COUNTRY REPORT

Ethiopia

2nd quarter 1996

The Economist Intelligence Unit 15 Regent Street, 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 40 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 subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group.

London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent Street The Economist Building 25/F, Dah Sing Financial Centre London 111 West 57th Street 108 Gloucester Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, USA Hong Kong Tel: (44.171) 830 1000 Tel: (1.212) 554 0600 Tel: (852) 2802 7288 Fax: (44.171) 499 9767 Fax: (1.212) 586 1181/2 Fax: (852) 2802 7638

Electronic delivery EIU Electronic Publishing New York: Lou Celi or Lisa Hennessey Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 London: Moya Veitch Tel: (44.171) 830 1007 Fax: (44.171) 830 1023 This publication is available on the following electronic and other media: Online databases CD-ROM Microfilm FT Profile (UK) Knight-Ridder Information World Microfilms Publications (UK) Tel: (44.171) 825 8000 Inc (USA) Tel: (44.171) 266 2202 DIALOG (USA) SilverPlatter (USA) Tel: (1.415) 254 7000 LEXIS-NEXIS (USA) Tel: (1.800) 227 4908 M.A.I.D/Profound (UK) Tel: (44.171) 930 6900

Copyright © 1996 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author’s and the publisher’s ability. However, the EIU does not accept responsibility for any loss arising from reliance on it. ISSN 1352-2922

Symbols for tables “n/a” means not available; “–” means not applicable

Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK 1

Summary

Ethiopia, Eritrea, Somalia, Djibouti 2nd quarter 1996

May 21, 1996

Ethiopia Political and economic structures Pages 3-4

Outlook: Given the stable outlook for food availability, the official target of 7-8% for real GDP growth in the current fiscal year looks attainable. Reforms of the taxation system and a liberalisation of the investment code are expected. Pages 5-6

Review: Limited UN sanctions have been imposed on Sudan in the context of the attempted assassination of the Egyptian president in Addis in mid-1995. Relations along the border with Sudan remain tense, but in this uncertainty Ethiopian ties with the USA have become still closer. An EPRDF member has been appointed to head the state assembly in Region 2 (Afar). The belg rains appear adequate. The federal government has raised fertiliser subsidies. Coffee exports have fallen below official targets. Further mining concessions have been awarded. External debt has continued its steady rise. Pages 6-14

Eritrea Political structure Page 15

Outlook: The easing of tensions with Yemen and administrative reforms augur well for investment prospects. Page 16

Review: Peaceful resolution of the Hanish dispute with Yemen beckons. IGADD has been reformed. The cold war with Sudan has deepened, stalling the official programme for the repatriation of Eritrean refugees. The PFDJ has set a date for its second conference. The IDA has approved a loan for community development. Coca-Cola has formed a joint venture with the government. The first round of mining licences has been successfully concluded. Ties with Italy have been strengthened. Pages 17-23

Somalia Political and economic structures Pages 24-25

Outlook: General Aideed’s determination to overcome his clan rivals by force leaves little room for reconciliation. In the Republic, international recognition is as remote as ever. Pages 26-27

Review: General Aideed is gaining territory in the west and the south. Fierce fighting has erupted again in Mogadishu. The UN, the OAU and the Arab League have maintained their efforts at national reconciliation, but without success. The capital has yet another radio station. Cholera has broken out in the south. In the Somaliland Republic, the EU has pledged to fund rehabilit- ation at Berbera port, and there have been fresh clashes between government forces and opposition clan militia. Pages 27-34

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 2

Djibouti Political and economic structures Pages 35-36

Outlook: Political intrigue over the succession to the president will continue to weaken the government. Divisions within the ruling party will widen. Progress on economic reform is unlikely to be smooth. Pages 37-38

Review: The president has returned home from France. Two leading ministers have been sacked, including Moumin Bahdon Farah who has created a splinter group. The pro-government faction of FRUD has been recognised as a political party. Djibouti has accused Eritrea of aggression on its northern border. The IMF has granted Djibouti a stand-by credit. The French cooperation minister has visited and announced new project assistance for Djibouti. Pages 38-43

Statistical appendices Pages 44-46

Editors: Gregory Kronsten; Kristina Quattek All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Ethiopia 3

Political structure: Ethiopia

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. Representatives were elected to the institutions of the new republic in May 1995, which formally came into operation in August 1995

National legislature: the 548-member Council of People’s Representatives is the federal assembly. Nine regional State Councils have limited powers including appointing the supervisory Federal Council

Last elections: June 1994 (Constituent Assembly); May 1995 (federal and regional)

Next elections: 2000 (federal and regional)

Head of state: president, Negaso Gidada, largely ceremonial and appointed by the Council of People’s Representatives

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

Main political parties: the Ethiopian People’s Revolutionary Democratic Front (EPRDF) is the coalition of armed groups which seized power in May 1991. It includes the Tigray People’s Liberation Front (TPLF) and the Amhara National Democratic Movement (ANDM, formerly the Ethiopian People’s Democratic Movement). The Oromo Liberation Front (OLF) withdrew from the transitional government in July 1992 and was subsequently banned. Several urban opposition parties boycotted the last elections. A myriad of exiled political factions exists

Prime minister Deputy prime minister & minister of defence Tamrat Layne Deputy prime minister for economic affairs Kassu Illala

Key ministers agriculture Teketel Forsido education Guenet Zewde finance Sufyan Ahmed foreign affairs Seyoum Mesfin health Adem Ibrahim information & tourism Wolde-Mikael Chamo justice Mehetema Solomon labour & social affairs Hassan Abdullah mines & energy Azedin Ali planning & economic cooperation Girma Biru public works & urban development Haile Aseged trade & industry Kassahun Ayele water resources Shiferaw Yarso transport & communications Abdul Mejid Hussein

Governor of National Bank of Ethiopia Dubale Jale

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 4 Ethiopia

Economic structure: Ethiopia (incl Eritrea)

Latest available figures

Economic indicators 1991 1992 1993 1994 1995 GDP at factor costa Birr bn 19.4 24.5 25.3 n/a n/a Real GDP growtha % –8.7 12.3 1.4 5.6 n/a Consumer price inflation % 35.7 10.5 3.5 7.6 10.0 Populationb m 49.4 50.9 52.4 54.1 55.7 Exports fob $ m 168 170 199 405 n/a Imports fob $ m 471 993 706 937 n/a Current account $ m 103 –120 –52 n/a n/a Reserves excl gold $ m 55 232 456 544 772 Total external debt $ m 4,179 4,363 4,703 5,059 n/a External debt-service ratio % 17.9 13.4 11.7 11.7 n/a Coffee productionc ’000 tons 184 210 222 228d n/a Exchange rate (av) Birr:$ 2.07 2.81 5.00 5.09 6.15

May 17, 1996 Birr6.32:$1

Origins of gross domestic product 1992a % of total Components of gross domestic product 1993a % of total Agriculture & forestry 54.3 Private consumption 84.0 Trade, hotels & restaurants 10.1 Government consumption 11.3 Manufacturing 4.6 Gross fixed capital formation 15.0 Public administration & defence 7.1 Exports of goods & services 11.7 Banking & insurance 6.2 Imports of goods & services –22.0 GDP at factor cost incl others 100.0 GDP at market prices 100.0

Principal exports 1994a $ m Principal imports 1993a $ m Coffee 320 Food & live animals 111 Hides & skins 68 Crude petroleum 79 Gold 23 Petroleum products 64 Chemicals 44

Main destinations of exports 1993a % of total Main origins of imports 1993a % of total Germany 18.0 Saudi Arabia 13.3 Japan 13.3 Italy 11.6 Djibouti 10.4 USA 10.2 Saudi Arabia 7.7 Germany 9.1 a Fiscal years starting July 8. Fiscal years are widely used by national statistical sources, while calendar years are favoured by international publications. b Excluding Eritrea, based on a Ministry of Planning estimate of 54.1 million in 1994. c Crop years (October-September) beginning in calendar years. d Official estimate.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Ethiopia 5

Ethiopia

Outlook

The political landscape Senior members of the Ethiopian People’s Revolutionary Democratic Front appears settled— (EPRDF, the ruling coalition) will view their first five years in power with a mixture of quiet satisfaction and relief. The federal constitution and republic finally inaugurated in 1995 have consolidated the semblance of administrative and electoral order created by the predominance of the front’s surrogate organ- isations in the country’s nine, largely ethnically defined regional states. Many urban Ethiopians remain suspicious of the government’s unique brand of ethnic federalism. Yet the absence of credible opposition groups, combined with the front’s control of the security services, underpins the government’s confidence. The vast majority of the front’s members outside Tigray are youngsters recruited in the past three years. Doubts over their political loyalty and administrative competence mean that the front is likely to remain a highly centralised body. Notwithstanding the rhetoric of federalism, in practice loyalty to the front will continue to be more important than the representation of ethnic identity, which is ostensibly its raison d’être.

—while economic A combination of underlying macroeconomic stability, adequate rainfall and prospects remain continued donor confidence provides a positive economic outlook for 1996/97 favourable— (the fiscal year starting on July 8). Annual average inflation in Addis Ababa had fallen to 6.5% in the year to March, aided by steady grain prices. Apparent price stability (the official retail price index is a far from perfect reflection of the cost of living) is buttressed by the stable, auction-determined exchange rate of Birr6.3:$1. The effects of Eritrea creating its own currency will, however, need to be watched with care by the monetary authorities in Addis. Inflation of under 8% underpins the official forecast of real GDP growth of 7-8% for the current fiscal year.

The lesser, belg rains and harvests appear of a variable quality in those areas where they have a marked impact on rural livelihoods, but adequate food reserves and the prompt response of donors to December’s food aid appeal together create a stable outlook for food security. Barring a total failure of the main rains and harvests over the coming months, 1996/97 should be another year of buoyant economic growth.

—as further reforms are Sustained growth is essential if the steady, if somewhat sluggish, pace of eco- anticipated nomic reform is to be maintained. A thorough overhaul of personal and cor- porate taxation is expected in the months ahead, possibly with the introduction of value-added tax to replace the cumbersome sales and excise taxes. In the long term this would simplify the system greatly, but there must

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 6 Ethiopia

Gross domestic product be doubts as to the current administrative capacity to effect such changes. A % change on previous year further liberalisation of the investment code of 1992 is also expected, with Ethiopia (a) lower ceilings for local investors to benefit from the incentives, and more Africa 15 sectors of the economy opened to foreign business. A crucial investment deci- sion, with obvious political implications, is whether the federal government 10 will finally be prepared to allow private capital into broadcasting. The size of

5 the potential advertising market combined with the popularity of indigenous music and soap operas suggest that the capital could comfortably support a 0 commercial radio station.

-5

-10 1990 91 92 93 94 Review (a) Including Eritrea. Fiscal years starting July 8. Sources: EIU; IMF, World Economic Outlook. The political scene

The UN announces On April 26 the UN Security Council imposed limited diplomatic and travel sanctions against Sudan— sanctions on Sudan. Resolution 1054 demands that Sudan “significantly reduces the number and level of staff” at Sudanese embassies and consulates worldwide, and refrains from “assisting, supporting and facilitating terrorist activities”. The measures were voted for by all the Security Council members except Russia and China, which abstained. Sudan was given until May 10 to scale down its diplo- matic posts abroad. The resolution, sponsored by Egypt, Botswana, Honduras, Chile and Guinea-Bissau, fell far short of initial Ethiopian and US calls for full sanctions against Sudan for failing to hand over three Egyptian nationals implic- ated in the attempted assassination of the Egyptian president, Hosni Mubarak, in Addis Ababa last June (3rd quarter 1995, pages 10-11). The Security Council had earlier passed, on January 31, a resolution demanding that Sudan hand over the men. Ethiopia had taken the matter to the Security Council after bilateral efforts to extradite the assailants had failed. The resolution leaves open the possibility of further sanctions if Sudan fails to comply with January’s resolution by the end of June.

For the USA, this firmly puts Sudan into its category of “backlash” or pariah states, a fact underlined by the earlier inclusion of Sudan on its list of states sponsoring terrorism. The Sudanese government expressed outrage, again stressing that it had cooperated fully with both the UN and the Organisation of African Unity (OAU). It also pointed to interviews with one of the accused Gamaa Islamiya members, Mustafa Hamza, to support its argument that it is unable to deliver the men. On April 21 a pan-Arab daily, Al-Hayat, had pub- lished an interview with Mr Hamza from Afghanistan. Clearly anticipating such a tactic, on April 3 the US government had announced that at least one of the three alleged assailants had left Sudan “apparently with the assistance of Sudanese officials, further implicating Khartoum in the conspiracy to conceal and protect these terrorists”.

—but Ethiopia remains On April 30 the Ethiopian foreign minister, Seyoum Mesfin, criticised the UN dissatisfied— measures as being insufficient to force Sudan to extradite the wanted men. Addressing the Ethiopian federal assembly, the Council of People’s Representatives (CPR), Seyoum stated that his government preferred an arms

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Ethiopia 7

embargo as the most appropriate step to put pressure on the Sudanese authori- ties and secure their compliance with the demand of the Security Council. He made no secret of the fact that Ethiopia, along with the USA, would have preferred a total embargo imposed on Sudan. This would have included a ban on arms sales and Sudan Airways flights. However, Egypt mobilised diplomatic allies to ensure that the threat of an arms embargo was lifted, arguing on the basis of its possible impact on the civil war. Mr Mubarak claimed that an embargo would deprive the northern government of the opportunity to buy arms, while those in the south would face no such constraint, which could lead to the division of the country. Ethiopia, which has considerable leverage over the southern Sudanese rebel forces, has avoided criticising Egypt for its stand.

—and relations along the Also addressing the CPR, the Ethiopian prime minister, Meles Zenawi, stressed border are tense— that Ethiopia’s government and people “hold no ill-feelings towards the Suda- nese people”, but that “Ethiopia will not hesitate to respond in kind to any hostile moves directed against it”. To date, the bulk of the aggression and recrimination has been of a verbal and diplomatic nature, but relations along Ethiopia’s long border with Sudan remain exceedingly tense, with sporadic reports of clashes and continued expulsion of Ethiopian refugees based in Sudan. The only independently corroborated reports have been of fighting via proxy forces, with both Ethiopia and Eritrea adroitly manipulating assorted armed Sudanese opposition forces. Clashes have been reported from three prin- cipal areas: adjacent to Humera in Region 1 (Tigray); near Asosa in Region 6 (Benshangul); and near Gambella in Region 12. In late March the rebel Sudan People’s Liberation Army (SPLA) launched an offensive, capturing the border town of Pochala, 120 km south-west of Gambella town, and going on to seize Yabus. The Sudanese army acknowledged the loss of the border garrisons and claimed that the rebels had received significant artillery and infantry support from Ethiopia, which riposted with a predictable denial.

—as the trial of some At the end of March the Ethiopian government announced that the trial had suspects opens begun of the three of Mr Mubarak’s assailants who were captured. It maintains that a total of 11 men were involved in the attack, two of whom remained in Sudan to coordinate logistics. Of the nine who reportedly entered Ethiopia, five were killed and three arrested. It is these three who now face trial in Addis. One attacker is believed to have escaped back to Sudan. It is he, along with the two commanders, who is at the centre of the extradition case and the related UN resolutions. All the assailants are believed to be of Egyptian nationality. The trial of the three is being held in camera and has attracted little publicity. On April 3 the Sudanese government requested that its diplomats be allowed access to the trial, calling into question the credibility of a secret legal process.

Regional tension The tense diplomatic and military stand-off with Sudan has served to reinforce reinforces US links— the increasingly close links with the USA. Meles made a surprisingly high-profile visit to Washington in October (4th quarter 1995, page 12), and the past seven months have seen a further deepening of the relationship, which is reflected in military matters. In February the US deputy assistant secretary of state for African affairs in the Department of Defense, Vincent Kern, visited Ethiopia. Talking with members of the CPR, he pledged that the USA was ready to supply

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 8 Ethiopia

military support to Ethiopia to bolster security in the Horn. A further indication of the growing importance of Ethiopia in US perceptions of regional security interests was a two-day visit in mid-April by the head of the US Central Intelligence Agency, John Deutch, who met Meles and senior ministers.

—and the new US envoy The appointment of David Shinn as the new US ambassador to Ethiopia further praises cooperation in the cements this relationship. Until March Mr Shinn, a career diplomat with exten- Horn— sive regional experience, headed the State Department’s Office of East African Affairs. He replaces Irvin Hicks at the Addis mission. At the State Department he had been instrumental in developing the USA’s new “Greater ” initiative. This attempts to harmonise US interests and activities in the Horn and the Great Lakes region within a coherent strategic framework. At the end of a trip to the region in late January, Mr Shinn endorsed the seven-member Inter- governmental Authority on Drought and Development (IGADD) as providing the institutional framework for regional economic and political cooperation. Speaking in late April in Washington, he welcomed the reform of IGADD (now plainly the Intergovernmental Authority on Development, IGAD) undertaken at a summit in Nairobi, which he claimed dovetailed with the Greater Horn of Africa initiative. He noted approvingly that, like the OAU, IGAD is in the proc- ess of creating a conflict resolution mechanism.

—while US aid increases Bilateral relations between the USA and Ethiopia came under review at a meet- ing chaired by Mr Hicks at the end of March. The gathering considered progress made in the various domains of US assistance, notably health, education and democracy promotion. US bilateral aid to Ethiopia has risen strongly, from $49m in 1990, almost entirely emergency assistance, to $122m in 1994, much of it for long-term development programmes. While Mr Hicks praised eco- nomic progress during his tenure as ambassador, the Ethiopian state-owned press reported him as commenting that economic growth without full respect for human rights was not sustainable.

In a statement before the US Senate on March 26, Mr Shinn declared that in addition to strengthening regional and bilateral diplomacy, US key goals in- cluded the encouragement of democratisation, and support for US business and non-governmental activities in Ethiopia. The first tangible sign of boosting US commercial ties was the arrival of a major trade mission to Ethiopia and Eritrea in May (see Foreign trade and payments).

The trial finally The trial of the initial group of 71 senior members of the Mengistu regime (the opens Derg) finally got under way on April 2. It had opened and been adjourned several times since first being announced in December 1994. The group faces specific charges of the documented killing of 1,823 people between 1974 and 1991. A total of 46 defendants were in court on April 2, many of them ill and frail following the five-year delay in bringing them to trial. The testimony of the first witnesses concerned the slaying of 60 senior members of ’s government in November 1974. Their massacre was the first significant violent act by the officers who had assumed power following civil upheavals in 1974. The bodies of the 60 were exhumed following the change of government in 1991, and a monument was erected in Addis Ababa’s central churchyard. Their deaths simultaneously triggered the country’s downward spiral of violence and

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Ethiopia 9

the rise of to power. Mr Mengistu himself is being tried in absentia, being in exile in Zimbabwe. These initial trials are expected to last at least for the rest of this year. The accused face the death penalty, although foreign human rights groups have lobbied the Ethiopian government for its abolition. Almost 1,000 more junior Derg members are still in detention facing charges. Numerous delays are anticipated, not least because of the extensive volume of the evidence and potential witnesses.

On April 10 the Ethiopia News Agency reported that following a meeting with the president of the High Court, some of the reporting restrictions initially placed on the trial had been lifted, allowing both state and privately owned newspapers to report more fully the statements of the accused.

Regions of Ethiopiaa

1 Tigray SEPAR 2 Afar Gambela 3 Amhara Harar 4 Oromo Addis (metropolitan) 5 Somali 6 Benshangul

a Under the new constitution the nine regions and the metropolitan council of Addis Ababa replace the previous 14 regions. There are doubts about the correct numbers for some of the new regions, and many people will continue to use the old numbers (such as 13 for Harar).

Source: EIU.

The Afar region changes The protracted power struggle in the sparsely populated but strategically im- head portant Region 2 (Afar) has taken a predictable twist with the replacement of Hanfareh Ali Mirah as chairman of the regional assembly by a stalwart of the Ethiopian People’s Revolutionary Democratic Front (EPRDF, the ruling coalition), Ismail Alisero. The change came during the region’s second con- gress. The numerous sons of the elderly Afar sultan and patriarch, Ali Mirah, have disputed control of the region since the EPRDF came to power, largely to the detriment of the day-to-day administration and finances of the region. In the region, which enjoyed a notional degree of autonomy under the former regime, the front and its local partisans, the Afar People’s Democratic Organisation (APDO), are widely viewed with suspicion. The APDO, neverthe- less, managed to gain a disproportionate number of seats in the elections for the state assembly last year (3rd quarter 1995, page 9). Hanfareh and other scions of Ali Mirah are grouped together in the Afar Liberation Front (ALF), which celebrated its 13th anniversary in March. Despite the ousting of Hanfareh, ALF members remain dominant in the Afar state assembly; 42 of the council’s 48 members were reported to have voted for Alisero. Hanfareh’s re- placement by Alisero followed a series of recent disruptions to the largely pastoral lifestyle of the region’s inhabitants, with drought and disease among livestock causing shortages and sharp price rises of basic foodstuffs. In March the region also reported a Birr7m ($1.1m) deficit following a failure to raise taxes, and numerous allegations of corruption and budgetary irregularities.

The intertwined nature of questions of domestic regional autonomy and inter- state relations for Ethiopia, Eritrea and Djibouti was highlighted by the opening

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 10 Ethiopia

of a consular office in Assaita (the capital of Region 2) by Eritrea at the end of February. The consulate is headed by Usman Redo. The Afars’ centrality to regional politics was further demonstrated by Djibouti’s allegations in April that Eritrea has territorial ambitions over part of the Afar sultanate of Raheita (see Djibouti: The political scene).

The Federal Council meets The upper chamber of the two-tier federal assembly, the Federal Council, con- vened for its second sitting in the current Ethiopian calendar year in early April. It is composed of representatives from all nine federal states and convenes twice a year. It first met in October, shortly after the promulgation of the new federal republic. Under the new constitution, the council is formally the federal republic’s supreme decision-making institution, but in practice its role is likely to remain limited. A report of its activities made in April referred largely to assorted boundary disputes between the states, which are defined primarily by ethnic and linguistic criteria. A largely neglected role of the coun- cil is to adjudicate on the allocation and division of the tax revenue gathered by regional and federal authorities. Both the constitution and regional fiscal legislation drawn up during the transitional period leave a wide margin of interpretation to the Federal Council.

The economy

The short rainy season Food and early-warning system reports suggest a variable outlook for grain appears patchy production from the lesser, belg rains. Weak and late rains in February in the central highland areas were partially compensated for by above-average pre- cipitation in March. Harvests in central and southern areas are anticipated to Retail price inflation, Addis be slightly above average. Unseasonal rains in December had led some farmers Ababa (a) to plant early, and much of these crops, notably in Region 1 (Tigray), were annual average, % 14 damaged by the dry February weather. The belg harvests account for about 10% 13 of Ethiopia’s total annual grain output but are of greater importance in some 12 areas, notably around Wollo (Region 3) and in southern Tigray, which have 11 been particularly prone to food shortages. 10

9 The overall food outlook for 1996 remains good, and December’s official esti-

8 mate of a food aid requirement of 253,000 tons for 1996 stands. With 75% of

7 this requirement carried over from 1995, new pledges totalling 168,500 tons 6 received since December will be sufficient to cover needs and replenish security reserve stocks. Reports of good harvests also bode well for the supply of food Jul.....Jan.Mar 199596 aid paid by foreign donors to cover domestic purchases from surplus-producing (a) Excluding rent. Source: Central Statistical Authority, Addis Ababa. areas. The good outlook and the prospect of satisfactory stock levels also help to contain price increases for the consumer. Inflation on an average annual basis was 10% in the year to December 1995 and 6.5% in the 12-month period to March.

Extension services are In February and March the Ministry of Agriculture staged a major programme expanded— of workshops for farmers throughout the country. It reportedly has plans to double the number of agricultural extension agents and offices in rural areas, from the current 4,000 to 8,000. These services are now provided by the

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Ethiopia 11

regional administrations. Better information and improved extension services are being partially credited for the improved output of grains last year.

—and funds are In mid-February the Council of People’s Representatives ratified a $120m grant forthcoming for fertilisers from the International Development Association (IDA, the concessional loan arm of the World Bank). The loan forms part of a $230m programme to improve the availability and monitoring of fertiliser use. Its declared aim is to boost the current annual usage of fertiliser, from an estimated 160,000 tons/year (t/y) to 400,000 t/y. On March 1 the prime minister’s office announced a further reduc- tion in the price of fertiliser, via an additional Birr50 ($8) per quintal (100 kg) government subsidy, which brought the average price down to Birr190-200 per quintal. This appears to have been driven both by a further increase in imported prices and by the government’s commitment to dramatically increased food production through substantially higher rates of fertiliser application. Ethiopia currently has an average usage of just 8 kg/ha, less than one-third of the average for sub-Saharan Africa. The rise in the subsidy prompted speculation in the press over the cost to the federal government. In 1994/95 (fiscal year starting on July 8) the total cost of fertiliser subsidies was around Birr180m, and this year’s figure is expected to prove substantially higher.

Coffee earnings are down The Ethiopian Coffee and Tea Authority announced in March that both the volume and value of Ethiopia’s coffee exports are likely to be well below their forecasts for 1995/96 (fiscal year). By February, eight months into the year, Ethiopia had earned $135.5m from the export of 45,672 tons of coffee. The authority had projected exports of 110,000 tons this year, but it is now uncer- tain whether last year’s volume of 78,000 tons will be achieved. The general manager of the authority blamed the reduction on depressed world coffee prices. In keeping with the progressive liberalisation of trade, the state-owned Coffee Export Enterprise has handled a little under half the total exports to date this year, with the balance sold by private merchants. Coffee earned a record $320m in 1994/95, thanks to the price boom on international markets, and a substantial reduction is expected this fiscal year.

There is competition to In March journalists in Addis Ababa reported that ten companies had bid to manage Lega Dembi— run the country’s largest gold mine at Lega Dembi, south-west of the capital. The mine, previously developed by Russian geologists, produces 3 t/y, while the Ministry of Mines and Energy estimates total gold reserves at 500 tons. Ashanti Goldfields of Ghana is one of those known to have placed a bid. In February it had signed a three-month exploration deal with a recently created local company, Ezana Mining Development, for preliminary studies in a 2,000-sq km area of western Tigray. In March Ashanti signed agreements with the Eritrean government for prospecting rights in known mineral-bearing areas around Asmara.

—as new mining In March the mines and energy minister granted an additional concession to a concessions are awarded Canadian company, Canyon Resources, which was the first foreign enterprise to secure a deal under the new mining investment code. Canyon has pledged to invest US$1.4m in exploration of the 109-sq km Melaka-Abeba area, within the Adola goldbelt. This follows three earlier gold mining concessions awarded to

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 12 Ethiopia

the company in January (1st quarter 1996, page 13). Also in March, the govern- ment signed exploration agreements with two other Canadian companies. St Geneviève Resources, based in Montreal, was awarded a concession covering a 525-sq km area near Asosa, in Region 6 (Benshangul) along the western border with Sudan. The area is currently the centre of military tension between Sudan and Ethiopia via the proxies of southern Sudanese rebel forces. Tan Range Exploration of Vancouver secured permits to begin exploration in two known gold-bearing areas of south-eastern Ethiopia.

The influential Mohamed Alamoudi has also entered the mining sector. His National Mining Corporation (NMC) has reportedly taken a 1,600-sq km con- cession in Region 1 and a 547-sq km area in the south-west. NMC has pledged to invest Birr32m over a three-year prospecting period. The mining interests of Mr Alamoudi further diversify the Ethio-Saudi businessman’s investments in the Ethiopian economy, following significant purchases during the initial stage of the privatisation programme (4th quarter 1995, page 17). The Alamoudi concessions bring to nine the total number of mineral exploration contracts awarded by the government in recent months.

The national carrier Alongside its long-distance runners, Ethiopian Airlines (EAL) remains the celebrates 50 years— country’s best international ambassador. In April it celebrated its 50th anniver- sary with considerable festivities in Addis and publicity for its ambitious plans of international and domestic expansion. Speaking to the UK-based Flight International magazine, EAL’s general manager, Ahmed Kellow, said that it anticipates increasing flight capacity by 70% by 2000, notably by leasing two new Boeing 767-300 aircraft. In late February EAL signed an agreement with the Japanese authorities to begin regular flights to Tokyo, which are expected to start in early 1997. This route will enhance one of EAL’s main selling points, namely the linking of its unparalleled African network with an attractive array of international destinations, which enables those travelling to and from Africa to avoid time-consuming and costly European or North American connections to the Middle East and Asia. In March the German carrier Lufthansa an- nounced that it was to upgrade its service to Ethiopia by providing three direct weekly flights from Frankfurt to Addis. This service was previously routed through Cairo or Jeddah.

Plans to upgrade the overstretched domestic network have had to be revised due to the financial collapse of the Dutch aircraft manufacturer Fokker. In October EAL had announced its intention to purchase five Fokker-50 aircraft for its expanding domestic service, which is now under considerable pressure due to the increased number of tourists visiting the country. The collapse of Fokker means that EAL has to rethink its plans for replacing its ageing fleet of ATR-42 and DHC-6 Twin Otters which currently carry Ethiopians and tourists on internal flights.

—and buoyant profits The anniversary came as Mr Kellow announced a doubling of profit for the 1994/95 fiscal year, to Birr186m. This is net of 40% corporation tax. EAL’s turnover rose to Birr1.6bn, from Birr1.3bn in 1993/94. Passenger loads also increased significantly. The general manager attributed the rise in profits to the

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Ethiopia 13

radical restructuring of the past three years. Mr Kellow was only appointed to the post in 1994, having previously been a university lecturer in the UK.

AIDS figures are revised In late March the head of the epidemiology and AIDS department of the upwards Ministry of Health told a seminar in Addis that it now estimates that a total of 1.7 million people, over 3% of the population, are now infected with the HIV virus, including 120,000 children. The majority of those who have developed AIDS are in the capital, but most regional hospitals are now reporting signif- icant numbers of patients who have contracted the virus.

Foreign trade and payments

US businessmen come A US trade promotion body, the Corporate Council on Africa, staged its first calling— mission to Ethiopia in early May. A delegation of 30 businessmen, representing 25 US companies, arrived on May 5 for a five-day visit. The delegation, which included representatives from AT&T, Coca-Cola, Northwestern Bell and Petropros International, was expected to hold talks with the government and the private sector about potential investment, notably in the dilapidated pub- licly owned telecommunications, water and electricity industries, as well as in tourism and commercial agriculture.

—as Japan steps up its Prior to the change of government in 1991, Japanese development assistance cooperation averaged $10m per year. In 1994 Japan was Ethiopia’s fourth largest donor, providing $43m of aid, principally through the official Japan International Cooperation Agency (JICA). A total of 150 Japanese technical assistants cur- rently work on Japanese-funded programmes in Ethiopia, alongside 330 volun-

Net bilateral development teers working with the Japanese Overseas Cooperative Volunteer programme. assistance (a) Currently, assistance is focused on the provision of water drilling and distrib- % share of total ution systems. JICA is also working in partnership with a quasi-official non- governmental organisation (NGO), the Relief Society of Tigray, on a Norway 5.9 Italy 7.8 reforestation programme. On March 26 Japan signed an agreement in Addis to Others 22.0 Japan 8.7 provide an additional $25m of aid. Of the new funds committed, $14m is in

UK 8.7 support of the structural adjustment programme, $6m for the health sector and $5m for the purchase of waste and sanitation vehicles for the (municipal) Region 14 (Addis Ababa). USA 24.6 Germany 22.3

Total=$496.3m In late April Ethiopian diplomats were said to have participated in a meeting in Beijing to review the modalities of China’s economic assistance programme to

(a) Disbursements. Africa. Prior to 1991 Ethiopia, along with other formerly socialist states in Source: OECD, Geographical Distribution of Financial Africa, was a significant recipient of Chinese aid. China backed several turnkey Flows to Aid Recipients. industrial projects, notably in the textile industry. It is anticipated that the new policy will concentrate on loans and on the promotion of Chinese exports. An Ethiopian envoy at the meeting was reported to have said that China’s experi- ence in developing its agricultural sector could provide a model for Ethiopia.

The IDA funds social On April 9 the World Bank’s International Development Association (IDA) infrastructure approved two credits worth a total of $158m to support improvements in social services. These improvements form the backbone of the Social Rehabilitation and Development Fund launched in the Council of People’s Representatives in

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 14 Ethiopia

January (1st quarter 1996, page 11). An initial concessional loan of $120m is being divided between basic health care, primary education, rural water supply and sanitation, and small-scale irrigation. The latter involves the provision of small-scale dams and canalisation to irrigate plots of between 50 ha and 200 ha. The donors reportedly conferred with neighbouring states before agree- ing on the irrigation schemes, which will potentially reduce water flows into Egypt and Sudan. A second soft loan of $37.7m will provide improved access to existing water and sanitation facilities in both rural and urban areas. It will allow for a strengthening of public water supplies. It is estimated that only 17% of Ethiopians have access to potable water, the vast majority of whom live in towns.

Debt arrears continue to Ethiopia’s total external debt climbed to slightly over $5bn in 1994, according climb to recent World Bank figures. This excludes money owed to the former Soviet Union. Total debt rose by over $300m in both 1993 and 1994; official creditors were owed 91% of long-term debt at the end of 1994, evenly spread between multilateral and bilateral agencies. The debt-service ratio was unchanged, at 11.7% in 1994, but arrears of principal and interest on long-term debt rose from $640m and $121m to $882m and $140m respectively. This was despite the Paris Club rescheduling of 1992 which covered $384m. In January the World Bank reported an agreement in principle on the cancellation of $276m of Ethiopia’s commercial debt. However, there appears to have been little pro- gress over the future of Ethiopia’s estimated Rb3.2bn to the former Soviet Union ($640,000 at the current Russian interbank rate but over $2bn at the fixed rate at which it was contracted).

External debt ($ m unless otherwise indicated) 1992 1993 1994 External debt 4,363 4,703 5,059 Long-term debt 4,188 4,503 4,816 Short-term debt 156 152 171 Use of IMF credit 19 49 72 Public & publicly guaranteed long-term debt 4,188 4,503 4,816 Official creditors 3,641 4,032 4,382 Multilateral 1,476 1,815 2,124 Bilateral 2,165 2,217 2,258 Private creditors 547 471 434 Total debt service 104 89 92 Principal586050 Interest 47 29 42 Ratios (%) External debt/GNP 44.7 78.0 108.2 Debt-service ratioa 13.4 11.7 11.7 Short-term debt/external debt 3.6 3.2 3.4

a Debt service paid as a percentage of earnings from exports of goods and services.

Source: World Bank, World Debt Tables.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Eritrea 15

Political structure: Eritrea

Official name: Eritrea

Form of state: unitary state

Legal system: based on the decree of May 20, 1993, covering the formation and structure of the government for the transitional period

National legislature: National Assembly, composed of the PFDJ Central Council of 75 members plus three representatives from each of Eritrea’s (former) ten regions

Last elections: February 1987 (legislative, within Ethiopia)

Next elections due: by May 1997 (presidential and legislative)

Head of state: elected by the National Assembly

National government: the president and the sectoral ministers

Main political parties: the People’s Front for Democracy and Justice (PFDJ, formerly the Eritrean People’s Liberation Front) is the ruling and, effectively, the only legal party. Its third congress in February 1994 confirmed the transition to pluralist elections in 1997. A law on political parties has yet to be approved

Head of state President Isaias Afewerki

Key ministers agriculture Tesfaye Ghirmazien construction Abraha Asfaha defence Sebhat Ephrem education Osman Saleh energy, mining & water resources Tesfaye Gebreselassie finance & development Haile Woldensai foreign affairs health vacant information Beraki Gebreselassie internal affairs Ali Said Abdella justice Foazia Hashim labour & social security Ahmed Haji Ali marine resources Saleh Meki regional administration Mahmoud Ahmed Sherifo tourism Worku Tesfamikael trade & industry Ogbe Abraha transport Gergis Teklemikael

Governor of the National Bank of Eritrea Tekie Beyene

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 16 Eritrea

Eritrea

Outlook

A diplomatic coup is Growing diplomatic maturity, attested by skilful handling of the crisis over the scored over Hanish— Hanish archipelago, has been accompanied by political stability and economic growth, which have contributed to rising confidence in Eritrea’s ability to fulfil its potential as a safe and prosperous country. As Eritrea passes its fifth anniver- sary as a sovereign state, the fears of investors are beginning to be allayed. The prospect of an Eritrean-Yemeni war has diminished, although the country’s unpredictable neighbour to the west remains a problem. At the same time, huge progress has been made to dismantle bureaucratic obstacles to investment, which have their origin as much in inertia as defensive circumspection.

—while investment A successful conference and exhibition in December identified a number of prospects are set to crucial areas for investment. Tourism, mining, marine resources, financial serv- improve— ices, real estate, telecommunications and transport are all touted as lucrative areas of interest. Many of these areas have seen significant administrative or economic changes. The first round of licences for gold and mineral exploration has been successfully held, raising hopes for the second, which is due in a few months. Priority is being given to Eritrean capital, and the ruling People’s Front for Democracy and Justice (PFDJ) is expanding its geographical as well as sectoral involvement in reconstruction.

—with the help of the The diaspora has been encouraged to participate in the nation-building process. diaspora Net private transfers, mostly from Eritreans abroad, are significant: excluding counterpart funds for franco valuta imports, they amounted to Birr710m ($139m) in 1994, compared with just Birr426m from merchandise exports. The Eritrean community in the USA was instrumental in assisting a major delegation of representatives of US companies which visited Eritrea (and Ethiopia) in May through the Corporate Council on Africa. While the 2% solidarity tax on Eritrean expatriates’ income remains controversial, wider media coverage has enabled Eritreans abroad to see tangible results. Stringent policies to stamp out nascent corruption have been introduced, and a new round of streamlining and salary scales are scheduled for the summer to increase efficiency and obviate the need for backhanders.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Eritrea 17

Review

The political scene

A plan for arbitration An announcement on May 2 that the Eritrean and Yemeni governments had over Hanish brings relief— agreed to international arbitration to resolve the dispute over the Hanish archi- pelago has brought relief to investors and diplomats. For six months the inter- national press has been filled with accusations and counter-charges of mutual perfidy. On March 27 Yemen retracted an allegation that Eritrea had sought Israeli support, but not before the Eritrean government had embarked on a diplomatic crusade to quell rumours of an Afro-Arab dimension to the conflict (1st quarter 1996, page 19).

—and revives previously The dispute, which has involved Egypt and Ethiopia as well as regional and good relations— international organisations, goes against the grain of Eritrean-Yemeni rel- ations. During Yemen’s civil war, the Eritrean president, Isaias Afewerki, of- fered to mediate and allowed the then North Yemen to bring aircraft to Asmara to prevent their being bombed. The Yemeni president, Ali Abdullah Saleh, has offered to mediate in the Eritrean-Sudan stand-off, and trade and cultural links between the two countries are strong. High-level concerns about conflict in a major international waterway were accompanied by the more prosaic, but nonetheless significant, concerns of the small fishing communities in both Yemen and Eritrea.

According to Asmara, Yemeni authorities have arrested over 350 Eritreans, most of them fishermen. Sanaa has denied this, but Afar fishermen in coastal villages north of Assab have said that they faced arrest or confiscation of their boats or catch when they landed in Yemen. Of the 5,000 tons/year of fish currently caught in Eritrean waters, at least 3,500 tons are smuggled to Yemen in ex- change for fishing tackle, consumer goods and the mild stimulant qat. Livestock from Eritrea was also an important trading commodity and the fishing villages, as well as being overpopulated by goats, are facing financial difficulties which cannot be sustained over a long period.

—after several political The mediation by François Gutmann, an envoy of the French president, Jacques squalls Chirac, was initially offset by the separate arrests of two elderly French couples in March and April. The four people involved, as well as a British couple, were said to have sailed into a security zone, although it was not indicated whether this was near the Hanish islands. They were all transported to Asmara and questioned before being allowed to leave.

Eritrea wants clear According to documents submitted to Mr Gutmann, Eritrea called for a two- maritime boundaries— stage process for resolution. The first was a cessation of hostilities observed by France. The second stage, that of arbitration, was to involve establishing the status of the whole archipelago, not just the three largest islands. The Eritreans argued that its remit should include clarifying the marine boundaries of Eritrea in relation to Yemen, Djibouti and Saudi Arabia.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 18 Eritrea

The Eritrean minister of foreign affairs and his Yemeni counterpart were sched- uled to head delegations in Paris at the end of May for the signing of an Agreement in Principle. The issues under discussion at this first meeting were to be the commitment to arbitration and agreement to abide by the decision of the arbitration tribunal; the abnegation of force; the islands involved; sovereignty; and the demarcation of maritime boundaries. Of the five judges on the tribunal, each party was to nominate two. These four would nominate the fifth and, in the event of non-agreement, the president of the International Court of Justice (ICJ) in The Hague would make the final decision.

—to ensure lasting peace— Eritrean insistence on the resolution of boundaries highlights the multilateral dimension of the conflict. Yemen and Saudi Arabia have had several clashes in border regions, while reports appearing in the international press in mid-April (and denied by Asmara) spoke of Eritrean incursions into Djiboutian territory. Some observers feel that these reports reflected misinformation aimed at dis- rupting the peace process (see Djibouti: The political scene). Others posit the theory of Afar territorial clashes, while still others point to the dissatisfaction of Ethiopian Afars at that country’s political dispensation.

—at least on the eastern Those who allege a campaign of misinformation imply that Yemen was behind front attempts to disrupt relations between Djibouti and Eritrea. Their efforts failed but undoubtedly pleased the Sudanese government. The National Islamic Front (NIF)-inspired regime in Khartoum has found itself increasingly isolated by its immediate neighbours and the international community as a whole, and its reaction has been vituperative. In late April the UN Security Council ap- proved limited sanctions against Sudan for its refusal to extradite three men suspected of involvement in the attempted assassination of the Egyptian pres- ident (see Ethiopia: The political scene).

IGADD has a new identity Eritrea is one of the African states—along with Uganda, Djibouti, Kenya and Ethiopia—which agreed in March to revitalise regional cooperation hampered by Sudan. As members of the Intergovernmental Authority on Drought and Development (IGADD), they agreed, with Sudan, to expand the mandate of the organisation to include conflict prevention. At a summit in Nairobi on March 21, the IGADD charter was revised and the name changed to the Intergovernmental Authority on Development (IGAD). The new executive sec- retary of IGAD, Tekeste Gebre, is Eritrean. Although IGAD will also concern itself with such issues as economic integration, regional security is given the highest priority.

Sudan’s isolation The USA’s policy in the Horn shadows IGAD’s development (see Ethiopia: The increases— political scene). The State Department is simultaneously encouraging regional responsibility for conflict resolution and undermining the government in Khartoum. Washington’s determination to bring about changes in the country were underlined by the removal in February of US diplomats from Khartoum; at the same time, the US Agency for International Development (USAID) office in Asmara has been expanded. The election victory of the Sudanese president, Omar Hassan Ahmed al-Bashir, in March was denounced by the opposition National Democratic Alliance (NDA) from its headquarters in Asmara. The

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Eritrea 19

NDA has been given the former Sudanese embassy, which has been vacant since Eritrea broke off diplomatic relations with Khartoum in December 1994. Khartoum criticised this move, and subsequently demanded that Eritrea extra- dite two Sudanese men who hijacked a Sudan Airlines aircraft in March.

—as the cold war with Isaias has made it clear that the NDA is receiving the full support of the Eritrean Eritrea deepens government. In an interview with a pan-Arab daily, Al-Hayat, in January he did not deny that there were training camps operating in Eritrea for Sudanese opposition forces. Sudan has provoked Eritrean anger by sending Jihad terror- ists across the border, although reports of incidents are difficult to confirm. In March three fighters and one employee of the Water Resources Department were shot dead at Filfil, north of Keren. Jihad involvement is also suspected in two incidents near Tokombia.

The refugees become Security in the border regions has been tightened significantly. A further com- political pawns— plication is the breakdown of the Programme for Refugee Reintegration and Rehabilitation of Resettlement Areas in Eritrea (PROFERI), which was sched- uled to bring back an estimated 300,000 Eritrean refugees from Sudan. The Sudanese government is now contesting the agreements signed in April and September 1994 by the Office of the High Commissioner for Refugees (UNHCR)-Eritrea and UNHCR-Sudan respectively. These accords covered the return of 25,000 Eritreans under the pilot phase of PROFERI, but now phase one, due to have begun in November 1995, has been put on hold. The Eritreans now refuse to sit at the same table as the Sudanese and argue that the legal instruments are in place for full-scale organised repatriation. Meanwhile, the number of spontaneous returnees is growing, and the Sudanese authorities have begun to deport heads of families from camps and dump them on the Eritrean border.

The leader of the NIF and speaker in the Sudanese parliament, Hassan al- Turabi, threatened in March to deport the refugees in retaliation for the sup- posed campaign being carried out by Eritrea against Sudan. Such provocations place the Eritrean government and the UNHCR in an invidious position. The newly formed Eritrean Relief and Refugee Commission (ERREC) cannot sup- port the 100,000 or so “spontaneous returnees” (which, through expedient sophistry, include the deportees) and the UNHCR cannot act beyond its man- date to help organised repatriation. The ERREC was formed through the merger of the Commission for Eritrean Refugee Affairs (CERA) and the Eritrean Relief and Rehabilitation Agency (ERRA). The new commissioner is Ahmed Tahir Badouri.

—and an economic The spontaneous returnees are placing an untenable burden on the mainly burden— rural communities to which they have returned. The ERREC has considered the possibility of inviting Eritreans to return en masse without an organised pro- gramme in place. The commission, as well as preparing new sites, has been concentrating on existing communities in the south-west border region should there be an influx of spontaneous returnees. Reports from the camps indicate a growing level of harassment by Sudanese authorities and mounting pressure from the refugees to return to Eritrea.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 20 Eritrea

—but Asmara may call the Neither the government nor the UNHCR wants to precipitate an emergency Sudanese bluff— which could place the refugees in Sudan in danger. However, the latest reports indicate that the government is prepared to deliver an ultimatum to Khartoum to allow an organised return. If it does not do so, the Eritrean media will encourage refugees to take up their belongings and walk across the border where they will be dealt with as part of PROFERI.

—while donors are still Despite the success of the pilot phase of PROFERI, little funding has been slow to respond forthcoming from the international community. One of the problems stemmed from the determination of the Eritrean authorities to plan the repa- triation process in accordance with their overall plan of national development. Several donors, by contrast, wanted to insist that their funds were channelled to specific, localised projects. The merger of ERRA and CERA is an indication that returnees are considered one of many vulnerable groups (others being demobilised ex-fighters, women-headed households and the disabled), and efforts to provide them with livelihoods are incorporated into community development as a whole.

Donors have also been wary about the monetisation of food aid, which was introduced on January 1 (1st quarter 1996, page 23). It is run by the ERREC, the Grain Board and representatives of various government ministries. Eritrea is the first country to monetise 100% of food aid, and the wariness of donors probably stems as much from their own inexperience as from any short- comings in Eritrean management skills. A Birr15m ($2.4m) programme for soil conservation and afforestation, which was finalised in April, is to be funded from the monetisation of 18,000 tons of European Union (EU) grain.

Constitutional talks The Constitutional Commission of Eritrea (CCE) has just finished the third continue— phase of public discussion on the draft constitution. This concentrated on the role of official languages, political pluralism and the incorporation of custom- ary laws into the national polity. The May deadline for the final document is likely to be missed, but it is expected that the president will make an an- nouncement on this issue in his Independence Day speech on May 24. He is also likely to stress the need for national service, which is gaining popularity, and for continued hard work.

—and the PFDJ sets an At its fifth regular session in March the executive of the ruling People’s Front important date for Democracy and Justice (PFDJ) set a date for the front’s second conference, which will take place in November 1996. Among the items on the agenda will be the need to recruit more vigorously in the urban areas and the continued economic expansion of the front. Its policy remains to penetrate sectors which require high capital investment or which encourage decentralised develop- ment. The PFDJ has major investments in the tourism, banking, construction, transport and communications sectors.

The economy

There is tangible growth Real statistics are hard to come by, mainly because of a dearth of records. The in the small-scale sector— majority of the population is not in the habit of using banks, and cash or kind

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Eritrea 21

remain the favourite media for transactions. However, new investments, mainly small to medium scale, are being made on a daily basis. A $17.5m credit was approved in February by the International Development Association (IDA, the World Bank’s concessional loan arm) as part of a $50m package for the Eritrean Community Development Fund.

—and interest in Large-scale investment is moving more slowly, and is concentrated in the large-scale development— hands of the People’s Front for Democracy and Justice (PFDJ) or foreign inves- tors. It is expected to grow once the constitution is promulgated and the administrative infrastructure, such as a functioning Chamber of Commerce, is in place. The potential was confirmed by delegates from a 30-member group of US businesspeople on a visit in May. The delegation, which also travelled to Ethiopia, was very impressed by the resourcefulness and honesty of the Eritrean government, and by the possibilities in all sectors of the economy. Optimism was earlier expressed by the French business community at a small conference in Paris in January on investment prospects in Eritrea. The French companies represented included Electricité de France and the Caisse nationale de crédit agricole. Potential investors may be encouraged by a new labour law which is being drafted by the National Confederation of Eritrean Workers and the Ministry of Labour and Social Security. The current controls over employ- ment by the Central Personnel Agency are widely viewed as too rigid.

—led by tourism and The largest foreign investments to date are the $220m hotel and casino com- beverages plex on Dahlak Kebir island planned by the Mississippi-based Development Concepts International and two housing projects backed by the Seoul-based Keangnam Enterprises (1st quarter 1996, page 23). Unconfirmed rumours indi- cate that Sheraton Hotels has already won a licence to build a hotel in the capital. In May Coca-Cola signed a $10.7m joint venture with the Eritrean government to privatise the soft drinks industry. The government will hold a majority interest, while a wholly owned subsidiary of Coca-Cola will control the balance of the equity and provide technology and assistance. The joint venture will take over the assets of the soft drinks factory in Asmara and invest $8m in improvements over the next year.

Banking laws are still to The Banking Act, which has reached draft form, is to be promulgated this year. be finalised— There are currently three banks in Eritrea as well as the National Bank (the central bank)—the Commercial Bank of Eritrea (CBE), the Housing Bank of Eritrea and the newly formed Agricultural and Industrial Development Bank. The first two are implementing programmes of expansion in major towns, although only the CBE deals in foreign currency accounts, and changing money outside Asmara is difficult. There are also two semi-authorised remit- tance offices, the Red Sea Trading Corporation and the PFDJ exchange. In order to realise Eritrean plans to act as a financial services centre, the government is studying the possibilities of bureaux de change, mortgage companies, credit unions and a stock market. Until Eritrea has its own currency, however, capital will continue to flow to Ethiopia, attracted by higher interest rates.

—and financial services The other non-bank financial institution is the National Insurance Corporation need to develop of Eritrea (NICE). It now has an annual turnover of Birr50m ($7.9m), compared

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 22 Eritrea

with Birr17m in 1992, and projects a further rise to Birr150m by 2000 as it moves into life and agricultural insurance. Obstacles to growth include the strong extended family network, which can make life insurance seem redun- dant, and the relatively heavy losses incurred on motor insurance. There are only 21,000 insured vehicles in Eritrea; fatalities are rare, but non-serious acci- dents occur frequently and the loss ratio for 1995 was 70% (150% for buses which are generally older and more frequently on the road). Other industries in the services sector identified for investment potential are real estate, account- ancy services (only five licences have been issued to public auditors and ten to accountants) and management consultancies.

MOTI outlines its goals The six goals of the Ministry of Trade and Industry (MOTI) have been set as: identifying and training human resources; capitalising on natural resources and location; investing in technology and encouraging skills and technology trans- fers; developing competitive, quality products for export; repairing damage to infrastructure and communications; and sustaining a private sector which will play the leading role in economic recovery. MOTI has been expanded to incorp- orate the Grain Board, standards office, privatisation office, commercial agricul- ture and the Investment Centre. All government policy and PFDJ investment ties in with the six aims, and investors and donor agencies are expected to incorporate them into their programmes of action. The aims will be stressed at a business conference scheduled for December.

Water is in short supply Water resources remain problematic. There is talk of a $40m project to build a for agriculture dam at Toker near Asmara, to provide 18m cu metres of drinking water for the capital. Out in the western lowlands, where most resettlement is taking place, groundwater is being tapped. Seasonal floods have yet to be properly utilised, however; the Ministry of Agriculture estimates annual run-off at 10bn cu metres, with thousands of tons of topsoil washed away into the sea. Experiments with hydroponics in the western lowlands have been slow to materialise, although a joint venture involving the government, the US Agency for International Development (USAID) and Israel has established a model farm at Gahtelai, in the eastern lowlands.

Many companies go for The mining sector has seen a surge of interest in the past quarter. Promulgated gold in April 1995, the mining law offers huge incentives. The first gold exploration accord was signed on March 6 with Ashanti Goldfields of Ghana. The agree- ment covers 850 sq km north-west of Asmara and 700 sq km south of the capital near Debarwa. Ashanti is to spend $10m over the three-year licence period. The company had earlier signed an agreement covering exploration in Tigray in Ethiopia, where it is also interested in managing the Lega Dembi mines (see Ethiopia: The economy).

Two further exploration agreements were signed with Canada’s Reese Mining Company in March. The first covers exploration for gold and copper in a 200-sq km area south of Asmara for a period of three years, and the second is a one-year exploration licence over 1,900 sq km in the . Western Mining of Australia has reached agreements over 250 sq km in the Debub region of southern Eritrea and for exploration in the northern Red Sea region. Similar agreements covering exploration near Debarwa and Adi Nefas

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Eritrea 23

have been signed with Canada-based Rift Resources. Sources at the company estimate expenditure on its Eritrean concessions at US$1.5m in 1996 alone. The US-based Phelps Dodge and Golden Star of Canada have also been granted exploration licences. The next round of concessions is due to begin in the coming months.

Links with Italy are A state visit to Italy by the Eritrean president, Isaias Afewerki, and his foreign strengthened— affairs minister, Petros Solomon, in February yielded an accord for the protec- tion and promotion of investments. The two presidents met, and Isaias signed a treaty of friendship and collaboration with the then Italian prime minister, Lamberto Dini. Italy is one of the largest bilateral donors to Eritrea, with $60m planned for 1996. Investment is being encouraged, and the Eritrean delegation to Rome included the minister of trade and industry, Ogbe Abraha.

—and Isaias hosts the The German president, Roman Herzog, visited Eritrea at the end of January as German president part of a regional tour. The Germans have provided more than $150m in bi- lateral assistance over the past three years, mainly for agriculture and the repatriation and vocational training of returnees and ex-fighters. During his visit, Mr Herzog presented copies of the Eritrean National Environment Management Plan, which was printed in Germany on recycled paper.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 24 Somalia

Political structure: Somalia

Official name: Somali Democratic Republic

Form of state: unitary republic, although in May 1991 the Somali National Movement (SNM) unilaterally declared the creation of an independent state, the Somaliland Republic, in the north (see below)

Legal system: based on the 1960 constitution

National legislature: People’s Assembly

Last elections: 1967 (presidential); 1969 (legislative)

Next elections: none feasible in current circumstances

Head of state: theoretically Ali Mahdi Mohamed, nominated in January 1991 by his faction of the United Somali Congress (USC), and sworn in in August 1991 with the support of the principal southern factions. Mr Ali Mahdi and his government were never accepted by General Mohamed Farah Aideed who had himself elected as “interim president” in June 1995 by his own faction of the USC

National government: Mr Ali Mahdi and his government in Mogadishu; announced in October 1991 but of marginal significance. General Aideed announced his own government in June 1995

Main political factions: the USC, the Democratic Front for the Salvation of Somalia (DFSS), the Somali National Alliance (SNA), the Somali Patriotic Movement (SPM), the Southern Somali National Movement (SSNM)

Somaliland Republic: created in May 1991 but awaiting diplomatic recognition; led by the president, Mohamed Ibrahim Egal, elected in May 1993. A referendum on a new constitution and on independence is scheduled for July 1996

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Somalia 25

Economic structure: Somalia

Latest available figures

Economic indicators 1990 1991 1992 1993 1994 GDP at market prices SoSh bn 1,738.8 n/a n/a n/a n/a Real GDP growth % –1.6 n/a n/a n/a n/a Consumer price inflation % 200.0a n/a n/a n/a n/a Population m 8.7 8.8 8.9 9.0 9.1 Exports fobb $ m 150 85 103 102 130 Imports fobb $ m 394 160 217 263 269 Current account $ m –81 n/a n/a n/a n/a Total external debt $ m 2,370 2,449 2,447 2,501 2,616

May 17, 1996 SoSh6,000ac:$1

Origins of gross domestic product 1990 % of total Components of gross domestic product 1989 % of total Agriculture 65.5 Private consumption 91.1 Industry 8.7 Government consumption 22.9 Manufacturing 4.6 Gross fixed capital formation 21.4 Services 25.8 Exports of goods & services 8.4 GDP at factor cost 100.0 Imports of goods & services –43.8 GDP at current market prices 100.0

Principal exports 1989 $ m Principal imports 1990 $ m Livestock 26 Manufactures 204 Bananas 25 Non-fuel primary products 104 Fuels 52

Main destinations of exports 1994b % of total Main origins of imports 1994b % of total Saudi Arabia 54 Kenya 19 Yemen 19 Djibouti 14 Italy 12 USA 12 a EIU estimate. b Based on partners’ trade returns, subject to a wide margin of error. c Outside Mogadishu. In the self-styled Somaliland Republic the legal tender is the Somaliland shilling (SolSh), which has a fixed rate of SolSh80:$1 and a parallel market value of SolSh400-450:$1.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 26 Somalia

Somalia

Outlook

General Aideed Following the occupation of Baidoa in September by one of Mogadishu’s main strengthens his grip— faction leaders, General Mohamed Farah Aideed, forces of his SNA have cap- tured other important southern settlements. The SNA now controls Oddur, the third largest town in the south of the country, and Dolow, a border town whose traders are now paying taxes into the general’s coffers. The SNA met light resistance from a local clan militia, the RRA, a group opposed to General Aideed’s administration and enjoying at least the vocal support of the general’s main rival and the leading light in north Mogadishu, Ali Mahdi Mohamed. The SNA has also gained ground south of Mogadishu, where it has clashed with forces loyal to General Aideed’s former ally and chief financier, Ali Hassan Osman “Ato”. Some observers suggest that the general is gearing up for an advance on the southern port of Kismayu, currently under the control of forces of the SPM loyal to another old rival of the general, General Mohamed Siad Hersi Morgan.

—with a strategy that General Aideed’s expansionist aims are designed to consolidate his position as excludes reconciliation the country’s interim president, a position given to him by his own supporters. The general has been busy appointing ministers and setting the wheels in motion for a national parliament. However, neither of his main Mogadishu rivals, Mr Ali Mahdi and Mr Osman “Ato”, recognise his administration, as evidenced by fierce fighting in the capital. General Aideed claims that his government has been recognised by Libya, and Mr Ali Mahdi suggests that Sudan also gives him some support, but the rest of the international community is keeping its distance. General Aideed’s claim to be the country’s legitimate leader was not enhanced when the European Union (EU) commissioner for humanitarian rights visited in early April. She was unable to set foot in the south of the city controlled by General Aideed because of the fighting. Various efforts at national reconciliation have been made by Mr Ali Mahdi and Mr Osman “Ato” but the general shows a lack of interest.

For Mr Egal, recognition Some observers in the northern self-styled Somaliland Republic suggest that the remains the key president, Mohamed Ibrahim Egal, is facing increasingly limited options if he is to stay at the helm. Continued clashes between government forces and discon- tented subclan militias, the poor economic situation, and unease among some parliamentarians at what they see as his modus operandi of ruling by presidential decree together amount to increasing pressure on Mr Egal. Somaliland has many of the attributes of a sovereign state, such as a flag, an army, its own currency, and, more recently, a national anthem. However, international recognition is still badly needed to secure the country’s long-term future. During a recent visit

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Somalia 27

to Hargeisa, a US delegation said that it would be willing to grant recognition, but made it clear that such recognition will only be forthcoming after the Organisation of African Unity (OAU) has made the first move. The OAU is in no hurry to take this step because it dislikes sanctioning changes in national boundaries, and probably only made an exception in the case of Eritrea due to pressure from Ethiopia. Somaliland has no comparable advocate.

Review

The political scene

General Aideed gains Forces of the SNA, loyal to one of Mogadishu’s main faction leaders, General ground in the west— Mohamed Farah Aideed, have gained control over several key settlements in the west of the country in recent months, despite resistance from local militia of the RRA. After losing Baidoa in September (4th quarter 1995, page 35), the RRA suffered a further setback when it was forced out of the town of Oddur, in the Bakool region, in mid-January. Oddur is the third largest town in the south of the country, with a population of about 100,000, most of whom have fled the fighting. The general took another strategically important town on March 3, when he led a 400-strong force to seize Dolow, an important commercial centre on the Ethiopian frontier in the Gedo region. The general’s forces met relatively little resistance from the RRA and militia from the SNF, dominated by the Marehan subclan of the Darod family.

Although the RRA has been driven out of the major settlements formerly under its control, it has continued to clash with the SNA. Six people were killed and 14 wounded in a clash on February 19 in the district of Dinsor, 120 km south- RRA: Rahawayn Resistance Army west of Baidoa, and fighting was also reported on the same day in Marehan SNA: Somali National Alliance villages near Baardeere. General Aideed based himself in Baidoa after taking SNF: Somali National Front control of the town, and Baidoa itself was the scene of fierce fighting between SPM: Somali Patriotic Movement SSA: Somali Salvation Alliance SNA and RRA forces on March 3. The version of Radio Mogadishu that supports General Aideed’s main rival and the leading force in north Mogadishu, Ali Mahdi Mohamed, reported 23 dead, most from the general’s forces. Violence flared again on March 19, when RRA forces attacked General Aideed’s heavily fortified Baidoa residence.

—and in the south— The general’s forces have also gained ground in fighting in the Shabeellaha Hoose region south of Mogadishu. Militia loyal to General Aideed’s former ally and chief financier, Ali Hassan Osman “Ato”, are reported to have withdrawn from two of their bases in the south to regroup in Mogadishu, having suffered defeats in several clashes. The southern port of Merca, 100 km south of the capital, was captured by General Aideed’s forces on March 19, and fighting continued in nearby villages for several days. More than ten people were re- ported killed and 28 wounded in clashes at two camps in Dhanane, 50 km south of Mogadishu on March 22, and a clash in the same area four days later left four dead.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 28 Somalia

Main Somali clans

Legendary Arabian ancestry

Irrir

Digil Rahawayn Hawiye Issaq Darod

’Iise Gadabursi Marehan Ogaden

Majerteen Dulbahante Warsangeli

Source: Modified after I. M. Lewis, Understanding Somalia: guide to culture, history and social institutions, 2nd edition, Haan, London, 1993.

—while fighting Although General Aideed was himself outside Mogadishu at the time, the intensifies in Mogadishu— capital saw its heaviest fighting for four months on January 28, shortly after the beginning of the holy month of Ramadan. Rival groups of the Hawiye clan family, the Abgal who support Mr Ali Mahdi and the Murosade in support of General Aideed, clashed in the northern sector. The fighting occurred the day after an Islamic tribunal was reported to have imposed a ceasefire and a com- plete ban on the carrying of firearms in the area. Up to 30 people were killed and more than 60 injured, most of them women and children. In February attacks were made on two Islamic targets in the north of the city. On February 18 three people died and four others were wounded at the residence of a leading religious figure, and two people were wounded at an Islamic tribunal on February 28. A tribunal representative was quoted by Agence France-presse (AFP) as saying that the latter attack had been made with grenade launchers and automatic weapons by militiamen loyal to General Aideed. An AFP report at the end of March suggested that the north Mogadishu Islamic tribunals,

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Somalia 29

which General Aideed views as unacceptable challenges to his authority as self-proclaimed president, have imported 14 vehicles from the United Arab Emirates and converted them into technicals (customised battle wagons) for their own protection.

—despite localised peace March was a fairly quiet month in the capital, although it was marred by the talks death of a well-known peace campaigner and critic of Somali warlords, Elman Ali Ahmad, who was gunned down in the south on March 9. Mr Elman’s death was marked by a peaceful demonstration. Fighting began again in earnest in April. A clash between supporters of General Aideed and Mr Osman “Ato” raged on April 4-5 over the complex in the south of the city that housed the US embassy and subsequently the UN Operation in Somalia (UNOSOM II). An unconfirmed report suggests that the fighting took place after attempted peace talks between the two factions. Various sources put the number of dead at anywhere from 16 to 75, with about 250 wounded. The fighting forced the closure of schools in the area and the evacuation to Nairobi of staff working for three international aid agencies. There was further fierce fighting over two days in mid-April, which left 30 people reported dead and 76 treated in hospital. The Nairobi-based Daily Nation reported on April 22 that General Aideed’s sister- in-law and her three-year-old son were killed when their house was hit by a mortar.

The general’s militia is Militia loyal to General Aideed were accused on February 26 of massacring accused of massacres members of the minority Bantu group in the southernmost region of Jubbada Hoose. Dozens of Bantu had been killed since the beginning of January, the group’s representative told journalists in Mogadishu, some for their posses- sions, others for refusing to work on militia farmland. The Bantu are a minority group in Somalia who fall outside the Somali clan structure. They are con- sidered inferior by many , and their communities lack clan militias.

The world community Despite the escalating violence and continued chaos, the international commu- presses for peace— nity has not forgotten Somalia. On January 24 the UN Security Council said it was “profoundly preoccupied” at the lack of progress towards a political settle- ment. It appealed to all sides to redouble their efforts, and reaffirmed the inter- national arms embargo against Somalia. Neither logistical nor financial support will be forthcoming for Somalia until some political progress is made. Now that the problems of Iraq and former Yugoslavia appear to have peaked, the Security Council may turn its attention to Africa in 1996. A UN delegation met with both General Aideed and Mr Ali Mahdi while in Mogadishu on February 4, on a mission to assess the humanitarian needs of the country. The Arab League is working with the UN secretary-general to encourage reconciliation, and on January 30 appealed for a new conference of the warring factions. The Somali conflict was, as usual, on the agenda at the Organisation of African Unity (OAU) meeting of foreign ministers in Addis Ababa at the end of February.

—but reconciliation is still A number of attempts at reconciliation between some of the innumerable far-off— Somali factions have taken place in recent months, but none with all the major players present. Mr Ali Mahdi held an SSA conference in Mogadishu on February 24, and representatives of 17 groups attended a similar meeting in the

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 30 Somalia

capital in early April. Five of these factions then moved to Nairobi, under the auspices of Mr Osman “Ato”, to continue their discussions on April 15. No rep- resentative from General Aideed’s faction was present at any of these meetings.

—while General Aideed is The non-attendance of General Aideed at any of these attempts to foster recon- disinclined to ciliation reflects his insistence that he is the legitimate president, despite the fact compromise— that he, like his rival Mr Ali Mahdi, is only recognised by his supporters. Never- theless, General Aideed continues to build his administration as if it is a proper government. Several new ministers were sworn in at the general’s “presidency” in Baidoa on February 9, and on the same day four delegations, headed by some of his other ministers, left for tours of various African countries to drum up support. Also on the same day, a group of six prominent Hawiye politicians from the Abgal subclan denounced their previous support of Mr Ali Mahdi and defected to General Aideed. The general promptly appointed four of them min- isters and another of the defectors his fifth vice-president, just before two of the six denied that they had changed sides at all. One of the two was picked up three days later by gunmen whose loyalty to Mr Ali Mahdi was not in question, to be tried in front of an Islamic tribunal for “anti-Islamic activities”. On February 27 Radio Mogadishu (pro-General Aideed) announced that the general had estab- lished a ministry to effect the creation of a national parliament. The defections have not all been in General Aideed’s favour, however. On March 30 a total of 64 militiamen, most of them Rahawayn who had been fighting for the SNA, defected to Mr Ali Mahdi’s SSA in Merca. A spokesman for the defectors told journalists that they were disillusioned with the interclan fighting and could not get enough to eat.

—and cultivates foreign If the claims of the general’s main Mogadishu rival are to be believed, General support Aideed has been receiving support at his Baidoa headquarters from Sudan as well as from Libya. On April 2 Mr Ali Mahdi accused both countries of meddling in Somali affairs on the general’s side, supplying both financial and military assis- tance, while in a report broadcast on Radio Mogadishu (pro-Ali Mahdi) on April 13 it was suggested that the general had sent envoys to purchase military equipment in Italy. Sudan retains a diplomatic mission in south Mogadishu, the area of the capital controlled by General Aideed.

Foreign aid workers Although General Aideed’s interior minister said on December 21 that he would remain vulnerable guarantee the security of all representatives of international organisations, re- versing the suggestion from the general’s administration that such protection could not be guaranteed (1st quarter 1996, page 30), several incidents in recent months indicate the spirit in which such guarantees should be taken. An Italian working in Garoe had to be flown to a Djibouti hospital after being attacked in his home and shot in the arm and stomach, an Italian diplomat announced in Nairobi on March 12, while at Bali Doogle airport, south-west of the capital near Agfoye, five foreign UN officials were kidnapped on March 21 before they could catch their plane back to Nairobi. The five were released unhurt later the same day, after local villagers exchanged gunfire with their abductors. The European Union (EU) commissioner for humanitarian rights, Emma Bonino, had first- hand experience of the day-to-day dangers of being in Somalia during her 36-hour trip in early April: her visits to humanitarian projects in Mogadishu

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Somalia 31

could not include any in the south of the city because of the factional fighting, and in Kismayu the following day her convoy was twice caught up in gunfire. Ms Bonino was the most senior foreign official to visit the country since the withdrawal of UN troops in 1995.

Fighting flares in the Clashes between ethnically Somali militia and Ethiopian government forces Ogaden were reported from the Ethiopian region of the Ogaden, a spokesman for the Ogaden National Liberation Front (ONLF) told journalists in Mogadishu in mid-January. The ONLF claimed to have killed 139 Ethiopian soldiers and suffered 17 casualties of its own, according to the spokesman, who declined to say whether the front was receiving assistance from any factions inside So- malia. Unconfirmed reports suggest that there may be links between the ONLF and Colonel Ahmed Omar Jess, minister of defence in General Aideed’s govern- ment. The front is largely made up of members of the Darod clan family, and Colonel Jess is a Darod born in the Ogaden, a region long populated by Somalis and the scene of a fierce war between Somalia and Ethiopia in 1977-78.

The misconduct of casques Allegations of a cover-up over an incident in Beled Weyne in 1993, in which bleus makes more news three Somalis died at the hands of Canadian Airborne Regiment members of UNOSOM II, have been made at the highest levels of the Canadian military. Following the acquittal by a court martial in Ottawa on February 13 of a lieutenant-colonel charged with negligence in the exercise of his duties at Beled Weyne, the court martial of another officer was announced on April 4. The director of the Canadian military’s public relations, Colonel Haswell, is accused of falsifying documents, suppressing evidence and disobeying orders. For his part, Colonel Haswell has alleged that he had been ordered to destroy certain documents and to falsify others to release to the media. He alleges that the current head of the armed forces, General Boyle, and his predecessor, General de Chastelain, were complicit in the attempted cover-up.

The civil commission of inquiry into the Beled Weyne affair has had some trouble in consulting documents relating to the Canadian Airborne Regiment’s tour of duty in Beled Weyne. On April 9 General Boyle ordered the 110,000 civil and military employees of the Canadian defence department to “stop all non- essential activity” in order to find a number of documents that had mysteriously disappeared from the archives. Some, but not all, of the files, which related to day-to-day activities at the Canadian UNOSOM II operation in Beled Weyne in February and March 1993, were found, and on April 15 the commission of inquiry adjourned to read them. Meanwhile, on April 2 a military court in Brussels gave suspended sentences ranging from 15 days to three months to six members of the Belgian contingent to UNOSOM II, accused of maltreatment of Somalis while serving in Kismayu in 1993.

Somali waters are The frequency with which ships passing through Somali waters are attacked declared a danger zone has prompted the Kuala Lumpur-based International Chamber of Commerce Regional Piracy Centre to declare the area a danger zone, a London-based monthly, African Business, reported in April. The attacks were described as haphazard and not as organised as in other parts of the world, but increasing concern has been expressed in the shipping world at the use of machine-guns and mortars. In a particularly dangerous incident in May 1995, a ship carrying

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 32 Somalia

liquefied gas was machine-gunned by men in a fishing boat, according to a recent report in a Nairobi-based weekly, The EastAfrican. This report said that 13 pirate attacks had been recorded off the Somali coast in the first nine months of last year. Ships docking at Kismayu and Mogadishu have to seek armed escorts from local militia leaders, and the waters around Somalia and Djibouti, on vital trade routes between Europe, the Middle East and several African ports, are now regarded as among the most dangerous in the world.

Mogadishu has another The previously unheard-of Holy Koran Radio has begun broadcasting in new radio station Mogadishu. Koranic readings, music and religious programmes were broadcast by the station during a trial period in early April on 6545kHz, a frequency close to that used by the three stations all calling themselves Radio Mogadishu run by factions loyal to Mr Ali Mahdi, General Aideed and Mr Osman “Ato”. Holy Koran Radio is run by Ahlu Sunnah Waljama, a fundamentalist Islamic organis- ation, and broadcasts between 6pm and 8pm local time.

The economy

Cholera is reported in the Cholera outbreaks in several areas have added to the plight of those facing south severe food shortages (1st quarter 1996, page 31), a UN spokesperson an- nounced in New York in mid-March. In February 1,881 cases had been reported in the Mogadishu region alone where 23 had died of the disease, she said. Another 20 deaths from cholera were reported from the southern town of Mahadday in the Shabeellaha Hoose region in early April. The very poor secu- rity situation and the closure of Mogadishu port has made the distribution of medical supplies extremely difficult. People in the more southerly regions of Jubbada Dhexe and Jubbada Hoose have been suffering from dysentery and starvation since the beginning of the year according to Radio Mogadishu (pro- Ali Mahdi), which claimed that dysentery was killing 180 people a day along the Jubba river. The regions had not received assistance from relief agencies for two years, a local spokesman said, and most active humanitarian agencies are currently confined to Kismayu. However, some emergency relief, in the form of food and blankets, is being provided in the south-west by the International Committee of the Red Cross (ICRC), using local companies to transport the supplies. Somalia is high on the ICRC’s list of priorities for 1996; a budget of $32.3m has been set for the country’s needs.

Some refugees are still A further phase of voluntary repatriation of Somalis from Kenyan refugee returning from Kenya camps commenced on April 22 when 76 people were flown to Gaalka’yo in the north-eastern region of Mudug. Another 2,000 refugees would be repatriated in the following weeks, the Office of the UN High Commissioner for Refugees (UNHCR) announced in Nairobi. The refugees were issued with $60 each to purchase equipment and pay for the journey to their villages. The conditions faced by Somalis in Kenyan camps were criticised on January 24 by a local human rights organisation in a broadcast on Radio Mogadishu (pro-Ali Mahdi). It alleged that refugees living in Kenya, Yemen and Libya were faced with kidnapping, arrest and the constant threat of expulsion. The treatment of Somali refugees in Djibouti, Egypt and Ethiopia, by contrast, was praised.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Somalia 33

The conditions in many refugee camps within Somalia are also hazardous, however. A spokesman for Oromo refugees in the country said on February 8 that Oromos, particularly in Mogadishu, were suffering from malnutrition and starvation. On the same day, three people were killed and another nine injured when fire broke out at a camp in south Mogadishu. The camp holds internally displaced people from Baidoa and Kismayu, and 700 huts were badly damaged in the blaze which was thought to have been started by a cooking fire.

News from the Somaliland Republic

The USA will follow the A US delegation, led by the then head of the Office of East African Affairs at the OAU on recognition State Department, David Shinn, held talks with Mohamed Ibrahim Egal, pres- ident of the self-styled Somaliland Republic, in Hargeisa on January 30. Mr Shinn, who has since been appointed US ambassador to Ethiopia, was quoted as saying that the USA had no quarrel with the republic but would only grant Somaliland diplomatic recognition after the Organisation of African Unity (OAU) did so. Mr Egal responded that the OAU had not been established to take executive decisions. He has often cited Eritrean independence as a precedent, an independence which for the first time flew in the face of the OAU’s previously immovable stand against tampering with colonial borders. Another sticking point in Somaliland’s desire for outside recognition is the lack of a constitution. A report in the London-based newsletter Africa Confidential in February suggested that a former Sudanese foreign minister hired by Mr Egal for $500 a day to draw up a new constitution has not been welcomed by all parliamentarians. Parliament has prepared a rival constitutional draft, but the Sudanese cannot read Somali and the alternative draft is still to be translated.

The EU makes a gesture on Some recognition of Somaliland’s progress in achieving peace and develop- Berbera ment came after a visit to Hargeisa by the European Union (EU) special envoy to Somalia, Sigurd Illing. He praised Somaliland’s efforts at reconstruction in announcing on February 14 that the EU will finance the rehabilitation of Berbera port. Local firms will be contracted to upgrade the port’s infrastructure, security and cargo-handling facilities. The 1995 volume of livestock exports through the port, put at 2 million goats and sheep, is expected to increase after the overhaul. The EU will also rehabilitate a number of roads in the country. The communiqué did not specify the cost of the project.

Further exchange controls In early February Mr Egal elaborated upon the package of measures earlier are introduced introduced to combat rampant inflation (1st quarter 1996, page 31). The use of hard currencies, other than the Ethiopian birr and Djibouti franc, is banned for local transactions. Penalties for non-compliance include confiscation of for- eign currency and goods, and five years’ imprisonment. In order to reduce inflation, Somaliland banks will adopt a policy of dollar auctions and a minis- terial committee will oversee exchange rates.

One of General Aideed’s On February 14 a Hargeisa court sentenced General Mohamed Farah Aideed’s ministers is sentenced to foreign minister and two other Somalis to death in absentia for treason. They death— were found guilty of organising and supporting war, and impeding the restor- ation of peace while serving in the Council of Representatives (parliament).

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 34 Somalia

Mr Ghalib, Somalia’s one-time police chief and an old adversary of Mr Egal, is seen as a key figure behind the Edagale, one of the two main Issaq subclans opposing the president (the other is the Habr Younis). However, an unofficial mediator between Mr Egal’s government and these opposition groups has sug- gested that Mr Ghalib has little support among the Edagale, having precipi- tated the recent fighting in Hargeisa and then left to take his position in General Aideed’s government. General Aideed has repeatedly said that he is against the north’s secession.

—following further Several clashes between Mr Egal’s government forces and opposition groups clashes in the north were reported in January. Fighting with Habr Younis militia near Burao left at least 59 dead and 130 wounded on January 15, while clashes with Edagale forces were reported from their stronghold at Salaley.

Rocket explosions have an Two large explosions, thought to be caused by test-fired rockets, occurred in unusual side-effect Somaliland’s easternmost regions of Sanaag and Sool, the minister for minerals and water development told journalists in Hargeisa on January 9. Following the explosions, a “mysterious disease” had broken out, killing several children, the minister said. The government intends to bring in ballistics experts to investi- gate the matter.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Djibouti 35

Political structure: Djibouti

Official name: République de Djibouti

Form of state: unitary republic

Legal system: based on the Code Napoléon. A referendum in September 1992 endorsed a new constitution which provides for a maximum of four political parties

National legislature: Assemblée nationale; 65 deputies, elected by universal suffrage, serve a five-year term. The Rassemblement populaire pour le progrès (RPP) holds all seats

Last elections: December 1992 (legislative); May 1993 (presidential)

Next elections due: December 1997 (legislative); April 1999 (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 major reshuffle March 1996

Main political parties: RPP, the former sole legal party; Parti national démocratique (PND); Parti pour le renouveau démocratique (PRD). In November 1991 the Front pour la restauration de l’unité et de la démocratie (FRUD) launched an armed Afar rebellion against the government. In December 1994 the government signed a peace agreement with a faction of FRUD, two members of which joined the government in June 1995. This faction was legalised as a political party in March 1996

Head of state Prime minister, minister for planning & land development

Key ministers agriculture & water resources Ougoureh Kifle Ahmed civil service & administrative reform Mohamed Dini Farah commerce & tourism Rifki Abdulkader finance & economy Mohamed Ali Mohamed foreign affairs & cooperation Mohamed Moussa Chehem health & social affairs Ali Mohamed Daoud industry, energy & mines Ali Abdi Farah interior & regional administration Idris Harbi Farah justice, religious affairs & prisons Hassan Farah Miguil labour & training Osman Robleh Daich national defence Abdullah Chirwa Djibril national education Ahmed Guire Waberi public works, housing & construction Atayeh Ismail Waiss transport communications, port & maritime affairs Salah Omar Hildid youth, sports & culture Mohamed Balad Abdon

Central bank governor Djama M Haid

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 36 Djibouti

Economic structure: Djibouti

Latest available figures

Economic indicators 1990 1991 1992 1993 1994 GDP at market prices Dfr bn 72.9 79.1 80.7 83.3a n/a Real GDP growth % 1.2 1.6 –1.0 0.3a –2.9b Populationc ’000 520 530 550 560 570 Exports fobd $ m 178 181 158 167a n/a Imports fobd $ m 346 358 334 340a n/a Current account $ m –31 –25 –41 –28a n/a Reserves excl gold $ m 93.6 100.0 83.4 75.1 73.8 Total external debt $ m 206 192 192 225 247 External debt-service ratio % 4.7 4.2 3.4 2.1 2.3 Exchange rates (av) Dfr:FFr 32.6 31.5 33.6 31.4 32.0 Dfr:$ 177.7 177.7 177.7 177.7 177.7

May 17, 1996 Dfr177.7:$1

Origins of gross domestic product 1993 % of total Components of gross domestic product 1993a % of total Agriculture 2.8 Private consumption 78.7 Industry 21.2 Government consumption 36.0 Services 76.0 Gross domestic investment 11.9 GDP at factor cost 100.0 Net exports of goods & services –26.5 GDP at market prices 100.0

Principal exports 1988 $ m Principal imports cif 1988 $ m Re-exports 37 Consumer goods 115 Live animals 5 Food 67

Main destinations of exports 1994e % of total Main origins of imports 1994e % of total Somalia 39 Thailand 14 Ethiopia 34 France 14 Yemen 20 Saudi Arabia 12 Ethiopia 6 a Provisional. b IMF estimate. c UN figures, including refugees and expatriates. d Balance-of-payments basis. e Based on partners’ trade returns, subject to a wide margin of error.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Djibouti 37

Djibouti

Outlook

Factional politics will Despite the return of the ailing president, Hassan Gouled Aptidon, to Djibouti intensify— in March, there is little prospect of a slackening in the political struggle over the succession. The city-state’s minuscule political elite is taking increasingly entrenched positions behind the two principal candidates: Aptidon’s nephew,

Gross domestic product chef de cabinet and strongman of the government over the past four years, % change on previous year Ismael Omar Guelleh; and the increasingly marginalised Moumin Bahdon 4.0 Farah. Moumin Bahdon has been sacked from his post as justice minister and Djibouti 3.0 Africa dropped from the cabinet. He is now attempting to form his own party. This

2.0 struggle will continue to incapacitate both the ruling Rassemblement populaire

1.0 pour le progrès (RPP), which has been Aptidon’s principal tool of government (a) and patronage over the past 15 years, and the cabinet. However, analysing the 0.0 conflict as solely a tussle between Guelleh and Moumin Bahdon is misleading. -1.0 (a) The configuration of power within the Somali- community remains fluid, -2.0 and is likely to be swayed as much by material interests as personal rivalries, -3.0 with profits from trade and from access to renewed aid flows at stake. Similarly, (b) (b) -4.0 a durable political settlement aprés-Aptidon also requires a sustainable accord 1991 92 93 94 95 with those sizeable segments of the Afar population which have been alienated (a) Provisional. (b) IMF estimate. Sources: EIU; IMF, World Economic Outlook. over the past five years. They include an estimated 17,000 refugees from the north, currently exiled in Ethiopia.

—and the constitution Against this background, the formal politics of parties and constitutional rule is may be amended of secondary importance. However, if Moumin Bahdon is able to consolidate his post-Aptidon new grouping of dissident RPP members, and if elections are held in the wake of any presidential change, a further revision of the constitution will be necessary. It currently limits the number of political parties to four, and the breakaway faction of the Front pour la restauration de l’unité et de la démocratie (FRUD) has now registered as the fourth party. A further revision of the constitution, hastily altered under the twin pressures of France and the civil war in 1992, would be necessary to accommodate Moumin Bahdon’s group, and would in any event be desirable if a stable polity is to be constructed.

The power struggle may Relief among foreign donors at the eleventh-hour signing of an accord with the mar economic reform IMF risks turning to exasperation as the administration attempts to implement the ambitious reform programme. IMF and World Bank officials visiting Djibouti over the past few years have been simultaneously sceptical at the seriousness of reform intentions and perplexed at the ramshackle idiosyn- crasies of government finance and national accounting procedures. Given the aborted attempts at fiscal reform last year, and the manifest absence of political cohesion among the country’s senior politicians, the EIU has serious

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 38 Djibouti

reservations over the current administration’s ability to carry out the pro- gramme of budgetary cuts. It is likely that the bitter and increasingly personal- ised power struggles will take precedence over the smooth administration of the economic reform programme.

Review

The political scene

The ailing president The president, Hassan Gouled Aptidon, returned to Djibouti on March 4 follow- returns home— ing three months’ convalescence in France. The septuagenarian president had been taken seriously ill while attending the francophone summit in Benin in December (1st quarter 1996, page 37). A near-total silence over his medical condition fuelled speculation in both Djibouti and Paris that Aptidon would be unable to resume his official functions. Yet the wily president, who is officially aged 79 but whose precise age and mental soundness both give rise to specula- tion, again wrong-footed the obituary writers by returning after the end of Ramadan, stopping en route for a brief pilgrimage in Jeddah. In a public speech before an apparently adulatory crowd on his return, he mocked “those who alleged I had ended up in a coffin”. In reality, prolonged presidential absences are not unprecedented; in recent years Aptidon, like other members of Djibouti’s political elite, has taken to spending much of the summer in his private residence in France. What was unique this time was both the enforced nature of the séjour and the bitter rivalry over the presidential succession which the reports of Aptidon’s ill-health triggered.

—breaking the political The Council of Ministers and the executive committee of the ruling party, the stalemate— Rassemblement populaire pour le progrès (RPP), were effectively immobilised for three months by intrigues over the succession. To the relief of France and many , Aptidon’s return acted as a catalyst for public life, which had acquired a veneer of suspended animation during his absence, and for the private factional struggles bubbling beneath the surface. While spending much of his time in his palace at Arta, 40 km west of Djibouti-ville, he insisted upon “business as normal” in the minuscule city-state, notably with the signing of agreements with both the IMF and the French cooperation minister (see The economy). More delicate, and far less transparent, are Aptidon’s preferences and tactics in preparing for his successor. The heir-apparent, Ismael Omar Guelleh, appeared distinctly disadvantaged in the face of hostility from other Issa politicians when his uncle and patron was absent. Longstanding tensions had erupted even before Aptidon’s departure. In late November Guelleh had resigned in anger from the RPP executive committee. The committee was largely loyal to his principal rival, Moumin Bahdon Farah, and his ally, Ismael Guedi Hared, Aptidon’s directeur de cabinet.

—with a cabinet reshuffle Aptidon’s apparent endorsement of Guelleh was underlined by the an- nouncement of a major cabinet reshuffle three weeks after his return from France. Both Moumin Bahdon, who had been justice minister since his

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Djibouti 39

demotion from the post of foreign minister in February 1993, and Ahmed Boulaleh Barreh, the national defence minister, were summarily sacked on March 27. Abdullah Chirwa Djibril was named as the new minister of defence, and Hassan Farah Miguil now heads the justice ministry, which also has re- sponsibility for prisons and religious affairs. These changes are far more signif- icant than the last reshuffle of June 1995 which brought members of the Front pour la restauration de l’unité et de la démocratie (FRUD) into the cabinet.

Moumin Bahdon is the Moumin Bahdon is one of Djibouti’s most senior politicians, having continu- principal casualty— ously held a cabinet position since independence in 1977. His dismissal is the final act in his progressive marginalisation. His sidelining appears due to two, interlinked factors. His status as a senior and independently minded Somali- Issa politician poses a threat to the ambitions of Guelleh to replace Aptidon. Since the outbreak of the civil war with FRUD in 1991, Moumin Bahdon has been critical of the hardline strategies of Guelleh, constantly raising the risks associated with a policy which effectively alienated much of the Afar popul- ation while dividing Djibouti’s Somali-Issa community. Both the new ministers are perceived as relatively pliant towards the demands of Guelleh. With his own man at defence, Guelleh, who personally controls the police and paramili- tary forces, has a more assured command over the country’s security forces. The cabinet change was not entirely unforeseen. Moumin Bahdon and his cabinet ally, along with Guedi, were pointedly absent from the official Eid el Fitr celebrations which marked the end of Ramadan in Djibouti on February 20, highlighting the public feud between the factions.

—and looks to form his On April 22, one month after his dismissal as justice minister, Moumin Bahdon own party— announced the creation of a new parliamentary grouping, the Groupe pour la démocratie de la république (GDR). The GDR includes 13 of the 63 current deputies who make up the Assemblée nationale (parliament). The first “multi- party” polls in Djibouti, in December 1992, produced an assembly no more representative than the previous assembly, as it was composed solely of depu- ties loyal to the RPP, of which Moumin Bahdon legally remains the head. On April 24 the chairman of the assembly announced that the constitution of the GDR was illegal. He stated that deputies are forbidden from belonging to two political formations simultaneously, implying that the dissidents should resign their posts in the RPP if they wished to remain in the GDR.

—but is thwarted The creation of the GDR raises thorny constitutional problems. Its formation indirectly by a FRUD came after the legalisation of a faction of FRUD as the country’s fourth political faction— party. The current constitution, amended in 1992, allows for only four political formations. On March 9 the interior minister, Idris Harbi Farah, had an- nounced that the faction of FRUD co-opted by the government in 1994 had been granted permission to transform itself into a political party. The meta- morphosis from armed rebel faction to political party had been anticipated since the first anniversary of the “peace accord” which brought the two rene- gade members of FRUD into the cabinet (1st quarter 1996, page 38).

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 40 Djibouti

The proposed party is, unsurprisingly, also to be called FRUD. This is essential for the credibility of the FRUD faction leader and agriculture minister, Ougoureh Kifle Ahmed, and for the government. Having split the front and reached an accord with one faction within it, the cabinet and Guelleh claimed that the country’s three-year civil war was at an end and that donor financial assistance, suspended during the conflict, could resume. The participation of the Ougoureh group of FRUD in the government is necessary if the distinction between the rival factions led by Ougoureh and Ahmed Dini, whose partisans remain in exile, is to persist. The announcement of an impending “congress” of the em- bryonic party attracted little interest. Indeed, Ougoureh and his colleague, the health minister, Ali Mohamed Daoud, and are likely to maintain their low profile. In the eyes of many Afars they have “sold out” to the predominantly Somali-Issa, governing clique. As if the FRUD family was not already divided, another former senior figure in the front, Ibrahim Chehem Daoud, was reported in mid-March to have established a third faction, FRUD-renaissance, allegedly to mark his differences with Mr Dini’s leadership of the rejectionist faction.

—which revives the FRUD-Ougoureh thus becomes the fourth legal political entity allowed under mirage of “multiparty the 1992 constitution. Alongside the ruling RPP and the newly legalised FRUD, politics” the other two recognised parties are the Parti pour le renouveau démocratique (PRD) and the Parti national démocratique (PND), headed respectively by a former finance minister, Mohamed Djama Elabe, and by Aden Robleh Awaleh. On March 19 Mr Dini predictably condemned the legalisation of the faction which broke from the organisation he led in 1994 as “completing the pseudo- democratic pluralism” in Djibouti.

The government alleges The increasingly convoluted domestic intrigues provided the backdrop for an an Eritrean incursion— improbable international incident on April 16 when the Djiboutian govern- ment accused Eritrean forces of having made a 7 km incursion into its territory following a clash at the Djiboutian border post of Ras Doumeira. Within two days these claims had grown into accusations that the Eritrean government harbours a territorial claim to part of Djibouti’s northern coastline. The allega- tions were then made by the foreign affairs and cooperation minister, Mohamed Moussa Chehem, to his perplexed Eritrean counterpart, Petros Solomon, who was on an official visit to Djibouti the following day. Mr Solomon subsequently met with the president, who also raised the alleged incursion. In a series of contradictory accounts, the Djiboutian authorities later claimed that they had dispatched 600 troops to the area. Aptidon reportedly visited Ras Doumeira to talk with military commanders, although the post was previously reported to have been unmanned. Later the focus shifted from the mysterious incursion to a map, which Mr Solomon was said to have produced during his visit. According to the Djiboutian foreign ministry, the offending map purported to show that Eritrea was claiming 496 sq km of the Djiboutian coastline between Ras Doumeira and Moulhoule, which lies 16 km within Djibouti.

—which is denied in On April 18 Mr Solomon stated categorically in a press statement that “there Asmara has never been any clash or incident in Doumeira”, adding that the Eritrean government was “surprised and saddened” by the allegations. He made no mention of the alleged map, and there was no attempt to expand on the

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Djibouti 41

content of a letter sent by the Eritrean president, Isaias Afewerki, to the Djibou- tians. The incident comes amid not only Djibouti’s internal power struggle but also Eritrea’s tussle with Yemen over the Hanish islands, which are located less than 100 km from Ras Doumeira and strategically overlook the southern straits of the Red Sea. France is the guarantor of Djibouti’s external security, and has been mediating between Eritrea and Yemen. In its submission to the French envoy charged with mediation, François Gutmann, the Eritreans have called for the demarcation of regional maritime boundaries. In the context of the rumoured map, this would seem a pragmatic request. Explanations in Asmara as to why the Djiboutians appear to have created an international incident are numerous (see Eritrea: The political scene).

The French navy clamps Considerable publicity was given in France to a recent operation by the French down on pirates— navy to combat pirates operating in the southern stretches of the Red Sea and the Gulf of Aden. A patrol boat based out of Djibouti, accompanied by a squadron of inflatable dinghies and divers, reportedly undertook a mission to patrol international waters in the Gulf of Aden. The French ostensibly re- mained outside Somalia’s territorial waters, although the upsurge in piracy is in large part due to the inability of the authorities in the self-styled Somaliland Republic to maintain any pretence of control over their coastline. The London- based International Maritime Organisation reported 15 cases of piracy from the region in 1995, against both commercial and pleasure vessels. This flexing of French naval muscle should be seen in the context of increasing attention on the importance of Red Sea shipping lanes, as well as of the detention of two French couples by the Eritrean authorities, apparently for unauthorised entry into Eritrean coastal waters.

—while the Djiboutians Djibouti’s own minuscule navy has claimed that an operation mounted in late catch the Red Sea sharks March to apprehend boats fishing illegally in its waters had been successful. Several vessels were boarded in the Gulf of Tadjourah, and 30 Yemeni and Somali fishermen were reportedly arrested. The authorities claimed that some of the apprehended vessels specialised in the capture of sharks, selected parts of which were then sold to dealers in the Far East.

The economy

An accord is concluded On April 15 an agreement was finally concluded between Djibouti’s finance with the IMF— and economy minister, Mohamed Ali Mohamed, and the IMF over the provi- sion of the first-ever stand-by credit for Djibouti. The accord was signed only after months of protracted negotiations and delegational shuttles between Washington, Paris and Djibouti. The Djiboutians were reportedly assisted with the minutiae of the agreement by a former Malian finance minister, Oumar Kassogué. For the past two years France has insisted upon a deal with the Fund as a prerequisite of any further French concessional finance. Djibouti will have access to SDR4.6m ($6.6m) within a comprehensive reform programme to be implemented between April 1996 and July 1997. Djibouti, which became a member of the IMF in 1978, has a total IMF quota of SDR11.5m ($16.6m).

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 42 Djibouti

—necessitating further The government’s signature of a letter of intent commits it to wide-ranging and fiscal austerity— long-overdue reforms to its dilapidated economy. The first task is to rein in runaway government expenditure. Failure to reduce spending, particularly on current wage costs, has been a persistent theme of negotiations with France since the late 1980s. However, the fiscal crisis was exacerbated by the cost of the 1991-94 civil war. The present austerity plan envisages a reduction of the budget deficit, from an estimated 11.7% of GDP in 1995 to 6.1% this year. This is to be achieved principally by a reduction in civil service expenditure and the demobilisation of the bloated armed forces. Demobilisation is to be carried out under a World Bank-supervised scheme, although the French authorities still appear to have reservations about the current plan. The planned reduction in the budget deficit will be supported by the new revenue-raising measures an- nounced in the 1996 budget (1st quarter 1996, page 40). Although overall expenditure is set to fall, the IMF claims that the austerity plan will allow an increase in expenditure on health and education.

—and structural reforms— The adjustment plan also envisages a series of medium-term reforms. These include the managerial and financial overhaul of Djibouti’s five principal para- statals: the port, airport, electricity, water and telecommunications companies. The development of the country’s principal economic asset, the Port autonome international de Djibouti, will be more closely linked to infrastructural changes designed to enhance its competitiveness for goods in transit to Ethiopia. Initial tariff reforms were announced in January. Fresh private-sector reforms are also set out in the plan and, possibly with an eye to the success of last September’s general strike, labour codes are scheduled to be reformed. A statement from the IMF suggests that, if successfully implemented, the changes could lay the foun- dations for more substantial medium-term economic reforms which would then be eligible for support under the three-year, low-cost Enhanced Structural Adjustment Facility (ESAF).

—which may prove The curious mixture of weary relief and triumph with which the IMF and beyond the government subsequent French financing agreements were greeted leaves seasoned Djibouti analysts sceptical. The anodyne announcement of the Fund makes no refer- ence to last August’s botched attempts at a fiscal overhaul. These reforms, while only partially fulfilling the demands of donors, triggered a general strike and a prompt retraction of most of the proposed changes. Nor does there appear to be much public concern over the ability of a weak, faction-ridden government to implement such far-reaching reforms.

Such political considerations come on top of the generally weak technical capa- bilities of the government, particularly in statistical gathering and financial auditing. Under the current reform package, these problems may be partly ad- dressed by IMF technical assistance and French expertise. Three additional senior French experts are scheduled to join the reform effort: one advising the transport and communications ministry, one improving economic statistics and the third working on the revision of the country’s labour laws. Together they may ease logistical problems in the short term, but are unlikely to overcome the problem of developing a technically competent and politically confident cadre of Djiboutian experts. In the past skilled Djiboutian economists and civil ser- vants have often been sidelined for political or clan reasons.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Djibouti 43

The IMF deal unlocks In a coordinated move, the announcement of the stand-by credit by the IMF French aid— coincided with the visit to Djibouti by the French cooperation minister, Jacques Godfrain. The visit was the first by Mr Godfrain to Djibouti, and was designed to relaunch French financial cooperation with its former colony. Mr Godfrain had previously met the president in France, both last July and during his convalescence in February. Over the past two years France’s relations with Djibouti have been formally strained due to the civil war and Djibouti’s reluctance to embrace an IMF-inspired economic reform plan. However, the visit of the defence minister, Charles Millon, in January paved the way for a full resumption of financial assistance. With his Djiboutian counterpart, Mohamed Moussa Chehem, Mr Godfrain signed a series of bilateral agreements for project assistance. These include FFr6.8m ($1.3m) for HIV/AIDS prevention, FFr10m to strengthen the educational system and FFr13.2m for specific infrastructure projects, particularly clinics and schools. It is envisaged that several of the new infrastructure projects will be “post-war rehabilitation”, restoring installations in the north damaged during the civil war.

—as Mr Godfrain stresses Mr Godfrain’s trip and numerous speeches were tailored to reassure both French continuity and Djiboutians of France’s commitment to the former colony. Despite the brevity of the stay, he visited numerous French-funded projects, including those in outlying Einguela and . French aid to Djibouti, excluding military expenditure, is officially put at FFr162.5m for 1996, including the salaries of 228 French technical assistants and scholarships for Djiboutians studying in France.

Strikes in the state sector Despite optimism in government circles that agreement with donors will relieve persist short-term fiscal headaches, civil servants and schoolteachers, who have faced many months of delay in the payment of salaries over the past three years, remain unconvinced. On April 2 the head of the secondary schoolteachers’ association claimed that many teachers had still not received back pay owed to them and that further strike action was likely. Schoolteachers were at the fore- front of the general strike in September, and relations between staff and admin- istrators in many educational establishments remains tense (4th quarter 1995, pages 44-45).

A revival of the refinery Unconfirmed reports in mid-April in the daily al-Sharq al-Awsat suggest project is mooted that the moribund plans to build an oil refinery in Djibouti may be revived. The Rawafid Investment Company, which groups several, primarily Saudi in- vestors, is said to have resurrected the project, which had been suspended since the outbreak of the civil war in 1991. Work had begun clearing a greenfield site on the southern coast of the Gulf of Tadjourah, to the west of Djibouti-ville. Several villas and access roads had been constructed before work was sus- pended. The principal backer of the project is a Saudi businessman, reportedly Halim Faris Al-Rahabani. The original plans anticipated the construction of a refinery with a capacity of 100,000 barrels/day. This is far in excess of Djibouti’s needs, and it was assumed that the refinery was conceived as an alternative to the installations in Assab, currently supplying Ethiopia as well as Eritrea. How- ever, there were also suspicions that the project could have been developed as a way of refining Saudi crude without it being included in OPEC quotas.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 44 Statistical appendices

Appendix 1

Quarterly indicators of economic activity in Ethiopia

1993 1994 1995 1996 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Production Annual totals Coffee ’000 tons 180a ( 198a ) ( n/a ) n/a Prices Monthly av Consumer prices, Addis Ababa: 1990=100 152.3 155.3 167.1 171.3 174.8 178.1 191.4 n/a 177.9 n/a change year on year % –2.6 1.1 5.2 9.4 14.8 14.7 14.5 n/a 1.8 n/a Money End-Qtr M1, seasonally adj: Birr m 7,541 7,710 8,100 8,583 9,127 9,194 9,547 9,609 9,374 9,464b change year on year % 4.0 29 9.1 16.1 21.0 19.2 17.9 12.0 2.7 n/a Foreign trade Qtrly totals Exports fob Birr m 245.3 271.8 515.8 549.3 725.4 468.2 n/a n/a n/a n/a Imports cif “ 1,290.3 1,148.5 1,401.8 1,582.4 1,525.3 1,431.2 n/a n/a n/a n/a Exchange holdings End-Qtr National Bank: goldc $ m 31.7 32.6 32.5 32.7 33.1 32.1 32.9 32.9 32.7 33.9 foreign exchange “ 445.9 546.2 542.7 464.0 533.6 618.3 594.3 724.8 760.8 818.2 Exchange rate Market rate Birr:$ 5.00 5.00 5.66 5.60 5.95 5.94 6.25 6.30 6.32 6.35d

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Estimate. b End-January. c End-quarter holdings at quarter’s average of London daily price less 25%. d End-February.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Statistical appendices 45

Appendix 2

Quarterly indicators of economic activity in Somalia

1987 1988 1989 1990 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Prices Monthly av Consumer prices, Mogadishu: 1985=100 188.6 224.5 282.2 350.8 408.8 454.8 585.0 707.1 857.6a n/a change year on year % 33.5 46.3 63.1 93.6 116.8 102.6 107.3 101.6 n/a n/a Money End-Qtr M1, seasonally adj: SoSh bn 28.81 30.98 34.47 39.43 43.27 55.11 77.84 98.73 132.66 142.72 change year on year % 144.8 145.2 147.1 135.6 50.2 77.9 125.8 150.4 206.6 159.0 Foreign trade Annual totals Exports fob SoSh m 10,899.8b n/a n/a n/a n/a n/a n/a n/a n/a n/a live animals “ 7,300.8b n/a n/a n/a n/a n/a n/a n/a n/a n/a Imports cif ” 13,913.7b n/a n/a n/a n/a n/a n/a n/a n/a n/a Exchange holdings End-Qtr Foreign exchange $ m 7.3 10.8 12.8 9.9 15.3 15.2 11.5 11.5 15.4 11.4 Exchange rate Market ratec SoSh:$ 100.0 100.0 180.0 252.0 270.0 340.0 487.4 582.0 929.5 1,106.0c

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Average for October-November. b Total for 1987. c Source FT from end-4 Qtr 1993. End-4 Qtr 1993, 2,615.6; end-1 Qtr 1994, 2,618.1; end-2 Qtr 1994, 2,629.9; end-3 Qtr 1994, 2,624.2; end-4 Qtr 1994, 2,618.3; end-1 Qtr 1995; end-4 Qtr 1995, 2,620.0; end-1 Qtr 1996, 2,620.0.

Appendix 3

Quarterly indicators of economic activity in Djibouti

1993 1994 1995 1996 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Money End-Qtr M1, seasonally adj: Dfr bn 37.19 37.40 36.88 37.92 38.42 37.99 36.77 36.22 37.41 n/a change year on year % 4.1 4.1 1.6 3.0 3.3 1.6 –0.3 –4.5 –2.6 n/a Foreign tradea Annual totals Exports fob $ m 81 ( 89 ) ( n/a ) n/a Imports cif “ 438 ( 412 ) ( n/a ) n/a Exchange holdings End-Qtr Foreign exchange $ m 74.9 85.0 79.3 84.5 73.6 67.9 75.5 72.7 72.1 70.6b Exchange rate Market rate Dfr:$ 177.72 177.72 177.72 177.72 177.72 177.72 177.72 177.72 177.72 177.72

Note. Annual figures of most of the series shown above will be found in the Country Profile. a DOTS estimate. b End-January.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 46 Statistical appendices

Appendix 4

Ethiopia: trade with major trading partners ($ m) Jan-Dec Jan-Dec Jan-Deca Jan-Deca Jan-Dec Jan-Dec Jan-Deca Jan-Deca Imports cif 1991 1992 1993 1994 Exports fob 1991 1992 1993 1994 Italy 48 127 190 162 Germany 48 27 46 80 USA 62 274 151 157 Japan 38 40 42 61 Germany 54 101 114 117 USA 8 8 21 33 Saudi Arabia 47 148 85 87 Italy 11 18 32 32 UK 26 104 95 81 UK 5 21 18 18 Japan 45 51 78 80 France 11 14 10 15 Belgium-Luxembourg 10 56 35 38 Djibouti 7 8 10 11 Sweden 20 12 32 37 Belgium-Luxembourg 8 1 9 10 Total incl others 472 1,263 1,138 1,125 Total incl others 167 178 242 304 a Derived.

Appendix 5

Somalia: trade with major trading partnersa ($ m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports cif 1991 1992 1993 1994 Exports fob 1991 1992 1993 1994 Kenya 12 33 45 51 Saudi Arabia 25 50 60 70 Djibouti 26 28 33 38 Yemen 16 18 22 25 USA 8 23 34 33 Italy 13 12 7 16 Saudi Arabia 3 6 31 32 UAE 19 12 7 8 Italy 40 22 29 16 Pakistan n/a 1 1 2 UK 67613China 111 1 Total incl others 160 217 263 269 Total incl others 85 103 102 130 a Derived.

Appendix 6

Djibouti: trade with major trading partnersa ($ m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports cif 1991 1992 1993 1994 Exports fob 1991 1992 1993 1994 Thailand 6 34 41 57 Somalia 23 26 30 35 Saudi Arabia 11 31 50 51 Ethiopia 20 22 26 30 Ethiopia 18 20 13 26 Yemen 12 13 16 18 Italy 14 29 28 24 Total incl others 64 69 81 89 Total incl others 215 477 438 412 a Derived.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996