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COUNTRY REPORT

December 2000

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Contents

3 Summary

Ethiopia

5 Political structure 6 Economic structure 6 Quarterly indicators 7 Annual indicators 8 Outlook for 2001-02 8 Political outlook 9 Economic policy outlook 10 Economic forecast 10 The political scene 12 Economic policy and the economy

Eritrea

15 Political structure 16 Economic structure 17 Outlook for 2001-02 17 Political outlook 17 Economic forecast 18 The political scene 20 Economic policy and the economy

Somalia

22 Political structure 23 Economic structure 23 Annual indicators 24 Outlook for 2001-02 25 The political scene 29 Economic policy and the economy 31 News from the Somaliland Republic

Djibouti

32 Political structure 33 Economic structure 33 Annual indicators 34 Quarterly indicators 35 Outlook for 2001-02 36 The political scene 38 Economic policy and the economy

List of tables

13 Ethiopia: coffee production

List of figures

10 Ethiopia: gross domestic product 18 Eritrea: gross domestic product 36 Djibouti: gross domestic product

EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 3

Summary

December 2000

Ethiopia

Outlook for 2001-02 As expected, affiliates of the ruling Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) dominate the new federal assembly, which will continue to be a largely powerless body. The decision of the prime minister, Meles Zenawi, in October to retain his cabinet unchanged indicates that political decision-making remains outside formal channels. The coming year will further boost the importance of commercial conglomerates linked to the ruling party. The government will continue clumsily to stifle dissent and debate. Ethiopia is expected to be awarded PRGF and HIPC deals in 2001, leading to an increase in real GDP growth over the forecast period. Lower military expenditure in 2002 should help to narrow the current-account deficit.

The political scene The first session of Ethiopia’s federal legislature—the Council of Peoples’ Representatives—opened on October 9th, almost five months after the elections. The lack of urgency in convening the Council reflects unchanged membership and affiliation.

Economic policy and the Ethiopia’s annual food-assessment exercise began in early November, with economy initial estimates of the year’s main-season meher crop, and thus the likely size of food-aid requirements for 2001, which are expected to be announced in mid-December. Meetings with IMF and World Bank staff indicate that donors will resume lending now that the fighting has stopped. Work on Ethiopia’s PRSP is under way.

Eritrea

Outlook for 2001-02 The government has announced that the country’s first general election will take place in December 2001, although complaints that this is too far in the future may create political tension. The World Bank board is considering a three-year US$288m aid package, which will focus on technical assistance to internally displaced people. Aid and normal weather patterns will be essential for real economic growth in 2001-02.

The political scene Military observers from 22 countries were deployed in September and October in Ethiopia and Eritrea, under the auspices of the UN Mission in Ethiopia and Eritrea.

Economic policy and the Estimates from the Ministry of Agriculture in September revealed a sharp economy decrease in the area cultivated and crops produced in 2000. There was a further blow to the economy in September when Saudi Arabia, Yemen and other Gulf states imposed a ban on livestock imports from Eritrea because of an outbreak of Rift Valley fever on the Arabian Peninsula. The war-affected and drought-

affected people are likely to require emergency assistance well into 2001 and possibly until the end of that year.

Somalia

Outlook for 2001-02 Domestic opposition will make it difficult for the TNA to assert its authority. Prospects for peace will remain poor. A ban imposed by several Gulf states on imports of Somali livestock will hit the economy. Somaliland will remain wary of the new parliament and, while the TNA exists, the prospects for its international recognition will remain slim.

The political scene A new parliament has opened. Key ministerial positions in the government have been filled. Fighting between rival clans has continued throughout the country. The cabinet has been reshuffled in Puntland.

Economic policy and the An outbreak of Rift Valley fever in the Gulf has led to several countries banning economy imports of Somali livestock. Large quantities of banknotes have been imported, increasing inflation. The UN has unveiled a reconstruction plan. Mogadishu has been hit by a fuel crisis.

News from the Somaliland President Egal has refused talks with President Hassan of Somalia. A member of republic the TNA has been released from prison after being convicted of treason for attending the Arta conference. Somaliland citizens have a new passport.

Djibouti

Outlook for 2000-02 The success of the Somalia peace conference will lift the international standing of President Guelleh. The domestic political scene will remain tense, and even limited political reforms appear unlikely. Despite the interim settlement between Eritrea and Ethiopia, the latter’s trade will continue to be routed through Djibouti. Economic reform will proceed at a very slow pace and will be subject to setbacks; thus the IMF reform schedule is likely to be revised. The economy is not expected to show any dynamism or substantial growth.

The political scene President Guelleh has received considerable international praise for his role in convening and hosting the Somali peace conference. Violence against Ethiopian and French interests broke out at a pro-Palestinian march. The prime minister has returned home after six months of medical treatment. Full diplomatic relations with Eritrea have been restored.

Economic policy and the Two visits by IMF delegations have failed to resolve concerns over the lack of economy financial transparency and poor basic statistical reporting. A new port facility has been opened in the northern town of Tadjourah. A trade war with Ethiopia has broken out.

Editors: Christopher Eads (Ethiopia, Eritrea); Paul Gamble (Somalia, Djibouti); Douglas Mason (consulting editor) Editorial closing date November 22nd 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 Ethiopia 5

Ethiopia

Political structure

Official name Federal Democratic Republic of Ethiopia

Form of state Federal republic

Legal system The federal constitution was promulgated by the transitional authorities in December 1994. In May 1995 representatives were elected to the institutions of the new republic, which formally came into being in August 1995

National legislature The 548-member Council of Peoples’ Representatives is the federal assembly. The nine regional state councils have limited powers, including that of appointing the supervisory Federal Council

National elections National elections: May 2000 (federal and regional); next elections due in May 2005

Head of state President, currently Negaso Gidada, who has a largely ceremonial role and is appointed by the Council of Peoples’ Representatives

National government The prime minister and his cabinet (Council of Ministers), appointed in August 1995

Main political parties The Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) evolved from the coalition of armed groups that seized power in May 1991. It includes the Tigray People’s Liberation Front and the Amhara National Democratic Movement, formerly the Ethiopian Peoples’ Democratic Movement. The Oromo Liberation Front withdrew from the transitional government in July 1992 and was subsequently banned. Several small parties exist. Having boycotted the 1995 elections, some participated in the 2000 poll, but gained only a handful of seats.

Prime minister Meles Zenawi Deputy prime minister & minister of defence Tefera Walwa Deputy prime minister for economic affairs Kassu Illala

Key ministers Agriculture Mengistu Huluka Economic development & co-operation Girma Biru Education Guenet Zewde Finance Sufyan Ahmed Foreign affairs Seyoum Mesfin Health Adem Ibrahim Information & tourism Wolde-Mikael Chamo Justice Worede Woldu Wolde Labour & social affairs Hassan Abdullah Mines & energy Azedin Ali Public works & urban development Haile Aseged Trade & industry Kassahun Ayele Transport & communications Mohammed Dirir Water resources Shiferaw Yarso

Central bank governor Teklewolde Atnafu

Economic structure

Annual indicators

1996 1997 1998 1999a 2000a GDP at factor costb (Birr bn) 35.1 38.1 41.4 45.8c 51.4 Real GDP growthb (%) 10.6 5.2 –0.5 1.5 2.0 Consumer price inflationd (av; %) –5.1 –3.7 0.9 4.8c 5.0e Population (m) 56.4 58.1 59.9 61.4 62.0 Exports fob (US$ m) 418 588 568 460 450e Imports fob (US$ m) 1,002 1,019 1,042 1,250 n/a Current-account balance (US$ m) 89 –23 134 –100 n/a Reserves excl gold (year-end; US$ m) 732 501 511 459c 384f Total external debt (US$ bn) 10.1 10.1 10.3 10.3 n/a External debt service, paid (US$ m) 42.2 9.6 11.3 14.0 n/a Coffee productionb (‘000 tonnes) 230 228 230a 232 230 Exchange rate Birr:US$ (av) 6.35 6.71 7.12 7.94 8.11 November 17th 2000 Birr8.14:US$1

Origins of gross domestic product 1998/99b % Components of gross domestic product 1998/99b % Agriculture 44.8 Private consumption 81.3 Industry 11.7 Government consumption 16.4 Manufacturing 4.6 Gross fixed capital formation 18.2 Distribution services 14.8 Exports of goods & services 14.4 Other services 28.7 Imports of goods & services –30.3 GDP at factor cost 100.0 GDP at market prices 100.0

Principal exports fob 1998/99b US$ m Principal imports cif 1996/97b US$ m Coffee 259 Machinery 81 Qat 47 Vehicles 75 Oilseeds 44 Metal & metal products 74 Pulses 40 Electrical products 39

Main destinations of exports 1999g US$ m Main origins of imports 1999g US$ m Germany 74.3 Russia 85.4 Japan 57.6 Italy 120.7 Djibouti 46.5 Saudi Arabia 354.2 Saudi Arabia 31.4 US 78.8 a EIU estimates. b Fiscal years ending July 7th. c Actual. d Addis Ababa retail index. e Official estimate. f March 2000. g Based on partners’ trade returns; subject to a wide margin of error.

EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 Ethiopia 7

Quarterly indicators

1998 1999 2000 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3Qtr 4 Qtr 1 Qtr Prices Consumer prices Addis Ababa (1995=100) 98.1 102.1 100.7 101.9 108.0 111.0 n/a n/a % change, year on year 7.3 9.5 10.8 7.5 10.1 8.7 n/a n/a Financial indicators Exchange rate Birr:US$ (av) 7.03 7.15 7.37 7.59 7.93 8.12 8.13 8.15 Birr:US$ (end-period) 7.06 7.27 7.50 7.90 8.12 8.12 8.13 8.17 Interest rates (av; %) Deposit 6.00 6.00 6.00 6.00 6.13 6.47 6.67 6.70 Lending 10.50 10.50 10.50 10.50 10.50 10.50 10.83 10.99 Treasury bill 3.34 3.76 3.17 4.16 4.10 3.25 3.10 3.33 M1 (end-period; Birr m) 10,818 9,590 9,304 9,387 10,035 10,277 10,524 11,818 % change, year on year 10.1 –3.8 –7.8 –3.5 –7.2 7.2 13.1 25.9 M2 (end-period; Birr m) 18,980 18,062 17,792 17,106 18,111 18,598 19,001 20,447 % change, year on year 12.5 3.6 –2.8 –3.9 –4.6 3.0 6.8 19.5 Sectoral trends (annual totals; ‘000 tonnes) Coffee productiona ( 230 ) ( 232 ) n/a Foreign trade (Birr m) Exports fob 1,368 918 632 n/a 1,167 852 684 n/a Imports cif n/a n/a n/a –1,927 –2,447 –3,380 –2,760 n/a Trade balance n/a n/a n/a n/a –1,280 –2,529 –2,077 n/a Foreign payments (US$ m) Merchandise trade balance –64.4 –194.5 –248.6 –119.3 –181.5 –268.5 –227.8 n/a Services balance 9.1 –23.8 –5.8 14.2 8.7 –10.9 16.9 n/a Income balance –7.6 –10.0 –4.7 –7.1 –3.8 –8.8 –7.8 n/a Current-account balance 81.1 –91.1 –123.0 –33.7 –60.8 –149.5 –72.1 n/a Reserves excl gold (end-period) 439.4 419.5 511.1 474.3 n/a 509.9 458.5 384.1 a Estimates.

Sources: UN Food and Agriculture Organisation; IMF, International Financial Statistics; FT.

Outlook for 2001-02

Political outlook

Domestic politics The degree to which the war has brought political benefits to both the Ethiopian and the Eritrean ruling elites may be underestimated. For the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF), the war has deflected opinion both at home and abroad away from domestic political issues, and helped strengthen the centralised, organisational structures which are at the heart of its political culture and control. As expected, affiliates of the EPRDF completely dominate the new federal assembly, which will continue to be a largely powerless body. The decision of the prime minister, Meles Zenawi, in October to retain his cabinet unchanged reflects the fact that much political decision-making will remain outside formal channels. During the next year the importance of the commercial conglomerates linked to the ruling party will increase, as the economy gets back to a peacetime footing. Domestic politics— the distribution of power, resources and political patronage—should therefore be viewed not only in terms of the EPRDF’s political wings, but more within the context of its rapidly expanding commercial interests and affiliations. The government will continue clumsily to stifle dissent and debate from critics, and its attention is likely to switch from the press to the private radio stations that hope to start broadcasting in 2001.

The EPRDF and its Tigrayan core will remain deeply sensitive to the debate over the nature of Tigrayan identity and Ethiopian nationality which has been sparked off by the war. In particular, discussion of the the expulsion of around 60,000 Ethiopian citizens with Eritrean family ties, will remain excluded from political debate, and the issue of Tigrayan identity is likely to fester for another generation.

International relations Although the June 18th ceasefire agreement is expected to hold, until the UN peacekeeping force is in place the possibility remains that the fighting will resume. October’s failed negotiations in Algiers show that a comprehensive settlement remains a long way off. However, they also demonstrate a commitment by both sides to negotiation. Nevertheless the current stalemate is in Ethiopia’s short-term interest, and allows the UN to demonstrate “progress” by establishing an interposition force. Ethiopian forces will now remain deep within Eritrea until UN military observers supervise their withdrawal. UN staff will then monitor Eritrean movements the length of a 25- km-wide cordon sanitaire. Although fighting is unlikely to resume, the proposed 4,200-strong force provides ample scope for disagreement between Eritrea and Ethiopia over issues such as the composition of the UN force and the location of the 25-km buffer zone, given the complex topography of the region. As a result of these issues the Ethiopian withdrawal is likely to be very slow and piecemeal. Negotiations over compensation for war damage, and the treatment and repatriation of each others’ nationals offer considerable scope for point- scoring and propaganda and thus are likely to be used to gain advantage in the negotiations over the introduction and operation of the UN force.

EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 Ethiopia 9

The key factor in finding a resolution is mutual trust. Once the final agreement is signed—a key issue in terms of our outlook—and there is a measure of trust between each side and the United Nations Mission to Ethiopia and Eritrea (UNMEE )and with each other, progress will be made. Technically none of the issues is insurmountable, but given the lack of trust, the details of UNMEE’s composition and deployment still offer wide scope for procrastination. Without change in the political personnel in Ethiopia or in Eritrea, trust is unlikely to develop between the belligerents. National pride thus remains a major barrier to a sustainable resolution of the conflict. A comprehensive settlement does not depend primarily on delimitation of the frontier, but rather the re-establishment of trust and commercial ties between the core Tigrinya-speaking peoples on both sides of the highland borders.

Economic policy outlook

Now that some of the uncertainties associated with the previously volatile diplomatic and military stand-off with Eritrea have eased, both Ethiopian officials and foreign donors will reengage with longer-term planning. Para- doxically, it is not a durable long-term settlement with Eritrea that is essential for donors, rather the semblance of progress—in particular the smooth installation of the UN force—that is important. The link between peace and a resumption of significant foreign economic assistance was made explicit during Meles Zenawi’s trip to Washington in September, and to Ethiopia’s economic team at the IMF-World Bank summit in Prague a fortnight later.

Discussions with both World Bank and IMF staff will continue, as Ethiopian officials work on their, now mandatory, poverty reduction strategy paper (PRSP). Although Ethiopia successfully completed Article IV consultations with the IMF in mid-1999, the unease among multilateral donors about the war was heightened by changes of direction in economic policy and the Fund and the Bank had in effect suspended new credit to Ethiopia due to the war. Ethiopia is formally eligible for an IMF poverty reduction and growth facility (PRGF, the successor to the enhanced structural adjustment facility, or ESAF) and possibly the heavily indebted poor countries initiative (HIPC). Yet because of the war and friction with the Fund over Ethiopia’s previous ESAF, Ethiopia’s eligibility for HIPC debt reduction is less clear cut, and officials remain wary of the conditions imposed by donors. However, IMF missions to Ethiopia in August and October are reported t have gone smoothly. With the installation of the UN observer mission under way, Ethiopia now appears to be in a position to begin substantive negotiations over PRGF and debt-reduction packages.

The policy indicators causing the greatest concern to donors remain the fiscal deficit, estimated to be around 13% of GDP in fiscal year 2000/01 (July 8th-July 7th), and the jump in domestic borrowing due to the war, which only a resumption of external lending is likely to reduce. Regardless of donors’ wishes, even if peace persists, military expenditure is not expected to fall sharply during 2001-02. However, donors’ desire to see an emphasis on poverty reduction strategies can still be relatively easily met by the Ethiopian authorities. The war appears to have resulted largely in an overall increase in

expenditure, rather than a drastic cut in poverty-targeted expenditure on health, education and other social programmes. There has, however, clearly been a slump in capital spending. Donors will therefore seek a renewed commitment to investment in roads, schools and other infrastructure as key elements of any lending for post-war recovery.

Economic forecast

Natural, rather than political or military, factors will determine whether the bulk of impoverished Ethiopians will be able to feed themselves, and the overall state of the economy, in 2001-02. Ethiopia’s principal rains began late, and were light in many areas, but the outcome of the main (meher) harvest will be known only in mid-December. A UN-consolidated appeal and evaluation in conjunction with the government’s Disaster Prevention and Preparedness Commission (DPPC) for food aid needs in 2001 is to be submitted on January 2nd. In the light of food shortages stemming from last year’s mediocre main crop and the failure of the shorter (belg) season harvests, anything below an average meher crop will have calamitous consequences for Ethiopia’s war- torn economy. The estimate that 10.3m people will require food aid for the remainder of 2000 has now been extended well into 2001, owing to problems with food distribution and recent harvest calculations. The failure of another year’s crop, coming on top of the dislocation due to war in Tigray, would prolong the economic stagnation.

Given weak agricultural output, which accounts for roughly half of GDP, and current levels of military expenditure, which are certain to persist throughout 2001, Ethiopia faces another year of stagnant economic growth, with a contraction possible in real terms. Actual GDP growth for the 2000/01 fiscal year critically depends on the outcome of the current harvest, which should be known in mid-December, while economic performance in 2002 will depend on both the harvest and the restoration of foreign economic assistance.

The political scene

Meles retains his old The first session of Ethiopia’s federal legislature—the lower house formally ministers known as the Council of Peoples’ Representatives—opened on October 9th, three weeks after the start of the Ethiopian new year, and almost five months after the election. The lack of urgency in convening the Council reflects the lack of change in its membership. The Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) itself won 479 of the 547 seats in the election, which was a low-key event, being overshadowed by the assault on Eritrea (May 2000, page 12). However, most of the remaining seats went to bodies close to the ruling group, and, as in the outgoing legislature, the Council contains only a few voices genuinely willing and able to criticise the EPRDF.

As if to the emphasise the lack of change, parliament promptly reappointed its former speakers, and only four representatives demurred when the prime minister, Meles Zenawi, announced that he would retain his former cabinet

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intact. The decision not to change the cabinet caught most Addis-based commentators by surprise; Ethiopia’s independent press had for some weeks been relaying rumours of intrigue, promotion and dismissal within inner party circles. In addition, the deputy prime minister, Tefera Walwa, who is also minister of defence, had failed to be re-elected in his Addis Ababa constituency. However, this proved not to be a barrier to his retaining his portfolio

Elections were held in August, not May, in Ethiopia’s strife-torn and drought- ridden Somali region. In October it was announced that the Ethiopian Somali Democratic League (ESDL) party had won 150 seats out of 165in the regional assembly. In the election for representatives to the federal parliament, the ruling party won 19 seats, while opposition candidates won four.

The UN votes to establish On September 15th the UN Security Council adopted Resolution 1320, which UNMEE further defined the role and size of the UN Mission in Ethiopia and Eritrea (UNMEE). September’s vote confirmed the provisions of resolution 1312 of July 31st 2000, reflecting the largely consensual nature of UN member states’ attitudes to the conflict and its resolution (September 2000, page 12).

UNMEE’s strength was set at 4,200 troops; by late October, 22 countries had offered to contribute personnel. Their chief task is to monitor the withdrawal of Ethiopian troops to the internationally recognised border, followed by the pulling-back of Eritrean troops to 25 km from the border. UN forces will then supervise this “temporary security zone” while chairing a joint Military Co- ordination Commission. The commission will also include representatives of the two sides as well as the OAU, and its task will be to define the border and produce an enduring settlement in accordance with June’s Agreement on the Cessation of Hostilities.

UN consolidates its presence By mid-October teams of UNMEE military observers had been assigned to five in Ethiopia-Eritrea locations in Eritrea (Barentu, Adi Qwala, Adi Keyih, Shembiko and Assab) and to six within Ethiopia (Inda Silase, Adigrat, Zela Ambesa, Rama, Shiraro and Manda). In addition, work had begun on clearing landmines: the United Nations Mine Action Co-ordination Centre, attached to UNMEE, appointed external consultants to evaluate the mine problem.

On November 1st the UN secretary-general, Kofi Annan, named Major-General Patrick Cammaert, as head of UNMEE. General Cammaert, a Dutch citizen with wide experience in multilateral operations, was previously head of the UN Standby Forces High Readiness Brigade (SHIRBRIG) based in Denmark. General Cammaert held his first press conference in Addis Ababa on November 8th. He stated that his immediate task was to delineate the temporary security zone which UNMEE forces would patrol and to build trust with both sides. He refused to be drawn on the current sticking points in negotiations between the two parties.

Bilateral negotiations will All observers are agreed that, given the relative discipline of the two armies, the be slow technical and military aspects of UNMEE’s operations are likely to be fairly straightforward. Far less certainty surrounds those parts of the settlement that have to be resolved bilaterally. Proximity talks between foreign ministers in

Algiers ended without result. The Ethiopian foreign minister, Seyoum Mesfin, met the newly appointed Eritrean foreign minister, Ali Said Abdella, in Algiers on October 23rd at a meeting brokered by Algeria’s foreign minister, Abdelaziz Belkhadem, and attended by US, UN and OAU representatives.

This was the first high-level meeting since the signing on June 18th of the ceasefire agreement, whose terms the Eritreans had reluctantly to accept given Ethiopia’s military advances (September 2000, page 11). Following the failed foreign ministers’ proximity talks in October, in early November an Algerian envoy, Abdel Kader Messahel, and a US special envoy, Anthony Lake, visited both Addis Ababa and Asmara.

Meles goes to the US Meles Zenawi made an official visit to the US in mid-September to attend the UN millennial summit and open the new Ethiopian embassy in Washington DC. During his visit he met a wide range of US and other officials, in the State Department, the Treasury, Pentagon, Congress as well as at the IMF and World Bank. Attempts at dialogue with Ethiopian opposition groups based in Washington DC proved less successful. Several hundred thousand Ethiopians live in Greater Washington as well as in Los Angeles, with smaller groups now scattered throughout North America. Washington DC has several Amharic- language radio stations, some anti- and some pro-EPRDF.

Russia bans arms sales to On August 29th the Russian president, Vladimir Putin, signed a decree banning Ethiopia and Eritrea Russian arms sales to both Ethiopia and Eritrea. The decree belatedly implemented UN Security Council Resolution 1298, by which the UN placed an embargo on arms supplies to either side in the wake of renewed fighting. In late 1998 and early 1999, Russian companies reportedly supplied Ethiopia with nine Su-27 jet fighters, several Mi-8 and Mi-17 helicopters, ammunition and auxiliary equipment worth US$150m-200m.

Economic policy and the economy

Food shortages persist Ethiopia’s annual food-assessment exercise began in early November; initial estimates of the main-season meher harvest in 2000, and thus the likely scale of food-aid requirements for 2001, are expected to be announced in mid- December. The annual evaluation, led by the government’s Disaster Prevention and Preparedness Commission (DPPC), involves all of Ethiopia’s main food donors. The country’s current food aid requirements remain as stated in the DPPC’s July estimates: 10.3m people, including those displaced by fighting with Eritrea, require around 1.3m tonnes of food (September 2000, page 13). According to the UN World Food Programme in mid-October, although around one-quarter of this total remained to be pledged, because of distribution failures earlier in the year, stocks were sufficient to meet immediate needs. However, stocks held by the Emergency Food Security Reserve were low in early October: key donors still owed grain loan repayments of 265,000 tonnes to the reserve, which when, full, should stand at 400,000 tonnes.

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Media liberalisation makes The long-promised and often-postponed deregulation and liberalisation of little progress Ethiopia’s state-controlled broadcast media continues to be beset with contra- dictions. An FM radio station has now finally begun broadcasting in Addis Ababa. Although providing the standard fare of music, chat and news bulletins, it is reportedly controlled by the ruling party, the Ethiopian Peoples’ Revolutionary Democratic Front. Nevertheless private investors intent on launching their own radio stations still appear confident that the government will have to concede to their demands during 2001. Meanwhile in mid- September a second television channel was launched—a relay from the South Africa-based TV Africa using existing television broadcasting facilities and putting out primarily light entertainment. This provoked consternation among private investors, as the body for providing new broadcast licences has yet to be formed. Meanwhile, Ethiopia’s independent press suspended publication for one week in mid-September in protest at a 30% increase in the price of newsprint, which they claimed was aimed at forcing them out of business.

A local group bids for three The privatisation of Ethiopia’s state-run breweries reached a new stage on state-owned breweries September 6th with the opening of bids for the Meta Abo, Harar and Bedele breweries. These three assets were originally put up for auction more than a year previously (1st quarter 2000, page 13), and earlier this year an initial round of bids was rejected by the Ethiopian Privatisation Agency (EPA) as too low. Unexpectedly, the highest bid, Birr585m (US$72m), came from a newly formed consortium of local businesses, led by Star Business Group (SBG), which has interests in the sugar industry. In previous bids SBG had been allied with other South African and rival local companies. SGB’s opponents in the tender were the international giant, South African Breweries (SAB) and the French group BGI; both SAB and BGI have established footholds in brewing in Ethiopia. BGI controls the privatised St George’s Brewery as well as a new plant in Kombolcha and the new Dashen brand in Gondar. The actual decision on who will be awarded ownership of the breweries remains with a committee from the Ethiopian Privatisation Agency.

The telecoms sale edges In August the EPA announced that it had asked PriceWaterhouse Coopers to forward conduct a feasibility study and strategy to privatise the country’s telecommunications network. Preparatory work has begun, and a decision on the form the sale will take is expected to be made in the first half of 2001.

Coffee exports rise In the first quarter of the 2000/01 fiscal year (July 8th-July 7th), Ethiopia’s state-owned coffee exporting company, the Coffee and Tea Development Authority, had receipts totalling US$55.8m in coffee sales—a 16% increase on the same period last year. Supplies for the period, at 28,582 tonnes, were 73% higher than official targets, and this helped to offset the low international coffee prices. Coffee is Ethiopia’s main foreign-exchange earner.

Ethiopia: coffee productiona 1996 1997 1998 1999 2000 Tonnes 229,980 228,000 229,980 232,020 229,980

a Green coffee; fiscal years ending July 7th.

Source: Food and Agriculture Organisation.

Recovering livestock The value of exported livestock grew by around 20% in 1999/2000 to an exports are threatened estimated US$5.6m. However, recent outbreaks of Rift Valley fever (RVF) are threatening the industry. In mid-September six Gulf states—Bahrain, Oman, Qatar, Saudi Arabia, United Arab Emirates and Yemen—banned imports of livestock from the Horn of Africa and East Africa, in response to allegations that Rift Valley fever transmitted from animals imported from there had caused the death of up to 200 people in Yemen and Saudi Arabia.

The Saudi and Yemeni governments previously banned imports of livestock from the Horn from February 1998 to May 1999 after reports of isolated outbreaks of RVF among cattle in Africa in late 1997 and early 1998. The suspension of legal livestock exports from the Horn, coupled with drought throughout the region, crippled pastoral economies in southern Ethiopia, Somalia and Somaliland. A recent evaluation by the Department for International Development of the British Foreign and Commonwealth Office, estimated that livestock herds had shrunk by more than 70% in the most affected areas of Borena and Somali regions of Ethiopia and that it could take up to 10 years for herd sizes to recover. The reimposition of the trade ban will drastically set back hopes for recovery of Ethiopia’s pastoral areas.

A large coal deposit is A large coal deposit of around 16m tonnes has been discovered in Yayu district. discovered Reports claim that an annual output of 300,000 tonnes is possible, and would last for around 40 years. Proposed uses for the coal include energy production for domestic consumption. No plans have been published of when exploitation would begin or what company would manage it.

Lending and debt relief are IMF and World bank teams visited Ethiopia in August and October with a view linked with peace to reopening the credits suspended following the war with Eritrea in 1998 (September 2000, page 9). The linkage between implementing the cessation of hostilities agreement, including the installation of the UN Mission in Ethiopia and Eritrea, and renewed multilateral lending was confirmed by the prime minister, Meles Zenawi, during his trip to Washington in September. Talking to reporters, the prime minister stated that discussions with the Bank and the IMF had been very positive. He indicated that there were no sticking points on issues related to economic policy; however, he did admit that the issue of signing a peace agreement before the Fund could disburse their loans in substantial amounts remained a problem area. World Bank officials in Addis Ababa held public discussions on Ethiopia’s preliminary poverty reduction strategy paper on October 23rd as part of a wider consultation exercise. At the meeting, Jacob Kolster, head of the Bank’s heavily indebted poor countries initiative (HIPC) unit held out the possibility of HIPC-status lending for Ethiopia in the near future. Local press sources reported that loans of up to US$400m under the IMF’s poverty reduction and growth facility (PRGF) were discussed between Fund officials and the government in Addis in October.

EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 Eritrea 15

Eritrea

Political structure

Official name Eritrea

Form of state Unitary state

Legal system A new national constitution was formally proclaimed on May 24th 1997

National legislature Transitional National Assembly of 150, composed of members of the ruling People’s Front for Democracy and Justice

National elections Last election February 1987 (legislative, within Ethiopia); next election scheduled for December 2001

Head of state President, elected by the National Assembly

National government The president and the Council of Ministers, last reshuffled October 2000

Main political parties The People’s Front for Democracy and Justice (PFDJ), which grew out of the Eritrean People’s Liberation Front, is the ruling and, in effect, the only legal party; its third congress in February 1994 confirmed the transition to a pluralist system by 1997, but a law on political parties has yet to be approved

President Isaias Afewerki

Key ministers Agriculture Arefaine Berhe Defence Sebhat Ephrem Education Osman Saleh Energy & mines Tesfi Gebreselassie Finance & development Gebreselassie Yoseph Fisheries Petrus Solomon Foreign affairs Ali Said Abdella Health Saleh Meki Information Beraki Gebreselassie Justice Foazia Hashim Labour & welfare Ogbe Abraaha Land, water & environment Tesfai Girmatzion Local government Mahmoud Ahmed Sherifo Public works Abraha Asfaha Tourism Ahmed Haji Ali Trade & industry Haile Weldensae Transport & communications Saleh Idris Kekia

Central bank governor Tekie Beyene

Economic structure

Annual indicatorsa

1996 1997 1998 1999b 2000b GDP at market prices (Nfa bn) 5.1 6.0 5.9 6.8 7.6 Real GDP growth (%) 6.8 7.9 4.0 0.0 –1.0 Consumer price inflationc (end-period; %) 3.4 1.8 16.6 12.0 14.0 Population (m) 3.67 3.78 3.88 4.01 4.11 Exports fob (US$ m) 95 54 28 26 24 Imports cif (US$ m) 514 495 527 560 500 Current-account balance (US$ m) –131 –37 –238 –219 –195 Total external debt (US$ m; year-end) 44 76 142 242 281 Exchange rate Nfa:US$d (av) 6.35 7.05 7.30 8.50 9.70 November 17th 2000b Nfa9.60:US$1 (official); Nfa14:US$1 (black market)

Origins of gross domestic product 1999 % of total Agriculture 16.0 Industry 27.3 Manufacturing 9.9 Distribution services 31.6 Other services 25.0 GDP at factor cost 100.0

Principal exports fob 1998 US$ m Principal imports cif 1998 US$ m Crude materials 12 Machinery & transport equipment 141 Food & live animals 8 Manufactured goods 88 Manufactured goods 4 Food & live animals 63 Chemical & chemical products 21

Main destinations of exports 1998 % of total Main origins of imports 1998 % of total Sudan 27.2 Italy 17.4 Ethiopia 26.5 UAE 16.2 Japan 13.2 Germany 5.7 UAE 7.3 UK 4.5 Italy 5.3 Korea 4.4 a All figures are estimates from official or other sources; all data on Eritrea should be treated with caution. b EIU estimates. c Asmara price index. d The nakfa replaced the Ethiopian birr as Eritrea’s national currency in November 1997 at Nfa1:Birr1.

EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 Eritrea 17

Outlook for 2001-02

Political outlook

Ethiopia’s successful military offensive launched in May, which pushed the frontline over the border and well into mountainous regions of Eritrea, allowed it virtually to dictate the terms of the June ceasefire agreement, which was brokered by the Organisation of African Unity in Algiers. The period since the armistice has been punctuated by Eritrean accusations of Ethiopian atrocities and looting in occupied territories as Ethiopian troops slowly withdraw from Eritrean soil. Although the armistice agreement falls short of an unconditional ceasefire, the Eritrean public is finding it hard to reconcile the situation with their belief in the country’s invincibility. The government in Asmara has sought to allay this disquiet by announcing the country’s first general election in December 2001, although some think the election should be held earlier.

The 100 military observers, part of the UN Mission in Ethiopia and Eritrea (UNMEE), set up at the end of July to pave the way for the deployment of the peacekeepers, are in place. The UNMEE itself has a mandate until January 31st 2001 and it is unlikely that the border demarcation will be resolved before then, since proximity talks between Eritrea and Ethiopia have made little progress in recent months.

The 4,200-strong UN force, which will monitor the ceasefire while demarcation of the disputed border between Eritrea and Ethiopia proceeds, was authorised by the Security Council in September. The peacekeeping force, to be drawn from more than 20 countries, may start arriving by the end of the year. It will be the fourth largest of the 14 peacekeeping missions currently in operation around the world. The UN troops will be stationed in a 25-km buffer zone— equivalent to artillery range—along the border, all on Eritrean soil. As the Eritrean foreign minister Haile Weldensae said after signing the accord in Algiers, it marks “the beginning of the end of two years of conflict”, but mistrust prevails as two of Africa’s largest armies face each other across the frontline. Though slight, the possibility remains that fighting could flare up again before the arrival of UN forces.

Economic forecast

About half of Eritrea’s resident population faces a serious humanitarian emergency because of the combined ravages of war and the drought, which will continue to be of concern in the three most affected regions—Anseba and Northern and Southern Red Sea. The need to provide humanitarian assistance to those affected by the war and drought on each side of the border is proving a greater burden to Eritrea than to Ethiopia, exacerbated by the slow international response in providing the non-food requirements of the UN’s drought appeal.

Economic recovery cannot begin before some of the 300,000-350,000 citizens drafted into the army stand down and the country moves from a war footing.

The EIU estimates that, at best, real GDP did not grow at all in the 18 months prior to the ceasefire agreement (although the IMF has implausibly estimated 3% growth in 1999 due to improved food production). Even if the settlement proves durable, the economy is likely to contract in real terms by about 1% this year, particularly since according to the agriculture ministry crop production in 2000 is sharply down. This year’s drop in crop production will cause a corresponding drop in aggregate food supplies. Without commercial imports and food aid to offset the production shortfall, inflation is expected to reach 14% in 2000. Growth in 2001-02 is heavily dependent on normal weather patterns, the demobilisation of the armed forces and the extent of IMF and World Bank assistance.

Proposals are currently being put forward by the World Bank and bilateral donors, for a three year US$288m aid package, which would focus on supplying technical assistance to internally displaced people to help them to resume income-generating activities. According to the World Bank, the proposal will be ruled on by the Bank’s executive board in mid-November and, if approved, aid would start shortly after that.

The political scene

UNMEE establishes its Under the auspices of the UN Mission in Ethiopia and Eritrea (UNMEE), 100 presence military observers from 22 countries have been deployed in the disputed border region between the two countries, 50 on each side of the border. UNMEE was established in July following the signing of an agreement in June to halt a two-year border conflict (September 2000, page 19). The observers, who arrived in September and October, are assigned to five locations in Eritrea (Barentu, Adi Qwala, Adi Keyih, Shembiko and Assab) and to six locations in Ethiopia (Inda Silase, Adigrat, Zela Ambesa, Rama, Shiraro and Manda).

By the end of October, reconnaissance began for phase three of UNMEE’s mission—the deployment of around 4,200 military personnel as authorised by UN Security Council Resolution 1320 of September 15th. The reconnaissance teams are drawn from the military forces of the Netherlands, Canada, Jordan, Kenya, Denmark and Italy. No details of the timetable for deployment of the peacekeepers were available in early November, but Denmark, the Netherlands and Canada have agreed to provide some of the 4,200 troops. This final phase of the operation will see the deployment of two battalions of 800 peacekeeping officers in the west and central zone of the border and 600 along the north- eastern border and 2,000 engaged in mine-clearing operations and other support functions. Major-General Patrick Cammaert of the Netherlands has been appointed UNMEE’s force commander, with effect from November 1st. Meanwhile, Mary Robinson, the UN Human Rights Commissioner, has confirmed that there will be a small component within UNMEE to monitor human rights issues.

Talks to finalise peace Although the ceasefire agreement between Eritrea and Ethiopia, signed on June make slow progress 18th in Algiers, marked a cessation to hostilities, it does not bring a definitive

EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 Eritrea 19

end to the 25 months of fighting, and subsequent attempts to reach agreement on the demarcation of the disputed border and on compensation issues have had little success. A technical meeting attended by both sides in August in Washington as a follow-up to the Algiers agreement ended in a stalemate, as did indirect talks between the Eritrean and Ethiopian foreign ministers in Algiers under the auspices of the Organisation of African Unity at the end of October. International mediation was expected to resume in late November, with diplomats shuttling between Addis Ababa and Asmara.

Ethiopian troops continue Under the ceasefire agreement, Ethiopian troops may remain on Eritrean soil their withdrawal until two weeks after the arrival of the UN peacekeepers, but the Ethiopian army has continued to pull back from parts of Eritrean territory in recent months. Following the withdrawal of Ethiopian forces from the town of Omhajer, in western Eritrea, on September 21st, Eritrean forces have been demining the area before civilians are permitted to return. Reports from the town describe extensive destruction of homes, infrastructure and religious buildings. An Eritrean non-governmental organisation has also visited Omhajer to interview the few elderly people who remained in the town throughout the Ethiopian occupation. The NGO is documenting human rights abuses relating to the conflict.

Elections are scheduled for The Eritrean National Assembly decided, on October 2nd at its 13th regular December 2001 session, to hold Eritrea’s first general election in December 2001. The assembly acknowledged that it could not delay the general election indefinitely because of continuing tension with Ethiopia over the disputed border. An election was supposed to have been held in 1998, but was postponed as a result of the border conflict. The political leadership in Asmara, which steered the country to independence from Ethiopia in 1993 after 30 years of armed struggle, still retains popular support but the election delay has led some people to demand reforms and to say that the election should be held sooner. The assembly also set up a new committee to design the legal framework for the establishment of political parties.

Relations with Sudan Relations with Sudan have steadily improved over recent months, following an improve incident in July when the governor of Sudan’s eastern Kassala state accused Eritrea of backing a planned rebel offensive against eastern Sudan (September 2000, page 21)—an accusation rebuffed by Eritrea. The improvement has been marked by a period of high-level diplomacy between Asmara and Khartoum. After the prime minister, Isaias Afewerki, met the Sudanese president, Omar Hasan al-Bashir, in New York in early September, Mr Al-Bashir visited Asmara for talks later in the same month and Mr Isaias reciprocated by visiting Khartoum in early October. On November 5th the Sudanese government announced that it had broadly agreed to proposals made by the visiting Eritrean minister of foreign affairs, Ali Said Abdella, on reconciliation and the importance of bilateral ties, although no details of the proposals were forthcoming. Mr Abdella’s visit to Khartoum was his first as foreign minister after taking over the portfolio from Haile Weldensae, who moved to Mr Abdella’s former post at trade and industry.

A new ambassador is A return to full diplomatic relations between Eritrea and Djibouti was marked appointed to Djibouti on September 15th when Mohamed Ali Jabrah, the new Eritrean ambassador to Djibouti, arrived to take up his new posting. The Eritrean embassy in Djibouti reopened in June but since that time it had been operating at chargé d’affaires level. The two countries broke off diplomatic relations in November 1998.

Economic policy and the economy

Challenges of rebuilding The resumption of normal economic activity in areas still occupied by Ethiopia the economy will remain on hold until after the arrival of the UN peacekeeping force. Elsewhere, infrastructure development and commercial activities, which slowed considerably during the war, will resume only slowly. There is a lot of rebuilding to do. Eritrea’s small agricultural base has been weakened by the war and the drought, while income from Massawa and Assab, its two major ports, has all but dried up. Remittances from Eritreans abroad will certainly continue to supply a vital economic lifeline in the short term. The compensation issue will stretch into the medium term. Ethiopia is seeking reparations for food stuck at Assab when the conflict started, for the mistreatment of people in Irob taken by Eritrean forces in May 1998 and for those displaced by the fighting. Eritrea wants compensation for the property of 70,000 Eritreans expelled from Ethiopia over the course of the conflict and the damage caused by Ethiopian advances on to Eritrean soil.

Agricultural activity Estimates from the Ministry of Agriculture in September reveal a sharp decrease plummets in the area cultivated and crops produced this year. A total of 140,117 ha of cereals, pulses and oilseed crops have been sown, compared with 468,344 ha in 1999; the worst affected areas are Debub (35,000 ha sown compared with 128,000 ha in 1999) and Gash-Barka (25,000 ha compared with 215,000 ha in 1999). The harvest from these crops is estimated to fall below 90,000 tonnes, much less than the harvest of 350,700 tons in 1999. Low and poorly distributed rainfall in July and late August prevented most crops from germinating, emerging or reach successful establishment within the critical first 45 days; much prime agricultural land was in war-affected areas, which contributed to the sharp reduction in production. A further blow to the agricultural economy came in September when Saudi Arabia, Yemen and the Gulf states imposed a ban on livestock imports from Eritrea and other East African countries because of an outbreak of Rift Valley Fever on the Arabian Peninsula.

Eritrea still faces a Both the war-affected and the drought-affected people are likely to require humanitarian crisis emergency assistance well into 2001 and possibly until the end of that year. Some 400,000 internally displaced people have returned to their place of origin since May, but over 200,000 people were left in camps at the end of October. More than half of the 90,000 people who fled to Sudan as refugees have returned, either spontaneously or with the assistance of the UN High Commissioner for Refugees and the Eritrean government. Pledges for Eritrea in the UN regional drought appeal amounted to 40% of requirements according

EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 Eritrea 21

to a UN World Food Programme assessment at the end of October. Although the country’s food requirements are close to being met, with pledges for food amounting to 83% of needs, there is concern about the poor response to non- food requirements of the appeal, where only 18% of non-food needs have been covered. The poor rate of delivery of humanitarian relief to war- and drought- affected people by the Eritrean Relief and Refugee Commission has been a major concern in Eritrea. The UN Country Team is planning to launch the first UN consolidated inter-agency appeal for Eritrea in early 2001. The annual needs assessment that will form the basis for the 2001 appeal, covering both drought- and war-affected populations, is scheduled to finish in early December.

Appeal is launched to fund Part of the mandate of the UN Mission in Ethiopia and Eritrea (UNMEE) is to the clearing of landmines co-ordinate and provide technical assistance for humanitarian mine action activities in the temporary security zone and areas adjacent to it. A UN Mine Action Co-ordination Centre has been set up within UNMEE for this purpose. The UN appealed in mid-October for money to fund the removal of landmines from the border region between Ethiopia and Eritrea. A spokesman for the UN Development Programme said that US$30m-50m is needed for demining.

Work starts on a new Construction of a new hospital complex in Asmara, expected to cost over medical centre in Asmara US$5m, almost half of which will be covered by the Chinese government, began in October. The remaining costs of the three-storey building, being built inside the compound of the city’s main Mekane Hiwot hospital, will be financed by a long-term interest-free loan from China. The new medical centre, which will also house an outpatient unit, is expected to be completed by March 2001. A new 130-room hospital, built in the town of Dekemhare at a cost of Nfa10m, also began providing services in October, according to a report in the government-run Asmara-based weekly newspaper, Eritrea Profile.

Somalia

Political structure

Official name Somali Democratic Republic

Form of state In theory a unitary republic; in May 1991 the Somali National Movement (SNM) unilaterally declared the creation of an independent state in the north, the Somaliland Republic; the rest of the country remains divided between rival armed factions

Legal system In theory based on the 1960 constitution; in practice, local authorities or elders enforce laws based on custom; in some areas the influence of Islamic courts is growing, which have begun to implement Islamic sharia law

National legislature The People’s Assembly has not been active since 1991; a new Transitional National Assembly was elected in August 2000 in Djibouti

National elections Last elections 1967 (presidential), 1969 (legislative); next elections are scheduled for 2003, but are not currently feasible in the south given current circumstances; Somaliland is scheduled to hold elections in 2002

National government A Transitional National Assembly was elected in August 2000, but has little ability to administer on the ground; Puntland is a self-declared autonomous region in the north- east, with Garoe as its administrative capital; the Somaliland Republic in the north was declared independent in 1991, with Hargeisa as its administrative capital; in December 1999 the Rahawayn Resistance Army (RRA) declared Bay region another autonomous region

Head of state Abdikassim Salat Hassan is president of the Transitional National Assembly based in Mogadishu; Abdullahi Yussuf Ahmed is president of the Puntland administration; Mohamed Ibrahim Egal is president of the Somaliland Republic

Main political factions United Somali Congress-Somali National Alliance (USC-SNA); Somali Salvation Democratic Front (SSDF); Somali Patriotic Movement (SPM); Southern Somali National Movement (SSNM); National Salvation Council (NSC); Somali National Front (SNF); Rahawayn Resistance Army (RRA)

President Abdikassim Salat Hassan Prime minister Ali Khalif Galaydh First deputy prime minister Osman Jama Ali Kalun

Key ministers Defence Abdullahi Boqor Muse Finance Said Ahmed Sheikh Dahir Foreign affairs Ismail Mohamed Hurre Buba Internal affairs Dahir Sheikh Mohamed Nur Justice Mohamed Umar Farah Ports Abdiweli Jama Warsameh Trade Mohamed Warsameh Ali

Somaliland Republic Created in May 1991 but awaiting diplomatic recognition; the president, Mohamed Ibrahim Egal, was re-elected in February 1997; a new constitution came into effect in February 1997 for a three-year period, but no date has yet been set for a referendum

EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 Somalia 23

Economic structure

Annual indicatorsa

1996 1997 1998 1999 2000 Population (m) 9.5 9.6 9.8 10.0 10.2 Exports fobb (US$ m) 187 177 197 186 n/a Imports fobb (US$ m) 295 313 280 314 n/a Total external debtc (US$ m; year-end) 2,643 2,561 2,635 n/a n/a

November 2000d SoSh11,350:US$1 SolSh3,800:US$1

Principal exports 1990 US$ m Principal imports 1990 US$ m Livestock 43 Manufactures 204 Bananas 28 Non-fuel primary products 104 Hides & skins 3 Fuels 52

Main destinations of exports 1999b % of total Main origins of imports 1999b % of total Saudi Arabia 53 Djibouti 24 Yemen 19 Kenya 14 United Arab Emirates 14 Brazil 13 Italy 5 Saudi Arabia 10 Pakistan 2 India 9 a There are few reliable economic data for Somalia; all figures are rough estimates from official or other sources. b Based on partners’ trade returns; subject to a wide margin of error. c There have been no new disbursements of debt since 1991; statistical changes in the debt stock reflect arrears accrued since then and currency fluctuations. d EIU estimate of market rates in Mogadishu and Hargeisa.

Outlook for 2001-02

Domestic politics The inaugural session in Mogadishu in November of what is in effect Somalia’s first parliament since the fall of president Mohamed Siad Barre in 1991 is a considerable achievement. Much credit for this is owed to Djibouti’s president, Ismael Omar Guelleh, who brought together many of Somalia’s factions for a peace conference in Arta, 30 km west of the Djibouti capital, which started in May, and successfully negotiated a delicate balance between the numerous clans and subclans. The Transitional National Assembly (TNA) has chosen its interim president, Abdikassim Salat Hassan, who has nominated his prime minister, Ali Khalif Galaydh, who in turn has appointed a cabinet. In the months to come, however, these substantial accomplishments could be seen as the easy part.

There is a general consensus that the conference—which brought together clan elders, religious leaders, businessmen, intellectuals and representatives of women’s groups—enjoyed genuine popular support. However, although the UN, the Arab League and numerous individual countries have backed Mr Hassan’s new administration, Somali factions are split between those willing to participate and those who reject it. Unless there is a dramatic change in attitude towards the TNA from the leaders of the self-styled Somaliland Republic, the self-declared regional administration of neighbouring Puntland, and several clan faction leaders based in Mogadishu and Baidoa, which seems unlikely, any decisions emanating from the new parliament will require extremely delicate implementation. With its focus on civil society, the Djibouti conference achieved more than any of its 12 predecessors, but the continued existence of clan militia on the ground in Somalia presents the new parliament with its stiffest challenge. Already it has been forced to abandon its choice of Baidoa as the country’s provisional capital, having alienated the resident Rahawayn Resistance Army (RRA), and although it has received backing from parts of the Mogadishu business community to form a police force, other businessmen have criticised the TNA for its clan-based recruitment policy. This may prove to be an inauspicious start, the danger being that the TNA becomes in effect just another Mogadishu-based faction. This is despite promises of assistance from the UN with an ambitious reconstruction plan, the prospects for which remain poor unless the TNA can gain control of much more Somali territory.

The prospects for peace also remain poor. Fresh fighting between rival clan factions has continued throughout central and southern Somalia, including Mogadishu. Rivalries engendered by land issues, livestock ownership and loyalty to Mogadishu-based faction leaders continue to fuel the violence and indicate the scale of the task facing the country’s new interim government in restoring security after a decade of anarchy.

Economic outlook The progress in Arta was mirrored by the gradual strengthening of the Somali shilling against the dollar, despite large fluctuations that reflected the ups and downs of the painstaking Djibouti negotiations. But although the Somali currency climbed to SoSh9,000:US$1 after the inaugural session of parliament

EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 Somalia 25

in Djibouti in August, it has fallen again thanks to recent imports of new banknotes by the interim administration. The rate on November 3rd had slipped to SoSh11,000:US$1 and this, along with fears of inflation stoked by a shortage of fuel, has prompted most Mogadishu businessmen to trade only in US dollars. Protests over the instability of the shilling have led the TNA to announce plans to reactivate the central bank and issue notes though that. However, until the government attains control over the country and can stop other economic agents shipping over banknotes, the prospect of the bank, if it is re-established, performing a useful service during the forecast period is remote. The lack of government control will prevent the new administration from receiving financing under an IMF country programme, but project funding from multilateral institutions should increase.

The economic outlook will be further dampened, particularly in northern areas, by the ban on livestock imports from Somalia imposed by Saudi Arabia and other Gulf states in September owing to concerns over Rift Valley fever. Among other things, a drop in livestock exports will lead to a shortfall in foreign exchange, which will hit the value of the shilling and further raise the prices of imported food products to local consumers. A similar ban in 1998-99 had a direct impact on food stocks and caused a gradual economic downturn, and the effect of the current ban could be worse.

Somaliland outlook A curious aspect of the Djibouti initiative was the way it handled the self-styled Somaliland Republic. Somaliland is one of the few parts of Somalia that enjoys a functioning central authority, the raison d’être for the Djibouti conference, yet clumsy diplomacy resulted in Somaliland rejecting the TNA as an attempt to reunite the north with warring factions in the south. Rejection of the TNA is one thing Somaliland has in common with the neighbouring regional administration of Puntland, and allows both sides to put aside the mutual antagonism stemming from their rival claims to Sool and Sanaag regions. Their de facto rapprochement makes it unlikely that either will resort to force to resolve the issue, since both sides know that hostilities over the disputed regions could be fatal for their administrations—both in terms of resources and in the eyes of the international community. Somaliland also distanced itself further from the TNA in September by introducing its own passport, which although apparently accepted in Ethiopia is still unlikely to ensure untroubled passage for its citizens in many other countries. As long as the TNA continues to exist, the prospects for Somaliland’s international recognition will remain slim as the international community continues to hope for a reunited Somalia.

The political scene

New parliament opens in Somalia’s new parliament, the Transitional National Assembly (TNA), created Mogadishu in August at the meeting in Djibouti hosted by Djibouti’s president, Ismael Omar Guelleh (September 2000, page 27), held its inaugural session in Mogadishu on November 2nd, thereby becoming the first such assembly in the capital for almost a decade. Ali Khalif Galaydh, who was nominated prime minister by the Somali president, Abdikassim Salat Hassan, on October 8th,

presented to parliament his new government (see table below) of 25 cabinet ministers, formally named in Mogadishu on October 20th, and 45 other deputy ministers. At least 175 members of the 245-seat parliament attended the session at which some MPs criticised Mr Hassan for swearing in the ministers and deputy ministers at his residence before receiving parliamentary approval. The parliamentary session, which was heavily guarded by newly- recruited policemen (see below), clan and Islamic court militias, was chaired by the TNA speaker, Abdallah Deerow Isa, who was appointed on August 20th.

Parts of Mogadishu are Mr Hassan has moved swiftly to consolidate his Djibouti mandate as the under Mr Hassan’s control country’s new president, an appointment that has won widespread support from the international community. He arrived in Mogadishu on August 30th with an entourage of around 90 TNA members and addressed thousands of supporters in a football stadium; this was followed by a similar speech in Baidoa, the only other city he visited. The new government set up a Committee of National Security under the command of General Muhammad Nur Galal and funded by the Mogadishu business community in September to demobilise thousands of young gunmen. General Galal stated that his aim was to establish a new force of 5,000 police and militia and 150-200 “technicals” (jeeps mounted with heavy weapons) by the end of October. General Galal’s operation has been criticised by rival faction leaders and businessmen because of its clan-based recruitment policy. On October 29th the government claimed to have taken control of Mogadishu’s port, closed since the UN peacekeeping mission left Somalia in March 1995 because rival armed factions could not agree on who should run it, but it is not yet clear whether this is the case.

Rival faction leaders still Some powerful faction leaders remain opposed to Mr Hassan’s presidency and reject the TNA do not recognise the legitimacy of the Djibouti conference or the parliament that emerged from it. In a statement issued on October 30th by six of Somalia’s faction leaders, including Hussein Mohamed Aideed and Ali Hassan Osman “Ato” whose forces control areas of south Mogadishu, Mr Hassan and his transitional government were accused of taking steps that might “provoke catastrophic war”. The statement described the exercise as an attempt to restore the regime of former president, Mohamed Siad Barre, who was ousted in 1991 (several senior figures in the TNA, including Mr Hassan, held office in Mr Barre’s administration). Mr Aideed opposes Mr Hassan’s administration despite signing a memorandum of understanding with him in Libya on September 22nd.

A proposal is made for a Three Somali factions, who met in Garoe, the capital of Puntland, on October breakaway federal republic 27th described the establishment of Mr Hassan’s interim government as a hostile action, and called for four regional states to join in a new Federal Republic of Somalia. The Puntland leader, Colonel Abdullahi Yussuf Ahmed, the commander of the Rahawayn Resistance Army (RRA), Colonel Mohamed Nur Shatigudud, and leaders of two splinter groups of the Somali Patriotic Movement (SPM), Adan Abdullahi Nur Gabyow and General Mohamed Siad Hersi “Morgan”, suggested that the four federal states should be Somaliland in the north-west, Puntland in the north-east, a third state in central Somalia and

EIU Country Report December 2000 © The Economist Intelligence Unit Limited 2000 Somalia 27

a fourth in the south-west of the country. Reports from Hargeisa suggested that the Somaliland president, Mohamed Ibrahim Egal, rejected the proposal.

Baidoa is not now the The emergence of Colonel Shatigudud as an opponent of the interim provisional capital government reflects the RRA leader’s disillusionment with Mr Hassan. Despite Colonel Shatigudud’s involvement in the Djibouti conference, and his gaining a seat in the TNA, he declared on October 16th that he was withdrawing his trust from the interim administration because he was dissatisfied with the distribution of parliamentary seats to the Rahawayn clans (the Digil and Mirifle). As a result, the Djibouti conference’s choice of Baidoa as the country’s provisional capital for the interim government has fallen by the wayside. Further evidence of the RRA’s opposition to Mr Hassan’s administration came on November 5th when RRA militiamen in Baidoa arrested more than a dozen local elders believed to support the country’s new interim president. Two people were killed and five others wounded in the operation according to the TNA speaker, Mr Isa (himself a former RRA official), a claim denied by an RRA spokesman in Baidoa.

Ethiopia still operates Colonel Shatigudud’s rejection of the interim administration on October 16th behind the scenes was made in Addis Ababa, and some local elders in Baidoa were reported to blame Ethiopia, which backs the RRA, for the arrests in early November. Ethiopia’s perceived desire to undercut Mr Hassan’s support in the Baidoa area is said to be because of what it perceives as Islamic fundamentalist influence on the new interim government. Ethiopian troop movements in the Bakool and Gedo regions in October, and deliveries of Ethiopian arms to allied groups in these areas, were reported in the Mogadishu-based Qaran newspaper on October 16th. Mr Isa, in an interview on Radio Banadir on October 25th, confirmed the presence of Ethiopian forces in these regions and in Bay.

Puntland reshuffles its The Puntland president Colonel Abdullahi reshuffled his government on cabinet September 21st, a move prompted by political developments in Somalia in general and Puntland in particular, he said. Three ministers were dropped from the cabinet, including Awad Ahmed Ashara who is from Sanaag, a region claimed by both Puntland and Somaliland. Some observers interpret this as a gesture to the Somaliland administration since the rival claims to Sanaag have been laid aside in both administrations’ common rejection of Mr Hassan’s interim administration in Mogadishu.

Changes to the Puntland cabinet, September 2000

• Abd Abdulleh Said replaces Abdulkadir Aw Yusuf as minister of general works and transport. • Mohamed Harti Adan has been appointed minister of animal husbandry, agriculture and environment. • Yasin Farah Artan replaces Shaykh Ali Nur as minister of justice and religious affairs. • Mohamed Hasan Nur takes charge at a new ministry, as minister of international co-operation and planning. • Ahmed Mohamed Egal has been appointed deputy minister of finance.

• Mahmud Aynab Mohamed has been appointed director-general of the Ministry of International Co-operation and Planning. • The Ministry of Information, Culture, Posts and Telecommunications has been abolished and has now become a department under the presidency; the former minister, Awad Ahmed Ashara, has left the cabinet.

Violence continues in Despite Mr Isa’s claim on October 12th that the TNA had chosen Mogadishu as Mogadishu the seat of the interim government because it is peaceful, the capital can be described as far from safe. Gunmen shot and killed Yusuf Talan, a close ally of Mr Hassan’s, on October 18th in an area of south Mogadishu controlled by Mr Aideed. Witnesses said four men opened fire with automatic weapons as Mr Talan was leaving the Shafi hotel shortly before noon. No one has claimed responsibility for the killing. Mr Talan, a former brigadier-general in the army of Mr Barre who had been living in Canada for six years before going to the Djibouti conference, had been widely tipped for a prominent position in the interim government, perhaps in the defence ministry. In mid November Hassan Ahmed Elmi, a member of the TNA, was shot dead outside his Mogadishu home in an area of the capital controlled by Musa Sude Yalahow, who has also rejected the Djibouti initiative, although Mr Yalahow has denied responsibility for the murder.

Several other violent incidents have also been reported from Mogadishu in recent months.

• A bomb explosion near the Bakara market killed four children on September 5th.

• Two aid workers, a British man and a French woman, both employees of Action Contre la Faim, were released on September 18th after more than eight weeks in captivity following mediation by a German aid agency and local businessmen.

• Rival gunmen killed seven militiamen in an ambush on September 19th. • Clan violence in Mogadishu resulted in the death of at least 15 people on September 22nd in the southern Bermuda district of the capital, after hundreds of supporters of two rival warlords fought with gunfire, rockets and heavy artillery. Militiamen loyal to Ali Mahdi Mohamed, who controls north Mogadishu and has openly expressed support for Mr Hassan, clashed with those loyal to Mr Aideed. At least six civilians were among the casualties. The violence had subsided by midday, but not before fighters from another group, led by Ali Hassan Osman “Ato”, joined the fray on Mr Aideed’s side, which then made significant territorial gains.

• Five men died when gunmen opened fire on their vehicle in the Medina district on September 24th.

• 13 people were killed on October 2nd in clashes around the capital and another 10 people died and 40 others were wounded two days later in a clash between rival clan faction militias near the former Mogadishu pasta factory.

• Five civilians died when caught in crossfire during an attack by militiamen on a delegation from the TNA in Mogadishu on October 11th.

• On November 1st security men guarding the Lafweyn hotel, where a group of MPs from the interim Somali parliament are based, fired on demonstrators, who were protesting against the government and the rampant inflation caused by the arrival of a large shipment of new notes (see Economic policy and the economy). No casualties were reported.

Further violence in central Unrest sparked by disagreements between rival clan militias has also continued and southern regions in central and southern regions in recent months.

• In Taif village near Jowhar in Shabeellaha Dhexe region, at least 23 people died in clashes between rival militias from Hawiye subclans on September 4th. A retaliatory attack on Ega Abdulle village left another 13 people from both sides dead. The clash followed violence between the same rival subclans on August 27th, when 18 people died in fighting apparently sparked off by incidents of banditry.

• Two UN security officers were evacuated from the southern port of Merca on September 19th after they were attacked by a group of armed gunmen. The group fired upon the two men at the UN World Health Organisation compound. The UN security officers were in Merca on a security survey to determine whether UN agencies could resume humanitarian work there after a spate of threats and attacks had forced the UN to suspend operations in the area three months previously.

• On October 2nd six people were killed and 13 others wounded when gunmen opened fire on a passing vehicle in the Warshiik district of Shabeellaha Dhexe.

• Five people were reported dead after fighting between rival clan militias at the end of October in Buule Burde, central Somalia.

Economic policy and the economy

More new banknotes are Business interests supporting the interim president, Abdikassim Salat Hassan, imported flew a large shipment of Somali shillings into the capital on October 28th. The majority of the banknotes, printed in Canada, were used to pay Mr Hassan’s new militia. The organisers of the shipment claimed that it contained about SoSh30bn (almost US$3m), but other sources suggest that it was three times that amount. In August another consignment of new banknotes, estimated to be SoSh20bn-25bn in value, arrived in Mogadishu under a military escort organised by the faction leader, Hussein Mohamed Aideed. The central bank in Somaliland has banned the use of all new notes imported into Somalia.

The shilling experiences The recent imports of new banknotes and a fuel shortage in late October (see large fluctuations below) have had a dramatic impact on the value of the Somali shilling against the dollar in Mogadishu. Before the fuel crisis, the shilling was trading at SoSh9,800:US$1, this had slipped to SoSh11,000:US$1 by November 3rd. Some

reports suggest that most of the Mogadishu business community has resorted to selling in US dollars to fight the inflation caused by the imports of new banknotes. Following public demonstrations against inflation, an official spokesman said that the government was fully aware of the economic problems the money was causing, and that the administration would establish agencies to print legal banknotes and prohibit anyone from shipping in new “illegal” banknotes.

The UN unveils a On October 31st, UN agencies working in Somalia announced an ambitious reconstruction plan plan to help the country undertake national reconstruction. The three-phase plan involves Mr Hassan’s administration, as well as the self-styled Somaliland Republic and the self-declared regional administration of Puntland. In the initial phase, funds to expand humanitarian programmes will be sought and immediate support for governance will commence. The second phase, to be implemented in 2001, will involve medium-term transitional planning and continuing governance support; the third phase involves working with international partners to produce long-term development goals for the country. The UN made an immediate appeal to donors for US$20m to fund the initial phase of the initiative through to the end of 2000.

The Gulf states ban Further damage to the Somali economy is expected after a ban was imposed by livestock imports Bahrain, Oman, Qatar, Saudi Arabia, the United Arab Emirates and Yemen in late September on imports of livestock from eight countries in the Horn of Africa and East African following an outbreak of Rift Valley fever. The effects of the ban are expected to be much worse than those of a similar ban in 1998-99 because of the lack of alternative markets, the generally poor condition of livestock and the fact that the ban came into effect before the peak period for Ramadan livestock sales. The 1998-99 ban imposed by Saudi Arabia was only partly effective as some animals were transshipped through Yemen, but even so the economic impact was keenly felt, particularly in Somaliland and Puntland, the location of the two main exporting ports (Berbera and Bossasso). Income earned from livestock exports through Berbera represent about 50% of Somaliland’s foreign-currency income. The shortage of foreign exchange precipitated by the ban is expected to quickly reduce the flow of electronic goods, food and clothing to the market, particularly in northern areas.

A fuel crisis hits Mogadishu An acute fuel shortage gripped Somalia in the last week of October, with prices soaring, especially in Mogadishu where a litre of petrol reached US$1.20, an all- time high. The crisis, which is a result of high global crude oil prices, has been exacerbated in the Somali capital by delays in the arrival of supply ships. As a result, traffic in Mogadishu and other towns was almost paralysed.

Somalia officially links up Three Mogadishu-based telecommunications companies launched a joint to the Internet venture on September 20th to set up the first local internet service provider. After a three-week test period, the newly established Somali Internet Company, a joint partnership of the Olympic, Barakat and NationLink telecommunications companies, received its first 100 subscribers, who pay a US$20 basic fee plus installation costs of US$100. Charges of US$0.10 per minute are 70% cheaper than in neighbouring countries, such as Kenya and Ethiopia. With

start-up costs of US$400,000, the company is not expecting to have enough clients to make a profit for more than two years, but it plans to open Internet cafes in an effort to make the service more popular. Over the last two years, the mobile phone business in Mogadishu has boomed, and new telephone landlines have been laid in the capital and some of the southern towns.

News from the Somaliland Republic

Relations with the TNA The refusal of the organisers of the Djibouti conference to recognise the remain cool political status of the self-styled Somaliland Republic has continued to cloud relations between the administrations of the Somaliland president, Mohamed Ibrahim Egal, and of the Somali president, Abdikassim Salat Hassan. Indeed, Mr Hassan’s appointment as interim president was marked by demonstrations against the Djibouti conference in Hargeisa in late August. Attempts by Italian diplomats in September and October to broker talks between Mr Egal and Mr Hassan failed, and Mr Egal reportedly accused the Transitional National Assembly (TNA) of seeking to destroy Somaliland. Mr Egal’s suspicions towards the new interim administration are further fuelled by the fact that Mr Hassan’s prime minister, Ali Khalif Galaydh, and his foreign minister, Ismail Mohamed Hurre Buba, were both members of the Somaliland government in 1991-92, when it was headed by Mr Egal’s predecessor Abdulrahman Ahmed Ali “Tur”. Like Mr Ali “Tur”, who is no longer welcome in Hargeisa, both Mr Galaydh and Mr Buba opposed Somaliland’s declaration of independence.

A member of the TNA is The view widely held in Hargeisa that the Djibouti conference threatened the jailed and then released existence of Somaliland was given expression in mid-September, when a court in Berbera sentenced Garad Abshir Salah, a former Somaliland MP, to seven years imprisonment after finding him guilty of treason. One of his crimes was to have attended the Djibouti conference where he was elected a member of the TNA. However, after serving less than a month in prison, Mr Salah received a presidential pardon and was released. In mid November Mr Egal granted an amnesty to all Somaliland nationals that took part in the Arta conference, on the condition that any who held positions in the TNA should give them up.

Somaliland issues its own A new passport for Somaliland citizens, issued by immigration offices and passports Somaliland missions overseas, has been announced by the Somaliland Council of Ministers. A number of foreign governments have recognised the new document, according to a report on Radio Hargeisa on September 18th, although only Ethiopia was named. Mr Egal used the new passport on a visit to Ethiopia in late September. Acceptance of the new document elsewhere may be more troublesome, however, because of Somaliland’s lack of international recognition. Mr Egal sent a written message to the UN secretary-general on September 7th appealing for UN membership for Somaliland and accusing Djibouti of creating instability in Somaliland.

Djibouti

Political structure

Official name République de Djibouti

Form of state Unitary republic

Legal system Based on the Napoleonic Code. A referendum in September 1992 endorsed a new constitution, which allows a maximum of four political parties

National legislature National Assembly (Assemblée nationale); 65 deputies, elected by universal suffrage, serve a five-year term; an alliance of the RPP and the FRUD holds all the seats

National elections December 1997 (legislative) and April 1999 (presidential); next elections due in December 2003 (legislative) and April 2005 (presidential)

Head of state President, elected by universal suffrage; serves a term of six years

National government The president and his appointed Council of Ministers; last reshuffled in May 1999

Main political parties Rassemblement populaire pour le progrès (RPP), the former sole legal party, split in 1996, with dissidents forming the Groupe pour la démocratie et la république, later banned; Parti national démocratique; Parti pour le renouveau démocratique. In 1991 the Front pour la restauration de l’unité et de la démocratie (FRUD) launched a rebellion by the Afars. In 1994 the government signed a peace agreement with a FRUD faction which was legalised in 1997 and contested the legislative election in alliance with the RPP

President Ismael Omar Guelleh Prime minister & minister for land development Barkat Gourad Hamadou

Key ministers Agriculture & water resources Ali Mohamed Daoub Commerce & industry Elmi Obsieh Waiss Communication & culture Rifki Abdulkader Bamakrama Defence Ougoureh Kifle Ahmed Economy, finance & privatisation Yacin Elmi Bouh Education Abdi Ibrahim Obsieh Employment & solidarity Mohamed Barkat Abdillahi Energy & natural resources Mohamed Ali Mohamed Foreign affairs & co-operation Ali Abdi Farah Health Mohamed Dini Farah Interior Abdallah Abdillahi Miguil Justice, prisons & human rights Ibrahim Idriss Jibril Presidential affairs & investment promotion Osman Ahmed Moussa Public works, housing & construction Saleiban Omar Oudine Transport & equipment Osman Idriss Djama Youth & sports Dini Abdallah Bililis

Non-cabinet advisers Directeur de cabinet Ismael Hussein Tani Chef de cabinet Ali Guelleh Abubaker

Central bank governor Djama Mohamed Haid

Economic structure

Annual indicators

1996 1997 1998a 1999b 2000b GDP at market prices (Dfr bn) 88.2 89.6 91.2 94.3 98.4 Real GDP growth (%) –1.5 0.0 1.7 1.5c 2.3 Populationd (‘000) 620 630 643b 662c 670 Consumer price inflation (%; av) 2.6 1.6 0.1 2.0 2.0 Exports fob (US$ m) 40 43 59 260e n/a Imports fob (US$ m) 201 204 239 440e n/a Current-account balance (US$ m) –16 –12 –14 –32.9 –35.9 Reserves excl gold (US$ m; year-end) 77.0 66.6 66.5c 70.6c 61.9 Total external debt (US$ m; year-end) 296 274 288c 300 n/a External debt-service ratio, paid (%) 5.4 3.1 5.3b 5.0 n/a Exchange rate Dfr:FFr (av) 34.7 30.4 30.1c 28.8c 25.2 Exchange rate Dfr:US$ (av) 177.7 177.7 177.7c 177.7c 177.7

November 20th 2000 Dfr177.7:US$1

Origins of gross domestic product 1998af % of total Components of gross domestic product 1998a % of total Agriculture 3.2 Private consumption 79.5 Industry 22.3 Government consumption 23.6 Manufacturing 5.2 Gross domestic investment 15.3 Services 74.7 Exports of goods & services 45.4 Transport & communications 19.7 Imports of goods & services –63.8 GDP at factor cost 100.0 GDP at market prices 100.0

Principal exports 1998a US$ m Principal imports fob 1998ag US$ m Re-exports 45 Food & beverages 53 Locally produced goods 14 Qat 17 Petroleum products 17 Machinery 15

Main destinations of exports 1998h % of total Main origins of imports 1998h % of total Somalia 53 France 13 Yemen 23 Ethiopia 12 Ethiopia 5 Italy 9 Saudi Arabia 6 UK 6 a Provisional estimates. b EIU estimates. c Actual. d IMF figures, including refugees and expatriates. e Including Ethiopian trade in transit. f The net indirect tax component has been distributed to each sector according to EIU estimates. g Excluding goods for re-export. h Based on partners’ trade returns; subject to a wide margin of error.

Quarterly indicators

1998 1999 2000 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Financial indicators Exchange rate Dfr:US$ (av) 177.72 177.72 177.72 177.72 177.72 177.72 177.72 177.72 Dfr:US$ (end-period) 177.72 177.72 177.72 177.72 177.72 177.72 177.72 177.72 M1, (end-period; Dfr m) 26,739 29,245 29,333 29,091 27,737 30,274 27,796 n/a % change, year on year –16.0 –10.0 –8.9 7.8 3.7 3.5 –5.2 n/a M2, (end-period; Dfr m) 52,676 54,090 53,698 54,186 50,878 52,021 50,545 n/a % change, year on year –5.5 –4.1 4.1 4.2 –3.4 –3.8 –5.9 n/a Foreign tradea (US$ m) Exports fob 40.00 26.93 36.59 30.32 35.89 37.69 36.24 33.64 Imports cif –139.02 –156.40 –155.78 –129.38 –146.63 –168.51 –156.37 –145.30 Trade balance –99.02 –129.47 –119.19 –99.06 –110.74 –130.82 –120.13 –111.66 Foreign reserves (US$ m) Reserves excl gold (end-period) 62.6 66.5 66.9 61.9 62.2 70.6 62.2 62.5 a DOTS estimates.

Sources: IMF, International Financial Statistics; IMF, Direction of Trade Statistics.

Outlook for 2001-02

Political outlook The success of his Somali peace initiative will provide a short-term boost to President Ismael Omar Guelleh, who both initiated the talks and hosted the ensuing three-months of negotiations in Arta. This will lift his regional and international status, despite the problems inherent in the Somali settlement (see Somalia: outlook for 2001-02). Not only will Mr Guelleh maximise the international political capital to be won from the deal, but several key Djibouti- based merchants and financiers close to the presidency are poised to benefit commercially from the resumption of aid and contracts to Mogadishu. The Arta deal is thus a significant coup in Djibouti’s strategy of using regional political forums to bolster Djibouti’s status, in particular by combining a relatively active Middle East policy with East African initiatives within the Inter-governmental Authority on Development (IGAD). Active regional diplomacy has the additional benefit of overshadowing Djibouti’s troubled domestic political stage, on which Mr Guelleh’s authoritarian rule will continue to be contested.

On paper, the peace deal signed in February between the government and Ahmed Dini’s faction of the Front pour la restauration de l’unité et de la démocratie (FRUD) bolsters Djibouti’s political stability. But by November, Mr Dini’s failure to consolidate the deal was further alienating his own allies and other opponents of the government. President Guelleh formally attributes the delays to the time-consuming demands of his Somali initiative. Yet in practice he will continue negotiate with Mr Dini in order to divide his domestic critics, and a fundamental reform of Djiboutian politics looks as unlikely as ever. Therefore, in the increasingly unlikely event that Mr Dini does secure even limited political reforms, a tense and unpredictable political climate may result. Tensions are also inevitable in the absence of reforms. This will particularly be the case if the FRUD rallies those seeking to widen political participation to the Somali and Afar elites marginalised by Mr Guelleh during his rise to power. Given the ambiguity of the president’s stance, some isolated incidents of violence are likely.

Notwithstanding the interim settlement between Ethiopia and Eritrea, Ethiopia will not resume trade via Eritrean ports for the foreseeable future, and trade will continue to be routed through Djibouti. Djibouti’s restoration of diplomatic ties with Eritrea in March has not altered the ever-closer business ties between local and Ethiopian commercial and political elites. However, a potential source of friction will be the requirements of Djibouti’s externally monitored economic reform programme. Djibouti is under pressure from donors to increase fiscal receipts by raising tariffs on goods in transit to and from its port. Such pressure will exacerbate the marked deterioration in trade relations between the Djiboutian and Ethiopian authorities evident in late 2000. The implications of closer relations with Ethiopia will remain a sensitive issue in Djibouti. Although Mr Guelleh outwardly supports closer economic ties, the political implications of greater integration and reform for Djiboutian sovereignty—and, more practically, the standard of living of Djibouti’s tiny

political elite—will generate new political pressures at home, particularly as reforms in the civil service produce job losses.

Economic policy outlook Despite the disbursement of a second tranche of funds in July, the ever-tighter conditions attached to Djibouti’s current three-year loan from the IMF will make the implementation of reforms far from smooth. After delaying fiscal and structural reforms for five years, the government is unlikely to be able to meet the timetable set by the IMF, even with increased technical assistance and allowing for some leeway due to the goodwill generated by Mr Guelleh’s successful Somali initiative. The EIU therefore expects revisions to the current reform schedule, especially over streamlining the civil service, privatisation and labour market liberalisation. The swift withdrawal of fuel price rises in the face of social unrest in May was not the first and will not be the last policy reversal. The uncontrolled expenditure on “security” (particularly on internal repression) and protests in May underline Djibouti’s political fragility and the lack of domestic political consensus, without which substantive economic reform is not possible. Which countries and individuals contributed to the considerable bill for the Arta conference remains unclear, yet while the Mr Guelleh will no doubt claim that the cost of the meeting has worsened the country’s budgetary position, in reality Djibouti’s financial problems are structural and long-term.

The contracting out of port management to Dubai will further enhance the port’s efficiency, which has already improved markedly under Djiboutian control over the past five years. The deal will increase new investment in port facilities, and bolster the port management’s longer-term strategic planning. Yet, in the absence of significant progress on structural reforms, the economy is unlikely to show any dynamism or substantial growth. Instead, its fortunes will continue to depend on Ethiopian traffic through its port, which is unlikely to be damaged by the bilateral trade dispute in October, and on muddling through the reform programme to ensure that external financing continues to trickle in.

The political scene

Mr Guelleh takes the credit The president’s gamble in convening and hosting the protracted Somali peace for Somalia breakthrough conference in the hill resort of Arta paid dividends in late August. Following a series of Djiboutian ultimatums, reflecting mounting nervousness at the escalating cost of the Arta gathering, which involved around 2,000 delegates and lasted over three months, a parliament in exile finally convened and elected a president on August 26th (see Somalia: The political scene). President Ismael Omar Guelleh and his aides played a key role in brokering the final deal, partly through their powers of patronage as hosts, but also with President Guelleh’s 11th-hour creation and allocation of an additional 20 seats to the new Somali parliament.

Following the announcement of a government in exile and the subsequent visit of the new Somali president, Abdikassim Salat Hassan, to Mogadishu,

Mr Guelleh won substantial international praise for his role in the process. Heads of state from both Ethiopia, and Eritrea—in itself a significant achievement—as well as Sudan and Yemen attended Mr Hassan’s inauguration, along with senior UN and EU representatives. Mr Guelleh received acclaim from both the Arab League conference in Cairo and the UN Millennium Summit in New York, as well as making high-profile stopovers in Saudi Arabia, Egypt and Libya.

On September 12th Mr Guelleh addressed the UN General Assembly, where he called for international support for Somalia’s embryonic government. It was at last year’s UN General Assembly that he launched the idea of a Djibouti-based reconciliation meeting (4th quarter 1999, page 42). Mr Guelleh also used his UN speech to caution critics of the deal, claiming that “those individuals who chose to oppose the creation of a representative and democratic government … need to come to terms with reality” and personally to present Mr Hassan to the General Assembly. Two days later Mr Guelleh’s diplomatic triumph was crowned by an invitation to address a private meeting of the UN Security Council, convened to discuss Somalia.

The secretary-general of the Organisation of African Unity (OAU), Salim Ahmed Salim praised the Arta conference “as a significant and encouraging step in the process of achieving peace, national reconciliation and stability” and thanked Djibouti’s president and people “for their sustained efforts and great sacrifice”. Further evidence of Mr Guelleh’s enhanced credibility on the African stage came from his involvement in the OAU presidential contact group for Côte d’Ivoire.

Violence at pro-Palestinian Djibouti’s state-controlled broadcast media claimed that 30,000 people turned demonstration out on October 13th to demonstrate in Djibouti-ville in solidarity with the plight of the Palestinians. The demonstration, which mirrored similar initiatives throughout the Arab world, had reportedly received backing from the presidency. Djibouti is a member of the Arab League and pro-Palestinian policy statements are a standard part of its foreign policy stance. According to reports, during the gathering stones were thrown at Ethiopian and French targets in the city, and there was an exceptionally heavy security presence on the streets, with the government apparently edgy that anger sparked by TV images from Palestine might fuse with discontent over domestic issues.

Ironically, three days prior to the demonstrations, an Israeli passenger jet flying from Israel to Kenya made an emergency landing in Djibouti following mechanical problems. The aircraft and its 260 passengers and crew were reportedly grounded for 17 hours. Passengers did not leave the airport, which is partly under French control. Djibouti’s role as a regional military base under de facto French control was further highlighted in the same week as American survivors from the bomb attack on the USS Cole in Yemen were airlifted to the French hospital in Djibouti to receive emergency treatment before being transferred to Europe.

The frail prime minister Djibouti’s elderly and ailing prime minister, Barkat Gourad Hamadou, returned returns to the country on October 2nd following six months of medical treatment

abroad. Mr Barkat’s long absence from the country, and manifest inability to wield effective power because of illness, has revived speculation over possible cabinet changes. However, the prolonged absence from the domestic political arena of Mr Barkat, who is an Afar, also highlights the essentially symbolic nature of formal political office within the country.

The Eritrean embassy The re-establishment of normal diplomatic relations with Eritrea progressed reopens further on September 15th with the arrival of the new Eritrean ambassador to Djibouti, Mohamed Ali Jabrah. Receiving the new ambassador the following week, Djibouti’s foreign minister announced that the country would shortly re- open its embassy in Asmara, and on Novemeber 23rd Mr Jabrah formally invited Mr Guelleh to visit Eritrea Diplomatic relations were broken off in late 1998 following Eritrean accusations that Djibouti had sided with Ethiopia in the two countries’ border war. However, ties were restored in March, reportedly following Libyan mediation (May 2000, page 40).

Economic policy and the economy

Relations with donors The attention focused on Djibouti’s role in the Somali negotiations has served remain fraught to overshadow the precarious nature of the domestic economic reform process. As the EIU expected, the strict conditions imposed after the release in July of a second payment of SDR2.726m (US$3.6m) from the IMF proved overambitious and, according to unconfirmed reports, the targets in the ad hoc July 2000 supplementary budget are not being met (September 2000, page 38). IMF staff visits in August and September do not appear to have resolved the outstanding issues, and the lack of financial transparency and poor basic statistical reporting remain a barrier to progress. Meanwhile, the demobilisation programme, on which much of the reduction of government expenditure depends, continues to be slow and piecemeal: only 344 men were reported to have been demobilised by August, compared with a planned total of 1,500.

Rehabilitation of the north On October 10th the president, Ismael Omar Guelleh, opened a new port is enhanced by new port facility in the small, historic northern town of Tadjourah, which was depopulated during the civil war. The US$1.64m upgrade of the port was presented by the government as a significant contribution to the post-war rehabilitation of the north, reflecting its commitment to decentralise both economically and administratively. The upgrade was paid for by the Port of Djibouti, and is designed to facilitate trade with the sparsely populated north of the country. In a related development, in August the road linking Tadjourah and Obock, Djibouti’s other main northern settlement, was reopened following the completion of mine clearance.

Trade tensions with A thinly veiled trade war was declared with Ethiopia in October. This followed Ethiopia persist an announcement earlier in the month by the Ethiopian authorities that they would only allow imports from Djibouti of products that originated from within the country. The highly unpractical nature of this edict—Ethiopia imports virtually nothing except salt from Djibouti itself, while relying upon

the port as a transit point for the vast majority of its imports from the rest of the world—highlights the tactical nature of the decision. The decision prompted a Djiboutian official to accuse Ethiopia of imposing an embargo on the country. Djibouti responded by temporarily freezing the bank accounts of the Ethiopian state-owned shipping agent, the Maritime Transit and Service Enterprise. The two countries have also quarrelled over the precise terms under which Ethiopian ships may use the port. The principal issue underlying such disputes remains fiscal, in that Djibouti claims increased tariff and transit payments from Ethiopian importers. Despite the bad blood between the two sides, in practice goods have continued to flow through the port to Ethiopia.