COUNTRY REPORT
Ethiopia Eritrea Somalia Djibouti
September 2000
The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising conferences and roundtables. The firm is a member of The Economist Group.
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Contents
2 Summary
Ethiopia
5 Political structure 6 Economic structure 6 Annual indicators 7 Quarterly indicators 8 Outlook for 2000-01 8 Political outlook 9 Economic policy outlook 9 Economic forecast 10 The political scene 13 Economic policy and the economy
16 Eritrea
16 Political structure 16 Economic structure 17 Annual indicators 18 Outlook for 2000-01 18 Political outlook 18 Economic forecast 19 The political scene 21 Economic policy and the economy
23 Somalia
23 Political structure 24 Economic structure 24 Annual indicators 25 Outlook for 2000-01 26 The political scene 30 Economic policy and the economy 31 News from the Somaliland Republic
Djibouti
33 Political structure 34 Economic structure 34 Annual indicators 35 Quarterly indicators 36 Outlook for 2000-01 37 The political scene 38 Economic policy and the economy
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List of tables
15 Ethiopia: coffee production and exports 27 Somalia: Transitional National Assembly
List of figures
13 Ethiopia: gross domestic product 21 Eritrea: gross domestic product 37 Djibouti: gross domestic product
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September 1st 2000 Summary
September 2000
Ethiopia
Outlook for 2000-01 Ethiopian military successes in May, and the signing of an interim settlement agreement on June 18th, dramatically reconfigure Ethiopian-Eritrean relations. After a year of diplomatic stalemate, the EPRDF believes it has fully reversed the humiliation inflicted by its erstwhile Eritrean ally in mid-1998. Ethiopian forces will now remain deep within Eritrea until UN military observers supervise their withdrawal. Although the ceasefire is likely to hold, the precise composition and operation of a proposed 4,200-strong UN peacekeeping force provides ample opportunity for disagreement between Eritrea and Ethiopia.
The political scene On June 18th the Eritrean government signed the Cessation of Hostilities Agreement in Algiers. On July 31st the UN Security Council unanimously agreed to send an advance guard of 100 military observers to prepare the way for a larger force.
Economic policy and the The Ethiopian authorities have again increased their estimates of food aid economy needs for 2000/01. They claim that 10.3m people now require assistance, a figure that includes almost 400,000 people displaced by fighting in Tigray. These revised figures increase relief requirements by an estimated 495,000 tonnes to a total of around 1.3m tonnes for the remainder of the current calendar year.
Eritrea
Outlook for 2000-01 Ethiopia’s successful military offensive launched in May, which pushed the front line north over the border and well into mountainous regions of Eritrea, led to an accord to cease hostilities, brokered in June by the Organisation of African Unity in Algiers. The proposed UN force of 4,200 men, which will monitor the accord while demarcation of the disputed border proceeds, should have no trouble getting authorisation from the Security Council.
The political scene A UN team has been in Asmara and Addis Ababa making preparations for the deployment of the peacekeepers since early July and the 100 military observers should arrive in the region by the end of August.
Economic policy and the A credit of US$40m from the International Development Association to economy support childhood development in Eritrea was announced by the World Bank on July 28th. The Integrated Early Childhood Development Project will focus on healthcare, nutrition, social protection and early childhood education.
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Somalia
Outlook for 2000-01 The first task of the new parliament is to select a president, which will take some time. The UN is not expected to recognise the new administration immediately. Prospects for peace on the ground will remain poor. Recent imports of foreign currency will fuel inflation. Somaliland will remain suspicious of the new parliament.
The political scene The Somali peace conference in Djibouti has made considerable progress, and a national parliament in exile has been appointed. Peaceful demonstrations both in favour and against the peace process have occurred. Fierce fighting has continued in the central regions.
Economic policy and the The Somali shilling has strengthened on optimism over the peace conference. economy Fresh consignments of banknotes have arrived in Bossasso. Domestic fishermen have objected to Puntland’s new maritime security force.
News from the Somaliland Relations with Djibouti and Puntland have remained strained. A law has been Republic passed on political pluralism. Trade and transport agreements have been signed with Ethiopia.
Djibouti
Outlook for 2000-01 President Guelleh will concentrate on regional policy to boost Djibouti’s international image. Relations with Ethiopia will remain close, although attempts to increase trade levies will cause tension. The peace deal between the government and FRUD is unlikely to lead to substantive political reforms. Implementation of an IMF reform programme will be lax, although external funding will continue to trickle in.
The political scene The Somali peace conference has got under way and has made good progress. A summit meeting between the president and Ahmed Dini, leader of the armed wing of FRUD, has been announced.
Economic policy and the Djibouti has received a second tranche of funds from the IMF under its poverty economy reduction and growth facility, despite missing some targets. The conditions attached to future disbursements by the IMF have been tightened. After riots against increase in petrol prices, the government reversed its decision. The current-account deficit in 1999 was lower than expected owing to strong earnings by the services sector. Up to a quarter of the population is in need of emergency food aid owing to drought.
Editors: Christopher Eads (Ethiopia, Eritrea); Paul Gamble (Somalia, Djibouti) Editorial closing date: August 28th 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule
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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. 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, 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 People’s 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 (acting) 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 Drir (acting) Water resources Shiferaw Yarso
Central bank governor Teklewolde Atnafu
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Economic structure
Annual indicators
1995 1996 1997 1998 1999a GDP at factor costb (Birr bn) 31.4 35.1 38.2 41.4 45.8c Real GDP growthb (%) 6.2 10.6 5.2 –0.5 0.0 Consumer price inflationd (av; %) 10.0 –5.1 –3.7 0.9 4.0c Population (m) 54.7 56.4 58.1 59.9 61.4 Exports fob (US$ m) 423 418 588 568 460 Imports fob (US$ m) 1,137 1,002 1,019 1,042 1,250 Current-account balance (US$ m) –10 89 –23 134 –100 Reserves excl gold (year-end; US$ m) 772 732 501 511 459c Total external debt (US$ bn) 10.3 10.1 10.1 10.3 10.3 External debt service, paid (%) 19.1 42.2 9.6 11.3 14.0 Coffee productione (‘000 tonnes) 230 228 230 232f 210 Exchange rate Birr:US$ (av) 6.15 6.35 6.71 7.12 7.85 August 18th 2000 Birr8.13: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 Oil seeds 44 Metal & metal products 74 Pulses 40 Electrical products 39
Main destinations of exports 1998g % of total Main origins of imports 1998g % of total Germany 25 Russia 11 Japan 12 Italy 9 Djibouti 10 Saudi Arabia 7 Saudi Arabia 10 US 6 a EIU estimates. b Fiscal years ending July 7th. c Actual. d Addis Ababa retail index. e Crop years ending September 30th; only about one-half of production is exported. f Official estimate. g Based on partners’ trade returns; subject to a wide margin of error.
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Quarterly indicators
1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3Qtr 4 Qtr Prices Consumer prices Addis Ababa (1995=100) 94.8 98.1 102.1 100.7 101.9 108.0 111.0 n/a % change, year on year 5.1 7.3 9.5 10.8 7.5 10.1 8.7 n/a Financial indicators Exchange rate Birr:US$ (av) 6.91 7.03 7.15 7.37 7.59 7.93 8.12 8.13 Birr:US$ (end-period) 6.95 7.06 7.27 7.50 7.90 8.12 8.12 8.13 Interest rates (av; %) Deposit 6.00 6.00 6.00 6.00 6.00 6.13 6.47 6.67 Lending 10.50 10.50 10.50 10.50 10.50 10.50 10.50 10.50 Treasury bill 3.65 3.34 3.76 3.17 4.16 4.10 3.25 3.10 M1 (end-period; Birr m) 9,730 10,818 9,590 9,304 9,387 10,035 10,277 10,524 % change, year on year 2.9 10.1 –3.8 –7.8 –3.5 –7.2 7.2 13.1 M2 (end-period; Birr m) 17,796 18,980 18,062 17,792 17,106 18,111 18,598 19,001 % change, year on year 9.8 12.5 3.6 –2.8 –3.9 –4.6 3.0 6.8 Sectoral trends (annual totals; ‘000 tonnes) Coffee productiona ( 2 3 0 ) ( 2 3 2 ) Foreign trade (Birr m) Exports fob 1,047 1,368 918 632 n/a 1,167 852 684 Imports cif n/a n/a n/a n/a –1,927 –2,447 –3,380 –2,760 Trade balance n/a n/a n/a n/a n/a –1,280 –2,529 –2,077 Foreign payments (US$ m) Merchandise trade balance –114.1 –73.2 –126.1 –160.5 n/a n/a n/a n/a Services balance 19.2 8.1 –15.3 0.7 n/a n/a n/a n/a Income balance –10.8 –0.2 –5.0 4.3 n/a n/a n/a n/a Current-account balance 51.9 90.9 12.5 –21.3 n/a n/a n/a n/a Reserves excl gold (end-period) 463.9 439.4 419.5 511.1 474.3 n/a 509.9 458.5 a Estimates.
Sources: UN Food and Agriculture Organisation; IMF, International Financial Statistics; FT.
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Outlook for 2000-01
Political outlook
Domestic politics Ethiopian military successes in May, and the signing of an interim settlement agreement on June 18th, have dramatically reconfigured Ethiopian-Eritrean relations. After a year of diplomatic stalemate, the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) believes it has secured a full reversal of the humiliation inflicted by its erstwhile Eritrean ally in mid-1998. Ethiopian forces will now remain deep within Eritrea until UN military observers supervise their withdrawal. UN peacekeepers will then monitor Eritrean movements the length of a 25-km-deep cordon sanitaire within Eritrea. Although the ceasefire is likely to hold, the precise composition and operation of the proposed 4,000-strong force provides ample scope for disagreement between Eritrea and Ethiopia. The Ethiopian withdrawal is therefore likely to be very slow and piecemeal. Negotiations over compensation for war damage and the treatment and repatriation of each other’s nationals offer considerable scope for point-scoring and vitriolic propaganda, and in the current climate of acute mistrust, both administrations will exploit such issues to gain tactical advantage in the negotiations over the introduction of the UN force.
In the long-term, the psychological and military defeat inflicted upon the Eritrean administration is likely to generate as many problems as it has solved. Without a change of the political leadership in Asmara, trust is unlikely to develop between the belligerents, and notions of national pride will remain a major barrier to a sustainable resolution of the conflict. A comprehensive settlement does not depend primarily on the successful interposition of UN troops, or the delimitation of the frontier. Only the re-establishment of trust and commercial ties between the core Tigrinya-speaking peoples on both sides of the highland borders will produce a sustainable settlement, and this seems unlikely in the near future.
Outsiders underestimate the degree to which war has brought political benefits to both the Ethiopian and Eritrean ruling elites. For the EPRDF, the war has deflected opinion both at home and abroad away from domestic political issues, and helped to strengthen the centralised, hierarchical structures which are at the heart of its political culture and control. For example, the war totally overshadowed Ethiopia’s second federal election in May. As expected, affiliates of the ruling Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) completely dominate the new federal assembly, which will continue to be a largely powerless body. However, this situation is coming to an end. With the war apparently over, Addis Ababa’s opposition press will step up its criticism of the EPRDF’s poor record of municipal management. Resentment will mount as domestic issues come back to the fore, bringing to light the negligence of the government in dealing with these issues in recent years.
International relations The exacting of revenge against the Eritrean People’s Liberation Front for the humiliation of 1998, and the holding of a second round of ostensibly pluralist
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elections, will cause the leaders of the EPRDF to embolden their stance towards liberal Western administrations. The government’s resentment of the US and EU’s “impartiality” over Eritrea, criticism over “governance” and human rights issues, as well as attempts to link food aid and the war (May 2000, page 15), will therefore stand in the way of improved relations with the West.
Economic policy outlook
Although food insecurity and a deteriorating fiscal position did not undermine either the government’s willingness or its ability to prosecute the war, economics do appear to have played a part in the scale and timing of May’s military offensive: the prime minister, Meles Zenawi, again cited both the fiscal burden of war and its negative impact on development opportunities as reasons why the war had to be brought to a swift and decisive end.
The military and diplomatic breakthrough during May and June has changed the outlook for economic planning. The acute uncertainties associated with the highly volatile stand-off have now eased, allowing both Ethiopian officials and foreign donors to re-engage with longer-term planning with greater confidence.
An initial sign of this came with the arrival of an IMF mission to Addis Ababa in early August. Although Ethiopia successfully completed Article IV consultations with the IMF in mid-1999, unease among multilateral donors regarding the war was heightened by changes of direction in economic policy, and the Fund and the World Bank had in effect suspended new credit to Ethiopia (4th quarter 1999, page 8). Ethiopia is formally eligible for the IMF’s poverty reduction and growth facility (PRGF, the successor to the enhanced structural adjustment facility, ESAF) and, if the August mission is successful, may be in a position to begin negotiations over either a PRGF or a debt- reduction package later in 2000. Although there will be no formal linkage, the smooth installation of the UN observer mission will no doubt ease economic negotiations, but relations between Ethiopian decision-makers and the Fund will remain guarded for the time being.
Economic forecast
Even if the current interim settlement is consolidated, this is likely to bring only partial relief to the Ethiopian economy in fiscal year 2000/01 (which began on July 8th). Military expenditure will remain at its current level, and ad hoc fiscal measures, such as last December’s unexpected increases in fuel prices and import tariffs (1st quarter 2000, page 13), as well as foreign-exchange shortages, are likely to continue.
As usual, it is environmental , rather than political or military, factors, that will determine the aggregate health of the economy in 2001, and the ability of the bulk of impoverished Ethiopians to feed themselves. By mid-August the
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principal rains were falling across the highlands. Rains had started late, and were patchy in many areas, but it was too early to predict the likely outcome of the main, meher, harvest.
In the light of food shortages stemming from last year’s mediocre main crop (1st quarter 2000, page 14) and the failure of this year’s shorter belg season harvests, anything below an average meher crop would have calamitous consequences for Ethiopia’s war-torn economy. With an estimated 10.3m people, one-sixth of the total population, now requiring food aid for the remainder of 2000, the failure of another year’s crop, compounded by the dislocation due to war in Tigray, will further stunt medium-term economic prospects. If the agricultural sector, which accounts for roughly half of GDP, does do badly and since heavy military expenditure will persist throughout 2000, Ethiopia faces another year of stagnant economic growth; indeed, a contraction is possible in real terms. The rallying of international coffee prices, coupled with forecasts of a reasonable coffee harvest in 2000, may add buoy- ancy to the external sector. However, ongoing upward pressure on grain prices, coupled with the impact of higher fuel prices and the introduction of new import tariffs, will generate significant inflationary pressures throughout 2000.
The political scene
Ethiopian troops make a On May 11th the Ethiopian army launched a major offensive on the northern, decisive strike into Eritrea Badme front, unexpectedly breaking Eritrean lines across an unlikely escarpment. Ethiopian commanders rapidly consolidated the surprise attack, pouring troops and armour through the breach deep into central Eritrea. Five days into the assault, Eritrean forces and civilians fled from Barentu, which Ethiopian troops entered on May 18th. The scale and speed of the initial, northern offensive left Ethiopian forces within striking distance of Mendefera, rupturing Eritrea’s centralised military command structure and supply lines.
The Ethiopian army thus avoided the tactical errors of mid-1999, when frontal assaults on the central front abjectly failed, at colossal human and financial cost, to dislodge Eritrean forces from their heavily entrenched positions around the strategic and symbolically significant towns of Zala Ambassa and Tsorena (3rd quarter 1999, page 10). With a force advancing eastwards towards this central front from within Eritrea, severing supply lines, Ethiopian troops recaptured Zala Ambassa from the south on May 24th. This effectively expunged the humiliation of the Tigray People’s Liberation Front (TPLF) at the hands of their erstwhile Eritrean allies, who had held undisputed Tigrayan territory with apparent impunity for almost two years. By May 24th the offensive had thus achieved its core objectives—an event marked by celebrations in Addis Ababa.
Nevertheless, fighting continued, although Eritrea was effectively sliced in two by Ethiopian forces’ control of the east-west road at Barentu. Ethiopian troops seized Tesseney on Eritrea’s western frontier with Sudan, and on May 26th Eritrean forces and civilians beat a hasty “strategic withdrawal” from Agordat,
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as Ethiopian forces captured Senafe and Adi Qaiy on the main highway to Asmara. Eritrea’s president and commander-in-chief Isaias Afewerki announced that his forces would also withdraw from Bure on the southern front, leaving Ethiopian troops within striking distance of Assab. Notwithstanding fighting on the southern front, and a barrage of speculation by foreign observers to the contrary, the EIU maintains that the status of Assab has never been a significant factor in the current conflict.
An interim settlement of Two weeks of fighting fundamentally and conclusively reconfigured the the conflict results diplomatic stalemate engendered by a year of diplomatic activity by the Organisation of African Unity (OAU), UN and US. However, intense diplomatic negotiations continued before, during and after the fighting. Ethiopia’s assault on May 11th-12th came after the breakdown of proximity talks in Algiers between the foreign ministers of the two countries on May 1st-5th. A delegation of five senior ambassadors to the United Nations, headed by Richard Holbrooke of the US, undertook intense shuttle diplomacy between Addis Ababa and Asmara on May 8th-10th; and a draft resolution was due to go before the Security Council as the offensive began.
Envoys from the OAU, Libya and the EU visited the region as the fighting continued, while the OAU chairman, Algeria’s President Bouteflika, played a key part in securing the Eritrean leadership’s beleaguered acquiescence in the interim Cessation of Hostilities Agreement in Algiers on June 18th. The signature of the agreement was endorsed by the OAU secretary-general Salim
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Ahmed Salim, the EU’s special envoy Reno Serri and the envoy of the US president Anthony Lake, who had all been involved in the negotiations over the previous year.
Algerian mediation has been crucial throughout the conflict and, although Mr Bouteflika ceased to be head of the OAU in July, he agreed to remain a lead mediator in the conflict at the organisation’s summit in Lomé on July 12th.
The UN establishes an On July 31st the UN Security Council unanimously agreed to send an advance observer mission guard of 100 military observers to prepare the way for a larger force. Resolution 1,312 (2000) gave the observers six months to establish mechanisms for verifying the cessation of hostilities and prepare for the establishment of the Military Co-ordination Commission, as agreed in the June 18th agreement. The resolution followed the initial report of an exploratory mission, led by Major-general Timothy Ford of Australia, which visited the region on July 4th- 18th. Days after the resolution, the first of the 100 observers arrived in Addis Ababa and Asmara to open offices.
On August 10th the UN secretary-general Kofi Annan proposed the establishment of the UN Mission in Ethiopia and Eritrea (UNMEE). The peacekeeping mission has been backed by the United States and has broad support from Security Council members, but it was stressed that the UN force should not become a permanent fixture in the region. The mission will comprise 4,200 personnel, including 220 military observers, three infantry battalions and support units. When fully established, the mission will have four formal objectives:
• to monitor the implementation of the accord; • to confirm the withdrawal of Ethiopian forces to the positions held on May 6th 1998; (paradoxically it was Eritrea’s refusal to pull back to the positions of May 6th 2000 that was the central sticking point in the negotiations up until the battles of May 2000, which effectively reversed the military situation;)
• to monitor the position of Eritrean forces, which are to remain 25 km away from the redeployed Ethiopian forces;
• to monitor the temporary security zone and co-ordinate and provide technical assistance for mine clearance.
The elections are National elections were held in Ethiopia, three days after the assault began to overshadowed by war recapture territory from Eritrea. The war had totally overshadowed the low-key electoral campaign (May 2000, page 8); and the rallying of national sentiment in the conflict with Eritrea by the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) further marginalised Ethiopia’s small, divided opposition groups, most of which are urban formations which hitherto had queried the ruling party’s national credentials.
Results from the May 14th polls were released only gradually, and voting was postponed in several regions. In most areas, elections were held simultaneously for representatives to the federal legislature, the Council of Peoples’
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Representatives, and the regional state councils which administer the devolved powers of what is, at least constitutionally, a decentralised federal republic.
By early July results from 487 of the 548 federal constituencies had been announced. EPRDF candidates reportedly won 472 seats; just seven candidates from opposition groups were elected; and eight seats went to independents. Opposition newspapers claimed that several EPRDF representatives in Addis Ababa had received low votes, and most publicity focused on the fact that Tefera Walwa, the minister of defence and deputy prime minister, lost his seat in the parliament (he continues his ministerial functions). On the 132-member Addis Ababa regional council, 32 seats went to non-EPRDF candidates, with the All-Amhara People’s Organisation (AAPO) winning 16 seats. The southern opposition leader Beyene Petros, who heads a fractious opposition coalition (1st quarter 2000, page 12) was re-elected. However, polling in several southern districts was delayed and the opposition coalition dismissed the polls as a “farce” and “undemocratic”. External monitoring of the voting was minimal.
Elections were not held in Somali region, where EPRDF control has been at best tenuous since 1991. State radio reported early in August that 30,000 voters had been registered to vote in the sparsely populated pastoralist region, where severe drought and poverty continues to afflict much of the population (1st quarter 2000, page 15).
Economic policy and the economy
Food shortages bite deeper By early August the Ethiopian authorities again raised their estimates of food aid needs for 2000/01. They claim that 10.3m people now require assistance, a figure which includes almost 400,000 people displaced by fighting in Tigray. These revised figures increase relief requirements by an estimated 495,000 tonnes to a total of approximately 1.3m tonnes for the remainder of the current calendar year. As had been expected, this year’s lesser (belg) harvests are believed to have been poor in many highlands areas, accounting for the bulk of the increase in assistance requirements.
However, foreign pledges, which followed international concern over food aid shortfalls earlier in 2000, have partly alleviated the situation (May 2000, pages 14-15). Additional pledges and deliveries, coupled with the fact that relief rations have been reduced in many areas in recent months, have improved the overall outlook. That said, heavy seasonal rains in July-August made both the delivery of aid and the assessment of needs harder in many outlying areas.
A key element of the apparent crisis surrounding food supplies in March-April was the failure of donors to replenish “loans” taken from the country’s emergency grain reserves in 1999. However, by early August, the National Food Reserve Administration (NFRA) claimed it had retrieved 90% of stocks, and was working towards a reserve of 407,000 tonnes.
Electricity is rationed Stable, rationed power supplies were restored in most of Ethiopia in early August following two months of erratic power cuts. The power shortages were
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due to a fall in hydroelectric power capacity prior to the onset of the main rains, highlighting Ethiopia’s weak storage and distribution network. Power supplies were cut every third day from mid-June. In late July the Ethiopian Electric Power Corporation (EEPC) announced that improved rains allowed the rationing regime to be revised, and electricity to households was cut for a 14- hour period every fourth day. The state-run power corporation pledged 65 hours of uninterrupted electricity supply to industry, followed by 14 hours of blackout every fourth day. This followed growing complaints from industrialists that economic activity was being severely constrained by the erratic nature of blackouts, particularly in the capital, Addis Ababa. Speaking to industrialists in late July, the minister of trade and industry, Kassahun Ayele, who also chairs the board of EEPC, blamed the problem on a 50-mw fall in generating capacity due to low water levels. This had cut supplies by almost 25%, according to the minister, who claimed that hydroelectric projects currently under construction, notably at the Tis-Abay 2 dam on the Blue Nile, should add another 115 mw of generating capacity when completed.]
Ethiopia highlights the Electricity shortages bring home to urban Ethiopians both their dependency importance of Nile Waters upon, and very limited exploitation of, the headwaters of the Nile. This issue is never far from the surface of broader regional political alignments, and Egypt, the end-user of 87% of the Nile waters, the bulk of which originate in Ethiopia, is particularly wary of any hydroelectric developments in the Horn. Although a revision of the 1959 Nile Waters Agreement—which apportions the water between Egypt and Sudan—still appears far off, there is increased dialogue and co-operation between the riparian states.
In July 400 delegates attended the Nile 2002 conference in Addis Ababa. This scientific gathering was the eighth such conference to discuss the Nile waters. Addressing the gathering, Ethiopia’s minister of water resources, Shiferaw Yarso highlighted the fact that five of the world’s poorest countries, including Ethiopia, are Nile riparian states. The minister stressed that long-term development requires improved access to and use of Nile waters; and that Ethiopia has to “break the current status quo and create a new legal as well as institutional mechanism [of] co-operation based on the principle of an equitable utilisation of the Nile waters”.
The Addis meeting is just one of a series of initiatives currently aiming to improve co-operation and planning between Nile partners, notably under the World Bank-sponsored Nile Basin Initiative. In early August the Council of Ministers of the Nile Basin countries met in Khartoum to begin preparations for the International Consortium for Co-operation on the Nile (ICCON), which is due to meet in February 2001. This aims to launch mutually agreed projects for multilateral assistance. As part of the ongoing improvements in relations, the governments in Khartoum and Addis Ababa have also revived the Ethiopian-Sudanese water resources technical advisory committee, originally intended to co-ordinate the two countries’ Nile policy.
Revenue from coffee Exports of Ethiopian coffee fell short of government targets in the 1999/2000 exports falls short fiscal year (July 8th-July 7th), with exports of 116,00 tonnes (approximately 14% lower than expected). Lower volumes combined with exceptionally low
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international coffee prices to bring only US$252m in total coffee exports earnings. However, the outlook for 2000/01 is improving: international coffee prices have begun to regain ground lost over the last year.
Ethiopia: coffee production and exportsa (‘000 tonnes) 1994/95 1995/96 1996/97 1997/98 1998/99b Production 228 230 228 230 232 Domestic consumption 75 95 90 95 98 Exportsc 79 107 108 125 100 Export earnings (US$ m) 288 273 355 453 319
a Fiscal years ending July 7th; not including movements in stocks (smuggling, etc). b Estimates. c As recorded at port.
Sources: Coffee and Tea Authority; IMF.
Mr Al-amoudi buys up In May Midroc-Ethiopia, headed by the Ethiopian-Saudi businessman more state assets Mohammed al-Amoudi, bought a further five state-owned companies from the Ethiopian Privatisation Agency. In a deal reportedly worth US$65.5m, Midroc bought two tea plantations, Wush-Wush and Gumero, a tea marketing company and an agricultural development company. Midroc, which already controls the country’s largest gold mine at Lega Dembi, also bought the Kenticha tantalum mining enterprise. In July Midroc increased its already extensive commercial holdings in Ethiopian agriculture and processing industries with the purchase of Fafa foods for a reported price of US$6.75m. Fafa, located just south of Addis Ababa, is one of Ethiopia’s largest food plants, notably for biscuits and processed foods. Midroc’s apparent domination of growing areas of the formal economy heightens concerns over both the pace and transparency of the current phase of the troubled privatisation programme (4th quarter 1999, page 13).
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 16 Eritrea
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 had been scheduled for May 1997 but is unlikely to be held before the conflict with Ethiopia is resolved
Head of state President, elected by the National Assembly
National government The president and the Council of Ministers, last reshuffled June 7th 1997
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 Haile Weldensae 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 Ali Said Abdella Transport & communications Saleh Idris Kekia
Central bank governor Tekie Beyene
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Eritrea 17
Economic structure
Annual indicatorsa
1995 1996 1997 1998 1999b GDP at market prices (Nfa bn) 4.6 5.1 6.0 5.9 6.8 Real GDP growth (%) 2.9 6.8 7.9 4.0 0.0 Consumer price inflationc (end-period; %) 11.0 3.4 1.8 16.6 12.0 Population (m) 3.57 3.67 3.78 3.88 4.01 Exports fob (US$ m) 81 95 54 28 26 Imports cif (US$ m) 404 514 495 527 507 Current-account balance (US$ m) –53 –131 –37 –238 –219 Total external debt (US$ m; year-end) 37 44 76 142 225 Exchange rate Nfa:US$d (av) 6.29 6.35 7.05 7.30 8.50 August 2000 Nfa10.5:US$1b
Origins of gross domestic product 1999 % of total Agriculture 16.0 Industry 27.3 Manufacturing 9.9 Distribution services 31.6 Other services 25.0 GDP at factor cost 100.0
Principal exports fob 1998 US$ 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 September 2000 © The Economist Intelligence Unit Limited 2000 18 Eritrea
Outlook for 2000-01
Political outlook
Ethiopia’s successful military offensive launched in May, which pushed the frontline north over the border and well into mountainous regions of Eritrea, allowed it virtually to dictate the terms of the June accord to cease hostilities, brokered by the Organisation of African Unity in Algiers. Although the armi- stice 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 period since the armistice has been punctuated by Eritrean accusations of Ethiopian atrocities and vandalism in occupied territories
The proposed 4,200-strong UN force, which will monitor the accord while demarcation of the disputed border between Eritrea and Ethiopia proceeds, should have no trouble in being authorised by the Security Council . It would be the fourth largest of the 14 currently in operation around the world. The UN troops, who are expected to come mostly from African nations, 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 again before the arrival of UN forces (which is not likely to happen before October at the earliest)
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, should arrive in the region by the end of August. The UNMEE itself has a mandate until January 31st 2001 and it is unlikely that the border demarcation will be resolved before then.
Economic forecast
Only when the UN peacekeepers arrive will Eritrea feel able to stand down some of the 300,000-350,000 of its citizens currently mobilised, and only then will the economy, which appears largely to have ground to a halt, be on anything other than a war footing. The EIU estimates that, at best, real GDP did not grow at all in the 18 months prior to the peace accord (although the IMF has implausibly estimated 3% growth in 1999 owing to improved food production). Even if the settlement proves durable, the economy may well contract in real terms this year. 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.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Eritrea 19
Although the partial withdrawal of Ethiopian forces has brought temporary relief to internally displaced persons, the resumption of normal economic activity in areas still occupied by Ethiopia will remain on hold until after the promised arrival of a UN peacekeeping force. Elsewhere, infrastructure development and commercial activities, which slowed considerably during the war, will resume only slowly, although the approval in July of a US$40m credit from the International Development Association to support children’s development in Eritrea may signal the start of significant international assistance to rebuild the economy. 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 onto Eritrean soil.
The political scene
UN peacekeepers will In a debate on August 14th, the UN Security Council endorsed proposals by monitor a fragile peace the UN secretary-general Kofi Annan to establish a large peacekeeping force to monitor the accord, signed on June 18th, to halt the two-year border conflict between Eritrea and Ethiopia. The endorsement followed Security Council resolution 1,312 (2000), adopted unanimously on July 31st, to establish a UN Mission in Ethiopia and Eritrea (UNMEE) consisting of up to 100 military observers and civilian support staff in anticipation of a peacekeeping operation. UN teams arrived in Asmara and Addis Ababa to make preparations for the deployment of the peacekeepers in early July and the 100 military observers were expected in the region by the end of August. In his report to the Security Council on August 11th, Mr Annan proposed establishing a force 4,200 strong to monitor the accord.
UNMEE, which will be in the area until January 31st 2001, has a mandate to:
• monitor implementation of the accord; • confirm the redeployment of Ethiopian troops from positions they took after February 6th 1999, but that Ethiopia did not administer before May 6th 1998;
• confirm that Eritrean troops remain 25 km from the positions to which the Ethiopian troops will redeploy; and
• supervise a temporary security zone in which there is no military presence.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 20 Eritrea
An agreement to cease The establishment of UNMEE comes in the wake of an agreement between hostilities is signed Ethiopia and Eritrea to cease hostilities, signed on June 18th in Algiers with the mediation of the Organisation of African Unity (OAU). The accord, reached after more than two weeks of talks punctuated by fighting on the front (see below), does not bring a definitive end to the 25 months of fighting, but it allows a reprieve while negotiators delineate the bitterly disputed frontier. The agreement calls for the creation of a 25-km buffer zone—equivalent to artillery range—along the border, all in Eritrean territory. Under the terms of the agreement, brokered by the OAU chairman and Algerian president Abdelaziz Bouteflika, the peacekeeping mission is being deployed by the UN under OAU auspices. The mandate of the UN peacekeeping mission will be terminated when the delimitation-demarcation process has been completed. Indirect talks between Eritrean and Ethiopian technical experts began in Washington in early July on the demarcation and delimitation of the disputed border and compensation issues.
Fierce fighting preceded Negotiations leading to the June 18th peace accord took place as fierce fighting the end of hostilities continued along the border between Eritrea and Ethiopia. The fighting began on May 12th with a major Ethiopian offensive, after the collapse of an earlier round of peace talks in Algiers.
• In the first week of fighting Ethiopian forces made major advances on the western front, occupying Barentu, the strategic regional capital of Gash- Barka—beyond the disputed border region—by May 18th and thereafter further advancing into western Eritrea. The UN imposed an arms embargo on both countries on May 17th.
• The second week of fighting focused on the central front around Zala Ambassa. Ethiopia captured the Eritrean town of Madina on May 19th and Zala Ambassa itself six days later. Eritrea said on May 25th that it had withdrawn its forces from the Zala Ambassa area to positions held prior to May 6th 1998 in fulfilment of its obligations under the OAU peace plan.
• By May 26th both sides had announced their readiness to hold renewed proximity talks in Algiers, but on the same day Ethiopia declared that its forces had captured Forte and Senafe on the Zala Ambassa front, while an Eritrean attack on the Bure front resulted in a heavy exchange of artillery fire. The Ethiopian air force bombed military positions at Hirgigo near Massawa and around Adi-Qaiy on May 28th and the military airbase in Asmara the following day.
• Although the Ethiopian prime minister, Meles Zenawi, declared on May 31st that the war was over as far as Ethiopia was concerned, fighting continued on eastern and western fronts in the first two weeks of June prior to the signing of the peace accord.
Ethiopian troops still Following the signing of the June 18th accord, Ethiopia began withdrawing its occupy Eritrean territory troops from positions captured deep inside Eritrea, including Barentu, Shambiko, Tesseney, and Guluj, but Ethiopian forces remained in what Mr Meles described as “indisputably Eritrean territories” in mid-August. Under the June accord, Ethiopian troops can stay on Eritrean soil until two weeks
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Eritrea 21
after the arrival of UN peacekeepers. In Senafe, an Eritrean trading town 25 km north of Zala Ambassa, Ethiopian troops have distributed food aid to the remaining population and a few returnees. After registering, beneficiaries get 15 kg of wheat to last them a month. Some local trading resumed at the end of July using both the Ethiopian birr and the Eritrean nakfa. However, the hospital is closed, the phone system is down, electricity is yet to be restored and schools are shut because there are no teachers.
Relations with Sudan are The improved relations between Eritrea and Sudan, marked by the resumption tense of diplomatic relations in January (May 2000, page 23), took a turn for the worse on July 18th when the governor of Sudan’s eastern Kassala state, Ibrahim Mahmud Hamid, accused Eritrea of backing a planned rebel offensive against eastern Sudan. The accusation, stoutly rebuffed by Eritrea, resulted in the defence ministers of the two countries exchanging diplomatic visits between Asmara and Khartoum in late July and early August. Further shuttle diplomacy between the two capitals in August was undertaken by Hamid Bin-Khalifah, the emir of Qatar, who brokered the May 1999 Doha agreement which was intended to normalise relations between Eritrea and Sudan. In mid-August, it was announced that a tripartite summit would be held between Sudan, Eritrea and Qatar in New York in September in an attempt to end the tension between Khartoum and Asmara.
Eritrea signs the Geneva On July 29th Eritrea became the 181st signatory to the Geneva Conventions Conventions on conduct during times of conflict and the treatment of prisoners of war; the conventions were signed and the instrument of accession deposited with the Swiss Ministry of Foreign Affairs.
Economic policy and the economy
US$87m is needed for In late July, the UN country team in Eritrea appealed on behalf of eight UN Eritrean relief agencies for US$87.3m to address the priority humanitarian needs of more than 1.1m war-affected Eritreans to end-2000. The UN resident and humanitarian co-ordinator, Simon Nhongo, said that Eritrea was facing “a potentially catastrophic situation with large-scale population displacement and increasing impoverishment”, adding that Eritrea would need humanitarian assistance well into 2001. In July, the Eritrean Relief and Refugee Commission (ERREC) said that 1,665,000 people, about half the resident population, faced a serious humanitarian emergency.
After a rapid assessment organised by the UN between June 30th and July 2nd, the number of internally displaced persons (IDPs) was conservatively put at 955,000. The ERREC suggest that over 80% of these are women, children and elderly people. The UN assessment also revealed an urgent need for shelter, water and sanitation. The health condition of the IDPs was described as “appalling”; diarrhoea, conjunctivitis and upper respiratory infections were common. With the onset of rains, cases of malaria were on the increase. However, thousands of IDPs have started returning home after the signing of
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 22 Eritrea
the June accord, mainly to the safe and accessible areas of the Gash-Barka and Debub regions.
Drought problems continue IDPs are not the only Eritreans in need of assistance. In July the UN also appealed for US$13.4m to assist those affected by drought. Rains have been sparse in the three most affected regions of Anseba and Northern and Southern Red Sea, forcing people and livestock to move further along the coastal areas in search of pasture and food. Most of this drought-affected territory was outside artillery range, resulting in the arrival of substantial numbers of IDPs, temporarily increasing the drought-affected population to some 500,000 by early August.
Refugees begin to return Following the June accord, the UN High Commissioner for Refugees (UNHCR) home from Sudan organised a voluntary repatriation programme for the estimated 90,000 Eritrean refugees who fled the fighting and have been in camps in eastern Sudan since mid-May. The repatriation started on July 25th, following an agreement between the governments of Eritrea and Sudan and the UNHCR, although some refugees had returned on their own initiative since mid-June. More than 21,000 people had returned home from the three camps in Sudan’s eastern Kassala state by August 9th. Returnees receive a two-month food ration from the World Food Programme before leaving.
Damage at Aligidir is put at One of the few assessments of the economic cost of the Ethiopian advance to US$40m emerge to date, was contained in the weekly Eritrea Profile on July 1st. It came from Gebremeskel Hailu, the general manager of the agricultural development project in Aligidir, who put the damage to property at US$40m. The Aligidir project, established by the government in 1993, was associated with private agricultural enterprises which employed more than 4,000 people.
The World Bank approves A credit of US$40m from the International Development Association to US$40m for children support children’s development in Eritrea was announced by the World Bank on July 28th. The Integrated Early Childhood Development Project will promote the healthy growth and development of young Eritrean children by focusing on services for their basic needs, such as healthcare, nutrition, social protection, and early childhood education. The credit is the first from the World Bank, since it halted new loans in September 1999 because of the border war with Ethiopia (4th quarter 1999, page 23). It came ten days after the signing of a US$8.8m grant agreement with the UN Children’s Fund (UNICEF) for development programmes in 2001. The UNICEF money is for the construction of a primary school, improving health, drinking water and communications facilities and developing manpower capacity.
Three more enterprises are The government’s privatisation programme has made another three sales, of privatised the Eritrea Textiles Factory, the Sembel Household Furniture Factory and the Haddas Lime Factory. The divestiture raised more than Nfa18.5m (US$1.8m), bringing the total number of public enterprises sold to 26 out of 39 set for privatisation, Eritrea Profile reported on July 29th.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Somalia 23
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 People’s Assembly, but not 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 None; 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)
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 September 2000 © The Economist Intelligence Unit Limited 2000 24 Somalia
Economic structure
Annual indicatorsa
1995 1996 1997 1998 1999 Population (m) 9.3 9.5 9.6 9.8 10.0 Exports fobb (US$ m) 168 187 177 197 186 Imports fobb (US$ m) 276 295 313 280 314 Total external debtc (US$ m; year-end) 2,678 2,643 2,561 2,635 n/a
August 2000d SoSh9,000:US$1 SolSh3,500: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.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Somalia 25
Outlook for 2000-01
Domestic politics The first meeting in August of what is in effect Somalia’s first parliament, albeit in exile, 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 Somalia’s factions for a peace con- ference 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 fledgling parliament’s first duty is to nominate a transitional president with powers to appoint a prime minister and set up a government. But the selection of a president and prime minister is likely to be difficult.
There is a general consensus that the conference participants—who include clan elders, religious leaders, businessmen, intellectuals and representatives of women’s groups—enjoy genuine popular support. However, although backed by the UN, the Inter-governmental Authority on Development (IGAD), the Organisation of African Unity (OAU) and the Arab League, the conference has split Somali factions into those willing to participate and those who reject the new initiative. Unless there is a dramatic change in attitude towards the Djibouti initiative from the leaders of the self-styled Somaliland Republic, the self-declared regional administration of neighbouring Puntland, and several Mogadishu-based clan faction leaders, which seems unlikely, any decisions emanating from Arta will require extremely delicate implementation. With its focus on civil society, the conference has achieved more than any of its 12 predecessors, but the continued existence of clan militia on the ground in Somalia present the new parliament with its stiffest challenge. They will make it difficult to install the viable new Somali administration wanted by Mr Guelleh, who has been financing the conference in Arta, ahead of his visit to the UN sometime in September. At the UN, Mr Guelleh will request recog- nition for the government-in-exile, although it is doubtful that this will be immediately forthcoming. Mr Guelleh is under financial and political pressure to get the Somali talks—the 13th attempt at reconciliation since 1991—to con- clude successfully with an elected parliament, prime minister and president.
The prospects for peace remain poor. Fresh fighting between rival clan factions has continued throughout central and southern Somalia, including Mogadishu, hence the choice of Baidoa as the country’s “provisional” capital for the future Somali interim government. 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 Djibouti-based government-in-exile.
Economic outlook The progress in Arta has been mirrored by the gradual strengthening of the Somali shilling against the dollar, despite large fluctuations which reflect the ups and downs of the painstaking Djibouti negotiations. From a rate of SoSh11,500:US$1 in April in Mogadishu, the Somali currency climbed to SoSh9,000:US$1 after the inaugural session of parliament in August. Although business is reported to be booming in the south, entrepreneurs yearn for a government to provide basic infrastructural services and maintain security, still
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 26 Somalia
a serious and expensive concern for all business activities. In Puntland, however, recent imports of new banknotes have fuelled fears of inflation. Similar concerns have emerged in Bay and Bakool regions on rumours that the controlling Rahawayn Resistance Army (RRA) is planning to do the same. Improved rains in April and May have provided relief in some parts of the country but, according to the UN Food and Agriculture Organisation, nearly 526,000 people are still facing critical food shortages.
Somaliland outlook A curious aspect of the way the Djibouti initiative has been handled lies in its attitude to 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 has resulted in Somaliland rejecting the Djibouti initiative as an attempt to reunite the north with warring factions in the south. Somaliland’s credibility as an administration received a further boost in June when the House of Representatives passed a law on political pluralism. Rejection of the Djibouti initiative is one thing Somaliland can agree on with the neighbouring regional administration of Puntland, despite continuing tension stemming from their rival claims to Sool and Sanaag regions. It is still unlikely that either Somaliland or Puntland will resort to force to solve 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. The importance of Berbera as a conduit for emergency relief aid bound for Ethiopia is a vital card in the hand of president Mohammed Ibrahim Egal, confirmed by several visits in June and July from Ethiopian trade delegations. Establishment of the new Somaliland Roads Authority (SRA), supported by the EU, in May, augurs well for outside help with repairs to infrastructure.
Late note Adbikassim Salat Hassan became the new Somali president on August 30th. Mr Hassan, who has been sworn in for a three-year term, won the immediate backing of the UN, the EU and the Arab League. The president has close ties with both the Islamic courts and the business community and served for 20 years under the Barre administration, including spells as deputy prime minister and interior minister. Mr Hassan is a member of the Habre Gedir subclan of the Hawiye clan, which is dominant in Mogadishu.
The political scene
Djibouti’s reconciliation The meeting of Somali factions, attended by around 2,000 delegates and conference makes progress hosted by Djibouti’s president, Ismael Omar Guelleh, under the aegis of the Inter-governmental Authority for Development (IGAD), has made significant progress towards achieving its goal of electing a parliament, prime minister and president for Somalia. Delegates attending the conference in Arta, 30 km west of the Djibouti capital, which began on May 2nd and was still in progress in mid-August, formally adopted a Transitional National Charter on July 16th which lays down the institutional framework for an interim administration. This provides for a three-year transitional government based on a federal
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Somalia 27
system, with a Transitional National Assembly (TNA) elected on the basis of clan. It also provides for the establishment of a transitional judiciary system, validating the 1960 Somali constitution.
The TNA has 245 seats, which are divided mainly among major clans (see table below). In addition, 25 seats are allocated to women from all clans and 20 deputies appointed by Mr Guelleh as a discretionary measure enabling the president to deal with unresolved clan disputes. But the process of allocating seats to each of the constituent subclans has been slow. The task, handled by specially formed arbitration committees, was finally completed on August 9th after several weeks of political wrangling. Each group has now submitted its list to the conference and the eligibility committee, which is in charge of vetting and approving the candidacy of each TNA nominee. The parliament was officially inaugurated at its first plenary session, at Arta on August 13th.
Somalia: Transitional National Assembly
Dir clan 44 seats Rahawayn clan 44 seats Issaq 22 Digil 24 Gadabursi 9 Mirifle 20 Issa 6 Alliance of small clans 24 seats Southern Dir 7 Bantu 5 Hawiye clan 44 seats Banadire 4 Modolood 11 Mirij 2 Habre Gedir 11 Arab-salah 1 Hawadle 6 Tumal 1 Murusade 4 Madiban 2 Gugudae 4 Mouse-dari 2 Geljecel 3 Yibir 1 Sheikal 3 Meheri 1 Haskul 1 Gerganti 1 Silis 1 Ajouran 2 Darod clan 44 seats Aw-hassan 2 Majerteen 15 Women 25 seats Marehan 9 Deputies appointed Absame 7 by President Guelleh 20 seats Dulbahante 5 Warsangali 3 Lelkase 2 Awrteble 2 Deshishle 1 Source: Hiiraan Online.
Baidoa is declared the Delegates at the conference announced on July 19th that the southern town of provisional capital Baidoa, in Bay region, will serve as the country’s provisional capital for the future Somali interim government until law and order are restored in Mogadishu. A new national task committee to return security to Mogadishu and restore water, electricity, sanitation, health and education was also set up. The conference resolved that the return to Mogadishu would be the decision of the future interim government. It was also decided on the same day that the disarming of militias and the clearing of landmines should be at the top of the interim government’s agenda. A document adopted by the conference advoc-
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 28 Somalia
ated a simultaneous disarmament programme to be carried out in “all parts of Somalia” in an attempt to build trust and confidence among rival clans.
Some key figures have not The UN, the Organisation of African Unity, the EU, the US and the Arab appeared at Arta League have all endorsed Mr Guelleh’s peace initiative, although requests for international and UN funding have so far been unsuccessful. But despite support from some Somali factions—notably the Mogadishu faction leaders Ali Mahdi Mohamed and Hussein Haji Bod—others continue to reject the Djibouti initiative. Those against include several other Mogadishu faction leaders (Hussein Mohamed Aideed, Mohamed Qanyare Afrah and Ali Hassan Osman “Ato”), the Somali National Front leader, General Umar Haji Masaleh, the Rahawayn Resistance Army (RRA) leader, Colonel Mohamed Nur Shatigudud, the self-styled Somaliland Republic, and the self-declared regional administration of Puntland. Colonel Ahmed Omar Jess, one of Mr Aideed’s main political allies, did attend briefly at Arta in early July, but left after only a few days, reportedly unhappy with the division of seats among the Darod subclans.
Some factions oppose the Mr Jess’s dissatisfaction with the division of subclan representation in the conference proposed national assembly was echoed in Mogadishu on August 8th, when hundreds of people took to the streets to protest over the allocation of seats. Demonstrations held in Mogadishu’s Hariryale district and in two southern parts of the capital were dominated by members of the Murusade subclan, who were complaining that they had not been given sufficient representation among the Hawiye. Similar demonstrations were held in Eelbur, central Somalia. The protests are in contrast with two days of public demonstrations in favour of the Djibouti conference held in two Mogadishu districts, and in towns in the regions of Gedo, Shabeellaha Hoose, Jubbada Hoose, Jubbada Dhexe, and Galguduud in late July.
The pro-conference protesters also condemned Egypt for apparently dissuading Mr Aideed from attending the proceedings at Arta. The Egyptian ambassador travelled to Mogadishu from Nairobi to meet Mr Aideed on July 19th, the same day that an envoy from Mr Guelleh arrived in town to try to convince Mr Aideed to attend the Djibouti talks. A statement from the Egyptian foreign ministry on July 27th denied any attempt to influence Mr Aideed’s decision and reiterated Egyptian support for the Djibouti initiative, but Mr Aideed still refused to go to the conference. A personal appeal by the Ethiopian prime minister, Meles Zenawi, to Colonel Abdullahi Yussuf Ahmed, president of the self-declared Puntland administration, in Addis Ababa on August 9th to attend the talks also failed.
Mogadishu is still a Although thousands of Somalis have taken to the streets of Mogadishu and its dangerous place environs during July and August in peaceful demonstrations, both for and against the Djibouti peace initiative, the conference’s choice of Baidoa as the provisional Somali capital reflects the continuing unrest that typifies Mogadishu. Six people died when unidentified gunmen attacked civilians in a Mogadishu suburb on June 13th, and another seven were killed in clan faction clashes in and around the Karaan market on July 16th. The non-governmental
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organisation, Action contre le faim (ACF), suspended its programmes in Somalia in early August in protest at the abduction of two of its workers in Mogadishu, a French administrator and a British logistician. Heavily armed militiamen, who also ransacked the ACF office and looted equipment, kidnapped the two in the early hours of July 26th. The impact of the ACF decision was felt almost immediately: over the first weekend of August seven people died of cholera in a Mogadishu treatment centre owing to a shortage of drugs. Meanwhile, on August 2nd, militiamen kidnapped the chairman of the Yemeni community in Somalia, Hussein Salim Ahmed, from his house in the Shibbis neighbourhood. Militiamen carry out such kidnappings, either for money or on the orders of Mogadishu-based faction leaders. Local businessmen will usually pay ransom demands after negotiation.
Fierce fighting continues in Violent clashes between rival clan militias have continued in several central central regions regions in recent months.
• Heavy fighting on June 8th between rival clansmen in Gaalkacyo, the capital of Mudug region, left at least six people dead and eight others wounded. The clash was triggered by the death of a man from the Majerteen clan at the hands of Habre Gedir gunmen.
• Abgal clan militia shot and killed six unarmed members of the minority Bantu clan near the town of Jawhar, capital of Shabeellaha Dhexe region, on June 20th in an incident that was thought to be linked to a land dispute.
• On June 22nd, the commander of militia forces loyal to General Mohamed Siad Hersi “Morgan” was shot dead in the Wajid district of Bay region, reportedly by two of his own militiamen.
• Nine people were killed in two separate incidents of violence in Shabeellaha Dhexe during the first weekend in July. Abgal gunmen, said to be avenging the murder of two members of their clan by bandits, shot three civilians and one militiaman dead in Jawhar. In the other incident, two men and a woman died when unidentified gunmen attacked their home in the village of Dhurwaley.
• Further fighting broke out in Jawhar on August 3rd between rival Hawiye subclans struggling for political control of the regional capital. At least 5 people were killed and more than 12 wounded in the battle. Sources in Mogadishu suggested the subclans are divided over their loyalty to rival Mogadishu-based faction leaders, Musa Sude and Ali Mahdi.
• Fighting broke out after an elder was shot dead in Beled Weyne, in Hiiraan region, on August 8th. At least 7 people were killed and 15 wounded.
Fighting also in the south A week of clashes between rival subclan militias in Shabeellaha Hoose region in late June caused the death of 59 people, many of them civilians. The fighting began over allegations that members of the Garre subclan had been stealing cattle from their Gido neighbours. Two Gido villages, Melayley and Dharkenley, were burned to the ground in a revenge attack after Garre elders accused Gido fighters of burning homes in the village of Herlabad. The two sides agreed to an unconditional ceasefire on June 29th, but at least 13 people
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were killed on the night of July 13th when renewed hostilities erupted between the subclans. A Garre spokesman accused Gido gunmen of murdering 10 adults and three children in the village of Malayley in Quryoley district. More than 200 camels were also stolen during the attack, the spokesman added. Tension was also reported to be high in the southern port of Kismayu in early July after the murder of five people in a vehicle carrying the narcotic, qat.
Economic policy and the economy
The shilling strengthens Growing optimism that the Djibouti conference will result in a lasting peace with peace hopes has helped the Somali shilling strengthen against the dollar in recent months. After the inaugural session of parliament, the Somali currency stood at SoSh9,000:US$1 in Mogadishu compared with SoSh11,500:US$1 in April. But the overall rising trend has been characterised by large fluctuations, reflecting occasional worries during the painstaking Djibouti negotiations.
Arrival of banknotes fuels Several consignments of new Somali shilling banknotes have reportedly arrived inflation fears in the north at Bossasso airport in the last few months. The most recent, in June, which follows at least three other deliveries in April and May, is said to be the last of SoSh90bn (US$9.5m) ordered from an Indonesian firm by Somali businessmen based in Dubai and Bossasso as well as by the Puntland president Colonel Abdullahi, according to Yool, a Bossasso-based newspaper. Traders in the north- east fear inflation will soar when the new banknotes go into circulation; in neighbouring Somaliland the central bank has banned the use of the new notes. Local press reports in April also suggested that the RRA was planning to print its own banknotes for Bay and Bakool regions. Colonel Shatigudud, the RRA leader, reportedly signed a contract for the printing of new SoSh1,000 and SoSh500 notes during a visit to Italy in April.
Tentative talks are held Representatives from the International Monetary Fund (IMF) and the World with the IMF Bank met for talks with officials from Somaliland and Puntland in Nairobi in early July. The IMF delegation leader, Milan Zavadjil, was quoted in the Somaliland press as saying that the IMF wanted to review economic progress in parts of Somalia, having been unable to visit the country for more than 10 years. Observers in Nairobi suggest that the talks could lead to some aid from the World Bank’s new post-conflict bureau, despite the lack of international recognition of either the Somaliland or Puntland administrations.
Business in the capital is Despite continuing insecurity in the capital, business is still booming according booming to a report carried in the New York Times on August 11th. Mogadishu is served by five competing airlines, three telephone companies (offering some of the world’s cheapest rates—just US$1.50/minute to phone anywhere in the world), two pasta factories, 1,500 wholesalers for imported goods, 55 providers of electricity, and 45 private hospitals. Donkeys deliver clean water to households in 55-gallon batches for US$0.25. Although no taxes are paid to any central government, the self-help ethos is still expensive, prompting most businessmen to support the Djibouti initiative. The owners of one of
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Mogadishu’s pasta factories, which opened in 1999, have had to dig their own well and generate their own electricity. Gunmen hired to guard the premises cost US$3,000 a month.
A maritime security A plan to establish a base at the port of Eyl in Nugaal region by the Bermuda- contractor faces opposition based security firm Hart Group International, hired by the Puntland administration in February to train a new maritime security force to protect its waters against illegal trawlers, has met with opposition. In a statement delivered to a newspaper in Garoe, Eyl elders and fishermen claimed that they had not been consulted on the granting of fishing rights to Hart or to Shifko, a local firm. A spokesman at Hart was quoted by African Business in March as saying that its operations were subject to a disinformation campaign by illegal fishermen portraying the new force as a fishing fleet threatening local fishermen’s catches. Although Hart’s main task is to patrol against illegal fishing activities, their high-speed boats also face frequent incidents of piracy, which has been rife in Somali waters throughout the 1990s. In mid-July, pirates abandoned a French-registered ship they were holding, the Net Express, after negotiations and threats of military action by the Puntland authorities. Somalia was ranked the sixth most dangerous place in the world for shipping by the International Maritime Bureau in February.
Bossasso receives telecoms Two US companies have won a contract to supply US$1m of telecomm- equipment unications equipment to the North East Telecom Corporation in Bossasso. The equipment includes a mobile switch centre, a base station controller and an operations and maintenance centre. The first installations are expected to be in place by September. Bossasso is also the site of Puntland’s new port veterinary office and laboratory, part of an EU-funded livestock project to improve health standards of animals for export, which was opened on May 23rd.
News from the Somaliland Republic
Relations with Djibouti The refusal of the organisers of the Djibouti conference to recognise the remain cool political status of the self-styled Somaliland Republic has ensured that bilateral relations remain tense (May 2000, page 33). The Somaliland president, Mohamed Ibrahim Egal, issued a statement on June 26th, the 40th anniversary of Somaliland’s independence from Britain, saying that Djibouti had no right to take decisions on Somaliland. But Mr Egal’s position appeared to have mellowed by early July when, in a letter to the UN secretary-general, he expressed his support for the conference in the hope that it would throw up a “counterpart with whom we can discuss out future destiny”. Nonetheless, a joint statement issued by 26 elders in Hargeisa on July 19th condemned the Arta conference as an attempt to destroy Somaliland’s sovereignty.
Although Somaliland’s rejection of the Djibouti peace initiative is a position it holds in common with Puntland, relations between the two administrations remain strained (May 2000, page 33). A group of 19 people from Puntland who
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were allowed to attend the Arta conference, were deported from Somaliland in July allegedly for using it as a transit point for travel to the Djibouti peace talks.
A law on political The House of Representatives in Hargeisa voted overwhelmingly on June 19th pluralism is passed in favour of legislation to allow political parties in Somaliland. Forty-four MPs voted for the bill, four voted against and seven abstained. The law limits the number of political parties to contest general elections in Somaliland to three. Applications for the establishment of the new parties will be considered by an ad hoc commission to be nominated by the president and approved by the house, and the three parties to be officially recognised will be decided by the first countrywide municipal elections, the timing of which is still unknown. The bill now passes to the council of elders for voting. Nevertheless, Mr Egal’s critics remain unconvinced that his government will introduce democracy, citing the failure to set a date for the referendum on the new constitution introduced in February 1997 (supposedly for a three-year period).
Trade and transport Berbera’s importance as an entrepôt for Ethiopian food aid imports (4th quarter agreements with Ethiopia 1999, page 36) inspired visits from Ethiopian government delegations in June and July to discuss bilateral trade. These resulted in the Bank of Somaliland and the Commercial Bank of Ethiopia signing an agreement in Addis Ababa on May 30th on the transfer of business letters of credit. Two ships carrying cooking oil destined for drought victims in eastern Ethiopian docked at Berbera in mid-June.
The transport infrastructure needed to develop Somaliland’s trade with Ethiopia received a boost when the offices of the new Somaliland Roads Authority (SRA), a joint venture between the government and the private sector, supported by the EU, officially opened its doors in Hargeisa on May 23rd. The SRA has already begun maintenance work on more than 150 km of road between Berbera and Kalabeit, a stretch of the corridor to Ethiopia; and the second part of the road rehabilitation project, a ¤4m (US$4m) project funded by the EU and the Danish government, has also been signed. This contract is to upgrade the road network between Dila-Hargeisa-Berbera and Burao.
The president’s security Somaliland’s image as a haven of peace relative to the south has received a chief is murdered number of knocks in recent months. A German aid official was stabbed to death while sitting in his car in the town of Burao on June 6th. His assailant was immediately arrested and is awaiting trial. In the first week of July the commander of the presidential guard was shot dead in an incident that the foreign ministry described as a personal matter. The episode is, nonetheless, an embarrassment for Mr Egal.
A hospital is refurbished The maternity ward at the National Somaliland Hospital in Hargeisa was officially reopened on June 28th after a refit costing US$35,000, funded by the United Nations Population Fund (UNFPA). A few weeks after the official opening, UNFPA donated a further US$45,000 of essential emergency obstetric care drugs to the maternity ward and the six mother and child health centres in the Hargeisa region.
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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 Assemblée nationale; 65 deputies, elected by universal suffrage, serve a five-year term; an alliance between 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
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Economic structure
Annual indicators
1995 1996 1997 1998a 1999b GDP at market prices (Dfr bn) 87.2 88.2 89.6 91.2 94.3 Real GDP growth (%) –3.6 –1.5 0.0 1.7 1.5c Populationd (‘000) 600 620 630 643b 662c Consumer price inflation (%; av) 4.5 2.6 1.6 0.1 2.0 Exports fob (US$ m) 38 40 43 59 260e Imports fob (US$ m) 207 201 204 239 440e Current-account balance (US$ m) –17 –16 –12 –14 –40 Reserves excl gold (US$ m; year-end) 72.2 77.0 66.6 66.5c 70.6c Total external debt (US$ m; year-end) 282 296 274 288c 300 External debt-service ratio, paid (%) 5.5 5.4 3.1 5.3b 5.0 Exchange rate Dfr:FFr (av) 35.6 34.7 30.4 30.1c 34.4c Exchange rate Dfr:US$ (av) 177.7 177.7 177.7 177.7c 177.7c
August 14th 2000 Dfr177.7:US$1
Origins of gross domestic product 1998af % of total Components of gross domestic product 1998a % of total Agriculture 3.2 Private consumption 79.5 Industry 22.3 Government consumption 23.6 Manufacturing 5.2 Gross domestic investment 15.3 Services 74.7 Exports of goods & services 45.4 Transport & communications 19.7 Imports of goods & services –63.8 GDP at factor cost 100.0 GDP at market prices 100.0
Principal exports 1998a % of total Principal imports fob 1998ag US$ 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.
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Quarterly indicators
1998 1999 2000 2 Qtr 3Qtr 4 Qtr 1 Qtr 2Qtr 3 Qtr 4 Qtr 1 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) 26,985 26,739 29,245 29,333 29,091 n/a n/a n/a % change, year on year –16.2 –16.0 –10.0 –8.9 7.8 n/a n/a n/a M2, (end-period; Dfr m) 52,000 52,676 54,090 53,698 54,186 n/a n/a n/a % change, year on year –9.0 –5.5 –4.1 4.1 4.2 n/a n/a n/a Foreign tradea (US$ m) Exports fob 33.67 40.06 26.96 36.93 30.78 36.80 28.49 41.30 Imports cif –139.36 –138.66 –156.01 –173.50 –145.77 –153.64 –158.67 –195.52 Trade balance –105.69 –98.60 –129.05 –136.57 –114.99 –116.84 –130.18 –154.22 Foreign reserves (US$ m) Reserves excl gold (end-period) 63.2 62.6 66.5 66.9 61.9 62.2 70.6 62.2 a DOTS estimates.
Sources: IMF, International Financial Statistics; IMF, Direction of Trade Statistics.
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Outlook for 2000-01
Political forecast The Somali peace initiative will continue to be the centrepiece of President Ismael Omar Guelleh’s regional strategy. This is despite the protracted nature and uncertain outcome of the talks, the reservations of many Somali factions and overt opposition from neighbouring Somaliland. Like his predecessor, Hassan Gouled Aptidon, Mr Guelleh will use the regional political arena 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.
Even if June’s ceasefire and interim settlement between Ethiopia and Eritrea is consolidated, 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 in this burgeoning relationship are 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. As Ethiopia has used the port of Djibouti since the outbreak of war with Eritrea in May 1998, it will strongly resist this.
The implications of closer relations with Ethiopia will remain sensitive 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 civil service reforms necessitate job losses.
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) appears to bolster Djibouti’s political stability. But failure to consolidate the deal will further alienate opponents. President Guelleh still appears set to use negotiations with Mr Dini to further divide his domestic critics. However, in the unlikely event of Mr Dini securing substantive political reforms, which he claims the government has promised, then an increasingly tense and unpredictable political climate may result. This will particularly be the case if FRUD rallies those seeking to widen political participation to the Somali and Afar elites marginalised by Mr Guelleh during his rise to power.
Economic policy outlook Notwithstanding 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. The EIU therefore expects revisions to the current reform schedule, especially
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over streamlining the civil service, privatisation and labour market liberal- isation. The swift withdrawal of fuel price rises when faced with social unrest in May was not the first and will not be the last policy reversal. The uncontrolled expenditure on “security” (notably on internal repression) and May’s protests underline Djibouti’s political fragility and the lack of domestic political consensus, without which substantive economic reform is not possible.
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 and on muddling through the reform programme to ensure that external financing continues to trickle in.
The political scene
UN Security Council backs On May 23rd the UN Security Council expressed support for the Somali peace Somali peace conference conference under way in Djibouti. The conference, funded and hosted by Djibouti’s president, Ismael Omar Guelleh, began in May after a delayed start. By early August, enough progress had been made to hold the first meeting of Somalia’s first parliament since 1991. However, other issues remain to be resolved. The prolongation of the discussions, which by July reportedly involved over 2,000 delegates and observers, has placed financial and logistical strains on Djibouti’s small administration. The conference is meeting under canvas in Arta, a small hilltop settlement 30 km west of Djibouti’s capital, where the president has an official residence. Mr Guelleh has staked consid- erable personal political capital on a successful outcome of the negotiations. Interviewed by a Somali paper in July, Mr Guelleh claimed to have “brought together the entire spectrum of Somali people … The time for militia faction leaders is past and we want to restore self-confidence in the Somali people and free them from fear.” However, several key Somali factions, including the authorities of neighbouring Somaliland, who in April closed their land border with Djibouti (May 2000, page 39), are boycotting the talks.
Little progress in domestic Government ministers have held low-key meetings with Ahmed Dini, the negotiations veteran Afar leader who heads the wing of Front pour la restauration de l’unité et de la démocratie (FRUD) that led an armed struggle against the government throughout the 1990s, with a view to negotiating a new domestic political settlement in Djibouti. Mr Dini announced on July 27th that preliminary discussions had ended and that a summit meeting with the president would be held to finalise an agreement, although this would not take place until after the close of the Somali peace conference. Mr Dini unexpectedly signed a peace deal with the government in February (May 2000, page 38). At the initial meeting between Mr Dini and the government in late February it was agreed
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that a series of committees to rehabilitate the war-torn north of the country would be established and political reforms instigated. These committees have not convened. Other Djiboutian opposition groups appeared wary of Mr Dini’s announcement in July, and unconfirmed sources suggested that his aide, Mohamed Chehem Daoud might return to exile in France. In mid-July, Djibouti’s human rights league issued a statement complaining of the continuing brutality of the security forces, and lamenting the lack of progress towards substantiating February’s peace deal.
Cholera breaks out in According to the Djiboutian health authorities, 400 people contracted cholera Djibouti-ville during June and July; five deaths had been reported by mid-July. Many of the cases were being cared for in the central Peletier Hospital, where special isolation wards were established by French medical staff. High temperatures and poor sanitation during the summer months have led to repeated outbreaks of cholera in Djibouti in recent years. Around half the current victims are children, the bulk of them from the crowded suburb of Balbala. This sprawling shanty town lacks basic sanitation facilities, and is populated primarily by Afars, displaced by Djibouti’s civil war, and Somali and Ethiopian refugees.
Economic policy and the economy
The IMF releases a second On July 25th the IMF Executive Board announced the release of a second tranche of PRGF payments payment of SDR2.726m (US$3.6m) to Djibouti under its poverty reduction and growth facility, (PRGF, which replaced the enhanced structural adjustment facility, ESAF, in 1999). This followed the completion of the Fund’s review of Djibouti’s first annual ESAF arrangement, agreed in October 1999 (1st quarter 2000, page 42). The review took some time. Djibouti failed to meet key fiscal targets set under the ESAF, recording an overall fiscal deficit of 2.1% of GDP in 1999, compared with a target of 0.4% of GDP. A tersely worded memorandum on Djibouti’s economic and financial policies blamed the slippage on overspending on the April 1999 presidential election, the failure to collect extra taxes on jet-fuel and delays to projects funded by the World Bank and African Development Bank. These fiscal failings were corrected—at least on paper—by an ad hoc supplementary budget in July 2000, which in theory will tackle the budget arrears.
TheIMF tightens its The July statements by the IMF and the government contain the tightest and conditions most explicit set of economic conditions and targets established to date. The new, apparently draconian and almost certainly overoptimistic schedule for monitoring reform includes weekly meetings of key ministerial personnel and monthly reporting of specific statistical data to Fund staff. Conditions include the acceleration of civil service reform, the implementation of a World Bank inspired pension reform plan and the cutting of student scholarships. As has been the case with all attempts at economic reform since the mid-1990s, much of the programme hinges on extensive reforms of the security services and the demobilisation of troops. This, ostensibly “technical” budgetary requirement, would hit the heart of the president’s system of political control and patronage
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and thus is the hardest to achieve. The IMF noted significant overruns on security service expenditure in 1999, and insisted that an additional 1,300 people were demobilised by the end of 2000, with a further 3,000 to leave by mid-2002. The Djiboutian authorities have also committed themselves to pursuing privatisation and the structural reform of Djibouti’s telecomm- unications sector and electricity and water utilities.
Measures proposed by the government for improving the management and monitoring of public expenditure
• Strict control of payments for which no prior payment orders have been issued (by end-June 2000).
• Monthly recording of all payments made without prior payment orders (by end- June 2000).
• Revenue collected by accounts or spending agents to be fully repaid to the Treasury and under no circumstances to be used to pay for expenditure (by end-June 2000).
• The introduction and effective usage of a forward-looking cash-flow plan that is updated monthly and covers a rolling period of at least three months (by end-June 2000).
• Computerisation of payments in arrears and those paid to suspense accounts as well as cross arrears between the government and public enterprises, covering all arrears or payments made since the beginning of 2000; and preparation of monthly statements covering the period up to the preceding month (by end-August 2000).
• Finalisation of a master list of civil servants and government employees for the payroll (by end-December 2000).
• Simplification and streamlining of the expenditure procedure (by end-June 2001).
• Preparation of new budgetary revenue and expenditure classification, and the introduction of functional and economic classifications (by June 2001).
Tax rises spark unrest The original budget for 2000 contained significant reforms to Djibouti’s tax regime, including a simplification of Djibouti’s domestic sales tax and the abolition of all excise taxes except those on qat, alcohol, tobacco and petroleum products. Although retail petroleum prices were deregulated in mid- 1999, the Djiboutian authorities had avoided price-rises by simply reducing the excise tax on fuel, which resulted in significant tax losses. As part of renewed budgetary rigour, petroleum product retail prices were raised by 3-17% on May 21st. This prompted sharp rises in the price of transport and basic commodities such as bread, triggering protests and riots, particularly in Djibouti’s poorer suburbs. Fearing wider unrest, the government backed down, effectively postponing the increases until September. The IMF has now specified a scale of minimum fuel prices for the remainder of 2000.
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The tax collection picture is further confused by the fact that the Somali peace conference (see The political scene) has been funded by extra-budgetary contributions. (The finance minister, Yacin Elmi Bouh, has appealed for financial support from the UN and Arab League and estimated that the costs of staging the conference had reached US$4m-5m by August 9th.) These include “voluntary” salary contributions and a range of additional excise taxes placed on qat, tobacco and alcohol since early 2000. In July the IMF insisted that these funds were reintegrated in regular budgetary accounting, but no figures have yet been released on the cost of the conference.
The external sector appears Foreign trade is a bright spot in Djibouti’s lacklustre economic performance. buoyant The balance of payments registered a surplus of US$1.8m in 1999, in contrast to a forecast loss of US$15m. Strong service sector earnings by the port and railway due to Ethiopia’s increased use of these facilities since the outbreak of war with Eritrea in mid-1998 generated a lower than expected current-account deficit. The improved foreign trade balance was achieved despite an increase in imported goods, in particular the purchase of new cranes for the port necessitated by the upsurge in transit trade with Ethiopia.
Internal drought and Djibouti is an efficient conduit for the very substantial food aid supplies to displacement persists Ethiopia. Yet up to one-quarter of Djibouti’s own population also requires emergency food aid, and the country shelters a growing number of people displaced from Ethiopia, Eritrea and Somalia. In response to drought and food shortfalls in Djibouti, in June the World Food Programme launched an emergency appeal for 60m tonnes of food to feed 150,000 people in the country. This included provisions for 50,000 people from neighbouring countries forced into Djibouti by poverty.
By August, Somali refugees who had fled from camp Harsile, around the Eritrean port of Assab, to Obock during fighting in May were reported to have returned to Eritrea. Meanwhile UN reports suggest worsening conditions for Ethiopian Afars. Failure of two short rainy seasons in Ethiopia’s Afar region, followed by a delay in the start of the long rainy season by at least three weeks, has led to concerns of a possible influx of Ethiopia Afar pastoralists to Djibouti.
USAID has earmarked US$4.5m for food aid for Djibouti. Although many aid agencies use Djibouti as a base, few have operations in the country. In July the US NGO, Refugee International, highlighted the deteriorating living conditions of many Djiboutian citizens, particularly in the HolHol and Ali Adde refugee camps in the south of Djibouti, criticising the government and UN agencies for not undertaking a comprehensive assessment of Djibouti’s own humanitarian requirements.
As estimates of emergency food aid imports required by Ethiopia and Somalia continue to rise (see Ethiopia: Economic policy and the economy), donors report that flows of food aid through Djibouti continue to be smooth, despite changes in management and ongoing work to improve the port’s handling capacity. The World Food Programme, the largest importer of food aid, reported that it had transported 103,000 tonnes of food through Djibouti in July, an average of almost 3,500 tonnes/day.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Djibouti 41
Dubai port authority takes On May 8th the government signed a 20-year management agreement for the control of PAID Port Autonome Internationale de Djibouti (PAID) with the Dubai Ports Authority (DPA). This move had been widely anticipated (May 2000, page 41). It further extends the DPA’s regional position, particularly against the rival container ports of Salaleh in Oman and Aden in Yemen. In the past year, the DPA, which runs Dubai’s booming Jebel Ali port, has also signed management agreements with the Beirut and Saudi port authorities. The DPA’s head and Djibouti’s minister of transport, Osman Idriss Djama, signed the deal during a visit by the president, Ismael Osman Guelleh, to the United Arab Emirates. Mr Guelleh, like his predecessor, has good links with several ruling families in the Gulf.
The DPA announced that it believes it can boost Djibouti’s handling capacity from 125,000 tonnes to 300,000 tonnes per year, in particular by improving transshipment facilities for containers. The port has undergone a series of improvements in recent years, initially with French technical assistance and then under the pressure of increased trade with Ethiopia. The DPA, which took control of the port on June 1st, intends to carry out further improvements. The new port manager, an American national, met key Ethiopian importers and businessmen on June 16th to reassure them about both the continuity and the enhancement of the ports handling capacity, stating that new managers would soon begin a US$2m computerisation and training scheme.
The port’s services continue In an apparently unrelated move, in May the Ethiopian-Saudi businessman to expand Mohamed Hussein al-Amoudi was granted a licence to operate a bulk-handling facility at the port. Mr Al Amoudi will reportedly invest US$26m in grain and fertiliser handling equipment. The contract was won despite fierce competition from a US backed consortium. In mid-June, Cyrus International, a company which produces bitumen at the Iranian port of Bandar Abbas, announced that it was opening a storage depot for bitumen and associated products at Djibouti port. A consortium of Djiboutian and foreign investors funded the construction of the depot, which reportedly has a capacity of 4,500 tonnes. The bulk of the bitumen is destined for Ethiopia’s extensive road construction and maintenance programme.
The Ethio-Djibouti Railway In July the Ethio-Djibouti Railway Company reannounced plans to rehabilitate is to be restored the 781-km railway line between the two countries. This is part of a US$40m EU-funded project, now expected to begin in 2002. The century-old railway currently has the capacity to transport only 30,000 tonnes of goods per month: the vast majority of Ethiopian imports are brought to the highlands by truck from Djibouti.
The president visits In addition to signing the agreement for the Dubai Port Authority to manage the UAE and Uganda Djibouti’s facilities, President Guelleh lobbied the United Arab Emirates for support for additional funding from the Arab Fund for Social and Economic Development. The fund duly met in Kuwait on May 27th, earmarking US$196m for development projects in Djibouti. Mr Guelleh also suggested that the president of the UAE, Sheikh Zayed bin Sultan al-Nahayan, fund a university in Djibouti, which currently has no institutions of higher education.
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President Guelleh undertook a three-day visit to Uganda in July. In addition to seeking Ugandan support for the Somali peace conference and Djibouti’s stance within the regional body the Inter-governmental Authority on Development (IGAD), officials sought to promote trade ties with Uganda. According to Djibouti’s consul in Kampala, Mr Guelleh himself may invest in agriculture in Uganda. Djibouti is looking to diversify its trade partners, but the idea, floated during the visit that Ugandan importers may prefer to use the port of Djibouti as an alternative to Mombasa and Dar-es-Salaam appears utopian.
Mobile phones In May Djibouti Telecom (DT) invited tenders to supply the country with a mobile phone service. DT would like the network to be functional by December, and envisages a total investment of US$8m-10m. Most neighbouring countries already have mobile services, including Somalia where local cellular networks have sprung up in the absence of a centralised state- telecommunications authority. Djibouti’s current international telephone exchange, operational since 1985, has a radio-telephone link with Saudi Arabia and Yemen, two earth satellite stations and a submarine fibre-optic cable linking Djibouti to Europe and Sri Lanka. Domestic and international telephone services are currently being restructured to help attract private capital.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000