ETHIOPIA

COUNTRY OVERVIEW

LOCATION AND SIZE.

Located in the Horn of Africa— the pointy peninsula-like landmass that emanates out of the eastern part of the continent—Ethiopia has a total area of 1,127,127 square kilometers (935,183 square miles), rendering it slightly less than twice the size of Texas. A landlocked country completely surrounded by other states, Ethiopia has a total border length of 5,311 kilometers (3,300 miles). Ethiopia is bordered by Kenya to the south, Somalia to the east, Djibouti and Eritrea to the northeast, and Sudan to the west. The capital of Ethiopia, Addis Ababa, is located in the heart of the country.

POPULATION.

In 1975, the population of Ethiopia was approximately 32.2 million. With a relatively high growth rate of 2.7 percent between 1975 to 2000, the population of Ethiopia doubled during this period, reaching a total of 64,117,452 by July 2000. Currently, the population growth rate remains high (2.76 percent), and it is forecasted that the population will reach 90.9 million by 2015 (July 2000 est.). In order to restrain the growth process, the Ethiopian government recently included a population control component in its overall development program. The death rate was estimated at 17.63 deaths per 1,000 people, and the birth rate was 45.13 births per 1,000 people (2000 est.). In terms of the age structure of the population, 47 percent of Ethiopians are younger than 15 years of age, 50 percent are between the ages of 15 to 64, and only 3 percent are older than 65 years of age. Only 16.3 percent of the population live in urban areas.

Ethnically, the population of Ethiopia is extremely heterogeneous (diverse). The country's principal ethnic groups are the Oromo (40 percent), the Amhara and Tigre (32 percent), Sidamo (9 percent), Shankella (6 percent), Somali (6 percent), Afar (4 percent), and Gurage (2 percent). The remaining 1 percent belong to various other ethnic groups. In total, there are more than 80 different ethnic groups within Ethiopia. Islam is the predominant religion with 45 to 50 percent of the population identifying as Muslim, 35 to 40 percent as Ethiopian Orthodox (a distinct denomination of Christianity), and 12 percent as animist (a term used to delineate a wide range of native African religious belief systems). The remaining 3 to 8 percent are adherents of various other religions.

Many languages are spoken by the inhabitants of Ethiopia, including Amharic, Tigrinya, Orominga, Guaraginga, Somali, and Arabic. Numerous other local languages and dialects also are spoken. Many of the languages are from the Semetic or Cushtic linguistic groups. Amharic is the country's only official language, while English is the major foreign language taught to Ethiopians in the educational system.

Like many African countries, one of the most daunting prospects that Ethiopia faces is a massive HIV/AIDS epidemic. By the end of 1997, conservative estimates stated that 2.6 million Ethiopians were living with HIV/AIDS, while the adult prevalence rate was 7.4 percent. In addition to causing considerable suffering, HIV/AIDS places a large burden on health care expenditure and diminishes the ability of the poor to save and invest, due to the high cost of treating the disease. According to the United Nations Development Program (UNDP), the efficacy of the government's plan to curb the epidemic will depend on its ability to address the structural factors that facilitate the spread of the disease, such as poverty and gender inequality.

OVERVIEW OF ECONOMY

The Ethiopian state consists, territorially, of the only area in Africa that was never colonized by a European power, with the exception of a brief Italian occupation from 1936 to 1941. Indeed, Ethiopia—or Abyssinia, as the area was once called—is one of the oldest independent countries in the entire world. Modern Ethiopia, characterized by political centralization and a modern state apparatus, emerged in the mid-19th century. Throughout much of the 20th century, Ethiopia was presided over by the emperor, Haile Selassie, who ruled the state autocratically (single-handedly and dictatorially), until he was overthrown and subsequently executed in the revolution of 1974.

Under Selassie's rule, the Ethiopian economy relied primarily on agriculture, particularly coffee production. During this time, agricultural production resembled a feudal system since land ownership was highly inequitable, and the vast majority of Ethiopians were obliged to till the fields of the wealthy landowners. Much of the marginal amount of industry that did exist was concentrated in the hands of foreign ownership. For example, by 1962, the Dutch H.V.A. Sugar Company, which commenced operations in Ethiopia in the early 1950s, employed 70 percent of the Ethiopian workforce involved in the industrial food-processing sector. The food-processing sector, in turn, employed 37 percent of all workers involved in manufacturing and industry.

Spouting anti-feudal and anti-imperialist (anti-foreign dominance) rhetoric, an administrative council of soldiers, known as the Derg, overthrew Selassie in 1974, ushering in a lengthy period of military dictatorial rule. The Derg regime, in turn, vocally promoted a Marxist-Leninist system, though according to Ghelawdewos Araia, author of Ethiopia: The Political Economy of Transition, it was only ostensibly (superficially) based on socialist principles. The Derg introduced substantial land reform and nationalized almost all of the country's important industries. The Derg regime, however, known for its particularly brutal suppression of opposition forces, failed to solve Ethiopia's many economic problems. In 1991, massive discontent led by the student movement, declining economic conditions caused by drought and famine, and provincial insurrections led by ethnic separatist groups forced the Derg chairman and Ethiopian president, Mengistu Haile Mariam, to flee the country. Following a period of transitional rule by the Transitional Government of Ethiopia, free elections were held in 1995, resulting in a victory for the Ethiopian's People's Revolutionary Democratic Front (EPRDF).

Since its democratic assumption of power, the EPRDF has supported a process of economic reform based on the privatization of state-owned enterprises, promotion of agricultural exports, and deregulation of the economy. By 1999, the Ethiopian Privatization Agency had already overseen the privatization of more than 180 parastatals, including most state-owned retail shops, hotels, and restaurants.

Since the fall of the Derg regime, the economy has experienced several positive economic developments. In 1992, for example, the International Monetary Fund's (IMF) Staff Country Report No. 98/6 stated that 62,941 persons were registered as unemployed, whereas in 1996, the figure of officially unemployed fell to 28,350 persons. Of course, for both years, many unemployed Ethiopians, and perhaps even the majority, did not register themselves as such. Nonetheless, it would be fair to deduce that a considerable amount of formerly unemployed Ethiopians have found jobs throughout the 1990s. At the same time, however, the UNDP estimates that the annual growth rate in gross national product (GNP) per capita between 1990 to 1998 was 1.0 percent, while the average annual rate of inflation during the same period was 9.7 percent. This means that Ethiopians were having an increasingly difficult time purchasing the commodities, such as food, that are essential for human existence.

The Ethiopian economy remains highly dependent upon coffee production, with 25 percent of the population deriving its livelihood from the coffee sector. Indeed, from 1995 to 1998, coffee accounted for an average of 55 percent of the country's total value of exports. Gold, leather products, and oilseeds constitute some of the country's other important exports. Major export partners include Germany, Japan, Italy, and the United Kingdom, while import partners include Italy, the United States, Japan, and Jordan. Ethiopia's imports include food and live animals, petroleum and petroleum products, chemicals, machinery, and motor vehicles.

Since Ethiopia mostly exports agricultural products and imports higher valued capital goods, the country runs a severe balance of trade deficit. This deficit, in turn, means that Ethiopia must borrow heavily to finance its imports, a factor that has led to the development of a significantly sized external debt (owed to both foreign-owned banks and international financial institutions, such as the World Bank and the IMF). In 1997, the total debt stood at US$10 billion. The frequent droughts that plague the country also prevent the creation of a self-sufficient agricultural economy. Consequently, as many as 4.6 million people rely on annual food assistance provided by the wealthy industrial countries. Indeed, Ethiopia is the largest recipient of U.S. aid in sub-Saharan Africa. Notwithstanding (not including) emergency food aid, in 1996 Ethiopia received a total of US$45 million in Official Development Assistance (ODA) from the United States alone.

POLITICS, GOVERNMENT, AND TAXATION

The executive branch of the Ethiopian government consists of both an elected president, who is the chief of state, and a prime minister, who is the head of government. Cabinet ministers are selected by the prime minister and approved by the House of People's Representatives, the lower chamber of the bicameral parliament. Members of the lower chamber are directly elected by popular vote, while members of the upper chamber, the House of Federation, are chosen by the various state assemblies. The president and vice president of the Federal Supreme Court, the chief institution of the judicial branch of government, are recommended by the prime minister and appointed by the House of People's Representatives.

In June 1994, the first democratic multiparty elections in Ethiopia's history took place, ending a 3-year transitional period that commenced following the overthrow of the Derg regime. During the transitory phase, the Eritrean People's Liberation Front (EPLF) assumed control of Eritrea and established a provisional government in the Ethiopian province. In April 1993, the EPLF administered a separatist referendum under the auspices of the United Nations (UN), which subsequently formed the basis of a declaration of independence at the end of that month. Thereafter, Eritrea was recognized internationally as an independent sovereign nation. Since 1998, Ethiopia and Eritrea have officially been engaged in a border war as a result of territorial disputes.

The June 1994 national elections resulted in an overwhelming victory for the Ethiopian People's Revolutionary Democratic Front (EPRDF), a coalition of numerous ethnically based Derg-opposition movements led by the Tigrayan Peoples' Liberation Front (TPLF). The TPLF initially entered politics as a Marxist guerrilla movement bent on overthrowing the Derg regime. As the leading party in the EPRDF, however, the TPLF has officially adopted a pro-democracy and pro-free market stance, as its economic and political policies clearly make manifest. Nonetheless, the U.S. Department of State argues that the EPRDF displays certain residual (left-over) control-oriented tendencies, which result from the party's quasi-authoritarian guerrilla past (during the insurgency, the TPLF was directed necessarily as a military unit). The recently held 2000 national elections saw the EPRDF return to power, and Meles Zenawi, the leader of the party, is serving his second term as prime minister. Most observers have agreed that Zenawi's government has pursued sound policies, which have contributed to economic growth and reductions in unemployment.

Several other parties also add to the plurality of Ethiopian political life, including the Coalition of Alternative Forces for Peace and Democracy (CAFPD); the Ethiopian Democratic Union (EDU); The Ethiopian Movement for Democracy, Peace, and Unity (EMDPU); the Ethiopian National Democratic Party (ENDP); the Oromo Liberation Front; and the All-Amhara People's Organization (AAPO), not to mention dozens of other smaller parties. While most parties are more or less prodemocracy and pro-free market, several Ethiopian parties, including the last 2 listed above, represent the specific interests of particular ethnic groups.

Import duties, which ranged from 0 to 50 percent and averaged approximately 20 percent in 1997, are the most significant contributor to government tax revenue. Income tax on employment, in turn, is the second most important source of tax revenue, while taxation of business profits is the third most important. There are 5 income tax brackets, with the highest marginal tax rate set at 40 percent for monthly incomes above 3,301 birr, and the lowest marginal tax rate set at 10 percent for monthly incomes between 121 to 600 birr. The profits of incorporated businesses are taxed at a uniform rate of 35 percent. Excise taxes are also quite important, and the tax rates of many products, including pure alcohol (150 percent), perfumes and automobiles (100 percent), dishwashers (80 percent), and tobacco and tobacco products (75 percent), are set at exceptionally high rates. Since most of these items are luxury products, the high tax rates do not affect poor consumers. However some of the more essential commodities, such as petroleum and petroleum products (20 percent), are also taxed quite heavily. The government's total revenue stood at US__BODY__ billion in 1996.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

According to the U.S. Department of State's Country Commercial Guide 2000, Ethiopia's surface and transport infrastructure is exceedingly poor and underdeveloped. Indeed, the country has the lowest road density in the world, and only 13.3 percent of all roads are paved (1999 est.). There are few interconnecting links between nearby regions and large parts of the country are isolated and dependent upon pack animals for transportation. The main highway route is from Addis Ababa to the port of Djibouti, which Ethiopia uses extensively since it is a landlocked country without ports and harbors of its own. The only train network consists of the 681-kilometer (423-mile) long segment of the century old Addis Ababa-Djibouti railroad.

Since May 1998, Ethiopia has expended considerable effort to repair and maintain the railroad lines. Moreover, with the help of various donors, including the World Bank, the European Union (EU), and the African Development Bank (ADB), the government has implemented a US$3.9 billion Road Sector Development Plan designed to expand the road network by 80 percent for 2007. In 1998, the World Bank approved a US$309 million loan to be used for the project, a welcome contribution even though the loan will contribute significantly to Ethiopia's overall debt.

As for air transport, there are a total of 85 airports in Ethiopia, 11 of which have paved runways. All passenger and cargo flights are provided by Ethiopian airlines. The airlines' international services link the country with 43 cities on 3 continents, while domestic services link 38 airfields and 21 landing strips with Addis Ababa.

The government-owned Ethiopian Telecommunications Corporation (ETC) provides the population with telephone services. However, with only 3.1 telephone mainlines per 1,000 people, very few Ethiopians actually have telephone access (1999 est.). The situation compares unfavorably with most other sub-Saharan African nations, to say nothing of the wealthier industrialized nations of the world. In the United States, for example, there are 640 phone lines per 1,000 people (1996 est.).

Almost 90 percent of Ethiopia's electricity is derived from hydropower, which is exclusively provided by the parastatal Ethiopian Electric Power Corporation. In 1999, the country's total electric capacity was 400 megawatts. Over the next several years, the government plans on tripling this capacity to reach 1,200 megawatts. Although doing so would satisfy current electrical needs, Ethiopia has an untapped natural potential to generate over 30,000 megawatts of hydroelectric power. Ethiopia neither exports nor imports electricity, though it does heavily import oil.

ECONOMIC SECTORS

Like most of the countries of the African continent, Ethiopia's economy is dominated by agricultural production. For many similar countries, this dominance is the direct result of the colonial period, which encouraged policies of agricultural exportation at the expense of industrial development. African territories were forced to export primary crops to their colonizing countries and to import higher value-added manufactured commodities. For Ethiopia, however, which was never a European colony, the agricultural predominance is in part a historical legacy of the feudalistic policies that prevailed throughout most of 20th century. These policies consisted of onerous (oppressive) obligations on the part of the peasantry, who were expected to provide high taxes and agricultural surplus to sustain the livelihoods of the ruling classes (consisting of the royal family, government officials, and lords and nobles). In this system, which lasted until the mid-1970s, the government was more concerned with maintaining the rule of the status quo (the existing order) than in fostering industrial development, which resulted in the foreign domination of industry.

Industry still remains a relatively small aspect of the Ethiopian economy, though there is potential for growth in both manufacturing and mining. The service sector, which has become extremely important in terms of contribution to the gross domestic product (GDP), is characterized by a strong financial system. Tourism is one area of the service sector that is currently marginal, though there is significant potential for commercial development.

AGRICULTURE

Agriculture, which constituted 46 percent of GDP and more than 80 percent of exports in 1998, is by far the most important economic activity in the Ethiopian economy (1998 est.). An estimated 85 percent of the population are engaged in agricultural production. Important agricultural exports include coffee, hides and skins (leather products), pulses, oilseeds, beeswax, and, increasingly, tea. Domestically, meat and dairy production play an integral role for subsistence purposes.

Socialist agricultural reforms conducted by the Derg included land reforms that led to relatively equitable patterns of land tenure. The state maintained complete ownership of land, and state marketing boards were created with monopolistic rights to purchase and sell agricultural commodities. Currently, the government retains the right of ultimate land ownership in the agricultural sector, though most marketing boards have been abolished. While marketing boards enabled farmers to sell their crops to the highest bidder, they also required the dissolution of minimum prices for agricultural commodities. Since the government normally purchased agricultural commodities at low prices, however, the abolition of marketing boards may prove to be a positive development.

With 25 percent of all Ethiopians—approximately 15 million people—gaining their livelihoods from coffee production, the coffee sector is the most important agricultural activity. According to the U.S. Central Intelligence Agency World Factbook 2000, coffee production, Ethiopia's largest source of foreign exchange, contributed US$267 million to the economy in 1999, with export volumes equaling 105,000 metric tons. Coffee has long held a central role in Ethiopia's export economy and, as early as the mid-1970s, about 55 percent of the nation's total export earnings derived from coffee exports. This percentage share remained more or less constant until the mid-1990s, when it increased to an average of 63 percent of total export earnings between 1995 to 1998.

With the export economy so heavily dependent upon the exportation of a single crop, the Ethiopian economy is structured into a precarious (insecure and dangerous) position. If annual production declines as a result of a bad harvest (due to natural factors, such as drought—a constant threat), export earnings will suffer considerably, exacerbating (making worse) the country's already negative balance of trade. Similarly, if all coffee producing countries produce large amounts of coffee in a given year—resulting in an excessive supply—international prices for coffee will decline and Ethiopia's export economy will accordingly suffer. Such was the case in 1998, when a glut in the world supply of coffee reduced Ethiopia's coffee earnings by 22 percent from the previous year.

With 75 million heads of livestock, Ethiopia has the largest concentration of livestock on the African continent. According to the Country Commercial Guide 2000, however, it is difficult to calculate the cattle sector's exact value, since a substantial amount of meat and dairy production is for subsistence consumption. In certain regions, such as the highlands, livestock is utilized only to support farming. Still, hides and leather products are Ethiopia's second most important export, though the Commercial Guide states that the sector's huge potential remains largely untapped, as a result of weather conditions (drought), diseases, and the lack of a coherent government plan for the development of the sector. In 1996, Ethiopia produced 8,500 metric tons of leather and leather products for exportation, thereby earning a total of US$6.5 million.

Ethiopia is also the continent's leading producer and exporter of beeswax and honey. The country has approximately 7 million bee colonies. Other important agricultural activities include tea production, which has reached approximately 4,000 metric tons of output in recent years, and cotton and sugar production. Moreover, there are opportunities for expanding cultivation and export of dried fruits, cut flowers, and canned vegetable products.

While the agricultural export economy is constantly subjected to the caprices (whims) of the weather, so too is agricultural production geared towards domestic consumption. In 1992, for example, IMF statistics indicate that Ethiopia produced 51,850 quintals of cereals, mostly for domestic consumption, whereas the following year the cereals output dropped to 47,404 quintals—a decline of 8.6 percent. The decrease was largely the result of drought. The fact that Ethiopia has an extremely poor infrastructure for agricultural production does not help the matter. Though there is the potential for Ethiopia to become self-sufficient in grain production, the country must currently continue to import grains in addition to receiving food aid in order to feed the population.

Like many African countries, Ethiopia confronts several environmental issues that are particularly problematic for the agricultural sector of the economy. Such issues include deforestation (depletion of forests), over-grazing (depletion of pastures), soil erosion (depletion of quality soil), and desertification (extensive drying of the land). Since only 12 percent of all Ethiopian land is arable, 1 percent is used for permanent crops, and 40 percent is comprised of permanent pastures, it is essential for Ethiopia to address these environmental problems in order to maintain the land so fundamental for agricultural activities. Moreover, according to Girma Kebbede, the author of The State and Development in Ethiopia, it is precisely these environmental problems—rather than just the shifting weather patterns—which contribute primarily to the chronic famines that so frequently plague the country. Quite simply, limited arable land as a result of soil erosion and other environmental difficulties mean that in times of drought, there are very few available methods to prevent widespread famine.

INDUSTRY

Ethiopian industry, including both mining and manufacturing, constitutes approximately 12 percent of the GDP, while providing employment for 8 percent of the country's labor force (1998 est.). Under the Derg regime, almost all of the major industries were owned exclusively by the state. With a marginal average annual growth rate of 3.8 percent between 1980 and 1987, the state's policies of industrial control did not fare well. According to Kebbede, the failure of such policies can be attributed to "bureaucratic mismanagement, inefficiency, and corruption." State bureaucracies were costly and wasteful because they were not held responsible to any section of the society and because political and ideological questions took precedence over questions of efficiency or practicality. At the same time, however, one must remember that for many impoverished African countries fearful of foreign domination and eager to create more or less equitable societies, state control of industry seemed to be the most reasonable form of economic organization throughout the 1960s and 1970s. The country's first democratic government, formed in the early 1990s, made privatization of Ethiopia's industrial sector a major objective to promote economic growth, but progress remained slow at the beginning of 2000.

MINING.

Regarding the exploitation of natural resources, gold, marble, limestone, and small amounts of tantalum are the major minerals mined in Ethiopia. Of these minerals, gold, which provided US$12.5 million to the economy in 1996, is the most significant contributor to export earnings. Gold mining output has oscillated (wavered) considerably throughout the 1990s, fluctuating, for example, from 3,500 metric tons in 1992 to 1,800 metric tons in 1994 and 5,100 metric tons in 1996. Traditionally, the mining industry, which remains under state domination, has played a marginal role in Ethiopia's economy. Resources with potential for future commercial development include potash (recently found in large deposits), natural gas, iron ore, and possibly coal and geothermal energy.

MANUFACTURING.

Manufacturing as a percentage of the GDP only marginally increased throughout the 1990s.

In 1992, for example, manufacturing constituted 3.9 percent of the GDP, whereas its percentage share had slightly increased to 4.3 percent by 1998.

The manufacturing sector of the Ethiopian economy produces construction materials, metal, and chemical goods, in addition to basic consumer goods such as food, beverages, clothing, and textiles. Despite massive privatization campaigns, the industrial sector remained dominated by the state, with 150 public (state) enterprises accounting for more than 90 percent of the entire sector's value in 1999. Production by state-owned enterprises is centered on food and beverages, textiles, clothing, leather products, tobacco, rubber, plastic and cement. In 1999, there were also 165 private sector manufacturing firms involved in producing goods such as bakery products, textiles, footwear, and furniture.

Though certain areas of manufacturing are now open to participation by foreigners with permanent residence status as a result of legislation passed in 1998, still other areas, such as garment factories, are restricted from foreign participation. In 1998, there were a total of 163 foreign investment projects with total projected capital investment of US__BODY__.2 billion. Of these projects, 90 were wholly foreign owned while 73 were joint ventures with local partners. Major foreign investors include the United States, with investments worth US$9 million in 1999, as well as Saudi Arabia, South Korea, Kuwait, and Italy. U.S.-based manufacturing companies that have a significant presence in Ethiopia include Pepsi-Cola, Coca-Cola, Caterpillar, General Motors, Xerox, and John Deere. Numerous other U.S. firms also operate in Ethiopia, albeit in different sectors of the economy.

SERVICES

Accounting for 42 percent of the GDP, services are an extremely important component of Ethiopia's economy (1998 est.). At the same time, however, with only 12 percent of the labor force engaged in services and government employment, a relatively small percentage of Ethiopians work in the service sector. The large contribution of services to the GDP stems mostly from the government and the strong financial sector.

TOURISM.

According to the aforementioned Country Commercial Guide 2000, the tourism industry in Ethiopia is negligible, though there is great potential for commercial development. With many unique indigenous plant, bird, and mammal species, the country has an enormous diversity of wildlife, exotic landscapes, and architectural ruins of prehistoric, historical, and religious significance. As such, Ethiopia is an ideal location for foreign and local visitors embarking upon historic, cultural, or ecotourism expeditions.

FINANCIAL SERVICES.

Following the 1974 revolution, the banking and financial sector in general came under the domination of the state. In 1994, legislation was passed that permitted the establishment of private banks and insurance companies but prohibited foreign ownership of such companies.

Ethiopia's central bank, the National Bank of Ethiopia (NBE), seeks to foster monetary stability and a sound financial system by maintaining credit and exchange conditions perceived to be conducive to the balanced growth of the economy. All transactions in foreign exchange must be carried out through authorized dealers under the control of the NBE. The Commercial Bank of Ethiopia (CBE), whose assets totaled over US$3 billion in 1996, is a government-owned bank with 167 branches in operation and over US__BODY__.5 billion on deposit (1996 est.). The CBE, the largest bank in Ethiopia, offers credit to investors on market terms, though the 100 percent collateral requirement limits the ability of small entrepreneurs with limited resources to capitalize upon business opportunities.

Ethiopia's first private bank, Awash, commenced operations in 1994 and now boasts 6 branches in Addis Ababa and 2 in the Oromiya Regional State. In addition to Awash, 5 other private banks now operate in Ethiopia, including Dashen Bank (with a total of 12 branches), the Bank of Abyssinia (2 branches), and Wegagen Bank (5 branches). The 2 newest private banks in operation are NIB International and United Bank. Since the banking and financial reforms of 1994, there are also 7 private insurance companies in operation—United, Africa, Nile, Nyala, Awash, National, and Global. Ethiopia does not have a securities market, although the U.S. Department of State reported that a private sector initiative to establish a mechanism for buying and selling company shares was expected to begin by the year 2000.

RETAIL.

Ethiopia's retail sector consists mostly of small shops, local markets, and roadside stands, many of which are part of the informal sector of the economy, which remains unregulated and untaxed. Investment legislation passed in September 1998 also allows foreigners with permanent resident status to participate in retail and wholesale trade.

INTERNATIONAL TRADE

Ethiopia has chronically run a negative balance of payments, rendering the country highly dependent upon foreign aid and loans to finance imports. Throughout the 1990s, the situation has shown little sign of improvement. Indeed, the balance of trade deficit was US$829.4 million in 1992 and—despite a brief amelioration in 1994 when the deficit declined to US$609.5 million—it remained approximately the same in 1998, when it

reached US$830.0 million. The constant deficit ensures Ethiopia's perpetual indebtedness to the commercial banks of the rich industrial countries and international financial institutions, such as the IMF, the World Bank, and the ADB. In 1997, Ethiopia's total external debt stood at US$10 billion.

Ethiopia's major exports include coffee, gold, leather products, beeswax, canned vegetables, tea, sugar, cotton, and oilseeds. Purchasing approximately 22 percent of Ethiopia's exports in 1997, Germany is Ethiopia's largest trading partner. Along with many other countries of EU— such as Italy, France, and the United Kingdom—Germany has steadily increased its quantity of Ethiopian imports. In 1992, for instance, the countries of the EU purchased approximately Br203.3 million worth of Ethiopian exports, whereas this figure increased dramatically to Br1,351.5 million in 1996. Similarly, the United States has increased its quantity of Ethiopian imports from Br19.6 million in 1992 to Br169.9 million in 1996. This major increase in trade with the Western countries can be explained primarily by the fall of the Derg and the subsequent liberalization policies pursued by the EPRDF. Other major importers of Ethiopian products include Saudi Arabia, China, and Japan, the latter of which purchased 12 percent of all Ethiopian exports in 1997. Ethiopia's largest trading partner in Africa is Djibouti, a neighboring country through which Ethiopia must conduct all of its importing and exporting since Ethiopia is landlocked and thus lacks a port of its own.

Ethiopia's major imports include food and live animals, petroleum and petroleum products, chemicals, machinery, civil and military aircraft, transport and industrial capital goods, agricultural machinery and equipment, and motor vehicles. Ethiopia's imports have followed the same pattern as its exports in the 1990s, with the percentage of imports from the countries of the EU and the United States steadily increasing. In 1991, imports worth Br364.7 million were purchased from the countries of the EU, while this figure increased to Br2,006.7 million in 1995. In the same year, a similar value (Br2,300.7 million) of imports came from various countries of Asia and the Middle East, including Japan, Saudi Arabia, and China. With imports to Ethiopia equaling Br146.8 million in 1995, Djibouti is Ethiopia's number-one regional exporter, while Kenya is second.

Ethiopia's balance of trade deficit can be largely explained by the unequal terms of trade between agricultural commodities (the country's major exports) and capital goods (Ethiopia's major imports). International markets accord a higher price to commodities that are manufactured—or "value-added"—than to those that are in their raw form. Recognizing the uneven terms of international trade, many countries, including Ethiopia, pursued policies of protectionism throughout the 1960s and 1970s to develop national industrial capacity or import-substitution. In many cases, where the state pursued policies of complete industrial control, they failed miserably. For others, however, such as the economies of Southeast Asia, the policies were more successful, enabling these countries to eventually partake in liberalized free trade at the global level.

Ethiopia's policies of import substitution were largely disastrous. This does not mean, however, that the country should necessarily abandon all forms of protection in favor of free trade, which is theoretically designed to increase the efficiency of national industries through competition with the outside world. Instead, such liberalization may lead to the inability of Ethiopian industries to compete at all, thereby further assuring the dominance of the agricultural sector. To date, Ethiopia has proceeded with the liberalization process relatively cautiously, maintaining an average tariff rate of approximately 20 percent (1997 est.), though there are plans to reduce this figure to 17 to 18 percent. Ethiopia is considering application to the World Trade Organization (WTO), and it is already a member of the Common Market for Eastern and Southern Africa (COMESA). Regional trading arrangements such as the latter may offer member countries the opportunity to profit from increased trade while competing from a more level playing field. There has been little trade increase between the members of COMESA, however.

MONEY

Prior to 1993, the official rate of the Ethiopian birr was pegged (fixed) to the U.S. dollar at US__BODY__:Br5.000. Since a pegged exchange rate does not necessarily represent a currency's true market value, the EPRDF replaced the fixed exchange rate system with a floating exchange rate system. The value of the birr is thus determined in an inter-bank market where the national bank sells foreign currency to private banks, the Commercial Bank of Ethiopia, and large corporations at weekly auctions.

In this way, the official exchange rate is auction-determined. The purchasers of foreign exchange, in turn, are free to establish their own exchange rates.

The value of the birr in relation to the U.S. dollar has steadily depreciated since the implementation of the floating exchange system. In 1995, for instance, the exchange rate was set at US__BODY__:Br6.3200 while, 3 years later in 1998, the rate had decreased to US__BODY__:Br7.5030. As of January 2000, the rate was determined at US__BODY__:Br8.2.

According to the Country Commercial Guide 2000, the Ethiopian currency has remained relatively stable, especially in comparison to the currencies of most other sub-Saharan African nations, as a result of conservative monetary policies and considerable foreign exchange reserves. Nonetheless, the steady depreciation of the currency means that it takes a growing amount of Ethiopian birr to purchase imports from abroad. While this can help the export economy, since fewer U.S. dollars are needed to purchase Ethiopian exports, it also renders valuable imports, such as food for the population, more expensive. In 1998, incidentally, food imports constituted 14 percent of all merchandise imports.

POVERTY AND WEALTH

Under the rule of Haile Selassie, Ethiopian society was characterized by gross inequality between the largely aristocratic elite—consisting of landowners, lords, nobles, the royal family, government officials, and elements of the clergy—and the impoverished peasantry. Indeed, according to Kebbede, the massive famines of the 1960s could have been avoided if the obligations on the part of the peasantry towards the elite (in terms of providing agricultural produce) had not been so oppressive. The Derg regime subsequently abolished feudal obligations and titles of privilege, even going to the extreme of executing numerous members of the high-ranking nobility (the socalled "red terror"). Despite the egalitarian rhetoric of the Derg, however, high-ranking government officials

retained privileged economic positions. Today, Ethiopia's elite continues to consist of government officials, in addition to a small upper class of highly skilled managers and professionals.

Like all the countries of Sub-Saharan Africa, poverty is rampant in Ethiopia. The UNDP's Human Development Index (HDI) listings, which arranges countries according to their overall level of human development, ranks Ethiopia 171st out of a total of 174 nations. The HDI is a composite index (one that assesses more than one variable) that measures life expectance at birth, adult literacy rate, school enrollment ratio, and the GDP per capita. It is indicative of a country's general social and economic well-being. As such, Ethiopia's HDI ranking demonstrates that the country is one of the poorest and least developed in the world. Fortunately, the situation has shown small signs of improvement, and the Ethiopian HDI score increased from a dismal 0.265 in 1985 to a slightly better 0.309 in 1998 (the highest possible rank is 1.0, and Canada—the highest ranking HDI country— scored 0.935 in 1998).

The Ethiopian government spends relatively little on education and health. In 1998, for example, public expenditure on health and education as percentages of the GDP equaled 1.6 percent and 4.0 percent respectively. Though these expenditures displayed marginal increases,

they are nowhere near the percentage level of industrialized countries, such as the United States, which spent 5.4 percent of the GDP on education and 6.5 percent on health in 1998. Moreover, the Ethiopian government spends a significant amount on military expenditure, largely as a result of the border war with Eritrea, though such expenses have decreased substantially from 10.4 percent of the GDP in 1990 to 3.8 percent in 1998. The fact that the Ethiopian government must continually service a large debt does not help the social expenditure cause.

The vast majority of Ethiopians spend their meager incomes on the basic necessities of life, such as food, rents, clothing, fuel, and transportation. Very little is spent on entertainment and recreation, which are considered luxuries for those that live in considerable poverty. To make matters worse, in the past 10 years, the increase in the GNP per capita has been grossly outweighed by mounting inflation, which means that Ethiopians are having an increasingly difficult time purchasing the commodities essential for human existence. The UNDP estimates that the annual growth rate in GNP per capita between 1990 to 1998 was 1.0 percent, while the average annual rate of inflation during the same period was 9.7 percent.

WORKING CONDITIONS

Since 85 percent of Ethiopia's workforce engages in subsistence farming in the countryside, only a very small percentage of the population is involved in wage labor. The Ethiopian constitution and the 1993 labor law provide wage laborers with the right to form and belong to unions, though employees of the civil and security services (where most wage earners work), judges, and prosecutors are denied these rights. The Confederation of Ethiopian Trade Unions (CETU), established after the fall of the Derg regime in 1993, includes 9 federations organized by industrial and service sector. There is no requirement that unions belong to the CETU. Approximately 250,000 Ethiopian workers are unionized.

Workers who provide an "essential service," such as those who work in air transport, railways, bus service, police and fire services, post and telecommunications, banks, and pharmacies, are denied the right to strike. Other workers are granted the right to strike, though the unions involved must follow certain detailed procedures before doing so. The same applies for the right of an employer to lock out workers. Both sides must make efforts at reconciliation and provide at least 10 days notice to the government before the commencement of an action.

The minimum age for wage labor is 14 years, and various laws protect children between the ages of 14 to 18 years, including restrictions that they may not work more than 7 hours per day. The U.S. Department of State maintains that there are some efforts to enforce such regulations within the formal industrial sector, though there are large numbers of children of all ages that grow and harvest crops outside government regulatory control in the countryside or work as street peddlers in the cities. The harsh reality is that many impoverished parents depend on the work contributions of their children to ensure the survival of the household.

While there is no minimum wage in the private sector, a minimum wage in the public sector has been in effect since 1985. According to the U.S. Department of State, however, the minimum wage in the public sector, which equaled about US$16 per month in 1996, is insufficient to provide a decent standard of living for a worker and family. The Office of the Study of Wages and Other Remunerations, for instance, reports that a family of 5 requires a monthly income of US$61 in Ethiopia. Even with 2 minimum wage earners, therefore, a family receives only about half the income needed for adequate subsistence. These factors result in the family's reliance upon the children to contribute to the household income.

Most employees in Ethiopia work a 40-hour week, and the government, industry, and unions negotiate occupational health and safety standards. The Inspection Department of the Ministry of Labor and Social Affairs cannot enforce these standards effectively, however, due to a lack of human and financial resources.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

5TH CENTURY B.C. Ethiopia becomes one of the first countries in Africa. Ethiopia is described by the Greek historian Herodotus, and the Old Testament records a visit by the Ethiopian Queen of Sheba to Jerusalem.

4TH CENTURY. Missionaries from Syria and Egypt introduce Christianity to the country.

1493. The Portuguese establish contact with Ethiopia, prompting a lengthy conflict between Roman Catholic converts and adherents of Ethiopian Coptic Christianity.

1630s. All foreign missionaries are expelled from Ethiopia, and the country subsequently remains isolated from the West until the mid-19th century.

MID-19TH CENTURY. Under the Emperors Theodore (1855-68), Johannes IV (1872-89), and Menelik II (1889-1913), Ethiopia becomes a modern state characterized by political centralization.

1930. Adopting the throne name Haile Selassie, Ras Tafari Makonnen is crowned emperor, commencing a lengthy period of rule that witnesses the perpetuation of a quasi-feudal system, albeit with marginal reforms.

1936-42. The Italians occupy Ethiopia despite Selassie's plea to the League of Nations for intervention. The Italians are expelled by British and Ethiopian forces, and Selassie returns to rule after a period of forced exile.

1974. Following a period of civil unrest, Selassie is deposed, and a military administrative council known as the Derg declares a military dictatorship supposedly based on socialist principles. The Derg, which pursues abhorrent policies of political repression (the "red terror"), nationalizes the land and most of the economy.

1991. Ethnic insurrection, a collapsed economy, and recalcitrant (rebellious) students cause the final collapse of the Derg regime. The Ethiopian People's Revolutionary Democratic Front (EPRDF) is democratically voted into office.

1993. Eritrea establishes its independence under a UN-monitored referendum. Ethiopia and Eritrea commence a border war that continues to restrain the development of both countries.

FUTURE TRENDS

Despite the pervasive poverty, marginal growth rates, and tumultuous political and economic history of Ethiopia, there are several signs indicative of hope and improvement. For the first time in the country's history, for instance, an effective democracy has been institutionalized. While this will most certainly not solve Ethiopia's deeply embedded economic difficulties overnight, it is, if nothing else, a huge step forward in the direction of the establishment of a responsive and stable government. Moreover, the economy has experienced an unprecedented degree of stability since the mid-1990s, though this is, admittedly, counterbalanced by a precarious agricultural dependence and a chronic balance of payments deficit.

While there are undeniably positive developments, there remain severe impediments that prevent the assurance of a sustained path towards economic development. Perhaps the most significant question that the Ethiopian government must address is the specific policy framework that must be implemented over an extended period of time to surmount these impediments. Privatization and the absolute rule of the free market currently reign supreme in the international neo- liberal economic environment. Rather than accepting the virtues of neo-liberal ideology at face value, however, Ethiopia must adopt policies that are relevant to its particular circumstances. To its credit, this is precisely what the EPRDF seem to be doing. Though the government has pursued policies of trade liberalization, they have not promoted unobstructed free trade. Similarly, while many state-owned enterprises have been privatized, the government retains a considerable role in certain areas of the economy, such as telecommunications, infrastructure provision, and electricity. Moreover, foreign dominance, which can be nationally unprofitable, has been entirely excluded from certain segments of the economy, such as the finance sector. The EPRDF must continue along this path, withstanding international pressure to create a complete free market economy that may not be appropriate at this stage of Ethiopia's economic development.

DEPENDENCIES

Ethiopia has no territories or colonies.

BIBLIOGRAPHY

Araia, Ghelawdewos. Ethiopia: The Political Economy of Transition. Lanham, Maryland: University Press of America, 1995.

Hansson, Gote. The Ethiopian Economy 1974-1994: Ethiopian Tikdem and After. London: Routledge, 1995.

International Monetary Fund. "IMF Staff Country Report, Ethiopia: Statistical Appendix." <http://www.imf.org>. Accessed May 2001.

Kebbede, Girma. The State and Development in Ethiopia. NewJersey: Humanities Press, 1992.

United Nations Development Programme. Human Development Report 2000. New York: Oxford University Press, 2000.

U.S. Central Intelligence Agency. World Factbook 2000. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed May 2001.

U.S. Department of State. Background Notes: Ethiopia. <http://www.state.gov/www/background_notes/ethiopia_0398 _bgn.html>. Accessed May 2001.

U.S. Department of State. FY 2000 Country Commercial Guide: Ethiopia. <http://www.state.gov/www/about_state/business/com_guides/2000/africa/ethiopia00_08.html>. Accessed May 2001.

World Bank Group. Ethiopia: Competitiveness Indicators. <http://wbln0018.worldbank.org/psd/compete.nsf/1f2245620075540d85256490005fb73a/74c17aa2249b1b70852564e40068db3c>. Accessed May 2001.

Neil Burron

CAPITAL:

Addis Ababa.

MONETARY UNIT:

Ethiopian birr (Br). One Ethiopian birr equals 100 cents. Notes come in denominations of 1, 5, 10, 50, and 100 birr, and coins come in denominations of 5, 10, 25, and 50 cents.

CHIEF EXPORTS:

Coffee, gold, leather products, oilseeds.

CHIEF IMPORTS:

Food and live animals, petroleum and petroleum products, chemicals, machinery, motor vehicles.

GROSS DOMESTIC PRODUCT:

US$33.3 billion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$420 million (1998 est.). Imports: US__BODY__.25 billion (1998 est.).