Ethiopia Eritrea Somalia Djibouti

COUNTRY REPORT

2nd quarter 1997

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

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Contents

3 Summary

Ethiopia 5 Political structure 6 Economic structure 7 Outlook for 1997-98 8 Review 8 The political scene 13 The economy 14 Agriculture 16 Infrastructure and tourism 17 Foreign trade and payments

Eritrea 19 Political structure 20 Outlook for 1997-98 20 Review 20 The political scene 24 The economy

Somalia 27 Political structure 28 Economic structure 29 Outlook for 1997-98 30 Review 30 The political scene 33 The economy 34 News from the Somaliland Republic

Djibouti 36 Political structure 37 Economic structure 38 Outlook for 1997-98 39 Review 39 The political scene 41 The economy 45 Foreign trade and payments

46 Quarterly indicators and trade data

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List of tables 9 Ethiopia: the nine regions 15 Ethiopia: coffee exports 44 Djibouti: Port traffic 46 Ethiopia: quarterly indicators of economic activity 46 Djibouti: quarterly indicators of economic activity 47 Ethiopia: trade with major trading partners 47 Somalia: trade with major trading partners 47 Djibouti: trade with major trading partners

List of figures 9 Ethiopia: gross domestic product

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June 5, 1997 Summary

2nd quarter 1997

Ethiopia Outlook for 1997-98: The government’s heavy-handed response to criticism, and a growing void between the ruling EPRDF and the population will make for a tense political scene. Continued killings of known or suspected critics of the government will exacerbate the situation.

Review: Several bomb explosions have left many killed or injured in Addis Ababa. Commercial rent increases have led to protests. Peasants have pet- itioned the prime minister over rural land reforms. Corruption charges have been brought against the former defence minister, Tamarat Layne. The ESDL and the ONLF have joined forces. Clashes erupted on the Kenyan border over cattle. Modest progress has been made with financial reforms. A fourth private bank has been founded. Drought has hit parts of southern regions. Coffee output was buoyant in 1996/97. Exports in 1995/96 fell by 9%, while imports rose by one-third.

Eritrea Outlook for 1997-98: Relations between Eritrea and Sudan are unlikely to improve as wrangling over the repatriation of Eritrean refugees intensifies. The government is likely to maintain its xenophobic stance on aid organisations and employees, and more donor missions could pull out.

Review: Regional elections recorded a 90% turnout, with 399 independent representatives elected. The president, Afewerki Isaias, has reiterated his unwill- ingness to hold talks with Sudan. Landmine attacks have been reported in northern Eritrea. UNHCR staff were expelled from Asmara in May. The government has stepped up its fight against corruption. Isaias met the Egyptian president to discuss cooperation and relations with Yemen. A key electricity contract has been awarded to a South Korean company. A US trade delegation visited Asmara in April. Money can now be wired to Eritrea, and bank charges have been lowered. State subsidies on petrol have been abolished.

Somalia Outlook for 1997-98: It is probable that a transitional government will be set up after an NSC conference in Bossasso on June 10. However, it is likely that the third main faction leader, Mr Aideed, will not attend the talks, reducing the chance of them succeeding.

Review: The announcement of an NSC conference has gained widespread international support. Mr Aideed still refuses to recognise the Sodere peace deal. Some 830 armed militia have turned against Mr Aideed. Violent clashes have continued in northern and southern Mogadishu. Al-Ittihad has formed an alliance with two Ethiopian Islamist opposition groups. An inquiry has been opened into the death of a Somali while in Belgian custody in 1993. Urgent appeals for humanitarian aid by the UNDP have largely been ignored. The presidential campaign has begun in Somaliland, and a new constitution has come into effect.

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Djibouti Outlook for 1997-98: Fresh lending commitments from the international donor community will buy the government time, and allow it to pay salary arrears. The recent donor conference in Geneva has highlighted the continued dependence of the economy on foreign assistance. The Djiboutian franc is unlikely to be devalued in the short term.

Review: The prime minister has redoubled efforts to secure donor funding. FRUD has formed an alliance with the RPP. France has decided to scale down its military presence. The USA has criticised human rights violations. The IMF has extended and supplemented stand-by credits with an additional $2.8m. Bread supplies have been interrupted. Port traffic rose by 35% in 1996.

Editor: Noah Beckwith All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

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Ethiopia

Political structure

Official name Federal Democratic Republic of Ethiopia

Form of state Federal republic

Legal system The federal constitution was promulgated by the transitional authorities in December 1994. 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 that of appointing the supervisory Federal Council

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

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

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

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

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

Key ministers Agriculture Seifu Ketema Economic development & cooperation Girma Biru 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 Public works & urban development Haile Aseged Trade & industry Kassahun Ayele Transport & communications Abdul Mejid Hussein Water resources Shiferaw Yarso

Central bank governor Dubale Jale

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Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996 GDP at factor costa Birr bn 24.0 25.9 31.7 n/a n/a Real GDP growtha % 12.0 1.7 4.8 7.7b 6.0bc Consumer price inflation % 10.5 3.5 7.6 10.1 –4.4d Populatione m 50.9 52.4 54.1 55.7 n/a Exports fob $ m 170 199 372 423 n/a Imports fob $ m 993 706 926 1,148 n/a Current account $ m –120 –50 125 –28 n/a Reserves excl gold $ m 232 456 544 772 732 Total external debt $ m 4,343 4,661 5,001 5,221 n/a External debt-service ratio % 14.1 12.5 13.8 13.6 n/a Coffee productionf ’000 tons 210 222 228b 300b n/a Exchange rate (av) Birr:$ 2.81 5.00 5.09 6.15 6.35

May 23, 1997 Birr6.47:$1

Origins of gross domestic product 1994g % of total Components of gross domestic product 1994g % of total Agriculture & forestry 50.2 Private consumption 83.2 Other commodities 11.1 Government consumption 11.0 Manufacturing 4.5 Gross fixed capital formation 15.7 Distribution services 13.4 Exports of goods & services 14.7 Other services 25.2 Imports of goods & services –24.7 GDP at factor cost 100.0 GDP at market prices 100.0

Principal exports 1994a $ m Principal imports 1994a $ m Coffee 303 Motor vehicles 171 Hides & skins 63 Food & live animals 153 Gold 23 Machine & aircraft 120 Metals & metal products 95

Main destinations of exports 1994a % of total Main origins of imports 1994a % of total Germany 31.7 Saudi Arabia 15.0 Japan 14.5 USA 12.3 Italy 8.1 Italy 11.1 Djibouti 7.4 Germany 8.0 a Fiscal years starting July 8. Fiscal years are widely used by national statistical sources, while calendar years are favoured by international publications. b Official estimate. c July-April. d January-September actual. e Excluding Eritrea, based on a Ministry of Planning estimate of 54.1 million in 1994. f Crop years (October-September) beginning in calendar years. g Provisional.

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Outlook for 1997-98

The political scene will As the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) remain fraught— enters its seventh year in power, the political scene will continue to be char- acterised by a widening gulf between the government and the population. Deepening distrust between rulers and ruled will frustrate policy formulation and implementation in the medium term, as criticism of the government and heavy-handed responses to it continue to cloud the political climate. Although a variety of political perspectives are presented in the private and state-owned media, the EPRDF is opting for overt political sloganeering which casts the nation’s future in binary terms: a struggle between supporters of democracy against “narrow nationalists”, “chauvinists” and “forces against the people”. Tensions will continue to mount while the government, which is becoming increasingly indistinguishible from the previous regime, is unwilling to treat criticism as anything other than subversion, if not treason.

—and could spawn more The government’s refusal to consider a less hardline approach and to counte- violence nance criticism is likely to have serious consequences. Resentment, particularly among the urban population, will mount if the recent spate of killings of known or suspected government critics continues, in direct contravention of the government’s espoused tenets of political pluralism and respect for human rights. Relations between state and civil society are only exacerbated by the fact that such incidents are falsely represented in the state media.

The government will The government will continue to treat with suspicion organised opposition to remain on its guard specific policies on land tenure, urban rents or the promotion of private business interests. It will also seize on sporadic bombings of hotels and restaurants as evidence of attempts by domestic opposition groups and foreign powers to undermine its authority. However, the actual threat to the government of opposition groups is probably overestimated, for two main reasons. First, opposition forces such as the Council of Alternative Forces for the Promotion of Democracy in Ethiopia (CAFPDE) and the All Amhara People’s Organisation (AAPO) have singularly failed to mobilise popular discontent over individual issues. Second, they rely on a rejection of the legitimacy of the EPRDF and its plans for regional devolution without offering an alternative strategy.

Tamrat Layne’s trial may The current trial of the former defence minister, Tamrat Layne, has been her- not increase government alded as an important step towards greater transparency in the economic transparency— sphere in Ethiopia, and has brought to the fore some of the complexities of economic and administrative organisation in a federal republic. However, the trial may well raise more questions about government transparency than it answers, as broader issues about the reality of government corruption become buried in the legal minutiae of the case. For example, if it transpires that Tamrat obliged several smaller regional governments to grant contracts to companies in which he had a financial interest, this would call into question the much-vaunted independence of regional authorities.

—but will underline the Tamarat’s trial has highlighted the need for transparent auditing of finances at need for accountability the federal and regional levels, all the more so because large companies with

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close links to the EPRDF are reportedly receiving contracts from regional governments. The onus will be on the EPRDF to publish standardised regulations governing financial operations and the awarding of contracts. The application of uniform penalties against those charged with corruption would also be a welcome move. Several hundred members of the region 4 (Oromo) administration have been purged in recent months, yet no charges of corruption have been announced.

GDP targets should be met Addressing the Council of People’s Representatives on May 13, the prime minister, Meles Zenawi, presented a broadly positive review of macroeconomic Ethiopia: gross domestic product performance in 1996/97, and announced that in the nine months to April, % change, year on year negative rates of inflation and monetary growth were recorded. Moreover, Ethiopia (a) according to Meles, real GDP growth in 1996/97 (fiscal year running from July Africa 15 8-July 7) was an estimated 6%, and a modest budgetary surplus would be achieved. 12 Although harvests may prove uneven due to a shorter than expected rainy 9 season, a combined harvest for 1996/97 of 11.7m tons as anticipated by the

6 then agriculture minister, Teketel Forsido, is feasible.

0 1992 93 94 95(b) 96(c) Review (a) Fiscal years starting July 8. (b) Official estimate. (c) July-April. Sources: EIU; IMF, World Economic Outlook. The political scene

Three bomb explosions Simultaneous grenade attacks on two restaurants in central Addis Ababa on shake Addis Ababa— April 12 left one woman dead and 40 other people injured. Two days later another bomb exploded in a crowded supermarket, killing a woman and injur- ing 33 people. The explosion at the Tigray Hotel in central Piazza was reportedly caused by a grenade thrown into the bustling ground-floor bar, while the second blast, which injured six Europeans, occurred on the other side of the city, at the Blue Tops restaurant, which is popular with expatriates. Two Britons wounded by the blast were participating in a police training programme in Ethiopia, and the incident prompted considerable, if sensationalist, media coverage in the UK. Although neither of the explosions caused extensive damage, the attacks were universally condemned by the domestic media, including newspapers traditionally critical of the government. According to some private newspapers a series of arrests were made by police in connection with the attacks, although no group has claimed responsibility. Police have not released any details of their inquiries.

—and security is stepped Unconfirmed reports of other attacks in several locations around Addis Ababa up on the evening of April 12 also circulated. Tight security measures were put in place in several parts of the capital, although it is uncertain whether this was an attempt by the security apparatus to thwart further attacks, or simply rou- tine security due to the return of the prime minister, Meles Zenawi, who returned from Italy that afternoon. Nevertheless, two weeks later, the attacks resumed when 11 people were injured when a bomb exploded in a bar in Dire Dawa. The state-owned media played down the blast, and no clear link with

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the bombings in Addis Ababa has been established. In early 1996 the Somali faction, Al-Ittihad, claimed responsibility for a series of bomb attacks in Dire Dawa, and a blast on January 18 of last year which killed three people in Addis Ababa’s Ghion hotel (1st quarter 1996, page 7).

Ethiopia: the nine regionsa

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

a Under the new constitution the nine regions and the metropolitan council of Addis Ababa replace the previous 14 regions. Use of the old numbers persists (eg 13 for Harar and 14 for Addis Ababa). In practice the eastern town of Dire Dawa is administered separately from Region 4. b Southern Nation and Nationalities People’s Region.

Source: EIU.

Rent rises prompt urban Longstanding tensions over rent increases between the municipality of Addis protests— Ababa (Region 14) and its commercial tenants erupted into a spate of protests, arrests and evictions in late May. On May 17 the latest in a series of public demonstrations by shopkeepers endorsed calls for a general strike two days later. In an unprecedented demonstration of solidarity, most of Addis Ababa’s key commercial areas, including Mercato and Piazza, remained closed. The impact of the strike was reinforced by the participation of many private taxi and bus drivers. The local authority’s response was abrupt, declaring the strike illegal in a midday radio broadcast, and warning shopkeepers that unless they reopened by 3:15 pm, they faced eviction and prosecution. In the afternoon police sealed shops which had failed to reopen, and the municipality subsequently ordered the shopkeepers involved to vacate and remove goods from their premises by 2 pm the following day. In the confusion which followed, some 80 shopkeepers were reportedly arrested, the culmination of nine months’ growing acrimony between local retailers and the authorities.

—and could have serious In addition to the ominous undercurrents of political tension which accom- implications— panied the strike and arrests of May 19, the confrontation between traders and the government over shop rents has three broader implications for residents of the capital. First, increases in rent are being passed on to consumers, which is likely to stoke consumer price inflation. Second, the eviction of shopkeepers will accelerate current changes in the commercial profile and reputation of Addis Ababa. In addition to the evictions of May 19-20, many of those retailers who borrowed money to pay their rents in the hope that rents would be lowered following the protests, may now abandon their properties altogether. This will intensify the ongoing changes in retail trade prompted by liberalisation and the speculative building boom. Several new shopping centres are already under construction in Bole and Mercato, and in March an Ethio-Saudi conglomerate, the Alamoudi group, announced plans to build a vast new commercial complex on the vacant plot between the municipality and Piazza.

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—such as increases in The third possible effect of retail rent rises is the widespread fear that increases residential rents in residential rents will follow, and possible privatisations. Neither the municipality nor the Rented Houses Authority (RHA), which controls much of Addis Ababa’s accommodation, has decided whether or not residential rents will be raised. However, the Ethiopian Orthodox Church (EOC), itself a large land- owner, imposed rent increases of 500-1,500% on its tenants in March. The move followed the return of several formerly nationalised properties to the EOC, and has caused widespread consternation, further tarnishing the image of the EOC and its deeply unpopular patriarch, Abuna Paulos, who is constructing a lavish palace in central Addis Ababa. The private press has estimated revenue increases accruing to the EOC from the rent rises at Birr9m ($1.4m).

Rural land reforms Disputes over rural land policy surfaced in mid-March as a delegation of several provoke demonstrations— hundred peasants from Gojjam arrived in Addis Ababa to petition Meles about what they claimed was an inequitable redistribution of land. Previously, the Amhara authority (Region 3) in Bahr Dar had announced plans for land reform which, according to petitioners, discriminated against those who had been active in peasants’ associations under the previous regime. In keeping with the stance adopted during the protests against urban rent policies, the federal government remained dismissive of direct lobbying, and made no statement about the arrival of the Gojjamis in Addis Ababa. Privately, government officials stressed that land redistribution was a matter for regional authorities.

All land in Ethiopia remains in government hands, but regional state authorities are in charge of administering their own tenancy and leasing policies. Regions 1 (Tigray) and 4 (Oromo) have already implemented incremental redis- tributions of land holdings, balancing the need for more equitable distribution with the renewed demands for land for commercial farming. On March 30 the Tigray national assembly announced a more flexible land-lease policy, allowing commercial investors to lease land from peasants for periods of two, ten or 50 years.

—and student arrests Over 200 students at Addis Ababa University were arrested on March 21 around the Sidist Kilo campus following a demonstration in support of the Gojjami peasants’ grievances. The demonstration, which reportedly lacked the required authorisation from the municipal authorities of Region 14, was disrupted by security forces, and 214 students were detained without charge for six days. Students were released only after they agreed to sign an “apology” which many claimed was only obtained after several days of obligatory “physical exercise”. Several dozen students who refused to sign the document were kept in custody, although they were not charged. On the day of the students’ protest in Addis Ababa, the state-owned media reported that pro-government rallies by peasants in support of the land-lease policy had been held in Debre Markos and other towns in Region 3 (Amhara). The treatment of students and general discontent over land distribution in Region 3 (Amhara) were seized on by the Council of Forces for Peace and Development in Ethiopia (CAFPDE), an umbrella grouping of opposition politicians, which held a rally in Meskel square on March 30. The Ethiopian Human Rights Council (EHRCO) also issued a report, which de- nounced what it termed as “discrimination committed against Amhara farmers” in Region 3.

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The CETU is revamped The eighth general assembly of the Confederation of Ethiopian Trade Unions (CETU) was held in Addis Ababa on April 22. The assembly marked the recom- position of the CETU after a long and acrimonious spilt within the union movement. Members perceived to be critical of the government including the then head of the CETU, Dawi Ibrahim, were purged and parallel unions spon- sored by the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) were established in sectors where existing unions were critical of government policy, notably on education. The meeting was attended by officials from eight union federations covering industry and civil service institutions, although the banking and insurance federation continues to boycott the revamped body.

After two days of deliberations and extensive coverage in the state-owned media, several hundred delegates elected a 75-member general council and a new executive committee containing 14 members of CETU. The new president of CETU is a member of the Transport and Communications Union (TCU), Amare Alemayehu. During the CETU meeting the private press reported that Dawi had fled to Kenya while delegates of the reformed CETU condemned the previous leadership, calling for charges to be brought against former officials.

A renegade union leader is A former leader of the Ethiopian Teachers’ Association (ETA), Assafa Maru, was murdered killed following a siege of the ETA office in Addis Ababa on May 8. Assafa was shot at close range after police surrounded the ETA office, although his wife was initially informed that he had died in a car crash. The original ETA was disbanded and a surrogate body was promoted by the government after ETA leaders publicly opposed aspects of the EPRDF’s education policy. A former associate and fellow leader of the ETA, Taye Wolde Semayat, was arrested last June. He faces charges of trying to overthrow the government (3rd quarter 1996, page 8). The state-run media made no reference to Assafa’s affiliation with the trade union, claiming only that the deceased had been a member of the phantom “Ethiopian Patriot Front”, that he had been killed in a shoot-out and that seven others had been arrested and a cache of weapons seized.

In a separate reportedly extra-judicial killing, a respected member of staff of the English community school in Addis died whilst in police custody on March 30. Waqo Tola, a noted Oromo intellectual, had been arrested on February 11. Although no charges were brought against him, he was reportedly arrested under suspicion of supporting the outlawed Oromo Liberation Front (OLF). Officials claimed that Waqo collapsed due to sudden illness, although police and hospital officials issued contradictory statements about the time and cause of death. Oromo pressure groups continue to report widespread arrests and “disappearances” of alleged OLF sympathisers in Region 4.

The former defence On March 27 prosecution lawyers formally charged the former defence minister, minister is charged with Tamrat Layne, with four separate counts of corruption in the Supreme Court. corruption Tamrat was prime minister in the transitional government from 1991-95, and had been defence and deputy prime minister until his sacking and arrest on October 24 (4th quarter 1996, pages 9-10). The charges against him and the eight other defendants included:

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• the receipt of $16m which had been remitted to the government by the Ethio-Saudi business tycoon, Mohamed Alamoudi;

• receiving $1.8m from illicit sales of coffee;

• using Tamrat’s position in government to oblige regional governments to award contracts to specific companies linked to his co-defendants; and

• improperly influencing the award of the Assab-Mille road contract to the French company SOGEA in return for bribes.

Accused with Tamrat is his alleged mistress, Shahidiya Nadim Kassim. The Kassim family and other young businessmen, including the son of the former minister and current Ethiopian representative to the UN, Mohamed Duri, are accused of having created a network of companies to tender for government contracts and launder commissions, partly effected through accounts in Djibouti and Switzerland. In court sessions on April 15 and May 7 defence lawyers challenged the appropriateness of trying the defendants (excluding Tamrat) in the Supreme Court, arguing that their clients should have been brought before ordinary courts and charged under the Ethiopian penal code. As it is, the defendants have been charged under a special penal code drafted by the Provisional Military Administrative Council (PMAC, Derg in Amharic) in 1981 to deal with abuses of power by elected officials.

Somali factions join forces There was a small breakthrough in the continued struggle between Ethiopian- in Region 5 Somali factions for control of the meagre resources in Region 5 in May with the long-awaited fusion of the Ethiopian Somali Democratic League (ESDL), headed by the minister of transport and communications, Abdul Mejid Hussein, and the Ogaden National Liberation Front (ONLF). Given the complexity of the clan-based Somali polity, the straightforward appearance of the alliance is de- ceptive, the ONLF having been spilt into opposing factions forcing hardline leaders into exile in 1995. The ESDL, which has been vigorously promoted by the ruling EPRDF in Region 5, is now effectively merging with a more moderate version of the ONLF. The original leadership of the ONLF demanded immediate secession for the Somali region following the implementation of the federal constitution in 1995 which allowed for regional self-determination. The merger of the two Somali factions was announced in Addis Ababa in January, and a coordinating committee was formed to draw up a joint programme for the development of Region 5.

Links with China are In early March Meles, accompanied by his ministers of foreign affairs and strengthened public works and urban development, Seyoum Mesfin and Haile Aseged, travelled to India for a five-day state visit. The main purpose of the trip was to promote trade links. Unlike other recent visits abroad, however, local businessmen did not accompany the delegation.

In late May a Chinese ministerial delegation visited Ethiopia, signing an agreement of cultural cooperation promoting cultural exchanges. The visit was intended to follow up the visit to Ethiopia in May 1996 of the Chinese president, Jiang Zemin, when he presented a 5-point plan to revitalise Sino-African relations in an address to the Organisation of African Unity (OAU).

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Clashes erupt with Kenya, Cattle raids erupted along the border with Kenya on March 22, prompting but relations with Sudan clashes. Kenyan troops were deployed following raids on cattle resulting in the are quiet deaths of 57 Kenyans and the loss of several thousand cattle. The Kenyan local commissioner for the border region promptly arrived in Addis Ababa on April 2 to discuss the problem of border security and to press for compensation. Subsequent bilateral negotiations culminated in the signing of a joint agreement in the town of Embu in northern Kenya on April 23. In addition to disputes between pastoralists over cattle, the border situation has been compli- cated as Ethiopian refugees, notably Oromos from the south-west, have sought shelter in northern Kenya. Kenyans accuse the Ethiopian army of launching incursions in Kenya in pursuit of alleged OLF activists.

In stark contrast to the fighting with Kenya, diplomatic and military tensions with the Sudanese government appear to have eased in recent months. In the state and private media alike, the conflict with Sudan has barely been mentioned.

The economy

Financial reforms take Slow but steady progress is being made in the liberalisation of the financial hold sector in Ethiopia with the implementation of wide-ranging reforms announced in July 1996 (3rd quarter 1996, page 15). As part of the drive to liberalise the management of foreign exchange, on February 17 the National Bank of Ethiopia (NBE, the central bank) abolished the 0.5% commission levied on all foreign exchange transactions. In mid-March the Commercial Bank of Ethiopia (CBE) opened foreign exchange bureaux in several of its Addis branches. Four years after the introduction of weekly foreign exchange auc- tions, the differential between the auction-determined and parallel market exchange rates continues to narrow. By late May the auction-determined rate for Birr, now applied to virtually all transactions, stood at Birr6.7:$1, while the parallel rate stood at approximately Birr7:$1. The differential between the two rates, currently at less than 5%, should narrow further with the abolition of the CBE’s commissions and greater general access to private banks.

The pace of structural and institutional reform remains fairly slow. Speaking to a meeting of Organisation of African Unity (OAU) finance ministers on March 31, the deputy prime minister for economic affairs, Kassu, admitted that “banking and finance structures are still undeveloped and financial instru- ments remain limited in scope”.

A fourth private bank is Ethiopia’s fourth private bank, Wegagan, was incorporated as a limited founded— company in April, with a total capital of Birr60m ($9m). Its two largest share- holders, holding a combined 30% of shares, are the quasi-official development bodies of Region 3 (Amhara) and Region 1 (Tigray), the Amhara National Regional Rehabilitation Development Organisation and the Endowment Fund for the Rehabilitation of Tigray (Effort). The two bodies have effectively emerged as commercial arms of the parties ruling Amhara and Tigray regions, which together form a key locus of power for the ruling EPRDF. Wegagan, (which means dawn in Tigringya), is to open eight branches, three in Addis. Critics argue that the addition of Wegagan will increase the likelihood of

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Ethiopia’s financial sector being run as a cartel. The EPRDF and the Ethio-Saudi businessman, Mohamed Alamoudi, each now own their own insurance companies and banks.

—and a credit scheme is A savings and credit scheme has been established in Tigray (Region 1). This established in Tigray follows legislation last year (proclamation 40/1996) allowing for the creation and regulation of small-scale, “micro-credit”, associations. The credit and savings company, Dedebit, has issued shares worth Birr4m ($600,000), owned by institutions affiliated to the Region 1 government.

Economic advisers are Considerable publicity was generated in Ethiopia by the decision of the US fêted in the USA Corporate Council on Africa (USCCA), a group of large US companies with investments in Africa, to give Meles an award for good governance on April 20. The deputy prime minister for economic affairs and one of the main architects of the economic reform programme, Kassu, travelled to Virginia to collect the award, using the occasion to underline progress made on economic liberalisation over the past five years. Predictably, critics of the government both in Ethiopia and the USA, seized on the award as evidence of their view that Meles is a puppet of the US government.

The government’s second principal economic policy adviser, Neway Gebreab, made a subsequent visit to the USA to address a House of Representatives sub-committee about the reform of US trade policy in Africa. Neway used the occasion to promote Ethiopia’s agricultural-led industrialisation strategy, a nebulous combination of sectoral and structural reforms providing a framework for medium-term planning.

The Addis Ababa Chamber Members of the Addis Ababa Chamber of Commerce (AACC) voted in a new of Commerce gets a new leadership in elections on February 27. A young computer specialist, Kebour president Gehnna, was voted president of the chamber. Longstanding members of the AACC seemed reluctant to stand for the presidency of the chamber, which celebrates its 50th anniversary this year. The new president will have to deal with a series of difficult issues. First, the AACC has been caught in the crossfire over the rent rises implemented by the Region 14 administration, and it has been subject to charges of political partisanship and manipulation. Second, the chamber faces declining membership and funding shortages.

Agriculture

The Somali region is hit Sparsely populated regions in southern Ethiopia have been hit by drought in by drought recent months, causing significant shortfalls in food supplies and deaths in the Somali Region (Region 5). On March 8, the Somali National Regional State government declared a state of emergency in the region. The Disaster Prevention and Preparedness Commission (DPPC) subsequently announced that an estimated 54,000 tons of food were urgently required for some 600,000 people. Severe water shortages were reported in many localities in the Ogaden, including the capital of Region 5, Jigjiga, as well as Gode and Kebir Dehar. Widespread death of livestock was reported, prompting pastoralists to head for towns in search of assistance. While the DPPC was able to provide food aid from

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Ethiopia 15

emergency stocks and internal purchases, the loss of livestock will reduce assets and incomes in this barren region for years to come. The southern areas worst hit were, northern Omo, Borena and the Somali lowlands. Although some rain was reported in late March, on April 4 the DPPC reiterated the urgency of the situation, indicating that the response to its appeal for aid in February had been disappointing (1st quarter 1997, page 18). Only 10% of the 99,575 tons required had been pledged, meaning that emergency reserves on the ground were being drawn down. Donors did, however, supply many of the water tankers requested. By May the DDPC said that the crisis was under control, but at the same time increased its estimates of those in need of assistance to 986,000 including 275,000 pastorialists in the eastern Afar (Region 2).

Donors purchase grain According to estimates released by the Food and Agriculture Organisation internally (FAO) in early March, some 1.9 million Ethiopians will require some form of food assistance in 1997. The estimates included Somali (Region 5), as well as the marginal food producing areas of Tigray and Wollo. The FAO urged food donors to provide funds for internal purchases of grain from areas in surplus. Ironically, while southern regions of Ethiopia were in food deficit, the World Food Programme (WFP) was purchasing grains and vegetables from Ethiopia for its emergency drought relief programmes in Kenya. In March, the WFP reportedly purchased 5,200 tons of maize and 950 tons of beans from Ethiopia.

Coffee output is buoyant In mid-May officials of the Coffee and Tea Development Authority (CTDA) announced that coffee export targets for the fiscal year 1996/97 would be surpassed. Ethiopia had initially hoped to export 108,000 tons of coffee, a 6% increase on the previous year’s exports. However, ten months into the year, almost 120,000 tons had been exported, earning a total of $352.5m. Private merchants accounted for 75% of all coffee export earnings.

In March the Inter-African Coffee Organisation (IACO) agreed in Abidjan to retain 51,000 tons (850,000 60-kg bags) in a bid to steady coffee prices. Ethiopia agreed to a quota comprising 10%, or 85,000 bags of the reduction, after Côte d’Ivoire, Uganda and Kenya had agreed. It was reported in Italy in May that Ethiopian coffee contained high level of toxins. Although Italy accounts for only around 3% of Ethiopian coffee exports, several Ethiopian coffee exporters accompanied Meles to Italy in April in the hope of improving sales.

Ethiopia: coffee exports

Tons 60-kg Bags (m) Total earnings ($ m) 1994/95a 78,420 1.3 330.9 1995/96a 101,823 1.7 279.5 1996/97b 119,804 2.0 352.5

a Ethiopia’s fiscal year runs from July 8 to July 7. b First 10 months of current fiscal year.

Source: Coffee and Tea Development Authority.

Sugar production is set Sugar output is set to double when the Finchaa project begins production in to rise July. The $226m Finchaa sugar plantation and refinery, constructed under the supervision of the UK-based company, Booker Tate, with financing from the African Development Bank (ADB), Sweden, Spain and Australia, should have a

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 16 Ethiopia

capacity of around 100,000 tons/year (t/y) of sugar. It will also have the capacity to produce up to 8m litres/year of ethanol alcohol, a fuel by-product of sugar refining. The Finchaa project, located 160 km west of Addis Ababa in Region 4 (Oromo), is expected to employ 5,000 people. Production in Ethio- pia’s three existing sugar refineries was severely hit by flooding in the Awash valley last year, prompting shortages and sugar imports (4th quarter 1996, page 17). Ethiopia’s current annual sugar production capacity is estimated at around 220,000 t/y, plus 66,000 tons of molasses. Until last year, sugar was exported to Djibouti, while molasses was sold to western Europe. European sugar analysts estimate that total annual income from sugar should reach Birr220m ($34m), Birr44m of which is export earnings.

Ethiopia defends its In late February Ethiopia hosted the fifth Nile 2002 conference, attended by stance on the Nile technical experts of ten countries bordering the Nile. The meeting came just one week after a meeting of ministers in Cairo to consider water resources, amid growing tensions with Egypt over Ethiopian plans to start hydroelectric projects on the Blue Nile. Under an agreement signed in 1959, which still formally determines the usage of the Nile waters, Egypt and Sudan take the main share of the water, with respective claims of 66% and 22%. Under the agreement, Ethiopia has no formal rights over use of the water, despite most of the outflow of the Nile originating in the Ethiopian highlands. At the conference, Ethiopia spearheaded calls for more equitable distribution of water resources. The meeting was attended by Sudanese experts, notwithstanding the current tension between the governments of Ethiopia and Sudan.

Infrastructure and tourism

The telecommunications Access to telephone services remains a severe bottleneck for companies wishing network is to expand— to open offices in Addis Ababa and the regions. Presenting an interim report on the Ethiopian Telecommunications Authority (ETA) to the Council of Peoples’ Representatives in May, the minister of transport and communications, Abdul Mejid Hussein, said that 200,000 people are waiting for connection to telephone services but that the ETA plans to install 500,000 new lines by 2000. The projected figures appear unrealistic given current progress, although some contracts for equipment have already been issued.

—and Sweden increases its In February, the Swedish telecommunications group, Ericsson, tightened its presence hold on the Ethiopian telecoms market with the approval of a $16m loan to the ETA by a Swedish bank to fund contracts to be undertaken by Ericsson. These reportedly involve the installation of 70,000 new telephone lines in Addis Ababa and in regional towns. There are also plans to establish mobile communications systems in seven towns. Meanwhile the telecommunications authority reported that 1,500 subscribers have registered to use the Internet. The government has a monopoly on the provision of services and is charging hefty installation and subscription fees to subscribers in US dollars.

The government promotes In late April the Economic Commission for Africa (ECA) hosted a conference of tourism 30 African tourist organisations in Addis Ababa. The conference was opened by the president of Ethiopia, Negaso Gidada, who noted that Africa accounted for

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only 1.8% of global tourism earnings. Acknowledging that much had to be done to improve the image of Ethiopia as a tourist destination, Negaso noted that tourist arrivals had nearly doubled in the six years of EPRDF rule. Despite a notable increase in the construction of medium-sized hotels and a plethora of small, new travel and tour agencies in Addis Ababa, tourism infrastructure and services remain embryonic. The burgeoning tourism sector suffered a blow in March, when 80 individuals offering travel services were arrested and several companies closed down. Those apprehended had been acting as employment agencies, ferrying young women to Middle Eastern countries, notably Leba- non, to work as domestic servants or prostitutes.

Foreign trade and payments

Exports fall Ethiopia’s total export earnings fell in 1995/96 according to figures released by the minister of trade and industry, Kassahun Ayele, on March 23. Kassahun reported that total imports in 1995/96 had risen by one-third to Birr6.6bn ($1bn) compared with the previous year, whilst export earnings had slipped by 9% to Birr2.8bn. Coffee exports accounted for two-thirds of all export earnings. The decline in overall earnings was largely because total income from coffee decreased by 15%, following the reduction in world prices after the boom in coffee prices in 1994. Exports of livestock, leather goods and vegetables were also below target. The decline in exports, combined with a sharp rise in imports, led to a deficit on the trade account of Birr3.8bn in 1995/96, up from Birr1.2bn the previous year.

The USA seeks to improve On April 7 the USA opened its second trade fair in the Addis Ababa Hilton. trade links— According to the commercial office of the US embassy, around 150 US companies now have some form of representation in Ethiopia, three times the number than when the last US trade fair was held in 1995. Representatives of 37 companies had exhibitions in Addis, mostly of consumer products. Despite mutual rhetoric about the need to promote trade links between the two countries, trade flows remain minimal. On March 31 the annual report of the US National Trade Estimates put total US foreign direct investment (FDI) in Ethiopia at under $10m, noting that despite recent reductions in tariff barriers to trade, significant non-tariff barriers remained in the form of unwieldy bureau- cratic procedures. In 1996 US merchandise exports to Ethiopia totalled $148m, almost identical to the 1995 figure.

—as does France Following the lead of the UK, which held two commercial exhibitions in 1996 in Ethiopia, the centenary year of UK diplomatic presence in the country, France held a three-day trade fair in Addis Ababa in mid-May. A 25-strong delegation, led by the head of the French employers’ federation and former minister of development, Michel Roussin, arrived in Addis Ababa from Asmara to inaugurate the fair, at which 118 French companies were represented.

According to official French statistics, France’s exports to Ethiopia have been rising steadily in recent years. Total French exports to Ethiopia in 1996 were around FFr290m ($50m), mostly of manufactured goods. France reported an overall trade surplus of FFr182m ($32m) with Ethiopia in 1996. Meanwhile, the

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 18 Ethiopia

Franco-Ethiopia joint-commission meeting, originally scheduled for May, has been postponed due to French elections. Amongst other things, the commission is to renegotiate Franco-Ethiopian cultural and aid protocols, notably the reform of the French Lycée in Addis which is jointly administered with Ethiopian authorities.

Meles leads a trade Meles was accompanied by a large commercial delegation during his state visit delegation to Italy to Italy in mid-April. About 70 businessmen from Ethiopia travelled to Rome, although, according to coverage in the domestic press, the arrangements to meet Italian traders and potential investors did not go particularly smoothly. According to the latest available data on the composition of Ethiopia’s external trade, Italy remains Ethiopia’s largest European source of imports. Shortly after the trip, the Italian state airline, Alitalia, announced that in June it would resume its direct service from Rome to Addis Ababa.

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Eritrea

Political structure

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

National elections Last elections February 1987 (legislative, within Ethiopia); next elections were scheduled for May 1997, and are due soon.

Head of state President, 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 Ghirmazion Construction Abraha Asfaha Defence Sebhat Ephrem Education Osman Saleh Energy, mining & water resources Tesfaye Gebreselassie Finance & development Haile Woldensai Foreign affairs Petros Solomon Information Beraki Gebreselassie Internal affairs Ali Said Abdella Justice Foazia Hashim Marine resources Saleh Meki Regional administration Mahmoud Ahmed Sherifo Tourism Ahmed Haji Ali Trade & industry Ogbe Abraha Transport Gergis Teklemikael

Central bank governor Tekie Beyene

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 20 Eritrea

Outlook for 1997-98

Tensions mount on the Relations between Eritrea and Sudan are unlikely to improve as wrangling over Sudanese border— the repatriation of Eritrean refugees intensifies. The future of the refugees is becoming a diplomatic football kicked between Asmara and Khartoum. In recent weeks the flow of refugees across the border has slowed to a trickle, and a reception centre at Maihimet, north of Tessenei, is virtually empty. Some observers have suggested that, despite the Eritrean government’s protestations to the contrary, it is apprehensive about encouraging mass repatriation because it fears infiltration by Islamic militants. Recent pronouncements by the Sudanese government threatening to use Eritrean and Ethiopian refugees in attacks on the governments of those two countries have given some credence to Eritrean concerns.

—and relations with Meanwhile, official relations between the two countries remain deadlocked. Sudan are not improving— According to the Sudanese parliamentary speaker, Hassan al-Turabi, (also the unofficial mediator between the two countries) the flight in December of the former Sudanese prime minister and opposition leader, Sadiq al-Mahdi, has ended hopes of reconciliation. Mr al-Turabi has also criticised the US government, which supplied Eritrea, Ethiopia, and Uganda with $20m of non-lethal military aid in January.

—to the chagrin of the The diplomatic impasse has left workers at the UN High Commission for Refugees UNHCR (UNHCR) in Tessenei sitting idle for several months while the UNHCR’s office in Asmara continues to lobby the government to get the repatriation process off the ground. The UNHCR is growing increasingly impatient with stonewall- ing on the part of the Eritrean and Sudanese governments; indeed, the cancellation by the Eritrean authorities of a recent tripartite committee meeting, originally due to have taken place in mid-January, will have further angered the agency. The UNHCR, in conjunction with other aid agencies, is pressing for greater clarity on the repatriation issue.

Review

The political scene

Regional elections are a The minister of regional administration, Mahmoud Ahmed Sherifo, an- success— nounced that a 90% turnout was recorded at regional elections, which took place throughout the country between January and March. The elections began on January 4 in three of Eritrea’s six regions: Anseba, Gash Barka and Debub. Polling in the southern and northern Red Sea regions and Maakel began after the Muslim festival of Ramadan. A total of 399 representatives were elected across the six regions, all of whom stood as independent candidates. The elections were for regional assemblies, which will send representatives to the constitutional assembly. The regional assemblies will also send representatives to the 150-seat National Assembly (parliament), which comprises 75 delegates of the People’s Front for Democracy and Justice (PFDJ, formerly the Eritrean

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People’s Liberation Front), and 75 non-members, including representatives of the Eritrean diaspora. Of all seats 30% have been reserved for women. The elections have been heralded as a tribute to grass-roots democracy in Eritrea.

—paving the way for a According to the minister for regional administration, elections for the constit- constitution by 2000 utional assembly will take place soon. The constitutional assembly will be responsible for the ratification of the new draft constitution, and will be operational for 12-18 months. Once the constitution is ratified, well after the dead- line of May 1996 that was set when Eritrea gained independence, the constitutional assembly will be replaced by the National Assembly, whose first term will last for five years. The head of the Constitutional Commission (CC), Bereket Habteselassie, appears relatively unperturbed by the ratification of the definitive constitution taking so long. Bereket, who was the minister of justice before independence, has spearheaded an intensive campaign to educate Eritreans both within the country and abroad about the constitution, and has tried to ensure that the creation of the new constitution be as participatory a process as possible. According to sources within the CC, two of the most controversial points in recent debates have been rights to Eritrean citizenship and the oath of allegiance.

Isaias distances himself In an interview with the London-based newspaper, Al-Sharq Al-Awsat, on from a mediation February 23 the president, Isaias Afewerki, categorically distanced the Eritrean initiative with Sudan— government from an initiative by an Eritrean citizen of Sudanese birth, Muhammed Abu Al-Qasim Hajj Hamad, to open talks with the Sudanese regime. Mr Abu Al-Qasim used to head one of the Eritrean liberation offices in Khartoum, and was active in the Eritrean independence struggle for 30 years. He flew to Khartoum on February 18 at the invitation of the Sudanese foreign minister, Ali Uthman Muhammed Taha, after meeting Isaias and other leaders of the PFDJ. In the interview, Isaias denied reports that the Eritrean government was involved in a mediation initiative, adding that Mr Abu Al-Qasim’s intervention was of a personal nature and concerned domestic problems.

—while Asmara reiterates In the interview Isaias also reiterated Eritrea’s attitude towards the Khartoum its attitude towards regime. He emphasised that Asmara’s decision to support the Sudanese oppos- Khartoum— ition umbrella, the National Democratic Alliance (NDA), was not a tactical move, rather a matter of principle (1st quarter 1997, page 24). The NDA, he said, represented the Sudanese people and “if the Turabi regime ... wants reconciliation, it has to be reconciled with itself and the Sudanese people before seeking reconciliation with any other party. Our fixed principles prompt us not to deal with a regime rejected by the Sudanese people.”

—and criticises US Recent visits by US army personnel to the Sudanese border to advise on defen- intervention in the region sive positions and border security are likely to have featured on the agenda of a meeting between the commander-in-chief of the US central command, General J Binford Peary, and Isaias on February 13. However, officials from the Ministry of Foreign Affairs have repeatedly denied Sudanese allegations that armed confrontations have taken place on Eritrean soil. Isaias has reiterated Eritrea’s position in recent interviews, arguing that his government provides

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political assistance to the NDA, but that the downfall of the Khartoum regime will be the result of popular protest within Sudan.

Frequent landmine Despite the heavy concentration of troops and tanks on the Sudanese border, attacks are reported anti-Eritrean elements have been able to lay several landmines on roads leading to settlements south of Tessenei. It is not clear whether the perpetrators of these attacks have slipped across the border or whether disaffected Eritrean individuals have been bribed to lay the mines. Other reports from the region speak of snipers targeting National Service youth, whose uniform has since been changed. A dusk to dawn curfew on travel between towns west of Agordat is still in place and travel to the area is restricted for journalists.

The outlook for Despite moves to increase openness and accountability in the domestic political expatriates is uncertain— process, relations between the Eritrean authorities and expatriates, notably aid workers, remain thorny. The government has insisted on the right to maintain strict controls over the admission of foreigners and their conditions of stay during the transition period from secession to sovereignty. Eritrea still requires vast capital inflows to rebuild the shattered infrastructure. There has been concern in the expatriate community, not only about its own role in the recon- struction process and its status in the country, but also about the potential adverse impact of the government’s attitude on foreign direct investment (FDI).

—and aid workers are The expulsion from Asmara on May 6 of staff members of the UN High expelled Commission for Refugees (UNHCR) came as no surprise. In 1995 the local heads of the US Agency for International Development (USAID) and the World Food Programme (WFP), as well as the representative of the UK’s Save the Children Fund (SCF) were all told to leave. The government’s justifications for the recent expulsions ranged from allegations of spying to intervention in restricted areas. Full details of the latest expulsion have not yet been made available, but it appears that the UNHCR gave offence by compiling an information pack on the stalled Eritrean refugee repatriation programme.

The government stresses While foreign non-governmental organisations (NGOs) operating in Eritrea the importance of have long alleged that they are unwelcome, the government has stressed the self-reliance— need to avoid dependence on aid. In mid-1996 the Ministry of Finance informed NGOs that expatriate employees would have to pay income tax of 38%. The announcement provoked a general outcry, and some agencies, such as the German Gesellschaft für Technische Zusammenarbeit (GTZ), have managed to evade the tax by arguing that it could not be imposed retrospectively on contracts that had already been signed with the government. In early March relations between the government and NGOs deteriorated further, when all aid agencies operating in Eritrea, including UN agencies, were summoned to a meeting by the former minister of tourism and new head of the ERRC, Worku Tesfamichael. She delivered a statement from the Ministry of Finance, which declared that all future aid would have to be channelled through the health and education sectors. Ms Tesfamichael did not indicate whether this meant that only projects to do with health and education would be considered in future. If this proves to be the case, at least half of the 22 foreign NGOs operating in Eritrea are likely to cease operations. The statement went on to

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stipulate that any agreements made between the Eritrean government and aid agencies could be superseded by subsequent legislation.

—aid projects will not be The significance of economic and political self-reliance was reiterated during extended— the eighth session of the executive committee of the PFDJ, which opened on April 15. Two weeks earlier, the executive committee had hosted a visit by the former Tanzanian prime minister, Julius Nyerere, in a move to strengthen relations between the PFDJ and Tanzania’s ruling Chama Cha Mapinduzi (CCM) party, aimed at building up regional alliances as a support system. The resolve of the Eritrean government was further highlighted at a meeting between project managers of the UN Development Programme (UNDP) and the government on March 15. The UNDP was informed that neither projects nor contracts for individual consultants were to be extended beyond their original duration. Several project staff, including some UN volunteers, have considered leaving the country before the end of the year.

—and Isaias is hostile to Although the troubled relations with NGOs were briefly covered in the nat- foreign aid workers ional press, a comment made by the president, Isaias Afewerki, in an interview with the London-based newspaper, Al-Sharq al Awsat, on February 23, offered a more sinister perspective on the stance of the Eritrean government. Isaias criticised “observers or monitors offering superficial interpretations” of events in Eritrea, and, although he did not make specific reference to foreign aid workers, he emphasised that donor countries should not be under any illusions that they had influence over Eritrean policies.

The government redoubles The PFDJ, and notably Isaias himself, has been especially vocal in recent months its anti-corruption drive about the need to fight corruption in Eritrea (1st quarter 1997, page 27). Following the establishment of the Special Court against corruption, against whose decisions there is no right of appeal, some 1,331 cases have been tried, ranging from the prominent imprisonment of the general manager of the Red Sea Trading Corporation (RSTC) in late December, to lesser offences such as tax evasion and abuses of power. More than 100 people have been imprisoned, some with sentences of up to 12 years, and more than 1,000 have been fined or given warnings.

Eritrea takes a more The government has been trying to raise the international profile of Eritrea not prominent regional role— only through vehement anti-corruption measures, but also by taking a more prominent role in regional affairs. Eritrea has been keen to take an active role in the conflicts in central Africa and the Great Lakes region, and a senior official and former commissioner of the Eritrean Referendum Commission (ERC), Amare Tekle, has been selected to serve as a member of the Liberian election commission. Meanwhile, the Eritrean government held talks with the then rebel leader of the Alliance of Democratic Forces for the Liberation of Congo-Zaire (AFDL), Laurent Kabila, although it has denied Sudanese allegations that Eritrean troops were assisting AFDL forces.

—and the EU On January 20 the European commissioner responsible for relations with ACP commissioner pays a visit member-states, João de Deus Pinheiro, arrived in Asmara to hold talks with the Eritrean government. Mr Pinheiro also signed a $245m regional cooperation

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agreement, covering Ethiopia, Djibouti, Eritrea, Kenya, Rwanda, Sudan, Tanzania and Uganda. According to some officials, Isaias criticised the EU for untoward delays between the apportioning and disbursal of funds. Between March 1992 and December 1996, EU commitments to Eritrea totalled Ecu429m ($493m), of which just Ecu127m has been disbursed.

Eritrea was also represented at a recent workshop on the development of the Nile Basin, which it shares with Burundi, Egypt, Ethiopia, Kenya, Rwanda, Sudan, Tanzania, Uganda and the Democratic Republic of Congo (formerly Zaire). The five-day conference, which opened in Addis Ababa on February 24, sought to establish a viable framework for regional cooperation, a somewhat problematic prospect given Sudan’s troubled relations with most of the states concerned. (See Ethiopia: The economy.)

Isaias visits Egypt On March 1 Isaias travelled to Cairo for a four-day visit during which he held talks with the Egyptian president, Hosni Mubarak, with a view to strengthen- ing cooperation between the two countries. A joint committee was set up to oversee the implementation of bilateral trade agreements. Relations between Eritrea and Yemen were also reportedly discussed. Since the beginning of arbi- tration proceedings in London over the Hanish islands conflict (1st quarter 1997, page 27), relations between the two countries have improved slightly. The acceptance of a UK judge, Robert Jennings, as president of the tribunal presiding over the case was confirmed at the end of April, and proceedings have begun.

Mrs Clinton pays a The US community in Eritrea gathered in Asmara on March 29 to welcome the whirlwind visit US first lady, Hillary Clinton, who spent the day in the Eritrean capital and surrounding villages. Mrs Clinton met Isaias and his wife, Woizero Saba Haile, and opened a rural clinic funded by the Eritrean government and the US Agency for International Development in the nearby village of Embadurho. Mrs Clinton also met representatives of the National Union of Eritrean Women (NUEW) and the Bana Women Fighters’ Cooperative (BWFC).

The economy

South Korea wins a key A South Korean company, Keangnam, which has already won sizeable con- electricity contract— struction contracts with the Housing and Commerce Bank of Eritrea (HCBE), the Eritrean Ports’ Authority (EPA), and the Ministry of Health to build apart- ments and offices and to upgrade a hospital (1st quarter 1997, page 33), has just been awarded the contract to build the vast power generator at Hirgigo, near Massawa (1st quarter 1997, page 30). The project, which is expected to be finished by the end of the year, is jointly funded by the Eritrean government and loans secured from the development funds of several Middle Eastern states and the Arab Bank for African Development (ABAD).

—and links between the In early April Isaias visited Seoul, South Korea, to strengthen economic and two countries are political links between the two countries. Isaias met the president of South strengthened Korea, Kim Young Sam. The Eritrean president then went on to Singapore and China before returning to Asmara on April 11. Speaking to journalists at

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Asmara’s international airport, the president indicated that development programmes with Asian backing were to be initiated in energy, tourism, and trade and industry.

A Japanese initiative is Relations between Eritrea and Japan took a turn for the worse following the snubbed at the last minute last-minute cancellation of the $7m Hirgigo Fisheries Training Centre project. The scheme, which was confirmed in November 1996, collapsed in early April following intervention at a high level by the macropolicy office, which forms part of the office of the president. In March the Japanese government granted $3m of assistance to the agricultural sector, but it remains to be seen how Tokyo will react to this recent political snub.

A US trade delegation A trade delegation arrived in Asmara from the USA on April 21 looking to find visits— investment opportunities among the state-run enterprises scheduled for privatisation (1st quarter 1997, page 32). The latest enterprises to be divested were announced by the National Agency for the Supervision and Privatisation of Public Enterprises (NASPPE) in April, including the Asmara Milk Factory, Eritrea Shoe Factory, Barka Furniture Factory, Gash Cigarette Factory and the Red Sea Soap Factory.

—and another US Meanwhile the Dahlak islands hotel and casino project, which had been effec- initiative progresses tively stalled under the previous minister of tourism, has now made headway following the appointment of a new minister, Ahmed Haji Ali (previously minister of labour and social security). The project, worth an estimated $250m, will build a tourist village, including two casinos, on the arid Dahalk archipelago.

Accommodation projects Another tourism initiative is the Asmara Palace Hotel, a luxury hotel on the will boost the tourism airport road in Asmara. The cornerstone of the $17.5m project, scheduled to be sector completed by 1999, was laid by Isaias at the end of March. The People’s Front for Democracy and Justice (PFDJ) and Red Sea Cooperative Hotels (RSCH) each hold 40% of shares in the hotel, while Italy’s Cooperativa Muratori Cementisti (CMC) and Bergheihm International (BI) of Ireland hold 10% each (1st quarter 1997, page 33). Meanwhile, the Red Sea Hotel is almost ready to open after a two-year facelift. According to the latest available figures from the Ministry of Tourism, more than 4,000 tourists visited Eritrea in 1996, a 32% increase on the previous year.

A new labour law is Representatives of various ministries and of the National Confederation of drafted Eritrean Workers (NCEW) are elaborating a new labour law which will be presented to the National Assembly for approval. The law will cover overtime, insurance and environmental safety.

There are improvements Money can now be wired to the Commercial Bank of Eritrea (CBE) through to banking sector services Western Union. Bank charges have been marginally lowered and the Eritrean Development and Investment Bank (EDIB) announced on March 12 that it will begin to lend money, primarily to investors in the agriculture and fisheries sectors. The National Insurance Corporation (NIC) is also to set up an agricultural insurance system over the next two years. However, no further news has

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emerged about the Eritrean currency, the Nakfa, which is scheduled to become legal tender before the end of this year.

State subsidies on petrol Following a similar move in Ethiopia, the minister for energy, mining and are abolished— water resources, Tesfaye Gebreselassie, announced in mid-February that state subsidies on petrol were lifted. He did not indicate how the consequent increase in revenue from petrol sales would be allocated. Meanwhile, according to a joint report by the ministry and a US geological survey team, there are good prospects for geothermal energy in the southern Red Sea region.

—and government The increase in petrol prices which followed the removal of subsidies is part of a vehicles are more strictly largely unpopular initiative by the government to conserve petrol. Indications controlled are that more than 70,000 litres/day of petrol have been saved. Government vehicles are now left in a central pool and their use out of office hours is either prohibited or strictly monitored.

Civic development plans Plans for civic development in the provinces are reportedly nearing comple- near completion tion. The distribution of land has begun in Tessenei for the construction of offices and residential accommodation, and the number of private businesses operating in the municipality of Massawa is on the rise. The port city of Massawa, whose current population of 30,000 is likely to double in a few years, has seen major improvements to its buildings, roads and public services. Its flagship project, the railway, has grown by another 35 km.

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Somalia

Political structure

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

National elections 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, and in August 1991 was sworn in with the support of several southern factions. Recently joined other factions to form the National Salvation Council which aims to establish a transitional government soon. General Mohamed Farah Aideed had himself elected as “interim president” in June 1995 by his own faction of the United Somali Congress-Somali National Alliance. 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

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

Somaliland Republic Created in May 1991 but awaiting diplomatic recognition; led by the now interim 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 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 28 Somalia

Economic structure

Latest available figures

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

December 11, 1996 SoSh7,600ac:$1

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

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

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

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Somalia 29

Outlook for 1997-98

The NSC plans a national The National Salvation Council (NSC), born out of the peace deal agreed by reconciliation 26 Somali factions in the Ethiopian resort of Sodere in January, has wasted no conference— time in pursuing its objective of setting up a transitional government. At its first full meeting in Mogadishu in April, the NSC decided to hold a final national reconciliation conference in the northern port of Bossasso on June 10. The conference, to be attended by 1,000 delegates from all sections of the community, has received widespread support from other governments in the region and from international bodies, including the UN, the Organisation of African Unity (OAU), the Arab League (AL) and the EU. It also has the support of two of the leaders of the three principal factions in Mogadishu: Ali Mahdi Mohamed, who controls north Mogadishu, and Ali Hassan Osman “Ato”, whose forces control parts of the south of the city, although Mr Osman “Ato” did not attend the NSC meeting in Mogadishu.

—although Mr Aideed is Indications are that Mogadishu’s third main faction leader, Hussein Mohamed unlikely to attend— Aideed, son and heir of the former south Mogadishu warlord, General Mohamed Farah Aideed, will not be going to Bossasso. He was absent at Sodere, does not recognise the agreement reached there, and continues to view his own administration as Somalia’s only legitimate government. Mr Aideed’s absence is problematic, because without his participation and support the Bossasso talks are unlikely to succeed. The combination of his contrary stance and the progress made by the NSC has resulted in a period of intense shuttle diplomacy on all sides. However, Mr Aideed’s position has not been helped by the reported rebellion of several hundred of his armed supporters, although continued unrest in Mogadishu suggests that this has not been a major blow to his position. There is still no single faction strong enough to control the entire capital. Besides, Mr Ali Mahdi has also had his problems, both with armed infighting among his militia and between his supporters and those of Sheik Ali Sheik Mohamed, whom the former sacked in October as head of north Mogadishu’s Islamic court. Meanwhile, ongoing struggles for supremacy between various armed clan factions outside Mogadishu have damaged the prospects for national reconciliation.

—nor is the acting Mr Aideed is not the only obstacle to success in Bossasso. The NSC has called on president of Somaliland its northern brethren in the self-styled Somaliland Republic to renounce their secessionist claims and to participate in the reconciliation process. Not surpris- ingly, the call has fallen on deaf ears. Although Somaliland is currently em- broiled in elections to find a successor to the acting president Mohamed Ibrahim Egal, who is standing for re-election, none of the candidates has expressed much interest in participating in the activities of the NSC. Somaliland’s parliament, the Congress of the Communities of the Republic of Somaliland (CCRS), has endorsed Mr Egal’s letters to regional leaders insisting that Somaliland’s independence is non-negotiable. In a move to strengthen further the breakaway republic’s case, the CCRS approved a new constitution in February, although the independence of Somaliland has yet to be recognised by the international community. The constitution will hold for an interim period of three years, following which, a public referendum will be held on its future.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 30 Somalia

Review

The political scene

The NSC announces a The National Salvation Council (NSC), created in January by 26 Somali factions conference in Bossasso which agreed a new peace accord at Sodere in Ethiopia (1st quarter 1997, which gains support— page 38), has decided to hold a final national reconciliation conference in the northern port of Bossasso on June 10. The announcement of the NSC’s decision, taken at a meeting in a Mogadishu hotel on April 5, suggested that a transitional parliament would be formed at the Bossasso conference. The Mogadishu meeting was attended by 29 of the 41 individual members of the NSC. According to National Salvation Council an NSC spokesman, the remaining delegates were prevented from attending by transport problems. Notable among the absentees were two of the five chairmen DFSS: Democratic Front for the Salvation of Somalia of the NSC’s National Executive Committee (NEC), namely Ali Hassan Osman IFLO: Islamic Front for the “Ato”, who controls parts of the south of the Somali capital, and Abdullahi Liberation of Oromia Yusuf Ahmed of the northern-based Democratic Front for the Salvation of NSA: Northern Somali Alliance Somalia (DFSS). Mr Osman “Ato” was in Addis Ababa at the time and Colonel ONLF: Ogaden National Liberation Abdullahi Yusuf was reported to be in hospital in London. Front RRA: Rahawayn Resistance Army The current NSC chairman, Aden Abdullahi Nur, left Mogadishu with a large SDM: Somali Democratic Movement delegation on April 14 to explain their plans to governments in Cairo, Dji- SNA : Somali National Alliance bouti, Addis Ababa and Tripoli. Support for the NSC’s actions has been forth- SNF: Somali National Front SPDU: Somali People’s Democratic coming from many quarters. The UN Security Council expressed its satisfaction Union with the Sodere agreement and the establishment of the NSC on March 3. In SPM: Somali Patriotic Movement addition, the Egyptian and Ethiopian governments have provided logistical SSA: Somali Salvation Alliance support for the Somali peace conferences, and on March 25 the Kuwaiti USC: United Somali Congress government pledged $100,000 towards the Bossasso reconciliation conference. USP: United Somali Party USF: United Somali Front Bahrain has also promised financial assistance. On April 6 the EU special envoy to Somalia, Sigurd Illing, expressed his support for the NCS after talks with Mr Nur, and on April 24, the Organisation of African Unity (OAU) announced that it would make available $430,000 for the reconciliation process in So- malia.

—but not from Although the NCS enjoys the support of 26 Somali factions, including two of Mr Aideed— Mogadishu’s three principal faction leaders, Ali Mahdi Mohamed, who controls north Mogadishu, and Mr Osman “Ato”, it has yet to receive the blessing of Mogadishu’s third main faction leader, Hussein Mohamed Aideed. Mr Aideed, son and heir of the former south Mogadishu warlord General Mohamed Farah Aideed, did not attend at Sodere, refutes the agreement made there, and has repeatedly said that he will not be in Bossasso in June. Numer- ous attempts have been made to resolve the impasse. Sigurd Illing held talks with all three Mogadishu faction leaders in January, a move which was followed up by the Nairobi-based Italian representative to Somalia, Giuseppe Cassini, who succeeded in getting Mr Aideed and Mr Ali Mahdi to talk to each other (1st quarter 1997, page 39). In March, Mr Cassini led a small team of mediators, including special envoys from Ethiopia and Kenya, to talk separately with Mr Aideed, Mr Ali Mahdi and officials of the Mr Osman “Ato” faction. All three Mogadishu faction leaders have also visited Cairo in recent months for talks with the Egyptian government and the Arab League (AL).

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Somalia 31

After his ten-day visit to Egypt, Mr Aideed left Cairo on April 21 to visit Yemen for talks in Saana.

—who has domestic While Mr Aideed was in Egypt, he was faced with a new problem at home. problems on the agenda According to a report by Agence France-presse (AFP), 830 armed militia previously loyal to Mr Aideed turned against him on April 16, accusing high- ranking members of his administration of various misdeeds, including misuse of resources and disrespect for the national army of Mr Aideed’s United Somali Congress-Somali National Alliance (USC-SNA). The rebellion was condemned by a spokesman for Mr Aideed in Mogadishu, but the incident sparked a new wave of unrest in the south of the capital (see below).

Mr Ali Mahdi also faces In February, several violent clashes erupted in the north of the capital, control- opposition in north led by Mr Ali Mahdi. On February 10, a fight involving small-arms fire and Mogadishu— grenades broke out within the ranks of Mr Ali Mahdi’s militia, leaving one dead and two wounded; two days later, Mr Ali Mahdi’s gunmen clashed with supporters of a Muslim cleric. The incident took place outside the house of Sheik Ali Sheik Mohamed, the former head of the Islamic court who was replaced by Mr Ali Mahdi in October (1st quarter 1997, page 39) in a move that the cleric still claims was illegal. Two men died in the clash, and up to 20 more people were reportedly killed in further clashes between the two sides over the following two days. Also on February 12, a clash between militiamen loyal to Mr Aideed and Mr Osman “Ato” was reported at the Hawlwadaag crossing in south Mogadishu. At least 15 people, most of them women and children, were wounded according to a report on Radio Mogadishu (which supports Mr Osman “Ato”). The rising tension in the city led to the evacuation to Nairobi the following day of a small group of expatriates working for four humanitarian organisations in Mogadishu.

—while familiar clashes The day after the evacuation of its expatriate personnel from Mogadishu, the continue in the south of International Committee of the Red Cross (ICRC) announced that it would the capital continue its efforts in the Somali capital, although the work would now be coordinated from Nairobi. Action Contre la Faim (ACF), whose workers had also been evacuated on February 13, decided to return to Mogadishu with a small team of four aid workers the next day. By this time, however, the situation in south Mogadishu was deteriorating. February 14 saw 11 dead and 18 wounded in the Medina district in the south-west of the city in a clash between militia loyal to Mr Aideed and those loyal to Mr Ali Mahdi and Mr Osman “Ato”. On February 27 five people died in fighting in the south of city, including an employee of the Somali Red Crescent (SRC).

Sporadic fighting continued in the capital in March and escalated in late April. Four people were killed in a gunfight on March 7 between militia loyal to Mr Aideed and employees of a depot dealing in petroleum products, after the depot’s management refused to pay taxes being levied by Mr Aideed’s administration. On March 22, violence errupted once again in the north of the city. At least ten people were killed and seven injured in the Bermuda quarter controlled by Mr Ali Mahdi. The fighting took place between rival groups of Mr Ali Mahdi’s militia. The month of April began relatively calmly in Mogadishu, but news that 830 armed militia previously loyal to Mr Aideed had turned against

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 32 Somalia

him on April 16 (see above) heralded a fresh spate of violence. On April 21 two employees of the Africa Muslim Aid Agency (AMAA) were shot dead by uniden- tified gunmen in south Mogadishu, and on April 26 the result of overnight fighting between militia loyal to Mr Aideed and Mr Osman “Ato” was three dead and seven injured. Two days later, artillery fire, mortars and anti-aircraft missiles were exchanged in a clash near the home of Mr Osman “Ato” in the south of the city. At least 17 militiamen and civilians were killed and 26 others wounded during the factional fighting.

Clans assemble and An “agreement to coexist” has been reached between leaders of the Sa’ad, an reassemble in some Hawiye subclan, and the Majerteen in the Mudug region, according to a report central regions— broadcast by Radio Mogadishu on February 22. In Gaalka’yo the previous week the two sides exchanged a large number of camels expropriated in armed raids. Gaalka’yo also saw the formation of a new faction on February 17, a breakaway group from the DFSS. The new group, the Somali People’s Democratic Union (SPDU), was formed after disillusionment with leaders of the DFSS, who, according to a report on the pro-Aideed Radio Mogadishu on February 24, were accused of diverting funds from the northern port of Bossasso for their personal use. The SPDU is therefore unlikely to be present at the NSC conference in Bossasso in June.

—but elsewhere the In other parts of the country, further armed clashes between rival militia group- fighting continues ings have been reported in recent months. The Rahawayn Resistance Army (RRA) attacked Mr Aideed’s forces in the Bakool region in early February, and in Galguduud, 12 people died and 18 were wounded later that month in clashes between Mr Aideed’s forces and local clan militia loyal to Mr Ali Mahdi. Another clash between the two sides occurred in mid-March. At least 11 people were killed and 18 injured in the village of Bergan according to reports from Mogadishu on March 17, although later dispatches put the number of dead at 23. Each faction lost an armed vehicle in the clash. A village 100 km north of Mogadishu, in the Shabeellaha Dhexe region, was the scene of fierce fighting between rival clan militias on April 21. At least nine people were killed and 12 others wounded in the clash. Several other violent incidents have been reported from Shabeellaha Dhexe and Hiraan in recent months. AFP reported the massacre of four women and eight children in Shabeellaha Dhexe on March 5, while a report on Radio Mogadishu (pro-Mr Ali Mahdi) indicated that a peace delegation would be sent to the region.

Al-Ittihad has some new The Mogadishu-based group, Al-Ittihad, whose armed forces have clashed sev- allies eral times with Ethiopian forces in recent months (1st quarter 1997, page 41), has formed an alliance with two Ethiopian Islamist opposition groups, according to a report on February 14 in the London-based newsletter, Africa Confidential. One of the two new allies, which are both ranged against the government in Addis Ababa, forms a wing of the Ogaden National Liberation Front (ONLF), and the other a faction of the Islamic Front for the Liberation of Oromia (IFLO). In recent years, both of these groups have split into two factions, one anti- Addis Ababa, one pro-Addis Ababa, the ONLF in 1995 and the IFLO in 1993. Al-Ittihad was also involved in further regional unrest during the

last two days of February, when its forces clashed with Marehan militia of the Somali National Front (SNF) in the Gedo region, leaving more than 60 dead.

Belgian casques bleus are In April the Belgian army opened inquiries into the death of a Somali civilian in the news again in Kismayu in 1993 while under the charge of Belgian members of the UN Operation in Somalia (UNOSOM II) and reports of torture by Belgian casques bleus during their tour of duty in Somalia. The Somali who died had allegedly been caught stealing food and was confined inside a shipping container in the southern port. The military inquiries were sparked by the March 29 issue of the Flemish daily newspaper, Het Laaste Nieuws, which published a photograph apparently showing two members of the Belgian third parachute battalion holding a Somali child over a brazier. The newspaper went on to publish further photographs and a detailed eye-witness account of systematic brutality towards Somalis by Belgian forces in April. Although the faces of the two paratroopers in the incident were blacked out in the photograph, they have been identified and charged with “wounding with violence and violating legislation on armed conflicts”. The inquiries follow five trials in 1995 and 1996 of Belgian members of UNOSOM II. The heaviest sentence passed was a five-year suspended prison sentence for murder.

The economy

The response to warnings Pledges have been slow to materialise for urgent international aid for Somalia of a fresh humanitarian of $46m (1st quarter 1997, page 43) after an appeal was made in December by crisis is sluggish— four UN agencies. On March 18 the UN Development Programme (UNDP) announced in Geneva that a mere $100,000 had been received, from Australia, towards this total. The UNDP added that drought has gripped much of the country, and around 1 million Somalis are threatened by malnutrition. In recent months, both Mr Ali Mahdi and Mr Aideed have appealed to the international community for emergency assistance to help drought victims. On February 18, the two rivals jointly asked the UN for $100.5m in aid, but insecu- rity continues to deter any major relief effort. In Nairobi on March 5, aid donors and humanitarian agencies appealed again to faction leaders to guaran- tee their workers’ safety. In an announcement from Brussels, the EU pledged Ecu3.7m ($4.2m) for the victims of the civil war to be channelled through the International Committee of the Red Cross (ICRC) and other NGOs.

—as cholera breaks out The ICRC announced in mid-March that in just one month a cholera epidemic near Mogadishu had claimed 430 lives in the town of Wanlaweyn, 90 km west of Mogadishu. The deaths occurred between mid-February and mid-March, and almost 2,000 other cases had been recorded in the area. Some 10,000-13,000 families live in Wanlaweyn and only one of the town’s five wells is operational.

Some refugees begin to The first families involved in the pilot programme to return 10,000 Somali return from Ethiopia— refugees from Ethiopia left their camp in February, following agreement between the Ethiopian government and the UN High Commissioner for Refugees (UNHCR) in January (1st quarter 1997, page 44). The UNHCR announced on February 18 that 35 families were driven in trucks from the Teferi Bir refugee camp in north-east Ethiopia to the border with the self-styled Somaliland

Republic. Each family had received nine-months’ food supplies and the equiva- lent of $30 for their repatriation.

—but others seek asylum At least 4,500 Somalis living in refugee camps in Kenya are to be given leave to elsewhere enter the USA this year, a spokesman for the Kenyan International Office for Migration (KIOM) announced on February 4. Medicines for the selected refugees, currently resident in two camps in Mombasa, were due to begin in March. The refugees will follow about 6,500 Somalis who left for the USA in 1996. Other Somalis have found their way to South Africa, which has become a popular destination for African asylum seekers, particularly Nigerian nationals. Accord- ing to one source, applications from 1,021 Somali refugees seeking asylum in South Africa were still pending at the end of January. Other expatriate Somalis have been less fortunate. In a report from Saana on March 27, about 30 Somalis who were attempting to enter Yemen illegally were said to have drowned after being forced to jump from their boat near the Yemeni shoreline. According to a UNHCR spokesman, about 250 others who managed to swim to shore were taken to a refugee camp at Jahine, which now holds nearly 6,000 Somalis.

News from the Somaliland Republic

Presidential candidates The Congress of the Communities of the Republic of Somaliland (CCRS) offi- begin their campaigns— cially began to hear the election campaigns of presidential candidates of the self-styled Somaliland Republic in Hargeisa on February 17. Among the candidates mentioned in a broadcast on Radio Hargeisa on February 18 were the outgoing incumbent, Mohamed Ibrahim Egal, who officially stood down in October but has been acting president since then. Other names included Mohamed Hashi Ilmi, who resigned as the mayor of Hargeisa to run for the post, Ahmed Kayse Abdi and Adan Muse Abdilleh.

—as the new constitution The chairman of the Supreme Court, Mohamed Ahmad Farah, announced on comes into effect February 24 that the constitution of Somaliland came into effect on February 16 for an interim period of three years, following its approval by the CCRS. At the end of the three-year interim period, a public referendum on the constitution will be held.

Somaliland again rejects On February 10, Mr Egal dispatched a special message to the president of the Sodere agreement Djibouti, Hassan Gouled Aptidon, reiterating Somaliland’s rejection of the Sodere agreement, which calls for the reunification of Somalia. A similar message was delivered to the French and US embassies in Djibouti by the Somaliland justice minister, who then travelled to Ethiopia to deliver the message to the prime minister, Meles Zenawi, the OAU secretary general and other diplomats based in Addis Ababa. According to Radio Hargeisa, Mr Egal has dispatched the same message to the presidents of the Intergovernmental Authority on Develop- ment (IGAD), Kenya, Uganda, Tanzania, Eritrea and Sudan. Mr Egal, or, presum- ably, his presidential successor, has been invited by the NSC to attend the meeting in Bossasso, but pressure for Somaliland to renounce its bid for secession comes not just from the Sodere signatories. In a statement released on March 4, the pro-Aideed national leadership council renounced Mr Egal’s stand on Somali unity and called on Somaliland to join a federal system.

Mr Egal holds talks with Mr Egal and his vice-president, Abdi al Rahman Aw Ali Farah, met leaders of the Edagale the Edagale community, an Issaq sub-clan, to discuss security matters in Har- geisa on January 8. The Edagale delegation, led by Sultan Mohamed Abdullahi Galal, consisted of 120 intellectuals, religious scholars, politicians, army offi- cers and other community leaders. Relations between Hargeisa and the Edagale have been strained since severe fighting broke out between Mr Egal’s government forces and Edagale militia in 1994 and more recent clashes in January 1996 (2nd quarter 1996, page 34).

A new alliance is formed Two northern factions opposed to Mr Egal, the United Somali Party (USP) and the United Somali Front (USF), merged to form a new organisation, the Northern Somali Alliance (NSA), according to a joint statement from the USP and USF issued on March 17. Although the new NSA is ostensibly a northern- based group, it was in fact formed in Mogadishu and its establishment was announced on Radio Mogadishu. Statements by the USP and USF in February accusing Mr Egal’s Hargeisa-based regime of failing to represent northern Somalis, also emanated from Mogadishu.

Djibouti

Political structure

Official name République de Djibouti

Form of state Unitary republic

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

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

National elections 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 Mohamed Haid

Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996 GDP at market prices Dfr bn 80.7 83.3a n/a n/a n/a Real GDP growth % –1.0 0.3a –2.9b –3.1b n/a Populationc ’000 550 560 570 580 n/a Exports fobd $ m 53 71a 56 34 n/a Imports fobd $ m 271 255a 237 205 n/a Current account $ m –88 –34a 46 –23 n/a Reserves excl gold $ m 83.4 75.1 73.8 72.2 77.0 Total external debt $ m 192 225 247 260 n/a External debt-service ratio % 4.9 3.7 4.0 4.8 n/a Exchange rates (av) Dfr:FFr 33.6 31.4 32.0 35.6 34.7 Dfr:$ 177.7 177.7 177.7 177.1 177.7

May 23, 1997 Dfr177.7:$1

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

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

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

Outlook for 1997-98

Fresh lending will buy the Against considerable odds, the impoverished Djiboutian government has suc- government time— ceeded in securing new lending commitments from the international donor community. The deal will provide some relief for the government on two key fronts: first, it will be able to pay salary arrears, above all to teachers, which should help to defuse political tensions; second, the confirmation of foreign budgetary support in 1997/98 should ease mounting economic pressures in the country, which has been gripped by intermittent economic crises for the last two years. The current supportive stance of international institutions has been underlined by the IMF’s recent approval of an additional SDR2m ($2.8m) of assistance and the extension of the Fund’s current stand-by agreement of SDR4.6m for a further nine months. The government appears to have successfully convinced the IMF and France that it has been unable to fulfill budgetary targets stipulated as recently as December due to extenuating circumstances. Having realised its sometime goal of persuading a broad spectrum of donors to assist Djibouti, the government now faces the daunting challenge of fulfilling some of its promises. Above all, expenditure will have to be curbed by pruning the state payroll and civil servants’ benefits, and improvements must be made to tax collection if the fiscal deficit in 1997 is not to exceed the budgeted Dfr3.5bn ($19.7m), or 11% of total expenditure.

—and the currency is Growing speculation about an imminent devaluation of the Djiboutian franc is unlikely to be devalued— probably unfounded. Given the country’s dependence on imports, the current reform programme would almost certainly be derailed by the economic hard- ship for the average Djiboutian and consequent political unrest which a realign- ment of the currency would provoke. However, if reform measures manage to achieve a modicum of fiscal stability, a devaluation aimed at enhancing regional competitiveness will probably be required in the medium term.

—although the lack of The utter dearth of credible data in Djibouti has led to widely divergent analy- reliable statistics is ses on the state of the economy by international donors and the government, clouding the picture although ironically, the statistical vacuum has also enhanced the government’s negotiating position. However, coherent economic planning is unlikely to feature in the short to medium term, given that data collection has all but ceased beyond the port, where the situation has improved considerably, and that even IMF and UN Development Programme (UNDP) figures are sketchy at best.

Independence celebrations The 20th anniversary of Djibutian independence on June 27 is likely to be a will be bitter-sweet mixed affair. The pomp and circumstance will not dispel the growing sense of economic and political decline among the population, most of whom were born after decolonisation. The country’s tough financial position will have been further underlined by the insistence of the minister of commerce and tourism, Rifki Abdulkader, who is overseeing the preparations, that regions finance their own celebrations. China and Egypt have agreed to fund the festivities in the capital’s new Hassan Gouled stadium, itself a gift from the Chinese government. Critics of the government will focus on the celebrations

as an opportunity to highlight the failure of politicians to translate two decades of substantial French assistance into sustainable economic development.

Review

The political scene

Senior ministers seek Intense diplomatic activity in the run-up to the roundtable with the UN international support— Development Programme (UNDP) in Geneva at the end of May (see The economy) has underlined the degree to which the government is pinning its hopes on future assistance from the donor community. In April and May, senior ministers were dispatched to Europe, the Middle East and Asia to secure the support of current and prospective donors. The veteran prime minister, Barkat Gourad Hamadou, toured France and Italy in late April. In Paris he met the advisers on African affairs of French president, Jacques Chirac, and the German ambassador to France. While Germany is not a significant bilateral donor at present, support from Bonn is seen to be crucial for continued EU assistance. The minister of foreign affairs and cooperation, Mohamed Moussa Chehem, visited Singapore on April 26 as part of a tour of Asia, which also included Indonesia, Malaysia and Japan. The Asian tour was facilitated by Djibouti’s roving ambassador to Asian states, Rachad Farah, whose key objective has been the consolidation of relations with Japan, currently Djibouti’s second largest donor after France. The minister of commerce and tourism, Rifki Abdulkader, also participated in the diplomatic effort. On a visit to Kuwait and Qatar, he secured agreements from both countries to support the UNDP conference.

—and the president visits The president himself, Hassan Gouled Aptidon, travelled to Ethiopia for an Addis Ababa unscheduled one-day visit on May 7. According to official reports, Aptidon’s impromptu discussions with the Ethiopian prime minister, Meles Zenawi, fo- cused on regional issues and the promotion of cooperation between members of the Djibouti-based Intergovernmental Authority on Development (IGAD) (1st quarter 1997, page 48). Djiboutian officials are hoping to improve their negotiating position and prospects for international assistance on the back of the current flourishing relations between the Ethiopian government and multilateral donors. On May 18, Aptidon undertook a brief tour of Middle Eastern allies, meeting his counterparts in Egypt, Saudi Arabia and Yemen.

The FRUD relaunches In line with expectations, the faction of the Front pour la restauration de itself in alliance with RPP l’unité et de la démocratie (FRUD), which was co-opted by the government in 1994, has transformed itself into a political party in anticipation of legislative elections due by the end of this year. Originally created in 1991 as an Afar guerrilla group, FRUD suffered military defeat in 1993. Its executive body then split, with two leaders and several hundred fighters defecting to the government. It was this wing of FRUD which was officially relaunched as a political party on April 15 at a congress attended by several hundred supporters in Djibouti-ville. As such, it has become the fourth and last legally admissible

political group under the constitutional amendments endorsed in the referendum of September 1992. The president of FRUD, Ali Mohamed Daoud, who has been minister of health and social affairs since June 1995, announced that the party would form an alliance with the ruling Rassemblement populaire pour le progrès (RPP), with a view to presenting a joint programme for action and candidates in legislative elections. Much publicity surrounded the re-emer- gence of FRUD as a political party, whose congress was reportedly financed by the government.

Afar discontent prevails— The FRUD congress and the transformation from rebel faction to political party means in effect that the dissident leaders, Ali Mohamed and Ougoureh Kifle, who split from Ahmed Dini’s group in 1994, now have a monopoly on the party’s name. On the surface, the government’s strategy of simultaneously quelling rebellion while appearing to sanction a platform for Afar discontent in the form of the new FRUD appears to have been a resounding success. The reality is very different. FRUD is viewed with intense suspicion by many in Djibouti-ville, Afars and Somalis alike. In May newly appointed FRUD officials were stoned when the party tried to open branch offices in Arhiba, the pre- dominantly Afar suburb of Djibouti-ville, obliging the government to place armed police around the offices.

—and opposition parties Assuming that it lasts, the alliance between the RPP and FRUD is unlikely to face are in disarray formidable opposition from the country’s two other legally recognised political forces. In legislative elections in December 1992, the Parti pour le renouveau démocratique (PRD) gained 28% of the vote, after deciding to break with other opposition groups which chose to boycott the elections. Nevertheless, the PRD’s result was achieved despite numerous observed electoral irregularities and widely acknowledged vote-rigging in favour of the RPP. The then PRD leader, Mohamed Djama Elabe, went on to challenge Aptidon for the presidency in April 1993, gaining 25% of votes cast. However, since the sudden death of Mohamed Djama in November 1996 (1st quarter 1997, page 50) the PRD has been paralysed by a dispute about the party leadership and was unable to hold its congress scheduled for April because of deep schisms between rival factions jockeying for control. Mohamed Djama, along with leading members of the Issa- Fourlaba community, was suspicious of recent rallying by prominent non-Four- laba figures to the PRD, including the former army chief-of-staff, Ali Meidal Weiss, and the former minister of the interior and regional administration, Khaireh Allaleh Hared. On April 22 the PRD announced that Khaireh Allaleh had been selected as a candidate for the leadership by the party’s executive committee, after which the RPP’s weekly journal, Le Progrès, claimed that the PRD was divided over the decision. Some deputies associated with the Groupe pour la démocratie et la république (RPP-GDR) formed by RPP dissidents last year also seem keen to join forces with the PRD. These included Ismael Omar Guedi, Aptidon’s directeur de cabinet until his imprisonment last year.

France announces plans to In early March the French cabinet examined proposals to restructure and scale scale down its military down France’s extensive military presence in sub-Saharan Africa. Djibouti is at presence present France’s largest single overseas military garrison. France has a total of 8,300 troops based in Africa, of which on average 3,800 are stationed in Djibouti

at any one time. Plans for reform include a reduction of France’s overall military presence in Africa by 30% within five years. Djibouti will nevertheless remain the only French garrison with two battalions and will act as a reception point for more frequent, but shorter temporary visits by regiments based permanently in France. The French army is currently undertaking a series of construction projects in Djibouti, including the construction of new dormitories in the Monclar garrison. These will house a military presence which will consist of fewer families and more single troops who are to live within the confines of military camps rather than in residential areas.

The USA criticises human The 1996 report by the US State Department on human rights violations in rights violations Djibouti was widely circulated by opposition groups in March. The key concerns of the report are numerous cases of extrajudicial killings by the security forces, arbitrary arrest and harassment of political opponents, lack of freedom of association and victimisation of trade union officials, and the lack of an independent judiciary, which clearly contravenes the country’s constitution. The report highlights the imprisonment in mid-1996 of Moumin Bahdon and other leading members of the ruling party, and the dismissal of four of the country’s five appeal judges as blatant manipulation of the judicial system for political ends. It also brings to the fore problems associated with the widespread practice of female circumcision in Djibouti, and the limited female participation in political life.

Political decentralisation Since the formal end of the civil war in 1994, the notion of greater devolution seems to be on the agenda of political power to regional authorities has increasingly gained favour. The government has formed the Commission nationale de décentralisation (CND) to consider the precise form that a reformed layer of local government might take. By late April the commission was still to issue its recommendations, which are unlikely to be implemented before legislative elections this year. However, it is improbable that there will be changes to the present boundaries of the existing five regions. New regional assemblies may be created, and some fiscal powers may be devolved to regions with the objective of promoting greater economic and infrastructural development outside of Djibouti-ville.

The economy

The donor roundtable The roundtable conference between the government of Djibouti and its prin- prompts fresh aid ciple donors was finally held on May 29-30 in Geneva, under the auspices of the pledges— UN Develoment Programme. The 25-strong Djiboutian delegation was headed by the minister of finance, Mohamed Ali Mohamed, who was accompanied by two other ministers and the governor of the Banque Nationale de Djibouti (BND, the central bank), Djama Mohamed Haid. France and Japan, as the leading bilateral donors, were represented at the conference, along with Egypt, Kuwait and Saudi Arabia. Representatives from the IMF, the EU and the African Development Bank (ADB), Djibouti’s key multilateral donors, also attended. Immediately after the meeting the government claimed to have secured pledges totalling 90% of the Dfr15bn ($84m) they had sought, including a $34m reduction in total external debt. However, the figure was not confirmed by donors

and the government and donor delegations were notably circumspect about details of the programme afterwards.

—to the government’s That the donors’ meeting has finally been held, let alone the pledges of fresh relief assistance, is a tribute to the government’s tenacity. Djiboutian ministers had been pushing for the meeting for almost two years, despite frequent postpone- ments by France due to reservations about the government’s commitment to and capacity for the implementation of budgetary reforms (4th quarter 1996, page 40). Two factors lie behind the perseverance of the Djiboutian government in getting the meeting off the ground: first, the urgent need for new financial resources to supplement the sums allocated by France and the IMF over the past two years within the framework of the ongoing economic reform programme; and second, the belief of some ministers that more lenient treatment of Djibouti could be negotiated within the context of a wider gathering of donors. It was thought that Arab and Japanese donors would take a more sympathetic attitude towards Djibouti’s perilous economic position and that their presence would help to counterbalance the increasingly rigorous condi- tionality demanded particularly by the French government and the IMF.

The IMF extends and On May 22, the IMF announced that it had approved an increase and exten- supplements stand-by sion of its stand-by credit agreement with Djibouti, ending two months of credits— speculation and uncertainty (1st quarter 1997, page 43). The Fund has topped up its original agreement with Djibouti of April 1996 (3rd quarter 1996, page 43), worth SDR4.6m ($6.4m), with an additional SDR2m. The period agreed for the provision of the credit has also been extended by nine months, with the economic reform programme now being prolonged until March 1998. In an optimistic yet guarded statement by the Fund, it was announced that “despite substantially lower economic activity than anticipated, impressive fiscal adjustment and significant progress in a number of structural reform areas were achieved in 1996”.

—and overcomes The IMF announcement followed a period of somewhat turbulent relations misgivings about poor between the government and the Fund. On March 31, the IMF informed the performance government that it was dissatisfied with sluggish progress in implementing fiscal reforms. The government’s failure to reform the presentation of the budget and to adhere to the debt-repayment schedule were identified as critical failings. In mid-April, a Djiboutian delegation visited the Fund, headed by Mohamed Ali and also, significantly, Ismael Omar Guelleh, technically the president’s chef de cabinet, but increasingly viewed as his successor and the present de facto head of state. To the surprise of many, not least the heads of donor missions based in Djibouti, on the delegation’s return an apparently jubilant finance minister announced that all problems between the government and the Fund had been resolved. The government agreed to submit a revised letter of intent to the IMF’s administrative council on May 15, the details of which were finalised on May 6 by Mohamed Ali and the governor of the central bank, Djama Mohamed. The IMF appears to have accepted the government’s explanation that slippage in the reform programme was due to unforeseen exogenous factors, although the exact nature of these was not revealed. The Fund also abstained from publishing detailed policy targets, and

made no comment on the possibility of current reforms leading to an Enhanced Structural Adjustment Facility (ESAF).

Budgetary projections are A cabinet meeting chaired by the president, Hassan Gouled Aptidon, on April 26 revised approved a series of amendments to the budget which aim to reduce the overall deficit projected for the current calendar year. Income for 1997 is now budgeted at Dfr27.7bn ($156m) and expenditure at Dfr31.12bn, leaving a projected deficit of Dfr3.4bn. The deficit is slightly lower than originally forecast, due to marginal adjustments to indirect taxation and the reintegration into the regular budget of proceeds from sales of government property.

Flour subsidies prove In recent months there have been intermittent interruptions to bread supplies, problematic the staple food in Djibouti-ville. In late February the minister of commerce and tourism, Rifki Abdulkader, made a television appearance to explain the short- age of bread in the city. Mr Abdulkader blamed the shortages on illegal sales of flour by bakers. Although the retail price of bread is fixed at Dfr20 (11 US cents) per loaf, the state subsidises bread production in Djibouti by supplying bakeries with cheap flour via its wholesale marketing body, the Office national d’appro- visionnement et de commercialisation (ONAC). Many bakers apparently supplement their incomes by retailing subsidised flour, which ONAC has hith- erto chosen to ignore or actively collaborated in, reportedly pocketing profits from foreign wheat donations.

Port traffic increases The volume of cargo handled by the Port autonome international de Djibouti in 1996 (PAID) increased by 35% to over 1.5bn tons in the 12 months to December 1996. This followed a slump in traffic during 1995, due largely to the sharp reduction in movements of petroleum products and a 24% reduction in imports to Djibouti’s minuscule domestic market. Although the rate of contrac- tion of domestic demand slowed in 1996, imports for domestic consumption contracted further. Activity at the port was nevertheless bolstered primarily by a recovery in inflows and outflows of petroleum products and a doubling of transhipments. Whilst inbound goods in transit handled by the port rose by 25%, goods bound for Ethiopia and Somaliland still account for under 22% of general merchandise handled at the port. The total volume of hydrocarbons handled by the port in 1996 was up by 47% on the previous year. This was largely due to the US Navy resuming the use of Djibouti as a refuelling post. US navy requirements accounted for around 10% of hydrocarbons imports and 85% of exports. Ethiopia also increased its use of Djibouti’s petroleum import- ation facilities, a trend which will almost certainly be strengthened during 1997 due to the closure of the Assab refining facilities, from which the bulk of Ethiopia’s imports are currently supplied.

Just over one-third of the 892 boats calling at Djibouti during 1996 were container ships, representing half of the total gross tonnage of 7.78m tons registered by the port during the year. Of the rest of the ships using the port, 176 were conventional cargo ships, and 101 warships. Total container traffic rose by 26%, with 105,000 containers handled by the port during 1996, of which 60% were transhipped.

Port traffic (tons unless otherwise indicated) 1995 % change 1996 % change Inward traffic 828,212 –15 1,053,714 27 Hydrocarbons 202,113 –37 255,550 26 Other goods 626,099 –4 798,164 27 Imports 260,000 –24 252,249 –3 Inward transit 138,399 6 173,107 25 of which: Ethiopia 111,815 n/a 133,165 19 Somaliaa 26,584 43 39,942 50 Transshipments 176,726 29 372,808 64 Outward traffic 312,367 –2 484,568 55 Hydrocarbons 4,203 –85 48,521 1,054 Other goods 308,164 6 436,047 41 Exports 2,397 260 10,318 330 Outward transit 28,598 6 15,707 –45 of which Ethiopia 28,371 6 15,515 –45 Somaliaa 227 –40 186 –18 Transshipments 277,169 5 410,022 48 Total 1,140,579 –12 1,538,282 35

a Principally Somaliland, although transit and transshipments to Somaliland ports are far greater than declared.

Source: Port Autonome internationale de Djibouti (PAID), Statistiques Portuaires, Rapport Annuel 1996.

Trade with Ethiopia is The sharp fall in transshipped exports from Ethiopia is worrying for the port, disappointing given the government’s emphasis on the need to boost trade links with its neighbour in the long term. Export volumes dropped by 45% in 1996, due in large part to the collapse of sugar and molasses exports from Ethiopia, which was a result of the disruption of domestic production by flooding in the Awash valley last August (4th quarter 1996, page 17). Djibouti’s International Chamber of Commerce has been instrumental in promoting the port of Djibouti within Ethiopia. The chamber backed activity at the ministerial level which led to the signing of bilateral trade accords between the two neighbours last year. In May a joint delegation of Djiboutian port, railway and private-sector officials travelled to Ethiopia to promote transit facilities in Djibouti at the French trade fair in Addis Ababa.

Reforms to the port begin Despite the general deterioration in the Djiboutian economy and often mis- to bear fruit guided policy-making, the port has managed to upgrade its image and increase efficiency. The stabilisation of the port administration has proved to be a rare source of optimism among donors and regional businessmen. The administrative reform programme, which is funded by France and supervised by the French port authority of Nantes St Lazare, has now been successfully completed. There are three main changes to the port. First, administrative and management structures have been overhauled and the PAID’s statistical services have been upgraded, allowing for the immediate analysis of port traffic and competitiveness. Second, port tariffs have been streamlined and closer liaison between customs and transport officials has been fostered, allowing for much faster clearance and forwarding of cargo. Third, the status and autonomy of the port is being upgraded, although this aspect of the reform programme has met

with resistance from politicians. The port is currently overstaffed by up to one-third, excluding manual labourers and dockers. To redress the balance, PAID has proposed a thorough overhaul of labour practices, with an emphasis on training and flexibility. However, in the present somewhat shaky political climate, politicians are unlikely to take undue risks by making several hundred articulate, unionised workers redundant. Nevertheless, despite present reti- cence at the political implications of such redundancies, the realisation is dawning that the port is Djibouti’s only long-term fixed asset, and as such, its health depends on efficient, commercial management.

Two crucial quays are The latest phase of the renovation of the port was completed in February with refurbished the official reopening of quays 11 and 12 in the presence of Aptidon and the Japanese ambassador to Djibouti, who is based in Paris. The two modernised berths will facilitate the refuelling and transfer of petroleum products. The quays were originally constructed in 1964 when Djibouti was a pivotal refuelling point along the Red Sea coast. Although traffic declined dramatically after the closure of the Suez Canal in 1967, Djibouti’s strategic importance enjoyed a brief renaissance during the Gulf war of 1990/91, which prompted the rehabilitation of the port’s petroleum facilities. The Japanese government provided a gift of Dfr5.7bn ($32m) to expand and modernise the berths, both of which are 250 metres long and 12 metres deep. The two-year construction programme was coordinated by Pacific Consultants International (PCI), and the principal contractor was Penta-Ocean, a leading Japanese marine construction company.

Foreign trade and payments

Trade links with Ethiopia The revitalisation of the port and the beginnings of a revival of trade links with may be on the upswing Ethiopia have led to unusual optimism in the outlook for the Djiboutian economy. The key factors behind the renaissance are the administrative reforms at the port, the overhaul of tariffs and customs procedures last year, which have greatly simplified and speeded up cargo transit, and the implementation of the provisions of a bilateral accord signed between the two countries in August 1996. Road links between the two countries are also set to improve. In conjunction with more vigorous promotion of Djibouti within Ethiopian business cir- cles, there has been a notable increase in road traffic. Lorries from Ethiopia are arriving at the port almost daily, and a growing number of private Ethiopian shipping and forwarding agents are establishing offices in Djibouti.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 46 Quarterly indicators and trade data

Quarterly indicators and trade data

Ethiopia: quarterly indicators of economic activity

1994 1995 1996 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Production Annual totals Coffee ’000 tons ( 207a ) ( 228a ) ( 230a ) Prices Monthly av Consumer prices, Addis Ababa: 1990=100 171.3 174.8 178.1 191.4 188.1 177.9 179.0 177.3 177.1 n/a —change year on year % 9.4 14.8 14.7 14.5 9.8 1.8 0.5 –7.4 –5.8 n/a Money End-Qtr M1, seasonally adj: Birr m 8,583 9,127 9,194 9,547 9,609 9,374 9,177 9,588 9,990 10,225b change year on year % 16.1 21.0 19.2 17.9 12.0 2.7 –0.2 0.4 4.0 n/a Foreign trade Qtrly totals Exports fob Birr m 549.3 725.4 468.2 988.7 691.8 454.2 548.8 n/a n/a n/a Imports cif “ 1,582.4 1,525.3 1,431.2 n/a n/a n/a n/a n/a n/a n/a Exchange holdings End-Qtr National Bank: goldc $ m 32.7 33.1 32.1 32.9 32.9 32.7 33.9 10.2 0.6 0.6d foreign exchange “ 464.0 533.6 618.3 594.3 724.8 760.8 818.2 890.4 821.0 722.0e Exchange rate Market rate Birr:$ 5.60 5.95 5.94 6.25 6.30 6.32 6.32 6.35 6.39 6.43

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Estimate. b End-November. c End-quarter holdings at quarter’s average of London daily price less 25%. d End-1 Qtr 1997, 0.5. e End-1 Qtr 1997, 566.3.

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

Djibouti: quarterly indicators of economic activity

1994 1995 1996 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Money End-Qtr M1, seasonally adj: Dfr bn 37.92 37.87 38.03 36.81 36.40 37.18 35.05 36.17 n/a n/a change year on year % n/a 3.0 2.2 –0.7 –4.0 –1.9 –7.8 –1.7 n/a n/a Foreign tradea Annual totals Exports fob $ m ( 117 ) ( 108 ) ( n/a ) Imports cif “ ( 380 ) ( 430 ) ( n/a ) Exchange holdings End-Qtr Foreign exchange $ m 84.5 73.6 67.9 75.5 72.7 72.1 70.9 73.5 70.4 76.8b Exchange rate Market rate Dfr:$ 177.72 177.72 177.72 177.72 177.72 177.72 177.72 177.72 177.72 177.72

Note. Annual figures of most of the series shown above will be found in the Country Profile. a DOTS estimate. b End-February 1997, 80.3.

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

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Quarterly indicators and trade data 47

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.

Source: IMF, Direction of Trade Statistics, yearbook.

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.

Source: IMF, Direction of Trade Statistics, yearbook.

Djibouti: trade with major trading partnersa ($ m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports cif 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.

Source: IMF, Direction of Trade Statistics, yearbook.