
l970s, coffee exports accounted for 50 to 60 percent of the total value
of all exports, although coffee's share dropped to 25 percent as a
result of the economic dislocation following the l974 revolution. By
l976 coffee exports had recovered, and in the five years ending in
l988/89, coffee accounted for about 63 percent of the value of exports.
Domestically, coffee contributed about 20 percent of the government's
revenue. Approximately 25 percent of Ethiopia's population depended
directly or indirectly on coffee for its livelihood.
Ethiopia's coffee is almost exclusively of the arabica type, which
grows best at altitudes between l,000 and 2,000 meters. Coffee grows
wild in many parts of the country, although most Ethiopian coffee is
produced in the southern and western regions of Kefa, Sidamo, Ilubabor,
Gamo Gofa, Welega, and Harerge.
Reliable estimates of coffee production in Ethiopia were unavailable
as of mid-1991. However, some observers indicated that Ethiopia produced
between l40,000 and l80,000 tons annually. The Ethiopian government
placed coffee production at l87,000 tons in l979/80, 233,000 tons in
l983/84, and l72,000 tons in l985/86. Estimates for l986/87 and l987/88
were put at l86,000 and l89,000 tons, respectively. Preliminary figures
from other sources indicated that coffee production continued to rise in
1988/89 and 1989/90 but registered a sharp decline of perhaps as much as
one-third during 1990/91. About 44 percent of the coffee produced was
exported. Although the potential for local coffee consumption was high,
the government, eager to increase its hard-currency reserves, suppressed
domestic consumption by controlling coffee sales. The government also
restricted the transfer of coffee from coffee-producing areas to other
parts of the country. This practice made the price of local coffee two
to three times higher than the price of exported coffee.
About 98 percent of the coffee was produced by peasants on
smallholdings of less than a hectare, and the remaining 2 percent was
produced by state farms. Some estimates indicated that yields on peasant
farms were higher than those on state farms. In the 1980s, as part of an
effort to increase production and to improve the cultivation and
harvesting of coffee, the government created the Ministry of Coffee and
Tea Development, which was responsible for production and marketing. The
ten-year plan called for an increase in the size of state farms
producing coffee from l4,000-l5,000 hectares to 50,000 hectares by l994.
However, given the strain on the government's financial resources and
the consistently declining coffee price in the world market, this may
have been an unrealistic goal.
The decline in world coffee prices, which began in 1987, reduced
Ethiopia's foreign-exchange earnings. In early 1989, for example, the
price of one kilogram/US$0.58; of coffee was by June it had dropped to
US$0.32. Mengistu told the 1989 WPE party congress that at US$0.32 per
kilogram, foreign-exchange earnings from coffee would have dropped by
240 million birr, and government revenue would have been reduced by l40
million birr by the end of l989. Such declines not only hampered the
government's ability to implement its political, economic, and social
programs but also reduced Addis Ababa's capacity to prosecute its war
against various rebel groups in northern Ethiopia.
Before the revolution, pulses and oilseeds played an important role,
second only to coffee, in Ethiopia's exports. In EFY l974/75, pulses and
oilseeds accounted for 34 percent of export earnings (about l63 million
birr), but this share declined to about 3 percent (about 30 million
birr) in EFY l988/89. Three factors contributed to the decline in the
relative importance of pulses and oilseeds. First, the recurring
droughts had devastated the country's main areas where pulses and
oilseeds were produced. Second, because peasants faced food shortages,
they gave priority to cereal staples to sustain themselves. Finally,
although the production cost of pulses and oilseeds continued to rise,
the government's price control policy left virtually unchanged the
official procurement price of these crops, thus substantially reducing
net income from them. The Ethiopian Pulses and Oilseeds Corporation, the
agency responsible for exporting two-thirds of these crops, reported
losses in EFY l982/83 and EFY 1983/84. In EFY l983/84, the corporation
received export subsidies of more than 9 million birr. Subsequently,
production of both crops failed to improve; by 1988 the output index,
whose base year was 1972 (100), was 85.3 for pulses and 15.8 for
oilseeds. Given the country's economic and political problems and the
ongoing war in the north, there was little prospect of improvement.
Cotton is grown throughout Ethiopia below elevations of about l,400
meters. Because most of the lowlands lack adequate rainfall, cotton
cultivation depends largely on irrigation. Before the revolution,
large-scale commercial cotton plantations were developed in the Awash
Valley and the Humera areas. The Tendaho Cotton Plantation in the lower
Awash Valley was one of Ethiopia's largest cotton plantations. Rain-fed
cotton also grew in Humera, Bilate (in Sidamo), and Arba Minch (in Gamo
Gofa).
Since the revolution, most commercial cotton has been grown on
irrigated state farms, mostly in the Awash Valley area. Production
jumped from 43,500 tons in l974/75 to 74,900 tons in l984/85. Similarly,
the area of cultivation increased from 22,600 hectares in l974/75 to
33,900 hectares in l984/85.
Ethiopia - Major Staple Crops
Ethiopia's major staple crops include a variety of cereals, pulses,
oilseeds, and coffee. Grains are the most important field crops and the
chief element in the diet of most Ethiopians. The principal grains are
teff, wheat, barley, corn, sorghum, and millet. The first three are
primarily cool-weather crops cultivated at altitudes generally above
l,500 meters. Teff, indigenous to Ethiopia, furnishes the flour for
injera, an unleavened bread that is the principal form in which grain is
consumed in the highlands and in urban centers throughout the country.
Barley is grown mostly between 2,000 and 3,500 meters. A major
subsistence crop, barley is used as food and in the production of tella,
a locally produced beer.
Sorghum, millet, and corn are cultivated mostly in warmer areas at
lower altitudes along the country's western, southwestern, and eastern
peripheries. Sorghum and millet, which are drought resistant, grow well
at low elevations where rainfall is less reliable. Corn is grown chiefly
between elevations of l,500 and 2,200 meters and requires large amounts
of rainfall to ensure good harvests. These three grains constitute the
staple foods of a good part of the population and are major items in the
diet of the nomads.
Pulses are the second most important element in the national diet and
a principal protein source. They are boiled, roasted, or included in a
stew-like dish known as wot, which is sometimes a main dish and
sometimes a supplementary food. Pulses, grown widely at all altitudes
from sea level to about 3,000 meters, are more prevalent in the northern
and central highlands. Pulses were a particularly important export item
before the revolution.
The Ethiopian Orthodox Church traditionally has forbidden consumption
of animal fats on many days of the year. As a result, vegetable oils are
widely used, and oilseed cultivation is an important agricultural
activity. The most important oilseed is the indigenous niger seed
(neug), which is grown on 50 percent or more of the area devoted to
oilseeds. Niger seed is found mostly in the northern and central
highlands at elevations between 1,800 and 2,500 meters. Flaxseed, also
indigenous, is cultivated in the same general area as niger seed. The
third most important oilseed is sesame, which grows at elevations from
sea level to about l,500 meters. In addition to its domestic use, sesame
is also the principal export oilseed. Oilseeds of lesser significance
include castor beans, rapeseed, groundnuts (peanuts), and safflower and
sunflower seeds. Most oilseeds are raised by small-scale farmers, but
sesame was also grown by large-scale commercial farms before the era of
land reform and the nationalization of agribusiness.
Ensete, known locally as false banana, is an important food source in
Ethiopia's southern and southwestern highlands. It is cultivated
principally by the Gurage, Sidama, and several other ethnic groups in
the region. Resembling the banana but bearing an inedible fruit, the
plant produces large quantities of starch in its underground rhizome and
an above-ground stem that can reach a height of several meters. Ensete
flour constitutes the staple food of the local people. Taro, yams, and
sweet potatoes are commonly grown in the same region as the ensete.
The consumption of vegetables and fruits is relatively limited,
largely because of their high cost. Common vegetables include onions,
peppers, squash, and a cabbage similar to kale. Demand for vegetables
has stimulated truck farming around the main urban areas such as Addis
Ababa and Asmera. Prior to the revolution, urbanization increased the
demand for fruit, leading to the establishment of citrus orchards in
areas with access to irrigation in Shewa, Arsi, Harerge, and Eritrea.
The Mengistu regime encouraged fruit and vegetable production. Fresh
fruits, including citrus and bananas, as well as fresh and frozen
vegetables, became important export items, but their profitability was
marginal. The Ethiopian Fruit and Vegetable Marketing Enterprise
(EFVME), which handled about 75 percent of Ethiopia's exports of fruits
and vegetables in l984-85, had to receive government subsidies because
of losses.
Ethiopia's demand for grain continued to increase because of
population pressures, while supply remained short, largely because of
drought and government agricultural policies, such as price controls,
which adversely affected crop production. Food production had
consistently declined throughout the 1980s. Consequently, Ethiopia
became a net importer of grain worth about 243 million birr annually
from l983/84 to l987/88. The food deficit estimate for the l985/89
period indicated that production averaged about 6 million tons while
demand reached about 10 million tons, thus creating an annual deficit of
roughly 4 million tons. Much of the food deficit was covered through
food aid. Between l984/85 and l986/87, at the height of the drought,
Ethiopia received more than l.7 million tons of grain, about l4 percent
of the total food aid for Africa. In addition, Ethiopia spent 341
million birr on food purchases during the l985-87 period.
Ethiopia - Livestock
Livestock production plays an important role in Ethiopia's economy.
Estimates for l987 indicated that livestock production contributed
one-third of agriculture's share of GDP, or nearly l5 percent of total
GDP. Hides and skins constituted the second largest export earner,
averaging about l5 percent of the total export value during the period
l984/85 to l988/89; live animals averaged around 3 percent of the total
value of exports during the same period.
Although varying from region to region, the role of livestock in the
Ethiopian economy was greater than the figures suggest. Almost the
entire rural population was involved in some way with animal husbandry,
whose role included the provision of draft power, food, cash,
transportation, fuel, and, especially in pastoral areas, social
prestige. In the highlands, oxen provided draft power in crop
production. In pastoral areas, livestock formed the basis of the
economy. Per capita meat consumption was high by developing countries'
standards, an estimated thirteen kilograms annually. According to a l987
estimate, beef accounted for about 5l percent of all meat consumption,
followed by mutton and lamb (l9 percent), poultry (l5 percent), and goat
(l4 percent).
Ethiopia's estimated livestock population of about 78.4 million in
l988 was believed to be Africa's largest. There were approximately 31
million cattle, 23.4 million sheep, l7.5 million goats, 5.5 million
horses and mules, l million camels, and 57 million poultry. Livestock
was distributed throughout the country, with the greatest concentration
in the highlands, where more than 90 percent of these animals were
located. The raising of livestock always has been largely a subsistence
activity.
Ethiopia has great potential for increased livestock production, both
for local use and for export. However, expansion was constrained by
inadequate nutrition, disease, a lack of support services such as
extension services, insufficient data with which to plan improved
services, and inadequate information on how to improve animal breeding,
marketing, and processing. The high concentration of animals in the
highlands, together with the fact that cattle are often kept for status,
reduces the economic potential of Ethiopian livestock.
Both the imperial and the Marxist governments tried to improve
livestock production by instituting programs such as free vaccination,
well-digging, construction of feeder roads, and improvement of
pastureland, largely through international organizations such as the
World Bank and the African Development Bank. The Mengistu regime also
opened veterinary stations at Bahir Dar, Buno Bedele, and Debre Zeyit to
provide treatment and vaccination services.
Cattle in Ethiopia are almost entirely of the zebu type and are poor
sources of milk and meat. However, these cattle do relatively well under
the traditional production system. About 70 percent of the cattle in
l987 were in the highlands, and the remaining 30 percent were kept by
nomadic pastoralists in the lowland areas. Meat and milk yields are low
and losses high, especially among calves and young stock. Contagious
diseases and parasitic infections are major causes of death, factors
that are exacerbated by malnutrition and starvation. Recurring drought
takes a heavy toll on the animal population, although it is difficult to
determine the extent of losses. Practically all animals are range-fed.
During the rainy seasons, water and grass are generally plentiful, but
with the onset of the dry season, forage is generally insufficient to
keep animals nourished and able to resist disease.
Most of Ethiopia's estimated 41 million sheep and goats are raised by
small farmers who used them as a major source of meat and cash income.
About three-quarters of the total sheep flock is in the highlands,
whereas lowland pastoralists maintain about three-quarters of the goat
herd. Both animals have high sales value in urban centers, particularly
during holidays such as Easter and New Year's Day.
Most of the estimated 7 million equines (horses, mules, and donkeys)
are used to transport produce and other agricultural goods. Camels also
play a key role as pack animals in areas below l,500 meters in
elevation. Additionally, camels provide pastoralists in those areas with
milk and meat.
Poultry farming is widely practiced in Ethiopia; almost every
farmstead keeps some poultry for consumption and for cash sale. The
highest concentration of poultry is in Shewa, in central Welo, and in
northwestern Tigray. Individual poultry farms supply eggs and meat to
urban dwellers. By 1990 the state had begun to develop large poultry
farms, mostly around Addis Ababa, to supply hotels and government
institutions.
Ethiopia - Fishing
Ethiopia's many lakes, rivers, and reservoirs and its approximately
960 kilometers of Red Sea coastline are fertile fishing grounds.
However, fishing contributed less than l percent of GDP in l987. The
ten-year plan in l983/84 estimated that the country had the potential to
produce more than 92,000 tons of fish--66,000 tons from the Red Sea and
the remaining 26,000 tons from lakes and rivers. But actual production
in l983/84 was estimated at 600 to l,200 tons.
Fresh fish are consumed along the Red Sea coast, in Asmera, and in
the vicinity of the Great Rift Valley lakes. Outside these areas,
however, the domestic market for fish is small. Two factors account for
this low level of local fish consumption. First, fish has not been
integrated into the diet of most of the population. Second, because of
religious influences on consumption patterns, the demand for fish is
only seasonal. During Lent, for example, Christians who abstain from
eating meat, milk, and eggs consume fish.
There was considerable commercial fishing activity in the Red Sea
prior to l974, chiefly consisting of private foreign companies that
exported most of their catch after processing the fish onshore. For
instance, in l970 private companies exported about 9,l40 tons of fish.
After the l974 revolution, most commercial fishing companies left
Ethiopia, which reduced fish exports.
The Mengistu regime encouraged the establishment of fishery
associations and cooperatives along the Red Sea coast and in the Great
Rift Valley lakes area. In l978 the government established the Fish
Production and Marketing Corporation (FPMC) to help improve the
Ethiopian fish industry. The following year, the Ministry of Agriculture
created the Fisheries Resources Development Department to help improve
fish breeding, control, and marketing. The FPMC received loans from the
Agricultural and Industrial Development Bank and aid from the European
Economic Community (EEC) to purchase various types of transportation
equipment and to establish modern shops and cold storage.
In late 1990, the Red Sea Fishery Resources Development Project,
which is managed by the Food and Agriculture Organization of the United
Nations (FAO), received funding from the United Nations Development
Programme (UNDP) and the Capital Development Fund to purchase motor
boats, fishing nets, and other accessories for five fishermen's
cooperatives in Aseb. The government hoped this equipment would help
increase production and eventually enable the five cooperatives to
extract 450 tons of fish annually. Nevertheless, the 1988/89 fish
production of sixty tons fell by more than half in 1989/90 because of
security problems in the area.
Ethiopia - Forestry
In the late nineteenth century, about 30 percent of the country was
covered with forest. The clearing of land for agricultural use and the
cutting of trees for fuel gradually changed the scene, and today forest
areas have dwindled to less than 4 percent of Ethiopia's total land. The
northern parts of the highlands are almost devoid of trees. However,
about 4.5 million hectares of dense forest exist in the southern and
southwestern sections of the highlands. Some of these include coniferous
forests, found at elevations above l,600 meters, but a majority of the
forestland consists primarily of woodlands found in drier areas of the
highlands and in the drier areas bordering the highlands.
Lumber from the coniferous forests is important to the construction
industry. The broadleaf evergreen forests furnish timber that is used in
construction and in the production of plywood. The woodlands are a major
source of firewood and charcoal. Certain trees--boswellia and species of
commiphora--are of special economic significance. Both grow in the arid
lowlands and produce gums that are the bases for frankincense and myrrh.
A species of acacia found in several parts of the country is a source of
gum arabic used in the manufacture of adhesives, pharmaceutical
products, and confectionery. The eucalyptus, an exotic tree introduced
in the late nineteenth century and grown mainly near urban areas, is a
valuable source of telephone and telegraph poles, tool handles,
furniture, and firewood. It is also a major source of the material from
which fiberboard and particleboard are made.
Data on forestry's contribution to the economy are not readily
available, largely because most GDP tables aggregate data on forestry,
fishing, and hunting. In l980/81 forestry accounted for 2.5 percent of
GDP at constant l960/61 factor cost and 5.4 percent of the share
attributable to the agricultural sector.
Before 1974 about half of the forestland was privately owned or
claimed, and roughly half was held by the government. There was little
government control of forestry operations prior to the revolution. The
l975 land reform nationalized forestland and sawmills, which existed
mostly in the south. The government controlled harvesting of forestland,
and in some cases individuals had to secure permits from local peasant
associations to cut trees. But this measure encouraged illegal logging
and accelerated the destruction of Ethiopia's remaining forests. To
ensure that conservation activity conformed with government policy and
directives on land use, reforestation programs were organized through
the Ministry of Agriculture or district offices that planed,
coordinated, and monitored all work. The local peasant associations
lacked decision-making authority.
Reforestation programs resulted in the planting of millions of
seedlings in community forests throughout Ethiopia. A variety of
Non-Governmental Organizations (NGOs), which had to organize their
activities through the local peasant association, supplemented
government efforts to rehabilitate Ethiopia's forests. However, critics
maintain that both systems caused communal resources to be developed at
the expense of private needs. As a result, reforestation programs did
not perform well. Seedling survival rates varied from as low as 5 to 20
percent in some areas to 40 percent in others, largely because of
inadequate care and premature cutting by peasants. In late 1990, Addis
Ababa was in the process of launching the Ethiopian Forestry Action Plan
(EFAP) to improve forestry conservation, increase public participation
in reforestation projects, and prevent further depletion of existing
forest resources. It remained to be seen whether this plan would improve
the state of Ethiopia's forests.
Ethiopia - Government Marketing Operations
Prior to 1957, when Ethiopia initiated a series of fiveyear
development plans, cottage and handicraft industries met most of the
population's needs for manufactured goods such as clothes, ceramics,
machine tools, and leather goods. Various factors--including the lack of
basic infrastructure, the dearth of private and public investment, and
the lack of any consistent public policy aimed at promoting industrial
development--contributed to the insignificance of manufacturing.
Throughout much of the 1960s and early 1970s, manufacturing activity
increased as the government's fiveyear plans diversified the economy by
encouraging agroindustrial activity and by substituting domestically
produced goods for imported items. Thus, according to the World Bank,
manufacturing production increased at an annual rate of 6.l percent
between l965 and l973. During the same period, agriculture grew at an
annual 2.1 percent rate, and services grew at an annual 6.7 percent
rate. Despite this favorable growth rate, manufacturing in l975
accounted for less than 5 percent of GDP and employed only about 60,000
people. Handicrafts, such as weaving, pottery, blacksmithing, leather
working, and jewelry making, along with other small-scale industries,
accounted for another 5 percent of GDP. In 1984/85 manufacturing and
handicrafts together accounted for 11.4 percent of GDP.
In l975 the PMAC nationalized more than l00 industries and took
partial control of some of them. The main characteristics of the
manufacturing sector inherited by the revolution included a predominance
of foreign ownership and foreign managerial, professional, and technical
staffing; heavy emphasis on light industries; inward orientation and
relatively high tariffs; capital-intensiveness; underutilized capacity;
minimal linkage among the different sectors; and excessive geographical
concentration of industries in Addis Ababa.
After nationalization, there was an exodus of foreigners who had
owned and operated the industrial enterprises. The war in Eritrea and
labor strikes and demonstrations also closed the approximately 30
percent of the country's plants that had been located in that region.
The economic dislocation that followed the revolution had a
significant impact on the manufacturing sector. Privatesector capital
investment ceased, and labor's marginal productivity began to decline.
In performance terms, the manufacturing sector's output after l975 grew
haltingly. Manufacturing had grown at an average annual rate of 6.l
percent between l965 and 1973. A period of decline from l974/75 to
l977/78 and an average annual growth rate of l8.9 percent for l978/79
and l979/80 were followed by a reduction of the growth rate to about 3.1
percent per annum between l980/81 and l984/85 and 3.8 percent per annum
from 1985/86 to 1988/89.
The manufacturing sector's performance paralleled developments in
other parts of the country. In the revolution's early days, the
dislocation caused by nationalization, the flight of managers, the wars
in Eritrea and the Ogaden, and local strife in many areas disrupted
production and hurt productivity. Zemecha production campaigns, which
focused on increasing capacity utilization, characterized the late
1970s. As a result of these campaigns, Ethiopia achieved growth rates of
27.3 and 10.5 percent, respectively, in 1978/79 and 1979/80. By l985
capacity utilization estimates of many industries ranged between 70 and
l00 percent, and many plants operated in three shifts. These figures
were high by African standards.
Manufacturing productivity began to decline by l980 because of a
downturn in agricultural production and a shortage of foreign exchange
to import raw materials. Analysts expected the manufacturing sector's
productivity to decline further in the 1990s as equipment aged and
spare-parts shortages grew. In response to the downward trend, in
l987/88 the government planned to invest 342 million birr in industrial
enterprises to increase production capacity. In l989 the government
issued Proclamation No. ll, which enunciated policies intended to
attract foreign investment. Finally, in March l990 Mengistu announced
the replacement of Ethiopia's socialist economic system with a mixed
economy. Among the proposed changes were that private investors would by
permitted to participate in all parts of the economy with no limit on
the amount of capital invested.
Ethiopia - Industry
Between l950 and l960, the imperial government enacted legislation
and implemented a new policy to encourage foreign investment. This new
policy provided investor benefits in the form of tax exemptions,
remittances of foreign exchange, import and export duty relief, tax
exemptions on dividends, and the provision of financing through the
Ethiopian Investment Corporation and the Development Bank of Ethiopia.
In addition, the government guaranteed protection to industrial
enterprises by instituting high tariffs and by banning the importation
of commodities that might adversely affect production of domestic goods.
Protected items included sugar, textiles, furniture, and metal. The
government also participated through direct investment in enterprises
that had high capital costs, such as oil refineries and the paper and
pulp, glass and bottle, tire, and cement industries. In l963, with the
Second Five-Year Plan under way, the government enacted Proclamation No.
5l. The proclamation's objective was to consolidate other investment
policies enacted up to that period, to extend benefits to Ethiopian
investors (previous legislation had limited the benefits to foreigners
only), and to create an Investment Committee that would oversee
investment programs. In l966 Addis Ababa enacted Proclamation No. 242,
which elevated the Investment Committee's status as an advisory council
to that of an authorized body empowered to make independent investment
decisions. Thus, by the early l970s, Ethiopia's industrialization policy
included a range of fiscal incentives, direct government investment, and
equity participation in private enterprises.
The government's policy attracted considerable foreign investment to
the industrial sector. For instance, in 1971/72 the share of foreign
capital in manufacturing industries amounted to 4l percent of the total
paid-up capital. Many foreign enterprises operated as private limited
companies, usually as a branch or subsidiary of multinational
corporations. The Dutch had a major investment (close to 80 percent) in
the sugar industry. Italian and Japanese investors participated in
textiles; and Greeks maintained an interest in shoes and beverages.
Italian investors also worked in building, construction, and
agricultural industries.
In l975 the PMAC nationalized most industries and subsequently
reorganized them into state-owned corporations. On February 7, l975, the
government released a document outlining socialist Ethiopia's economic
policy. The policy identified three manufacturing areas slated for state
involvement: basic industries that produced goods serving other
industries and that had the capacity to create linkages in the economy;
industries that produced essential goods for the general population; and
industries that made drugs, medicine, tobacco, and beverages. The policy
also grouped areas of the public and private sectors into activities
reserved for the state, activities where state and private capital could
operate jointly, and activities left to the private sector.
The l975 nationalization of major industries scared off foreign
private investment. Private direct investment, according to the National
Bank of Ethiopia, declined from 65 million birr in l974 to l2 million
birr in l977. As compensation negotiations between the Ethiopian
government and foreign nationals dragged on, foreign investment
virtually ceased. The United States Congress invoked the Hickenlooper
Amendment, which had the effect of prohibiting the use of United States
funds for development purposes until Ethiopia had settled compensation
issues with United States nationals. During l982 and l983, the Mengistu
regime settled claims made by Italian, Dutch, Japanese, and British
nationals. Negotiation to settle compensation claims by United States
nationals continued until l985, when Ethiopia agreed to pay about US$7
million in installments to compensate United States companies.
Issued in l983, the PMAC's Proclamation No. 235 (the Joint Venture
Proclamation) signaled Ethiopia's renewed interest in attracting foreign
capital. The proclamation offered incentives such as a five-year period
of income tax relief for new projects, import and export duty relief,
tariff protection, and repatriation of profits and capital. It limited
foreign holdings to a maximum of 49 percent and the duration of any
joint venture to twenty-five years. Although the proclamation protected
investors' interests from expropriation, the government reserved the
right to purchase all shares in a joint venture "for reasons of
national interest." The proclamation failed to attract foreign
investment, largely because foreign businesses were hesitant to invest
in a country whose government recently had nationalized foreign
industries without a level of compensation these businesses considered
satisfactory.
In l989 the government issued Special Decree No. ll, a revision of
the l983 proclamation. The decree allowed majority foreign ownership in
many sectors, except in those related to public utilities, banking and
finance, trade, transportation, and communications, where joint ventures
were not allowed. The decree also removed all restrictions on profit
repatriation and attempted to provide more extensive legal protection of
investors than had the l983 proclamation.
President Mengistu's March 1990 speech to the Central Committee of
the WPE was a turning point in Ethiopia's recent economic history.
Acknowledging that socialism had failed, Mengistu proposed implementing
a mixed economy. Under the new system, the private sector would be able
to participate in all parts of the economy with no limit on capital
investment (Ethiopia had a US$250,000 ceiling on private investment);
developers would be allowed to build houses, apartments, and office
buildings for rent or sale; and commercial enterprises would be
permitted to develop industries, hotels, and a range of other
enterprises on government-owned land to be leased on a concessionary
basis. Additionally, state-owned industries and businesses would be
required to operate on a profit basis, with those continuing to lose
money to be sold or closed. Farmers would receive legal ownership of
land they tilled and the right to sell their produce in a free market.
Whereas there were many areas yet to be addressed, such as privatization
of state enterprises and compensation for citizens whose land and
property had been confiscated, these proposals generated optimism among
some economists about Ethiopia's economic future. However, some
observers pointed out that Mengistu's proposals only amounted to
recognition of existing practices in the underground economy.
Ethiopia - Energy
Ethiopia is one of the few African countries with the potential to
produce hydroelectric and geothermal power. As of mid-1991, however, no
comprehensive assessment of this potential was available, although some
estimates indicated that the total potential could be as much as l43
billion kilowatts. The main sources of this potential were thought to be
the Abay (Blue Nile; 79.9 billion kilowatts), the Shebele (2l.6 billion
kilowatts), and the Omo (l6.l billion kilowatts). The remaining 25.9
billion kilowatts would come from rivers such as the Tekez�, Awash,
Baro, Genale, and Mereb.
Ethiopia's first large hydroelectric generating facilities were
constructed in the Awash River basin. The three plants- -Awash I (Koka)
with 54,000 kilowatts capacity, Awash II with 32,000 kilowatts capacity,
and Awash III with 32,000 kilowatts capacity--were finished between l960
and l972. In l974 the Fincha River facility in central Welega opened
with a generating capacity of 84,000 kilowatts. Other major
power-generating facilities included those at Bahir Dar (7,680
kilowatts) and Aba Samuel (6,560 kilowatts). The total installed
capacity of thermal generating units amounted to 210,084 kilowatts in
l985/86.
Electric power production in l985/86 totaled 998.7 million
kilowatt-hours, 83 percent of which was produced by hydroelectric power
installations. Thermal generating units produced the remaining 17
percent. The thermal generating units in the public utility system, many
of which were comparatively small, had a generating capacity of 95,635
kilowatts in l985. Major units were located close to Asmera (3l,900
kilowatts), Dire Dawa (4,500 kilowatts), Addis Ababa (3,l00 kilowatts),
and Aseb (3,l00 kilowatts). In l985/86 various business enterprises and
local communities owned electrical generators of unspecified capacity.
The regional electrical distribution system included an
interconnected system and a self-contained system. By 1988 most power
generating sources, including all major hydroelectric power plants, were
interconnected in a power grid. The interconnected system served more
than l00 towns. Power from the Awash, Fincha, and Aba Samuel stations
ran the central system, the largest component of the interconnected
system. The Bahir Dar interconnected system, which served parts of Gojam
and Gonder, and the Eritrean Region Electricity Supply Agency (ERESA)
were two of the other major systems. A majority of the self-contained
systems got their power from thermal power plants, with the power often
being used for domestic purposes and to run small mills.
The Ethiopian Electric Light and Power Authority (ELPA), a government
corporation, operated most of the country's power systems. Prior to the
revolution, ELPA incorporated more than forty electric power stations
and generated about 80 percent of the nation's total electrical output.
Two Italian firms, Societ� Elettrica dell'Africa Orientale and
Compagnia Nazionale Impresse Elettriche, chiefly serving Eritrea,
produced another l6.5 percent of the country's electrical energy.
Independent stations generated the remaining 3 to 4 percent. In 1975 the
government nationalized all private utility companies and placed them
under ELPA. Since then, utility services have been reserved exclusively
to the state. In l987 ELPA served about l70 towns and produced about 92
percent of the national electrical output. Mass organizations, sugar
factories, and the Aseb refinery administered the remaining 8 percent.
In 1985/86, of the total 847.7 million kilowatt-hours of power sold
by ELPA, 59 percent was for industrial use, 29 percent for domestic use,
l0 percent for commercial use, and the remaining 2 percent for other
uses such as street lighting and agriculture. By 1987 about 9 percent of
the total population (4.3 million people) were using electricity.
Ethiopia's second commercial energy resource is oil. Despite reports
of natural gas reserves and traces of petroleum, Ethiopia still depends
on imported crude oil, which accounted for an average of about l2
percent of the value of imports during the period l982/83 to l987/88.
Exploration for petroleum and natural gas in the Ogaden and the Red Sea
basin has been going on for many years. In May l988, International
Petroleum, a subsidiary of Canada's International Petroleum Corporation
(IPC), signed a production sharing and exploration license for the
Denakil block, which covers 34,000 square kilometers on and off shore
along the Red Sea coast. The IPC also has conducted geothermal studies
and undertaken mapping projects. In late 1990, the government announced
that geologists had discovered oil in western Ilubabor, with an expected
deposit ranging from 100 million to 120 million tons.
Since the early 1970s, there has been exploration and development of
geothermal resources in the Great Rift Valley. In early 1972, the United
Nations Development Programme (UNDP) conducted preliminary explorations
in the area and detected what appeared to be one of the world's largest
potential sources of geothermal power. In mid-1979 the EEC, assisted by
the UNDP, provided a grant to aid exploration in the valley's lake
region. In l984 Ethiopia reported the discovery of a promising
geothermal source in the Lake Langano area. However, no indication has
been provided as to when production will start. The primary energy
sources for most Ethiopians are charcoal, animal manure, and firewood.
Some estimates indicate that as much as 96 percent of the country's
total energy consumption is based on these traditional sources.
Ethiopia - Mining
Ethiopia's minerals industry has been only of minor importance,
contributing an average of less than 0.2 percent of GDP at constant
factor cost between l984/85 and l988/89. Although it had reported the
existence of a wide range of minerals throughout the country, the
government had authorized little exploration. Thus, there are no
reliable estimates of the extent of mineral resources. However, there
has been some small-scale mining for minerals such as gold, platinum,
salt, limestone, and clay. Gold has been mined at Adola (in Sidamo) for
many years. In l981/82 output at this site in southern Ethiopia averaged
around 500 kilograms per annum. However, by 1985/86 production had
dropped to 293 kilograms. In l987 the government reported the discovery
of large gold deposits in Lege Dimbi, also in Sidamo. Observers believed
that prospectors mined an annual average of 7.5 to 8 kilograms of
platinum in the Yubdo area in Welega.
Stretching inland from the Red Sea coast, the Denakil Depression has
large salt deposits. Production averaged some 20,000 tons annually.
Other major salt sources are found at Aseb and around Mitsiwa, also on
the Red Sea. According to some estimates, Ethiopia produces about
300,000 tons of marine and mined salt annually. However, this supply
fails to satisfy domestic needs because the government exports salt to
improve its hard-currency reserves.
A large potash deposit, estimated at l40 to l50 million tons, is
located in Tigray's Dallol area. Production has averaged less than l
million tons per year.
Large iron ore deposits are scattered throughout the country. During
the Italian colonial period, a few companies started iron-mining
operations in Eritrea but abandoned them after the Italian occupation
ended in 1941. In the late 1980s, prospectors identified iron ore
deposits estimated at 20 million tons in the Agametta region (near
Mitsiwa) and another l60,00 tons of iron ore in Welega and Bale.
Copper, lead, and zinc deposits are found near Debarwa, thirty-five
kilometers southwest of Asmera. In l973 the Ethio-Nippon Mining Share
Company started mining copper in Debarwa. However, the Eritrean war
forced an end to operations two years later.
Limestone is excavated near Mitsiwa, Dire Dawa, and Addis Ababa. The
limestone is used chiefly at the cement works operating in those cities.
Ethiopia - Transportation
Both the imperial and the Marxist governments tried to improve
Ethiopia's balance of trade, the former by encouraging exports and the
latter by curtailing imports. However, Ethiopia's foreign trade balance
has basically been in deficit since l953, with the exception of l975,
when a combination of unusually large receipts from sales of oilseeds
and pulses resulted in a surplus. In general, foreign trade has grown
faster than the national economy, particularly in the early l970s, but
it has accounted for only a small percentage of the national economy. In
EFY 1972/73, exports and imports accounted for l3 and l2 percent of GDP,
respectively. By EFY 1988/89, exports had declined to 8 percent of GDP,
and imports had jumped to 2l percent. Virtually all machinery and
equipment had to be imported, as well as intermediate goods for
agriculture and industry, including fertilizer and fuel. Increased
cereal shipments accounted for the growth in imports. In the 1980s,
Ethiopia faced several famines and droughts. Consequently, the country,
which had been virtually self-sufficient in food supplies in the 1970s,
became a net importer of food worth as much as 243 million birr annually
during the period EFY l983/84 to EFY l987/88. The military government
failed to correct the country's historical trade deficit, despite
efforts to regulate exports and imports. Consequently, during the 1980s
the trade picture worsened as imports grew rapidly and foreign aid
slowed.
Exports
Ethiopia's exports in EFY l988/89 were primarily agricultural
products. The only significant nonagricultural exports were petroleum
products such as heating oil, which had no use in Ethiopia, from the
Aseb refinery.
The value of exports increased during the l980s, and by EFY l988/89
exports had almost twice the value they had in l973. However, the
composition of exports had remained essentially the same, although the
relative share of the various agricultural exports had changed. Coffee,
the major export, still averaged about 63 percent of the value of
exports during the five years ending in EFY l988/89. The relative share
of oilseeds and pulses, however, had changed dramatically. Pulses and
oilseeds, which accounted for about l5 percent and l9 percent,
respectively, of the total value of exports in EFY 1974/75, dropped to
l.9 and l.4 percent, respectively, of the total value of exports in EFY
l988/89. Droughts, famines, the peasants' preference for cereals and
other staples, and the rising cost of producing pulses and oilseeds
accounted for the decline in the export of these two products. Exports
of livestock and livestock products averaged l8 percent of the value of
exports for the five years ending in EFY l988/89, which was slightly
higher than the prerevolution share of 16 percent.
After the l974 revolution, exports' relative share of GDP declined,
largely because domestic production grew more slowly than total demand.
This could be attributed to the agricultural crisis associated with the
country's recurring droughts and famines and the dislocation of the farm
economy resulting from the revolution. Total domestic production,
measured by GDP, grew at an average annual rate of 0.9 percent per year
during the 1980-87 period while exports declined at an average annual
rate of 0.6 percent. During the same period, the population grew at an
average 2.4 percent annual rate. Consequently, Ethiopia's export share
of 8 percent of GDP in EFY l988/89 was one of the world's lowest.
The direction of Ethiopia's post-1974 exports remained essentially
the same as in the prerevolution period, despite the government's change
of policy and realignment with the Soviet Union and Eastern Europe.
About 79 percent of Ethiopia's exports went to Western countries,
primarily the United States, the Federal Republic of Germany (West
Germany), and Japan. Ethiopia's export trade with the Soviet Union, one
of its major allies, was less than 4 percent in the five years ending in
l987; prior to l974, the Soviet Union had accounted for less than 1
percent of Ethiopia's imports. Beginning in 1979, Addis Ababa sought to
encourage exports to the Soviet Union and other socialist countries by
encouraging barter and countertrade. Ethiopia used this technique to
market products such as spices, natural gums, some pulses, frozen meats,
and handicraft items, which are not reliable hard-currency earners. In
exchange, Ethiopia usually received consumer goods, industrial
machinery, or construction machinery. Although reliable figures on the
volume of barter and countertrade were unavailable, it appeared unlikely
that the figure exceeded US$50 to US$55 million in any year.
Imports
Ethiopia's major category of import items was consumer goods, which
accounted for about one-third of the value of imports during the period
EFY l984/85 to EFY 1988/89. Capital goods, primarily machinery and
transportation equipment, accounted for another 39 percent, with fuel,
semifinished goods, and durable consumer goods accounting for the other
third of the value of imports. A major structural change in Ethiopia's
imports was the relative increase in the importation of food items.
During the three years ending in EFY l986/87, cereals and other food
items accounted for 22 percent of the total value of imports; in l974
cereal and food items had accounted for only 4.6 percent. As a result,
the share of nondurable consumer items jumped from l6.8 percent in l974
to 34.2 percent in l985. It dropped to 24.9 percent in EFY l986/87.
Imports provided the capital and intermediate goods upon which
industry depended. Imports also satisfied most of the country's demand
for nonfood consumer goods, such as automobiles, radios, televisions,
pharmaceuticals, and textiles. In the five years ending in EFY l986/87,
the relative share of the value of transportation and transportation
equipment increased, reflecting the country's increasing demand for
trucks and other heavy road vehicles needed to transport food to areas
affected by drought and famine.
Most of Ethiopia's imports came from Western countries. Italy, the
United States, West Germany, and Japan, in order of importance,
accounted for 45 percent of total imports in l987. The Soviet Union
accounted for l6 percent of the value of imports in l987. By contrast,
Ethiopia's exports to the Soviet Union amounted to only 5 percent of
total exports in 1987. The relatively high proportion of imports from
the Soviet Union was largely because of oil; in l987 Ethiopia received
virtually all its crude petroleum from the Soviet Union. In l987 the
United States remained Ethiopia's major trading partner despite cool
relationships between the two countries; the United States ranked first
in buying Ethiopia's exports and third in satisfying Ethiopia's import
needs.
Balance of Payments and Foreign Assistance
Ethiopia has experienced chronic balance of payments difficulties
since l953, with the exception of a few years. The major factor in the
deteriorating balance of payments was the worsening situation of
merchandise trade. The trade deficit that existed during the imperial
years continued to grow after the revolution, despite the introduction
of import controls. Since EFY l981/82, the value of merchandise imports
has been roughly double the value of exports.
Since l974 there has been low growth in the overall volume and value
of exports. Coffee, Ethiopia's principal export, accounted for about 60
percent of total merchandise exports, although this level fluctuated in
the 1980s. Coffee exports reached an all-time high of 98,000 tons in EFY
l983/84 but dropped to 73,000 tons in EFY l987/88. Similarly, coffee
receipts declined as the world price of coffee plummeted. The share of
noncoffee exports has not shown any significant change. Exports of
oilseeds and pulses have declined since imperial times. Industrial
exports consistently contributed only about 8 percent of the total value
of merchandise exports. In contrast to the slow increase in the volume
and value of exports, imports grew by nearly 7 percent during the decade
ending in EFY l988/89. This trend reflected Ethiopia's growing
dependence on imports and the decline of foreign-financed investment and
domestic savings. A high growth rate in import prices accompanied the
high growth rate in imports. The result of these deteriorating terms of
trade was a severe trade balance problem.
To finance its trade deficit, the government has depended on foreign
aid. These import finance funds were in addition to the large volume of
development project aid and commodity assistance the international
community has provided to Ethiopia since the end of World War II. The
volume of official development assistance jumped from US$l34 million in
l975 to US$212 million in 1980 and to US$635 million in l987. Most
external financial assistance came from Western nations. By the late
1980s, Ethiopia was the principal African recipient of concessionary
funding and the largest recipient of EEC aid. In l988 Ethiopia received
US$l4l million from the EEC under the provisions of the Lom�
Convention. An additional US$230 million was later allocated under the
Lom� Convention. Bilateral assistance, mainly from European countries,
also increased in the late l980s. World Bank lending for various
projects covering agriculture, education, housing, road construction,
and power development reached US$400 to US$500 million by l988. Despite
this aid, however, Ethiopia still received the smallest amount of aid
per capita of all developing countries. The 1987 per capita aid level
was US$14, compared with a US$23 group average for all developing
countries.
Reliance on foreign aid has created economic problems for Addis
Ababa. In 1987 Ethiopia's total external debt amounted to US$2.6
billion, of which US$2.4 billion was long-term debt (excluding military
debt). Addis Ababa owed more than one-third of the total to
multinational agencies and the remainder to bilateral creditors.
Economists estimated the EFY 1986/87 cost of servicing this long-term
debt to be 28.4 percent of export earnings and projected the figure to
rise to 40 percent of export earnings by l990.
