RESTRICTED

FILE COPY Report No. AF-38

Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized

CURRENT ECONOMIC POSITION

AND PROSPECTS OF

ETHIOPIA

Public Disclosure Authorized FILE COPY

October 29, 1965 Public Disclosure Authorized

Africa Department EQUIVALENTS

Currency Currency Unit: Ethiopian $

Eth. $2. 50 = U.S. $1.00 Eth. $1. 00 = U.S. $0. 40 Eth. $1 million = U.S. $400,000

Weights Weights are expressed in metric tons unlless otherwise stated.

Area

1 hectare = 2.471 acres

Time The Ethiopian calendar year begins on September 11. In order to simplify the report the Gregorian calendar has been used unless otherwise stated. INTERNATIOANAL BANK FOR RECONSTRUCTIOiV AND DEVELOPM41ENT

CONFIDENTIAL

R65-169/1

FROM: The Secretary November 12, 1965

ETHIOPIA

With regard to the report entitled "Current Economic Position

and Prospects of Ethiopia" (AF-36) dated October 29, 1965, which was

circulated on November 4, 1965 (R65-169), the second sentence of

paragraph 52 thereof should read "Total investment remained about 20% below the Plan targets and the shortfall was very serious in the dominating agricultural sector where monetary investments were around

50% of the targets and where progress with respect to other measures

embodied in the Plan - e.g. agrarian reform ancd considerable expansion

of agricultural services - remained very limited."

Distribution:

Executive Directors and Alternates President Ptesident' s Council Executive Vice President, IFC Department Heads (Bank and IFC) CONTENTS

Page

BASIC DATA

iMAP

SUIH1ARY ANID CONCLUSIONS

I. INTRODUCTION ...... 1

II. RECENT DEVELOPMENTS .. .* ...... 1

A. Production ...... e@e@Xss*@ 1 Gross Domestic Product ...... 1 Agriculture ...... 2 Industry ...... 4 Transport and Communications 6 B. Investment 7...... oo*********7 Co Finance *...... *...... * 11 Internal Finance ...... *... **.... 11 External Finance .o*ooso#*s*o* **.. o*o*o* 13

III. PROSPECTS FOR ECONO,IC GROWJTH so7...... 7

A. Production and Investment 17 B. Finance ...... 19 Internal Finance 19 .External Finance, Creditworthiness ...... 19

ANNEX I': Projections

STATISTICAL A,UTEX BASIC DATA

AREA: 450,000 square miles

POPULATION: 22 million Rate of growth: 1.8% Population density 49 per square mile

POLITICAL STATUS: Independent since ancient times.

GROSS NATIONAL PRODUCT (1962/63, prel.) US$ 880 million Rate of growth (long term) 3.5% (recent year) 3.8% Per capita (1963) US$ 40

GROSS DOMESTIC PRODUCT AT FACTOR COST (1962/63 prel.) Eth$ 2,210 million of which, in per cent, Agriculture: 70 Mining, Manufacturing and Power: 2

PER CENT OF GDP AT MARKET PRICES: 1962/63 1957-62 Gross investment (monetary only) 9 7 Gross savings 6 5 Balance of payments current account deficit 3 2 Government revenues 10 8 Investment income (net) 1 1

RESOURCE GAP AS % OF INVESTMENT: 33 30

MONEY AND CREDIT: (Eth$ million) 1964 1952-64 Total money supply 3(v.2% Time and savings deposits 68.6 19.7% Commercial Bank credit to private sector 157.5 25%

PUBLIC SECTOR OPERATIONS: (in Eth$ million) 1965/66 Rate of change in 1960/61-1965/66 Government receipts 298 9% Government recurrent expenditures 3'72 9% Deficit '74 Government capital expenditures '78 16% Total external assistance to public sector 124 n.a. (incl.countervalue of technical aid) - 2-

EXTERNAL PUBLIC DEBT:(in US$ million) December 1964 Total debt 114 Total annual debt service 10.7 Debt service ratio 10%

BALANCE OF PAYMENTS:(in US$ million) 1964 Rate of change in 1958-1964 Total exports 105 9% Total imports 109 9% Net invisibles -5 Net current account balance -.9

Commodity concentration of exports(coffee) 60% 50%(av.1958-64)

Gross foreign exchange reserves 76 60 (av.1960-64) or 8 months imports | y@s !\ . s X~~~~~~~~~~~~~~~~~~~~~~AU D I

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A :23GAD K E N..__ y 8Dl8 MAY 1963 Summary and Conclusions

1. Though in some sectors of the Ethiopian economy - e.g. industry, power and transport - encouraging signs of progress can be observed, the overall rate of growth of gross domestic production is still rather low, viz. 3.8% per annum, but thanks to a relatively slow growth of the population it is about 2% per annum on a per capita basis.

2. Serious structual impediments continue to stand in the way of a more rapid development of the all-important agricultural sector. The bulk of agricultural production is still carried on in a traditional, primitive way, often on a mere subsistence level, and its expansion is strongly hampered by the prevailing system of land tenure and landlord- farmer relationships which gives little, if any, incentive to the farmer- tenant to increase his production. Thus far, little progress has been made with land reform. Some expansion of agricultural services took place, but the smallness of the extension service and of the agricultural cooperative system, as well as the absence of an agricultural credit system and the limited marketing system, still hamper development in agricultural production and in animal husbandry. However, the fertile soil, the range of climate and the level of rainfall indicate a con- siderable, if still unrealized, potential. Greatly intensified efforts to overcome. these impediments undoubtedly would be a crucial element in accelerating Ethiopia's economic growth.

3. Industrial output is still very small in relation to total GDP, viz. not yet 2%, but it is growing at a rate of about 13% per annum. The expansion of the textile industry and of several food industries in particular was most encouraging. The plans for a number of large factories are in an advanced stage and others are under execution. Generation of electric power has been greatly expanded and sales went up by about 30% p.a. As a result of the expansion and improvement of the road system, transportation costs in several key areas, have decreased substantially, and areas of subsistence agriculture have been brought into the money economy.

4. Gross fixed investment in recent years remained on the low side, amounting to about 11% of GDP, including investment in kind of some Eth$ 50 million p.a. Monetary investment in 1964/65 is estimated at Eth$ 210 million, of which Eth$ 100 million is private, The latter amount is much less than hoped for in the Second Five-Year Plan, which assumed that entrepreneurship and financing would be more amply supplied from abroad than proved to be the case. Government investment dropped from Eth$ 109 million in 1962/63 to Eth$ 83 million in 1963/64; and 1964/65, and this was accompanied by a fall in public capital inflow from Eth$ 65 million to Eth$ 23 million. To a large extent this was due to lack of well-prepared projects, while insufficient co-ordination in and between Government levels was also not conducive to the implementation of development projects. Moreover,the generation of public savings has been hampered in recent years by a considerable increase in current expenditures - mainly those on security. ii 5. IHission estimates suggest that the execution of a reasonable pro- gram, comprising the main projects on which Government and Public Corpora- tion have focussed their attention for development in the various sectors, would require a gradual increase of the present annual public investment volume of Eth.$110 million to roughly some Eth.$150 milliorl in 1970/71. This would, however, also necessitate a considerable rise in external aid.

6. Since Government capital expenditures have been on the low side :in recent years, while at the same time the favorable revenue effect of the sharp rise in exports and imports on the collection of custom duties offset to a large extent the increase in recurrent expenditures, overall deficits in fiscal operations remained rather small: Eth.$7 million in 1963/64 and Eth.$16 million in 1964/65 ("lexpecteel actual"). The Budget for 1965/66 shows an overall deficit of Eth.$27 million, but this may well turn out to be much smaller.

7. Until 1964 monetary expansion appears to have been reasonably commensurate with the growth of the economy and its increasing monetiza- tion. In 1964 a large surplus in external payments and a sharp rise in bank advances to the private sector caused an increase of over 20% in money supply, and there are indications that this has led to upward pres- sures on domestic prices. However, the rather liberal import policies pursued by the Government are likely to offset such pressures.

8. There has been a substantial improvement in Ethiopia's foreign exchange position in the past year. In the period 1960-63 the continuing downward trend in coffee prices adversely affected the value of exports, but due to a favorable rise in volume total exports increased by 23%. :Imports went up by 32% but foreign financial assistance more than com- pensated for the ensuing deficit on goods and services, and foreign exchange reserves increased by Eth.$38.5 million in that period. The sharp rise in coffee prices, combined with a larger quota for Ethiopia under the International Coffee Agreement led to a further increase of reserves of Eth.$26.8 million in 1964, so that they stood at Eth.$181 million (net; = US$72 million) at the end of that; year. Adding Eth.$13 million treasury gold holdings, this represents 71½ times average monthly c.i.f. imports in 1964.

9. The balance of payments position will remain heavily dependent on coffee exports in coming years, although there are reasonable prospects for a rise in exports of oilseeds, fruits, vegetables and livestock products and possibly potash. It cannot be expected, however, that the value of coffee exports will significantly surpass their present high :Level and on the medium term the rise in total exports is likely to be slower than in the past years.

10. External public debt amounted to US $114 million at the end of L964 of which only US $54 million had been disbursed by that date. Servicing on this debt will be highest in the period 1965-69 when iii it will average per annum about 10% of 1964 exports. However, higher investment in coming years to accelerate economig growth and to raise per capita income more rapidly above its present low level of US$ 40 will presumably be accompanied by an annual foreign capital inflow, substantially larger than hitherto. This may significantly increase the ratio of debt servicing to exports within one decade unless part of the future foreign capital requirements can be obtained on soft terms. I. fIJTRODUCTION

1. The purpose of this report is to review the salient economic events and trends in the Empire of Ethiopia since the Bank's last report "The Economy of Ethiopia", No. AF-12a, of September 30, 1963, and to assess their significance for economic and financial development in coming years.

2. Although no fundamental changes took place in the governmental and administrative structure described in the 1963 report, several new agencies have been established such as the Technical Agency for project preparation and supervision, the Land Reform and Development Authority, the Grain Corporation, the National Livestock and Meat Board and the Investment Bank of Ethiopia, which may become increasingly important for economic development. However, despite such institutional improve- ments, insufficient coordination in and between levels of government still hampers the implementation of development projects and measures. The mission also gained the impression that the position of the Plannig Office does not yet enable it to carry enough weight to delineate and follow through on government development policy as outlined in the Second Five-Year Plan (1962/63-1966/67). This is, for instance, very apparent in the dominating agricultural sector to which the Plan attaches great importance.

II. RECENT DEVELOPIENTS

A. Production

Gross Domestic Product

3. Though in some sectors of the Ethiopian econonm - e.g., in industry, power and transport - encouraging signs of progress can be observed , total GDP grew relatively slowly in recent years, viz. 3.8% per annum. Serious structural impediments such as the archaic system of land-tenure and the outdated, primitive methods of cultivation, continued to prevent an acceleration of the growth of production in the all-important agricultural sector.

4. The Planning Board ts provisional estimate of Ethiopia's GDP for 1962/63 comes to Eth.$2,210 million (GNP: Eth.$2,200 million) or, given a population estimate of 22 million, to about Eth.$100 (US$40) per head. This is an increase of 3.8% over the final figure of Eth.$2,130 million for 1961/62. It is believed that the rise was larger in 1963/64, viz. about 5%, mainly as a result of the sharp increase in the value of coffee exports, but despite this it is doubtful whether the average growth rate over the whole SecondPlan period (1962/63-1966/67) will reach 4% per annum. Though this would be somewhat below the Plan target of 4.3%, it would be an improvement compared to the actual average annual increase of 3.4% in the First Plan period (1956/57-1961/62). - 2 -

5. The annual growth of population is estimated at 1.8%, so that, despite the relatively slow rise in overall production, per capita GDP is presently increasing by about 2% per annum.

6. Table 2 in the statistical annex gives the distribution of GDP in 1961/62 over sectors. Such a distribution is not yet available for 3962/63.

Agriculture

7. Recent developments in this major sector, which accounts for about 70% of GDP, have been far from spectacular.

8. As pointed out in the Bank's 1963 report, the growth of agricul- ture production is hampered by the system of land tenure that prevails over large areasj under which the farmer is a tenant, possessing little or no security of tenure and producing on a share-cropping basis - the share to be paid by him may even come as high as one-half to two-thirds of the crop - while investments made by him normally belong to the land- lord.

5P. Although the Emperor and the Government are well aware of this problem, little progress can as yet be reported. A land policy project was completed in 1964 with technical assistance by FAO experts and the Government began to explore the possibilities of financial assistance to implement a cadastral survey for land registration, requiring Eth.$13 rmllion. IBRD was approached for this, but it is considered that a project of this type does not easily fit into the operations of the Bank, However, it would appear that the introduction of changes in landlord- tenant relationships or of certain land tax revisions should not neces- sarily have to wait for the carrying out of a sophisticated cadastral survey. Only recently, in June 1965, the Government established an auto- nomous agency for dealing with all responsibilities in the field of land reform.

10. Outdated cultivation methods, with poor quality seed and lack of adequate extension services, also continued to retard the growth of agricultural production. The Ministry of Agriculture has an elaborate program for expansion and intensification of extension services, research, plant production and protection, but its execution is hampered by lack of funds. The inadequacy of extension services also prevents the growth of agricultural credit. At the request of the Government, an IBRD-FAO mission will visit the country to advise on this matter.

11. Improvement of the marketing system and of transport facilities is another important factor for stimulating agricultural development. In 1963 the Grain Corporation was established to bring more stability in grain prices. The Corporation has completed silos With a capacity of 18,000 tons, but insufficient funds were made available for purchase of grain. Arrangements have now been made by the Ministry of Agriculture with the UN World Food Program for a grant of 6,000 tons of wheat to be used as a revolving stock. Execution of the road program (see section "Transport") has led to substantial reduction of transport costs of agricultural produce for several regions and the easier access to markets seems to be stimulating commercial production.

12. 1Modern large-scale production is still relatively small in the agricultural sector. However, it has been rapidly growing in recent years. Outstanding examples are sugar and cotton cultivation. The former, started some 10 years ago on the Awash River by foreign investors, has now reached about 65,000 tons per year. This more than covers domestic consumption, estimated at about 55,000 tons (import-substitution of Eth. $13 million) and Ethiopia has now become a small exporter of sugar. The rapid increase in cotton production can be mainly attributed to the suc- cess of the Tendalo Plantations - also initiated by foreign investors - and the Assaita peasant production schemes. Their output has now reached about 4,500 tons, representing an import substitution of Eth.$7 million.

13. Complete and reliable statistical data for agricultural produc- tion are not available. The estimates in Table 3 of the Statistical Annex may however serve to give a rough picture of area and output of major crops. Grains (teff, sorghum, barley, corn and wheat) and pulses (peas, beans and lentils) remain the most important food crops, while coffee mn'aintained its position as Ethiopia's main cash crop. Another important product is oilseeds. Fruits and vegetables grow well in Ethiopia but their production is as yet small.

L4. The animal wealth of Ethiopia is impressive (see Table 4, Sta- tistical Annex). Some progress has been made in recent years towards more commercial exploitation and towards improvement of methods of live- stock production. Surveys were completed in the nomadic areas, several breed improvement stations were brought into operation, a veterinary assistants school was established and slaughtering houses were con- structed.

15. With the exception of coffee, only a relatively small part of agricultural production is exported. However, the export volume of some products like oilseeds, fruits and vegetables and livestock products is developing favorablys 4

Growth of the Volume of Main Agricultural Export Commodities

Commodity Quantity value in constant (in 000 tons; skins in 000 pieces) 1960 prices (Eth.$ million)

1960 1961 1962 1963 1964 1960 1964

Coffee 51.3 56.0 62.6 66.7 70.2 94,4 129.2 Cereals and pulses 68.1 81.3 72.6 75.6 65.0 22.5 21.4 Oilseeds 45.0 51,3 56.8 84.9 76.0 16e5 27.9 Chat 2.5 3.8 3.9 4.8 2.0 74.1 5.6 Fruits, vegetables 10.1 14.1 14.8 23.0 24.0 3..2 7.7

Cattle hides 9.8 8.1 7.3 6.7 4.3 7.7 3.4 Goat & sheep skins 5.4 6.9 6.3 7.7 8.2 e108 16.4 Meat 3.4 2.6 2.4 3.9 5.3 4.7 7.3

Source: Trade returns Customs Administration in Quarterly Bulletin of National Bank; 1964 prel.

Industry

16. Output of modern manufacturing is still very small in relation to total Gross Domestic Product, viz. 1.7% only (when including power, mining, construction and crafts it is slightly over 8%). It is, however, growing at a rate of about 13% per annum as the following figures show (for 1964 a further rise of some 15% is expected).

Indices for Industrial Production (1955-= 100) 1958 1959 1960 1961 1962 1963 prel.

1. ianufacturing: Foods 122 129 155 141 146 180 Beverages, tobacco 121 142 160 189 198 221 Textiles 124 133 185 231 305 323 Other 113 94 112 127 144 148 Total Manufacturing 124 128 160 172 197 221 2. Electricity (public utility and indust- rial firms) 135 155 178 215 261 304 Total manufacturing and Power 123 128 158 172 199 266 Source: Statistical Abstract, 1964 (for details see Table 5, Statistical Annex). Although this increase is encouraging, it is also clear that even if manufacturing continues to grow at the current rate, the sector will probably not have reached 3% of GDP at the end of the sixties.

17. Government is promoting private investment - foreign and domestic - in several ways, e.g., by tax advantages, easing import of machinery, liberal allowances for transfer of profits and capital and establishment of an Investment Bank. It is at present broadening the scope of the Investment Decree of 1963 with the aim of promoting a wider range of industries. On the other hand it should be mentioned that the limited usable funds available to the Investment Bank do not yet allow it to enter into large-scale operations and that potential investors meet a good deal of administrative and similar difficulties in obtaining all necessary permits. The execution of projects in the public sector has also been delayed in several cases. The 500,000-ton capacity oil refinery at Assab Port, for instance, which requires total investments of about Eth.$40 million and financed by the USSR, is not expected to be completed before next year.

18. Several other large projects are presently under construction or seriously considered, e.g., a woollen factory (investment US$ 1 million), a cement factory at lHassawa (another cement factory in Addis Ababa was completed in 1964), a paper factory (investment US $8.7 million), a syn- thetic fibre plant (US $16 million), a third sugar factory and an expansion of the Cotton Company of Ethiopia.

19. Generation of electric energy by the Ethiopian Electric Light and Power Authority has been greatly expanded in recent years. Sales increased by about 30% p.a. on an average in the last six years. Demand continues to rise rapidly and the Authority has obtained a loan of US $23.5 million from IBRD to assist in the financing of a $35 million investment in the construction of two hydro power plants of 32 MW each on the Awash River, which will more than double the present generating capacity to a yearly production of 350,000,000 Kwh. This is e.ti.mated to be sufficient until about 1970/71. Studies are currently being under- taken to determine the size and site of a new pcrer plant to meet demand after that date.

20. The most important development in the sector of minerals is the completion of preparatory work for the commercicl exploitation of the potassium deposit in the Dalol depression of Darakil dessert. The con- cession was given in 1961 to a U.S. company. Total investments are roughly estimated at Eth.$110 million, including $20 million for con- struction of a road and harbor facilities. It is most unlikely that exploitation could start in 1966 as originally planned. In the first phase the target is an annual production of 600,000 tons with a value of some Eth.$42 million. This could undoubtedly be a most important contribution to the growth and diversification of Ethiopia's exports. 21. Exploration of petroleum reserves is proceeding but without positive results thus far.

Transport and Communications

22. With an area of more than one million square kms, Ethiopia has now about 23,000 kms of public roads and trails and about 1,100 kms of railway tracks. In 1964, some 6,100 kms of roads were of the all- weather type.

23. Considerable progress was made in recent years with the con- struction and rehabilitation of roads. A third highway program, that was to be completed in 1966, is now being carried out. It includes, as major projects, the construction of 215 kms of new roads (Lekempti-Ghimbi and Algaro-Bedelle, which may not be completed before 1968, as matters now stand) and the asphalting of about 800 kms of existing roads as well as a survey and feasibility study of a road through the Awash Valley leading ultimately to the port of Assab. Total cost of this program is now estimated at some Eth.$65 million. IDA and USAID are contributing Eth.$34 and Eth.$10 million respectively to its financing. Besides this the Government is presently providing about Eth.$10 million per year to the Imperial Highway Authority for road improvement and maintenance. The Provincial Road Division of the IHA is actively working on the extension and improvement of feeder roads, financially supported by a West-German credit of DM 8 million for road building machinery for the feeder road program in the south. USAID will contribute half of the cost (US$0.7 million) of a project to construct 60 Bailey bridges on secondary and feeder roads, mainly in the southern and western provinces. Germany will contribute DM 20 million for planning and for part-construc- tion of a modern road link with Kenya. Another DM 60 million may be made available for complete construction of this road. On the Ethiopian side this would involve 430 kms between Dilla and Mayala, for which the survey is now being carried out. The IHA has also proposed a Fourth Highway Program for the period 1966 through 1970 including construction of 527 kms of new roads and the asphalting of 1,550 kms as well as surveying 630 kms. Total cost of this program - excluding: that which has been completed in the Third Program - is estimated at about Eth.$100 million.

24. As a result of the expansion and improvement of the road system that has taken place in recent years, transportation costs in several key areas have decreased substantially, and areas of subsistence agri- culture have been brought into the money economy while fertile but un- cultivated areas have been opened up for settlement. There is, however, still a long way to go. Many areas remain isolated and there is great need for complementary feeder roads.

25. Railway transport in Ethiopia is confined to the lines Addis Ababa-Djibouti and Agordat-lvassawa, with a total length of track of only 1,090 kms. Freight traffic increased by about 7.5% p.a. on an - 7 - average between 1959 and 1963 to reach 556,000 tons in the latter year (vide Table 6, Statistical Annex). Plans exist for a new line between Nazareth and Dila. There are, however, already road connections between these two places.

26. The average annual rise in tonnage shipped via Assab and Massawa ports was somewhat over 9% between 1959 and 1964. In 1964 an Ethiopian shipping company was established with a capital of Eth.$3.8 million. The Ethiopian share in this capital is 51% and L49% has been taken on by a foreign investment company. Contracts in value of Eth.$23.5 million - covered for some 85% by a seven-year loan - have been placed in the lNetherlands for the building of two dry-cargo ships of 6,000 tons dead weight and an oil tanker of 33,000 tons to be delivered in 1965 and 1966. 27. The number of revenue passenger miles flown by Ethiopian Airlines has recently risen by over 25% p.a. After a loss in 1963 it is understood that the company made a modest profit in the following year.

28. Noticeable further improvements have been achieved in the field of telecommunications. The 1962-64 program of the Imperial Board of Telecomnunications of Ethiopia, assisted by a second BRD loan of US$ 2.9 million equivalent (the first loan of US $1.5 million became effective in 1954) will be completed in the present year. Demand for the services rendered by the IBTE continuesto rise rapidly - at a rate of 14% per year - and a third loan from IBRD to IBTE of US $4.6 million is now waiting for final approval. It will assist in the financing of a program for the period 1965-68 to meet the growing demand.

B. Investment 29. Statistics on capital formation are not well developed in Ethiopia. With the available information the following table can be compiled for recent years: M4onetary l/Gross Fixed Investment in Ethiopia (in Eth.$ million; current prices) Sector 1960/61 1961/62 1962/63 1963/64 1964/65 a. Agriculture 14.9 1:3.3 15.0 ) b. Industry, mining, power 43.3 30.4 55.2 ) c. Transport, communications 38.0 60.9 94.3 ) d. Education, health 4.9 5.0 6.5 ) e. Administration (public buildings) 2.1 2.1 8.6 ) f. Housing 21.1 30.9 22.6 ) g. Other 6.3 7.3 8.4 ) 2/ Total I 130.6 149.9 210.5 207.1- 210.0 1/ In addition investments in kind - mostly in agriculture and housing - are estimated by the Planning Office to amount to some Eth.$50 million per year. 2/ Only information available is for distribution over broad sectors: "social services" 11.8; "economic services" 113.9; "productive activity" 73.6; public buildings 7.8. - 8 -

30. These data suggests that actual investment in the first three years of the Second Five-Year Plan (1962/63-1966/67) fell short by about 20% of the original Plan estimates. Mbst serious was the shortfall in the agricultural sector where actual money investments did not reach one half of the planned amounts.

31. A major factor impeding implementation of the development program has been the lack of well prepared projects (which also contributed much to the difficulty of securing a larger capital inflow from abroad.) In- sufficient coordination and cooperation between government departments and lack of qualified personnel had an unfavorable impact on the formu- lation and execution of development projects ancd on adapting the Govern- ment's annual capital budgets to the requirements of the Five-Year Plan. On the other hand, it is undoubtedly a shortcoming of the Plan that it does not clearly specify or deal in proper detail with individual projects. It did, however, provide for the establishment of a coordinating technical agency to render all types of services needed for the preparation of new projects such as feasibility studies, techno-economic analyses, designing, supervision, etc. We are unable to judge the effectiveness of this agency at present as it was only established in the course of 1964.

32. The next table shows that the present levelling off of investments is mainly due to a fall in public capital formation after 1962/63, when a large pr;gram for construction of airports and purchase of aircraft was completed.

Gross Fixed Monetary Investment by Sponsor (Eth.$ million)

1962/63 1963/64 1964/65 actual prel. est. actual actual

a. Central Government 109.2 82.9 83 b. Official entities 1/ 17.2 2L).2 25 c. Private 2/ 84.1 99.8 102

Total Monetary Investment 210.5 207.1 210

1 Incl) municipalities, Govt. Eritrea (in 1964/65 under a)

2/ Incl Dovt. participations

Source: Based on information from Planning Board. 33. The establishment of the Investment Bank of Ethiopia in September 1963 also aims at the stimulation of private savings and their investment, other than in land and houses. It's activities remained very limited in the first year of its existence. Between July 1964 and July 1965, however, it's investment through equity participation and medium or long-term loans in industrial and agricultural enterprises, increased from Eth.$2.2 million to Eth.$6.8 million (including Eth.$1.5 million contingent liabilities for uncalled capital). From iarch 1965, the Bank also became active as a dealer in shares to individuals. Of the total authorized capital of Eth.$10 million, one half has now been paid up. In addition, Eth.$2 million was placed with the Bank in connection with a loan to a plantation company. The Government allotted sharet to .thai value-'of Eth.$.13.2-million to-the Bank for sale to the public as opportunities occur. The Bank attempts to mobilize further resources by offering appropriate terms to insurance companies and other private domestic or foreign lenders who have funds available that can reasonably be placed for longer periods.

34. To some extent there is a danger that the activities of the Investment Bank and the Development Bank of Ethiopia may come to overlap each other. As recommended by an IFC mission of December 1963, the Government is now considering its position in respect of determining more precisely the function of each institution. The annual value of loans granted by the Development Bank did not rise above Eth.$3.7 million in recent years.

Loans Granted by the Development Bank of Ethiopia (in Eth. $ 000)

Purpose 1960 1961 1962 1963 1964

Agricultural development 966 363 498 761 853 Small Agriculture 70 - - - - Coffee 427 886 158 90 433 Industry 2,941 143 1,410 2,764 2,334 Others 21 - 24 39 81

4,425 1,392 2,090 3,654 3,701

35. Contrary to the intentions of the Second Five-Year Plan, Government investments in agriculture remained small in recent years relative to the importance of this sector for the economy. The following table shows that the larger part of the Government's capital expenditures was for the trans- port sector, mostly for the improvement and development of the road system and for civil aviation. - 10 -

Central Government Capital EMenditure l/ (in Eth.$ million)

1961/62 1962/63 1963/64 1964/65 1965/66 actual actual actual expected budget actual 2/

1. Social Development (education, health, community development) 0.7 2.5 2.8 1.5 2.0

2. Economic Development a. Infrastructure - Highways 15.5 18.7) 24.1 29.7 - Civil Aviation 28.5 52.5) - - - Other 3.5 0.9) 55.6-L/ 1.2 -

b. Industry - Oil refinery 0.4 3.4) 15.7 21.1 - Other 1.8 /3 8.0) 3.4 8.5 c. Agriculture 3.4 2.4) 3.9 2.7 d. Other 4.2 2.2) 11.0 12.1

3. Public Buildings 2.9 3.7 3.0 2.2 1.6

Total 60.9 94.3 61.4 63.o5W 77.7 Of which financed by external loans 37.0 64.7 26.4 28.5 47.3 l/ Differences with figures in table "gross fixed investment by sponsor" given earlier in this section of the report are due to expenditure of a capital nature in ordinary budget. 2/ For details of 1965/66 budget see table 9 of the Statistical Annex 3/ Including Eth.$3.9 million for a cement plant. 1~/ Precise distribution not available; appr. 20 for highways, 15 for oil refinery. 5/ Includes a supplementary allocation of $11 million, of which under item 2-d. $4.5 million for subscription to capital of Development Bank of Africa, $1.2 million for Meat Corporation and $1.8 million for purchase of shares of the Ethiopian Shipping Company. C. Finance

Internal Finance

36. In the period 1960/63 monetary expansion was about 7.5% per year, on an average. The available - scarce and incomplete - data on prices suggest that this increase in the volume of money has been commensurate with the growth of the econony and its monetization. In 1964, however, the money volume went up by 25% when there was a large surplus in external payments and when Bank financing of the public and private sector increased substantially (see Table 7, Statistical Annex).

37. The sharp rise in Bank advances to the private sector in 1964 re- sulted to a large extent from (1) the increase in coffee exports requiring bank financing; (2) an acceleration of the trend of a substitution of local financing of exports for external credit; (3) the rising level of imports; (4) the rising needs for worlcing capital in industry. The Commercial Bank of Ethiopia, wfhich accounted for more than 80% of total credit outstanding at the end of 1964, did apply a ceiling to real estate credit, but other- wise no restrictive policies wiere pursued. In this context it should be mentioned that the State Bank of Ethiopia was, on December 1963, split into the National Bank of Ethiopia and the Commercial Bank of Ethiopia. The former functions exclusively as a central bank and the latter took over the commercial banking activities of the State Bank.

38. As for the Government sector the table below shows the size and origin of its overall deficits which have for the larger part been financed by recourse to the banking system. The estimated overall deficit in 1964/65 is much larger than the changes in the Government's actual banking position, but it cannot yet be seen to what extent this was due to lower expenditures than expected or to higher revenue. In 1965/66, a substantial ovelall deficit of Eth.$27 million is budgeted for, despite an expected cctnsider- able increase in foreign financial assistance. However, capital exPendi- tures might turn out well below the budget while the estimate for domestic revenue is probably on the low side. Moreover, a financial agreement was recently concluded with the U.S. providing cover for a large part of the remaining deficit. - 12 -

Summary of Central Government Finance (in Eth.$ million)

1961/62 1962/63 1963/64 1964/65 1965/66 actual actual actual expected budget 1/ actual 2/

1. Domestic revenue 210.7 217.2 272.6 295.0 298.0 2. Ordinary expenditures 192.3 205.2 297.9 330.0 371.5

3. = 1 - 2 18.4 12.0 -25.3 -35.0 -73.5 L.. Capital expenditure 60.9 94.3 61.4 63.0 77.7

5. = 3 - 4 -42.5 -82.3 -86.7 -98.0 -151.2 6. a) External loans 37.0 64.7 26J4 28.5 48.0 4/ b) Foreign tech aid 3/ - - 53.7 53.2 76.2 ;/ c) War.reparations,other5.1 0.5 - - - 7. Overall deficit -0.4 -17.1 -6.6 -16.3 -27.0 8. Changes in banking posi- tion 6/ 5.3 -14.6 -9v4 -6.2 n.a.

1/ For the first time included the Eritrean budget, viz. revenue Eth.$18.1 million and expenditure Eth.$18.5 million; also included imputed value for foreign technical aid; see footnote 3/.

2/ Earlier expectation: domestic revenue Eth.$283.8 million and ordinary expenditure Eth.$331.9 million; see Table 8, Statistical Annex. 3/ Imputed value: first included in 1963/6X; countervalue has also been included under line 2, "ordinary expenditure'". 4/ For details see Table 9, Statistical Annex 5/ For details see Table 10, Statistical Annex

6/ The difference between "overall deficit" and "changes in banking position" is mainlv due to the fact that banking data refer to the period July 1 to June 30, whereas budget years end July 7; (b) banking data reflect the transactions of the public sector as a whole whereas the budgets are for Central Government only.

Source: Ministry of Finance - 13 -

39. It should be stressed that figures for revenue and ordinary expenditures in 1963/64 include for the first time the Eritrean budget as well as an imputed value for external technical aid (see footnote to above table). Eliminating these factors it appears that between 1961/62 (actual) and 1965/66 (budget) revenue increased almost 7% on annual average, while current expenditures grew slightly over 9%. Indirect taxes remained the most important revenue item, still accounting for 67% of total budgeted revenue in 1965,'66, while the share of direct taxes is only 20%. Custom duties went up sharply in 1963/64 and 1964/65 (in the latter year they may considerably surpass the original expectation of Eth.$86.5 million) because of the increase in imports and exports, and also to the raising cf some tariffs which brought in about Eth.$6.0 million in additional revenue. A further contribution was made by the introduction of a coffee surtax in early 1964. This surtax was however reduced again by 55% in July 1964 to accelerate coffee exports so that the export quota granted by the International Coffee Council could be filled.

40. Table 8, Statistical Annex, shows that the increase in ordinary expenditures for national defense was quite large, even when taking into account that since 1963/64 an imputed value for external assistance was included. The real increase is mainly due to higher salaries granted in 1964 and to intensified defense and security efforts in Ogaden area and in Eritrea. Other rises occurred mainly in education and health care, but they are also partly caused by the inclusion of external technical aid. Current outlays by the "economic" IMinistries did not go up signi- f'icantly save in the case of the Ministry of Agriculture, which reflects to some extent intensified endeavours in agricultural extension work, research, etc., but for a large part also inclusion of foreign assistance.

41. Tne table above also shows that the Government's capital expen- ditures depend heavily on external loans. It is expected that this will again be the case in 1965/66 and Table 9 of the Statistical Annex gives details of the budgeted inflow of Eth.$48 million in that year.

External Finance

42. The balance of payments of Ethiopia normally shows sizeable deficits on goods and services covered by capital inflow. Even the sharp rise in the value of exports in 1964 did not chanige this position. Summary of Balance of Payments (in Eth. $ million)

1960 1961 1962 1963 1964 prel.

Exports, f.o.b. 189.6 195.6 205.0 223.4 262,6 Imports, f.o.b. -187.8 -194.C) -219.0 -241.7 -271.9

Trade Balance 1.8 1.6 -14.0 -18.3 9.3 Net Services -33.2 -35.6 -52.2 -51.3 -31.5

Deficit goods and services -30.7 -34.0) -66.1 -69.6 -40.2 Transfer payments, net 11.9 15.8 25.9 12.2 18.5

Total current account -18.8 -18,2 -40.2 -57.4 -21.7

Net private capital inflow a) long term 22.9 14.5 16.7 31.2 27.4 b) short term -18.4 7.1 -3.4 -4.4 10.7 Net Public capital inflow 21.1 14.51 58.7 38.0 8.9 Increase (-) in net assets ) of monetary sector) 9.3 -4.o -22.9 -2.3 -26.8 Errors and ommissions 2.5 -13.9 -8.9 -5.1 -1.5

Source: DJJF/Nat. Bank of Ethiopia -- For details see Table 11 of the Statistical Annex.

43. Exports are dominated by one agricultural commodity - coffee - and therefore subject to rather strong fluctuations. Until 1964 the substan- tial rise in the export volume of coffee was for a large part offset by falling coffee prices. In the last quarter of 1963 prices started to rise again and their average for 1964 was 34% higher than in 1963. In it's meeting of March 1965 the International Coffee Council established an indicator price range with a floor of 38 zents and a ceiling of 44 cents (for robustas) but it was clear from the outset that this price level could not be maintained without restricting supplies. Thus, while Ethiopia's quota for coffee year 1964/65 was originally fixed at 72,400 tons, it is now reduced to 66,500 tons. It is possible that some compensation can be found by larger exports to non-agreement countries and possibly by larger exports of fruits, vegetables and meat. - 15 -

Foreign Trade of Ethiopia

Total Exports Price Year Index of Index of Value in Value of Value of Balance Index Volume Value Eth. $m. Coffee Imports of Trade ex- 1/ Exports Eth. $ m. in port Eth.$ m. 2/ Eth. $.m

54 100 100 160.4 99.4 160.1 0.3 100 55 122 101 162.2 90.1 168.0 5.8 88 56 108 94 151.4 79.7 157.1 -.5.7 99 57 139 120 192.0 122.9 178.4 13.6 98 58 111 98 156.8 97.1 193.6 -36.8 96 59 129 111 179.2 97.1 208.9 -.29.7 93 60 130 120 192.6 104.8 219.3 -2'6.7 91 61 151 118 188.6 93.6 235.6 -47.0 82 62 168 124 199.3 107.1 257.0 -157.7 83 63 189 139 223.4 110.0 276.3 -52.9 78 64 n.a. 164 262.5 158.8 307.7 -45.2 97

1/ Including re-exports 2/ c.i.f.

Source: Based on data of Customs Admin. as published in Quarterly Bulletin N,B8E. and Statistical Abstract 1964.

f4. iMainly due to the significant improvement; in coffee prices, total exports rose by 15% in 1964. The ratio of exports to GDP increased to some 12% compared to 10% in 1963 and 9% in 1962.

45. There is no clear tendency yet towards diversification of exports. Tables 12 and 13 of the Statistical Annex give details regarding composition and direction of foreign trade in the most recent years, whxile Table 14 gives developments in quantities exported of major commodities for the past ten years. The share of coffee in total export vralue that has dropped in 1954-1960 to around 50% returned in 1964 to the previous leyel of 60%. Zxports of oilseeds and oilcakes rose sharply so that they are now Ethiopia's second export conmodity, a place long held by hides and skins. Exports of chat - a narcotic - dropped from Eth. $12.5 million fi 1963 to$5 m il- lion in 1964 following closure of the Aden market for this product. Develop- ments in the export of live animals and meat as well as of fruits and vegetables are encouraging. The middle-eastern countries in particular have provided a good market for these products. Sugar exports went up in t-wo years from nothing to Eth.$4.5 million in 1964. - 16 -

456. The import figures in Table 12 of the Statistical Annex suggest an increase in the relative importance of goods in process and capital equipment. Imports of textiles went down, even in absolute terms, because of substitution by local production. Higher incomes due to favorable coffee exports are having their impact on imports but with continued import substitution - e.g., of textiles, shoes and cement - their growth in 1965 might well be kept at 8 to 10% like in the past years so that they might reach a level of Eth. $335 million (c.i.f.). In 1964, increases in import duties were imposed, primarily for protective reasons, but no changes are contemplated for 1965.

47e lJ1hen looking at the details of services in the balance of payments given in Table 11 of the Statistical Annex it will. be observed that there are rather sizeable credit entries under the heading "other transportation". For the larger part they represent receipts of the Ethiopian Airlines and disbursements by foreign carriers at ports and airports. "Government n.i.e." covers mostly receipts from the U.N. for services rendered by Ethiopian troops in the Congo, expenditures of the U.S. armed forcesin Ethiopia and of the U.N. Economic Commission for ALfrica in Addis Ababa. The debit entries under this item include the impurted value of the technical assistance services rendered by foreign Governments and the U.N., but the grants covering these services are entered as receipts under Government transfers.

480 Throughout the last five years private ancl public capital inflow has been more than sufficient to cover the deficits on current account. The figures given for net public capital inflow are the outcome of the drawings and repayments shown in Table 15 of the 'Statistical Annex.

49. Foreign reserves increased in the period 1960-1964 by Eth. $65.3 million, amounting to Eth. $180.6 million (net; = US $72.2 million) at the end of 1964. Adding Eth.$12.9 million gold holdings of the Treasury, this represents about 73 times the average monthly imports (c.i.f.) in 1964.

5() At the same time, there was a rise in Ethiopia's foreign indebted- ness. External public debt at the end of 1964 amounted to US $53.7 million net of undisbursed and to US $114.0 million including undisbursed. (Table 1, Statistical Annex.) Servicing on this debt will be heaviest in the ne=xt five years, averaging bOver US $10 million annually, but falling off quite sharply thereafter. Service until 1970 represents about 10% of 1964 exports. - 17 -

III. PROSPECTS FOR ECONOMIC GROWTH

A. Production and Investment

51. Ethiopia is now in the fourth year of it's Second Five-Year Plan, which covers the period 1962/63-1966/67. The Plan provides for total investments of Eth.$1,696 million, including Eth.$245 million in kind. It lays considerable emphasis on the development of the directly pro- ductive sectors of the economy, allocating almost 50% of total proposed investments to these sectors. The Plan target is to raise the rate of growth of GDP from 3.4% per annum in the First Plan period to 4.3% in the Second.

52. Performance in the first three years - described in Part I of this report - suggests that this target probably cannot be fully achieved, despite the progress that has been made and despite the large windfall in the form of a higher coffee price. Total investment remained about ;O% below the Plan targets and the shortfall was very serious in the r dominating agricultural sector where monetary investments were around 6O% of the targets and where progress with respect to other measiires embodied in the Plan - e.g. agrarian reform and considerable ex;2iusion of agri- cultural services - remained very limited.

53. It is understandable, therefore, that alth-Žm;h the Plan main- tains its great ixportance as a document outlining the Governiment's development policies, its projections in figures no longer provide an adequate basis for appraising the prospects for economic growth in coming years. Moreover, mnost of them stretch only until 1966/67. Consequently, the Mission has made some tentative projections of its own, covering the period 1965/66 - 1970-71, which are described in Annex 2 to this report.

54. The following schemes, for many of which there are separate studies and reports,are generally - and justifiably - considered as the major key elements in furthering economic and social development in the years ahead.

(1) Intensification of extension, veterinary and other agri- cultural services as well as substantial progress in the implementation of land reform;

(2) rapid development of modern, large scale agriculture, especially in the Awash Valley;

(3) continued growth of modern industrial production by at least 15% p.a. with special emphasis on the processing of agricultural and livestock products;

(4) exploitation of mineral deposits more in particular of potash deposits; - 18 -

(5) execution of the power program; (6) execution of the road building and telecommunication programs;

(7) expansion of social and educational services, with special emphasis on secondary and technical education. More particulars on these points are given in Annex II. 55. The Mission tentatively estimates that reasonable progress with implementation of these schemes would require an increase in total annual gross fixed investment from the present level of about Eth.$210 million to around Eth.$300 million in 1970/71, so that over the whole period total gross investment would amount to nearly Eth.$1,600 million and net invest- ment to some Eth.$1,300. The distribution of the latter amount over sectors of economic activity, given in Table I of Annex II, shows that some 13% would be required for agriculture, 38% for industry, mining and power, 20% for transport and communications and 29% for social investments and administration. 56. It could well be envisaged that about one half, or around Eth.$800 million gross, will be private investment (Table 2, Annex II). Presently, gross private fixed money investment is running at some Eth.$100 million per year, compared with Eth.$84 million in 1962/63. Plans for' several "lumpy" projects in agriculture (e.g. sugar, cotton, sisal) industry (e.g. textiles, artificial fibres, paper) and mining (pxtash) are in advanced stages. The Investment Bank will further intensify its endeavors to mobilize private savings for investment in productive enterprises. Private money investments in housing could be expected to average Eth.$30 million p.a. in coming years.

57. As for public investment, the Government appears to be aware of the necessity to raise its capital budget. The 1965/66 budget provides for Eth.$78 million compared to Eth.$63 million in the preceding year and, though the former amount may not be entirely realized, it is reasonable to expect that the implementation of the capital budgets would gradually reach a level of around Eth.$100 million by 1970/71, provided adequate foreign technical and financial help will be forthcoming. In addition, Government expenditure of a capital nature, but not included in the capital budget, can be estimated at a roughly Eth.$20 million per annum. Public corporations, mainly the Ethiopian Electric Light and Power Authority and the Imperial Board of Telecommunications of Ethiopia, in- tend to invest on an average around Eth.$25 million per year in the period until 1970/71 and there are no apparent reasons why their actual invest- ments would remain much below this amount.

58. Taking account of the above levels of money investment and, in addition, of a continuation - and perhaps a gradual rise - of investment in kind (which is presently running around Eth.$50 million per year) and assuming that more progress than hitherto will be made with the imple- mientation of agrarian reforms and expansion of agricultural services - 19 -

(along the lines set out in the Second Five-Year Plan and the Second Five- Year Plan of the Ministry of Agriculture), it is quite possible that the annual rate of growth of Ethiopia's GDP between 1965/66-1970/71 could average about 4.3%, which was originally set as the target for 1962/63- 1966/67. Table 3 of Annex I gives a tentative projection of this aggregate.

B. Finance

Internal

59. It can be envisaged that around 60% of the total gross investment of Eth.$1,650 million in 1965/66-1970/71 (including increases of stocks) could be financed from domestic sources (see Table 2 in Annex II). Gross private money savings are estimated at some Eth.$640 million, which would represent about 4% of private income (when including investment in kind it is about 6%) and which presupposes only a very modest rise in the pro- pensity to save. Gross savings of the public entities IBTE and EELPA are estimated by those bodies at some Eth.$130 million. It can probably not be expected for reasons given below, that the Central Government's budget surpluses (when including the value of foreign technical assistance on both revenue and expenditure sides) would be much more than Eth.$140 mil- lion . The tentative projections in Table 4 of Annex I show that, though revenues nay increase by 40% between 1964/65 and 1970/71, it must be ex- pected that ordinary expenditures will grow somewhat faster. It would probably be realistic to assume that outlays for security will continue to rise substantially in absolute amounts, but that their share in total ordinary expenditure could perhaps be kept at the present level (which would imply a 4% p.a. growth between 1965/66 and 1970/71, since in the f'ormer year's budget they were already allowed to increase to Eth.$185 million). Recurrent expenditures of the economic and social Ministries would certainly have to rise rather rapidly, after having been kept down in previous years and if these Ministries are to properly carry out their .Lmportant tasks in the development process.

External

6o. The expectation that the domestic resource gap might amount to somewhat over Eth.$600 million for the whole six.-year period 1965/66- 1970/71 would be commensurate with the prospects for the balance of payments(see Table 5 in Annex I).

61. It is unlikely that coffee exports would rise above their present high level. The prospects for world demand and supply are such that after the recent quota reduction for Ethiopia to 66,500 tons not more than a 2 1/2% p.a. increase in export volume should be taken into account; a slightly faster growth might perhaps be assumed for the quantity exported to non- agreement countries (presently about 4,600 tons). Mbreover, it would seem - 20 - despite the International Coffee Agreement's restrictive policies as to quantity, a - be it relatively mild - fall in prices may occur. It is therefore assumed that the price of Jimma might drop from the 1964 average of almost 44 U.S. ct/pound to some 38 ct in 1970. Thus it would be prudent to assume that the trend-value of coffee exports in the latter year will not be higher than the value in 1964 of Eth$ 159- million.

62. Nor are the prospects for a rise in exports of cereals and pulses very bright. The slow growth of their production will perhaps gradually accelerate when measures to raise traditional output and when investments in modern agriculture take effect. However, rising domestic consumption is likely to prevent a rise in exports of these commodies to more than some 100,000 tons by 1970/71 compared to 75,000 tons presently. Similar considerations would more or less apply to exports of hides, skins, oil cakes and oilseeds, but in view of the past performance of the latter commodity a somewhat more rapid increase in quantity from 80,000 tons to around 125,000 would not be an unreasonable assumption. On the other hand, it is generally expected that the favorable upward trend in exports of fruits, vegetables, live animals and meat will continue.

63. A last, but very important element in the export projection, is the assumption that potassium exports might be important by 1970/71. In view of the delays presently experienced in this project, however, it would perhaps be over optimistic to reckon with 600,000 tons, even for 1970/71, which is the concessionaire's target for the first phase of exploitation. Instead it has been assumed that they could reach perhaps 400,000 tons with a value of about Eth.$28 million.

64. The above considerations would suggest that the total value of exports might reach a level of around Eth.$360 million in 1970/71 compared to Eth.$264 million in 1964.

65. The rate of growth of imports over a long; period of time has not been much different from that of exports and the ratio of imports to GDP increased therefore rather sharply. If this relationship continues in coming years and if it is assumed that imports will grow as exports (i.e.at a rate of some 5% p.a.) from a level of about Eth.$335 million in 1965 - when the impact of the previous rise in exports is still being felt - the c.i.f, value of imports in 1970/71 would have to be put at around Eth.$440 million. A similar value is obtained when considering the prospects for separate categories of import goods. Taking account, finally, of an increase in net payments for services other than freight and insurance, it is estimated that the total deficit on goods and services in 1970/71 would be in the order of magnitude of around Eth.$100 million whi.le the deficit in current account would then be only slightly higher since net private transfers -and income payments on foreign investments may as usual be offset for the larger part by positive figures under the heading "Government transfers". - 21 -

66. Over the whole six-year period 1965/66-1970/71 the deficit in current account might then add up to between Eth. $600 to $650 million. Probably some Eth.$200 million out of this will be covered by net private capital inflow. Assuming furthermore, that about Eth.$50 million of the reserves will be used, the net public capital inflow would then have to amount to roughly Eth.$375 million net. i.e., Eth.$63 million per year on an average, or perhaps Eth.$85 million on a gross basis, depending of course on the terms of new borrowings.

67. At the end of March 1965, the undisbursed portion of public loans already committed to projects amounted to Eth.$150 million equivalent. In addition, loans for road construction have since been obtained from Germany, and for development of fisheries from Bulgaria, totalling over Eth.$20 million. 1Woreover, more than Eth.$250 miLlion on credit lines with the USSR, Yugoslavia and Czechoslovakia has not yet been allocated, but only part of this will probably be used in coming years. All in all, it is estimated that possibly some Eth.$250 million (US $100 million; ex- cluding amounts to be in the pipeline by 1970/71) would still have to be covered by new loans.

78. If the entire amount were to be obtained on conventional terms the burden of servicing the public debt must be expected to rise to near 15% of exports in 1970/71 and if the foreign capital requirements in the years after would also have to be covered on such terms, it might reach some 20% in 1975/76. These figures, which do not yet include the servicing of private foreign investment, indicate the necessity for Ethiopia to strike a balance between loans on conventional and non-conventional terms to cover the foreign capital requirements of intensified efforts to accele- rate the relatively slow growth of a very low per capita income. Thus, despite the present strong foreign exchange position, Ethiopia can still be considered as a "blend" country, subject to periodic review of the progress made by the Government in implementing meeasures and projects to foster economic and social development. ATNEX I

Major Development Schemes and Projections for 1967/66 - 1970/71

Some details concerning the seven points enumerated in the text of the report as major elements for economic and social development in coming years are presented below:

1. Intensification of extension, veterinary and other agricultural services and substantial progress in landreform (including improvement of landlord-tenant relationships ) so that traditional agricultural output would gradually rise more than about proportionally with the population.

In 1962 at the request of the Minister of Agriculture an elaborate and detailed program (the "Second Five Year Plan" for Agriculture) was developed dealing largely with the provision of services to agriculture, animal husbandry and forestry. In its preparation recommendations made in reports submitted by FAO, ECA, USOM and other agricultural advisers were closely studied. Some progress has been made in expansion of agri- cultural services in recent years, but it would seem beyond doubt that the complete implementation of a program of this type in the sixties - mutatis mutandis for new aspects that may have arisen in the meantime - in combination with land reforms and development of proper agricultural credit facilities, would be able to substantially raise the rate of growth of traditional agricultural production. It would require, however, more liberal allowances to the lMinistry of Agriculture for recurrent expenditures, viz. some Eth$ 10 to Eth$ 15 million per annum, which is even a quite small amount in relation to total Government expenditure when compared with many African countries (the 1965/66 Budget shows only Eth$ 7.7 million for the Ministry of Agriculture, including Eth$ 1.3 m. imputed value of foreign assistance). In addition required capital expenditures are estimated at near to Eth$ 2 million p.a., mostly for buildings and equipment.

As for land reform the necessary steps to be taken were broadly outlined in the overall Second Five Year Plan. The Plan calls for concerted action on the following aspects of this politically, techni- cally and organizationally difficult problem:

1) improvement of landlord-tenant relations 2) progressive taxation 3) Abolition of out-of-date holdings, and 4) cadastral surveys and landregistration

With technical assistance by FAQ experts a Land Policy Project was completed in 1964 covering the measures prescribed in the Plan. Since as yet little progress has been made in this field it may well - 2 - take until 1970, if not later, before all the measures will be completed which according to the Plan should have been taken in the period 1962/63 - 1966/67. The possibility cannot be ruled out however that some effects on agricultural production will already be felt in the remaining years of the present decade, especially when those measures not requiring elaborate technical preparation, e.g. further changes in land taxes and in share cropping systems, would be taken in the very near future.

The total costs of the operation are estimated on the basis of a five year schedule to amount to:

Eth$ 000 administration 484 cadastral survey 10,463 land registration 1,762 tenacy form 321 13,030

2. Rapid development of modern large scale agriculture in the Awash Valley. Though even a somewhat more rapid increase of traditional agricultural production than hitherto would be of great importance for accelerating economic growth in Ethiopia, it is widely thought that the expansion of agriculture has to be supported by modern "spearhead" projects of this type. Such projects could be of great importance, especially from the point of view of strengthening the balance of payments through larger exports and importsubstitution and also for supplying raw material for industrial development.

In the main body of the report attention was drawn to the considerable balance of payments support that is now already given by the sugar and cotton production developed in recent years in the Awash Valley and to the fact that recently foreign investors acquired large tracts of land for sisal and additional sugar production. It is generally felt that the Awash area provides attractive prospects for further large scale private investment in commercial agriculture in combination with primary processing industries.

The final report of an elaborate UNSF-FA0 survey of the area should be available soon and in the meantime a feasibility report was completed showing quite favorable cost - benefit ratios, especially for the middle Awash region.

Currently available water resources would allow the irrigation of some 53,000 hectares in addition to the 10,000 ha. presently under cultivation (excluding the Wonji Sugar estates). Concessionaires and associated schemes have plans for development of about 36,000 ha. out of these 53,000 ha. in the coming 8 to 10 years. The construction of the Nleki River Diversion Canal would add another 15,000 ha. The costs of developing this whole additional area of 68,000 ha. would call for total public and private investments of roughly Eth$ 115 million. The construction of the Tendaho and Kessem Dams would allow for extension of the irrigated area by another 49,000 and 18,000 ha. respectively while a compensation dam at Awash station would add a further 5,000 ha. so that a total of 150,000 ha. (or some 135,000 ha. net) could be brought under cultivation. Completion of this whole program would require some 10-15 years at least but a substantial part of the first phase could be completed by 1970/71. It is for instance most important that the plans of existing schemes for expanding the area presently under cotton by some 30,000 ha. in the coming six years should not only be realized but also surpassed because the output would still fall short of the country's raw cotton requirements. Enlarged production of oilseeds and of fruits and vegetables in the Valley should also help in the near future in providing raw material for the expansion of the food processing industry and in creating larger surpluses for export.

3. A continued growth of modern industrial production at an average annual rate of at least 15% with special emphasis on the processing of agricultural and livstock products both for exports and domestic markets. in Part I large industrial projects have been mentioned that are presantly in a final stage of preparation or under execution, e.g. an oil refinery, a cement factory, a paper mill, a plant for artificial fibre, and a textile factory. Further expansion of the textile industry in conjunction wqith a rapid increase of raw cotton production in the Awash Basin is indeed of great importance for the balance of payments. Despite the growth of domestic production Ethiopia still imported in 1964 textiles for Eth$ 37 million and raw cotton for $ 9 million and demand is rising rapidly.

Animal husbandry provides another good opportunity for combined industrial and agricultural development. The abundant animal wealth and the improvement and expansion of veterinary, transport and industrial facilities should make it possible to maintain the upward trend in exports of meat. Discussions are presently beirgheld by a major meat packing corporation with the Ethiopian Government and prospective partners with a view tovward setting up controlled ranches to improve stock and meat processing facilities aimed at the export market. The targets of the Second Five Year Plan 1966/67, viz. a production of 42,000 tons canned and frozen meat may be unrealistic, even for 1970/71, but it should by all means by then be a multiple of the present production of about 5,000 tons. 'Ithas been estimated by FAO experts in their reports on animal husbandry in Ethiopia that in the longer run exports of this product could well reach a level of some Eth$ 60 million. There are probably also good possibilities for further expansion of dairy production and of the leather industry.

Recently the Government has initiated feasibility studies - financed to the extent of £ Stg. 80,000 by the British Department of Technical Cooperation - for the development of other industries to exploit natural resources, viz. industries basedl on oilseeds, fishery and forestry as well as the glass industries.

Other examples of industrial possibilities based on agricultural raw material are the production of coffee powder and an industry for production of sacks of coffee, oilseeds, sugar, cotton, etC. (imports of gunny bags reached Eth$ 2 million in 1963). The Awash Valley offers good possibilities for growing sisal and perhaps henaf.

Industrial expansion in other fields, e.g. chemicals, pharma- ceutics, paint and fertilizer also deserves serious consideration.

Considering the growqth rate in the recent past and the "lumpy" additions to industrial output by the larger projects mentioned in the beginning of this section and assuming, furthermore, that Government will strongly encourage domestic and foreign investors and that it will raise the funds available to its investment banks, an average growth of 15% p.a. could reasonably be expected for the remaining years of this decade so that the value added by modern manufacturing to G.D.P. may reach a level of about Eth$ 140 million by 1970/71. Expansion invest- ments required in those years may then be roughly, but probably conservatively, put at around Eth$ 250 million, excluding the building industry.

4. The exploitation of mineral deposits, more in particular of potash in the Danakil depression. The promotion of this project is of great urgency, especially from a point of view of the balance of payments. The location of the deposits is considered to be favorable for the markets of India, Japan and Australia. The concessionaires are working on plans for an annual export of 600,000 tons per year (value appr. Eth$ 42 million) to be increased later to one million tons. Under the present terms of the concession the concess.onaires are obliged to build a road of about 65 miles from the site to the deep water port at Rassa Dargi and to construct facilities there for shipment. It is understood that investment in road and port fac.ilities would come to about Eth$ 20 million and total investment to some Eth$ 110 million. It is estimated that construction of all facilities might take some 2 years and it should be possible therefore that,. provided an early agreement between the Government and the concessionaire can be reached on outstanding details, by 1970/71 potash exports may have reached a substantial value. - 5 -

5. Power Program. It is expected that the execution of the power program of the Ethiopian Electric Power and Light Authority, particulars on which can be found in IBRD report no.P-371 and which requires invest- ments of almost Eth$ 100 million in the next six years, will meet the rapidly rising general and industrial demand at least till 1970/71.

6. Roads and telecommunications. The Imperial Highway Authority has prepared a fourth program of Eth$ 105 million (including 5 million for completion of the third program) for the period 1966 through 1970, comprising 527 kms new roads, asphalt surfacing of 1550 kms of existing roads and surveys for 630 kms. Pending further studies concer- ning the details the final size of the program actually to be carried out has still to be determined. In addition, the! IHA intends to construct 60 Bailey bridges (with financial help of USAID) for a total of Eth$ 3.5 million to increase accessibility tco at least 2500 kms of the present road system. The Authority also intends to spend about Eth$ 9 million equipping and training 5 provincial road construction crews so as to raise the Authority's capacity to construct secondary and feeder roads to 400 kms per year. Finally, the construction of a road link with Kenya should be mentioned to which Germany may contribute DM 80 million.

The Imperial Board of Telecommunications of Ethiopia estimates that aboit Eth$ 44 million investments in the period 1965 through 1970 would be necessary to keep abreast of rising demand for its services. Particulars on thiE program can be found in IBRD-report R-64-49.

7. Education, Social Services. The Second Five Year Plan gives some rough estimates for the skilled manpower requirements of the economy in 1966/67. Since it is unlikely that the production targets of the Plan for that year will be fully realized, also for industry where the need for technically skilled people is largest, these planned requirements - which should be established more precisely after a thorough manpower survey - might be more applicable perhaps to 1968/69. Anyhow, they are large enough and it seems that the main bottleneck in the educational system from a point of view of economic growth lies with general and specialized secondary training. It is of great importance therefore that the Government's detailed project for reorganization and expansion on this level, stretching from 1966 to 1970 will be carried out in the time set for it. Since the Government approached the Bank (IDA) for the co-financing as a first step an Education Mission was sent to Addis to appraise the project. Its findings are that,apart from some necessary adjustments, the project is in general sound and that it would require investments of Eth$ 25.5 million as well as additional recurrent expenditures of Eth$ 5.8 million per year. - 6 -

The very low rate of enrollment of school-age children in primary education would make an enormous expansion on this level desirable from a social point of view, but even the requirements of the economy for those who have completed 6th grade plus an adequate supply to meet the larger needs of expanded general and vocational secondary training are impressive. A UNESCO report of 1963 estimated the necessary capital expenditures on the primary level at about Eth$ 5-6 million p.a. and additional recurrent expenditures at some Eth$ 3-4 million p.a.

Adding, furthermore, about Eth$ 3 million investment p.a. for higher education (i.e. the annual average mentioned in the Second Five Year Plan), it might be concluded that as support for economic growth in coming years Ethiopia would have to raise annual public investments in education as soon as this will be technically possible, to some Eth$ 15 million (compared to about Eth$ 3 million in recent years) and recurrent expenditures from their present level of about Eth$ 50 million (Ministry of Education only) to Eth$ 65 million.

It must be assumed, furthermore, that for a proper development of other social services - healthcare, information, culture, community development - more or less in line with the ideas of the Second Five Year Plan, Government recurrent and capital expenditures in these fields should soon reach levels of roughly Eth$ 40 and 10 million respectively compared to some $ 26 and 3 million presently. This does not include housing where investment - in kind and in money - comes largely from the private sector. Government might find it desirable and necessary, however, to give more support to institutions financing low income houses. A recent survey conducted by AID concluded, for instance, that 82,00new housing units were urgently needed in Addis Ababa alone. The bulk of this requirement is concentrated in the low income area. Table 1: PROJECTION OF GROSS FIXED MONEY INVESTMENT

(in Eth$ million)

Sector level in 1970/71 total in public1 /private total 1965/66 - 1970/71

Agriculture 20 20 40 170 2/ mining )10 50 60 265 / Power 15 - 15 100 Y/ Transport,Communications 35 15 50 260_/ Housing - 35 35 180 Education 15 ) Health, other social 10 ) 10 50 200 7/ Other, and gen. adm. 15 )

120 130 250 1300 Net Govt. capital items not in capital budget 20 - 20 120 Replacement not included above 10 20 30 155 150 150 300 1575 j Includes official entities IBTE and EELPA and Municipalities 2/ Extension services, plant production and protection, ) cotton improvement, animal health and grazing control,) forestry, agricultural statistics, research ) 15 Land reform 15 Large scale agriculture, Awash Valley Development 100 Cooperatives, agricultural credit,surveys and others 40 3/ Building industry 15; other industries 250 (e.g. textile industry, woollen industry, artificial fibre plant, paper mill, completion oil refinery and cement factory,meat processing industry and slaughtering houses,leather industry,dairy,ediLble oils,fish meal, forest industries,glass,coffee powder,sugar industry,guny sacks, fertilizer,paint,chemicals and pharmaceutics,others and small industries). 4/ investments for exploitation of potash deposits are estimated at 110, including 20 for road and port. 5/ EELPA program mainly. For roads about 1145; telecommunications 45; trucks,etc. 60; railrodds, ports, civil aviation and others (excluding replacement)l0. / Includes for primary education 30; secondary and technical education 30; higher education 15; healthcare 30; public buildings 15. - 8 -

Table 2: PROJECTION OF FINANCING OF GROSS MONETARY INVESTME1NT

(in Eth$ million)

present level level in total in (1964/65) 1970/71 1965/66-70/71

I.Money investment (a) Government a.l. Capital budget 63 105 525 a.2. Other 2 20 20 120 (b) Official entities j 25 25 155 (c) Private 100 150 755 208 .300 1575 (d) Increase stocks 10 15 75 218 315 1650

II.Financing fromi: (a) Budget surpluses 1 18 40 140 Other Governnent 1/ 20 20 120 (c) Off. entities gross savings 15 30 140 (d) Private money savings 85 '125 640 (e) External sources and others 80 100 610 218 .315 1650

1/ Net capital type expenditure in Ordinary Budget / Mainly EELPA and IBTE 2 After imputed value for foreign technical as.sistance Table 3: TENTATIVE PROJECTION OF (G.D.P.

(in Eth$ million)

Sectors 1961/62 in % of 1970/71 in % of actual 1/ total proj. total

1. Agriculture 1J79 6 9.h 1835 59.6

2. Industry, crafts, pmjer, mining 165 7.8 400 13.0

3. Transport and coTmerce 245 11.5 380 12.h

4. Government, services and others 241 11.3 460 15.0

Total 2130 100.0 3075 100.0

/ For 1962/63 the Planning Office estimates the total at 2210 (prel.); no distribution over sectors is available for that year. - 10 -

Table 4: PROJECTIOIJS OF GOVERNIENT FINANCE

(in Eth$ million)

1964/65 1970/71 expected actual

1. Domestic revenue direct taxes 58 75 indirect taxes 111 180 custom duties 92 135 other 34 55 295 445

2. Ordinary expenditure General administration 28 37 Education, health, other social 76 105 Economic ministries 31 53 Security and justice 156 225 Other, and public debt 41 65 332 485

1 - 2 -35 -40

:3. Foreign technical assistance 531/ 80 surplus 18 40 4. Capital expenditure 63 105 3 - 4 -45 -65 5. Foreign loans/grants 29 65 overall deficit/surplus -16 -

J In 1965/66 Budget: 76 - 11 - Table 5: PROJECTION OF BALANCE OF PAYMENTS

(in Eth$ million)

1970/71 1965/66- 1970/71

Exports (see below) 360 ) Imports (fob) 400 ) trade balance -40 ) Services -60 3 -100 ) -610 Investment income,private transfers -35 ) -15 Government transfers +30 ) 105 -625

Net private capital inflow 30 200 Net public capital inflow 70 400 Decrease reserves 5 25 105 625

Add exports: 1964 1970/71 (prel.actual) Quantity Value Quantity Value (000 tons) (000 tons) coffee 74 159 84 155 Cereals and pulses 74 14 100 20 Oilseeds, oilcakes 106 30 165 44 Fruits, vegetables 6 15 Meat 3 15 Hides and skins 22 33 Minerals 2 30 Others 28 48 264 360 STATISTICAL ANNEX

Table

External Medium and Long-term Public Debt ...... 1

Gross Domestic Product by Sector ...... 2

Estimates of Area and Production of Major Agricultural Crops ...... 3

Estimates of Livestock ...... 4

Industrial Production of Selected Commodities ...... 5

Railway Transport Statistics ...... 6

Increase in the Volume of Money ...... 7

Domestic Revenue and Ordinary Expenditures of Central Government ...... 8

Details of the Budget for Capital Eypenditures,1965/66.. 9

Details of Expenditures in the 1965/66 Budget covered by External Assistance ...... 10

Balance of Payments .. 11

Composition of Foreign Trade ...... 12...... 12

Direction of Foreign Trade . .13

Quantities exported of Major Commodities . . 14

Details of the Net Public Capital Inflow . .15 TABLE I

EXTERNAL MEDIUM AND LONG-TERN /1 PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEMBER 31, 1964 WITH MAJOR REPORTED ADDITIONS JANUARY 1 - 11ARCH 31, 1965 /2

Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents)

Debt Outstanding Major reported December 31, 1964 additions Item Net of Including January 1 - undisbursed undisbursed March 31, 1965

TOTAL EXTERNAL PUBLIC DEBT 53,709 113,980 700

Privately-placed debt 8,793 10,270 IBRD loans 22,809 745454- IDA credit 2,985

1J.S. Government loans 5,839 :13,978 700 Export-Import Bank 43607 8,746 AID ,4000 700 Department of Agriculture 1,232 1,232 -

Loans from Yugoslav Government 8 126 :10,025 Loans from Sino-Soviet Bloc 5170,753 USSR 3,711 15,687 - Czechoslovakia 1J445 5,065

A/f Debt with an origilnal or extended maturity of one year or more. 71 Does not include unallocated amounts under the following frame agreements:

a. USSR - Rbls 90,000,000 of which Rbls 75,280649 not yet allocated. b. Czechoslovakia - £3,500,000 of which £3,233,931 not yet allocated. c. Yugoslavia - $10,000,000 of which $3,367,153 not yet allocated. TABLE 1 (Cont.)

Debt Repayable in Foreign Currency /1 (In thousands of U.S. dollar equivalents)

GRAMD TOTAL

Debt Outst (Begin of Period) Payments During Period Including Amorti- Year Undisbursed zation Interest Total 1965 111,166 8,062 2,652 10,714 1966 103,804 8,980 3,116 12,095 1967 94,825 7,603 3,039 10,642 1968 87,222 7,339 2,986 10,325 1969 79,780 7,548 2,902 10,450 1970 72,129 5,780 2,662 8,442 1971 66,349 5,491 2,426 7,917 1972 60,858 4,484 2,210 6,693 1973 56,374 4,251 2,027 6,278 1974 52,123 4,285 1,844 6,129 1975 47,838 4,320 1,659 5,979 1976 43,518 4,230 1,474 5,705 1977 39,288 3,504 1,302 4,807 1978 35,978 2,007 1,153 3,160 1979 34,165 1,823 1,072 2,895

/1 Includes debt service on all debts listed in T'able 1 prepared May 12, 1965 except for the following for which the terms are not available:

NR 2,352,000 loan from the USSR

Source: Statistics Division IBRD Economics Department May 12, 1965 TABIE 2 OROSS DOMESTIC PRODUCT

(in Eth* million; 1960/61 prices)

1956/57 1961/62

Agriculture 1328.0 1453.6 Forestry 18.3 23.3 Fishing, hunting 1.1 1.8 Mining 1.0 1.4 Power 4.4 7.5 Manufacturing 24.7 34.9 Crafts and cottage industries 60.9 77.0 Building, construction 2)4.2 44.5 Transport, comimunications 69.7 109.3 Trade, commerce 110.3 136.1 Catering, tourismn 20.8 25.0 Financial intermediaries 10.5 15.4 Education, culture 11.2 28.0 Community development 6.o 14.0 Other services - 0.9 Government 2.3 4.9 Housing 63.3 95.4 Others 19.6 25.8 26.0 31.6

Total G.D.P. 1802.3 2130.4

Source: Second Five Year Plan TABLE 3

ESTIMATES OF AREA AND PRODUCTION OF MAJOR AGRICULTURAL CROPS IN 1964

Area Production (in 000 hectares) (in 0OO metric tons)

CEREALS: Teff 3,380 1,915 Wheat 390 282 Barley 960 788 I4aize 776 719 Sorghum 1,386 1,130

INDUSTRIAL CROPS: Cotton fibre 42 5 IMussa root 450 270 Sugar cane 6 750 Neug seeds 351 216 Linseed 106 55 Sesame 77 32 Groundnuts 31 16 Sunflower seeds 53 26

PULSES: Field peas 127 115 Haricot beans 88 63 Chick peas 115 105 Lentils 158 96

VEGETABLES: Potatoes 28 137 Pepper 221 90 Other 108 281

PESCELLANEOUS: Coffee /1 420 140 /1 Orchard fruits 6 57

/ Cleaned beans

Source: Ministry of Agriculture TABLE 4

ETHIOPIA: ESTD SITES OF LIVESTOCK

(in thousands)

1957 1961 1962 1963

Cattle 23,100 24.;900 25,051 25,188

Sheep 21,800 23,500 23,873 24,250

Goa ts 16,201 17,500 17,750 17,930

Horses 1,200 1,300 1,310 1,321

Donkeys 3,400 3,700 3,715 3,730

Camels 860 930 933 9)41

Poultry 34,400 40,000 41,000 42,000

Source: Department of Economics and Statistics, Ministry of Agriculture, Addis Ababa. TAB LE 5

INDUSTRIAL PRODUCTION OF SELECTED COIq4ODITIES 1960-1963 /1

Unit 1960 1961 1962 1963

Electricity (public utility and industrial firms) 1,000 Kwh. 101,970 125,122 151,926 176,700 Grey sheetings 1,000 sq.m. 11,917 15,430 23,658 22,879 Khaki drills 1,000 sq.m. -- 2,090 1,719 3,795 Grey drills 1,000 sq.m. 633 525 1,038 2,035 Cotton yarns tons 4,178 4,521 5,724 5,503 Cotton ginned tons 1,100 1,200 2,700 4,200

Wlheat flour tons 17,000 20,700 22,550 23,020 Vegetable oils tons 5,404 5,400 4,756 -- Sugar refined tons 39,859 37,588 39,941 59,212 Pasterized milk 1,000 litres 1,616 1,595 1,693 1,712 Meat frozen tons 1,200 820 1,003 1,200 Mleat canned tons 5,137 3,955 3,332 3,100 Salt (alimentary and industrial) tons 140,625 135,225 197,650 255,100

Beer hectolitres 66,743 85,031 73,793 98,384 Wine hectolitres 18,711 21,526 23,890 -- Cigarettes 1,000 pcs. 356,336 336,918 380,019 389,769

Leather soles tons 546 540 542 489 Leather uppers 1,000 sq.ft. 1,125 1,387 1,626 1,802 Leather shoes 1,000 pairs 238 253 268 319

Cement tons 28,251 29,905 44,380 33,374 Timber Cu. mtrs. 11,100 11,800 14,300 -- Bricks of clay 1,000 pcs. 7,500 7,520 7,497 7,700 OXygen Cu. mtrs. 38,922 45,025 50,544 55,043 Matches 1,000 boxes 13,487 18,095 14,082 11,361 Glass bottles 1,000 pcs. 7,735 8,073 10,608 14,043 Mosaics aq.m. 44,462 47,444 49,605 47,468

/1 Year ending September 10

Source: Central Statistical Office, Ethiopian Government, Addis Ababa. TABLE 6

RAILWAY TRANSPORT STATISTICS

1959 1960 1961 1]962 1963

Length of track (kms):

a) Addis Ababa-Djibouti Railway 784 784 784 784 784 b) Agordat-Massava Railway 306 306 306 306 306

Freight carried (ooo tons):

a) 286 296 301 339 372 b) 130 133 151 178 184 Passengers carried (OCO's):

a) 480 411 388 398 458 b) 196 218 335 394 397

Source: Statistical Abstracts, 1964 Data for (a) refer to Gregorian Calendar years; for (b) to years ending September 10th of years stated. TABLE 7

INCREASE IN THE VOLUME OF MONEY /1

(in Eth.$ million)o -

1961 1962 1963 1964 1964 1965 1st 1st tChanges in: h.y. h.y.

money 10.1 20.4 23.( 43.8 48.0 51.7 quasi money 4.4 4.5 2.6 21.6 16.2 8.6

14.5 24.9 25.6 65.4 64.2 60.3

net foreign assets 7.1 18.6 4.14 26.8 54.6 60.1 net claims on Government -0.9 -15.0 17.3 24.3 5.8 -12.3 net claims on private sector 6.o 20.4 14.2 28.4 8.6 11.8 others/2 2.3 0.9 -10.3 -14.1 -4.8 0.7

14.5 24.9 25.6 65.4 64.2 60.4

/1 money volume end June 1965: money: Eth.$355.0 million quasi money: Eth.$ 77.2 million

/2 mainly capital and reserve accounts Source: IFS TABLE 8

DOMESTIC REVENUE AND ORDINARY EXPENDITURE OF CENTRAL GOVERNMENT (in Eth.$ millions)

1961/62 1962/63 1963/64 1964/65 1965/66 actual actual actual expected budget /1 actual /2

I. DOMESTIC REVENUES:

Direct taxes /3 45.7 44.7 56.9 58.0 60.2 indirect taxes/4i 43.3 14.2 95.8 104.5 110.8 customs duties 60.7 64.3 83.7 86.5 88.3 federal taxes /5 27.1 62.2 - - - revenue from State pro- 8.6 9.7 12.2 14.2 13.9 perty /6 - 0.6 0.1 0.9 7.1 sale of State assets 25.3 21.5 23.9 19.7 17.7 other domestic revenue/7

Total:210.7 217.2 272.6 283.8 298.0

/1 Including - for the first time - Eth.$181.1 million from Eritrea 72 Later estimates for total revenue are higher, possibly Eth.$295 737 Includes income tax, land tax, title on land, cattle tax, education and health tax /4 Includes excise tax, transaction taxes, stamp duties, tobacco monopoly 75 After 1962/63 included under indirect taxes 7T M4ostly revenue from capital investments and sales of movable property; sales of immovable property are included under "sale of State assets". /7 Including fees, charges, national lottery, etc.; in 1965/66 Eth.$6.6 million of "pensions revenue" has been left out. TABLE 8 (Contd.)

1961/62 1962/63 1963/64 1964/65 1965/66 actual actual actual expected budget /1 actual /2

II. ORDINARY EXPENDITURES:

Imperial Palace /1 5.4 6.5 5.7 5.2 4.4 Parliament 2.5 3.0 3.0 2.9 3.0 Prime Ki.nisters Office /2 0.5 1.2 1.8 2.0 2.8 .iinister of Pen /3 1.6 1.3 1.3 1.2 1.2 Min. of Foreign Affairs 5.7 6.3 7.7 6.0 6.0 Min. of National Defense 49.5 50.8/4 4.8 94.8 100.1 Min. of Interior 35.2 37.2 48.4 54.7 78.2 i'1in. of Justice 3.7 4.0 5.5 6.1 6.7 Min. of Finance 8.3 9.1 10.6 10.8 11.4 Min. of Education 20.7 24.7 46.2 47.0 51.9 Min. of Information 1.7 5.0 4.5 4.7 4.8 Min. of Public Health 9.1 11.3 21.6 21.0 22.4 ,in.of Nat. Community Dev. 1.4 1.9 2.0 2.3 2.9 Haile Selassie I Foundation 0.9 0.9 1.0 1.0 1.0 Min. of Agriculture 2.5 3.3 6.6 6.4 7.7 Iii.n. of Commerce and Industry 1.2 1.2 1.2 1.2 1.1 Min. of Public Works & Communic.24.1 14.7 20.3 18.0 18.6 Li.n. of Posts, T and T 1.1 1.2 1.5 1.4 1.7 Econ. and Techn.Assist.Board 4.0 2.3 2.4 4.0 4.1 Awash Valley Authority ) 0.1 0.1 0.4 0.4 Public debt ) 13.2 12.4 13.1 23.5 24.4 Unforeseen expenses ) - - 4.0 7.0 Other ) 6.8 8.6 13.3 9.7

Total: 192.3 205.2 297.9 331.9 371.5

/1 Includes Min. of Imperial Court 72 Includes Economic Planning Board ,7 Includes H.I.M.'s Private Cabinet EI~ Includes Eth.$25 million expenses covered by external assistance

Source: Ministry of Finance TABLE 9

DETAILS OF THE BUDGET FOR CAPITAL EXPENDITURE IN 1965/66 OF THE CENTRAL GOVERINIENT (in Eth.$ 000)

From Local From Ext. Loans Funds and Loans From: External /1 Assistance

1) SOCIAL DEVELOPtENT:

Nat. Community dev. 250 - Education 750 - Health - 1,000 Yugloslav credit for Duke of Harrar Hospital

2) ECONOMIC DEVELOPMENT: ) IDA 8,737 a. Infrastructure ) USAID 3,687 - Highrways 12,262 17,423 ) W.Germany 5,000 b. Industry - Oil refinery Assab 2,000 19,055 USSR - Paper mill 1,500 - Wloollen Factory 500 - Oilseed processing 1,000 - Mining 1,000 500 U.K. - Fisheries Industry - 4,000 Bulgaria

c. Agriculture - Milk Industry 200 - Borana Cattle Survey 500 - Agr. Research Stations 952 - Farms, Pilot Ccntres, rural cooperatives 600 - Other 464

d. Other - Awash Valley Project 118 - "later drilling 500 - IWabi Shebelli River Project 1,000 1,350 USAID Credit - New Projects Study 750 - Subscr. to Capital of Investment Bank, 1,000 - Same to Capital of) Development and ) 1,OCO 4,000 Eximbank Hotel Corp. ) TABLE 9 (Contd.)

From Local From Ext. Loans Funds and Loans From: External /1 Assistance

- External Assistance Projects of Capital Nature: Broadcasting Station 250 Shola Milk Processing Plant 425 Cattle Survey Borana 250 Agr. Research Station 943 Bacho Farm 340 Finchoa Dams 250

3) PUIBLIC BUILDINGS: 1,600

1-3 30,404 47,328

/1 In addition a Czechoslovak credit of $650 for hospital supplies and equipment has now; been obtained.

Source: Ministry of Finance TABLE 10

DETAILS OF EXPENDITURES IN 1965/66 BUDGET COVERED BY EXTERNAL ASSISTANCE (in Eth.$000)

PRI1E MINISTERS OFFICE

Planning Office 136 Institute for Public Administration 168 Central Statistical Office 163 Technical Agency 20 487

MINISTRY OF NATIONAL DEFENSE

Department of >arine 48 MAAG Section 25,000 25,048

MINTSTRY OF INTERIOR

Police 250 Mapping and Geography Institute 24,325 24,575

MINISTRY OF EDUCATION

U.S. Peace Corps 7,500 Training Secondary School, Teachers 658 Various 1,7148 9,906

UNIVERSITY 6,693

MINISTRY OF PUBLIC HEALTH

U.S. Peace Corps 1,000 Malaria Eradication 1,250 Other Health Services 2,992 5,242

MINISTRY OF NATIONAL COI-UNITY DEVELOPICNT 183 H.S.I. FOUNDATION 48 1iNISTRY FINANCE, CUSTOT-S ADIDNISTRATION 24 MINISTRY OF AGRICULTURE 1,252 MINISTRY OF PUBLIC WORKS AND CO~iRiUNICATIONS

Civil Aviation 81 Meteor Services 58 139

1I[NISTRY OF P.ToT., TEIECOM1N1. INSTITUTE 93 CIVIL SERVICE COMI0SSION 48 Ordinary Expenditure 73,738 Capital Projects (see Appendix 10) 2,458 Source:__Ministry_of Fina76,196 Source: Ministry of Finance TABLE 11

BALANCE OF PAYi-ENTS ESTIIA'ES (in Eth.$ millions)

Provisional 1960 1961 1962 1963 1964 Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit

A,.Goods and Services 228.7 259.4 245.9 279.9 278.6 344.7 287.6 357.2 351.6 391.8 l.Merchandise,F.O.B. 189.6 187.8 195.6 194.0 205.0 219.0 223.4 241.7 262.6 271.9

2.Non-Vlonetary gold 0.7 - - - 0.1 - - - 0.6 -

3.Freight + IHerchand. 35.8 Insuranre - 19.9 - 27.8 - 29.9 - 31.9 - 32.7 3.1 Fre:ght - 17.8 - 25.5 - 27.4 - 29.2 - 3.2 Insurance 2.1 - 2.3 - 2.5 - 2.7 - 3.1

4.Other Transportationl3.3 682 8.0 4.5 15.5 16.5 9.8 11.7 29.9 17.5

5.Travel 4.0 11.6 10.4 10.6 3.7 13.8 4.9 13.5 5.3 14.8

6.Investment Income 4.3 15.8 3.0 21.4 5.1 19.9 5.1 20.5 6.4 18.9 6.1 Direct Invest. - 13.4 - 13.6 - 15.7 - 12.9 - 10.3 6.2 Other 4.3 2.4 3.0 2.8 5.1 4.2 5.1 7.6 6.4 8.6

7.Government, n.i.e. 14.6 7.7 21.7 10.7 44.7 34.2 38.9 20.6 32.0 19.7

8.0ther Services 2.2 10.4 7.2 10.9 4.5 11.4 5.5 17.3 12.8 13.2

Net Goods + Services - 30.7 - 34.0 - 66.1 - 69.6 - 40.2 Trade Balance (1+2) 2.5 - 1.6 - - 13.9 - 8. _- 8.7 3173 Net Services (3-8) - 33.2 - 35.6 - 52.2 _ 51.3 -

B.Transfer Payments 28.8 16.9 33.6 17.8 51.1 25.2 31.1 18.9 35.7 17.2

9.Private 2.8 11.0 10.7 17.7 14.8 22.5 11.4 16.5 13.0 14.7

lO.Central Govt. 26.0 5.9 22.9 0.1 36.3 2.7 19.7 2.4 22.7 2.5

Net Transfer Paymtsll9 - 15.8 - 25.9 - 12.2 - 18.5 -

Net Total (1-9) - 38.9 - 41.0 - 73.8 - 74.7 - 41.9

Net Total (1-10) - 18.8 - 18.2 - 40.2 - 57.4 - 21.7 TABLE 11 (Contd.)

Provisional 1960 1961 1962 1963 1964 Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit

C.Capital + Monetary Gold 16.3 - 32.1 - 49.1 - 62.5 - 20.2 -

Nonmonetary Sectors 25.6 - 36.1 - 72.0 - 64.8 - 47.0 -

ll.Direct Investment 22.9 - 14.5 - 16.7 - 31.2 - 27.4 -

12.Other Private Short terms - 18.4 7.1 - - 3.4 - 4.4 10.7 - 12.1 Liabilities - 15.9 7.9 - 7.2 - _ 2.3 3.0 - 12.2 Assets - 2.5 - 0.8 - 10.6 _ 2.1 7.7 -

13.Local Government ------

14.Central Government 21.1 - 14.5 - 58.7 - 38.0 - 8.9 - 14.1 Loans Recvd. 24.7 3.3 19.5 4.9 65.3 6.6 51.5 13.5 22.8 13.7 14.2 Subscriptions to IBRD & IDA - 0.3 0.4 0.5 - - 0.2 0.2 - 0.2

Monetary Sectors - 9.3 - 4.0 - 22.9 - 2.3 - 26.8

15.Commercial Banks: Liabilities 0.7 - 0.1 - 2.6 - - 5.5 1.8 - 16.Conrmiercial Bank: Assets 1.0 - - 1.1 2.6 4.2 - - 1.7 17.Central Institutions: Liabilities 6.3 - 3.0 - 2.9 - 3.6 - _ - 17.1 IPF Holdings of Eth.$ 3.4 - 3.4 - 3.4 - 3.4 - - - 17.2 IBRD & IDA Holdings E$ 0.3 0.4 - 0.4 - 0.5 - - - - 17.3 Other 3.0 - - - - - 0.2 - - -

18.Central Institutions:

Assets - 17.3 - 6.0 - 25.8 - 4.6 - 26.9 18.1 IMF Subscripts. - 4.5 - 4.5 4-.5 - 4.5 - - 18.2 Portfolio Secur.- 3.9 7.2 - 1.5 - 12,0 - 7.7 - 18.3 Other Claims - 9.4 - 10.0 - 23.9 - 13.4 0.4 34.4 18.4 Monetary Gold 0.5 - 1.3 - 1.1 - 1.3 - - o.6

Net Errors and Omissns.2.5 - - 13.9 - 8.9 - 5.1 1.5 - Sources: ITT, Balance of Payments Division, Draft for Balance of Payments Yearbook Vol. 16 for 1961-1963; National Bank of Ethiopia for 1964. TABLE 12

COMPOSITION OF FOREIGN TRADE A

Period. 2/ 1961 1962 1963 1964 1961 1964

(in millions of Eth.$) (In % of Total)

EXPORTS 188.6 199.3 223.h 262.5 100.0 100.0

Coffee 93.6 107.1 110.9 158.8 49.6 60.5 Oilseeds, Oilcakes and nuts 17.0 23.4 34.2 30.1 9.0 11.5 Hides and skins 25.1 24.7 21.8 21.9 13.3 8.3 Pulses, Cereals 17.8 16.3 16e6 13.6 9.4 5,2 Chat 10.8 10.0 12.5 5,1 5.7 1.9 Fruits + vegetables 4,5 3.1 6.4 6.3 2.4 2.4 Live animals and meat 3.4 2.1 3.6 8.4 1.8 3.2 Others 16.4 12.6 17.5 18.3 8.8 7.0

IMPORTS /3 235d4 257.0 276.3 307.7 100.0 100.0

Foodstuffs + Tobacco 14.4 16.9 14.8 17.8 6.1 5.8 Rawi Cotton 6.9 6.8 7.2 9.8 2,9 3.2 Petroleum Products 24-1 23.1 18.4 :23.5 10.2 7.6 Textiles 5-,-c6 53.3 43.5 37.2 23.2 12.1 Transpcrt Eq'iiptment 21.3 52.8 37.0 42.5 9.0 13.8 Electrical Goods 9.2 10.3 18.6 17.0 3.9 5.5 Rubber Goods 8.5 8.7 8.7 9.1 3.6 3.0 Chemical & Chemical Products 13.9 16.8 21.2 23.3 5.9 7.5 Machinery 32.3 25.4 42.7 ) 13.7 IIetal and Metal Nlanuf. 23,4 15.2 23.9 ) 127.5 9.9 41.3 Other Manuf.Products. 27,0 27.7 40.3 ) 11.5

/1 Data is based on trade returns from the Customs Adm2inistration They differ somewha,I; from'. thc.,,e in t"e balc.nce of payments. /2 For 1961 for the l2-mo:-ilh period endcd December 10, subsequently for the 12-month period ended January 10 of the following year.

Source: Central Statistical Office and Statistical Abstract, 1964. TABLE 13

DIRECTION OF FOREIGN TRADE /1

Period /2 1961 1962 1963 1964 1961 1962 1963 1964

(In millions of Eth.$) (In % of Total)

EXPORTS /3 188.6 199.3 223.4 262.5 100.0 100.0 100.0 100.0

United States 73,1 78.1 84.5 129.0 38.7 39.2 37.8 49.0 Italy 20.5 19.8 19.7 18.6 10.9 9.9 8.8 7.1 Aden 9.3 12.4 13.4 12.4 4.9 6.2 6.o 4.7 Saudi Arabia 9.5 8.5 11.3 11.0 5.0 4.3 5.1 4.2 United Kingdom 10o8 10.2 9.7 10.6 5,7 5.1 4.3 4.0 Yugoslavia 2.1 4.5 8.8 9.7 1.1 2.3 3.9 3.7 Japan 403 3.9 8.3 6.0 2.3 2.0 3.7 2.3 Germany,Fed.Rep. 4.6 6.o 8.1 9.6 2.4 3.0 3.6 3.6 French Somaliland 9.0 7.4 7.8 10.7 4.8 3.7 3.5 4.1 Other 45.4 48.5 51.8 44.9 24.2 24.3 23.2 17.1

IMPORTS /4 235.4 257.0 276.1 307.7 LOO.O 100.0 100.0 100.0

Italy 35.6 40.1 44.4 55.4e 15.1 15.6 16.1 18.0 Japan 35.9 35.7 37.5 45.8 15.2 13.9 13.6 14.9 United States 20.1 46.4 34.4 26.5 8.5 18.1 12.5 8.6 Germany,Fed.Rep. 22.9 23.5 30.3 38.2 9.7 9.1 11.0 12.4 United Kingdom 21.9 18.2 25.0 26.5 9.3 7.1 9.1 8.6 India 14.4 11.5 10.9 8.2 6.1 4.5 3.9 2.7 France 5.1 5.5 8.0 11.1 2.2 2.1 2.9 3.6 Holland 11.5 8.6 8.o 10.5 4.9 3.3 2.9 3.4 Saudi Arabia 12.1 5.7 6.o 4.4 5.1 2.2 2.2 1.4 Other 55.9 61.8 71.6 81.1 23.7 24.0 25.9 26.4

/1 Data is based on trade returns from the Customs Administration. They differ somewhat from those in the balance of payments.

/2 For 1961 for 12-month period ended December 10 for 1962/64 ended January 10 of the subsequent year.

/3 'Exports include re-exports

/4 c.i.f. TABLE 14

QUAN~TITIES EXPORTED OF 1AAJOI1 COMI'2ODITIES (In tons, unless otherwise specified) Ending Dee. 99) (Years 1st Half 1962 1963 1964 Ccmmodity 1954 1955 1956 1957 1958 1959 1960 1961

66,637 50,243 Coffee 31,592 42,094 31,503 50,681 39,861 45,244 51,282 56,o24 62,569 6,738 2,644 Cattle Hides 4,909 4,913 4,359 4,091 4.,423 10,064 9,753 8,062 7,262 2,644+ 3,925 2,142 Sheep skins (000's pcs) 1,871 2,239 2,513 2,377 2,148 3,426 3,178 4,133 2,788 3,680 3,790 2,012 Goat skins 4,423 4,236 4,097 4,305 4,301 4,808 2,197 75,569 37,344 Cereals and pulses 79,445 69,819 48,571 59,920 35,625 46,8A41 68,117 81,279 72,563 10,676 Oilseed cakes 9,100 10,668 7,119 9,363 12,656 15,727 13,265 15,259 26.,272 26,408 51,368 Oilseeds 43,031 46,765 55,683 57,813 39,950 29,530 44,981 51,327 56,832 84,864 4,802 1,490 Chat 1,227 1,522 1,613 1,063 1,872 2,646 2,470 3,832 3,856 11,784 Vegetables 3,671 5,095 5,409 9,210 9,674 11,592 10,080 14,143 14,758 22,983 2.,164 Fish NXeal 3,807 3,021 29 3,535 2,364 3,394 1,599 4,011 2,448 2,650 2,426 3,914 2,064 Frozen zeat 1,493 301 185 635 75 2,282 3,Li)j 2,637 19,325 20,556 --- 20,000 98,611 c63,654 5,275 33 120 56,569 12L,922 158,195 Salt_ 136,8 Quantum Indexes t1.2 99,0 d7.5 113.2 90.1 104.8 105.9 122.6 153.8 ending Decemrber 9, From + = iletric tons For the years prior to 1962, the figures refer to 12-months period 1962 onward, the figures refer to 12-months periods ending January 10th of follawing year. Source: Trade Returns of the Imperial Ethiopian Customs Adrinistration, as published in the Quarterly Bulletin of the National Bank of Ethiopia. TABLE 15

Details of Net Public Capital Inflow (In Eth.$ million)

Drawings From: 1960 1961 1962 1963 1964

IBRD 7.7 6.6 6.1 6.6 8.5 IDA - - - 2.4 5a1 Eximbank 1.0 0.5 2.2 4.2 0.3 DLF ) 23.1 2ft5 PL 480 ) 2.1 - Yugoslavia ) 16.0 12.4 57.0 5.1 1.9 Germany, F.R. - 1.9 USSR 5.8 - Others 2.2 2.6

Total Drawings: 24.7 19.5 65.3 51.5 22.8

Repayments to:

IBRD 1.2 1.9 2.8 2.9 3.0 IDA _ _ _ _ _ Others 2.1 3.0 3.8 10.6 10.7 Total Repayments 3.3 4.9 6.6 13.5 13.7

Source: National Bank of Ethiopia