COUNTRY REPORT

Ethiopia Eritrea Somalia Djibouti

3rd quarter 1996

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Summary

Ethiopia, Eritrea, Somalia, Djibouti 3rd quarter 1996

August 23, 1996

Ethiopia Political and economic structures pages 3-4 Outlook: The Somali border will remain tense, with the Ethiopian govern- ment encouraged by US backing to embark on further intervention. Property law and other obstacles will constrain the flow of new investment. pages 5-6 Review: Ethiopian raids on militia bases in Somalia have followed attacks on state personnel and property in Addis Ababa. A leading trade unionist has been arrested. Tensions with Sudan have persisted. The USA has pledged support for the air force. Healthy growth and inflation figures have been reported for fiscal 1995/96, and partial census results published. The investment code has been revised. Coffee exports have improved. Prospects for increasing gold production appear good. The system of foreign exchange auctions has been reformed. pages 6-17

Eritrea Political structure page 18 Outlook: The president’s calls for hard work and sacrifices will remain convincing with Eritreans at home, while the diaspora will maintain its wait- and-see stance. page 19 Review: A draft constitution has been finalised. There has been a setback in mediations with Yemen. Relations with Sudan remain tense. The government has high hopes of IGAD’s new role. Progress with privatisation has been slow. There have been further improvements in the infrastructure, notably at airports and in the energy sector. The rains this year have been good. The banks have extended their services. Remittances continue to dominate foreign exchange earnings. pages 19-25

Somalia Political and economic structures pages 26-27 Outlook: The prospects for reconciliation in the south are poor since Mr Aideed seems determined to pursue his late father’s search for a military solution. Any progress towards reconciliation in the south would undermine the self-styled Somaliland Republic. pages 28-29 Review: General Aideed has died, and been has replaced by his son, Hussein Mohamed Aideed, who shares his father’s belligerence. Mogadishu is wholly under sharia. Ethiopian government forces have attacked Islamist groups inside the Somali border. International organisations have pursued their attempts at national reconciliation. Substantial food aid is required for 1996. In the self- styled Somaliland Republic, Mr Egal is to stand down as president, and fresh incidents involving armed opponents have been reported. pages 29-37

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Djibouti Political and economic structures pages 38-39 Outlook: The power struggle will exacerbate the slide towards clan and family- based political confrontation, heightening the likelihood of sporadic urban violence. Against this background, progress on economic reform will remain piecemeal. pages 40-41 Review: Ismael Omar Guelleh has used the courts to silence political rivals. Dissident politicians have been expelled from the ruling party. The progress of the demobilisation programme is uncertain. IMF reforms have got off to a slow start. There has been confirmation of a revival of plans to build an oil refinery. pages 41-45 Statistical appendices pages 46-47

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

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

Political structure: Ethiopia

Official name: Federal Democratic Republic of Ethiopia

Form of state: federal republic

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

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

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

Next elections: 2000 (federal and regional)

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

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

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

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

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

Governor of the National Bank of Ethiopia Dubale Jale

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Economic structure: Ethiopia (incl Eritrea)

Latest available figures

Economic indicators 1991 1992 1993 1994 1995 a GDP at factor cost Birr bn 19.4 24.5 25.3 n/a n/a a b Real GDP growth % –8.7 12.3 1.4 5.6 7.7 Consumer price inflation % 35.7 10.5 3.5 7.6 10.0 c Population m 49.4 50.9 52.4 54.1 55.7 Exports fob $ m 168 170 199 405 n/a Imports fob $ m 471 993 706 937 n/a Current account $ m 103 –120 –52 n/a n/a Reserves excl gold $ m 55 232 456 544 772 Total external debt $ m 4,179 4,363 4,703 5,059 n/a External debt-service ratio % 17.9 13.4 11.7 11.7 n/a d b b Coffee production ’000 tons 184 210 222 228 300 Exchange rate (av) Birr:$ 2.07 2.81 5.00 5.09 6.15

August 23, 1996 Birr6.34:$1

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

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

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

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Ethiopia

Outlook

The Somali imbroglio is Threats of violence either stemming from or inspired by events in neighbouring set to deepen— Somalia are likely to rise in the wake of the Ethiopian government’s brief but muscular invasion of Somali territory in early August. The raids came in the wake of the attempted assassination of the government’s most senior Somali figure and the bombing of another of Addis Ababa’s principal hotels. Three factors indicate that there will be no short-term method of preventing such violence. The clumsy efforts of the Ethiopian People’s Revolutionary Democratic Front (EPRDF, the ruling coalition) to co-opt Somali clan-based groupings to the Region 5 administration has alienated Ogadeni clans within Ethiopia. The physical permeability of the vast pastoral borderland with Somalia and the intense political conflict within Somalia also suggest that even high- profile and costly military raids such as those of August are likely to provide only a temporary solution to attacks from Somali sources. Although Al-Ittihad is a self-proclaimed “Islamic” grouping, its strategies arise out of the intense conflict over territory and resources between rival Somali clan-based militia in both Somalia and southern Ethiopia rather than any religion motivation.

—along with firm US Two regional trends are now appearing. US defence of Ethiopia’s intervention in backing Somalia is in keeping with its new-found interest in Ethiopia as a stable regional ally. Unequivocal US diplomatic support, increasingly translated into military assistance, helps the Ethiopian authorities to legitimise both foreign raids and domestic repression within the fashionable vocabulary of a hypothetical global combat against “Islamic fundamentalism” and “terrorism”. The direct raids into Somali territory demonstrate the flimsy and contradictory nature of liberal- inspired notions of conflict resolution. These have flourished, usually trans- planted from foreign sources, over recent months in the Horn, in response to the large sums of Western donor money now available for such activities. The Organisation for African Unity (OAU), the Djibouti-based Inter-governmental Authority on Development (IGAD) and the US State Department’s “Greater Horn of Africa” initiative all give the impression that dialogue and negotiations are newly discovered panaceas for the Horn’s hard-pressed populations. The Ethiopian authorities are talking of creating a research body for “peace studies”. In stark contrast, the Somali raids demonstrate that the EPRDF is sticking to the strategy which earned it power in May 1991 and is best understood by its opponents, that conflicts are best resolved by unequivocal military victory.

The government conflates The government’s increasingly confident and activist foreign policy will have all its opponents ramifications for the presentation, but not the substance, of its domestic poli- tics. This is evident from the official presentation of what are perceived by

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Ethiopians and foreigners as opposition forces. The suggestion that there is an organised opposition is misleading. The status of the opposition rests far more on its rejection of all that the EPRDF and the nascent federal republic stands for, than on the promotion of a set of alternatives. Popular criticism of govern- ment policies is abundant but strategies for channelling such criticism into political opposition are woefully absent. However, regardless of sporadic donor disquiet, the government will continue to use the legal system to silence its critics. Wherever possible, it will allege collusion between reported external aggression emanating from Somalia and Sudan, and domestic critics of its policies.

Clear hurdles to In theory, the newly revised Investment Code should help persuade foreign investment remain business of the seriousness of the government’s desire to attract and retain foreign capital. In practice, the new, more attractive code is unlikely to magnify the tentative trickle of foreign funds into Ethiopia. However, foreign joint- Gross domestic product venture participation in privatised companies, notably in the promising leather % change, year on year Ethiopia (a) industry, is probable. The only sectors with significant foreign participation are Africa minerals and tourism. Minerals aside, foreign participation in the economy 15 remains overwhelmingly the preserve of one conglomerate, the Alamoudi

10 group. The Investment Office of Ethiopia has approved new investment projects worth almost Birr15bn ($2.37bn), but notes that only one-quarter of these have 5 been realised. It is widely accepted that numerous bureaucratic obstacles to both domestic and foreign investment remain, not least the unwieldy land lease 0 policy both in the capital and the regions, where the prerogatives and -5 procedures of the regional authorities for granting licenses for commercial farm- ing are confused. The new commitment to process all requests for land for -10 1990 91 92 93 94 95(b) investment purposes within 60 days is welcome, although there are serious (a) Including Eritrea. Fiscal years starting July 8. (b) Official estimate. doubts over the cumbersome administration’s ability to deliver. Sources: EIU; IMF, World Economic Outlook.

Review

The political scene

The Ethiopian army raids Ethiopian troops attacked what were said to be military bases within Somalia on western Somalia— August 8. The Ethiopian People’s Revolutionary Democratic Front (EPRDF, the ruling coalition) claimed that the attacks, on three settlements lying 50 km within western Somalia, and close to the international boundaries with both Kenya and Ethiopia, were targeted against the Al-Ittihad movement, an ostensi- bly Islamist grouping of Somali nationals. The Ethiopian authorities accuse Al-Ittihad of being behind a series of violent acts committed within Ethiopia. On August 10 an Ethiopian government source claimed success for what it termed the “limited counter-offensive aimed essentially at destroying the bases and sanctuaries of the multinational terrorist force”. Spokesmen representing Al-Ittihad in Mogadishu have previously claimed responsibility for bomb attacks within Ethiopia, although it is not clear that such claims have been verified. In August’s raid government forces briefly captured the three settlements and were reported to have inflicted heavy casualties. An Al-Ittihad spokesman in

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Mogadishu claimed that their forces had killed 150 Ethiopian troops, downed a helicopter and destroyed a tank. He said that the Ethiopian troops were accom- panying Somali militia loyal to the Somali National Front (SNF) led by Omar Haji Masalle, blaming the attack on an unholy alliance between Ethiopia, the SNF and “international imperialism”. Neither set of claims over casualties was independently verified.

—after a bomb wrecks a Foreign observers were quick to jump to the conclusion that the raids were in second Addis hotel— response to evidence that Al-Ittihad was involved in the bombing of the Wabe Shebelle hotel, the capital’s third largest state-owned tourist hotel, in central Addis Ababa on August 5. Initial reports said that one person was killed and 17 seriously injured in the attack. The Wabe Shebelle is a favoured haunt of well-to-do Somalis resident in the Ethiopian capital. Ethiopian government reports made no link between the hotel bombing and the attack on Al-Ittihad bases three days later. The Wabe Shebelle bombing appears similar to the explosion which destroyed part of Addis Ababa’s Ghion hotel in January (1st quarter 1996, page 7).

—and a minister narrowly Unidentified assailants ambushed Abdul Mejid Hussein outside his office in escapes death— central Addis on July 8, maiming the transport and communications minister with six bullets. His bodyguard and a policeman were killed. Abdul Mejid is widely known and respected in the donor and diplomatic communities; he was minister for external economic affairs in the transitional government and has been instrumental in negotiations over aid and economic reform. The state- owned media initially claimed that the minister suffered only superficial wounds, but on July 9 he was flown to Jerusalem for operations on wounds in his arm and jaw. Doctors accompanying him maintained that he had not suffered serious injury. He was able to talk with the press before leaving Addis. On July 28 Israeli radio announced that the minister had been released from hospital, but would remain in Israel to recuperate. A formal claim of responsi- bility for the attack came from a spokesman of Al-Ittihad in Mogadishu in the days following the attack. Al-Ittihad also claimed responsibility for attacks on government-owned hotels in Addis and Dire Dawa earlier in the year (1st quarter 1996, page 7).

—prompting anxiety in Doubts surrounding the identity of the assailants heightened the sense of the local Somali discomfort among foreign communities in Addis. Such unease is felt among community— two distinct groups: the Somalis who constitute the largest group of foreigners in Ethiopia, and the growing body of diplomats and, primarily Western, aid workers. Alongside the Sudanese, Somali refugees and traders in Addis were targeted in the general clampdown on foreigners prompted by the attempted assassination of the Egyptian president, Hosni Mubarak, in the Ethiopian capi- tal last June. The claim of responsibility from Mogadishu for the attack on Abdul Mejid, allegations of Sudanese funding for Somali militia hostile to the EPRDF, compounded by the inevitable confusion between Somali refugees and Ethiopian Somalis resident in Addis Ababa, all contribute to a heightened sense of unease among Somalis in the city.

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—and among diplomats The shooting of Abdul Mejid and the high public profile given to Somali militia in Addis opposed to the EPRDF have also rekindled fears among foreign diplomats in Ethiopia. The raids on Al-Ittihad and government allegations against domestic opposition groups fermenting violence (see below) coincided with a warning issued by the US embassy in Addis “reminding US citizens living and working in Ethiopia to pay extra attention to their security in day-to-day activities”. This irked the Ministry of Foreign Affairs, which was quoted as retorting that “Ethiopia is safer for American citizens than many of their own cities”. However, the fact that Abdul Mejid was widely known by diplomats and donors contributed to the concerns that such violence underlines an incipient sense of political fragility. Such fears are misplaced as the attack on Abdul Mejid has a range of possible motives. He is a pivotal and highly controversial figure among Ethiopia’s rival Somali factions. The politics of Hararghe, which forms the rump of Region 5 (Somali), have been more convoluted and more violently contested (4th quarter 1995, page 9) than in any of the nine ethnically defined federal states. Similarly, control of the metropolitan region of Harar (known confus- ingly sometimes as Region 13) and disputes over the status of the nearby trading centre of Dire Dawa have generated intense rivalries in which the Somali National Democratic League, headed by Abdul Mejid, plays a key role. There are also several contentious financial dossiers: the Calub gas project, rents from the lucrative Hararghe trade in the mild intoxicant qat, and continued tussles over rail funding. Against this background, the attack on the transport minister remains of less significance than the murder of a veteran military commander in the EPRDF, Hayelom Araya, in February (1st quarter 1996, page 7), for which an Eritrean businessman was charged on June 19. The defendant and three accom- plices were simultaneously charged with an illegal arms deal; details of which may clarify the dispute in a restaurant which apparently triggered the killing.

Regions of Ethiopiaa

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

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

Source: EIU.

Union leaders face A further series of arrests of public figures critical of the EPRDF suggests that the improbable charges— government’s tolerance of opponents, particularly those able to attract foreign attention, continues to shrink. In June police arrested the general secretary of the Ethiopian Teachers’ Association (ETA), Taye Wolde Semayat, charging him with an improbable string of offences. These included being the head of a clandestine political grouping allegedly dedicated to urban terrorism and rural insurrection, the kidnap of foreigners and extortion rackets. The trade union

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leader and six co-defendants attended a preliminary hearing on August 5 and were refused bail.

—and their foreign The tendency to resort to the courts to silence political critics appears to reflect contacts are not always the government’s inability to come to terms with criticism. Urban trade union- popular ists and independent professional associations have often been challenged by the creation of pliable, surrogate organisations less likely to criticise ministerial decisions. As in the case of the arrested leader of the ETA, government tactics have consisted of accusing the elected leadership of hostility to federalism. This was also the fate of the Confederation of Ethiopian Trade Unions, whose office in Addis was closed in December 1994. The crimes of those in charge of the ETA were compounded in the eyes of the EPRDF by publicising repression in Europe and seeking allies among the European trade unions. Taye was arrested on his return to Addis in the company of European trade unionists. He was charged, along with four accomplices, of having formed a clandestine body called the National Patriots Front, allegedly in collusion with former Derg army officers. According to a police statement issued on June 21, the men were charged with extorting funds from businessmen and stockpiling weapons in Gojjam. While evidence for the second charge seems slender, it again illustrates the govern- ment’s fear of insurgency in Gondar or Gojjam, heightened by the fact that Sudan is eager to aid Ethiopian opponents of the EPRDF. Even less convincing is the attempt to link those arrested to a botched attack on an employee of the US Agency for International Development (USAID) in January 1994. This US citizen had the thankless task of promoting “democracy” by funding independent civilian political initiatives, an activity which gained him more enemies than friends.

Concerns over human The trial of the first batch of 46 senior Derg officials continued in the past rights persist quarter. Over 1,700 former officials remain in detention in Ethiopia, most hav- ing been held without charge since 1991. In a brief report published on July 29 the London-based human rights body, Amnesty International, appealed to the Ethiopian authorities to accelerate the process of charging and trying all the detainees. The prime minister, Meles Zenawi, acknowledged such longstanding criticisms in June, publicly stating that the progress of the Special Prosecutor’s Office had been “unsatisfactory”. He added that “if over the next few months we do not see an effective speeding up of the process then we will have to consider other options”. He did not elaborate on these options. On July 30 the trial was adjourned for two months. In addition to highlighting delays in bringing the Derg members to trial, the Amnesty report noted a substantial gap between the government’s public commitment to human rights and the reality. The report, which the government dismissed as exaggerated and politically biased, drew attention to several dozen journalists still in detention and expressed concern about the fate of numerous Oromo held without charge in Region 4.

The USA pledges support The vice-chairman of the US Joint Chiefs of Staff, US Air Force General Joseph for the air force— Ralston, led a military delegation to Ethiopia on June 20. Following the visit the Ethiopian defence minister, Tamrat Layne, stated that the USA had agreed to help re-equip and re-train the Ethiopian air force. Neither the Ethiopian defence ministry nor the US embassy in Addis were willing to provide guidance

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as to what such help would entail. The hardware of the Ethiopian air force is composed almost exclusively of Soviet-supplied aircraft and helicopters. On coming to power the EPRDF, whose fighters still make up the vast majority of the armed forces, had negligible aeronautical skills, and the former air force was dissolved. The first batch of pilots graduated from the air force base at Debre Zeit last year. General Ralston’s visit is just the latest of a series by senior US military officials, consolidating the burgeoning strategic ties between the two countries (2nd quarter 1996, pages 7-8).

—as military In mid-July the Ministry of Defence in Addis announced that moves to build a restructuring continues multi-ethnic national army, including male youths from all federal states, had been successful. It stated that an unspecified number of youths from Region 3 (Amhara), Region 4 (Oromo) and the Southern Ethiopia People’s Administrative Region (SEPAR) had received training and been incorporated into the army. Afar and Somali militias, as well as soldiers who had served under the previous regime, have also been absorbed into the armed forces. Speaking on the fifth anniversary of the EPRDF’s military victory, Tamrat praised the efficiency of the armed forces. He said that 30,000 former EPRDF fighters had been laid off, and replaced by 10,000 new recruits drawn from diverse federal states.

Meles plays down fears of Meles denied in mid-June that the main southern Sudanese rebel group, the war with Sudan— Sudan People’s Liberation Army (SPLA), had bases or was receiving support from within Ethiopia. At the same time, he claimed in an interview with the news agency Reuters that Sudan is arming and training Ethiopian groups opposed to the EPRDF but insisted that the government in Addis had “other, more effective means of responding to provocation”. He added that he expected the current level of military tension along the border with Sudan to persist, but opined that the Sudanese army was ill-equipped to stage large-scale attacks on Ethiopia or Eritrea. Ethiopia has voiced its displeasure at the limited nature of the international sanctions against Sudan, although on August 16 the UN Security Council approved the principle of an air embargo on the Khartoum regime. One year after the failed assassination attempt on the Egyptian president, which triggered the stand-off between the Ethiopian and Sudanese authorities, relations remain exceedingly tense. Skirmishes continue along Ethiopia’s north- western border between the Sudanese government and southern Sudanese forces, which are receiving support from within Ethiopia and Eritrea. Ethiopian refugees continue to be repatriated from Sudan. On May 25 the Sudanese government announced a programme of “voluntary” repatriation of 7,000 Ethiopians resident in Khartoum, claiming that the move fell within the plan of the Office of the UN High Commissioner for Refugees (UNHCR) to repatriate gradually the several hundred thousand Ethiopian and Eritrean refu- gees from Sudan. The authorities in Khartoum claim that 49,000 Ethiopians left Sudan between February and June.

—which is not happy with In late June the water resources minister, Shiferaw Yarso, had provoked the plans for the Blue Nile Khartoum government by announcing to a private Addis-based newspaper that Ethiopia would implement hydroelectric programmes along the Blue Nile basin, regardless of the wishes of Sudan. One week earlier, Shiferaw’s Sudanese counterpart had criticised both the Ethiopian government and the World Bank

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at the lack of consultation over what are longstanding plans to construct dams along the Blue Nile and Atbara rivers, which flow from the Ethiopian northern highlands into eastern Sudan.

Ethiopia offers troops for The intensifying crisis in Burundi raised the possibility of Ethiopian troops Burundi again being sent to the Great Lakes region. Plans for an inter-African force to intervene in Burundi were drawn up at the Organisation for African Unity (OAU) annual summit in Cameroon in early July. Ethiopia, Rwanda, Uganda and Tanzania offered to send troops for the time being. The four governments reportedly established a joint military technical committee. Meles and the Eritrean president, Isaias Afewerki, were said to have held discussions on this and other regional matters in Entebbe with the Ugandan president en route for Cameroon on July 7. Last year Ethiopia contributed to the UN force in Rwanda. Following the coup in Burundi on July 25, Meles met the presidents of Uganda, Kenya, Tanzania and Rwanda, and senior Zairean and Cameroonian ministers in an impromptu summit in Arusha (Tanzania) on July 31. They decided not to send troops for the time being, opting instead for economic sanctions. On August 7 the Ethiopian government announced that Ethiopian Airlines had been instructed to suspended its weekly flights to Bujumbura.

The economy

Meles reports rising Speaking before the Council of People’s Representatives (CPR, the Ethiopian growth— federal assembly) on July 4, the prime minister, Meles Zenawi, estimated real growth in 1995/96 (the fiscal year starting on July 8) at 7.7%. This compares with 5.6% in 1994/95, when the economic recovery since 1991/92 was dented by poor harvests. Meles anticipated real GDP growth of 7-8% for the current year (1996/97). The growth rate posted in 1995/96 comfortably met the targets set by the government and foreign donors. Speaking to foreign journalists in June, Meles had claimed that liberalisation had been achieved “without the type of major disruption we have seen elsewhere when command economies liberalise”.

—and falling inflation Meles estimated annual average inflation in July at 1.2%, down from 13.4% in 1994/95. The inflationary pressures evident in the first half of 1995, due in large part to poor harvests the previous year, thus appear to have been contained. Inflation on the same basis has declined every month since August 1995. The creation of additional private banks is unlikely to make much impact on the money supply due to their still limited lending powers, although the regulatory authority of the National Bank of Ethiopia (NBE, the central bank) remains largely untested. Less certain is the impact of neighbouring Eritrea’s decision to go ahead with the creation of a new currency to replace the birr, which remains the currency in Eritrea. No firm date for the switch to the new tender, which will be known as the Nakfa, has been announced in Asmara, although some time in 1997 seems likely.

The new budget has a Members of the CPR approved the 1996/97 budget on July 4, four days before different format the new Ethiopian fiscal year began. This was the first time that a complete budget was presented prior to the beginning of the fiscal year since the

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installation of the transitional authorities. However, timeliness appears to have been achieved at the cost of continuity, the format of the new exercise having changed from that followed under the transitional government. This is partic- ularly the case for the breakdown of regional expenditure and revenue between the nine regional and two metropolitan states. Despite the official inauguration of the federal republic last August, individual regions’ direct input to the draft- ing of the central budget still appears limited, and the debate in the CPR was minimal. Given the widely disparate levels of organisation of the regional administrations, capital expenditure capacity and implementation rates appear to be more significant issues for regional administrators than their share of national revenue.

The publication of partial Census results for two metropolitan regions, Harar and Addis Ababa (known census results— confusingly sometimes as Regions 13 and 14), and just two of the nine federal states, Region 1 (Tigray) and Region 3 (Amhara), were finally released in June. Results for Region 4 (Oromo) and Gambela were published in July. Complete results from the long-overdue survey are expected before the end of 1996. According to the census, the population of Addis in 1994 was 2.25 million; of this total, 863,000 people were recorded as economically active including 300,000 unemployed, indicating an unemployment rate of almost 35%. The total population of Region 1 was recorded at 3.27 million, that of Region 3 at 14.41 million, and that of Harar at 139,000. The population of Region 4 was put at 19.5 million. The sprawling, largely Oromo region accounts for about 30% of Ethiopia’s total population, and much of the most fertile land. Its regional capital is Addis, which is also a metropolitan region in its own right.

—should improve regional The last Ethiopian census was conducted in 1984. It was flawed and fragmen- planning— tary due to the civil war in the north, the onset of famine and political mani- pulation. Three aspects of the current exercise are significant: ethnicity, improved socioeconomic data and religious identity. First, the census should Retail price inflation, Addis provide a more accurate indication of the size and dispersion of the country’s Ababa (a) % diverse groups. Linguistic (termed “national” under the constitution) identity 16 provides the basis for the division of the country into nine federal states. The 12 ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) also draws Annual average its legitimacy from its claim to represent the country’s diverse nationalities. 8 The new data should thus provide a more accurate basis for the calculation of 4 political representation and the distribution of financial resources to the regions. Hitherto regional budgets have been based on guesstimates by the 0 Ministry of Finance, drawn from the fragmentary 1984 data. Due to the incom- -4 plete nature of the current exercise, the 1996/97 regional budgets continue to Year on year be allocated on this basis, a fact explicitly referred to in Meles’s budget speech Sep...Jan...May 1995 96 on July 4. Second, the census should contribute significantly to the growing (a) Excluding rent. volume of socioeconomic data available to economists, planners and academ- Source: Central Statistical Authority, Addis Ababa. ics. The full census provides data on rates of urbanisation, unemployment and the housing stock, and should complement the growing number of academic and aid-related statistical surveys on both rural and urban living standards.

—and point to changes in Finally, the new statistics should give a more accurate picture of Ethiopia’s religious affiliation religious profile. Although of less importance than ethnic identity, two facets of

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 Ethiopia 13

religious affiliation will be of significance. First, there is the Christian-Muslim split. Although the two regions for which results have been published are over- whelmingly Christian, the overall results are likely to show that the population is far more evenly balanced between the Christian and Islamic faiths than has previously thought. Second, the census will give an indication of the growth of Protestant churches. Orthodox Christianity is and will remain predominant, particularly in rural areas, but the evangelical Protestant churches have been winning large numbers of Orthodox converts, particularly with financial freedom since 1991. According to the census, Addis now has almost 100,000 Protestants while 12% of the capital’s population is Muslim

Industry and mining

The tanneries are to be The privatisation of a further batch of state-owned companies was announced privatised on August 1. The latest companies offered for tender are the main tobacco factory in Addis Ababa, four enterprises producing garments, and three plants involved in tanning and processing leather products. Tenders from both domestic and foreign companies were invited before September 20, and by October 15 for the tobacco facility. Six of the companies are located in the outskirts of Addis or nearby Akaki, and the other to be sold is the Nazret garment factory. The latest announcements follow the sale of hotels and soft- drinks factories in November (4th quarter 1995, pages 16-17). In mid-July the state-owned Tea Production and Marketing Enterprise (TPME) announced that it would be seeking foreign investors for joint ventures. The general manager of the TPME reported that Ethiopia produced 3,500 tons of tea in 1995. The industry is dominated by the two state farms which pioneered tea production in the 1980s. Both farms remain in state hands.

Investment incentives are The Council of People’s Representatives (CPR) approved proposed amendments enhanced— to Ethiopia’s Investment Code on June 18. These substantially modify the law passed by the transitional government. The principal changes involve lowering the minimum permissible levels of foreign investment, and expanding the areas in which foreign ownership and joint ventures are permitted. Small and medium-sized hotel development is now open to foreign capital. The minimum qualifying level for existing investors to fund a new project with reinvested profit and dividends has been lowered to $100,000. The minimum capital requirement for foreign partners in joint ventures has been lowered from $500,000 to $300,000. The requirement for potential investors to deposit $125,000 with the National Bank of Ethiopia (NBE, the central bank) has been scrapped, and non-Ethiopian investors will now be allowed to hold foreign currency accounts. The threshold for eligibility for investment incentives has been lowered to Birr250,000 ($40,000). Nevertheless, certain industries remain closed to foreign investment. The most notable are banking and insurance, large-scale electricity generation, air transport for under 20 people, engineering, pharmaceuticals and fertilisers.

—but the definition of a The revisions include two measures with potentially significant domestic im- foreigner is needed plications. First, the government now pledges to grant land to licensed investors

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 14 Ethiopia

within 60 days of application. Long-running confusion over land lease pro- cedures in Addis is a major bottleneck to new investment. Serious doubts remain over whether the municipal bureaucracy will be able to process outstanding and new land claims within the new two-month delay. Second, at least according to the text, domestic investment now appears possible in the sensitive area of radio and television broadcasting. The lowering of financial and bureaucratic barriers to foreign participation in the economy highlights the need for further clarific- ation of nationality laws. This is particularly pressing in the case of Eritreans, and to a lesser extent Yemeni and other Arab investors. The inevitable political sniping from the Addis private press over this sensitive dossier does not mask the fact that a problem of definition of “foreigners” remains, and is likely to be exacerbated when Eritrea eventually establishes its separate currency.

UNIDO surveys the In June the Vienna-based UN Industrial Development Organisation (UNIDO) horizon without the published a timely review on Ethiopia. Subtitled Accelerating Industrial Growth regions— Through Market Reforms, it follows a more substantive review published five years ago. Despite the change of government and the shift in economic policies since 1991, the transformation of Ethiopian industry remains potential rather than actual. Textiles, chemicals and food-processing industries all remain over- whelmingly government-owned and run. Indeed, the government is construc- ting several large new food-processing factories. The UNIDO report neither evaluates the management changes undertaken in the run-up to privatisation nor, while it notes the extreme concentration of industry around Addis and Dire Dawa, does it examine the potential role of regional authorities in industrial development. Under the constitution and related legislation, the nine regional states have, at least in theory, considerable autonomy over economic policy.

—and notes the potential In its sectoral review, UNIDO notes potential growth areas in textiles and leather of agro-industry processing. The outlook for textiles rests on massive, untapped demand for cloth and the possibility of extending cotton-growing. After coffee, the export of unprocessed skins and hides has been Ethiopia’s second most important source of foreign exchange. UNIDO underlines the huge unexploited potential for producing finished leather and leather articles for the export market. Regional investment incentives are likely to prove important for another potential growth area, the processing of the produce of new commercial farming ventures. Again, progress in this domain has been slow, leaving the much-touted notion of “agricultural development-led industrialisation”, which is ostensibly the framework for future Ethiopian economic development, appearing more a slogan than a practical policy.

A concession for Lega The Toronto-based mining company, Golden Star, the first foreign company to Dembi is imminent— be licensed to explore for gold in Ethiopia, announced the preliminary results of its first searches in June. Having prospected over a 1,800-sq km area in the Dul field in western Ethiopia, the head of its operations in Africa claimed that the company was “excited by the initial results” from its investigations. In late July the Ethiopian minister of mines and energy, Azedin Ali, announced that the winning tender to operate the Lega Dembi gold mine would be announced “within two months”. He claimed that the government hopes to increase annual foreign exchange earnings from gold from the current $37m to $185m.

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 Ethiopia 15

Lega Dembi is the country’s largest existing gold mine. It currently produces 3 tons per year (t/y), although the minister has repeated recently the Ethiopian government’s expectation that whoever is awarded the concession must imme- diately step up production to 15 t/y. Lega Dembi is conservatively believed to contain reserves of 60-200 tons. In March it had been announced that ten companies had bid for the concession.

—and the first award for Meanwhile, in June an Italian mining company, Asteria, signed a three-year gemstones is made concession to search for gemstones in Ethiopia. It became the 11th foreign mining company to sign an exploration agreement with the government, but the first for precious stones. The Italians will reportedly prospect in a 106 sq km area of Region 4 (Oromo) around Babile, as well as at four smaller sites around Borena along the Kenyan border.

Foreign trade and payments

The NBE will loosen its In his speech presenting the budget to the Council of People’s Representatives influence over auctions— (CPR, the federal assembly) on July 4, the prime minister, Meles Zenawi, announced far-ranging, if widely anticipated, changes to the current system for the allocation of foreign exchange to private and state-owned enterprises. The managed auction-determined exchange rate is to be gradually phased out in a series of reforms due to be introduced with effect from September this year. Private exporters will no longer be obliged to deposit all foreign exchange earnings with the bank. Foreign-currency deposits will be allowed in the state- owned and the new private banks. Foreign currency earnings over and above a predetermined percentage of the transaction are to be sold in an open auction. This will gradually alter the current situation whereby the National Bank of Ethiopia (NBE, the central bank) is able to influence the prevailing auction rate by regulating the supply of dollars. The new measures follow intense nego- tiations with the IMF over both the investment code and exchange regulations within negotiations for an Enhanced Structural Adjustment Facility (ESAF).

—which are now weekly Reviewing the success of the auctions on July 27, the governor of the NBE, Dubale Jale, announced that auctions would henceforth be held weekly. Since May 1993 private traders and state-owned enterprises have been eligible to enter sealed bids in fortnightly auctions supervised by the NBE. According to the governor, a total of $1.4bn has been allocated in this manner over the past three years. NBE statistics indicate that just under 54% of the total currency allocated in this way has gone to private bidders. The fact that state-owned interests account for almost half the currency demand appears to explain the stability of the auction-determined rate, which has barely fluctuated over the past year. The auction of July 27 resulted in a rate of Birr6.33:$1.

Coffee exports are buoyant At the end of July the head of the Ethiopian Coffee and Tea Authority claimed that Ethiopia had exported 102,000 tons of coffee since the current crop year began in October. He estimated total production at 300,000 tons for 1995/96. The Hamburg-based soft commodities analyst, F O Licht, puts total output for 1995/96 unchanged at 228,000 tons. Ethiopian output figures are highly specu- lative as, uniquely among African producers, much of the harvest is consumed

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 16 Ethiopia

domestically. Almost half of this estimated total was delivered to the central Addis coffee market, where 141,400 tons were registered for sale, of which 30,500 tons remained in stock in July. Expected export earnings from coffee are put at $280m in the current crop year, down from $330m last year, despite the higher output. In a separate development, in June the International Coffee Organisation announced that Ethiopia will be one of five states to benefit from a $1m scheme to boost the sale of high-premium “gourmet” coffee production and marketing. The scheme is financed by grants from the UN Commodity Fund. Much of Ethiopia’s high-value Harar coffee is exported to Gulf states.

The UK acts to promote The UK government is seeking to use the centenary of its diplomatic presence in trade with Ethiopia— Ethiopia as the centrepiece of a drive to boost bilateral trade. A trade fair, co-sponsored by the UK’s Department of Trade and Industry, was held in the embassy’s extensive compound in early June. Almost 30 UK companies were represented, and the fair attracted 4,000 visitors and resulted in a series of contracts signed by UK firms and Ethiopian customers. The fair and the atten- dant publicity aimed to counter criticisms by larger UK firms that the official UK presence in Addis has, in recent decades, focused on aid policy to the detriment of export promotion. This perception, combined with a feeling that UK diplo- mats have not always grasped the new economic realities and opportunities in Ethiopia, has been blamed for UK exporters losing out to more aggressive Italian and French commercial promotion since the change of government. UK exports to Ethiopia were worth around £50m ($79m) in 1995. Bilateral aid remains modest but, with increasing amounts of aid money channelled through multi- lateral donors, the UK retains a certain prestige in Ethiopia where the EU is the largest such donor. Prior to 1991, UK aid, largely through non-governmental organisations (NGOs), had generated a certain amount of goodwill with the rebel fronts which subsequently formed the new authorities in both Ethiopia and Eritrea. The UK government has sought to build on this goodwill with the provision of higher education courses for senior government personnel from both Addis and Asmara.

—while a delegation from A trade delegation led by the minister of trade and industry, Kassahun Ayele, Addis visits Jeddah visited the Jeddah Chamber of Commerce and Industry on June 22, to present the new Investment Code (see Industry and mining), and stimulate Saudi interest in the privatisation process. Ethiopia is keen to attract Saudi and other Gulf capital to participate in agricultural and livestock processing companies, partly in the hope that Arab investment would help guarantee market access to Gulf countries. However, according to the Saudi press, detailed discussions centred on the possibility of Saudi-Ethiopian joint ventures in mining. The Ethiopian delegation also visited Riyadh, and met senior Saudi trade officials and industrialists.

The EU takes a A comprehensive review of EU assistance to Ethiopia over the past two decades longue-durée look at aid— was published in June. It is the first of its kind to be commissioned, with Ethiopia having been chosen because it has been the largest recipient of funds under the Lomé Convention. The EU was the largest institutional donor during the period, providing around 15% of all development and emergency assistance to Ethiopia. The independent evaluation was conducted by the Institute of

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Development Studies from Sussex University in the UK, in conjunction with the Net multilateral development assistance to Ethiopia (a), 1994 Institute of Development Research (IDR) at Addis Ababa University. The six- % share of total volume study is rich and detailed, offering sectoral evaluations of EU support for agriculture, infrastructure and social sectors, food and emergency aid, pro- WFP 5.1 gramme assistance and EU-NGO projects. The report’s Ethiopian and European Unicef 4.1 ADF 11.9 IMF 4.0 authors raise three broad issues. First, there is the political and moral conun- Others 8.8 drum of the EU having provided aid to the Derg despite its appalling political IDA 30.5 and military record. EU officials apparently justify this in part due to the desire of its member states for a “critical dialogue”, a stance hardly borne out by the

EU 35.6 historical record. The issue is of more than historical interest since it has implic- ations for current EU-Ethiopian relations. Second, the review highlights the shortcomings of the lack of a clear overall country strategy where the EU has an (a) Disbursements. Source: OECD, Geographical Distribution of overly complex aid administration. Third, it underlines the need for improved Financial Flows to Aid Recipients. analysis and dialogue over aid policy.

—suggesting Overall, the review argues that EU priorities in Ethiopia have been well chosen, improvements— that a sustained, long-term yet flexible programme to the country has produced benefits, and that, on balance, aid has been effectively targeted and implemented. The summary conclusions call for simpler, more focused aid instruments, and better planning of assistance, notably in improved macro- economic and sectorial analysis. Policy dialogue should be improved with greater consistency and more effective delegation from Brussels to Addis-based staff, as well as for Ethiopians from the capital to the regions. Problems are highlighted in the Public Expenditure Review process, in the lack of linkages between relief and development assistance, and in regionalisation.

—and criticising modest The progress of the report itself is symptomatic of some of the changes Ethiopian participation advocated, notably the related issues of delays in policy decision-making, implementation, and inadequate and inappropriate staffing levels. A draft report appears to have been submitted ten months ago, yet the EU’s contradic- tory sensitivities about policy dialogue (both between EU member states and with the Ethiopian authorities), highlighted by the report, in turn delayed its appearance. The EU published it with cautious disclaimers on certain recommendations, notably the authors’ critical analysis of unbridled economic liberalisation. Overly complex procedures are compounded by an ability of delegate decision- making, itself exacerbated by understaffing and over-reliance on expensive ex- patriate consultants. The review calls for the greater participation of Ethiopian staff. It notes that the EU has consistently preferred expensive European staff, with often minimal knowledge of the country, rather than local professionals. Other agencies, notably the US Agency for International Development (USAID), operate more efficiently with Ethiopian staff. This highlights the fact that there is a significant body of Ethiopian professionals, both resident and among the diaspora, able to undertake such work. However, against this fact should be balanced the Ethiopian government’s ambivalent stance to non-Ethiopian People’s Revolutionary Democratic Front (EPRDF) professionals in general, and university staff in particular. Persistent changes of personnel within the Institute of Development Research, the Ethiopian partner in the EU review, are a good example.

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 18 Eritrea

Political structure: Eritrea

Official name: Eritrea

Form of state: unitary state

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

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

Last elections: February 1987 (legislative, within Ethiopia)

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

Head of state: elected by the National Assembly

National government: the president and the sectoral ministers

Main political parties: the People’s Front for Democracy and Justice (PFDJ, formerly the Eritrean People’s Liberation Front) is the ruling and, 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 Tesfaye Ghirmazien construction Abraha Asfaha defence Sebhat Ephrem education Osman Saleh energy, mining & water resources Tesfaye Gebreselassie finance & development Haile Woldensai foreign affairs Petros Solomon health vacant information Beraki Gebreselassie internal affairs Ali Said Abdella justice Foazia Hashim labour & social security Ahmed Haji Ali marine resources Saleh Meki regional administration Mahmoud Ahmed Sherifo tourism Worku Tesfamikael trade & industry Ogbe Abraha transport Gergis Teklemikael

Governor of the National Bank of Eritrea Tekie Beyene

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Eritrea

Outlook

Eritreans accept the Despite the undoubted economic hardships that Eritreans face, the country president’s familiar remains unified, stable and committed to the path of self-reliance. This year’s message— Independence Day celebrations in May were a well-choreographed reminder of the aims of the war of liberation. The president, Isaias Afewerki, called on all Eritreans to give more for their country, to work harder and to expect less immediate rewards. This message has been heard many times but still com- mands widespread respect. The newly modelled defence forces were among the paraders to remind Eritreans that peace was not guaranteed.

—while the diaspora will This quarter sees the annual influx of Eritreans in exile who are returning home continue to wait and see to assess the current situation, including younger Eritreans who have returned for national service. Most of them will go back abroad, having decided to wait and see for a little longer. Their primary concerns are housing, education and healthcare. Other matters which give cause for concern are the new (and ambiguous) press law, simmering tensions with Sudan, and the shortcomings in the national communications and transport infrastructures (although there have been marked improvements since independence). The government is very keen to involve the diaspora in reconstruction (beyond its already consid- erable role through remittances), while the ruling People’s Front for Democracy and Justice (PFDJ) is considering the establishment of funds in which Eritrean expatriates can purchase shares.

Review

The political scene

A draft constitution is The ruling People’s Front for Democracy and Justice (PFDJ) has asked for finalised— 300 students to assist with recruitment to the party in the rural areas. Among its tasks will be to discuss the draft constitution, which was put before the National Assembly on July 2-3. It is expected that minor amendments will be made and that the draft will then be presented to the public for debate before being ratified and promulgated in early 1997.

—with disappointments The constitution allows for a pluralist political system and contains special for the media protection of women’s rights. Yet the new press law, which was gazetted in June, is not universally popular. While it allows for freedom of expression, subject to legal as opposed to political restraint, there are qualifications “based

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 20 Eritrea

on the objective reality of Eritrea”. Print media is free according to the law, although the stipulation that capital must originate within Eritrea effectively prohibits the blossoming of small, independent newspapers. Radio and television are to remain under government control. The official rationale is to prevent political organisations within or outside the country from under- mining the unity and stability of Eritrea, especially those that use religion as a basis for their propaganda. Eritrean Jihad members abroad, for example, have kept up a constant—but often unfounded—diatribe against the economic as well as political line of the government.

Regional assembly Eritreans are preparing to choose their representatives on the regional assem- elections draw near blies. These are the first polls since the administrative map of Eritrea was redrawn, reducing the number of provinces (or regions as they now are) to six. Few surprises are expected, but these elections are one more step on the road to democracy in the run-up to national elections in 1997.

Mediation efforts with In the dispute with Yemen over sovereignty of the Hanish archipelago in the Yemen hit a setback southern Red Sea, there are still disagreements as to what area or island is contested. The Eritrean and Yemeni sides met in Paris on May 21 to sign an agreement in principle on peaceful resolution of the dispute and authorise French monitoring of the process. They agreed to arbitration under five judges, two chosen by each side and the fifth by an independent body. There followed other meetings in Paris, most recently on July 18-19. A fourth round of talks, again mediated by the French, was scheduled for September 5, but has been preceded by Yemeni accusations in mid-August that Eritrea had engaged in “illegal military movements”, which was said to involve the occupation of lesser Hanish. On August 18 a statement from the foreign affairs ministry in Asmara pledged that Eritrea would start to withdraw its troops immediately from the island, and on August 22 the UN Security Council called on Eritrea to remove its forces from the archipelago.

As border tensions More disturbingly, Jihad (Harakat al-Jihad al-Islami al-Eretri) continues its mili- continue— tary campaign in the western lowlands and Sahel. According to two commu- niqués dated April 6 and 23, Jihad had engineered at least eight attacks on Eritrean government vehicles in the previous few months. The communiqués, which were put on the Internet by an US-based American Islamic group, claimed dozens of fatalities, including a non-Eritrean. The reliability of this information is doubtful, but there have been attacks in the last quarter and a build-up of the military in border regions. However, these incidents are not reported in the Eritrean press, leading to spiralling rumours which doubtless help the parallel scare campaign of Jihad.

—Sudan remains At an official level, relations with Sudan are deadlocked. The Sudanese minister obdurate— of information, Tayeb Ibrahim Khair, gave a statement to an independent Sudanese newspaper, Al-Ra’y al-Akhar, on May 16 in which he denounced Eritrea and refused to rule out the possibility of war. A later diplomatic offensive from the Ministry of Foreign Affairs in Khartoum accused Eritrean troops of attacking Sudanese posts around July 20. This claim was denied in Asmara, and the Eritrean president, Isaias Afewerki, has consistently stressed the priority

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 Eritrea 21

given by his government to regional peace. Without such stability, Eritrea faces an uphill struggle to attract foreign investment or to plan long-term capital development.

—and Eritrea stands Returning from a visit to Saudi Arabia in mid-July, Isaias spoke to a London- behind the NDA based Saudi daily newspaper, Al-Sharq al-Awsat. He defined Eritrea’s regional role and stated the need for Red Sea nations to cooperate. He pointed out that the National Islamic Front (NIF)-inspired regime in Khartoum was also a threat to fellow members of the Intergovernmental Authority on Development (IGAD), and to Algeria and Tunisia. The Eritrean head of state commented that war was an impossibility, not simply because Eritrea was not ready or able, but because the Sudanese army was in such disarray and the Sudanese government existed without the support of its people. Eritrea gives open support to a Sudanese opposition group, the National Democratic Alliance (NDA). Its argument is that the Sudanese people must topple the NIF regime and that the NDA is representative of the broad spectrum of Sudanese society. A strongly worded memorandum issued by the NDA in July calling on the NIF-backed regime in Sudan to resign was printed in all the Eritrean government newspapers. Eritrea is playing a pivotal role in defining a regional agenda for cooperation and security. This was underlined by the incoming US ambassador to Eritrea, John Hicks, who was speaking to the US Senate Foreign Affairs Committee on June 20. Mr Hicks, a former heavyweight of the US Agency for International Development (USAID), will replace the popular incumbent, Robert Houdek, who has held the post since independence.

The refugees remain in More disturbing than this tit-for-tat diplomatic and media war is the deadlock the middle in talks to bring almost 300,000 Eritrean refugees home from Sudan under an organised repatriation programme. The Office of the UN High Commissioner for Refugees (UNHCR) has been trying to mediate between Eritrea and Sudan to enable it to restart the Programme for Refugee Reintegration and Rehabilitation of Resettlement Areas in Eritrea (PROFERI), which has been on hold since late 1995 (1st quarter 1996, page 20). Neither Asmara nor Khartoum are willing to talk at the same table, and Sudan has started to deport heads of household, thus increasing the pressure on already poor border communities. The Eritrean government is prepared now to encourage refugees to return “spontaneously”, saying that they will now be given the same support (livestock, food rations, and cash) that organised returnees are given. The Eritrean Relief and Refugee Commission (ERREC) estimates that 165,000 refugees from Sudan have returned since independence, 25,000 under the repatriation programme.

Asmara says all is well The government insists that the Djiboutian authorities have forgotten their with Djibouti allegation that Eritrean troops crossed the border between the two countries in April. Both Isaias and the foreign minister, Petros Solomon, have strenuously denied any expansionist ambitions on the part of Eritrea. At least for public consumption, the Djiboutians maintain that the dossier is not closed (see Djibouti: The political scene).

The government has high Sudan’s regional disruption has been on the agenda of IGAD, which is to re- hopes of IGAD— launch itself in September as a leaner and more efficient body. The organisation,

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whose executive secretary is an Eritrean, Tekeste Gebre, has now been restructured into three divisions: Economic Cooperation; Agriculture and the Environment; and Political and Humanitarian Affairs. Its technical committee met in June in Addis Ababa to discuss security, infrastructural development and management. Priority is to be given to projects which affect the membership as a whole and promote subregional cooperation. IGAD is considered by the Eritreans as an important mechanism with which to apply pressure on Sudan. Three fellow members (Kenya, Uganda and Ethiopia) have all accused the NIF- inspired regime of supporting terrorism within their respective borders. IGAD provides an important regional mechanism to apply pressure. Encouraged by the USA, donors are preparing to channel long-term development aid, as opposed to emergency relief, through IGAD. Sanctions against Sudan (see Ethiopia: The political scene) do not affect emergency aid.

—and strengthens ties The importance given to regional unity was underlined by a meeting of the with Kenya permanent joint ministerial commission of Eritrea and Kenya at the end of May. The two sides signed an agreement to enhance economic cooperation, and to establish political, economic and social committees. The private sectors in both countries were urged to work closer together, and visa requirements for nationals of both countries have been abolished. Eritreans can now visit Kenya, as well as Uganda, without needing a visa.

The economy

Privatisation is not so fast The medium-term strategy of the government is to establish an efficient private sector. However, until the 42 state-owned industries are sold, their immediate needs are seen as paramount. These include increased access to foreign exchange, spare parts and management training. Seminars, training and academic courses are being held across the sector. The National Agency for the Supervision and Privatisation of Public Enterprises is currently preparing profiles of those enterprises under its supervision with which to attract buyers. Public-sector industrial employment Data from the Ministry of Trade and Industry show that the public industries in Eritrea, September 1993 % of total had total debt of Birr557m ($111m) at the end of 1993, and achieved combined profits of Birr53m on sales of Birr365m in the year.

Chemicals 8.1 The Chamber of Commerce is being restructured, and training has been given Metal products 8.8 Others 20.0 Food 9.0 to help staff establish support services for industry. The chamber has not yet determined whether membership will be voluntary or mandatory, but its target Leather. 14.0 & group is said to be small and medium-sized businesses, not microenterprises. shoes 14.0 One of the main tasks for the new chamber will be to promote internal links Textiles 40.1 between industry in Eritrea. Surprisingly for such a small country, the business community does not have a clear sense of itself, especially those businesses outside Asmara. Other measures proposed by the government to promote the

Source: Ministry of Trade and Industry. private sector include the establishment of a competitive exchange rate and the abandonment of restrictive export regulations. Licensing procedures have been streamlined, and there are plans to set up entrepôt facilities and export process- ing zones.

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Investment comes to The potentially fertile lowlands of the west have seen substantial investment in the west— recent months by the government, the ruling People’s Front for Democracy and Justice (PFDJ) and the private sector. The emphasis has been on agriculture. A sugar plantation is planned for Gash region, and a new tobacco plantation has opened near Tokombia in the south-west. The land has been leased from the government by a private Eritrean investor, and the plantation is to supply the state-owned cigarette factory in Asmara as well as foreign companies.

—as visiting bankers Delegations from the World Bank and the Nairobi-based PTA Bank in July define the potential (see Foreign trade and payments) cited the main areas of investment potential as tourism, fisheries, agribusiness, marble and gold. They also pointed to the constraints, including telecommunications, transport and the lack of skilled personnel. The national university, which saw 518 students graduate this year, can only cope with 10% of the 5,000 annual applicants. Its aim is to integrate its courses with the needs of the business community, and to open up branches, starting in Massawa, to reach to the public. The most urgent needs of business are for employees who understand or are familiar with customer relations, office administration and other service-sector skills.

The infrastructure slowly Improvements in infrastructure are continuing, with 30,000 young people improves— working on roadbuilding, terracing and the railway as part of a Birr26m summer work programme for students. The Massawa-Asmara road, although not yet finished, has been widened and, in some parts, straightened. The roads to Tessenei and Assab still require a substantial amount of work. Most of the work on the roads is by hand, helped by only a few pieces of heavy machinery. All equipment, from tractors to road rollers, has to be imported. The cost of these imports has risen from Birr367m in 1992 to Birr2bn in 1994. The two ports of Massawa and Assab are to receive funding from Italy and the World Bank. Aid from the Bank takes the form of a $18m credit from its soft-loan arm, the International Development Association (IDA). Italy is to contribute $21m.

—including the airports— The Civil Aviation Authority (CAA) intends to establish a civil aviation school at an estimated cost of Birr20m. The CAA is overseeing radical improvements to Asmara International Airport, which include lengthening the runway by 700 metres, laying an alternative flight path and upgrading passenger services. The airport at Assab has been improved, and at Massawa tenders are being prepared for an international airport. Other airstrips at Tessenei and Nakfa will also be upgraded.

—and the energy sector The oil refinery at Assab is to receive a $5m grant from the Ethiopian govern- ment, the principal user of its facilities, to undertake much-needed repairs, while in mid-July the OPEC Fund signed an agreement for a $5m loan for the Hirgigo power station project near Massawa. This is part of an overall plan to upgrade the national power system. A masterplan is being drawn up by a Swedish firm, which calls for investment of $200m by the year 2000. Three new diesel generators are planned near Asmara, and the possibility of a new oil refinery, financed from private sources and intended to reduce the costs of power generation, is being mooted. Eritrea will also benefit from a $1.75m loan to the Djibouti-based Intergovernmental Authority on Development (IGAD)

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 24 Eritrea

from the EU to support research into domestic energy production and solar power in member states.

Agriculture benefits from The rains have been good this year and, provided that the locusts hold off, the good rains harvests will be too. Nevertheless, the UN Food and Agriculture Organisation (FAO) says that higher seed prices and bad rains in some areas will mean food shortages for around 750,000 people, mainly in Gash, Barka, Sahel and the southern Red Sea region.

Resettlement remains the The monetisation of food aid, announced in January (1st quarter 1996, page 23), priority— is still controversial. Implementation has not been helped by the fact that the agency responsible, the Eritrean Relief and Refugee Commission (ERREC), is still experiencing structural teething problems. ERREC was formed out of the Eritrean Relief and Rehabilitation Agency and the Commission for Eritrean Refugee Affairs. ERREC is now responsible for returnees and vulnerable house- holds, as well as demobilised and not-yet-demobilised fighters. The UN-funded War Torn Societies Project has opened an office in Asmara and is conducting a survey of rural areas to assist in the challenges of reconstruction. Further fund- ing for ERREC came from the UN Development Programme (UNDP), which allocated $3m of a $5m package put together with the ministries of information and education.

—and the official record is The government’s policy is to merge programmes for reintegration or assistance, mixed and there has been heavy concentration on setting up cooperatives or self-help groups. The Ministry of Agriculture is aiming to boost production through the provision of seeds, tractors and water pumps on a credit or rent basis. Small-scale irrigation is being encouraged: 16 microdams were built in the last half of 1995 and eight are to be started in 1996. Nonetheless, the Eritrean farmer is too poor to set up the storage, quality control and marketing networks required to compete on foreign markets. The official hope is that a cooperative structure, with adequate advisory services provided by the government, would overcome this hurdle. The largest agricultural project, the Aligidirr cotton plantation, is successful. Its raw cotton output has increased sharply, from 460 tons in 1993 to 4,300 tons in 1994 and 6,937 tons last year. However, another initiative set up by ex-fighters, the Bana women’s cooperative, has been dissolved. It was hailed as a success when it was established just over a year ago. A vigorous campaign for funds netted a total of $1.21m in cash and kind. Yet it was feared that the existence of Bana would detract from the work of Mitias, the government office for the reintegration of demobilised fighters. Bana’s assets have been transferred to Mitias, which operates within ERREC.

Banks broaden their The ex-fighters benefit from special credit schemes established by the Housing services Bank of Eritrea (HBE) and the Commercial Bank of Eritrea (CBE). They have also expanded their network, with new branches of the CBE in Adi Keyih and Barentu, and of the HBE in Massawa and Tessenei. The National Bank of Eritrea (NBE, the central bank) has started a counter service, and there are plans to allow foreign banks to operate. Credit cards are a more distant prospect, but the new currency, the Nakfa, should definitely be introduced next year. This will help stem the flow of money to Ethiopia where interest rates are better. The

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Ethiopian government has, however, relaxed its restrictions on taking Birr out of Eritrea and into Ethiopia.

Foreign trade and payments

Remittances dominate Ethiopia continues to be Eritrea’s main trading partner, although its share of foreign exchange earnings total exports has fallen, from 86.7% in 1992 to 44.9% in the first half of 1994. Merchandise exports include sesame seed to Egypt, leather to Italy and livestock to Saudi Arabia. The tension with Yemen has cut off a vital import route for the southern Red Sea region, but the government hoped for a return to normality after the signing of the Paris accords in May. Remittances from abroad, totalling over $70m and accounting for an estimated 14% of GDP in 1992, remain the single most important source of foreign exchange at the moment. Eritreans abroad are also giving generously to finance developments in their home villages. These can typically range from a school or clinic to a large-screen TV which serves as a local cinema.

A new envoy in Brussels The new Eritrean ambassador to the EU, Andebrhan Woldegiorgis, who was stirs European interest previously the head of the NBE, recently appeared in a number of European newspapers explaining Eritrea’s economic strategy. Links with European busi- ness were also strengthened by a visit from a delegation from France, Belgium and Luxembourg in July. That month also saw delegates from the World Bank and the PTA Bank. Eritrea joined the PTA Bank, which is the financial arm of the Common Market of Eastern and Southern Africa (COMESA), at the end of June.

Destination of merchandise exports % of total 1993 1994 (a)

Sudan 24.5 Sudan 13.2 Egypt 6.4

Italy 3.1 Saudi Arabia 26.5 Italy 2.9 Others 3.9 Others 5.9

Ethiopia 68.7 Ethiopia 44.9

(a) January-June. Sources: Eritrean customs officials; IMF estimates.

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 26 Somalia

Political structure: Somalia

Official name: Somali Democratic Republic

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

Legal system: based on the 1960 constitution

National legislature: People’s Assembly

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

Next elections: none feasible in current circumstances

Head of state: theoretically Ali Mahdi Mohamed, nominated in January 1991 by his faction of the United Somali Congress (USC), and sworn in in August 1991 with the support of several southern factions. General Mohamed Farah Aideed had himself elected as “interim president” in June 1995 by his own faction of the USC-SNA. On the general’s death, his son, Hussein Mohamed Aideed, was nominated to the post by the same factions in August 1996

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

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

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

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 Somalia 27

Economic structure: Somalia

Latest available figures

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

ac August 23, 1996 SoSh4,200 :$1

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

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

b b Main destinations of exports 1995 % of total Main origins of imports 1995 % of total Saudi Arabia 57 Kenya 24 Yemen 14 Djibouti 18 Italy 13 Pakistan 6 a b c EIU estimate. Based on partners’ trade returns, subject to a wide margin of error. Outside Mogadishu. In the self-styled Somaliland Republic the legal tender is the Somaliland shilling (SolSh), which has a fixed rate of SolSh80:$1 and a parallel market value of SolSh400-450:$1.

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 28 Somalia

Somalia

Outlook

Mr Aideed inherits his One of Mogadishu’s main faction leaders, General Mohamed Farah Aideed, father’s mantle— died of a heart attack while being operated upon for gunshot wounds at his home in the south of the city on August 1. The incident occurred after months of fierce fighting for control of parts of southern Mogadishu between the general’s militia forces and those loyal to Ali Hassan Osman “Ato”, General Aideed’s former chief financier who is now allied to the general’s main rival and the controller of north Mogadishu, Ali Mahdi Mohamed. Following General Aideed’s demise, Mogadishu was briefly becalmed as many believed that it was a real opportunity for an end to five years of inter-clan violence. Mr Ali Mahdi declared that his forces would observe a ceasefire and that he was ready for peace talks, a gesture supported by Mr Osman “Ato”. The hope was shortlived. On August 4 General Aideed’s son, Hussein Mohamed Aideed, was appointed to take his place as leader of his Hawiye subclan faction of the United Somali Congress/Somali National Alliance (USC/SNA) and as self-appointed president of Somalia, to preside over a government that at the last count numbered six vice-presidents and 93 ministers. In his first public speech in his new position, Mr Aideed made it quite clear that he would be just as unyielding towards opponents who do not recognise his presidential aspirations, as his father was. As one observer put it, Aideed is dead, long live Aideed.

—and believes in the Ironically, given his father’s antagonism towards the US intervention in Somalia military solution in 1992-94, Mr Aideed is a US passport-holder. More significantly, he has gained respect among his militia for his bravery and belligerence toward rival clans during the year that he has been back in Somalia. Although he immediately adopted his father’s policies and rhetoric, only time will tell whether he can offer the same overwhelming sense of mission to become president of the whole country. In the months before his death, General Aideed’s forces had to fight hard to retain their territorial gains in the south against the Rahawayn Resistance Army (RRA), which has now joined forces with Mr Ali Mahdi and Mr Osman “Ato”. In Mogadishu, too, the fierce fighting for control of the Medina area and other parts of the capital has seemingly achieved little other than to fill the city’s hospital beds.

Mediation could When the period of mourning for General Aideed is over, there may still be a conceivably triumph window of opportunity for outside peace mediators to encourage Mr Aideed to think positively about national reconciliation. It is unlikely that his stance towards organisations like the UN and the EU will be any different to that of

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his father, who treated them with hostile suspicion, but mediation by Islamic organisations might bear more fruit. More likely, however, is a realisation of the fear expressed by many observers: that the Aideed faction will seek revenge for the general’s death, with Mr Aideed leading them into yet another round of inter-clan bloodletting.

In the north, Mr Egal’s The president of the self-styled Somaliland Republic, Mohamed Ibrahim Egal, days are numbered has finally given in to the increasing pressures on him and announced that he will not seek re-election when his term of office expires this year. This throws the northern enclave, still unrecognised by anyone outside its borders, into a constitutional quandary. After a lengthy debate, the council of elders has agreed to call a congress of clans to discuss the future. It is not particularly rosy. Somaliland is still waiting for a constitution, while high inflation and armed opposition groups seriously undermine the government. If the world community does manage to overcome the resistance of Mr Aideed and persuade southern factions to talk about a national reconciliation, most of the indicators suggest that Somaliland’s independence will be in jeopardy. Con- versely, if the violent inter-clan disharmony continues in the south, this might just provide some leverage towards the all-important international recognition Somaliland needs. However, Somaliland would first have to present a better spectacle to the international community. In either case, the congress of clans will have a full agenda.

Review

The political scene

General Aideed is dead— One of Mogadishu’s main faction leaders and a self-proclaimed president of Somalia, General Mohamed Farah Aideed, died from gunshot wounds at his home in the south of Mogadishu on August 1. According to eye-witness reports, General Aideed was hit by two bullets during a clash with militia loyal to his main Mogadishu rival, Ali Mahdi Mohamed, in the Medina district in the south of the capital on July 25. Aides said that General Aideed died of a heart attack while undergoing surgery. The general, variously reported to be between 59 and 66 years old, was buried on August 2. The son of a camel herder from Beled Weyne, he trained as a soldier under the Italian colonial administration, and served as military intelligence chief and ambassador in the regime of the former president, Mohamed Siad Barre. He also served a five-year prison sentence under the same regime in the early 1970s and was instrumental in eventually ousting Mr Siad Barre from power in January 1991. He has since been a leading figure in the struggle for power in Somalia.

—and is replaced by General Aideed’s position as leader of his Hawiye subclan faction and self- his son— proclaimed president was quickly filled by his son, Hussein Mohamed Aideed, who was sworn in at a meeting of the Somali National Alliance (SNA) national leadership council and council of ministers in south Mogadishu on August 4. Mr Aideed, who is in his early thirties, has lived most of his life in California

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and holds a US passport. In an ironic twist of fate, he served as a reservist in the US marines in 1992-93 during the US-led UN operation in Somalia, but was sent back to the USA after his father’s militia clashed with the US forces and the general was declared a wanted man. Mr Aideed returned to live in Mogadishu last year and had been recently acting as General Aideed’s head of security in Baidoa.

—who dashes hopes of After the fierce fighting in Mogadishu in July (see below), the capital was reconciliation unusually quiet for a few days after General Aideed’s death, and there seemed to be a real hope that his demise might open the way for peaceful reconcili- ation. On August 2 Mr Ali Mahdi declared a ceasefire on behalf of his side and called for peace talks, a gesture supported by his ally and the former chief financier of General Aideed, Ali Hassan Osman “Ato”, whose forces had been grappling with those of the general for control of the south of the capital. Such hopes were shortlived. In his first speech as “president” on the day he took office, Mr Aideed told a rally of an estimated 10,000 people that he promised “to lead you in the footsteps of Mohamed Farah Aideed”. Although Mr Ali Mahdi repeated his willingness to negotiate with Mr Aideed on August 5, the reply he received was that Mr Aideed would only talk to him if Mr Ali Mahdi recognised his government. Mr Ali Mahdi declared that “Hussein will bear the consequences of his actions”, and he and Mr Osman “Ato” decided to reconsider their unilateral ceasefire. A call from the UN Security Council on RRA: Rahawayn Resistance Army August 13 for a national reconciliation conference was dismissed by Radio SNA : Somali National Alliance Mogadishu (the pro-Aideed version) as interference in Somali affairs. It argued SNF: Somali National Front that previous conferences (in Addis Ababa in 1993, and Nairobi and Mogadishu SPM : Somali Patriotic Movement USC: United Somali Congress in 1994) had paved the way for the formation of a broad-based interim admin- istration [assumed to be General Aideed’s “government”], which had been “striving to resolve any outstanding hostilities in the country”. This stance undermines the continuing efforts by the UN and other international bodies to broker an agreement on reconciliation (see below).

Mogadishu has enjoyed a The hiatus in inter-clan fighting that followed the death of General Aideed brief respite— followed some of the worst violence in the capital for many months. Two clashes between militia loyal to General Aideed and forces supporting Mr Osman “Ato” in southern parts of the city in May left 11 people dead, most of them civilians, and on May 15 local humanitarian organisations complained that the general’s forces had transformed hospitals in southern districts into military bases. On June 13 three people were killed and four others injured when a mortar shell landed on the headquarters of the US-based charity, Care International, in south Mogadishu. The struggle for control in south Mogadishu intensified on June 21. After four days of fighting between the two militia forces for control of the kilometre 7 roundabout that links south Mogadishu to ports and fertile areas in south-western Somalia, the death toll reached 31, with another 75 people injured. The International Committee of the Red Cross (ICRC) announced that it was airlifting emergency medical supplies into Mogadishu hospitals to treat 400 people wounded in June. At the end of June, fears that violence in the south of the capital might spill over across the Green Line into Mogadishu’s northern sectors under Mr Ali Mahdi’s control prompted Action internationale contre la faim (AICF), which had

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 Somalia 31

Main Somali clans

Legendary Arabian ancestry

Irrir

Digil 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.

already quit south Mogadishu at the end of April, to withdraw temporarily its three remaining expatriate workers from the north of the city. On July 4 the first clashes across the Green Line in over a year occurred. July also saw very fierce fighting for control of the Medina district in south Mogadishu, between the general’s militia and a force commanded by Musa Sudi Yalahow, an ally of Mr Ali Mahdi. On July 25, the day General Aideed received the two bullets that were to prove fatal, Key Saney hospital in north Mogadishu admitted 48 casual- ties from fighting south of the Green Line. In total Mogadishu hospitals reported more than 100 people killed and 400 wounded in the month of July.

—but is now wholly under One month before his death, General Aideed changed his attitude towards Islamic law sharia (Islamic law). Having previously opposed the introduction of Islamic tribunals, which are well-established in north Mogadishu, because he saw them as a challenge to his authority, the general called on clergy to prepare for the introduction of sharia in south Mogadishu at a rally on July 1 to mark the 36th

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anniversary of Somali independence. The move came after Mr Osman “Ato” introduced sharia into the enclaves of south Mogadishu that he controlled on April 27 and after calls for a jihad against General Aideed made on Radio Mogadishu (pro-Osman “Ato”). The jihad call came the day after a shooting incident outside a mosque in which General Aideed’s militia were implicated. The general’s about-turn in attitude towards sharia effectively negated a rallying banner for anti-Aideed factions, and was in line with the support he was said to be receiving from Libya, Sudan, and, according to a Radio Mogadishu (pro- General Aideed) broadcast in late May, Malaysia. Mr Aideed received the acting Sudanese ambassador to south Mogadishu in the presidency on August 6.

Outside Mogadishu, an The RRA strengthened its links with Mr Ali Mahdi and Mr Osman “Ato” in May alliance is formed against when Radio Mogadishu (pro-Mr Osman “Ato”) announced that the RRA and Aideed forces— the pro-Mr Osman “Ato” forces of the SNA would reinforce trade ties and coordination, and “oppose jointly” the clan militia loyal to General Aideed. On May 12 an attack in the Dinsoor district, 150 km south-west of Baidoa, by the RRA left between 11 and 23 men dead, most of them the general’s, according to a broadcast on Radio Mogadishu (pro-Ali Mahdi). In the Bakool region, fighting for control of Oddur has flared several times in recent months. About 100 people were killed in a battle on May 22 in which the RRA tried to wrest control of the town centre from the general’s forces, which had captured the town in January (2nd quarter 1996, page 27). The RRA claimed to have captured Oddur again on August 3, but Mr Aideed stated that his forces still held the town. Fighting for control of the strategic airport at Bali Doogle near Agfoye, 90 km west of the capital, was also reported at the end of July.

—which fight among Clashes between two militia groups loyal to General Aideed, for control of the themselves in Merca southern port of Merca, were reported on April 30. The dispute was apparently sparked by the appointment of a new port director. Fighting with grenade launchers and automatic weapons inside the port left five dead and 13 injured. Another clash between the two groups on May 8 resulted in at least six dead and seven wounded. Merca’s strategic value lies in its role as the main supply port for most of Mogadishu’s food and medical imports, since the capital’s port remains closed. Shipments of urgently needed cholera vaccines and antibiotics were being held up in the port due to demands by the Aideed administration for import taxes, a World Health Organisation spokesman declared in Nairobi on May 17.

Ethiopia crosses the In a statement to the Middle East News Agency (the Egyptian state agency) in border in hot pursuit Addis Ababa on July 8, an unidentified Somali source suggested that Islamist groups had set up training camps in the Kenya-Ethiopia border region. The groups were made up of “individuals of various nationalities in addition to some deportees from Yemen and Sudan.” These groups had begun to recruit local Somali youths, and were carrying out social and charitable activities. Less charitably, Al-Ittihad, a Mogadishu-based, ostensibly Islamist group, has claimed responsibility for a succession of bombings in Addis (see Ethiopia: The political scene). The response of the Ethiopian government was to launch, on August 8, an attack on three settlements 50 km within Somalia, which it described as the “sanctuaries of the multinational terrorist force”. In view of

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the strong US backing for a firm stance against Islamist groups, the government in Addis may decide to repeat the short-term exercise. From the various “governments” in Mogadishu, there has been no official comment on the Ethiopian military incursion. Omar Haji Musalle has denied allegations from Al-Ittihad that his SNF forces, largely composed of the Marehan (a Darod sub- clan), joined the Ethiopian attack, but declined to condemn the intervention.

Foreign workers are The few foreign nationals still working in Somalia continue to live a precarious targets for extortion existence. The offices of an Italian aid agency were looted at Jowhar, north-east of Mogadishu, on April 14, when a radio, furniture and $2,000 in cash were taken by unknown bandits. At the end of May an Australian pilot was arrested by pro-Aideed SNA militia on landing at Oddur and charged with landing illegally. The pilot, who was working for a Kenyan company supplying the mild stimulant qat to the town, was subsequently tried, and sentenced to 25 years in jail and a fine of $485,000. Under pressure from Australian government repre- sentatives in Nairobi, Mr Aideed said on August 7 that he would review the case. Holding foreigners landing “without permission” to ransom has become an attractive method of raising finance. On April 29 Agence France-presse reported that militia of the SPM loyal to General Mohamed Siad Hersi Morgan, who controls Kismayu, had detained a small Kenyan plane in the southern port. The SPM was demanding $8,500 for illegal entry into Kismayu. The plane contained a Somali deported from Sweden.

The international Efforts to find a workable solution to the conflict have continued, most of them community looks for from a safe distance and considered with suspicion by Mr Aideed. On April 30 peace— the UN secretary-general, Boutros-Boutros Ghali, met Somali faction leaders in Nairobi and pledged that the UN would never withdraw from Somali affairs. In the first half of June an Egyptian delegation ventured into Mogadishu, and talked to both General Aideed and Mr Ali Mahdi. Meanwhile in Addis, the third forum of a group of Somali intellectuals called the Somali Peace Line, set up under the auspices of the UN Educational, Scientific and Cultural Organisation and other international organisations, met on June 8-10. The EU’s contribution towards Somali reconciliation resumed with a meeting in Naivasha, Kenya, on June 20-22 which brought 30 Somali intellectuals together. The seminar endorsed principles of decentralisation and power-sharing as preconditions for a recreated Somali state, including the self-declared Somaliland Republic.

—with limited help from No representatives of Mogadishu’s main warring factions attended either of the faction leaders these two meetings, but they have not been inactive in currying favour abroad. On June 15, the first anniversary of the establishment of his government, General Aideed said that his delegates had recently talked with representatives of the Organisation of African Unity (OAU), the Arab League and the Organisation of Islamic Conference (OIC), as well as a US delegation. For his part, Mr Osman “Ato” was in Cairo in early July where he met the secretary- general of the Arab League and the Egyptian foreign minister. Although the league was supportive of his idea for a reconciliation conference under its aus- pices, Mr Osman “Ato” was also told that it could not be seen to support any one faction against another. It was among several international organisations,

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including the UN, to call on all Somali political groups to convene a national reconciliation conference following the death of General Aideed.

Five Canadian former Five Canadian soldiers, former members of the Canadian Airborne Regiment casques bleus receive complicit in an incident while serving as casques bleus in Beled Weyne in 1993, promotion in which a Somali was tortured to death while in the regiment’s custody, received promotions in May. The Beled Weyne incident, which occurred dur- ing Canadian participation in the UN Operation in Somalia (UNOSOM II) and has shocked a nation formerly so proud of its contribution to UN military operations, refuses to go away. At the end of May a Canadian major, who had been reprimanded by a court martial in 1994 for allowing his soldiers to use force against Somali civilians during the tour of duty in Beled Weyne, was sentenced to three months’ imprisonment by a court martial in Ottawa on May 27. The judge explained that the original reprimand was insufficient penalty.

Piracy in Somali waters is Although Somali waters were declared a danger zone by the Kuala Lumpur- said to decline based International Chamber of Commerce Regional Piracy Centre in April (2nd quarter 1996, page 31), just one incident of piracy was recorded off the Somali coast in the first six months of this year, according to the International Maritime Bureau (IMB). The first half of 1995 saw 13 such incidents but the director of the IMB was quoted in a Nairobi-based weekly, The EastAfrican, on July 22 as saying that the problem “had certainly not gone away”. As if to confirm this note of caution, the BBC Somali Service reported on July 17 that a ship belonging to the Somali Highseas Fishing Company had recently been seized by pirates. Somali refugees attempting to cross to Yemen have also been subject to attacks by pirates in recent months (see The economy).

The economy

Substantial food aid is Following a poor 1995 gul (March-June) harvest and consequent steep rises in required in 1996 the price of food, the continued closure of Mogadishu port and persistent inse- curity, Somalia’s food aid requirements remain substantial, according to the UN’s World Food Programme (WFP). Particularly hit by the poor gul harvest of sorghum are the central regions of Bay, Bakool, Hiiraan and Shabeellaha Hoose. Staff at Action internationale contre la faim (AICF) feeding centres in Mogadishu said that the number of malnourished children they treated had nearly doubled from 6,000 in January to 10,000 at the end of June. Crops covering 300 ha were reported to have been destroyed when a barrage on the Shabeelle river burst after heavy rain near Beled Weyne in mid-June. Three people were killed in the flood and around 100 families had to evacuate their farms. WFP distributed more than 60 tons of emergency food aid to 11,000 peo- ple in the Jubba valley in early July.

Cholera is still prevalent Cholera, which broke out in several southern areas at the beginning of the year in the south (2nd quarter 1996, page 32), had killed nearly 500 people since January, according to a report in the Nairobi-based Daily Nation in early July. The report quoted a Mogadishu-based weekly, Dadka, as saying that a cholera epidemic had killed 20 and left 150 others seriously ill in the southern parts of the Jubbada Hoose region, where there are virtually no medical services.

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The EU will modernise The northern port of Bossasso is to be modernised under an EU-financed pro- Bossasso port ject to upgrade Somali ports, which was announced in Nairobi on July 1. The project, which aims to provide equipment and personnel to enable the ports to function to international standards, will commence in the north, at Bossasso and at Berbera in the self-styled Somaliland Republic (2nd quarter 1996, page 33). The EastAfrican reported in mid-May that Bossasso’s population of 100,000 was enjoying peace and prosperity thanks to the booming port. An estimated 10 million sheep and goats were exported to Saudi Arabia in 1995, and imported consumer goods were plentiful. There were also daily supplies of qat flown in from Ethiopia. The EU has also announced a project to provide clean water to the inhabitants of Jowhar, a town of about 25,000 inhabitants near Mogadishu. The projects are part of the EU’s $60m two-year second rehabilitation programme for Somalia, which will cover humanitarian assistance, health, education and infrastructure, and will comprise 115 projects concentrated in relatively peaceful areas. The EU’s first such programme, initiated in June 1994, had a budget of $48m.

Refugees are attacked en Yemeni coastguards recovered the bodies of 63 Somali refugees off the coast in route to Yemen April. The refugees had been thrown overboard by pirates who attacked their ship and robbed others on board. The captain of the ship, who claimed that he had been forced to pay $70,000 to the pirates, was arrested on arrival in Yemen for illegally transporting the refugees across the Gulf of Yemen. Another Somali boat, carrying 260 refugees, also arrived in Yemen from Bossasso in late April. Its captain was similarly arrested on arrival. In the first ten days of May, another 186 Somali refugees arrived in Yemen according to the Office of the UN High Commissioner for Refugees (UNHCR). In figures released by the UNHCR on June 18, African Refugee Day, the number of refugee Somalis living outside the country was put at 446,000, more than half of whom are in camps in Ethiopia. The number of Somalis in Kenyan camps, which peaked at 300,000 in 1992, has been cut by more than half. The most recent phase of voluntary repatriation from Kenya, by plane to Gaalka’yo in the north-eastern region of Mudug, which began in April (2nd quarter 1996, page 32), has been curtailed due to fears of cholera in the region.

Somali refugees

Host country ’000 Ethiopia 290 Kenya 126 Djibouti 20 Yemen 10 Total 446 Source: Office of the UN High Commissioner for Refugees.

Pneumonia hits nomads’ An outbreak of virulent pneumonia that affected 70% of nomadic camel herds camels in Nugaal around Garoe in the north-eastern region of Nugaal has been brought under control after the local Red Cross appealed to the ICRC for help. The outbreak, which began in May, coincided with a tripling of the price of veterinary medi- cines on the local market. International aid has since helped to check the

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 36 Somalia

spread of the epidemic, a spokesman of the International Committee of the Red Cross (ICRC) announced in Geneva on July 18.

News from the Somaliland Republic

Mr Egal is to stand down— In a speech during the celebrations marking the fifth anniversary of the Somaliland Republic’s self-styled independence on May 16, the president, Mohamed Ibrahim Egal, declared that he would not seek re-election when his term of office expires this year. Mr Egal has been under mounting pressures recently, both on the military front from armed groups opposed to his govern- ment and on the economic front from rising inflation. A number of reports from the capital, Hargeisa, suggest that Mr Egal has become increasingly isolated and autocratic in recent months, and rarely leaves his presidential palace. Just who will replace Mr Egal is by no means clear. Following lengthy debate at a meeting of the council of elders in early July, it was agreed that it would be impossible to hold a referendum on a new constitution, which is just one of a number of obstacles to much-needed international recognition, and a congress of clans was called to determine the country’s future direction.

—as sporadic unrest Mr Egal’s administration and the Somaliland army of about 15,000 men in continues theory control the country, but on the ground the situation is somewhat differ- ent. Independent reports in mid-May suggested that the city of Burao, the scene of fighting between government troops and opposition groups in January, remains largely deserted and mined, and that Hargeisa airport was still closed. Although Radio Hargeisa noted that 150 militiamen opposed to Mr Egal’s regime had surrendered to government troops in the westernmost Awdal region on May 22, sporadic outbreaks of insecurity continue. Seven people were killed and an unknown number injured when an armed gang tried to loot livestock from the village of Qoton, 40 km south-east of Hargeisa, on July 7. An interior ministry spokesman quoted in the Daily Nation described the attackers as “armed opposition forces”. A clash between government troops and opposition groups was reported from near the same village on August 1, with 23 people reportedly killed and 30 wounded. On June 12 three people were killed and three others wounded in an attack on a convoy of UN World Food Programme (WFP) vehicles on a road near Hargeisa. The incident occurred when one of three vehicles involved in a food distribution programme was stopped by bandits at a roadblock. Following the incident, WFP suspended its activities in the area.

There is a clampdown on The country’s rampant inflation also continues to undermine confidence in the profiteering Egal government. In a dispatch on Radio Hargeisa in mid-May, 12 people were each reported to have been sentenced to three-year prison terms and fines of SolSh3,000 ($38) for profiteering. Many businessmen, unhappy with Mr Egal’s strict policy against using dollars, are reported to be moving to Bossasso, the northern port outside Somaliland, where business based on livestock exports is booming.

Military supplies are A consignment of military vehicles for the government’s armed forces was landed at Berbera— unloaded at the northern port of Berbera, Radio Hargeisa reported on July 11.

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 Somalia 37

The 50 vehicles, purchased in Germany, include open lorries, forklift trucks and vehicles for carrying communications equipment.

—where a hijacker is An Ethiopian convicted of hijacking a plane at Djibouti and forcing it to land sentenced to 13 years at Berbera was sentenced to 13 years’ imprisonment, Radio Hargeisa reported on April 16.

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 38 Djibouti

Political structure: Djibouti

Official name: République de Djibouti

Form of state: unitary republic

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

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

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

Next elections due: December 1997 (legislative); April 1999 (presidential)

Head of state: president elected by universal suffrage serves a term of six years

National government: the president and his appointed Council of Ministers; last major reshuffle March 1996

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

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

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

Central bank governor Djama M Haid

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 Djibouti 39

Economic structure: Djibouti

Latest available figures

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

August 23, 1996 Dfr177.7:$1

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

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

e e Main destinations of exports 1995 % of total Main origins of imports 1995 % of total Somalia 42 Thailand 15 Ethiopia 35 France 13 Yemen 7 Ethiopia 8 Saudi Arabia 6 a b c d e Provisional. IMF estimate. UN figures, including refugees and expatriates. Balance-of-payments basis. Based on partners’ trade returns, subject to a wide margin of error.

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 40 Djibouti

Djibouti

Outlook

Political splits are set to The civil war in the north aside, threatened or actual political violence in deepen— Djibouti remains muted relative to the upheavals in its neighbouring countries. Yet with the leadership obsessed by the short-term struggle over the presidential succession, longer-term trends jeopardise the concept and fabric of Djiboutian identity, hitherto bound together by substantial French aid. Most prominent of these trends is the filtering of all public acts and statements through the prism of ethnic and clan identity. This compounds an all-pervasive personalisation of politics. While not new, the prolonged crisis has deepened personal animosities and clan rivalries. Taken together, these factors increase the potential for violence, as seen in incidents in May and June when nervous security forces attacked those protesting against the arrest and interrogation of senior figures. Paradoxically, the ending of the civil war with the Front pour la restauration de l’unité et de la démocratie (FRUD) in 1993, militarily and through the skilful manipulation of its internal Afar divisions, has heralded a more acute rivalry within Djibouti’s minuscule political elite. Barring decisive French intervention in domestic politics, this rivalry is unlikely to be resolved without further violence.

—while opposition unity As has hitherto been the case in the political crisis, the strength of the president, remains a mirage Hassan Gouled Aptidon, and his nephew and heir-apparent, Ismael Omar Guelleh, stems not so much from their own cunning but from the near- total failure of their opponents, the growing numbers of politicians excluded from Gross domestic product power, to forge a credible and cohesive opposition movement. The recent shift % change, year on year of Moumin Bahdon Farah and Ismael Guedi Hared from the government to 4.0 Djibouti the opposition camp, and their creation of the Coordination de l’opposition 3.0 Africa djiboutienne (COD) in May, is unlikely to mark a departure from this trend. The 2.0 problem with such calls for unity is that they presuppose, first, that groups

1.0 capable of practically opposing those in power exist, and second, that the (a) 0.0 leaders of such groups are willing and able to coordinate their views and actions. On previous showings, both assumptions appear naive. The Front uni de -1.0 (a) l’opposition djiboutienne (FUOD), the earlier opposition umbrella body, which -2.0 is apparently a member of COD, has proved an exceedingly fragile, fairweather -3.0 (b) (b) entity. It is dominated by the rump of FRUD which remains opposed to the -4.0 government. FUOD failed to establish either dialogue or an alliance with the 1991 92 93 94 95 (a) Provisional. (b) IMF estimates. leaders of the two legal opposition parties, Mohamed Djama Elabe and Aden Sources: EIU; IMF, World Economic Outlook. Robleh Awaleh. Although Awaleh is a member of COD, Elabe, who still nurtures presidential ambitions and is ever-attentive to the direction of the political wind from Paris, has pointedly refused to join.

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 Djibouti 41

Economic reform is stalled Such political uncertainty leaves the economic outlook for the remainder of 1996 and for next year fundamentally unchanged. The lack of cohesion and trust among politicians, falling morale and acute uncertainty within the civil service, compounded by continued salary arrears and threats of redundancy and cuts in benefits, are hardly an auspicious background for the far-reaching economic reforms currently prescribed for Djibouti. Piecemeal progress will con- tinue on fiscal and structural changes, but sustained reform and international confidence in Djibouti as a stable polity and efficient port are improbable with- out a durable political settlement.

Review

The political scene

Guelleh’s critics The bitter divisions within Djibouti’s fragmented political class were further are jailed— widened in early August by the prosecution of five senior public figures who had openly criticised the rule of the president, Hassan Gouled Aptidon. Although ostensibly directed at the ailing head of state, the remarks were widely inter- preted as a direct attack upon his nephew and heir-elect, Ismael Omar Guelleh, who has greatly consolidated his grip on power since Aptidon fell ill in December (1st quarter 1996, page 37). On August 7 the appeal court found the five politicians, who had published their criticisms in an open letter, guilty of slandering the head of state. They were sentenced to six months’ imprisonment, hefty fines and the suspension of their civic rights, a move which in effect bars them from standing for public office. The five were: the justice minister until his dismissal in March, Moumin Bahdon Farah; the president’s former directeur de cabinet, Ismael Guedi Hared; a former minister of defence, Ahmed Boulaleh Barre; a former industry minister, Ali Mohamed Houmed; and a senior figure in the ruling Rassemblement populaire pour le progrès (RPP), Abdillahi Guireh Rialeh. In the climate of political uncertainty surrounding the illness of the president, they were seen as the most prominent challengers to the legitimacy of Guelleh. In mid-July the French lawyer employed by the defendants declared that the judicial system was being used for political goals. Moumin Bahdon, Guedi and other senior politicians critical of Guelleh’s creeping monopolisation of power had attempted to create a splinter faction of the RPP, of which Moumin Bahdon was secretary-general. Their move was declared illegal, and the dis- sident deputies were dismissed from the party on May 22, prompting demon- strations outside Moumin Bahdon’s home. Such treatment led to the open letter, dated May 25, accusing Aptidon’s government of having subjected the constitution to ridicule, and of ruling through force and terror. This, in turn, led to their prosecution.

—and stripped of Sentencing was initially delayed because on August 6 the constitutional court parliamentary immunity— argued that the three of the defendants who were deputies in the Assemblée nationale enjoyed parliamentary immunity, which could not be lifted without consideration by the assembly’s executive body. The assembly had announced

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 42 Djibouti

on June 15 that it had lifted their immunity, but, although the three contested the legality of the process, their appeal was rejected by the court. The case of Moumin Bahdon, who until his gradual marginalisation by Guelleh’s supporters was widely viewed as a possible candidate in the presidential elections due in 1999, has been complicated by a second set of charges under preparation against him. These involve allegations that while he was justice minister last January he profited from the sale of ivory confiscated by customs officials. Ali Mohamed Houmed has also been charged in a separate case of illegally carrying a firearm.

—as opposition groupings This split within the RPP has prompted a further reconfiguration of those proliferate opposed to the de facto dominance of the state apparatus by supporters of Guelleh over the past nine months. On June 19 several of Djibouti’s most senior politicians outside the government announced the formation of a new opposition grouping, the Coordination de l’opposition djiboutienne (COD). This includes one of the country’s two legal opposition parties, formally recog- nised as such under the 1992 constitution, Aden Robleh Awaleh’s Parti national démocratique, and the loose grouping of dissident RPP deputies who support Guedi and Moumin Bahdon, now operating under the banner of the Groupe pour la démocratie et la république (RPP-GDR). COD also includes Mohamed Ahmed Issa “Cheiko”, the spokesman for an existing opposition umbrella formation, the Front uni de l’opposition djiboutienne (FUOD). The (larger) faction of the Front pour la restauration de l’unité et de la démocratie (FRUD), which is opposed to the current government, is part of FUOD.

In Paris Aptidon claims Aptidon returned to Paris in late July. He was received by the French president, good health Jacques Chirac, on July 25. A visit originally scheduled for July 1 was post- poned at the last minute, apparently for health reasons. In Paris Aptidon had a series of medical check-ups; it is just three months since he returned to Djibouti following several months of convalescence in Paris’ Val de Grace hospital and his private residence in eastern France (2nd quarter 1996, page 38). Mr Chirac and his senior ministers had seen Aptidon several times during his prolonged hospitalisation. Aptidon emerged from the meeting on July 25 in a jovial mood, mocking journalists over persistent questioning over his health and mirthfully deriding the weakness of his opponents. He claimed that, after a discussion of Djibouti’s grave social and economic situation, Mr Chirac had agreed to “seriously consider Djibouti’s problems”. Aptidon did not attend the traditional celebrations in Paris on July 14, but he was present at the Arab summit held in Cairo three weeks previously. Djibouti receives significant technical and financial assistance from Egypt, although relations were briefly tarnished in May by the arrest of a Djiboutian diplomat by the authorities in Cairo. The diplomat was subsequently charged with smuggling a container of electrical equipment into the country duty-free.

The military remains in The current demobilisation programme aims to retire over 9,000 members of the state of flux army and police force. Speaking at a ceremony to mark the 19th anniversary of the formation of the Djiboutian armed forces on June 6, the head of the grandly titled “demobilisation and reinsertion committee”, Ahmed Hadj-Hussein, declared that 800 soldiers had already been retired from the forces under the programme, which is being part-funded by the World Bank as an integral part of

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 Djibouti 43

reforms designed to reduce state spending. The committee includes a representative of FRUD-Ougoureh, which rallied to the government in December 1994. However, no figures have been given as to how many former FRUD fighters have been either integrated into the army or demobilised. Fighting was said to have broken out around Asseila, adjacent to the Ethiopian border in southern Djibouti, on July 2. The origins of the clashes, which report- edly lasted several days and necessitated the intervention of the army, appear to have been rivalry between Afar and Issa merchants over smuggling profits. The clashes occurred close to the region where Ougoureh Kifle Ahmed drew much of his support when he was an armed leader of FRUD. Ougoureh is now agriculture minister; his defection to the government in 1994 effectively ended the country’s civil war. Afar militia still nominally loyal to him reportedly remain based around Asseila, although it is unclear if they were involved in July’s fighting.

The Eritrean dispute is The mutual recriminations and suspicion generated by Djibouti’s bizarre and not closed inconsistent allegations of an Eritrean incursion in April have not completely dissipated (2nd quarter 1996, pages 17-18 and 40). In mid-May the Eritrean government’s English-language publication Eritrean Profile claimed that Djibouti had retracted its accusations of Eritrean aggression. This was swiftly denied by the Djiboutian foreign ministry, which stated that “our position remains unaltered”. France, whose forces based in the Red Sea city state have been the formal guarantor of Djibouti’s external security since independence from Paris in 1977, initially expressed disquiet over the allegations. However, with French diplomats brokering the ongoing litigation between Eritrea and Yemen, and French Mirages based in Djibouti physically monitoring the ceasefire, any repeat of Djiboutian claims of Eritrean aggression are likely to be quickly refuted.

The economy

IMF reforms make a After several false starts and lengthy financial negotiations Djibouti signed its slow start— first IMF stand-by credit arrangement in mid-April. Unlike last year’s ambitious attempts to cut government spending, progress on implementing the necessary fiscal changes has been modest and low-key. Last year’s proposed fiscal reforms triggered a prolonged general strike and the enforced retraction of government expenditure cuts (4th quarter 1995, pages 43-44). In late May the IMF held a seminar for politicians and civil servants in Djibouti. The three-day meeting attempted to explain the rationale and modalities of the reforms proposed by Fund and French government officials.

—as teachers remain wary Much of the planned reduction in state spending is scheduled to come from cuts in the generous bonuses and housing benefits paid to civil servants and teach- ers. The teachers’ unions were at the forefront of last year’s strike action and remain exceedingly wary of the government’s intentions. Despite guarantees over the maintenance of their salaries and benefits secured under duress from the government last year, teachers continue to receive their salaries several months late. On May 25 secondary school teachers staged a strike with the explicit aim of disrupting the year-end examination period. Strike action was

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 44 Djibouti

called by a general meeting of the teacher’s union and was supported by primary school teachers. The government reacted by threatening to arrest the leaders of the teachers’ union, a tactic which it tried, to no great avail, last year. However, the deterioration of the political situation over the past year, and the govern- ment’s increasing recourse to arrests and violent police intimidation for political ends, have made civilians and union leaders far more cautious.

Piracy remains a A Russian-crewed salvage tug operating out of Djibouti was hijacked in inter- problem— national waters off Djibouti on May 20. It was boarded by Somali militia from patrol boats apparently based on the coast of the self-styled Somaliland Republic. The incident underscored mounting international concern over piracy at the southern end of the Red Sea. In March France claimed that its naval vessels based in Djibouti would step up surveillance of the international waters along the Somaliland and Djiboutian coastlines (2nd quarter 1996, page 41). The crew of the hijacked tug were released unharmed, although around $10,000 of cash and goods was stolen. The same tug was hijacked last year after being chartered from Djibouti to attempt the salvage of a wreck at the mouth of the Red Sea.

—and the customs service An evaluation mission commissioned by France into the state of Djibouti’s needs an overhaul customs service has highlighted the deteriorating capacity and functioning of its administration. The mission, carried out earlier in the year by the head of the customs authority at Marseille, cites core technical and staffing problems. The lack of modern accounting and computing equipment, coupled with a collapse in staff morale due to protracted delays in the payment of salaries, are highlighted as having contributed to the “slow deterioration” of the service, which nevertheless accounts for the collection of over half of the government’s indirect tax revenue.

Some French companies According to the Paris-based Indian Ocean Newsletter, the Compagnie des gaz de quit— la mer rouge, a private company importing and processing gas products, has been created by a consortium of Djiboutian investors. The company bought out the assets of Air Liquide, a longstanding enterprise whose French parent company had decided to sell because of accumulating arrears, particularly from the government. Several other well-established French interests in Djibouti have closed their businesses in the last two years, reflecting a general trend of disengagement due to the deteriorating economic climate. Metropolitan French companies nevertheless continue to win contracts funded by multi- lateral donors. On August 9 the Compagnie générale des eaux announced that it had won a contract to supply the latest phase of the programme to upgrade Djibouti-ville’s sewerage and water supply system, valued at FFr15m ($2.9m) over three years.

—but the CFD provides The Caisse française de développement (CFD, the French state development port funding bank) announced in June that it has made an additional FFr3m grant to Djibouti’s international port for further modernisation. It is expected that the port will also shortly receive a FFr34m concessional loan from the CFD for the purchase of a French tug to upgrade docking facilities. In a separate initiative an Italian construction company, Cosmez, is reported to be building and

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 Djibouti 45

equipping a new fishing port for the city. The new facilities are designed to replace the dilapidated fishing facilities and market on the north side of the peninsula. The longstanding project is funded by the Abidjan-based African Development Bank.

Refinery plans are pursued Plans for the revival of Djibouti’s moribund oil refinery have now been confirmed (2nd quarter 1996, page 43). According to the official Djiboutian newspaper, La Nation, a $2bn contract has been drawn up between the govern- ment and the Saudi-based Rawafid Holding Company. Rawafid is reportedly in the process of establishing the Société de la raffinerie internationale de Djibouti. The project replaces an earlier, very similar plan for a refinery pro- moted by a Saudi businessman. This plan was stalled, ostensibly due to the economic and political confusion in the country associated with the civil war. However, it is far from clear that the project would be economically viable, nor indeed exactly which markets oil refined in Djibouti would be destined for. The proposed refining capacity would be far in excess of Djibouti’s needs, and to date there is little evidence that such an installation would aim to compete with the refinery at Assab to supply the Ethiopian market.

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 46 Statistical appendices

Appendix 1

Quarterly indicators of economic activity in Ethiopia

1994 1995 1996 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Production Annual totals a a Coffee ’000 tons ( 180 ) ( 195 ) ( n/a ) Prices Monthly av Consumer prices, Addis Ababa: 1990=100 155.3 167.1 171.3 174.8 178.1 191.4 188.1 177.9 n/a n/a –change year on year % 1.1 5.2 9.4 14.8 14.7 14.5 9.8 1.8 n/a n/a Money End-Qtr b M1, seasonally adj: Birr m 7,710 8,100 8,583 9,127 9,194 9,547 9,609 9,374 9,177 9,348 change year on year % 29 9.1 16.1 21.0 19.2 17.9 12.0 2.7 –0.2 n/a Foreign trade Qtrly totals Exports fob Birr m 271.8 515.8 549.3 725.4 468.2 988.7 691.8 454.2 n/a n/a Imports cif “ 1,148.5 1,401.8 1,582.4 1,525.3 1,431.2 n/a n/a n/a n/a n/a Exchange holdings End-Qtr National Bank: c gold $ m 32.6 32.5 32.7 33.1 32.1 32.9 32.9 32.7 33.9 n/a foreign exchange “ 546.2 542.7 464.0 533.6 618.3 594.3 724.8 760.8 818.2 890.4 Exchange rate d Market rate Birr:$ 5.00 5.66 5.60 5.95 5.94 6.25 6.30 6.32 6.32 6.33

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

Appendix 2

Quarterly indicators of economic activity in Djibouti

1994 1995 1996 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Money End-Qtr M1, seasonally adj: Dfr bn 37.40 36.88 37.92 38.42 37.99 36.77 36.22 37.41 n/a n/a change year on year % 4.1 1.6 3.0 3.3 1.6 –0.3 –4.5 –2.6 n/a n/a a Foreign trade Annual totals Exports fob $ m ( 117 ) ( 108 ) ( n/a ) Imports cif “ ( 380 ) ( 430 ) ( n/a ) Exchange holdings End-Qtr b c Foreign exchange $ m 85.0 79.3 84.5 73.6 67.9 75.5 72.7 72.1 73.5 71.8 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 b c DOTS estimate. End-February. End-May.

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996 Statistical appendices 47

Appendix 3

Ethiopia: trade with major trading partnersa ($ m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports cif 1992 1993 1994 1995 Exports fob 1992 1993 1994 1995 Italy 127 190 162 221 Germany 27 46 80 156 USA 274 151 157 163 Japan 40 42 61 56 Germany 101 114 117 124 Italy 18 32 32 48 Japan 51 78 80 120 USA 8 21 33 31 UK 104 95 81 93 UK 21 18 18 23 France 44 38 62 65 Saudi Arabia 16 6 4 22 Saudi Arabia 148 85 50 57 France 14 10 15 21 Belgium-Luxembourg 56 35 40 48 Djibouti 8 10 11 14 Total incl others 1,265 1,146 1,106 1,359 Total incl others 187 243 312 452 a Derived.

Appendix 4

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 1992 1993 1994 1995 Exports fob 1992 1993 1994 1995 Kenya 33 45 53 65 Saudi Arabia 50 60 70 89 Djibouti 28 33 40 49 Yemen 45 40 26 21 Pakistan 1 2 5 17 Italy 12 7 16 20 Saudi Arabia 6 31 14 16 UAE 12 7 13 15 Brazil 4 3 21 13 Pakistan 1 1 2 2 USA 23 34 33 9 China 1 1 1 1 Total incl others 228 277 297 271 Total incl others 130 121 143 155 a Derived.

Appendix 5

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 1992 1993 1994 1995 Exports fob 1992 1993 1994 1995 Thailand 34 41 58 65 Somalia 26 30 36 45 Ethiopia 20 23 28 34 Ethiopia 22 26 31 38 Saudi Arabia 31 50 22 25 Yemen 19 45 44 8 Italy 29 28 24 24 Total incl others 75 110 117 108 Total incl others 480 442 380 430 a Derived.

EIU Country Report 3rd quarter 1996 © The Economist Intelligence Unit Limited 1996