COUNTRY REPORT

Ethiopia Eritrea Somalia Djibouti

2nd quarter 1998

The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group.

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Contents

3 Summary

Ethiopia 4 Political structure 5 Economic structure 6 Outlook for 1998-99 9 Review 9 The political scene 11 The economy

Eritrea 18 Political structure 19 Economic structure 20 Outlook for 1998-99 21 Review 21 The political scene 23 The economy

Somalia 26 Political structure 27 Economic structure 28 Outlook for 1998-99 30 Review 30 The political scene 34 The economy 36 News from the Somaliland Republic

Djibouti 39 Political structure 40 Economic structure 41 Outlook for 1998-99 42 Review 42 The political scene 44 The economy

46 Quarterly indicators and trade data

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 2

List of tables 46 Ethiopia: quarterly indicators of economic activity 46 Djibouti: quarterly indicators of economic activity 47 Ethiopia: foreign trade 47 Djibouti: foreign trade 48 Somalia: trade with major trading partners 48 Djibouti: trade with major trading partners

List of figures 12 Ethiopia: gross domestic product 41 Djibouti: gross domestic product

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April 25th 1998 Summary

2nd quarter 1998

Ethiopia Outlook for 1998-99: A new investment code is being prepared. Donors may put pressure on the government and the IMF to resolve their differences over financial sector reform. Poor harvests will hold economic growth under 3% in the fiscal year to July. Bureaucratic and other bottlenecks need to be removed if plans to boost private-sector investment are to be successful.

Review: The security forces have continued to arrest journalists perceived to be critical of the government. The prime minister, Meles Zenawi, met with Bill Clinton on his tour of Africa. The government and IMF have failed to resolve their differences over ESAF funding. Poor harvests have led to requests for 400,000 tonnes of food aid from donors. Fertiliser prices have been deregulated.

Eritrea Outlook for 1998-99: Libya’s offer of mediation in the dispute between Sudan and Eritrea is unlikely to succeed, although relations with Yemen may improve. More difficulties with the new currency are expected.

Review: Violent clashes on the border with Sudan have continued and Libya has emerged as a mediator. Government visits have been exchanged with Yemen. A mass mobilisation campaign to improve the country’s infrastructure has been launched. The government’s human rights record has been con- demned. The new currency has caused a build-up of Eritrean debt to Ethiopia.

Somalia Outlook for 1998-99: While the implementation of the Cairo accord looks a long way off, Ethiopia and Egypt will maintain the pressure to secure peace between the warring factions. Efforts by Somaliland to solicit international recognition are likely to proceed slowly, although not without success.

Review: The scheduled Baidoa peace conference was postponed again, frus- trating international observers. Violence has flared up in Baidoa, Kismayu and Gedo. Further reports of alleged atrocities by US, Belgian and Italian troops in Somalia in 1994 have been made. Somaliland is inching closer to international recognition and securing foreign aid, but relations with Egypt have soured and the economy is suffering from the livestock import ban by Saudi Arabia.

Djibouti Outlook for 1998-99: Sporadic armed attacks by guerrillas loyal to Ahmed Dini’s faction of the rebel FRUD are likely to continue. These attacks will delay the army demobilisation programme, which is an essential element of the economic reform programme designed to reduce government expenditure.

Review: The army has clashed with FRUD militants in both eastern and northern Djibouti. Regional leaders met in Djibouti. France’s defence minister has confirmed that there will be troop reductions in the Djiboutian garrison. Transit trade with Ethiopia has increased.

Editor: Piers Haben All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 4 Ethiopia

Ethiopia

Political structure

Official name Federal Democratic Republic of Ethiopia

Form of state Federal republic

Legal system The federal constitution was promulgated by the transitional authorities in December 1994. Representatives were elected to the institutions of the new republic in May 1995, and it formally came into operation in August 1995

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

National elections June 1994 (Constituent Assembly); May 1995 (federal and regional); next elections due by 2000 (federal and regional)

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

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

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

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

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

Central bank governor Teklewolde Atnafu

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Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996 1997 GDP at factor costa (Birr bn) 25.2 26.2 31.4 35.7b n/a Real GDP growtha (%) 1.7 4.8 7.7 5.6b 2.0b Consumer price inflation (%; av) 3.5 7.6 10.1 –6.4 n/a Populationc (m) 53.2 54.9 56.7 n/a n/a Exports fob ($ m) 199 372 423 418c n/a Imports fob ($ m) 706 926 1,148 1,235c n/a Current-account balance ($ m) –50.0 125.0 –9.7b –102.3c n/a Reserves excl gold ($ m; year-end) 455.0 544.2 771.5 732.2 501.1 Total external debt ($ m) 9,703 10,067 10,308 10,077 n/a External debt-service ratio, paid (%) 18.5 19.8 19.1 42.2 n/a Coffee productiond (’000 tonnes) 222 228b 230b 230b n/a Exchange rate (av; Birr:$) 5.00 5.09 6.15 6.35 6.71

April 17th 1998 Birr6.83:$1

Origins of gross domestic product 1995b % of total Components of gross domestic product 1995b % of total Agriculture & forestry 55.3 Private consumption 81.1 Other production sectors 11.9 Government consumption 12.3 Manufacturing 7.5 Gross fixed capital formation 15.6 Services 32.8 Exports of goods & services 14.2 GDP at factor cost 100.0 Imports of goods & services –23.2 GDP at market prices 100.0

Principal exports 1995a $ m fob Principal imports 1994a $ m Coffee 269 Motor vehicles 171 Hides & skins 56 Food & live animals 153 Gold 23 Machine & aircraft 120 Oil seeds 9 Metals & metal products 95

Main destinations of exports 1996a % of total Main origins of imports 1994a % of total Germany 26.4 Italy 12.5 Japan 10.9 US 11.7 Italy 10.3 Germany 7.5 UK 7.7 Saudi Arabia 4.4 a Fiscal years starting July 8th. Fiscal years are widely used by national statistical sources, while calendar years are favoured by international publications. b Provisional. c Official estimates. d Crop years (October-September) beginning in calendar years.

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Outlook for 1998-99

Further policy reforms are Further deregulation of Ethiopia’s underdeveloped financial sector and the expected— introduction of a revised investment code are expected in 1998. Although disagreement over the pace of financial deregulation is causing difficulties in the government’s negotiations with the IMF over the resumption of enhanced structural adjustment facility (ESAF) credits, outstanding differences may be resolved during the Fund’s May mission to Addis Ababa. If a resolution is found, the state-owned Commercial Bank of Ethiopia (CBE) is likely to be restructured and competition increased in the country’s fledgling private bank- ing sector. Other donors, notably the World Bank, are eager for the govern- ment and the Fund to resolve their current differences. This will allow discussions on the heavily indebted poor countries (HIPC) debt-reduction in- itiative to begin, for which agreement with the Fund is a precondition.

The prime minister, Meles Zenawi, declared in March that he expected the draft of a revised investment code to be ready by May. It would be the third investment code issued since 1993—the last revision was made in mid-1996 (3rd quarter 1996, page 13). The new code will allow foreign investment in the previously prohibited sectors of power and telecommunications, and offer more generous fiscal incentives to new investors. However, one proposal put forward by the Ethiopian Investment Authority (EIA) may be left out. The EIA is proposing that Ethiopians holding foreign passports receive the same invest- ment incentives as nationals residing domestically, which would, in practice, mean accepting the principle of dual nationality, something which the Ethiopian authorities have resisted to date.

—but GDP growth Amendments to the investment and financial regulations will strengthen the stagnates ongoing economic reform programme and may persuade Ethiopian entrepre- neurs among the diaspora to invest in the country, boosting GDP growth. However, GDP stagnated in the current fiscal year (1997/98), which ends in July. Nominal growth in 1997/98 is now forecast at some 1-3% and inflation at around 4%, suggesting negative real economic growth, although there are continuing doubts over the accuracy of government data.

Development strategy If the government and the IMF agree on terms in May, donors and the govern- may be better defined ment will be able to resume work on a blueprint for subsequent medium-term policy initiatives. The current “agricultural development-led industrialisation” policy provides only the most basic indication of medium-term strategies. Im- proving the implementation capacity of government institutions is one area for which donor funding is needed. There are serious doubts as to whether govern- ment institutions can absorb current levels of project and sectoral aid offered to the country. This is particularly true of the nine regional administrations, sev- eral of which lack adequate budgetary controls. The quality and consistency of economic data also need to be improved. While Ethiopia’s gathering of statistics has improved markedly in recent years, databases are still far from adequate for the sort of policy interventions and planning now required.

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8 Ethiopia

Public awareness over Donors also have a role to play in educating the public over the economic policy reform is needed reform measures. Only recently have they begun to use the private print media to justify their policy recommendations, while most government ministers still shun dealings with the press. The government’s main medium of communi- cation is the Ethiopian News Agency (ENA), which generally presents policy in a muddled way and has contributed to an exceedingly polarised and mis- informed debate over economic policy. The hastening of the liberalisation of Ethiopia’s state-controlled broadcasting media would be one step towards over- coming this problem. It is also necessary to sharpen economic analysis and debate among academia, the civil service and the media. This would encourage public discussion and understanding of issues such as privatisation and the increasing role of foreign investment.

Investment Ethiopia will continue its drive to attract foreign direct investment (FDI). The implementation rates are new investment code and the next phase of privatisation will strengthen the low country’s position in this respect. External consultants have been employed to publicise privatisation projects to both the Ethiopian public and potential domestic and foreign investors. Nevertheless, actual completion rates for the investments already approved remain low. In late 1997 the Ethiopian Invest- ment Authority (EIA) reported that, of the 3,500 projects approved to date, only 700, with a value of just Birr5bn ($720m), had been completed. The number of foreign projects licensed by the EIA stood at just 63, with a value of around $500m. Red tape and problems over access to land are the most fre- quently cited complaints made by entrepreneurs seeking to invest. While the EIA maintains that significant improvements are being made on both counts, faster progress needs to be achieved in ensuring that sums pledged for invest- ment are actually transformed into productive assets by streamlining the bu- reaucracy involved.

FDI in Ethiopia includes investments by the MIDROC corporation of Sheikh Mohamed Hussein Alamoudi, an Ethiopian-Saudi entrepreneur who is the main large-scale foreign investor in the country. Sheikh Alamoudi’s role in the economy remains somewhat paradoxical. He is vigorously, and almost single handedly, promoting the country as a free-market economy eager to accept inward FDI, yet he has cornered many of the most lucrative investments, notably in urban real estate. His relationship with the authorities is equally ambiguous. In recent months those in government who had previously had reservations about Sheikh Alamoudi’s growing influence appear to have ac- cepted, at least in public, that his economic role is a positive one. The govern- ment’s unwillingness to allow media reporting of the businessman’s testimony in the corruption case against the former prime minister, Tamrat Layne, in February indicates an acute sensitivity over Sheikh Alamoudi’s connections to the government. This sensitivity is unlikely to diminish during 1998. Of key concern for potential domestic and foreign investors is whether MIDROC in- tends to bid for additional state-owned assets now being prepared for privatis- ation. If it does, both domestic and foreign companies may find themselves out-bid, as was the case in last year’s sale of the Lega Dembi gold mine.

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Review

The political scene

The US presidential visit The prime minister, Meles Zenawi, met with the US president, Bill Clinton, at draws further praise for a regional summit held in Kampala, Uganda, in March. The meeting further Ethiopia consolidated an increasingly close relationship between Washington and Addis Ababa. Last December the US Secretary of State, Madeleine Albright, made a two-day visit to Ethiopia, during which she praised extensively the government (1st quarter 1998, page 13). Like Mrs Albright, President Clinton included Ethiopia’s government within what he described as a “new” wave of African leadership, referring to the leaders’ commitment to creating the condi- tions for sustained economic growth and attracting foreign investment flows. President Clinton also made several vague references to US military support for an African peacekeeping force. Ethiopia has indicated that it will participate in this initiative, with a US training force scheduled to begin work with Ethiopian troops in late 1998.

The only other policy initiative of direct relevance to Ethiopia announced during Mr Clinton’s trip concerned the state-funded Voice of America (VOA). On March 29th VOA announced that it is to launch a new radio service, “Radio Democracy for Africa”. The service is scheduled to be broadcast in eight lan- guages. These include Oromo, Amharic and Tigrinya, the three most widely spoken languages in Ethiopia.

Security forces continue The chair of the Ethiopian Free Press Journalists’ Association (EFPJA), Kifle to target journalists— Mulat, was arrested on February 11th, bringing the number of journalists ar- rested over the preceding month to nine. Ironically, Mr Kifle was arrested for issuing an EFPJA press release listing those journalists previously detained. These latest arrests have prompted the London-based human rights organis- ation Amnesty International, to step up its campaign highlighting human rights abuses in Ethiopia, notably abuses against journalists and Oromo intel- lectuals. According to Reporters Sans Frontieres (RSF), the Paris-based journal- ists’ group, Ethiopia had the dubious distinction of having the largest number of journalists in detention of any African country during 1997. RSF released their report shortly after a detained journalist, Abay Haile, died in custody. His death on February 9th was said officially to have been caused by pneumonia. Mr Haile was one of a group of reporters detained over the previous two months during a series of arrests of journalists and editors. The arrests prompted the closure of several private publications while the offices of Tobia, one of the publications most critical of the Ethiopian People’s Revolutionary Democratic Front (EPRDF) authorities, were burned down following the arrest of its editors (1st quarter 1998, page 10).

—while the government Seemingly oblivious to foreign criticism, the government is pressing ahead sets up its own human with the creation of its own human rights commission and ombudsman. The rights commission new institutions are being formed under the stewardship of Dawit Yohanes, the US-educated speaker of the federal legislature. Mr Dawit supervised the drafting of the 1995 constitution. As with the constitution, the preparation for

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 10 Ethiopia

the new human rights bodies seems to consist primarily of holding confer- ences. The publicity given to the government’s human rights initiative sits uneasily with the government’s closure in November 1997 of a similar, inde- pendent, body. This was achieved by arresting the founding members of the Human Rights League. The government also ridicules constantly the reports of the Ethiopian Human Rights Council, the only body currently reporting, how- ever partially, human rights infringements in the country.

The government reverses a On February 20th the minister of information, Wolde-Mikael Chamo, an- decision to restrict foreign nounced the lifting of new visa restrictions placed upon foreign journalists. journalists Regulations introduced on January 22nd had obliged journalists to apply for visas 15 days in advance and to provide details of interviews and writing they wanted to undertake while in Ethiopia. The move prompted extensive protests from the Nairobi-based Foreign Correspondents Association. The episode was a timely reminder of the disdain with which some in the current Ethiopian government regard the media. However, the swift reversal of the policy seemed to reflect a realisation that such restrictions would inevitably prove to be counterproductive.

Sheikh Alamoudi testifies Sheikh Mohamed Hussein Alamoudi, an Ethiopian-Saudi entrepreneur with against a former prime extensive interests in Ethiopia, was the key witness in the February trial of the minister disgraced former defence minister, Tamrat Layne. Mr Layne was prime minister of Ethiopia between 1991 and 1995. He was fired as defence minister in October 1996 and faces corruption charges relating to the embezzlement of an alleged $16m (2nd quarter 1997, page 11). Sheikh Alamoudi reportedly told the court that Mr Tamrat had requested an ad hoc payment of $16m on behalf of the government. It was his failure to honour a promise that the sum would be repaid in coffee that led the Saudi billionaire to complain, prompting Mr Tamrat’s downfall and the current trial.

Sheikh Alamoudi’s appearance at the trial has inevitably raised questions about his relationship with the government. For the first time in the nine-month proceedings, journalists and external observers were barred from the 30-minute hearing and the official media, the Ethiopian News Agency, made no reference to Sheikh Alamoudi’s testimony.

In a separate development, on April 2nd the Swiss police announced that they had agreed to return $8m deposited in a Geneva bank account by Mr Tamrat, half of the $16m he is accused of having stolen from Sheikh Alamoudi. The Ethiopian authorities had officially requested that the funds be returned last November.

The former president In late March reports in the Zimbabwean press triggered extensive speculation denies seeking political as to the possible departure of the former Ethiopian leader, Mengistu Haile asylum in North Korea Mariam, to North Korea, where he was alleged to have sought political asylum. Mr Mengistu left Ethiopia by plane a few weeks prior to the entry of EPRDF forces into Addis Ababa in May 1991. He has since lived in exile in Harare. Mr Mengistu currently faces a series of war crimes’ charges in Addis Ababa. He is being tried in absentia, the Zimbabwean government having refused extradition requests. Zimbabwean journalists have consistently criticised their government

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for sheltering Mr Mengistu, on the grounds of both principle and the cost to Zimbabwean taxpayers. In an interview with Associated Press, a US-based news agency, conducted after the rumours of a move to Korea surfaced, Mr Mengistu vehemently denied either that he was considering leaving Zimbabwe, or that his lifestyle was a financial burden on his adopted home. On April 3rd the North Korean embassy in Addis Ababa also took the unusual step of denying that Mr Mengistu had been accorded asylum by Pyongyang but it remains unclear what the final outcome of the matter will be.

HIV infection and In late March the Ethiopian News Agency announced that the country’s medi- tuberculosis are on the rise cal authorities now estimate that 2m Ethiopians are HIV positive. According to the same report, 100,000 people are thought to have died from AIDS-related illnesses over the past 11 years. The announcement came after doctors inter- viewed by private newspapers had criticised the country’s lack of accurate monitoring of the spread of HIV, claiming that the majority of Addis Ababa’s hospitals do not have the administrative capacity to monitor AIDS-related deaths. Meanwhile, according to the World Health Organisation (WHO), Ethiopia is one of seven Sub-Saharan African countries in which tuberculosis (TB) is on the increase. According to the WHO, 2m new cases of TB are reported in Africa each year.

The economy

Further policy changes, Economic indicators suggest that Ethiopians will suffer a fall in their real per but no real growth, are head incomes during 1998. Presenting a mid-year economic report to the fed- expected in 1998 eral legislature on March 5th, the prime minister, Meles Zenawi, confirmed that the government has revised its expectations for growth downwards and forecasts nominal economic growth in 1997/98 of 1-3%. In the fiscal year to July 1997, nominal GDP growth was officially recorded at 5.6%, primarily the result of good harvests in late 1996 which also caused official estimates of inflation to be lowered to –6.4%. The current downward revision of growth estimates stems from the impact of unseasonable rains upon the harvests last October (1st quarter 1998, page 12).

While the retail price index (RPI) had registered an increase of just 0.25% in the six months to March, according to Mr Meles, inflation is likely to rise in the months to July as grain shortages push prices up. Ethiopia may thus experience negative real economic growth while nominal per head incomes are likely to fall. Ethiopia’s population growth is generally estimated at between 2.5 and 3% per year.

Relations with the IMF Six months after the first phase of Ethiopia’s three-year ESAF lapsed, there is remain in suspense— still no firm timetable for a resumption of IMF lending. The deputy managing director of the IMF, Alassane Ouattara, visited Addis Ababa in December. Sub- sequent modifications to both interest-rate structures and investment regul- ations by the Ethiopian government prompted most observers, including the EIU, to believe that relations would swiftly be normalised (1st quarter 1998, page 13). However, an IMF mission to Ethiopia in mid-February failed to reach

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agreement with the government. Differences reportedly centre on the content Ethiopia: gross domestic product % change, year on year and pace of financial sector reform. Specific outstanding issues include:

12 • substantial banking sector reforms, in particular the restructuring of the Ethiopia (a) 10 Commercial Bank of Ethiopia (CBE), with the Fund reportedly insisting on the Africa division of the CBE into several, competing units; 8 • allowing foreign banks to operate in competition with local banks; 6 • allowing private foreign-exchange bureaux to operate freely; and 4 • moving towards market-determined interest rates via the creation of inter- 2 bank and Treasury-bill markets.

0 1992 93 94 95 96(b) According to the IMF, broader discussions were also held of land tenure policy,

(a) Fiscal years starting July 8th. (b) Provisional. outstanding claims of compensation for properties nationalised by the pre- Sources: EIU; IMF, World Economic Outlook. vious regime and the scope and pace of the ongoing privatisation programme. The failure to reach agreement appears to reflect differing perceptions of what financial sector reforms are desirable and possible in Ethiopia’s current eco- nomic climate. We understand that the Ethiopian authorities claim to have fulfilled already the conditions originally attached to the ESAF credits. How- ever, Fund officials appear to believe that the government could and should now move more quickly to establish financial markets. There appear to be differences between the two sides over the robustness of the economy and its ability to withstand substantial financial sector reform. Another IMF mission is due to resume negotiations on the suspended ESAF credits in May.

—indicating a need for As a result of the Ethiopian authorities’ failure to come to an agreement with the improved donor IMF, balance-of-payments assistance has not been available to support weekly co-ordination— foreign-exchange auctions. Instead, funds have been made available from dom- estic government sources, although the government has stressed that there will be no recourse to domestic borrowing to support the auctions. Such action would probably be inflationary and undermine the value of the currency.

The Ethiopian authorities are also well aware that the difficulties with the IMF are creating problems for Ethiopia’s leading donors, particularly the World Bank. The past four months have witnessed a considerable strengthening of Ethiopia’s relationship with the Bank. The Bank president, James Wolfensohn, made a high-profile visit to Ethiopia in January, announcing in the process $509m worth of new loans for power and road projects (1st quarter 1998, pages 14 and 17). In February the World Bank’s outgoing resident representative said that, with a $200m education and health programme planned, the Bank’s total new pledges during 1998 were likely to top $700m, making Ethiopia the largest recipient of Bank funds in Sub-Saharan Africa. The Bank clearly wants to por- tray Ethiopia as its star “partner”, emphasising a new, more balanced rel- ationship with African governments who have established “ownership” of their reform programmes. However, the credibility of the Bank’s stance on Ethiopia will inevitably be open to question for as long as the IMF and the government are unable to come to agreement over the ESAF conditions.

—and donor coherence on The failure to come to an agreement with the IMF could have other longer-term debt reduction implications. Debt reduction under the multilateral heavily indebted poor

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countries (HIPC) initiative is dependent upon eligible countries having had a clear record with the IMF. Under the terms of the HIPC initiative, Ethiopia’s current break in relations with the Fund will seriously retard potential debt- reduction measures. Ethiopia’s total external debt is currently estimated at slightly over $5bn, excluding the rouble-denominated debt for which no ex- change rate has yet been determined (see below).

Food output falls— Early predictions of a significant shortfall in Ethiopia’s 1997/98 food output, issued last December, have been confirmed. Heavy rainfall, which fell out of season in October, meant that grain production from last year’s principal, mehr harvest was 25% below that of 1996/97. The joint World Food Programme- Food and Agricultural Organisation (WFP-FAO) initiative presented the full findings of last year’s post-harvest crop assessment in mid-February. The WFP- FAO estimates the total 1997/98 harvest at 8.8m tonnes, 530,000 tonnes short of the country’s total grain needs for 1998. Total grain consumption is put at 9.3m tonnes, prompting estimates of likely total food aid requirements in 1998 of between 370,000 and 400,000 tonnes, after supplies still being delivered and commercial imports are taken into account. Despite these figures, there is still a great deal of uncertainty over total food aid requirements. In particular, there are doubts over the volumes of commercial imports. Ongoing economic liber- alisation has enhanced the efficiency of private grain merchants. Donors are currently assessing the role that private grain importers can play in meeting the current shortfalls and whether an increased proportion of food assistance should be channelled via private merchants. The WFP-FAO report anticipates that commercial food imports of around 110,000 tonnes can be expected during 1998.

The volume and geographical areas of need will depend in part on the outcome of the lesser, belg harvests. While these account for under 10% of Ethiopia’s total grain production, in normal crop years they provide up to half of the grain needs of certain highland areas. Initial predictions are for adequate belg harvests in most areas, rains having begun fairly early. However, the authorities ex- pressed concern over the shortages of good grain seed stocks as a result of last year’s poor harvests. Nevertheless, adequate rains have fallen in Somali regional state (region 5, see map) which encompasses southern and eastern Ethiopia. This should ease the hardship of Ethiopia’s Somali and Afar pastoral popul- ations, whose livelihoods are principally dependent upon livestock. These areas suffered localised but severe drought in early 1997 (2nd quarter 1997, page 14), leaving poor grazing which was then compounded by torrential rains and flood- ing in October. Additional disruption to livestock markets has been caused by the ban on livestock imports into Saudi Arabia, which was still in place in April. The Saudi authorities banned imports from eight East African countries owing to fears of Rift Valley Fever, a cattle disease that can be passed to humans. No cases, however, have been reported in Ethiopia. The US Agency for International Development (USAID) estimates that the closing of the Saudi Arabian market is undermining the incomes of 3m Ethiopian pastoralists.

—reinforcing regional The failure of the principal harvests in many parts of the country last year has disparities accentuated the income inequalities between Ethiopia’s regions. Almost 95% of the country’s grain output is produced in just three of the nine administrative

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regions, leaving the other regions particularly hard hit by poor harvests. Almost half of the total output is produced in the Oromo regional state (region 4) which also accounts for the vast majority of the country’s coffee production. One-third of grain is produced in region 3 (the Amhara regional state), while the hetero- geneous Southern Nation and Nationalities Peoples’ Region (SNNPR) accounts for around 14% of grain output. Although grains form the staple diet of most highland Ethiopians, root crops are vital to the livelihoods of many people living in central and western Ethiopia, notably those within the SNNPR.

The lifting of fertiliser This dramatic fall in grain production was the result principally of erratic rainfall subsides remains in 1997. It seems at least in part also to have been caused by a reduction in the controversial use of fertiliser, however. This followed the removal of subsidies and credit restrictions on slow repayers. The results will heighten the differences within government and donor circles over the impact of dismantling the fertiliser subsidy system and the inadequacies of the current structures of rural credit.

In late February the National Fertilisers Industry Agency (NFIA) announced that the government had decided to end all remaining subsidies on fertilisers. This completes the gradual liberalisation of the market, under way for the past five years. In practice, as the largest importer and distributor, the NFIA is still likely to influence the price and availability of fertilisers. In late March the agency announced that it intends to supply 511,000 tonnes of chemical fertil- isers to farmers during the current Ethiopian calendar year, which ends in September. The NFIA claims that one-third of the country’s estimated 6m farmers currently use fertilisers. However, average use of fertilisers in Ethiopia remains very low, with applications estimated at around 9kg/ha on the third of cultivated land that is treated. All fertiliser is currently imported, although the government is currently seeking private investors for two planned phosphate- based fertiliser factories. The Calub natural gas project, located close to the Somali border in Hararghe (region 5), also has the potential to produce consid- erable amounts of fertiliser.

The “Addis Forum” Addis Ababa hosted a lavish, private-sector conference on trade and invest- prompts debate and ment in Africa on March 8th-9th, attracting around 350 foreign business dele- publicity— gates and a significant number of African politicians, including the presidents of Ethiopia and Uganda, and Côte d’Ivoire’s prime minister. A large delegation of local entrepreneurs also attended.

The conference was the initiative of Sheikh Alamoudi, the Saudi Arabian-based businessman. Over the past four years Sheikh Alamoudi has become by far the largest single foreign investor in Ethiopia. His MIDROC group portfolio of assets in Ethiopia is now worth an estimated $500m, the conglomerate having made a series of large investments in 1996/97, including the purchase of the country’s principal gold mine for $175m, (1st quarter 1998, page 17). Sheikh Alamoudi’s MIDROC group was the key sponsor of the conference and fi- nanced most of the surrounding publicity. Despite the high level of publicity, the meeting did prompt a series of serious debates on the difficulties caused by weak investment flows into Africa. While some portfolio managers were optim- istic, many of the US institutional investors present remained cautious.

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 Ethiopia 15

—and a lavish hotel The Addis Forum itself was held in the Economic Commission for Africa (ECA) opening conference hall. However, most of those attending were under little illusion that the event was partly a grand excuse to launch the Addis Ababa Sheraton hotel. The Sheraton is Sheikh Alamoudi’s flagship investment in Ethiopia. The hotel’s domestic opening party had been held the previous week. The event was co- ordinated by the last US ambassador to Ethiopia, Irvin Hicks, who is now a MIDROC employee, and was broadcast on Ethiopian radio and TV. Replete with fireworks and a light show over Addis Ababa, the apparent sincerity of Sheikh Alamoudi’s speeches appeared to have impressed many Ethiopians. He speaks fluent Amharic, and is adept at convincing Ethiopians that, in addition to generating profits, MIDROC’s primary aim is to foster the development of the country. MIDROC is now by far the largest private-sector employer in Ethiopia.

In late March MIDROC announced that it had won a contract to construct a $6.25m conference centre for the Organisation of African Unity (OAU). The OAU’s somewhat jaded premises are in the south-east of Addis Ababa, although at present the organisation uses the UN’s ECA conference facilities.

Ethiopia accelerates the The Addis Forum focused on general trends and problems of investment in the drive to attract foreign African continent as a whole, rather than on specific countries or projects. investment— However, in recognition of the Forum’s venue and its principal sponsor’s close relationship with Ethiopia, the Ethiopian Investment Authority (EIA) was able to use the meeting to promote investment opportunities in Ethiopia. In add- ition, the prime minister, Mr Meles, addressed delegates and met with several potential investors.

—as a further revision of Speaking to the legislature in late February, Mr Meles said that his government the investment code is intends to publish its new investment code by May 1998. The new code is likely planned to include three significant revisions. Foreign investors will be legally allowed into the telecommunications and energy sectors. This reversal—long urged by some foreign donors—was announced at the EPRDF conference in January (1st quarter 1998, page 16). More generous tax incentives for foreign investors are also expected under the new legislation. A more controversial aspect of the new code, which may not find its way into the final legislation, is the change in criteria as to who qualifies as a domestic Ethiopian investor. Ethiopians residing abroad and holding foreign passports will, under the proposed legislation, have the same legal status as those living in Ethiopia. Although there are significant dollar remittances to Ethiopia from those among the diaspora, the volume of inward productive investment from Ethiopians abroad remains low. Currently, Ethiopians with foreign passports can only qualify for investment incentives if they invest over $250,000, an amount that is well beyond the means of most Ethiopians residing in North America and Europe. If they are treated on a par with local investors, this threshold will fall to $30,000.

If the EIA’s proposal succeeds in entering the code, it will represent a significant departure from previous policy, as in practice it will mean that the government will recognise individuals with dual nationality. This is something that it has consistently refused to do to date and the proposal, which is clearly sound in investment terms, is likely to be controversial within the government. There are two reasons for sensitivities over dual nationality. First, it would give de jure

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 16 Ethiopia

recognition to the possibility of dual Ethiopian and Eritrean nationality. This potentially concerns several hundred thousand people of Eritrean parentage residing in Ethiopia and would force Ethiopia’s administration to tackle the complex issues of dual taxation and residence qualifications that it has so far avoided. A similar set of concerns surround the large diaspora population in Europe and North America. There are concerns among some in the EPRDF that allowing such people full rights as Ethiopian as well as US passport holders may be both an economic and political liability.

The mines minister In a series of recent interviews Ethiopia’s minister of mines and energy, Azedin laments lack of investment Ali, indicated that the government would like to see far faster mineral develop- ment. Talking to the London Financial Times, Mr Azedin expressed slight frustra- tion at the slow progress of the sector since Ethiopia liberalised its investment climate and provided incentives to attract foreign companies to the mining sector. According to the ministry, there are currently 11 foreign companies with mining licences, alongside 19 local mining companies. Despite the country’s relatively abundant mineral resources, mining still accounts for under 1% of GDP. Ministerial frustration appears in part to reflect the government’s unreal- istic expectations as to the scale and speed of likely foreign investment, partic- ularly given that most mineral sites lie in remote and inaccessible parts of the country. In fact, there continues to be a steady trickle of foreign companies commencing exploration work. In addition to gold and petroleum exploration, notably by the Hunt Oil group in the south-east, a Norwegian company recently agreed to invest in the Dallol potash reserves in the Danakil Depression, on the border with Eritrea. There are hopes that development of the Dallol potash deposits, as well as the processing of gas at Calub, may be used as the basis for manufacturing fertilisers in Ethiopia. At present, all fertilisers are imported.

Meanwhile, officials report an upsurge in small-scale artisanal gold production in the south-eastern, Somali-administered region 5. According to the region 5 mines bureau, several thousand people are employed in panning for gold in the region. Much of this gold, and that produced in the main Adola belt, is thought to go illegally via the Moyale border post to Kenya. As well as being the principal road link to Kenya, Moyale also lies close to the internal border between regions 4 (Oromo) and 5 (Somali). A gold exploration deal signed by the Djiboutian authorities in December has prompted industry analysts to speculate whether the agreement might be used as a conduit for gold exported by small-scale private prospectors from Ethiopia (1st quarter 1998, page 45).

Uncertainty persists over The confusion surrounding bilateral trade relations between Ethiopia and trade relations with Eritrea in the wake of Eritrea’s introduction of an independent currency last Eritrea year has now given way to a marked reduction in trade. Last November the Eritrean authorities made clear their displeasure at Ethiopia’s 11th hour dec- ision that bilateral trade would henceforth be conducted in dollars (1st quarter 1998, page 14). In recent months such displeasure has translated into a refusal by some in the Eritrean government to engage in trade with Ethiopia on any terms. In March the Eritrean president, Isaias Afewerki, stated that it was “against Eritrean policy” to trade via letters of credit, and that Eritrea was looking to replace Ethiopian imports with goods from elsewhere. However, in practice trade is being pursued through letters of credit and is picking up again,

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 Ethiopia 17

although there are reports of substantial Eritrean debts, which will need to be settled soon in order to protect trade. In a related development, in March the Commercial Bank of Ethiopia (CBE) announced that 726 Ethiopian traders had been granted small-scale trade licences under the terms of the regulations governing crossborder trade with Eritrea. The regulations were published in November and allow trade with a value of below Birr2,000 ($290) to be con- ducted in either birr or nakfa without recourse to dollars.

Meanwhile, unconfirmed press reports in Ethiopia claimed that Eritrean guards along the border with Tigray had seized large volumes of contraband during February and March. One report stated that goods with a value of almost Birr2m ($290m), principally grains and coffee, were seized.

The National Bank of On March 10th reporters in Addis Ababa confirmed that the National Bank of Ethiopia appoints a new Ethiopia (NBE, the central bank) had appointed Teklewolde Atnafu as its new director governor. Mr Teklewolde, who was appointed as vice-governor in 1997, re- places Dubale Jale. The outgoing governor was reported by the press either to have become an official in region 4 (Oromo), or to have been appointed to head one of the growing number of “private” companies owned by the Oromo People’s Democratic Organisation, the EPRDF affiliate of which he is a central committee member. Alemseged Assefa, formerly the head of the NBE’s plan- ning and research department, was named as the new vice-governor. No offi- cial reason was given for the change of governor but given the current strained monetary and trade relations with Eritrea, Mr Dubale’s departure prompted speculation as to whether the move was linked to his handling of the intro- duction of the nakfa by Eritrea.

Russian officials discuss In late May a Russian ministerial delegation visited Ethiopia for the first time outstanding rouble debt since 1991. The delegation, led by the acting health minister, held a series of talks with Mr Meles and his ministers. The key area of contention between the two countries remains the total value and terms of repayment of Ethiopia’s outstanding debts to the former Soviet Union. These debts were inherited by Russia. The debate concerns the appropriate exchange rate and therefore dollar value, at which debt should be cancelled and/or repaid. Ethiopia’s finance ministry has previously estimated the country’s total rouble debt at Rb3.3bn, of which Rb2.8bn was for military supplies. A full accord on Ethiopian-Russian debt is not expected until the Paris Club of official creditors next discusses Ethiopia’s debt portfolio. When Russia joined the Paris Club in 1997, there was an agreement that 80% of debts owed for military supplies by countries such as Ethiopia and Mozambique would be cancelled (3rd quarter 1997, page 16).

On February 2nd the Italian ambassador signed an agreement with Ethiopia’s finance minister, Sufyan Ahmed, to reschedule $78m of outstanding commer- cial and government debts, with repayments to be made over a 33-year period beginning in November. Italy was one of the few OECD countries to continue to provide substantial bilateral loans to Ethiopia during the 1980s although there were persistent allegations that a portion of Italy’s bilateral loans to Africa was recycled to Italian political parties. Italy’s debt reduction follows a similar German initiative last October, which resulted in the cancellation of $40m in bilateral debt (4th quarter 1997, page 13).

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 18 Eritrea

Eritrea

Political structure

Official name Eritrea

Form of state Unitary state

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

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

National elections Last elections February 1987 (legislative, within Ethiopia); next elections had been scheduled for May 1997, but are now unlikely before mid-1998

Head of state President, elected by the assembly

National government The president and the Council of Ministers, last reshuffled June 7th 1997

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

Head of state Isaias Afewerki

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

Central bank governor Tekie Beyene

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 Eritrea 19

Economic structure

Latest available figuresa

1995 1996 1997 GDP at market prices ($ m) 700 714 n/a Real GDP growth (%) 3 7 7 Consumer price inflation (%; av) 11 3 9 Population (m) 3.57 3.67 n/a Exports fob ($ m) 80.6 95.3 n/a Imports cif ($ m) 403.8 513.7 n/a Total external debt ($ m; year-end) 39 45.9 n/a Exchange rateb (av; Birr:$) 6.16 6.35 6.80c

April 6th 1998 Nfa7.20:$1, bank rate; Nfa7.50:$1, parallel rate

Main destinations of exports 1993d % of total Main origins of imports 1993a % of total Ethiopia 44.9 Saudi Arabia 31.4 Saudi Arabia 26.5 Italy 15.2 Sudan 13.2 UAE 10.7 Egypt 6.4 Germany 8.8 a All figures are estimates from official or other sources. b An Eritrean national currency, the nakfa, replaced the Ethiopian birr in November 1997 at Birr1:Nfa1. c September 1997. d Source: UNIDO, Eritrea: a new beginning.

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 20 Eritrea

Outlook for 1998-99

Mediation with Sudan has Although the war of words, and some military action, traded back and forth a slim chance of success— across the border with Sudan has continued unabated in recent months, an unexpected mediator has appeared in the form of the Libyan leader, Muammar Qadhafi. In February his offer to act as peacebroker was accepted by both the Eritrean president, Isaias Aferwerki, and Sudan’s head of state, General Omar el-Bashir. However, in April a dissident Sudanese group, called the National Democratic Alliance (NDA), was still claiming success in military strikes at Sudanese border targets. The NDA has its headquarters in Asmara and receives at least tacit support from Mr Isaias, who remains openly hostile to General el-Bashir’s regime in Sudan. Mr Qadhafi will have his work cut out to reconcile the two sides.

—but relations with Eritrea is now more likely to settle its dispute with Yemen after government Yemen look more likely to delegations met their opposite numbers in March. Both sides seem intent on improve normalising relations following a deterioration in relations over the Hanish archipelago dispute. The international tribunal charged with ruling on the islands’ sovereignty is due to rule in July and relations between the two coun- tries are set to improve further, at least until that time.

More difficulties with the The economic fallout from the introduction of the new Eritrean currency, the new currency are expected nakfa, is still being assessed on both sides of the border. In Eritrea the intro- duction of the nakfa is seen as the final break with Ethiopia and thus the new notes (made in Germany) have been broadly used, although a few traders are still getting used to the idea of the dollar-based letters of credit now needed for any significant trade with Ethiopia. One outcome that threatens to sour cross- border relations is the fact that Eritrean businesses have amassed a short-term debt to Ethiopian banks of almost Birr1bn ($15m). Finance officials in the Ethiopian government are threatening to clamp down on crossborder trade links as a result. Further confusion is expected in May when the nakfa is likely to be floated on the open market. This will mean a variable exchange rate (the nakfa is currently set at parity with the birr) but will give a clearer signal of the real value of the new currency. Its value is likely to drift downwards.

The National The government has announced that its programme for popular mobilisation, Development Campaign the National Development Campaign (NDC), is to be relaunched. Designed to may now be less popular get Eritreans personally involved in rebuilding the country’s infrastructure by volunteering labour or money, the NDC may still benefit from the Eritrean inclination towards self-reliance, but is likely to receive less support than pre- vious efforts as individuals tire of giving money and time. Meanwhile, the president has clearly laid down the conditions under which foreign non- governmental organisations (NGOs) who want to operate in Eritrea will have to work. While the conditions are strict, they at least give clear guidelines and will allow NGOs who accept them to plan ahead without the danger of having programmes disrupted by being asked to leave hurriedly.

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 Eritrea 21

Review

The political scene

Violent clashes continue Peace on the border with Sudan has continued to be threatened by numerous on the border with armed clashes in recent months, with each side, as in the past, accusing the Sudan— other of being the aggressor. As a result, the governor of the Sudanese border state of Kassala said that the Sudanese authorities had closed their border with Eritrea on February 9th, “in order to prevent infiltration of anti-government forces into Sudanese territory”. The move followed an alleged crossborder raid by Eritrean forces the previous week, in which the Sudanese claimed to have killed 73 Eritrean soldiers (1st quarter 1998, page 23), a raid categorically denied by the Eritrean foreign ministry. However it is the nationality of the forces that is in question, rather than the occurrence of the raids themselves. This was highlighted on February 24th when the dissident Sudanese group, the National Democratic Alliance (NDA), headquartered in Asmara, claimed that its forces had killed seven Sudanese government soldiers, wounded many others and captured light weapons in an attack on a military barracks 20 km south-east of Kassala on the previous day. The NDA also claimed to be controlling parts of this area of Sudan taken in January. On February 27th Eritrean radio claimed that Sudanese planes had bombed border areas of eastern Eritrea. This claim was countered by Abd al-Rahman Sirr al-Khatim, a Sudanese armed forces spokes- man, when he accused Eritrea of mounting a raid with tanks and artillery on border posts in the Kassala sector on February 26th. One Sudanese soldier was apparently killed in the clash. Another attack was alleged to have begun on March 4th when three Sudanese border villages were shelled. In an interview with the Cairo-based daily Al-Hayat published on March 25th, the Eritrean president, Isaias Aferwerki, accused Sudan of continuing to infiltrate Eritrea with armed agents, who lay mines and kill innocent people. The NDA claimed re- sponsibility for another raid on a Sudanese army camp in the border region, 25 km north of the town of Gallabat, killing 20 soldiers and seizing weapons, in the morning of April 3rd.

—as Libya looks likely to Libya has emerged as a possible mediator in the long-running conflict between mediate Eritrea and Sudan. The Libyan leader, Muammar Qadhafi, proposed the initia- tive to Mr Isaias when the latter visited Tripoli at the beginning of February (1st quarter 1998, page 24), a visit that resulted in an agreement to establish diplomatic relations between Eritrea and Libya at ambassadorial level. As soon as Mr Isaias left Tripoli, Sudan’s president, General Omar el-Bashir, arrived in the Libyan capital for a regional African summit. On his return to Khartoum on February 7th, General el-Bashir announced his acceptance of Libyan medi- ation. However, the continued tension in the border region between Eritrea and Sudan indicates that Libyan mediation has not produced any immediate results. In addition, Mr Isaias’s attitude to the dispute, and his hopes for its resolution, as summed up in a comment he made in the Asmara-based weekly Eritrea Profile on March 14th: “As long as the (Khartoum) regime exists, the aggression and trouble-making will continue”, suggest that the achievement of peace is a far-flung hope while the two opposing governments remain in place.

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 22 Eritrea

Eritrea makes its own An Eritrean government delegation left Sanaa in Yemen on March 23rd after a effort to normalise two-day visit that sought to normalise relations between the two countries relations with Yemen (1st quarter 1998, page 24). In an interview broadcast by Eritrean television on his return, Abdalla Jabir, the head of organisational affairs in the ruling People’s Front for Democracy and Justice (PFDJ), explained that the visit came in response to a Yemeni government mission that had recently visited Eritrea with similar intentions. During the Eritrean visit, a message from Mr Isaias, hoping for improved bilateral relations, was delivered to his Yemeni counter- part. The missions were the first such visits between the two countries since the dispute over the Hanish archipelago in the Red Sea erupted in 1995.

Popular mobilisation The government announced in late March its intention to relaunch its pro- programmes are gramme for popular mobilisation, the National Development Campaign (NDC). relaunched— The minister for local government, Mahmoud Ahmed Sherifo, interviewed in Eritrea Profile on March 21st, said that the campaign would take place in three phases, with the first lasting one month, ending on May 28th. The second and third phases will start at the end of June and in September. The programme will focus on agricultural projects, construction and road renovation. Every able- bodied citizen is expected to provide labour and any evaders would face an undefined punishment, according to Mr Sherifo. Regular daytime students and mothers with children are the only people exempted from working under the NDC. The overall cost of the programme, estimated at Nfa15m ($2m), will be covered by the participants, who are expected to provide labour, money and food for workers. The exact amount paid will be fixed according to income, with government employees contributing 10% of their salaries. Inhabitants of Adi Teklezan subregion had reportedly already raised Nfa80,000 ($10,700) for the NDC by April.

—as the president outlines The conditions that foreign NGOs must operate under if they want to work in the conditions for NGOs to Eritrea were outlined by Mr Isaias in his answers to questions from the public operate in Eritrea published in Asmara-based newspapers in March. The president emphasised that Eritrea did not reject the concept of assistance or aid. Indeed, such assis- tance was needed in the short term, but he noted the plethora of foreign NGOs working in Africa in the 1980s and assessed the actual value of their work (once administrative expenses, expatriate salaries and the effort needed by domestic staff were deducted) as negative. Hence, Mr Isaias stated that any NGO wishing to work in the country should ensure that its administrative expenses do not exceed 10% of its total budgets and that no foreign workers should be em- ployed to perform tasks that could be undertaken by Eritreans. Furthermore, the salaries paid by foreign NGOs to local workers should be in line with salaries paid to government employees in similar jobs. Generally, the activities of NGOs should not undermine the Eritrean workforce or any of the country’s institutions, he said. Mr Isaias’s views will not come as any surprise to NGOs, whose small numbers in Eritrea have been further diminished in recent months (4th quarter 1997, page 18). Indeed, the clarification of conditions will make it easier for NGOs that have a commitment to working in Eritrea to undertake medium-term projects.

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 Eritrea 23

A protocol accord is A five-year protocol agreement between Eritrea and Djibouti was signed within signed with Djibouti the framework of the joint Eritrean-Djiboutian ministerial commission on March 15th. The accord covers bilateral co-operation on security and immigra- tion, transport and communications, health, education and information. It was signed by government ministers ahead of a summit of the Inter-governmental Authority on Development (IGAD) in Djibouti. The joint ministerial commis- sion also agreed that henceforth it would review bilateral accords twice a year.

The government’s human There are continuing serious human rights problems in Eritrea, according to rights record is condemned the US State Department’s 1997 annual report on human rights published on January 30th. The report claimed that suspects are often detained without charge in Eritrea for much longer than the regulation period of 30 days, and the case of an Agence France-presse (AFP) journalist arrested in March was high- lighted as indicating contempt for the law as well as raising questions about press freedom. The report noted the plight of Jehovah’s Witnesses, who con- tinue to be persecuted by the government. The fact that all forms of media are controlled by the state and that access to the Internet is impossible, was also noted. Eritrea is one of the few African countries not connected to the Internet although email connections in Eritrea began in 1996.

The economy

Ethiopian creditors apply One outcome of the introduction of the Eritrean nakfa, and Ethiopia’s sub- some pressure sequent decision to trade only in letters of credit in hard currencies with Eritrea (1st quarter 1998, pages 14 and 25), has been that Eritrean businesses have amassed a short-term debt to Ethiopian banks of almost Birr1bn ($15m). It is reported that Ethiopian finance officials are threatening to clamp down on crossborder trade links as a result. Meanwhile, in Asmara a rate of Nfa7.50:$1 could be obtained on the parallel market in April. Neither the capital’s banks nor its black marketeers will change nakfa into birr, although an exchange rate must be in operation at the border where goods below the value of Nfa2,000 can be traded in local currency. The relative rates against the US dollar indicate that an exchange rate of about Birr1:Nfa1.1 would be appropriate. Neverthe- less, the authorities feel that the parallel rate has been fairly stable, leading the advisers to the National Bank of Eritrea (the central bank) to suggest the float- ing of the nakfa in May.

Telecommunications look The Telecommunications Service of Eritrea (TSE) is likely to be the next state- set to be privatised owned company to be privatised. Unconfirmed reports from Asmara suggest that the South Korean conglomerate Daewoo is poised to enter into a joint venture with the government. Initial capital of $45m will be injected by Dae- woo, which will take a 45% share of the company, leaving a controlling 55% share in government hands. Daewoo has become deeply involved in Eritrea in the past four years, particularly in the construction sector through its subsid- iary Keangnam Enterprises, which is working on eight different large projects, including the almost complete $70m Sembel residential complex in Asmara, the $114m Hirghigo power plant near Massawa and the $47m World Bank- funded Tokar dam, on which construction began in February. To what extent, if any, the Asian financial crisis will effect Daewoo’s involvement in Eritrea

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 24 Eritrea

remains to be seen, but should the South Koreans falter, Chinese companies are likely to take over. TSE would be the ninth public enterprise to be sold, of a total of 39 originally put up for sale. The minister for trade and industry, Ali Said Abdella, said in an interview for the April edition of African Business that negotiations were currently being conducted with Eritrean, Norwegian, Italian and British investors for the sale of a further seven enterprises. The Asmara Shoe Factory, sold in June to two Eritreans and its original Italian founder, who have renamed it Bini Shoe Factory, has installed new machinery and has won an EU order for 30,000 boots for Russia.

Overseas remittances Remittances from the Eritrean diaspora abroad were about $200m in 1997, up reach $200m from $109m in 1996, the minister of finance and development, Gebreselassie Yoseph, told African Business in an interview for its April edition. Mr Yoseph suggested that the improving investment climate would mean that such remit- tances were likely to continue to grow. Asked about the country’s reserves, Mr Yoseph said that the network for relevant data collection was still being put in place, but he endorsed World Bank estimates that reserves were equal to about five months of import cover. The IMF’s estimate of an economic growth rate of 7% in 1997 was also thought to be fairly accurate, if perhaps on the low side. In 1997 the government’s non-tax revenue increased to 50% of total revenue, Mr Yoseph stated, a level that he hoped to maintain through cost- recovery measures such as user fees in the health service.

External funding to A $60m loan for developing manpower resources was signed after seven develop manpower months of talks with the World Bank in Washington on February 10th. The resources is forthcoming money will be used to recruit up to 500 international experts to directional posts in ministries, Asmara University and various schools and training centres under the five-year project. Some 500 Eritreans will be trained abroad to replace the experts at the end of their contracts. Most of the experts are likely to come from Asian countries. The university will also benefit from a soft loan and grant agreement with Italy totalling $60m which was signed in Rome in January by Mr Yoseph and the Italian under-secretary of state at the foreign ministry.

Several other loans have been agreed in recent months. A $5m low-interest, long-term loan signed with the US on January 24th will be used to purchase grain, which is due to arrive in Eritrea soon. A Saudi Development Fund loan of $20m is destined to finance construction of the Mendefern-Barentu road and another unspecified development project, according to a report in Eritrea Profile on March 28th.

A protocol is signed with A trade and investment protocol with Burundi was signed in Asmara on March Burundi 12th by Eritrean and Burundian trade ministers during a visit by a Burundian trade delegation. The protocol provides for the consolidation of bilateral trade and investment relations. No details were available but specific agreements at the subcommittee level are expected to be signed in Bujumbura in the near future. The real significance of this protocol is that it demonstrates Eritrea’s stated opposition to Organisation of African Unity (OAU) sanctions against Burundi.

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 Eritrea 25

An air services agreement An air services agreement was signed with Switzerland on April 2nd, enabling is signed with Switzerland the operation of scheduled flights between the two countries, the Ethiopian newspaper Addis Tribune reported on April 3rd. The agreement will enter into force after ratification by the Swiss federal council.

Part of the Assab fisheries A new fisheries building, with facilities to improve catch methods, conservation complex opens and transport, was opened in Assab in March. The building, which cost more than Nfa11m ($1.5m), is part of the $12m complex financed by the Japanese International Co-operation Agency (JICA) and the African Development Fund (4th quarter 1997, page 20).

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 26 Somalia

Somalia

Political structure

Official name Somali Democratic Republic

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

Legal system Based on the 1960 constitution

National legislature People’s Assembly

National elections Last elections 1967 (presidential); 1969 (legislative); next elections: none feasible in current circumstances

Head of state A regionally backed peace accord signed in 1997 has failed to settle rival claims between, among others, Ali Mahdi Mohamed, sworn in with the support of several southern factions in 1991, and Hussein Mohamed Aideed, nominated to the post of interim president by factions of the United Somali Congress-Somali National Alliance in August 1996

National government Mr Ali Mahdi and his government in Mogadishu; announced in October 1991 but of marginal significance

Main political factions United Somali Congress (USC); Democratic Front for the Salvation of Somalia (DFSS); Somali National Alliance (SNA); Somali Patriotic Movement (SPM); Southern Somali National Movement (SSNM); National Salvation Council (NSC)

Somaliland Republic Created in May 1991 but awaiting diplomatic recognition; led by the president, Mohamed Ibrahim Egal, re-elected in February 1997. A new constitution came into effect in February 1997 for a three-year period, after which a referendum is to be held on its acceptability

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 Somalia 27

Economic structure

Latest available figuresa

Economic indicators 1992 1993 1994 1995 1996 GDP at market prices ($ m) 1,137 1,260 1,404 1,563 n/a Consumer price inflation (%; av) 211 263 312 363 n/a Population (m) 8.9 9.0 9.1 9.3 n/a Exports fob ($ m) 93 101 111 123 n/a Imports fob ($ m) 48 52 56 60 n/a Total external debt ($ m; year-end) 2,447 2,501 2,616 2,678 2,643

April 17th 1998 SoSh2,620:$1b

Origins of gross domestic product 1995 % of total Components of gross domestic product 1995 % of total Agriculture 59.0 Private consumption 58.6 Industry 10.0 Government consumption 50.5 Manufacturing 5.3 Gross fixed capital formation 13.1 Services 31.0 Exports of goods & services 8.8 GDP at factor cost 100.0 Imports of goods & services –31.0 GDP at current market prices 100.0

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

Main destinations of exports 1996c % of total Main origins of imports 1996c % of total Saudi Arabia 54.7 Kenya 27.7 Yemen 18.9 Djibouti 20.8 Italy 10.6 Brazil 6.2 a All figures are estimates from official or other sources. b Outside Mogadishu. In the self-styled Somaliland Republic the legal tender is the Somaliland shilling (SolSh), which trades at SolSh4,000:$1. c Based on partners’ trade returns; subject to a wide margin of error.

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Outlook for 1998-99

Footdragging on the Cairo Prospects for cementing tentative efforts towards peace are likely to remain peace accord will uncertain in the short term. Members of the National Salvation Council (NSC), continue— formed at the Sodere peace accord in January 1997, have met several times in recent months to discuss the details of implementing the peace agreement signed in Cairo in December. Their efforts have not been very successful. The national reconciliation conference in Baidoa, originally scheduled for February 15th, but postponed until March 31st, has been postponed again, this time until May 15th. By early April, little progress had been made towards establishing an administration for Mogadishu and its hinterland (the Banaadir region) and militia loyal to Hussein Mohamed Aideed, the controller of south Mogadishu, were still in control of Baidoa. Mr Aideed has joined his arch rival and controller of north Mogadishu, Ali Mahdi Mohamed, a co-chairman of the NSC’s National Executive Committee, to form a “National Co-ordination Committee” (NCC) to sort out a new Mogadishu administration. Unfortunately, the focus of attention on these two central players will continue to alienate some other clan factions, who are beginning to see the Cairo accord as a predominantly Hawiye clan affair. This is a setback for national reconciliation. The north-eastern-based Somali Salvation Democratic Front (SSDF), a Majerteen/Darod group which has always advocated a united Somalia, has given up waiting for progress to come about in Mogadishu. It is instead attempting its own secession, which hardly augurs well for national reconciliation.

—as regional faction Although Mogadishu has been relatively peaceful during the negotiations, else- fighting diminishes hopes where in the country there are indications that clan militia will continue to of reconciliation favour a military approach. The Bay and Bakool regions have seen the resump- tion of fighting between militia loyal to Mr Aideed and those of the Rahawayn Resistance Army (RRA), while the SSDF’s plans for independence have been marred by outbreaks of violence in Mudug. Violent clashes have occurred in and around the southern port of Kismayu and the Kenyan border area of the Gedo region has seen its worst battles since August 1996, between Islamist Al-Ittihad forces and those of the Somali National Front (SNF), tempting the Ethiopian army to re-enter the fray. Somalia has descended back into inter- necine quarrelling of the worst kind, and the hopes for peaceful reconciliation are rapidly receding. The fresh outbreaks of violence threaten the humanitar- ian aid programme, which will be all the more important in the coming months as renewed flooding is predicted for the Jubba and Shabeelle Rivers.

Ethiopia and Egypt will Somali leaders are again trying the patience of the international community. push for peace, and The most prominent external efforts to broker peace continue to come from influence— two differing directions. Ethiopia, where the Sodere accord was signed, is lead- ing the efforts of the Inter-governmental Authority on Development (IGAD) with support from the Organisation of African Unity (OAU). On the other hand, Egypt is spearheading the efforts of the Arab League for peace. Oddly, the one glimmer of hope for the process possibly lies in the diplomatic conflict between these two countries and the regional bodies that they have taken it upon themselves to represent. A successful peace in Somalia is increasingly becoming a matter of national pride in Addis Ababba and Cairo.

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—allowing the north to The south’s descent back into chaos will play into the hands of the self- take a step closer to declared Somaliland Republic where the president, Mohamed Ibrahim Egal, international recognition appears to be getting closer to gaining at least partial diplomatic recognition. Mr Egal has been lobbying hard, in Europe and at the IGAD summit in Djibouti in March, and it is likely that the time when some much-needed official inter- national assistance is forthcoming is becoming closer every day. Significant amounts of bilateral and multilateral financial assistance have been earmarked for Somalia, such as $120m of EU funds under the Lomé IV Convention, but never released, and the international community is slowly coming round to the idea that at least some Somalis have long been living in a recognisable nation state and might, therefore, deserve a helping hand. There would be no better time for such a move than the present as the ban on livestock imports to Saudi Arabia introduced in February will hit Somaliland hard.

Main Somali clans

Legendary Arabian ancestry

Irrir

DigilRahawayn Hawiye Dir Issaq Darod

’Iise Gadabursi Marehan Ogaden

Majerteen Dulbahante Warsangeli

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

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Review

The political scene

The Baidoa national The national reconciliation conference in Baidoa, agreed in the peace accord reconciliation conference signed in Cairo in December 1997 (1st quarter 1998, page 33) and originally is postponed again— scheduled for February 15th, but postponed until March 31st, has been post- poned again, until May 15th. Members of the National Salvation Council (NSC), formed at the Sodere peace accord in January 1997, have met several times in recent months to hammer out ways of implementing the Cairo agree- ment. The day before the supposed March 31st start of the Baidoa conference, the decision was taken to postpone it for another six weeks. Progress towards implementing other aspects of the Cairo accord have been similarly slow. One of the sticking points has been the establishment of an administration for the Banaadir region (Mogadishu and its environs). Ali Mahdi Mohamed, who is a co-chairman of the NSC’s National Executive Committee and controller of north Mogadishu, expressed his frustration on March 16th by declaring the Cairo accord “dead”, blaming what he called the intransigence of his chief rival, the controller of south Mogadishu, Hussein Mohamed Aideed. Nonethe- less, the two rivals were discussing the issues again in Mogadishu on March 23rd under the auspices of the “National Co-ordination Committee” (NCC), which comprises only the two men.

—as competition for The lack of progress in Somali reconciliation has also frustrated international influence hots up between observers. The council of ministers of the Organisation of African Unity (OAU) Ethiopia and Egypt expressed disappointment at the end of its 67th ordinary session in Addis Ababa on February 28th and called on the international community to work with the Inter-governmental Authority on Development (IGAD) to bring peace to Somalia. Regional leaders meeting in Djibouti for an IGAD summit in mid- March said in their final declaration on March 16th that the “Somali people themselves” should find peace. After four meetings, the regional leaders toned down considerably criticism of Egypt contained in a pre-summit text prepared by IGAD foreign ministers. The final communiqué limited itself to saying that: “The proliferation of parallel initiatives can only compromise the primary goal, which is to accelerate the peace process in Somalia.” Meanwhile, Ethiopia’s foreign minister, Seyoum Mesfin, told the French news agency Agence France-presse (AFP) after the summit that his country was determined to counter Egypt’s role in Somalia and that it was the Egyptian initiative that had caused the peace process to collapse. The Arab League announced in Cairo on April 1st that it would send a delegation, led by the League’s secretary-general, Esmat Abdul Meguid, to Somalia ahead of the Baidoa conference. It also issued an appeal to its 22 members for help with the costs of the conference, esti- mated by Somali faction leaders to be around $4.5m.

Mr Aideed holds on to A central reason for the delay in convening the Baidoa reconciliation confer- Baidoa— ence lies in the fact that the Bay region town is still controlled by United Somali Congress-Somali National Alliance (USC-SNA) militia who are loyal to Mr Aideed. Mr Aideed made a pledge at Cairo to remove his forces from Baidoa

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by midnight on February 5th, but did not do so, one reason behind Mr Ali Mahdi’s comments about his intransigence. Mr Aideed appeared to have made a significant gesture towards the reconciliation process when AFP reported from Mogadishu on March 23rd that he had renounced his claims to the presidency. The move reportedly came in a meeting to discuss progress in implementing the Cairo accord with Ali Hassan Osman “Ato”, another co- chairman of the NSC’s National Executive Committee, whose forces control parts of the south of the capital. Mr Aideed’s gesture, if true, may still prove to be significant.

—where fighting has After a brief January lull in the fighting in the Bay and Bakool regions, between flared again the forces of Mr Aideed’s USC-SNA and militia from the Digil and Mirifle subclans loyal to the Rahawayn Resistance Army (RRA), the two sides clashed again in Baidoa on January 29th. On this occasion, an RRA spokesman claimed that Mr Aideed’s militia were supported by fighters of the Islamist group Al-Ittihad. On February 25th further clashes between the two sides were re- ported from Baidoa and from Oddur, in the Bakool region. The RRA claimed that 24 of the USC/SNA militia were killed and another 28 wounded, while casualties on the RRA’s side totalled 13 dead and 24 wounded. The RRA claimed to be in full control of Oddur, but had withdrawn from its assault on Baidoa for tactical reasons. A spokesman for Mr Aideed in Mogadishu confirmed that the battles had taken place, but dismissed them as minor skirmishes. An uncon- firmed report indicated that Oddur was back under Mr Aideed’s control by the end of the following day. Another clash between the two rival militia occurred on the night of March 4th, when at least four people were killed, two of them civilians, in Baidoa.

The SSDF plans to go it Although little progress has been made towards implementation of the Cairo alone— accord by the three main Mogadishu faction leaders, they have at least main- tained dialogue with each other. However, in the ever-changing world of Somali clan politics, this has been viewed with increasing suspicion by other clan factions, some of whom are beginning to view the Cairo agreement as a Hawiye peace agreement (Mr Ali Mahdi, Mr Aideed and Mr Osman “Ato” are all from the Hawiye clan, although from different sublineages). One of the dissatisfied groups, the north-eastern-based Somali Salvation Democratic Front (SSDF), opened a conference designed to establish its own autonomous regional govern- ment at Garoe in the Nugaal region on February 27th. The conference was attended by SSDF representatives, intellectuals, elders and women’s groups, all intent on autonomy for the Bari, Nugaal and Mudug regions. Also present was one of the NSC vice-presidents, Abdallah Youssef Ahmed, an opponent of the Cairo accord. The SSDF president, Mohamed Abshir Muse, did sign the Cairo accord, but he appears to have been sidelined by rival factions in the SSDF. Mr Muse did not attend the conference at Garoe, despite being re-elected in absentia as SSDF president on January 31st, for a further three months, while he was in Saudi Arabia. Mr Muse was only re-elected as nominal leader for the duration of the Garoe conference. Conference organisers told AFP on February 27th that new elections for the SSDF presidency are planned for mid-April.

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—but the group has While the SSDF Garoe conference was still in progress, several clashes between problems in its own rival clan militia were reported from one of its supposed new regions, Mudug, backyard in late March. At least two people were killed and five others wounded after fighting erupted on March 29th between militia of the Abar Gedir (Hawiye clan family) and Dir clan militia at the village of Qeyder in the Adado district. The Mogadishu-based daily Qaran reported that the fighting was heavy, but gave no casualty figures. On the same day more than 300 families fled from the coastal town of Hobyo by foot, donkey and lorry, following three days of hostilities between rival Abar Gedir subclans, which left more than a dozen people dead, according to an AFP report from Mogadishu. Early reports indicated a death toll of 13 people, with another 18 wounded, but others said that at least 19 people had died in the hostilities. There has been no independent confirmation of the figures. The fighting in Hobyo was between the Saad sublineage allied to Mr Osman “Ato” and the Suleyman sublineage loyal to General Mahmud Mohamed Sigane.

Violence also flares in At least five people were killed and seven wounded in the southern port of Kismayu— Kismayu on February 28th in a clash between armed groups fighting for control of the trade in a mild narcotic, qat. Two civilians were among the casualties. The clash was between two subclans of the Darod, according to independent witnesses cited in an AFP report from Mogadishu. The incident followed a similar clash over qat earlier in the month, in which three people died and two others were wounded. The violence escalated in and around the city at the end of March and beginning of April. An estimated 33 people were killed and more than 100 injured during heavy fighting on March 30th as Majerteen militia and their Ogaden allies led by General Mohamed Siad Hirsi “Morgan” repelled an offensive by the Marehan clan under the command of General Omar Haji Mohamed at Gabweyn, to the north of Kismayu. Staff at the Médecins sans frontières (MSF) hospital, which lies within a zone controlled by the Majerteen, saw more than 60 injured and 15 dead, and thought that casualties must have been as high on the Marehan side. Several more Majerteen militiamen injured in clashes near the city between March 31st and April 2nd were treated at the hospital run by the Belgian branch of MSF, AFP reported on April 3rd. The hostilities threatened the safe delivery of urgently needed humanitarian emer- gency supplies and the safety of UN staff, according to the Geneva-based UN humanitarian co-ordinator for Somalia, Dominik Langenbacher.

—and again in Gedo— March also saw the resumption of violent clashes in the Gedo region, between forces of Al-Ittihad and those of the Somali National Front (SNF). Al-Ittihad took the town of Elwak close to the Kenyan border from SNF militia on March 18th after two days of intense fighting involving heavy machine guns, mortars and rocket-propelled grenades, in which 23 people were killed. It was the heaviest fighting in the region since Ethiopian troops attacked Al-Ittihad strongholds in Gedo in August 1996. Indeed, Ethiopian forces, who were reported to have withdrawn from Gedo in January (1st quarter 1998, page 35) have re-entered the fray, according to reports carried in two Mogadishu-based newspapers in mid- March. Xog-Ogaal reported on March 19th that Ethiopian troops had distributed weapons and ammunition to SNF militia, and a report in Qaran on March 21st suggested that a joint SNF-Ethiopian effort to retake Elwak was being planned.

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The latter story quoted Al-Ittihad sources as saying that the SNF had allowed Ethiopian forces to open an office in Gedo and planned to “depopulate” all villages sympathetic to Al-Ittihad. In a further report on the fighting in Gedo, Qaran quoted the SNF chairman on March 23rd as saying that 58 Al-Ittihad fighters had been killed in recent clashes in the region.

—while Mogadishu is By comparison, the Somali capital has been fairly quiet in recent months, al- relatively quiet though a serious clash between rival sublineages of the Abar Gedir on February 15th and 16th left at least 12 people dead and banditry has continued to be rife (see The economy). At least another 12 people were also killed and 17 wounded by an explosion in a rubbish collection centre on March 9th in the Argentinian quarter of north Mogadishu. The explosion was probably caused by a land mine or a live grenade detonated by a fire lit to burn the rubbish.

The SSDF releases one Eleven Bulgarian seamen, held by militia of the SSDF since their Syrian vessel foreign ship and was seized in January (1st quarter 1998, page 35), were released on February confiscates another 12th. According to the Bulgarian foreign minister, the vessel was also released and sailed to Aden. Reports in the Bulgarian press indicated that a ransom of between $110,000 and $130,000 was paid for their release. There has been no news of the other vessel captured by the SSDF at the same time, which was also a Syrian ship, with a crew of 22. Both vessels had been accused of fishing illegally in Somali waters. In a separate incident, crew members of a 280-tonne Taiwan trawler were fined by an Islamic tribunal in the Jariban district of Mudug region for illegal fishing in waters off the north-east of Somalia, AFP reported on February 20th. Fines of $800,000 for the owners of the vessel, $40,000 for the captain and $10,000 for each of the 27 crew members were handed down by the tribunal in the SSDF-controlled area. The trawlermen were given until March 20th to pay up. When they were unable to raise the money, the tribunal sentenced each of them to ten years in prison, ruling that the prisoners could buy their personal freedom at any time by paying $10,000. The vessel, Long-Liner MV Shuhen Kuo 11, was confiscated, along with the marine products found on board. The court gave a further 15 days to the owners of the vessel to pay the fine to avoid the ship being sold off.

The Italian inquiry into A Somali national who travelled to Italy to give evidence to the ministerial torture allegations has commission of inquiry investigating allegations of torture by Italian troops some unexpected results— serving under the UN Operation in Somalia (UNOSOM II) was arrested on arrival in Rome on January 12th and charged with complicity in the killing of two Italian television journalists in Mogadishu on March 20th 1994. The arrest of Hashi Omar Hassan, who was confirmed by the ministerial commission of inquiry as having been tortured by Italian troops serving under UNOSOM II, was immediately condemned by the Somali Intellectual Society (SIS), a Mogadishu- based human rights organisation whose president had led a group of 11 Somalis to Rome to give evidence (1st quarter 1998, page 35). The SIS in Mogadishu accused the Italian authorities of deception in luring Mr Hassan to Italy, and members of Mr Hassan’s clan, the Abgal, vowed to avenge his treatment in a statement by telephone to AFP in Mogadishu on January 14th. It was reported from Livorno on January 24th that three other members of the Somali group that travelled to Rome to give evidence had applied for political asylum in Italy.

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—while a Belgian member A Belgian paratrooper who, while serving under UNOSOM II in 1993, forced an of UNOSOM II is given a underage Somali girl to strip and have sexual relations with a colleague for his suspended sentence— birthday was given a three-month suspended sentence by a Belgian court mar- tial on March 30th. Military prosecutors had asked for Sergeant Dirk Nassel to be given seven months in jail for three counts of abusing Somali children while serving with the UN. Sergeant Nassel was also convicted of tying another youth to a moving tank, but was acquitted of a charge of force-feeding a Muslim boy with pork and salt water. The judge ruled that: “No witness can confirm that Dirk Nassel was motivated by racism when the events occurred.” The case follows the acquittal in December of two other Belgian paratroopers, accused of violently wounding a Somali while with UNOSOM II in Somalia. Two other cases may be brought before a court martial, including one against an officer who was photographed urinating on the body of a Somali who had died in mysterious circumstances.

—and allegations are Just as the US president, Bill Clinton, was embarking on his recent six-country made of a massacre by US tour of Africa on March 22nd, allegations that US troops serving under members of UNOSOM II UNOSOM II indiscriminately shot more than 1,000 Somalis in an incident in Mogadishu in October 1993 were published in the US daily Philadelphia Inquirer. The report was based on interviews with Somalis and Americans in- volved in the incident, including the then US special representative in Somalia, Robert Oakley. It suggested that the number of Somalis killed in a failed bid to capture the Mogadishu warlord, General Mohamed Farah Aideed, the father of the current Mogadishu faction leader Mr Aideed, was in fact at least five times the “official” number of 200. After US special forces stormed a building which they mistakenly believed contained Mr Aideed, they had to shoot their way out, abandoning their rules of engagement to fire only when threatened by fire, the report alleged. Instead, they fired indiscriminately on men, women and children before eventually being rescued by units from Pakistan and Malaysia. The incident occurred after the US-led peacekeeping force had handed over to the multinational UN force. The UN was not informed of the raid, nor was it informed of the American decision to hunt down and arrest Mr Aideed, an objective the US never managed to achieve. While Canada, Italy and Belgium have held inquiries into the excesses of their troops serving under UNOSOM II, the US has neither held a public investigation nor reprimanded any of its commanders or troops.

The economy

More flooding is Renewed flooding was predicted for southern Somalia by the UN Children’s expected— Fund (UNICEF) in Nairobi on March 27th. Heavy rains and swollen rivers have already affected many roads, and weather forecasters were warning that new rainfall could devastate areas already affected by recent flooding (1st quarter 1998, page 36). The latest rains have affected many roads in and around Baardeere in the Gedo region. The road from Baardeere to Fafaduun and on to Elwak on the Kenyan border is impassable. The Shabeelle River has burst its banks at several points, cutting off many villages on both sides of the river. Cholera and malaria have continued to ravage the flood-affected areas, forcing international aid agencies to focus their efforts on combating disease. The

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World Health Organisation (WHO) said that 7,730 cases of cholera had been reported as of March 20th, with 332 deaths. The death toll from the flood had reached 2,380, according to the Somalia Aid Co-ordination Body in Nairobi on March 12th. About 33,000 head of livestock are also thought to have died and 60,000 ha of farmland have been underwater since October. The World Food Programme (WFP) announced on March 3rd that the January 1998 harvest has been drastically reduced as a result. The maize harvest was 11% down on that of the previous year and the sorghum harvest has been cut by half.

—as the renewed fighting The WFP supplied a total of 6,933 tonnes of food relief to the most vulnerable hampers aid efforts people in central and southern Somalia between January and March 15th, but UN agencies have been alarmed by the resurgence of fighting in Kismayu and elsewhere. The outbreaks of hostilities threaten the safe delivery of urgently needed humanitarian emergency supplies and the safety of UN staff, and inse- curity is still rife in Mogadishu. Over one recent five-day period, two UN humanitarian convoys and one convoy carrying Saudi Arabian assistance were attacked and looted at gunpoint. The UN is seeking $79m in donations to fund agency programmes in Somalia and an additional $15.3m in response to the recent severe flooding in the south. Two announcements of financial assis- tance came from the EU in February, one on February 5th of Ecu4.5m ($5m) for flood relief in both Somalia and Kenya, and a second pledge on February 27th of Ecu2m for Somalia alone. On February 27th a Saudi prince donated SRl5m ($4m) towards the flood relief effort.

Saudi Arabia bans the The government of Saudi Arabia temporarily suspended the import of livestock import of livestock from the Horn of Africa with effect from February 7th following fears over the outbreak of Rift Valley Fever (a disease characterised by fever, bloody diarrhoea and haemorrhagic tendencies) in Kenya and Somalia (1st quarter 1998, page 36). The ban is a severe blow to the north-east of the country and to the self-styled Somaliland Republic, where livestock exports to the Arabian peninsula repre- sent a very significant proportion of all exports from the ports of Bossasso and Berbera. The ban came just before the beginning of the annual haj pilgrimage to Saudi Arabia, traditionally a time of great demand for Somali livestock. The Somaliland government immediately protested to the WHO, asking them to clarify the situation. A WHO team tested blood samples from patients in the eastern town of Ceerigaabo, following reports of an outbreak of the disease in the Sanaag region, and pronounced them free of Rift Valley Fever, Radio Hargeisa reported on February 23rd. A WHO team also conducted a three- month investigation into the outbreak in the south, and found no proof of the disease in the regions affected by flooding. The UN Development Programme (UNDP) announced in Nairobi on March 10th that Rift Valley fever was, there- fore, no longer a menace in Somalia. Nevertheless, the Saudi ban was still in place in early April.

Evergreen attempts to An Italian-based fruit company, Evergreen, is attempting to revitalise prod- revitalise banana exports uction of bananas, formerly one of Somalia’s most lucrative exports. Evergreen, which once controlled more than one-third of Somalia’s national output, em- ploying 3,000 workers in production, packing, quality control and shipping, has been lobbying the EU for technical assistance to help rebuild its operations

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in the Jubba valley. Evergreen shipments of the somalita, a sweet-tasting local variety, are recovering with the relative peace in the region, but are still a fraction of pre-civil war levels. Exports in the 1960s and 1970s averaged 120,000 20-kg boxes every ten days, and were shipped to markets all over Europe. Today, each ten-day shipment carries just 30,000 12-kg boxes and all are bound for Italy. Evergreen now has a staff of 150, in Mogadishu and at the southern port of Merca, and the company still controls production at the Shalambot and Golwan plantations, although the Horseed plantation has been taken over by a local grower. Regaining market share will not be easy, especially given recent changes in EU regulations covering banana imports and the strong position in the market of fruit from Côte d’Ivoire and Cameroon.

Refugees in Denmark Somali refugees in Denmark have appealed to the UN High Commissioner for want to leave— Refugees (UNHCR) to find them another country, AFP reported on March 10th. The 10,000 Somalis in Denmark faced psychological oppression and physical danger, it was claimed, and wanted help in finding alternative refuge in Canada, New Zealand and Australia. The appeal came after the extreme-right Danish People’s Party complained of the “invasion” of Somalis during their campaign for the Danish legislative election.

—as more than 1,000 The second phase of refugee repatriations from Ethiopian camps began in return from Ethiopia February when 248 families, totalling 1,078 refugees, arrived in their villages in the Gabiley district in Somaliland, Radio Hargeisa reported on February 16th. About 7,500 refugees are due to return to Somaliland in this phase of the programme.

News from the Somaliland Republic

International recognition The chances of the self-styled Somaliland Republic gaining at least partial diplo- inches closer— matic recognition, and some much-needed international assistance, have im- proved further in recent months, following a three-week tour of four countries by the Somaliland president, Mohamed Ibrahim Egal, that ended on February 17th. His itinerary took him to Ethiopia, Italy, France and Djibouti. Speaking in Paris on February 11th, where he met senior officials of the French foreign ministry and opposition politicians, Mr Egal said that Somaliland would be satisfied for the time being with a recognised status of autonomy, the basis on which Somaliland and Eritrea would shortly be exchanging diplomatic repre- sentatives (1st quarter 1998, page 37). “We still want full international recogni- tion but we will be content provisionally with recognised autonomy similar to the Palestinian Authority,” he said. Mr Egal arrived in Paris from Italy, where he saw a junior foreign minister, Rino Serri. Earlier, in Ethiopia he had meetings with the ambassadors of Egypt, Eritrea, Italy and the US as well as the Ethiopian prime minister, Meles Zenawi. Mr Egal was in Djibouti again in mid-March, to lobby regional leaders at the IGAD summit. Although he was not granted the observer status he had sought for the meeting, which caused him some conster- nation, his efforts appear to have borne some fruit. The Italian co-ordinator of African affairs, who was present at the IGAD meeting, told journalists on March 21st that all the IGAD member countries agreed on the necessity to rehabilitate peaceful parts of Somalia with effective administrations, a sentiment echoed by

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the Djiboutian foreign minister. An unconfirmed report from Rome also sug- gested that Italy would be prepared to back a proposal to the EU for partial diplomatic recognition, which would give Somaliland access to bilateral and multilateral financial assistance.

—but relations with Egypt Mr Egal reacted angrily to a supposedly official statement by the Egyptian are soured foreign office, published in the Egyptian press in the first week of February, saying that the Egyptian government would be willing to organise, arm and actively assist military action against Somaliland, if the planned Baidoa recon- ciliation between the factions was successful. The Egyptian statements, con- demned by Mr Egal as a “declaration of war” against Somaliland, were quickly denied by an Egyptian foreign ministry spokesman who dismissed Mr Egal’s concerns as “totally unfounded” on February 6th. Egypt’s role in the Somali peace negotiations was also criticised at the summit of IGAD foreign ministers in Djibouti in mid-March (see above). A cache of heavy weapons destined for Somalia was seized by Somaliland authorities, it was announced in Hargeisa on February 4th, when reporters were shown heavy machine guns, anti-aircraft rockets, mortars and ammunition confiscated from a fleet of trucks en route to the south. At least 12 Somalis had been detained by police, who did not indicate from which country the arms had originated.

A newspaper is banned The Hargeisa-based English-language weekly Republican was banned and its edi- tor arrested, along with the editor of its sister publication, the Somali-language daily Jamhuriya, on March 4th. Two journalists were arrested by police under orders of the prosecutor-general, Hassan Hersi Ali, who announced the ban on Radio Hargeisa. No reason for the ban was given, but it is thought to be related to allegations by the authorities that the newspaper is not legally registered. The Republican’s editor, Yassin Mohamed Ismail, was not immediately charged, but the editor of Jamhuriya, Hassan Said Yussuf, was charged with defamation in connection with an editorial in his paper accusing Mr Ali of curtailing press freedom to prevent the debate over the leadership in Somaliland. Mr Ali also warned the National Printing Press, the parent company of Jamhuriya, to close down its operations or face unspecified legal actions. The publisher of both newspapers and owner of the National Printing Press, Mohamed Abdi Shida, was sentenced on February 19th to a six-month prison sentence for printing government revenue receipts without proper authorisation.

The 1998 budget is The government budget for 1998, amounting to SolSh60bn ($23m), was ap- approved proved at a meeting of the Council of Ministers chaired by Mr Egal in Hargeisa on February 23rd. Radio Hargeisa reported that about 59% of the budget, which is still to be submitted to the House of Representatives, will go to cover security and politics, that is, the costs of the presidency and the defence, internal affairs, justice and foreign affairs ministries.

Foreign companies enter The government of Somaliland has entered into an agreement with two com- Somaliland panies to improve the local electricity infrastructure. Collins engineering and British American Energy have been contracted to upgrade the Hargeisa power infrastructure to 25 mw, more than the city needs, and to extend the electrifi- cation scheme to other towns in Somaliland. It is unclear how the $25m deal is

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being financed. Meanwhile, a Qatari group has established the Somali rare game rescue association, which looks set to be run as a commercially viable game reserve.

The results of an army The House of Elders was briefed by the minister of defence, Yusus Ali Aynab census are revealed Museh, on February 22nd on the results of an army census that the ministry undertook in 1997. The overall strength of the army is 12,840 men, of which 1,726 are reservists.

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Djibouti

Political structure

Official name République de Djibouti

Form of state Unitary republic

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

National legislature Assemblée nationale; 65 deputies, elected by universal suffrage; serve a five-year term. An alliance between the Rassemblement populaire pour le progrès (RPP) and the Front pour la restauration de l’unité et de la démocratie (FRUD) holds all the seats

National elections May 1993 (presidential) and December 1997 (legislative); next elections due May 1999 (presidential) and December 2003 (legislative)

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

National government The president and his appointed Council of Ministers. New government appointed December 1997

Main political parties Rassemblement populaire pour le progrès (RPP), the former sole legal party, split in May 1996, with dissident members forming the Groupe pour la démocratie et la république (RPP-GDR) subsequently banned; Parti national démocratique (PND); Parti pour le renouveau démocratique (PRD). In November 1991 the Front pour la restauration de l’unité et de la démocratie (FRUD) launched an armed Afar rebellion against the government. In December 1994 the government signed a peace agreement with a faction of FRUD. This faction was legalised as a political party in March 1997 and contested the December 1997 legislative election in alliance with the RPP

Head of state Hassan Gouled Aptidon Prime minister, minister for land development Barkat Gourad Hamadou

Key ministers Agriculture & water resources Ibrahim Idriss Jibril Ahmed Civil service & administrative reform Ougoureh Kifle Ahmed Commerce & industry Mohamed Barkat Abdillahi Economy, finance & planning Yacin Elmi Bouh Energy & natural resources Ali Abdi Farah Environment & tourism Osman Robleh Daich Foreign affairs & co-operation Mohamed Moussa Chehem Health & social affairs Ali Mohamed Daoud Interior & regional administration Elmi Obsieh Wais Justice & human rights Mohamed Dini Farah Labour & training Mohamed Ali Mohamed National defence Abdullah Chirwa Jibril National education Ahmed Guire Waberi Public works, housing & construction Hassan Farah Miguil Transport & telecommunications Abdallah Abdillahi Miguil Youth, sports & culture Rifki Abdulkader Bamakrama

Central bank governor Djama Mohamed Haid

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 40 Djibouti

Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996 1997 GDP at market prices (Dfr bn) 83.7 81.4a 79.0a 78.9a n/a Real GDP growth (%) 0.3 –2.9b –3.1b –0.2b n/a Populationc (’000) 560 570 580 n/a n/a Exports fobd ($ m) 71 56 38 40 n/a Imports fobd ($ m) 255 237 205 200 n/a Current-account balance ($ m) –30.0 40.0 –18.2 –20.4 n/a Reserves excl gold ($ m; year-end) 75.1 73.8 72.2 77.0 66.6 Total external debt ($ m; year-end) 228 226 238 241 n/a External debt-service ratio, paid (%) 3.9 4.3 5.4 5.2 n/a Exchange rates (av) Dfr:FFr 31.4 32.0 35.6 34.7 30.4 Dfr:$ 177.7 177.7 177.7 177.7 177.7

April 17th 1998 Dfr177.7:$1

Origins of gross domestic product 1993 % of total Components of gross domestic product 1995a % of total Agriculture 2.8 Private consumption 71.1 Industry 21.2 Government consumption 34.2 Services 76.0 Gross domestic investment 12.0 GDP at factor cost 100.0 Net exports of goods & services –17.3 GDP at market prices 100.0

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

Main destinations of exports 1996e % of total Main origins of imports 1995e % of total Somalia 39.5 France 14.7 Ethiopia 33.5 Ethiopia 10.7 Yemen 20.8 Saudi Arabia 7.5 Saudi Arabia 2.9 a Provisional. b IMF estimate. c UN figures, including refugees and expatriates. d Balance-of-payments basis. e Based on partners’ trade returns, subject to a wide margin of error.

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 Djibouti 41

Outlook for 1998-99

Guerrilla attacks will The increasing frequency of armed attacks against the Djiboutian army by continue— militants of the Front pour la restauration de l’unité de la démocratie (FRUD) loyal to the exiled leadership of Ahmed Dini highlights the problems that remain in spite of the most recent political settlement which began in 1994. During 1997 the strategy pursued by President Hassan Gouled Aptidon’s advis- ers—that of splitting FRUD by signing a peace deal with a group of leaders who were co-opted into the government—appeared to be successful. The co-opted FRUD faction was transformed into a political party which subsequently allied Djibouti: gross domestic product itself with the ruling Rassemblement populaire pour le progrès (RPP) in a stage- % change, year on year managed legislative election last December. In this election the RPP-FRUD 5 Djibouti alliance gained all the seats in the legislature (1st quarter 1998, page 42). 4 Africa Mr Aptidon’s chef de cabinet, Ismael Omar Guelleh, is widely credited with 3 this strategy and he still appears to be the man best placed to succeed the 2 president in 1999. However, despite this legitimisation of the “new” FRUD, and 1 the abduction of some of Mr Dini’s supporters from Ethiopia last September, 0 (a) the renewed attacks serve as a reminder that the unhealed scars from the -1 1991-93 civil war remain the most serious political problem facing Djibouti. -2

-3 It is also far from clear that Mr Dini can effectively control his guerrillas from his (a) (a) -4 exile in Paris. This makes any negotiated solution to the violence—even suppos- 1992 93 94 95 96 ing the government were willing to negotiate—difficult. The situation is made (a) IMF estimate. Sources: EIU; IMF, World Economic Outlook. more complex by the lack of information about attacks and the lack of credibil- ity of Mr Dini’s own claims. However, it should be clear to the Djiboutian authorities that they cannot rely on regional security agreements to solve dom- estic problems. The recent regularisation of links with neighbouring Somaliland and increased trade co-operation with Ethiopia may well help the Djiboutian economy, but are unlikely to have much impact on internal politics.

—while economic growth In the absence of a comprehensive political settlement, economic reform will will remain elusive necessarily be undermined. This is primarily because the government cannot proceed with the demobilisation of its troops, which is the key to undertaking the necessary reductions in recurrent expenditure and stabilising Djibouti’s precarious government finances, until a viable peace is achieved. In April it was still not clear whether the IMF would grant Djibouti a second extension of its stand-by credits. The credits were originally due to expire in July 1997, but were extended and augmented (to a total of SDR6.6m, or $11.2m) in early 1997. The credits and the associated reform programme were due to be completed by March 1998 although Djibouti has requested that the IMF executive board, which meets in May 1998, consider an extension of the stand-by credits to March 1999, even though targets for economic reform have not been met.

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 42 Djibouti

Review

The political scene

Ahmed Dini’s FRUD Guerrillas loyal to the exiled leadership of the Front pour la restauration de attacks government forces l’unité et de la démocratie (FRUD), representing marginalised members of the in the south-west— Afar ethnic group, staged a series of attacks on Djiboutian army units in the west of the country during February and March. On the evening of March 19th guerrillas attacked an army post at Ali Ade, on the Ethiopian-Djiboutian border east of Ali Sabieh. Simultaneous attacks were mounted on the nearby border posts of Assamo and Guestir. A FRUD spokesman claimed that 7 government troops had been killed and 15 wounded in the attacks. Official Djiboutian sources conceded that there had been an armed confrontation in the area, but reported fewer casualties. The government claimed that landmines detonated by government vehicles caused the deaths and injuries. It is thought that Awalleh Guelleh, a FRUD commander who had escaped from Gadobe prison last September, was behind the attacks. In 1996 he was also named as one of the suspects in the 1990 attack on the Café de Paris in Djibouti’s central square, in which a French child was killed. A prolonged investigation by a French judge failed satisfactorily to establish responsibility for the attack.

—as fighting escalates in On February 5th elements of Ahmed Dini’s FRUD also staged attacks on army the north— positions in the north of the country. In a statement issued to the French press, Mr Dini claimed that his forces had killed 20 government soldiers in an attack on a convoy 60 km north-west of Obock. The Djiboutian Ministry of Defence claimed that 12 “troublemakers” and “mercenaries” had been killed in the action, but gave no indication of their own losses. On February 6th Djiboutian national television broadcast details of the attacks, including footage showing a considerable volume of weapons, presumably seized by the army. The authorities also claimed that 29 prisoners were taken during the clashes. It is reported that one of three Djiboutian soldiers seized and held captive by the rebels since September 1997 was released during the fighting.

—while France denies On February 11th Mr Dini claimed that French helicopters stationed in Djibouti involvement had helped to evacuate injured government soldiers from the scene of battles in the previous week. He alleged that French forces had helped to transfer the wounded to the military hospital in Djibouti-ville, adding that the Djiboutian Ministry of Defence was concealing the true extent of the government’s losses. On February 12th a spokesman for the French Ministry of Defence categorically denied that any French air or ground forces had participated in the evacuation of wounded Djiboutian troops. In March Mr Dini’s FRUD went on to allege that Polish military advisers were being employed by the Djiboutian government, a claim which has not been confirmed.

The FRUD’s military actions in February and March were the third in a series of such attacks in the past six months. In September 1997 Mr Dini claimed re- sponsibility for an attack upon an army convoy in the north, in which a dozen government troops were killed. This was the first reported clash between FRUD and government forces since the 1994 peace deal was signed between one

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 Djibouti 43

faction of the FRUD leadership and the government (4th quarter 1997, page 35). In December guerrillas loyal to Mr Dini also staged attacks on govern- ment positions in the north of the country, apparently in an attempt to high- light their cause to the foreign media that were covering the legislative election then under way in the country.

IGAD meets in Djibouti— Heads of state and government of member countries of the Inter-governmental Authority on Development (IGAD) met in Djibouti on March 16th. IGAD is a regional body that groups seven states of the Horn of Africa. It was originally created in 1988 at the initiative of President Hassan Gouled Aptidon, since which time Djibouti has hosted IGAD’s small secretariat. IGAD’s diplomatic status has steadily increased since, owing partly to external donor support. The body was restructured following the last summit meeting held in Djibouti in November 1996 to concentrate on regional security and economic links. The March meeting was intended to review progress on IGAD’s attempt to mediate between member states over the ongoing conflicts in Sudan and Somalia. The Djiboutian government has been exceedingly cautious in its stance over both conflicts, preferring to avoid any specific comments and thus avoiding the risk of antagonising neighbouring states. This is particularly the case over its rel- ations with the self-declared Republic of Somaliland. Over the past six months Djibouti’s relations with the authorities in Hargeisa have increasingly come to resemble de facto recognition of the self-declared state. In February Djibouti’s minister of foreign affairs, Mohamed Moussa Chehem, announced the open- ing of a Somaliland “liaison office” in Djibouti-ville, saying that in order to regulate trade and maintain good neighbourly relations, some formal presence of Somaliland was necessary. The opening of the liaison office follows the visit to Hargeisa of a Djiboutian ministerial delegation last year (4th quarter 1997, page 40). However, in light of the refusal by IGAD to allow observer status to Somaliland’s president, it seems that Djibouti is unlikely to grant full recogni- tion to the state in the near future, particularly given the Arab League’s oppos- ition to such a move.

—but ignores local Regional leaders at the IGAD meeting ignored a series of initiatives by grievances Djibouti’s divided opposition movements to draw attention to Djibouti’s polit- ical problems. Mr Dini’s faction of FRUD was reported to have sent a dossier outlining FRUD’s grievances to the Eritrean head of IGAD on March 11th. Internal opposition movements then followed suit. The umbrella opposition movement, the Front uni de l’opposition djiboutienne (FUOD), of which Mr Dini’s faction of FRUD is a member, called on IGAD heads of state to add Djibouti’s internal divisions to their agenda. Moumin Bahdon’s dissident Groupe pour la démocratie et la république (RPP) faction was also reported to have signed the FUOD letter. Meanwhile, determined not to be left out, the legal opposition party, the Parti pour le renouveau démocratique (PRD) also addressed a letter to the head of IGAD outlining similar grievances. The PRD, which in 1997 was incapacitated by a severe internal leadership struggle, failed to win any seats in December’s legislative elections (1st quarter 1998, page 42).

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 44 Djibouti

Djibouti signs bilateral A joint-ministerial commission composed of Eritrean and Djiboutian ministers accords with Eritrea met in Djibouti prior to the IGAD summit. The result was the signing of a series of bilateral accords by the two governments. These include agreements to improve co-ordination of the two states’ air and sea transport links as well as border security. The agreement follows a brief trip to Asmara by President Aptidon in February 1998.

The economy

A visiting French minister France’s defence minister, Alain Richard, made his first visit to Djibouti on confirms cuts March 4th. During his 48-hour trip, he met with President Aptidon and several Djiboutian ministers. Djibouti remains France’s largest overseas military base. Nothing concrete emerged from the visit, as details of France’s planned troop reductions in Djibouti had already been announced as part of France’s overall military reform programme last August (3rd quarter 1997, page 40). Never- theless, there is a stark absence of any contingency planning to cope with the economic impact of French troop reductions. In 1996, the World Bank esti- mated the total indirect contribution of France’s military presence to the Djiboutian economy at $53m, around one-third of the government’s total budget. On his departure from Djibouti, Mr Richard made a brief stopover in Ethiopia, where he met the prime minister, Meles Zenawi, and Ethiopia’s de- fence minister. During the trip, French officials stressed the “strategic” impor- tance of Ethiopia to France’s presence in the Horn of Africa. French troops stationed in Djibouti provided logistical assistance to Ethiopia during last October’s floods and appeared to look favourably upon co-operation between the Ethiopian and Djiboutian security services, which will ease the French withdrawal from a security standpoint (4th quarter 1997, page 34).

Public-sector strikers are Health sector employees have been staging a series of strikes since March in the arrested capital Djibouti-ville. On March 22nd security forces broke up a demonstration and arrested several hundred striking employees. Most protesters were released without charge but seven union leaders were reportedly detained in Gabode prison. The strikes were held to protest against a deterioration of conditions of work and persistent delays in the payment of salaries. Health workers and teach- ers together constitute 30% of the total number of state employees. Official government statistics put the total number of state employees, including the army, police and other security forces, at 11,000 in 1996. However, this figure is widely assumed to underestimate the size of the country’s security forces. Earlier in the year, a delegation from the International Labour Organisation (ILO) visited Djibouti in an attempt to arbitrate between the government and the country’s main trade union federation. Relations between the two have been bitter since the general strike of September 1995, which was successful in post- poning the economic restructuring plan introduced by the government.

A French pharmaceutical In February a French laboratory signed an agreement with a Djiboutian com- company launches a pany to allow medicines to be produced under licence in Djibouti. The Société regional initiative Djiboutienne d’industrie pharmaceutique has reportedly invested $4m in new production equipment in recent months. The aim of the joint venture is to produce a limited range of cheaper generic medicines for sale in neighbouring

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 Djibouti 45

markets. Most medicines in Djibouti at present come from France, while neigh- bouring countries primarily obtain medicines form Europe and Asia.

Parastatals are to be Meanwhile, as part of its efforts to overhaul the ailing economy, the govern- reformed ment is reported to have appointed a team from Price Waterhouse’s Paris office to undertake the revision of the country’s cumbersome legal code, under which Djibouti’s debt-burdened state-owned utilities and enterprises are regulated. There are currently 19 such parastatals under the control of five different ministries. Alongside public utilities such as water and electricity, they include the port and airport. An absence of proper financial controls on such bodies is exacerbating Djibouti’s fiscal problems. Large sums of cash were reportedly “borrowed” from the public utilities during the 1991-93 civil war, gravely undermining their finances. It is partly the failure of the utilities to carry out maintenance and capital replacement programmes that has led to the progres- sive deterioration in infrastructure.

Port traffic for Ethiopia According to the head of Djibouti’s port, Aden Ahmed Doualeh, preliminary rises sharply figures suggest that the volume of goods in transit to Ethiopia handled by the port in 1997 almost doubled. The volume of Ethiopian goods exported through Djibouti’s port reportedly increased by 150% during the same period. In 1996 port figures show that 149,000 tonnes of Ethiopian transit cargo was handled by the port. The rapid rise in Ethiopian cargoes reflects the increased compet- itiveness of the Djiboutian port vis-à-vis Assab in Eritrea, its principal competitor for Ethiopian trade, due to improved infrastructure and administration. The switch from Assab to Djibouti is likely to intensify further now that payments in Assab can no longer be made in birr while, unofficially at least, in Djibouti they still can. Since the August 1996 trade agreement between Ethiopia and Djibouti, red tape on Ethiopian produce has been drastically reduced, prompting a revival of road cargoes to Ethiopia and a series of initiatives to promote bilateral trade (4th quarter 1997, page 39).

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 46 Quarterly indicators and trade data

Quarterly indicators and trade data

Ethiopia: quarterly indicators of economic activity

1995 1996 1997 1998 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Production Annual totals Coffee ’000 tonnes 230a ( 228a ) ( 246a ) n/a Prices Monthly av Consumer prices, Addis Ababa: 1990=100 177.9 179.0 177.3 177.1 n/a n/a n/a n/a n/a n/a change year on year % 1.8 0.5 –7.4 –5.8 n/a n/a n/a n/a n/a n/a Money End-Qtr M1, seasonally adj: Birr m 9,402 9,270 9,578 9,683 9,395 9,568 9,642 9,893 9,901b n/a change year on year % 2.8 0.0 0.4 1.9 –0.1 3.2 0.7 2.2 n/a n/a Foreign trade Qtrly totals Exports fob Birr m 454.2 548.8 844.2 684.5 573.1 860.8 n/a n/a n/a n/a Imports cif “ 1,431.2c n/a n/a n/a n/a n/a n/a n/a n/a n/a Exchange holdings End-Qtr National Bank: goldd $ m 32.7 33.9 10.2 0.6 0.6 0.5 0.6 0.5 0.5 0.4e foreign exchange “ 760.8 818.2 890.4 821.0 722.0 566.3 577.3 531.0 491.4 408.9e Exchange rate Market rate Birr:$ 6.32 6.32 6.35 6.39 6.43 6.64 6.80 6.81 6.86 6.95e

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Estimate. b End-November. c Total for 1 Qtr. d End-quarter holdings at quarter’s average of London daily price less 25%. e End-February.

Sources: FAO, Quarterly Bulletin of Statistics; IMF, International Financial Statistics.

Djibouti: quarterly indicators of economic activity

1995 1996 1997 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Money End-Qtr M1, seasonally adj: Dfr bn 36.40 36.92 35.50 36.57 36.10 35.82 28.97 27.01 26.64 n/a change year on year % –4.1 –2.0 –7.6 –1.5 –0.8 –3.0 –18.4 –26.1 –26.2 n/a Foreign tradea Annual totals Exports fob $ m ( 107 ) ( 134 ) ( n/a ) Imports cif “ ( 421 ) ( 374 ) ( n/a ) Exchange holdings End-Qtr Foreign exchange $ m 72.7 72.1 70.9 73.5 70.4 76.8 71.9 71.3 69.6 65.8b Exchange rate Market rate Dfr:$ 177.72 177.72 177.72 177.72 177.72 177.72 177.72 177.72 177.72 177.72

Note. Annual figures of most of the series shown above will be found in the Country Profile. a DOTS estimate. b End-February 1998, 65.5.

Source: IMF, International Financial Statistics; IMF, Direction of Trade Statistics, yearbook.

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 Quarterly indicators and trade data 47

Ethiopia: foreign trade ($ m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports cif 1991 1992 1993 Exports fob 1991 1992 1993 Food, beverages & tobacco 24.8 89.3 97.8 Food 126.3 113.2 138.5 of which: of which: cereals & preparations 14.2 76.3 78.9 coffee 116.2 107.3 129.2 Petroleum & products 50.1 149.5 165.6 Hides & skins 25.1 32.3 32.7 Chemicals 72.7 58.3 106.1 Total incl others 188.6 197.2 201.7 Basic manufactures 76.3 99.4 124.2 of which: iron & steel 15.6 13.9 38.6 metal manufactures 17.2 15.7 26.2 Machinery & transport equipment 210.5 192.8 208.9 of which: road vehicles 77.5 96.7 113.4 Total incl others 471.8 656.6 771.6

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports cifa 1993 1994 1995 1996 Exports foba 1993 1994 1995 1996 Italy 190 162 221 174 Germany 46 80 156 126 US 151 157 163 163 Japan 42 61 56 52 Japan 78 80 120 123 Italy 32 32 48 49 Germany 114 117 124 105 UK 18 18 23 37 UK 95 81 93 85 US 21 33 31 33 Saudi Arabia 85 50 57 62 Egypt 2 4 21 25 France 38 62 65 61 Saudi Arabia 6 4 22 24 Kenya 32 38 47 55 France 10 15 21 18 Total incl others 1,148 1,120 1,386 1,390 Total incl others 239 304 472 477 a DOTs estimate.

Sources: UN, International Trade, yearbook; IMF, Direction of Trade Statistics, yearbook.

Djibouti: foreign trade ($ ’000) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports cif 1991 1992 Exports fob 1991 1992 Food 45,028 43,789 Food 4,593 3,393 of which: of which: cereals & preparations 17,335 16,307 live animals 2,685 326 Beverages & tobacco 11,603 12,412 Hides & skins 661 124 Crude materials 22,715 23,448 Basic manufactures 457 833 Petroleum & products 19,263 17,427 Machinery & transport eqpt 1,978 1,845 Chemicals 12,797 14,855 Total incl others 17,347 15,919 Basic manufactures 36,703 35,208 of which: metals & manufactures 13,179 12,851 Machinery & transport equipment 33,306 42,157 of which: road vehicles 13,989 17,072 Miscellaneous manufactured goods 22,719 18,108 Total incl others 214,403 219,926 Source: UN, International Trade, yearbook.

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998 48 Quarterly indicators and trade data

Somalia: trade with major trading partnersa ($ m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports cif 1993 1994 1995 1996 Exports fob 1993 1994 1995 1996 Kenya 45 53 65 76 Saudi Arabia 60 70 89 98 Djibouti 33 40 49 57 Yemen 40 26 21 34 Saudi Arabia 31 14 16 17 Italy 7 16 20 19 Brazil 3 21 13 17 UAE 7 13 15 16 Yemen 15 24 12 11 Total incl others 121 143 157 179 UK 6 13 6 8 Total incl others 277 309 272 274 a DOTs estimate.

Source: IMF, Direction of Trade Statistics, yearbook.

Djibouti: trade with major trading partnersa ($ m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports cif 1993 1994 1995 1996 Exports fob 1993 1994 1995 1996 Ethiopia 23 28 34 40 Somalia 30 36 45 53 Saudi Arabia 50 22 25 28 Ethiopia 26 31 38 45 Italy 28 24 24 28 Yemen 45 44 8 28 Thailand 41 58 65 14 Total incl others 109 118 107 134 Total incl others 434 373 421 374 a DOTs estimate.

Source: IMF, Direction of Trade Statistics, yearbook.

EIU Country Report 2nd quarter 1998 © The Economist Intelligence Unit Limited 1998