Ethiopia Eritrea Somalia Djibouti · Contents 3 Summary Ethiopia 5 Political structure 6 Economic structure 7 Outlook for 1999-2000 9 Review 9 The political scene 13 Economic policy

COUNTRY REPORT

Ethiopia

Eritrea

Somalia

Djibouti

1st quarter 1999

The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

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Contents

3 Summary

Ethiopia5 Political structure6 Economic structure7 Outlook for 1999-20009 Review9 The political scene

13 Economic policy16 The economy

Eritrea19 Political structure20 Economic structure21 Outlook for 1999-200022 Review22 The political scene26 The economy

Somalia28 Political structure29 Economic structure30 Outlook for 1999-200031 Review31 The political scene36 The economy38 News from the Somaliland Republic

Djibouti39 Political structure40 Economic structure41 Outlook for 1999-200042 Review42 The political scene45 The economy

47 Quarterly indicators and trade data

1

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999

List of tables14 Ethiopia: selected economic indicators18 Ethiopia: the impact of a substantial write-off of Ethiopia’s rouble debt36 Somalia: cereal import needs, 1998/9947 Ethiopia: quarterly indicators of economic activity47 Djibouti: quarterly indicators of economic activity48 Ethiopia: foreign trade48 Djibouti: foreign trade49 Somalia: trade with major trading partners49 Djibouti: trade with major trading partners

List of figures8 Ethiopia: gross domestic product

21 Eritrea: gross domestic product42 Djibouti: gross domestic product

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January 29th 1999 Summary

1st quarter 1999

Ethiopia Outlook for 1999-2000: Renewed fighting with Eritrea now seems likely asdiplomatic initiatives have failed. A large-scale war will disrupt economic activ-ity, stall the government’s economic reform programme and sour relationswith donors. In this situation, investor confidence will dwindle. Late note:On February 6th heavy fighting broke out again between Ethiopia and Eritrea.

Review: There have been widespread troop mobilisations in preparation forwar. The conflict has already caused disruption in Tigray, the heart of thegovernment’s support base. Expulsions of nationals of Eritrean origin havecontinued, as has the expropriation of their property. Although the OAU peaceinitiative has faltered, US negotiators have persevered. The IMF has restoredlending under the ESAF, but government expenditure targets are endangeredby defence spending. The privatisation programme is proceeding only slowly.The 1998/99 grain harvest is at bumper levels, but some areas will still requirefood aid. The trade gap narrowed in 1997/98. Ethiopia’s Russian debt looks setto be written down.

Eritrea Outlook for 1999-2000: The threat of renewed fighting with Ethiopia hangsheavy as the prospects for a face-saving diplomatic solution recede. The loss ofport revenue and the diversion of resources to the front will depress the eco-nomy. Late note: On February 6th heavy fighting broke out again betweenEthiopia and Eritrea.

Review: Eritrea and Ethiopia have amassed substantial military forces facingeach other on three fronts. Eritrea has rejected parts of the OAU peace prop-osals, but US negotiators are still trying to find a breakthrough. Expulsionsfrom Ethiopia are causing a public outcry in Eritrea. Djibouti has broken offdiplomatic relations. While relations with Sudan are blowing hot and cold,Eritrea has returned the Hanish islands to Yemen and may join the ArabLeague. Eritrean ports are dormant, but aid is flowing in, the privatisationprogramme is on track and mining companies continue to show interest.

Somalia Outlook for 1999-2000: The prospects for a national reconciliation confer-ence are slim as inter-clan violence looks set to spread nationally. The resultingdisruption will exacerbate existing food shortages, causing widespread starva-tion. Many areas of the country will be unreachable by aid agencies because ofsecurity problems.

Review: Disputes between the main Mogadishu factions have developed intofierce fighting in Jubbaland, while the capital itself remains tense. The regionaladministration in Puntland has sided with Jubbaland for fear of attack byHussein Mohamed Aideed’s forces. International attempts to bring the leaderstogether are getting nowhere. The FAO has warned of an impending food crisis.Foreign ships have been seized as it is revealed that rival factions have beenselling fishing licences. Food aid is urgently required and refugees are streaminginto Yemen. The Somaliland economy continues to suffer from the livestock

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import ban imposed by Saudi Arabia. Several US companies are reported to beprospecting for oil.

Djibouti Outlook for 1999-2000: Political and military links with Ethiopia will beconsolidated in the wake of Djibouti’s diplomatic split with Eritrea. TheEthiopian-Eritrean conflict may threaten Djibouti’s internal security andFrance may get involved. The repercussions of the conflict will overshadowcampaigning for May’s presidential election. The economic reform programmewill falter ahead of the vote.

Review: Djibouti has broken off diplomatic relations with Eritrea, weakeningthe regional body, IGAD. Ahmed Dini’s dissident faction of the FRUD hasstaged further attacks. The legal opposition parties are in turmoil. Djibouti’sport has continued to cope with large volumes of Ethiopian cargoes, but itscapacity will remain a concern. French aid to Djibouti has been reviewed. AirDjibouti has announced expansion plans.

Editor: Piers HabenAll 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 inMay 1995, which formally came into operation in August 1995

National legislature The 548-member Council of People’s Representatives is the federal assembly. Nineregional state councils have limited powers, including that of appointing thesupervisory Federal Council

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

Head of state President, currently Negaso Gidada, has a largely ceremonial role and is appointed bythe 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 thecoalition of armed groups that seized power in May 1991. It includes the TigrayPeople’s Liberation Front (TPLF) and the Amhara National Democratic Movement(ANDM, formerly the Ethiopian People’s Democratic Movement). The OromoLiberation Front (OLF) withdrew from the transitional government in July 1992 andwas subsequently banned. Several urban opposition parties boycotted the 1995elections. A myriad of exiled political factions exist

Prime minister Meles ZenawiDeputy prime minister & minister of defence Tefera WalwaDeputy prime minister for economic affairs Kassu Illala

Key ministers Agriculture VacantEconomic development & co-operation Girma BiruEducation Guenet ZewdeFinance Sufyan AhmedForeign affairs Seyoum MesfinHealth Adem IbrahimInformation & tourism Wolde-Mikael ChamoJustice Worede Woldu WoldeLabour & social affairs Hassan AbdullahMines & energy Azedin AliPublic works & urban development Haile AsegedTrade & industry Kassahun AyeleTransport & communications VacantWater resources Shiferaw Yarso

Central bank governor Teklewolde Atnafu

Ethiopia 5


Economic structure

Latest available figures

Economic indicators 1994 1995 1996 1997 1998a

GDP at factor costb (Birr bn) 26.2 31.3 34.9 38.0 n/a

Real GDP growthb (%) 4.8 7.7 5.6c 0.5c 6.0

Consumer price inflation (av; %) 7.6 10.1 –6.4 2.5a 3.9

Populationd (m) 54.9 56.7 57.2 58.0 n/a

Exports fob ($ m) 372 423 438 557 550

Imports fob ($ m) 926 1,136 1,234 1,005 1,300

Current-account balance ($ m) 125.0 –9.7 –149.4 –38.9 –110.0

Reserves excl gold ($ m; year-end) 544.2 771.5 732.2 501.1 450.0

Total external debt ($ m) 10,067 10,308 10,077 n/a n/a

External debt-service ratio, paid (%) 19.8 19.1 42.2 n/a n/a

Coffee productionce (’000 tonnes) 228 230 230 250 250

Exchange rate (av; Birr:$) 5.09 6.15 6.35 6.71 7.30

January 29th 1999 Birr 7.58:$1

Origins of gross domestic product 1995c % of total Components of gross domestic product 1995c % of total

Agriculture & forestry 55.3 Private consumption 81.1

Other production sectors 11.9 Government consumption 12.3

Manufacturing 7.5 Gross fixed capital formation 15.6

Services 32.8 Exports of goods & services 14.2

GDP at factor cost 100.0 Imports of goods & services –23.2

GDP at market prices 100.0

Principal exports fob 1995b $ m Principal imports 1994b $ m

Coffee 269 Motor vehicles 171

Hides & skins 56 Food & live animals 153

Gold 23 Machinery & aircraft 120

Oilseeds 9 Metals & metal products 95

Main destinations of exports 1996b % of total Main origins of imports 1996b % of total

Germany 26.4 Italy 11.6

Japan 10.9 US 10.8

Italy 10.3 Germany 7.0

UK 7.7 Saudi Arabia 3.6

a EIU estimates. b Fiscal years starting July 8th. Fiscal years are widely used by national statistical sources, while calendar years are favoured byinternational publications. c Provisional. d Official estimates. e Crop years (October-September) beginning in calendar years.

6 Ethiopia


Outlook for 1999-2000

Renewed fighting withEritrea still seems likely—

In January, notwithstanding ongoing international mediation efforts, all diplo-matic and military signals from Ethiopia and Eritrea suggested an imminentresumption of hostilities. This follows months of stand-off, after a minor bor-der skirmish between opposing government forces in the Yirga triangle in earlyMay 1998 escalated into a major military conflict. However, it remains uncer-tain if, and if so when, the conflict will reignite. There is also uncertainty overthe scale and scope of the renewed fighting, making the likely impact of warupon the Ethiopian government and its economic plans difficult to predict.

In the event of a return to war, the primary objectives of the ruling EthiopianPeople’s Revolutionary Democratic Front (EPRDF)—a conglomeration ofethnic parties, dominated by the Tigray People’s Liberation Front (TPLF)—willbe threefold. Militarily it needs to regain sovereignty over land in northernTigray lost to Eritrea in May 1998, while ensuring that supply lines via Djiboutiare not cut. Politically it has to ensure that the Tigrayan core of the EPRDF andthe Ethiopian army emerges intact from the conflict. Third, and most proble-matically, the government has to find a sustainable post-war settlement withthe Eritrean leadership, which requires a limited conflict from which bothleaderships can salvage their dignity.

—and a face-savingsolution will be hard

to find—

The possibility of finding a face-saving formula for both sides looks exceedinglyslim as the level of rhetoric rises. Yet brokering precisely such an accommoda-tion is the aim of all peace negotiations. A settlement is further complicated bythe need to address the grievances of those people, now around 80,000, whohave been expelled from, or who have voluntarily left, Ethiopia and Eritrea,allowing for either compensation or a return of population.

—but the EPRDF will becautious

If war does break out, the government’s greatest fear will be a military defeatand further loss of territory, particularly in Tigray itself. This would endangerEthiopia’s negotiating position with Eritrea and may cause domestic unpopu-larity for the government, leading to doubts over the EPRDF’s future. So whilein January it seemed that Ethiopia was the country preparing to attack, thismay just have been posturing to gain a negotiating advantage and to appease adomestic audience, rather than an indication of a real intention to fight. Forthis reason, the stalemate could persist in its current form for several monthsmore. If the EPRDF is not gravely weakened by military defeat, the dispute willnot fundamentally change Ethiopia’s domestic political outlook. Indeed, theEPRDF’s public support, and grip on power, has been strengthened by its con-frontation with Eritrea. Political reform, involving greater openness or plural-ism in the run-up to elections in 2000, is thus not expected in the absence of amilitary defeat.

Fighting will disrupt theeconomy and economic

reforms

The outlook for the economy also depends on the outcome of the militarystand-off with Eritrea. If fighting is resumed, it is likely to be on a scale rarelyseen in contemporary Africa, involving large-scale, fixed position, trench war-fare instead of limited guerrilla engagements. As such, the fighting is likely tohave an economic impact in several ways.

Ethiopia 7


• Disruption of major road links. The important road link with Djiboutivia Galafi and the Mille-Addis road are particularly vulnerable. Although effortsare under way to increase trade flows via Somaliland and Kenya, most ofEthiopia’s imports, including all its fuel supplies, still have to come throughDjibouti. Even partial disruption of this route would have an immediate effecton the whole of the Ethiopian economy. Foreign-exchange earnings, primarilyfrom coffee exports, would be immediately constrained.

• Widespread displacement of population. The government’s scenariofor humanitarian assistance to Tigrayans in the event of renewed fighting,published in December, suggests that an additional 400,000 people could bedisplaced if the frontline shifted 40 km south into Tigray. Such displacement,which is likely to be mirrored in the Afar region, would require increased aidand grain transfers from central Ethiopia and international donors, furtherstretching Ethiopia’s food security reserves and the import supply routethrough Djibouti, while placing possibly unsustainable pressure on govern-ment finances.

• Disruption of agriculture. Assuming that the war is contained withinthe border areas, physical disruption of rural marketing networks in the centreand south of the country—Ethiopia’s bread basket—should be limited, espe-cially as excellent harvests have been recorded in the current crop year(1998/99). Nonetheless, the availability of trucks may become a problem and,in the event of a prolonged war, widespread conscription would limit theavailability of male farm labour.

• Undermining structural reform. Even a brief resumption of fightingwill unhinge Ethiopia’s medium-term economic reform plans. Governmentexpenditure will rise sharply, making current estimates of a budget deficit of6.5% of GDP (before grants and external assistance) in 1998/99 optimistic. Atthe same time even minimal disruption of foreign trade will hit customs andexcise revenue. Meanwhile, economic reform requires continued flows of con-cessional donor assistance, scheduled at around $600m in 1998/99 (excludingdebt relief). In the event of renewed fighting, donors are likely to scale backdrastically commitments to all except emergency relief programmes. This willundermine all the sectoral investment programmes and the ongoing process ofcivil service reform.

Expulsions and instabilitywill dent investor

confidence

Ethiopia’s expulsions of Ethiopians with Eritrean links are likely to have a nega-tive impact on the economy, not least because of the accompanying expropria-tion of property. Many of the businesses and assets owned by people of Eritreanorigin who have been forced to leave may be sold at knockdown prices in a bidto generate political support, undermining the government’s commitment toupholding property rights. As a result of the expulsions, many entrepreneurswith links to Eritrea will not now make new investments in Ethiopia.

At the same time concerns about political stability and the economy’s growthpotential will lead foreign investors to remain wary of committing capital toEthiopia. This is particularly so given the fragility of the transit route for for-eign trade via Djibouti. Only an unambiguous, sustainable settlement of theconflict will alter such perceptions.

0

1

2

3

4

5

6

7

8

9

1994 95 96 97(b) 98(c)

Ethiopia (a)

Africa

Ethiopia: gross domestic product % change, year on year

(a) Fiscal years starting July 8th. (b) Provisional. (c) EIU estimates. Sources: EIU; IMF, World Economic Outlook.

8 Ethiopia


Late note On February 6th heavy fighting broke out again between Ethiopia and Eritrea.Serious clashes were initially reported around Badme and these quickly spreadto a second front around Tsorena.

Review

The political scene

Ethiopia gears up forwar—

The military stand-off with the Eritrean government continues to absorb theEthiopian federal government’s time and personnel. Following the fighting ofMay-June 1998 and widespread troop mobilisation prior to the Ethiopian NewYear in September, more than 150,000 troops are now believed to have beendeployed along the 1,000-km frontier with Eritrea. These are concentrated inthree main areas.

• The Yirga triangle and the settlement of Badme, the area of last year’s initialclashes.

• The Zala Ambassa/Adigrat front straddling the main border-crossing pointbetween Tigray and Eritrea.

• The southern border-crossing point on the Assab-Mille road.

Throughout November and December sporadic shellfire was reported fromboth sides on the Zala Ambassa front, notably around the Eritrean settlement

Ethiopia 9


of Tsorena. Although such exchanges of fire have been reported on an almostweekly basis, both armies appear to have been careful to ensure that the snip-ing does not escalate into sustained exchanges. The moratorium on air strikesnegotiated by the US government in June has held, although both sides havereported losses of aircraft in training flights.

—which proves popularat home

The Ethiopian People’s Revolutionary Democratic Front (EPRDF), the rulingmulti-ethnic party that is dominated by the Tigray People’s Liberation Front(TPLF), continues to command considerable public support at home for itsstand against its former Eritrean ally. Whereas the Eritrean authorities main-tain that their quarrel is not with the Ethiopian people as a whole, but onlywith the “minority” TPLF-led government, ironically the conflict has increasedthe government’s support from other Ethiopian groups, which had previouslybeen critical of the TPLF (4th quarter 1998, page 11).

There is widespreaddisruption in Tigray

It is far less clear what effect the conflict has had on the TPLF’s main supportbase in Tigray (region 1) itself, the region hardest hit by the ongoing dispute, butthe government is obviously concerned that hardship might breed populardiscontent. By late December the conflict had displaced 315,000 people inTigray. The authorities have attempted to prevent the creation of large concen-trations of internally displaced people, requesting that those without shelterstay with relatives in safer areas of Tigray. These people are being provided withconsiderable assistance by the authorities in order to maintain their support.Nevertheless, since they are being cared for temporarily in village communitiesthat are themselves already very poor, pressure on basic amenities such as wateris immense. In December the Tigrayan authorities estimated that those alreadydisplaced by the war would require 65,000 tonnes of food aid over the comingmonths (see The economy). The authorities have also prepared contingencyplans in case renewed fighting triggers further displacements of people along theborder; the scenario is that fighting shifts 40 km south into Tigray, displacing afurther 280,000 people and pushing up emergency needs. Similar plans arebeing prepared for the Afar region (region 2), where 24,000 people are currentlyregistered as internally displaced by the Disaster Prevention and PreparednessCommission (DPPC), the government agency that co-ordinates relief activities.

Expulsions of citizens andexpropriation of their

assets continue—

The rationale behind Ethiopia’s expulsions of citizens of Eritrean origin remainsdeeply contradictory. Internationally, the move has generated negative public-ity for the government, overshadowing the original cause of the conflict.Criticism is exacerbated by continuing reports of widespread detentions ofthose of Eritrean origin in Ethiopia—notably in camps in the west of Oromo(region 4), where several deaths have been reported. However, the policyappears to have caused little consternation among the majority of Ethiopianswithout links to Eritrea, many former critics of the EPRDF in fact welcoming themove as long overdue. In the past Ethiopia’s Tigrayan leadership has beenaccused of divided loyalties, and strong links with the Eritrean leadership (manyof whom are also Tigranyi speakers) were viewed with suspicion.

By early January the total number of people expelled from Ethiopia in connec-tion with the Eritrean conflict stood at around 40,000. A large proportion ofthese are Ethiopian citizens of Eritrean origin, many of whom have significant

10 Ethiopia


assets and capital in Ethiopia, but are accused of plotting to undermine thegovernment. The expulsion of these people has significant implications forasset and capital ownership in Ethiopia and the full economic effects of theexpulsions policy are likely to be realised only over several years. With severalthousand people apparently still detained in Ethiopia, expulsions were con-tinuing in January. Even with more than 40,000 people deported to date, thepotential number of individuals whom the expulsions policy could touch is fargreater: estimates of the number of Ethiopians with family ties to Eritrea rangebetween 300,000 and 500,000, including some senior government officials.Moreover, the criteria under which people are either detained or deportedremain exceedingly vague.

—and they are squeezedout of the transport

industry

In mid-November the government moved to stop firms owned by individualsof Eritrean origin being involved in the transportation of goods to and from theport of Djibouti. Around 25% of the privately owned lorry fleets active on theroute were estimated to have been owned by such individuals (see Djibouti:The economy). It is unclear whether these hauliers are permitted to operate onalternative routes, or whether they have had their lorries impounded.

Expropriated assets aresold off—

On January 9th the Commercial Bank of Ethiopia (CBE) announced that itwould continue to auction off property belonging to those of Eritrean originwith outstanding loans. This policy was first announced in August (4th quarter1998, page 17). According to a CBE official, assets belonging to 218 suchindividuals, owing Birr350m ($46.6m), would be auctioned; the assets includebuildings, factories and vehicles which expelled Eritreans had reportedly origi-nally registered as collateral for loans. The bank has reportedly already recov-ered Birr11m from sales of 112 vehicles through auction. The CBE also reportedthat it had received Birr66m from Eritreans “who settled their debts priorto departure”.

—as the CBE moves withspeed to foreclose debts

Although it has attracted little public comment in Ethiopia, the foreclosure ofloans and the auctioning of assets held as collateral highlight some unresolvedcontradictions surrounding the expulsions and the fate of the property of thoseexpelled. It is unclear whether individuals who have been forcibly removedfrom the country have actually been stripped of their citizenship and whether,if they were to return, they would face specific charges or be eligible to reopentheir businesses. In addition, the prompt foreclosure of loans suggests that thoseappointed by the owners to run their businesses are either ineligible, or unable,to repay the outstanding loans. The CBE has moved surprisingly quickly againstdefaulters, given its generally poor record on debt collection—about one-quarterof the CBE’s loan portfolio was reported to be non-performing.

Ethiopia raises the issue ofcompensation

According to reports issued by the Ethiopian News Agency (ENA), Ethiopianswho fled Eritrea in the wake of the conflict may seek compensation for propertythey allege was seized by the Eritrean authorities. The ENA reported that resi-dents now in a temporary camp at Combolcha claim they had to abandon morethan 480 houses and 50 retail businesses when they left Eritrea. On a similarnote, the Ethiopian authorities lodged an application for compensation forgoods stranded in the Eritrean ports of Assab and Massawa at a meeting of

Ethiopia 11


transport and communications ministers of the Common Market for Easternand Southern Africa (Comesa), held in Zambia in mid-November. They claimthat the goods are being held in contravention of international law, andComesa has formed a fact-finding mission to investigate their claims. Ethiopianofficials have raised the possibility of a boycott of Eritrean ports by the Organisationof African Unity (OAU), but this seems unlikely to garner much support.

The OAU initiativeappears to flounder—

The OAU high-level contact group, formed in July 1998 to try to broker asettlement to the dispute between Ethiopia and Eritrea, presented its proposalsto a specially convened meeting in Burkina Faso in November (4th quarter 1998,page 7). The presidents of Djibouti, Zimbabwe and Burkina Faso—which holdsthe OAU chair—convened the talks, which were attended by Ethiopia’s primeminister, Meles Zenawi, and the Eritrean president, Isaias Afewerki, although thetwo men did not meet face to face. No agreement was reached, but the twoleaders did agree to consider the proposals. The meeting was overshadowed byEritrea’s suggestion that the Djiboutian president, Hassan Gouled Aptidon,could not be a credible negotiator because of the close trade links betweenDjibouti and Ethiopia (see Djibouti: The political scene). Further talks on thecrisis were held at a special OAU summit in Ouagadougou on December 17th-18th,which endorsed the proposals forwarded by the contact group. These take theform of a framework agreement, which Ethiopian officials welcomed. However,as has been the case since the beginning of the dispute, Eritrea objected to therequirements that it withdraw from the towns of Badme and Shiraro, the occu-pation of which triggered the crisis in May 1998. Eritrea also called for anyagreement to include clauses specifying compensation for Ethiopians of Eritreanorigin who have been deported from Ethiopia.

—but US negotiatorspersevere

A former US presidential national security adviser, Anthony Lake, made his fourthtrip to Addis Ababa and Asmara in mid-January 1999. Mr Lake held talks withMr Zenawi and his advisers on January 16th-17th, before flying on to Asmara. Thecontent of the discussions remains secret and no details have been released, but itseems that he is trying to persuade the two sides to accept the OAU peace initiative.International attempts to broker a negotiated settlement were given a further boostin January when the UN secretary-general, Kofi Annan, announced that he wassending the veteran Algerian and UN diplomat Mohamed Sahnoun to support thepeace initiatives. Mr Sahnoun has hitherto commanded considerable respectamong Ethiopian and Eritrean diplomats, in large part because in 1992-93 heplayed a vital role in initial attempts to negotiate a political settlement in Somalia,with the active backing of Ethiopia and Eritrea.

Mr Lake also met the Egyptian foreign minister, Amr Moussa, in early Decemberto brief him on his mediation attempts. This, and other meetings held by USofficials with diplomats from East Africa, including Ethiopia’s neighbours in theInter-Governmental Authority on Development (IGAD—the group that com-prises Djibouti, Eritrea, Ethiopia, Kenya, Somalia, Sudan and Uganda), reinforcesuggestions that the US is acutely aware that the greatest hope of avertingrenewed war lies in brokering a deal in conjunction with the OAU and regionalpowers. In this respect, the involvement of Mohamed Sahnoun—who hasextensive links among senior diplomats of the Arab League and the OAU—mayprove significant.

12 Ethiopia


There are border problemswith Kenya

Kenya lodged a formal complaint in late January about an alleged incursion byEthiopian troops. The latter were apparently chasing rebel members of theOromo Liberation Front (OLF) and several Kenyan civilians were caught up inthe fighting that ensued on the Kenyan side of the border. The Kenyan govern-ment has deployed extra security forces along its border with Ethiopia, but nomajor repercussions are expected from what appears to be a localised event.

Professor Asrat is releasedand charges are dropped

Professor Asrat Woldeyes, one of Ethiopia’s most prominent political prisonersand a former surgeon, was released from jail on December 27th. When theEPRDF took power in 1991 he founded and became the chairman of an oppos-ition party, the All-Amhara People’s Organisation (AAPO). The AAPO has notcontested elections, but has a high public profile because of the popularity of itsnewspapers and of Mr Asrat himself, whose sentence to five years’ imprison-ment in 1994 on charges of leading a rural insurrection has made him a politicalmartyr. The charges brought against him were seen as the culmination of acampaign of legal harassment of AAPO leaders, and Mr Asrat was adopted as aprisoner of conscience by the London-based human rights agency AmnestyInternational, while numerous donors and foreign delegations have petitionedthe government for his release. On December 2nd Amnesty International re-leased an urgent action notice claiming that Mr Asrat’s life was at risk if he didnot receive immediate medical attention. On his release he flew straight toLondon, where he was given emergency treatment, and from there he went onto the United States. The precise reasons for his release were not clear, but it waswelcomed as a sign of an improved human rights record by both the UK and theUS administrations, and will serve to strengthen broader donor relations. OnDecember 30th Ethiopia’s federal court agreed to drop outstanding chargesagainst Mr Asrat, apparently on the grounds of his ill health.

Economic policy

The IMF resumes lending On October 23rd the IMF confirmed that it was resuming payments to Ethiopiaunder the enhanced structural adjustment facility (ESAF), with the release ofthe first instalment of the $42m (SDR29.5m) funding for the current Ethiopianfiscal year (which began on July 8th 1998). The three-year ESAF was originallyscheduled to run from 1996, but was suspended in October 1997 followingdisagreements over financial sector reforms. These were resolved in mid-1998,leading to the reforms announced last September (4th quarter 1998, page 20).Announcing the formal resumption of ESAF lending, the IMF predicted asignificant recovery in real GDP growth in 1998/99 and inflation of under 4%.Economic growth in the year to July 1998 had been stagnant at 0.5%, largelybecause of poor harvests (see table for IMF estimates and the programme tar-gets). The IMF also suggested that it expects a widening of the current-accountdeficit in 1999, following an increase in imports and weak prospects for coffeeexport prices. The Fund went on to state that it expects further financialreforms in 1999, notably in foreign-exchange management, and a continuedlowering of external trade tariffs.

Ethiopia 13


Ethiopia: selected economic indicators

1995/96 1996/97a 1996/97b 1997/98c 1997/98b 1998/99c 1999/2000c 2000/01c

% changeGDP at constant prices (factor cost) 10.6 6.0 5.6 2.8 0.5 8.0-9.4 6.7 7.0 Consumer prices (av) 0.9 1.2 –6.4 5.0 2.5 3.9 3.7 3.4

% of GDPGovernment revenue 18.4 17.8 19.2 20.1 19.2 19.2 19.4 19.5 Government expenditure & net lending 27.0 25.5 24.3 27.0 26.4 25.1 26.2 26.7 Current 14.9 16.7 13.9 15.5 17.0 13.7 13.9 13.6 Capital 9.4 8.8 10.4 11.5 9.2 11.5 12.3 13.1 Net lending 2.8 0.0 0.0 0.0 0.2 0.0 0.0 0.0

Overall fiscal balance incl grants –5.6 –2.9 –1.3 –2.9 –3.5 –2.6 –3.2 –3.2

Overall fiscal balance excl grants –8.5 –9.0 –4.9 –6.9 –6.4 –5.9 –6.8 –7.2

a IMF programme. b IMF estimated outturn. c IMF projections.

Source: IMF.

Growth forecasts lookoveroptimistic—

Speaking to a domestic news agency after the ESAF release was announced, thefinance minister, Sufyan Ahmed, suggested that the government had set aslightly lower target for GDP growth in the current fiscal year, at around 7%.Both forecasts evidently take no account of the economic fallout from renewedfighting with Eritrea. This in turn reflects the acute uncertainty among donorsabout how to deal with the threat of war. The IMF press release on the ESAFresumption simply noted: “A timely and peaceful resolution of the unsettledborder dispute with Eritrea is essential to bolster economic prospects.” In prac-tice, the resumption of war will probably lead to a scaling-down of donoractivities to as low a level as possible, without actually breaking off relations.

—and defence spendingendangers budgetary

expenditure targets

The impact of the conflict on government finances remains a matter of specul-ation. The Policy Framework Paper (PFP) issued by the government in conjunc-tion with the IMF in September notes simply that defence expenditure had“risen sharply” in 1997/98 because of the war, but that the government’smedium-term aim is to keep it at 2-3% of GDP. This target looks unfeasible. At1998/99 prices it equates to Birr870m-1.3bn ($116m-174m), but expenditureon new arms purchases is likely to be greater than this. In early December theRussian news agency Interfax announced that Russia had concluded an armssales contract with Ethiopia worth $150m for four Sukhoi-27 fighter planes andan unspecified number of MiG-24 jets and Mi-8 transport helicopters. The dealalso reportedly included supplies of ammunition and navigation equipment.Russian newspaper reports subsequently confirmed that deliveries to Ethiopiawere under way. In addition, the Russian company Fazotron is involved in thesale and installation of radar systems for Ethiopia’s fleet of MiGs.

The government remainscautious on privatisation—

In 1998 the government made a considerable effort to publicise its attempts toattract foreign direct investment (FDI) into the country, and in particular itsprivatisation programme (2nd quarter 1998, page 15). However, its record onprivatisation remains decidedly patchy. Most of the 175 or so privatisations todate have been of smaller companies, many of them retail outlets, which haveapparently been sold to firms with links to the ruling Ethiopian People’sRevolutionary Democratic Front (EPRDF). The only significant sale to a foreign

14 Ethiopia


buyer was of the Lega Dembi gold mine to the Ethiopian-Saudi Midroc group ofSheikh Mohamed Alamoudi, who is by far the largest single foreign investor inthe country, with strong links to the EPRDF. Ten of the country’s state farms,along with a brewery and cement factory, were scheduled for sale in December1998, but there had been no reports of any progress on this by January. The saleof state farms has long been promised, but it appears to have been complicatedby confusion over rural land tenure policies, which are, at least in theory, in thehands of the regional state administrations. Plans to sell the government’s hold-ing in the Kalub Gas Share Company, formed to exploit the large proven re-serves of natural gas in the Ogaden, reportedly suffered a setback in Januarywhen all four bids were rejected after the prices and terms offered failed to meetthe government’s minimum criteria.

—as more reports arecommissioned

The government’s medium-term economic plans envisage an acceleration of theprivatisation programme, with the aim of completing the divestiture pro-gramme by 2000/01. A Privatisation Action Plan is scheduled to be launched inFebruary 1999. A investigation was conducted by the Nairobi branch of theinternational consultants Price Waterhouse into the technicalities of the re-maining privatisations during early 1998, and it is expected that the German aidagency GTZ, in conjunction with the World Bank, will now recommend specificsales procedures for each of the remaining 114 state-owned enterprises. Theseinclude most of the country’s larger manufacturing plants, in particular a seriesof modern textile factories and a fairly extensive food-processing industry.

The Commercial Bank ofEthiopia is slated for

restructuring

Central to the Ethiopian government’s renewal of relations with the IMF is itspledge to accelerate financial sector reforms. A series of initial changes tointerest rate and foreign-exchange policies came into effect on September 1st(4th quarter 1998, page 20). According to the PFP issued in late September, thesechanges will now be deepened as the country’s cumbersome financial sector isreformed. Central to the proposals is a restructuring of the Commercial Bank ofEthiopia (CBE), the state-owned entity that dominates retail banking. Amongthe measures envisaged is a drastic reduction in the CBE’s portfolio of non-performing loans, from 25% of total loans to 15% by June 1999. An externallyconducted financial and managerial audit of the running of the CBE is expectedto be completed under World Bank supervision by the same date. This audit willthen form the basis of a more radical reorganisation of the CBE, possibly with ajoint management arrangement with a foreign company. The PFP also raises thepossibility of additional equity investment by the government in the CBE if it isto be successfully reformed. The CBE will then be expected to play a central rolein fostering an interbank money market, initially by providing overnight lend-ing to banks in the fledgling private banking sector. At the same time thebanking supervision department of the National Bank of Ethiopia (NBE, thecentral bank) must be improved. According to the PFP, if everything goessmoothly the government will consider allowing foreign banks to operate in thecountry in three years’ time.

Ethiopia 15


The economy

A bumper grain crop isconfirmed

Initial impressions in late 1998 of an excellent main-crop grain harvest in1998/99 have been confirmed by detailed crop assessments carried out inNovember and December. The total meher (the principal harvest in the high-lands) grain harvest is now forecast to be close to the 12m tonnes registered in1996—the last bumper harvest. The food assessment report issued jointly bythe UN Food and Agriculture Organisation and the UN World Food Programmein late December forecast a total meher crop of 11.69m tonnes this year, up by36% from 1997/98. The overall marketable surplus in meher grain production isexpected to be around 350,000 tonnes. Strong grain and pulse production in allthe main agricultural areas of Ethiopia is reported, significantly strengtheningfood security in most parts of the country and prompting a fall in prices. Thisin turn has raised fears of a collapse in rural purchasing power. The pressure ongrain prices has been exacerbated by the suspension of grain exports to Eritrea.As in 1996, Kenya, Somalia, or now possibly Sudan, may purchase some ofEthiopia’s surpluses and the government will be seeking to persuade donors tomake internal purchases, both to meet 1999 food aid requirements, and toreplenish the emergency food security reserves, hoping that this will also helpto bolster prices, and hence farm incomes.

Some areas may stillsuffer—

However, specific areas within Ethiopia are likely to face hardship, followingerratic rainfall, in particular communities in highland Ethiopia which sufferedvery poor belg (lesser) harvests earlier in 1998. A UN food assessment mission tosouthern Wollo in November reported that food security was extremelyprecarious for around 500,000 farmers. Other areas facing food shortfallsinclude the pastoral areas of Hararghe in region 4 (Oromo), as well as aroundJigjiga in region 5 (Somali). Meanwhile, some lowland pastoral areas face hard-ship because of exceedingly low livestock prices, largely linked to the banimposed in February 1998 on livestock imports into Saudi Arabia from EastAfrica (3rd quarter 1998, page 18) and the closure of livestock export marketsto Eritrea. In December 1998 donors reported that livestock prices in Tigray(region 1), usually the principal supplier of livestock to Eritrea, were half ofthose reported in late 1997.

—and food assistance for2.5m people is required

On December 10th 1998 Ethiopia’s Disaster Prevention and PreparednessCommission (DPPC) launched its annual appeal, requesting 260,600 tonnes offood aid in 1999 for more than 2.5m people, including those displaced by theconflict with Eritrea who are concentrated in Tigray and Afar regions. TheDPPC estimated that 400,000 people need assistance because of the conflict,330,000 of whom are in Tigray. In announcing the appeal, the head of theDPPC stressed that the requirements are the lowest for eight years, reflectingthe excellent main harvest in 1998/99 in most areas of the country. After thepoor 1997/98 harvests, Ethiopians required food aid of some 400,000 tonnes(1st quarter 1998, page 12). Currently, the DPPC estimates that around 37,000tonnes of food pledged from 1998 will be carried forward to 1999. The netadditional requirement is thus around 224,000 tonnes, much of which theDPPC hopes will be purchased internally from funds provided by donors.

16 Ethiopia


The trade gap narrowsin 1997/98

Speaking to Addis Ababa businessmen in late November, the trade and industryminister, Kassahun Ayele, stated that Ethiopia’s trade deficit in the fiscal yearto July 1998 totalled Birr3bn ($455m), a vast improvement from the $817mestimated for the previous year. However, in an extremely optimistic set ofpredictions, the minister reportedly forecast that export revenue could rise byas much as 150% in the current fiscal year (1998/99). He suggested that inaddition to hides and skins, traditionally Ethiopia’s second largest exportearner, beer, cotton, sugar and molasses could all be successfully exported byprivate traders. While the figures for 1997/98 trade fit with those published inthe policy framework paper (PFP) last September, the forecast of a massivejump in exports, which would push the merchandise account out of a deficit,is clearly untenable. Although imports are likely to rise, export earnings willprobably drop, largely as a result of the fall in coffee prices, which the EIUforecasts at more than 25% in 1999. Total earnings from coffee, Ethiopia’sprincipal export crop, are likely to be around $368m (for 137,000 tonnes) in1998/99, according to the Ethiopian Coffee and Tea Authority. In 1997/98exports reached 133,000 tonnes, earning $446m.

Ethiopia tries to diversifyits export base

In order to stimulate exports and break the dependence on coffee, the govern-ment has announced a range of incentives. The authorities will make availableten new sites for exporters on the Nefas Silk road, and are attempting toimprove parking and loading facilities for containerised produce by opening acontainer depot along the heavily congested Akaki section of the main roadeast to Nazareth, Mille and Djibouti. As part of its commitment to improveconditions for private-sector exporters, the government looks set to revive theExport Promotion Council, a body composed of senior officials and privatebusinessmen. In addition, in late January the governor of the National Bank ofEthiopia (NBE, the central bank), Teklewolde Atnafu, announced the estab-lishment of an export credit guarantee scheme, under which the central bankwould guarantee loans to exporters, up to the value of 100% of their exportearnings in previous years.

A substantial write-off ofrouble debt is scheduled

for 1999

Following a meeting with officials of the Paris Club of creditors in France onDecember 10th, Russia’s deputy finance minister, Valentin Matviyenko,confirmed that Russia was in the process of negotiating a deal with its principaldebtors, including Ethiopia. Sources in Ethiopia suggested that it is now close toan agreement on its rouble-denominated debt. As a result, its debt to Russia willbe included within the Paris Club debt-reduction initiatives, which will bringthe debt down to just a small fraction, likely to be around 7%. The government’sPFP assumes that the bulk of rouble-denominated debt, which has a face valueof around $5bn at the original rouble:dollar exchange rates, will be cancelledduring the current fiscal year (1998/99). Overall, Ethiopia’s debt-service ratio,estimated at around 46% in 1996/97, is expected to fall to under 15% by the endof 1998/99. This is in line with the “Naples Terms” 67% reduction that wasnegotiated in Ethiopia’s 1997 Paris Club agreement.

Ethiopia 17


Ethiopia: the impact of a substantial write-off of Ethiopia’s rouble debta

1997/98 1998/99 1999/2000 2000/01 2001/02 2002/03

Total debt service before debt relief 464.3 604.9 619.3 455.9 291.5 282.5

Total debt service after debt relief 110.8 163.4 177.2 184.0 187.4 191.6

Principal repayments 355.1 517.1 506.8 342.3 182.9 176.9 of which: to Russia 206.6 360.5 345.4 188.0 38.1 35.5

Interest payments 109.2 87.8 112.5 113.6 108.6 105.6 of which: to Russia 44.4 18.5 10.2 4.8 3.0 2.2

a The scenario drawn up for Ethiopia’s policy framework paper, released in September 1998.

Source: IMF.

Further foreign-exchangereforms are envisaged—

Ethiopia’s foreign-exchange regulations were relaxed as part of the package offinancial sector reforms which came into force in September (4th quarter 1998,page 20). Further changes are now envisaged, with the government apparentlycommitted to moving to a fully market-determined exchange rate. SinceSeptember retail banks have handled all foreign-exchange transactions underBirr500,000, with commercial banks buying at the weekly foreign-exchangeauction and passing this on to customers at the auction-determined rate. Add-itional reforms are expected that will allow the banks to set their own exchangerates in the period between the auctions, in effect creating an interbankmarket, with the auction providing a benchmark rate. The central bank isexpected to participate in the interbank market, initially to ensure that banksare able to sell excess holdings of foreign exchange, but increasingly supplyingthe market with foreign exchange through this channel rather than via theweekly auctions, which are expected to be phased out. However, the centralbank has issued no timetable for this process.

—but less foreignexchange has beenavailable recently

The central bank has, however, been supplying less foreign exchange to theweekly auction in recent months. The weekly supply averaged Birr6m duringNovember and December, down from Birr15m previously. No official reasonfor this has been given, but it may be a result of the government’s need forforeign exchange during the military stand-off with Eritrea. Indeed, foreign-currency reserves rose to $500m in November 1998 from $330m in the pre-vious month. The currency fell by 5% in the final two months of 1998, to anauction-determined rate of Birr7.5:$1. The parallel rate also fell, in a reversal ofthe long-standing trend towards a narrowing in the gap between the auction-determined and parallel rates.

18 Ethiopia


Eritrea

Political structure

Official name Eritrea

Form of state Unitary state

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

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

National elections Last election February 1987 (legislative, within Ethiopia); next election had beenscheduled for May 1997 but seems unlikely to be held before 2000

Head of state President, elected by the assembly

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

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

President Isaias Afewerki

Key ministers Agriculture Arefaine BerheDefence Sebhat EphremEducation Osman SalehEnergy & mines Tesfi GebreselassieFinance & development Gebreselassie YosephFisheries Petrus SolomonForeign affairs Haile WeldensaeHealth Saleh MekiInformation Beraki GebreselassieJustice Foazia HashimLabour & welfare Ogbe AbraahaLand, water & environment Tesfai GirmatzionLocal government Mahmoud Ahmed SherifoPublic works Abraha AsfahaTourism Ahmed Haji AliTrade & industry Ali Said AbdellaTransport & communications Saleh Idris Kekia

Central bank governor Tekie Beyene

Eritrea 19


Economic structure

Latest available figuresa

1995 1996 1997 1998b

GDP at market prices ($ m) 700 714 n/a n/a

Real GDP growth (%) 3 7 7 5

Consumer price inflation (av; %;) 11 3 9 8

Population (m) 3.57 3.67 n/a n/a

Exports fob ($ m) 80.6 95.3 n/a n/a

Imports cif ($ m) 403.8 513.7 n/a n/a

Total external debt ($ m; year-end) 39.0 45.9 n/a n/a

Exchange ratec (av; Birr:$) 6.16 6.35 6.80 7.5

January 12th 1999 Bank rate Nfa7.6:$1; parallel rate of Nfa7.8:$1

Main destinations of exports 1996d % of total Main origins of imports 1996d % of total

Ethiopia 65.8 Saudi Arabia 15.2

Sudan 9.9 Italy 14.0

US 7.7 UAE 11.9

Italy 4.3 Ethiopia 8.5

a All figures are estimates from official or other sources. b EIU estimates. c An Eritrean national currency, the nakfa, replaced the Ethiopian birr inNovember 1997 at Birr1:Nfa1. d Source: IMF, Staff Country Report.

20 Eritrea



The new year brings anew threat of war

The danger that Eritrea’s dispute with Ethiopia might escalate into a full-scaleborder war heightened in early January, judging by diplomatic statements andmilitary manoeuvres from both sides. A week after the Ethiopian foreign min-ister, Seyoum Mesfin, declared the peace effort to be “as good as dead” onJanuary 5th, Eritrea warned that it was expecting Ethiopia to launch attacksbetween mid-January and mid-February, following intelligence reports of abuild-up of Ethiopian troops. The feeling on the streets of Asmara is that war isclose at hand, and the armed forces are on high alert. However, this would notbe the first time that an attack has been thought to be imminent, and it ispossible that the Ethiopians are bluffing, although Eritrea may still launch apre-emptive strike on Ethiopia to gain a tactical advantage. If fighting isresumed, it is likely to be either near the port of Assab, around Tsorena nearZala Ambassa, or at the original scene of fighting in the Yirga triangle (see mapin Ethiopia). If fighting does erupt on the Assab front, the situation will becomplicated by Djibouti’s severance of diplomatic relations with Eritrea inNovember. Unconfirmed reports indicate that Ethiopian troops have taken uppositions in Djibouti, allowing an attack on the port from two directions.Eritrea will be wary of pursuing the fight into Djibouti territory for fear ofinvoking Djibouti’s defence agreement with France. Were there to be anyattack on the port of Djibouti, the French, albeit reluctantly, would be boundby treaty to come to Djibouti’s aid.

A diplomatic solutionlooks remote and the

economy will suffer

The Organisation of African Unity (OAU) peace initiative has become boggeddown in wrangling. A slim hope for a peaceful resolution to the dispute lies inthe efforts being made by the US, whose former national security adviser,Anthony Lake, has visited both sides four times. Mr Lake’s efforts appear to bethe last hope for a diplomatic resolution to the conflict before the rival armiesset to, although if he succeeds in finding a solution it will be dovetailed withthe OAU initiative for the sake of that organisation’s credibility. The majordifficulty for negotiators lies in finding a solution that allows both sides tosalvage their dignity—only this will bring about peace. If war does ensue,Eritrea remains confident, having mobilised its largest ever fighting force, thatit can win. It is this confidence that is behind the rejection by the president,Isaias Afewerki, of several aspects of the OAU’s proposals, which he regards asan unnecessary compromise. Given the national resolve, the fighting, whichwill be large-scale trench warfare, could drag on interminably.

Although the economic situation is far from normal, with Eritrea having, ineffect, been on a war footing for the past six months, the government is doingits best to show that it is “business as usual”. National development projects arecertainly continuing. However, private enterprise is suffering and some manu-facturing industries have been forced to cut staff, while the port of Assab,formerly the country’s largest foreign-currency earner, is dormant. The loss ofport revenue and the slowdown in manufacturing will have long-term negativeimplications for the economy and, with so many young men away at the front,other forms of economic activity may also slow, including agriculture.Nevertheless, while rebuilding the southern port’s trading position will be a

0

1

2

3

4

5

6

7

8

1995(a) 96(a) 97(a) 98(b)

Eritrea

Africa

Eritrea: gross domestic product % change, year on year

(a) Official estimates. (b) EIU estimates. Sources: EIU; IMF, World Economic Outlook.

Eritrea 21


long-term venture, some relief will be accorded by improved trading relationswith Sudan and with Yemen following the resolution of the Hanish islandsdispute. The government’s generally improved relations with the Arab world,symbolised by Eritrea’s declared intention to join the Arab League at the“appropriate time”, are no doubt part of a longer-term strategy to diversifyaway from its dependence on trade and investment links with Ethiopia.

Late note On February 6th heavy fighting broke out again between Ethiopia and Eritrea.Serious clashes were initially reported around Badme and these quickly spreadto a second front around Tsorena.

Review

The political scene

No settlement has beenreached—

Since June 11th 1998 there has been a lack of significant military action be-tween Eritrea and Ethiopia in the dispute that followed the minor borderskirmish between opposing government forces in the Yirga triangle in earlyMay, and which then escalated into a major military conflict (3rd quarter 1998,page 25). Nonetheless, the military stand-off has come no nearer to a settle-ment, despite intense diplomatic efforts to broker a peace agreement, notablyby the Organisation of African Unity (OAU). Fighting appeared imminent inmid-January. The Eritrean foreign ministry issued a statement on January 12th,citing “various sources” as indicating that Ethiopia would launch attacksagainst Eritrea between mid-January and mid-February. The statement cameshortly after an announcement in Addis Ababa on January 5th by Ethiopia’sforeign minister, Seyoum Mesfin, that “the peace effort can be considered asgood as dead”. Although the Eritrean statement repeated the familiar phrasethat war was not an option, it was qualified by the insistence that the countryreserved the right to self-defence.

—as both sides are heavilymilitarised—

If fighting is renewed, Eritrea is ready with a fighting force estimated to numbersome 200,000, at least twice the size of the force that fought for independence.In addition, 50,000 reservists will finish their national service military trainingin January and February. About one-third of Eritrea’s forces are currently sta-tioned on the frontline, concentrated at three main points: around Badme,scene of the skirmish that initially sparked the dispute; at Zala Ambassa (in-cluding Tsorena); and near Assab. The remaining forces are being kept in reserve,ready to refill the frontline ranks when necessary. Unconfirmed reports fromAsmara suggest that the air force has been bolstered with the purchase of betweenfive and ten new MiG-29s and four SU-27s, although one of the SU-27s wasreported to have been lost during a display for military officials in early January.

—and the OAU initiativefalters—

In late 1998 an OAU initiative seemed to offer the best hope for a peacefulresolution of the crisis, as both sides continued to claim that they were againstthe idea of war while accusing the other of intransigence. The OAU’s heads ofstate committee presented its proposals in Ouagadougou on October 7th-8th,

22 Eritrea


and these were quickly backed by the UN Security Council and the EU, as wellas regional powers. However, no agreement was reached between Eritrea andEthiopia at this meeting, but the proposals were presented separately to theEritrean president, Isaias Afewerki, and the Ethiopian prime minister, MelesZenawi, who then left to consider them. They responded to the proposals atthe summit of the OAU Central Organ for Conflict Prevention, Managementand Resolution, a 16-nation committee, on December 17th-18th. Both sidesleft without an agreement, and no timetable for further meetings of the OAUheads of state committee had been scheduled as of January.

—over the details The core elements of the OAU peace proposal are a request that Eritrea withdrawits troops from all occupied Ethiopian territory. The idea of withdrawal fromoccupied territory has become embroiled in confusion over what is meant bythe phrase “Badme and environs”. The Eritreans requested clarification in pre-cise legal language of the definition of the colonial border that will be used fordemarcation. They also suggested that demarcation should occur with a cease-fire in place, with both armies remaining in their present positions, or, failingthat, that both armies should withdraw. In addition, Eritrea requested clausesspecifying compensation for those expelled from Ethiopia and went further indemanding that the OAU recognise that Ethiopia alone had committed humanrights violations.

The US initiative is stillactive

While the OAU peace proposal has become bogged down in the small print,international efforts received a boost in January when it was announced thatthe UN was sending a veteran UN diplomat, Mohamed Sahnoun, of Algeria, tosupport peace initiatives. In addition, the initiative being pursued by the for-mer US national security adviser, Anthony Lake (4th quarter 1998, page 26),offers some hope, although the details remain under wraps. Mr Lake has con-ducted four phases of intense shuttle diplomacy between Asmara and AddisAbaba in recent months (in the first week of October, again in mid-November,in early December and in January). Mr Lake’s standing in Asmara has improvedsince Mr Isaias openly criticised US neutrality on Eritrean television in September.This is probably because he is one of the few diplomats who has given the Eritreanauthorities the time to explain their position, and because the US initiative hastaken on a greater significance since the stalling of the OAU’s plans.

Expulsions from Ethiopiareach 50,000

In Ethiopia, Eritreans and Ethiopians of Eritrean descent have continued toface detention, expulsion and expropriation of their property (see Ethiopia:The political scene). A statement released by the Eritrean News Agency onJanuary 12th reported that 860 Eritreans deported from Ethiopia had arrived inAssab via the Bure frontline the previous day, bringing the total number ofEritreans deported from Ethiopia received and registered in Eritrea to some49,000 since June 1998. According to the statement, many of the deportees hadbeen detained for up to four months prior to their expulsion, while thousandsof Eritreans and Ethiopians of Eritrean origin had been detained for evenlonger. More than 1,500 Eritreans are thought to be in Ethiopia’s Oromo(region 4) detention camps, where Eritrean sources allege that more than sixpeople have died because of the insanitary conditions. According to humanrights groups in Asmara, more ethnic Eritreans are being held in small police

Eritrea 23


stations and camps in Tigray (region 1), where there is virtually no monitoringof their situation by international observers.

Eritrea continues to insist that it has no policy of deportation of Ethiopians,but more than 20,000 Ethiopians have left Eritrea after registering their wish toleave with the International Committee of the Red Cross (ICRC). Most of thesepeople are casual labourers such as maids, truck drivers and port workers whohave lost their jobs, mainly in the port of Assab, which is now idle. The ICRChas experienced delays in organising transport because of bureaucracy on bothsides of the border, causing some hardship among those trying to leave whohave no money.

Djibouti breaks offdiplomatic relations—

Djibouti broke off diplomatic relations with Eritrea on November 18th aftercomments by Mr Isaias at the November OAU summit in Ouagadougou, whosuggested that Djibouti was supporting Ethiopia in its dispute with Eritrea. Theaccusations were rejected by the Djibouti foreign ministry as “grave, slanderousand baseless” and an apology was demanded. Djibouti’s president, HassanGouled Aptidon, actively cultivates his image as a regional elder statesman viathe Inter-Governmental Authority on Development (IGAD) and would havebeen personally upset by the remarks, but an apology was unlikely since suchniceties do not accord with Eritrea’s abrupt and straightforward diplomatictradition. Djibouti’s ambassador to Asmara was immediately recalled, with theYemeni embassy assuming responsibility for the interests of Djibouti nationals.Eritrea’s ambassador to Djibouti was instructed by the Djiboutian authorities toclose his embassy and leave the country along with his diplomats.

—making Eritrea wary The break in relations will only serve to strengthen Djibouti’s ties with Ethiopiain trade and other areas. Indeed, reports from Asmara suggest that there are nowEthiopian troops in Djibouti and the Eritreans are wary of being outflanked onthe Assab front. Although unconfirmed, these reports are backed up by similarclaims from Djibouti’s dissident Front pour la restauration de l’unité et de ladémocratie (FRUD—see Djibouti: The political scene) about Ethiopian troopsoperating in Djibouti. If Ethiopian troops used Djiboutian territory to gain atactical advantage, a retaliation by Eritrea could have grave consequences,because of Djibouti’s defence agreement with France. Were an attack to be madeon the port of Djibouti, the French would be highly likely to retaliate againstEritrea; however, if fighting were confined to the border region, Frenchinvolvement is less certain.

Qatar attempts toimprove Eritrea’s

relations with Sudan

Qatar is spearheading efforts to bring about a rapprochement in the poor rel-ations between Eritrea and Sudan (4th quarter 1998, page 29). The initiativeresulted in a meeting on November 9th-10th in the Gulf state between Eritrea’sforeign minister, Haile Weldensae, and his Sudanese counterpart, MustafaOsman Ismail, chaired by the Qatari foreign affairs minister, Hamad bin Jassembin Jabr al-Thani. At the end of the second day, the two sides signed a memoran-dum of understanding setting out a general framework for how future talksshould proceed. Qatari officials hope that they will be able to improve relationsbetween Eritrea and Sudan in the same way that Djibouti officials succeeded indoing between Ethiopia and Sudan. But despite scheduling further meetings atministerial level between the two sides, Qatar’s hopes of success in brokering a deal

24 Eritrea


were dealt a blow on December 5th, when Eritrea accused Sudan of shellingthree areas in the Gash Barka Region. Mr Haile then accused Sudan on December 16thof providing logistical support to Ethiopian forces in their dispute with Eritrea. OnJanuary 13th a Sudanese armed forces spokesman claimed that Eritrean forces weremassing along the common border with Sudan in order to launch attacks on parts ofthe country’s Red Sea area; however, no major attacks were reported during January.

The Hanish islands arehanded over to Yemen

The islands of the Hanish archipelago were officially handed back to Yemen ata ceremony held on Greater Hanish Island on November 1st, following theresolution of the dispute between Eritrea and Yemen over their sovereignty byan international tribunal in October (4th quarter 1998, page 28). Defenceministers from both sides attended to see the Yemeni flag raised, the with-drawal of the final Eritrean troops from the islands and the arrival of 3,000Yemeni soldiers. The end of the dispute is likely to mark a normalisation inrelations between the two countries, and on November 6th Mr Isaias leftAsmara for an official three-day visit to Yemen, the first since the dispute beganin December 1995, when Greater Hanish Island was captured by Eritrea in abrief battle. The international tribunal will now rule on the actual maritimedelimitation of the islands. Although it has already been agreed that bothcountries will have fishing rights in the area, the maritime ruling may have animpact on Eritrea’s ability to offer oil exploration licences. Yemen and Eritreahave until early February to present their proposals to the tribunal.

Eritrea may join the ArabLeague

On his way home from an African heads of state summit meeting in Paris at theend of November, Mr Isaias stopped in Cairo. Following extensive talks withthe secretary-general of the Arab League, Ismat Abd al-Majid, Mr Isaias said onNovember 29th that Eritrea would join the Arab League at the “appropriatetime”. The statement highlights Eritrea’s recent move towards a distinctlymore pro-Arab stance, affirmed by its immediate acceptance of the outcome ofinternational arbitration over the Hanish islands. In the same vein, Libyanradio reported on November 26th that Eritrea had made an official request tojoin the Community of Sahel and Saharan States (Comessa—Burkina Faso,Chad, Libya, Mali, Niger and Sudan). Eritrea’s ties with Libya have strength-ened further in recent months following the bilateral co-operation agreementsigned between the two countries in Tripoli in August (4th quarter 1998,page 31). Two Libyan delegations visited Asmara in September to assess thepossibility of investment in trade and agriculture in Eritrea.

An AFP correspondent isreleased

The government announced on December 29th that it had released fromcaptivity an Agence France-presse (AFP) correspondent who had been heldsince April 1997. Ruth Simon was accused of disinformation by the foreignministry, and the president had declared in May 1998 that she would be tried(3rd quarter 1998, page 29), but no formal charge was ever brought against her.Ms Simon, an Eritrean citizen and former guerrilla in the country’s struggleagainst Ethiopia’s previous military regime, was held for 20 months, first inseveral prisons and then under house arrest in Asmara. She was awarded anInternational Press Freedom prize in absentia by the Committee to ProtectJournalists in November, when a campaign to have her freed was launched atthe award ceremony in New York.

Eritrea 25


The economy

The government playsdown the economic

impact of the dispute

The Eritrean government continues to play down the economic effects of theborder dispute with Ethiopia. It has produced an economic policy framework,few details of which have emerged, but which is based on economic data fromApril 1998, making it partly defunct, since the situation has changed sodramatically since then.

Some aid still arrives— Observers in Asmara report that donors are impressed by the government’seconomic policy framework, although firm commitments are being held backuntil the prospects for a peaceful resolution of the dispute with Ethiopia be-come brighter. Nonetheless, the French development agency, the Agencefrançaise de développement, announced an aid package worth FFr28m ($4.8m)in mid-October for drinking-water projects. The money will be used tostrengthen the institutional and technical capability of the Asmara WaterServices Department. Meanwhile, the Italian government has made a donationof €517,000 ($447,200) in support of those Eritreans expelled from Ethiopiawho are currently stranded in Kenya. The weekly Eritrea Profile reported onJanuary 9th that the money had been transferred by the Italian government tothe Geneva-based International Organisation for Migration.

—but the economy isslowing

Despite the diversion of resources to the war effort, national developmentprojects such as road-building, water engineering and dam construction arecontinuing, and private projects are being encouraged. However, the loss ofeconomic activity at Eritrea’s ports and the break in trade links with Ethiopiahave dealt a blow to the economy which will be alleviated only marginally byimproved trading relations with Yemen, following the resolution of the Hanishislands dispute, and a reported limited boost in trade with Sudan. Indeed,shortages of food and other essentials are likely to emerge over the comingmonths. Nevertheless, the Eritrean currency, the nakfa, has remained relativelystable as it is still being underpinned by overseas remittances, encouraged bythe bond scheme launched in August (4th quarter 1998, page 30) by theNational Bank of Eritrea (NBE, the central bank). The nakfa has depreciatedonly slightly in recent months, to Nfa7.6:$1 in early January, with a parallelrate of Nfa7.8:$1 leaving it slightly below the dollar value of the Ethiopian birr.Officials at the central bank were quoted by the London-based monthly finan-cial publication Emerging Markets Africa on November 10th as saying that head-line inflation was estimated to have risen to 7% in October from 5% in June,and could rise further if the prices of essential foodstuffs increase.

The port of Assab is quiet The port at Assab has seen little activity in recent months following the cessa-tion of trade with Ethiopia. Many of its Ethiopian residents have left, but workin salt production, the oil refinery and construction projects for the expansionof port facilities has continued. Meanwhile, Ethiopia has appealed to theCommon Market for Eastern and Southern Africa (Comesa) for the release ofgoods stranded at the ports of Assab and Massawa (4th quarter 1998, page 30).After the appeal was discussed at a conference of African transport ministers inLusaka on November 9th-14th, a fact-finding committee was set up, withrepresentatives from Zambia, Uganda and Malawi.

26 Eritrea


A new airline beginsoperations

Red Sea Airlines, a new service operating between Eritrea and Saudi Arabia, waslaunched with $2m of Saudi capital in November and made its inaugural flightto Jeddah on November 30th, carrying the Eritrean communications minister,Saleh Idris Kekia, and Saudi investors. The new airline, which plans to operateservices to other international destinations including Riyadh, Dubai, Cairo,Sanaa and Nairobi, is part of a scheme devised by the Saudi-based Air HarbourTechnologies Group to invest in Eritrea. (Air Harbour Technologies Group is toset up 50 airports, 50 hotels and 15 new airlines in Africa over the next tenyears.) Agreements have been signed with the Eritrean government to establishairports and hotels in Eritrea, including a five-star hotel at a cost of around$15m, a port in the Dahlak archipelago and a free-trade zone. It was alsoreported that the group will undertake expansion projects of airports, andestablish hotels in the Dahlak islands and in Massawa.

The privatisationprogramme continues—

The country’s privatisation drive has continued, albeit more slowly since thebeginning of the dispute with Ethiopia. In November the Bizen Office andHousehold Furniture Factory was sold to a local investor for Nfa3m ($400,000)and the Keren Hotel in Asmara has been sold to an Eritrean based in Italy,Giovanni Primo, for Nfa5.5m ($750,000), according to the Asmara-basedweekly, Eritrea Profile. Mr Primo, who also bought the Dahlak Hotel in Massawain August, reportedly plans to undertake a major renovation of the KerenHotel, to be completed by mid-2000.

—and interest in goldmining hots up

Two Australian mining companies were awarded a gold exploration permit fora 400-sq-km concession in the north of Eritrea in late September, according toa report in the Paris-based Indian Ocean Newsletter on October 3rd. The conces-sion lies in the Zara region, close to the border with Sudan, where artisanalminers are currently working quartz veins. The entry on to the Eritrean sceneof Dragon Mining and Genesis Resources brings the total number of miningcompanies working in the country to 11, nine of which are foreign, accordingto a list provided by the director-general of the Department of Mines to theIndian Ocean Newsletter (see below).

Eritrea: mining companies in operation

Anmercosa Exploration (Tanzania)a

Dragon Mining (Australia)

Eritrean Mineral Corporation

Genesis Resources (Australia)

LaSource Development SAS (France)

Nevsun Resources (Canada)

Ophir Ventures Inc

Phelps Dodge Exploration Corporation (US)

Rift Resources Ltd (Canada)

Sanu Resources Inc

Tan Range Exploration (Canada)

a A subsidiary of the Anglo American Corporation.

Source: Indian Ocean Newsletter.

Eritrea 27


Somalia

Political structure

Official name Somali Democratic Republic

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

Legal system Based on the 1960 constitution

National legislature People’s Assembly

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

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

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

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

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

28 Somalia


Economic structure

Latest available figuresa

Economic indicators 1992 1993 1994 1995 1996

GDP at market prices ($ m) 1,137 1,260 1,404 1,563 n/a

Consumer price inflation (av; %;) 211 263 312 363 n/a

Population (m) 8.9 9.0 9.1 9.3 n/a

Exports fob ($ m) 93 101 111 123 n/a

Imports fob ($ m) 48 52 56 60 n/a

Total external debt ($ m; year-end) 2,447 2,501 2,616 2,678 2,643

Exchange rate January 29th 1999 SoSh2,620:$1bc

Origins of gross domestic product 1995 % of total Components of gross domestic product 1995 % of total

Agriculture 59.0 Private consumption 58.6

Industry 10.0 Government consumption 50.5

Manufacturing 5.3 Gross fixed capital formation 13.1

Services 31.0 Exports of goods & services 8.8

GDP at factor cost 100.0 Imports of goods & services –31.0

GDP at current market prices 100.0

Principal exports 1990 $ m Principal imports 1990 $ m

Livestock 43 Manufactures 204

Bananas 28 Non-fuel primary products 104

Hides & skins 3 Fuels 52

Main destinations of exports 1996d % of total Main origins of imports 1996d % of total

Saudi Arabia 54.7 Kenya 27.7

Yemen 18.9 Djibouti 20.8

Italy 10.6 Brazil 6.2

a All figures are estimates from official or other sources. b Rate cited in the Financial Times, apparently reflecting official target rates. c In theself-styled Somaliland Republic the legal tender is the Somaliland shilling (SomSh). d Based on partners’ trade returns; subject to a wide marginof error.

Somalia 29



Prospects for nationalreconciliation fade—

Somalia’s national reconciliation conference, scheduled for January 1999 in thesouthern city of Baidoa, has been postponed again, and the chances of it everbeing held look increasingly slim. This is a result of fierce fighting in Baidoabetween local militia of the Rahawayn Resistance Army (RRA) and forces loyalto Hussein Mohamed Aideed, one of Mogadishu’s principal faction leaders. Atthe same time other forces with allegiance to Mr Aideed, and his new-foundally, Ali Mahdi Mohamed, who controls the north of Mogadishu, have ad-vanced on the southern port of Kismayu, the stronghold of General MohamedSiad Hersi “Morgan”. General Morgan’s forces are backed by militia loyal toanother Mogadishu-based faction leader, Ali Hassan Osman “Ato”, a rival toMr Aideed and Mr Ali Mahdi. Peace and reconciliation are about the last itemson the agenda in these two areas, a situation that is unlikely to change in thecoming months. Indeed, the likelihood of an escalation of factional violenceinto other areas of Somalia is high, as the new, self-declared administration inSomalia’s Puntland region has backed General Morgan. Puntland’s leaders arefearful that the attack on Kismayu, the stronghold of General Morgan’s newJubbaland administration, is an indication of how Mr Aideed and Mr Ali Mahdimay treat their own new regional administration. Similarly, the situation inMogadishu, still characterised by sporadic inter-clan conflicts, could see in-creased levels of violence. This is because Mr Osman “Ato” and his allies, includ-ing Musa Sude Yalahow, whose militia forces control other parts of the stilldivided capital, remain unhappy with what they see as an unrepresentativepower structure in the new regional administration of Banaadir (Mogadishu andits environs), set up by Mr Aideed and Mr Ali Mahdi.

—as famine looms The escalation of violence in the southern regions does not bode well for itscivilians, 700,000 of whom are facing a serious food shortage. Indeed, theprospects for the 300,000 most at risk are particularly worrying because theylive in the Bay and Bakool regions where Mr Aideed’s militia are fighting withRRA forces. If these clashes cannot be contained, Somalia faces a major disasteron the scale of the 1992 famine, because the distribution of food relief will befar from easy. Even so, militiamen will no doubt continue to take their cut ofinternational assistance, as evidenced by squabbles between Rahawayn sub-lineages in the Jubba valley in November. Given these circumstances, UNagencies and their partners will be keen to work mainly in the relatively peace-ful areas of the country (Puntland and the self-styled Somaliland Republic),while other areas will suffer because of poor security. Any assistance will beparticularly welcomed in Somaliland as the ban on livestock imports imposedby Saudi Arabia in February 1998 continues to bite into its economy.

30 Somalia


Review

The political scene

Mogadishu factionsinfluence conflicts in the

regions—

Fierce fighting has broken out again in a number of regions in Somalia inrecent months. Although there is no direct link, much of this fighting stemsfrom antagonism between Mogadishu’s rival faction leaders. In particular, theestablishment of a regional administration for Banaadir (Mogadishu and itsenvirons) has pitted its joint chairman, Ali Mahdi Mohamed, controller ofMogadishu’s northern parts, and Hussein Mohamed Aideed, whose forces con-trol much of south Mogadishu, against Ali Hassan Osman “Ato”, who claimsthat the administration is not representative (4th quarter 1998, page 35). On anational level this has led the rival Mogadishu factions to support factionleaders in other regions, with their antagonism being played out particularlyaround the southern port of Kismayu.

—as fierce fighting eruptsin Kismayu—

Heavy fighting between rival Darod sublineages erupted in earnest at the end ofOctober 1998 in the southern port of Kismayu and continued into January. Thefighting began on October 27th, when Majerteen militia of the Somali PatrioticMovement (SPM), captured a Marehan general, Bile Rafle, who was a minister inthe government of Mohamed Siad Barre. The SPM is loyal to General MohamedSiad Hersi “Morgan”, who has been in control of Kismayu since 1993, whileGeneral Rafle is reportedly linked to the largely Marehan Somali National Front(SNF), which in turn has links with Mr Aideed. General Rafle was released afterintervention by local elders, but six people were killed and 14 wounded during

Main political figures in Somalia

Ali Mahdi Mohamed: One of two co-chairmen of the newBanaadir Regional Supreme Council. A principal factionleader whose forces control much of northern Mogadishu.

Hussein Mohamed Aideed: The other co-chairman of thenew Banaadir Regional Supreme Council. A principalMogadishu faction leader whose forces control much ofsouth Mogadishu and large tracts of southern Somalia.

Ali Hassan Osman “Ato”: A principal Mogadishu factionleader opposed to the Banaadir Regional Supreme Council,despite being named one of its vice-chairmen.

Mohamed Qanyare Afrah: A Mogadishu faction leaderallied to Mr Ali Mahdi and Mr Aideed.

Hussein Ali Ahmed: The new governor of Mogadishu,appointed by the Banaadir Regional Supreme Council.

Musa Sude Yalahow: A Mogadishu faction leader, who isallied to Mr Osman “Ato”.

Hussein Haji Bod: A Mogadishu faction leader allied toMr Osman “Ato”.

Abdurahman Mohamed Fodade: A Mogadishu factionleader allied to Mr Osman “Ato”.

Omar Haji Masaleh: Commander of the Somali NationalFront forces fighting in Kismayu.

Abdullahi Yussuf Ahmed: President of the new Puntlandadministration based in Gar.

General Mohamed Siad Hersi “Morgan”: Southernfaction leader whose forces control Kismayu. Proponent of anew regional government for an area he refers toas Jubbaland.

Mohamed Ibrahim Egal: President of the self-styledSomaliland Republic.

Somalia 31


subsequent clashes, and all remaining foreign aid workers beat a hasty retreat toNairobi. Fighting intensified around Kismayu at the beginning of November.SPM forces, aided by Ogaden militia loyal to Mr Osman “Ato”, fought those ofthe SNF at the airport and former presidential palace. Clashes in November leftmore than 120 people dead and caused most of the town’s inhabitants to flee,leaving the streets deserted. Two ships carrying refugees were reported to haveleft the port, probably bound for Kenya. On December 12th a further 47 peoplewere reported killed and 68 wounded in continued fighting which involvedabout 2,000 clan militia. SNF forces entered Kismayu from the north and weston January 6th, and fierce street-fighting left 60 people dead and 100 moreinjured.

—against the Jubbalandadministration

The SNF forces attacking Kismayu, led by Omar Haji Masaleh, are fighting withthe blessing of Mr Aideed and Mr Ali Mahdi. The assaults occurred a month afterGeneral Morgan had announced his intention to establish a regional governmentin the south, in an area he referred to as Jubbaland (4th quarter 1998, page 39).

Main Somali clans

WarsangeliDulbahante

DarodIssaqDir

Majerteen

OgadenMarehan

Digil Hawiye

’Iise Gadabursi

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

London, 1993.

Irrir

Legendary Arabian ancestry

Rahawayn

32 Somalia


Mr Aideed and Mr Ali Mahdi view General Morgan’s Jubbaland administrationas premature, and a threat to their efforts at national reconciliation based ontheir new administration in the Banaadir region. This has led the new admin-istration in Puntland to lend support to General Morgan, for fear that Puntlandmay face attack from forces loyal to Mr Aideed (see below).

Fighting also takes off inBay and Bakool regions

Mr Aideed’s attempts to exert influence in the central Bay and Bakool regionscontinue to meet stiff opposition from the Rahawayn Resistance Army (RRA).The RRA claims to have captured the town of Oddur on October 30th from thepro-Aideed United Somali Congress-Somali National Alliance (USC-SNA),although a spokesman for Mr Aideed said that their militia had withdrawnfrom the town in accordance with a previous agreement. In late November theRRA attacked USC-SNA positions in the Bay regional capital of Baidoa, prompt-ing Mr Aideed to bring in reinforcements from Mogadishu. Nine “technicals”(customised pick-ups equipped with rocket-launchers and anti-aircraft batter-ies) arrived from the capital on November 26th, four days after the RRA hadannounced that the road to Mogadishu was closed. Further clashes between thetwo sides on December 8th resulted in a death toll of 22, and at least 13 peoplewere killed on January 3rd when an anti-tank rocket was fired from an RRAroadblock at a bus on the Baidoa-Mogadishu road. Several reports said that thepassengers on the bus were civilians from subclans loyal to both sides, butothers suggested that militiamen riding on top of the bus had been the firstto open fire.

Mogadishu remains tense— Because of the continuing hostility among several clan factions towardsMr Aideed and Mr Ali Mahdi, following their declaration of a new adminis-tration around Mogadishu, the capital is also far from peaceful. Two days offighting in the south of Mogadishu between Mr Aideed’s militia and forcesloyal to Mr Osman “Ato” began on October 13th at a roadblock set up by thelatter’s militia and left ten people dead. The two factions clashed again in southMogadishu on October 25th, the day on which forces loyal to Musa SudeYalahow, an ally of Mr Osman “Ato”, fought militia of the new Banaadiradministration at El-Maan, Mogadishu’s port, to the north of the city. The twoclashes left at least 25 dead and 40 wounded. On November 21st a guardemployed by the French non-governmental organisation (NGO) Action contre lafaim was killed in north Mogadishu in a squabble over money, and a localbureaucrat died in a grenade attack on his taxi near the Karan market. At leastsix people were killed and an unspecified number injured in a shoot-out be-tween rival Hawiye clan factions, all supposedly loyal to Mr Aideed, at the portof Merca, 100 km south of Mogadishu, on December 7th.

—despite its newadministration

The continuing violence in Mogadishu reflects the fact that the new administrationfor the capital and its hinterland (the Banaadir region), set up in August byMr Aideed, Mr Ali Mahdi and Mohamed Qanyare Afrah (4th quarter 1998,page 35), has a long way to go before it can claim to be in control. However, someprogress was made in that direction on December 29th, when thousands of peoplegathered in Mogadishu to watch the graduation ceremony of the city’s newlyformed police force, estimated to be 2,000-strong. The new administration imposeda curfew in Mogadishu in early January, a move immediately denounced by

Somalia 33


Mr Osman “Ato” in a statement to the press. Mogadishu’s new governor,Hussein Ali Ahmed, sworn in during August, made a whistle-stop tour of sevenArab countries in the second half of October to raise funds for the new adminis-tration, after announcing the official introduction of sharia (Islamic) law in thecapital on October 7th. According to the Mogadishu Times, he secured $400,000from Qatar and $1m from Egypt, and the Libyan chargé d’affaires in Mogadishuannounced at a news conference on November 9th that $800,000 had beenallocated to the Banaadir regional administration, while a further $250,000 hadbeen set aside for the national reconciliation conference in Baidoa. However, theescalation of violence in and around Baidoa will inevitably lead to a furtherpostponement of the Baidoa conference, which was most recently scheduled forJanuary (it had already been postponed three times since it was first proposed aspart of the Cairo peace accord signed in December 1997; 1st quarter 1998,page 33).

Puntland sides withGeneral Morgan

The likelihood that Colonel Abdullahi Yussuf Ahmed, president of the newadministration in Puntland, will attend the Baidoa conference, should it evertake place, is remote, given current political circumstances. Colonel Abdullahihas announced that “all military action against Kismayu is a declaration of waragainst Puntland”, the Paris-based Indian Ocean Newsletter (ION) reported onNovember 21st. This reflects a fear among Puntland’s leaders that the attack byforces loyal to Mr Aideed on General Morgan’s Jubbaland is a sign of whatMr Aideed has in store for them. These sentiments were echoed when anaircraft from Puntland carrying ammunition landed at Kismayu airport onJanuary 3rd, according to the Mogadishu-based daily Qaran. Meanwhile,Colonel Abdullahi has been consolidating his new position with several meet-ings with international representatives in recent months. He received aGerman delegation in Garoe on September 19th to talk about the possibility ofrepatriating Somali refugees from Germany, and a delegation from Denmarkfor discussions on a similar subject the following day. Colonel Abdullahi leftBossasso for talks in Djibouti on October 1st and met the Libyan leader,Colonel Muammar Qadhafi, in Tripoli on December 12th. The Puntland pres-ident also visited Cairo in late December, where he met Ismat Abd al-Majid, thesecretary-general of the Arab League, and the Egyptian foreign minister, AmrMoussa. A spokesman for Colonel Abdullahi told reporters that Mr al-Majidand Mr Moussa had welcomed the establishment of the administration inPuntland and had promised to assist where possible. Meanwhile, the MogadishuTimes reported that the Ethiopian government has appointed a special envoyto Puntland, who arrived in Garoe on December 9th.

Regional powers continueto find peace-brokering a

delicate business

The presence of an Ethiopian special envoy in Garoe reflects the continuingattempts by regional powers, notably Egypt and Libya, to encourage peace inSomalia. However, such efforts are held back not only by rivalries betweenSomali factions, but also by those between the regional powers themselves. Thiswas reflected in comments made by the Libyan chargé d’affaires, at a newsconference in Mogadishu on November 9th, that the Ethiopian governmentwas arming Somali groups. The difficulties of brokering peace among Somalifactions were highlighted in December when an international delegation wasunable to visit Mogadishu for fear of causing a flare-up in factional rivalries. The

34 Somalia


delegation consisted of members of the International Committee for Somalia,an ad hoc body established at a meeting in Addis Ababa, organised jointly by theInter-governmental Authority on Development (IGAD) and the Italian govern-ment in late October, to discuss ways of finding funds for the establishment of anew government in Somalia. After visiting Somaliland and Puntland, the deleg-ation, which comprised 23 officials from Egypt, Eritrea, Ethiopia, Italy, Norway,Uganda and Yemen, had to change its itinerary, following warnings from fiveMogadishu factions, led by Mr Yalahow, Mr Osman “Ato” and Hussein HajiBod, that factional fighting could erupt if the delegation were welcomed by theMogadishu police. After diverting to Merca, the delegation left without meetingeither side. As an Ethiopian delegate explained to the Addis Ababa-based news-paper Reporter on December 16th: “The opposition groups did not want to givethe impression that Mr Ali Mahdi and Mr Aideed were in charge. Meanwhile,Mr Aideed and Mr Ali Mahdi considered themselves to be the leaders, and sothey were not happy that we wanted to see the opposition groups.” In a state-ment issued on December 6th Mr Aideed accused the delegation of wanting todivide Somalia. Libya’s leader, Colonel Muammar Qadhafi, did manage to per-suade several Somali leaders to go to Tripoli in late December in a bid to set upa central government, but to no avail. Among other problems, Puntland’sColonel Abdullahi refused to meet either Mr Ali Mahdi or Mr Aideed, claimingthat they had “no mandate from the people in their fiefdoms”.

Infighting breaks outamong the Rahawayn

Fighting between rival sublineages of the Rahawayn clan broke out in Sakow, asmall town on the Jubba river on the border between the Jubbada Dhexe andGedo regions, in mid-November. The clashes were sparked by disagreementsover the sharing of humanitarian aid, and at least 25 people were reportedlykilled. A ceasefire, brokered by local elders, was announced on December 3rd,but violence between the rival militia groups erupted again on December 19th,when 20 people were killed and 27 wounded. Local elders told a newspaperthat the fighting was triggered by the ambush of a bus carrying negotiatorsfrom Mogadishu, during which four people were killed.

Refugees arrive in Yemen— Continued fighting in Somalia is forcing greater numbers of people to flee. Agroup of 110 Somali refugees arrived in Yemen on October 18th and wereaccommodated in a camp in the south of the country, a spokesman for the UNHigh Commissioner for Refugees (UNHCR) announced in Sanaa, the capital ofYemen. They had arrived by ship from Bossasso. About 9,400 of these “boatpeople” had arrived in Yemen from Somalia since the beginning of the year,putting the number of Somali refugees there at 65,000.

—as others seek assistanceto return from Kenya—

However, on December 18th the refugee camp at Jomvu in Kenya was officiallyclosed, following a directive to the UNHCR by Kenya’s president, Daniel arapMoi, to relocate the Somali refugees to a more suitable location near the Somaliborder. Although some refugees were relocated to Kakuma, more than 750declined the offer and were left stranded at Mombasa’s Old Port, after opting toreturn home. The latest reports suggest that the refugees are still solicitingmoney to buy fuel and food.

Somalia 35


—where a regional officialthreatens to close the

border

The provincial commissioner in Kenya’s north-eastern province threatened toclose the border with Somalia in early January if Somali militiamen failed torelease Kenyan-registered vehicles that they were holding. The commissioneralso said that he would stop planes flying qat to Kismayu, and promised toimpound all Somali-registered vehicles once the border was sealed, the PanAfrican News Agency reported on January 4th.

The economy

Food aid is urgentlyneeded

The UN Food and Agriculture Organisation (FAO) warned in December of amajor food crisis in Somalia, following the extremely poor harvest from themain cropping season (4th quarter 1998, page 40). In its last Africa Report for1998, the FAO estimated the number of people facing food shortages at 700,000,and those most at risk at 300,000, mainly in the Bay and Bakool regions. Itpredicts that 125,000 tonnes of food aid will be needed until at least July 1999,assuming a normal secondary cereal crop is harvested early this year. The poorharvest, associated with drought, reduced planting and floods, has been madeworse by civil strife and the country’s reduced import capacity, because of a lackof foreign exchange associated with the ban on livestock exports to SaudiArabia. Malnutrition is on the rise and large-scale population movements insearch of food and work have been reported. A telephone announcement froma spokesman of the Rahawayn Resistance Army (RRA) to Agence France-presse(AFP) in Mogadishu on November 11th said that 18 people had died in andaround Oddur in recent days, and AFP reported on December 14th that about10,000 people had left their villages in Bakool, heading for the Gedo region.

The UN launched an appeal for $65.7m on December 15th to provide humani-tarian assistance to the most vulnerable groups. In the first half of 1999 agencieswill concentrate their efforts on preventing the current crisis in the south fromdeveloping into a major disaster on the scale of the 1992 famine, when morethan 200,000 Somalis died. At the same time UN agencies and their partners alsopropose to work in relatively peaceful parts of the country, such as Somaliland,to help these areas towards rehabilitation and recovery. An additional $29.3mwill be required in 1999 for these activities. A donation of $10m towards faminerelief was announced by the EU in Brussels on November 25th.

Somalia: cereal import needs, 1998/99a

(’000 tonnes)

CoarseWheat Rice grains Total

Total import requirement 130 90 120 340 Expected commercial imports 70 75 70 215 Food aid needs 60 15 50 125Current food aid pledges 0 0 5 5

% of normal level1998 production – – – 411998/99 import requirement – – – 2431998/99 food aid requirement – – – 179

a Marketing year (August-July).

Source: UN Food and Agriculture Organisation/GIEWS, Africa Report, December 1998.

36 Somalia


Foreign ships are seized Four Ukrainian fishermen captured together with their ship by Somali gunmennear the north-eastern town of Caluula in late December have been handedover to the Puntland administration. The Puntland minister of fisheries andmaritime resources was quoted by the Mogadishu Times on January 9th assaying that legal action would be sought against the fishermen, despite anearlier report that they had been tried by a self-styled militia court and sen-tenced to pay $500,000 in fines. Meanwhile, the Islamist group Al-Ittihad saidthat it was holding a ship at Raas Kaambooni, on the Kenyan-Somali border,the Mogadishu-based daily Ayaamaha reported on January 6th. A spokesmansaid that the ship had developed problems and that Al-Ittihad had protected itfrom militia groups who had tried to rob it; the ship was not fishing illegallyand would be released unconditionally, along with its crew of Kenyans,Indians, Turks and Greeks.

Rival factions compete tosell fishing rights

The tendency of Somali militiamen to seize ships off the Somali coast was putinto context by a report on November 13th in the London-based journal AfricaAnalysis, in which it was claimed that rival political factions have been helpingto finance their militias by selling fishing rights along Somalia’s 3,000-kmcoastline to international fishing fleets. The report suggests that the Africanand Middle East Trading Company (Afmet) was secretly established in 1996 byMr Ali Mahdi, Mr Osman “Ato” and General Morgan to issue licences fortrawler access to tuna in exchange for hard currency. (That these three men arenow rivals only serves to demonstrate the transience of Somali politics.) ABritish firm, MacAlister Elliott, reportedly acts as technical adviser to licence-issuing offices in Mogadishu, while an Italian canning company, Palmera,liaises between Afmet and the world fishing industry. Afmet licensed 43 purse-seiners to fish tuna between August and December 1996, with fees originallyset at $30,000 for the four-month season. But in 1997 this “authority” wasundermined when a rival tuna licensing body, Samico, was set up reportedly byindividuals with links to Mr Aideed. Samico then undercut the Afmet fee by$15,000, leaving uncertainty as to which licences are legitimate. The Puntlandadministration is now said to be keen to broker agreements with companieswanting to exploit potential lobster fisheries off Bossasso. A British-based com-pany, Pan Ocean Resources, is already in partnership with a local company inBossasso. Somali waters contain some of the world’s richest fishing grounds,with an estimated maximum sustainable yield of 180,000 tonnes/year.

The future looks bleak forbanana exports

An Italian-based fruit company, Evergreen, has given up trying to revitalise theproduction of bananas, formerly one of Somalia’s most lucrative exports, afterthe failure of attempts to solicit technical assistance from the EU to helprebuild its operations in the Jubba valley (2nd quarter 1998, page 35). Exportsof the somalita, a sweet-tasting local variety, to Italy, its traditional market,have ceased because Evergreen was losing thousands of dollars on every ship-ment. After a five-year battle to persuade the EU to support its efforts,Evergreen has now taken legal action in Brussels and Luxembourg, claimingthat the EU has reneged on promises to assist traditional exporters. Despiteassistance from Evergreen in the form of fertilisers and advice, the fruit remainsof extremely poor quality, and irregular shipments and high production costshave made the somalita an unreliable choice for importers.

Somalia 37


News from the Somaliland Republic

The government sets itsbudget

On December 29th the deputy minister of finance of the self-styled SomalilandRepublic, Ahmad Farah Dhodi, announced the government budget for 1999, atSomSh40bn ($530,000), SomSh33bn of which is to be paid as regular salariesand allowances to civil servants and the army. The budget has been formulatedon the basis of the current ban on livestock imports imposed by Saudi Arabiain February 1998 (2nd quarter 1998, page 35). The Ministry of Finance plans todraft a supplementary budget when the sanctions are lifted. The ministry alsoplans to revamp its revenue collection system. The Arab League secretary-general, Ismat Abd al-Majid, has urged Saudi Arabia to lift its import ban tohelp shore up the economy, an aide told reporters on December 15th. In 1998Somaliland and Puntland exported an estimated 500,000 head of cattle to theGulf, down from 2.5m in 1997, representing a low of $500m in revenue.

Two mayors are underinvestigation

The president of Somaliland, Mohamed Ibrahim Egal, has ordered the nationalcourt to investigate the former mayors of Hargeisa and Gebile (in the north-west) who have been accused of embezzlement, the Mogadishu-based dailyAyaamaha reported on January 7th.

US companies arereportedly prospecting

for oil

An unconfirmed report in the Mogadishu Times on December 19th suggestedthat US companies were prospecting for oil in the Awdal region near Borama.The report indicated that the prospectors had been in the region for threemonths, and that their presence, although shrouded in secrecy, was under theauspices of the Somaliland government.

38 Somalia


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 newconstitution which provides for a maximum of four political parties

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

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

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

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

Main political parties Rassemblement populaire pour le progrès (RPP), the former sole legal party, split inMay 1996, with dissident members forming the Groupe pour la démocratie et larépublique (RPP-GDR), subsequently banned; Parti national démocratique (PND); Partipour le renouveau démocratique (PRD). In November 1991 the Front pour larestauration de l’unité et de la démocratie (FRUD) launched an armed Afar rebellionagainst the government. In December 1994 the government signed a peace agreementwith a faction of the FRUD. This faction was legalised as a political party in March1997 and contested the December 1997 legislative election in alliance with the RPP

President Hassan Gouled AptidonPrime minister, minister for land development Barkat Gourad Hamadou

Key ministers Agriculture & water resources Ibrahim Idriss Jibril AhmedCivil service & administrative reform Ougoureh Kifle AhmedCommerce & industry Mohamed Barkat AbdillahiEconomy, finance & planning Yacin Elmi BouhEnergy & natural resources Ali Abdi FarahEnvironment & tourism Osman Robleh DaichForeign affairs & co-operation Mohamed Moussa ChehemHealth & social affairs Ali Mohamed DaoudInterior & regional administration Elmi Obsieh WaisJustice & human rights Mohamed Dini FarahLabour & training Mohamed Ali MohamedNational defence Abdullah Chirwa JibrilNational education Ahmed Guire WaberiPublic works, housing & construction Hassan Farah MiguilTransport & telecommunications Abdallah Abdillahi MiguilYouth, sports & culture Rifki Abdulkader Bamakrama

Central bank governor Djama Mohamed Haid

Djibouti 39


Economic structure

Latest available figures

Economic indicators 1994 1995 1996 1997 1998

GDP at market pricesa (Dfr bn) 81.4 79.0 78.9 n/a n/a

Real GDP growthb (%) –2.9 –3.1 –0.2 n/a n/a

Populationc (’000) 570 580 n/a n/a n/a

Exports fob ($ m) 56 38 40 n/a n/a

Imports fob ($ m) 237 205 200 n/a n/a

Current-account balance ($ m) 40.0 –18.2 –20.4 n/a n/a

Reserves excl gold ($ m; year-end) 73.8 72.2 77.0 66.6 63.0d

Total external debt ($ m; year-end) 226 238 241 n/a n/a

External debt-service ratio, paid (%) 4.3 5.4 5.2 n/a n/a

Exchange rates (av) Dfr:FFr 32.0 35.6 34.7 30.4 23.0d

Dfr:$ 177.7 177.7 177.7 177.7 177.7d

January 29th 1999 Dfr177.7:$1

Origins of gross domestic product 1993 % of total Components of gross domestic product 1995a % of total

Agriculture 2.8 Private consumption 71.1

Industry 21.2 Government consumption 34.2

Services 76.0 Gross domestic investment 12.0

GDP at factor cost 100.0 Net exports of goods & services –17.3

GDP at market prices 100.0

Principal exports 1988 $ m Principal imports cif 1988 $ m

Re-exports 37 Consumer goods 115

Live animals 5 Food 67

Main destinations of exports 1996e % of total Main origins of imports 1995e % of total

Somalia 39.5 France 14.7

Ethiopia 33.5 Ethiopia 10.7

Yemen 20.8 Saudi Arabia 7.5

Saudi Arabia 2.9

a Provisional. b IMF estimates. c UN figures, including refugees and expatriates. d EIU estimate. e Based on partners’ trade returns; subject to awide margin of error.

40 Djibouti



Ties with Ethiopia will bestrengthened—

Djibouti’s economic and political prospects in 1999 and 2000 remain over-shadowed by the possibility of renewed fighting between Ethiopian andEritrean forces. Already close economic and military ties with Ethiopia willprobably be strengthened, especially since diplomatic relations with Eritreawere broken off in November 1998. Although officially denied by both parties,it is probable that Ethiopian troops will play a heightened role in ensuring thesecurity of convoys of Ethiopian produce transiting of Djibouti, particularlyalong the road from Yoboki to Galafi.

—as Djibouti’s securityremains under threat

In the current, unstable regional climate, Djibouti faces three specific securitythreats. The first comes from guerrillas of the anti-government faction of theFront pour la restauration de l’unité et de la démocratie (FRUD), led by AhmedDini. The presidential poll due in May this year is likely to be used as anopportunity to step up sporadic attacks against military targets, so as to high-light both the instability of the current political settlement and the plight ofFRUD members detained without charge in the country. At the same time theDjiboutian authorities may well use the Ethiopian-Eritrean conflict, and closerco-operation with the Ethiopian army, to launch pre-emptive strikes againstthese forces. Mr Dini, speaking from exile in Paris in December, has stated thathe expects such a move, alleging that Ethiopian forces are now active aroundYoboki and along the border with Eritrea in northern Djibouti.

Another security threat could come from the Eritrean authorities who mayattempt to attack Ethiopian supply lines within Djibouti. Some analysts havesuggested a potential alliance between Mr Dini’s forces and the Eritrean govern-ment. However, FRUD’s loose command structure and sometimes divided loyal-ties make such an alliance extremely unlikely. Far more significant to Djibouti isthe danger that renewed fighting between Eritrean and Ethiopian forces willaccidentally spill across Djibouti’s northern border. Eritrea’s immediate objec-tive will be to cut the feeder road between the Ethiopian-Djiboutian border postat Galafi and the main Mille-Assab road (see map page 9), along which goods areferried to Addis Ababa and the Ethiopian highlands. Given the proximity ofthis highly strategic link to northern Djibouti, such fighting could have asignificant impact upon the country, particularly if it triggers an inflow ofrefugees, or defeated troops, from either side.

The French may bedrawn in

One important aspect of the threat from Eritrea is that France, which maintains a3,000-strong permanent garrison in Djibouti, is committed by treaty to defend itagainst external aggression. Although French forces are anxious not to be involvedin any action, apart from an intelligence role, in the event of attacks on Ethiopianconvoys within Djibouti the French would find themselves in the same, invidiousposition as during the 1991-94 civil war. Now, as then, they may be called uponby the Djiboutian authorities to act against a security threat which the authoritiesallege is orchestrated from outside the country. It is this obligation that led Frenchmilitary authorities in Djibouti to announce on January 21st that a patrol frigatewould be on permanent standby off the coast of Djibouti to monitor the impactof renewed fighting between Ethiopia and Eritrea.

Djibouti 41


The conflict willovershadow the

presidential election

The simmering Ethiopian-Eritrean conflict is likely to eclipse events onDjibouti’s narrow domestic political stage. Nevertheless, Djibouti’s politicalelite is firmly focused on the impending presidential election, scheduled forMay, but open to delay if Djibouti is dragged into renewed fighting betweenEthiopia and Eritrea. The fact that by mid-January none of the four legalpolitical parties had officially endorsed presidential candidates is evidence ofthe official uncertainty surrounding the poll. The widespread assumptionamong Djiboutian and external observers is that Mr Aptidon’s nephew, IsmaelOmar Guelleh, will stand as the candidate of the Rassemblement populairepour le progrès (RPP), the ruling party. Mr Guelleh, who heads the presidentialoffice, has been Mr Aptidon’s heir-apparent for many years and has greatlyconsolidated his grip on power since the latter’s illness in 1995.

The leaders of the legalised faction of the FRUD—which signed a peace dealwith the government in 1994—will also need to endorse Mr Guelleh, giventhat the RPP and the legal faction of the FRUD ran joint electoral lists in theDecember 1997 legislative election. Whether the FRUD will comply is unclear,as one of its leaders, Abbate Ebou, has himself expressed a desire to stand forthe presidency. But Mr Ebou’s leadership of the FRUD has already been chal-lenged, and the legalised faction of the FRUD therefore finds itself in the samedilemma as the two tiny legal opposition parties, the Parti pour le renouveaudémocratique (PRD) and the Parti national démocratique (PND), which areboth incapacitated by internal struggles. In each case, ousted leaders allege thatdissent has been manipulated by those close to Mr Guelleh. Such domesticpolitical tension may well degenerate into further violence, which has startedalready with a grenade attack on the PND headquarters in November 1998.

Economic reforms willfalter

Although discussions with France and other multilateral donors on economicassistance will continue, concerns about the Ethiopian-Eritrean war and thepresidential election will hold back the reforms required to rejuvenate Djibouti’sailing economy. Ethiopia’s round-the-clock use of the Djibouti-ville port hascreated an upsurge in port fees, employment and tax revenue. Instead of beingused to consolidate the current reform process, the increased revenue will allowthe government to stave off reforms. Extra money will allow greater politicalpatronage in the run-up to the elections and also enables the government to putoff necessary, but unpopular, cutbacks in the civil service. Such increases ingovernment expenditure will dent already precarious relations with donors,notably the IMF, whose current stand-by loan agreement lapses in March.

Review

The political scene

Djibouti breaks offdiplomatic relations with

Eritrea—

Djibouti broke off diplomatic relations with Eritrea on November 18th. In aunilateral action, the Djiboutian government closed its embassy in Asmara,withdrawing the ambassador, Ahmed Issa Gabode, and his staff. Djibouti simul-taneously demanded that Eritrea’s ambassador, Ramadan Osman Mohamed,leave Djibouti. The move came after Hassan Gouled Aptidon, the Djiboutian

-4

-2

0

2

4

6

1992 93 94(a) 95(a) 96(a)

Djibouti

Africa

Djibouti: gross domestic product % change, year on year

(a) IMF estimates. Sources: EIU; IMF, World Economic Outlook.

42 Djibouti


president, met the presidents of Zimbabwe and Burkina Faso in the Burkinabécapital, Ouagadougou, on November 7th-8th as part of an ongoing OAU initia-tive to negotiate between the Ethiopian and Eritrean leaders. During the negoti-ations the Eritrean president, Isaias Afewerki, openly questioned Mr Aptidon’simpartiality, rejecting him as a credible negotiator because of Djibouti’s tradelinks with Ethiopia. In a subsequent interview with the Ethiopian ruling party’smagazine, Efoita, Mr Aptidon bitterly denounced the Eritrean leader, whom healleged had previously tried to destabilise the Djiboutian government. TheEthiopian prime minister, Meles Zenawi, subsequently visited Djibouti onDecember 6th, where he met Mr Aptidon and his advisers.

—with minimal economicimpact—

The break in relations with Eritrea has only limited economic and politicalimplications for Djiboutians. Prior to 1998 official bilateral trade was largelylimited to transshipments from Djibouti to the Eritrean ports of Assab andMassawa, although there was also reportedly substantial, seabound, contra-band trade from Djibouti to Eritrea. The two countries share only a short landborder, which has in effect been closed for much of the past eight years, owingto the armed insurgency by the Front pour la restauration de l’unité et de ladémocratie (FRUD) in northern Djibouti.

—but further weakeningthe IGAD

The political viability of the Inter-Governmental Authority on Development(IGAD) has been called into question by the Ethiopian-Eritrean conflict. TheIGAD is based in Djibouti and was founded by Mr Aptidon, giving addedsignificance to the suspension of diplomatic relations between Eritrea andDjibouti. The situation was exacerbated when Djibouti refused to allow theEritrean executive secretary of the IGAD, Tekeste Ghebray, to enter the countryon November 26th. Four days earlier Mr Tekeste had been refused permissionto enter Ethiopia to attend an IGAD donors’ meeting. In theory, IGAD officialshave diplomatic immunity, and when the IGAD headquarters were establishedin Djibouti the Djiboutian authorities reportedly agreed not to impede thework of the secretariat.

Eritreans are unwelcomein Djibouti

This decision appears to confirm reports in the French press that Djibouti hadasked airlines flying to Djibouti not to carry Eritreans. Air Djibouti itself—which is privately owned—apparently adopted this policy following the breakin diplomatic relations. The Djiboutian authorities reportedly then alsorequested other private airlines servicing Djibouti and Somaliland, many ofwhich are owned by Somali and Arab financiers, not to carry Eritreans.

FRUD claims furtherattacks on military targets

Djibouti’s break with Eritrea prompted speculation about a possible alliancebetween the armed FRUD guerrillas loyal to Ahmed Dini and the Eritreanauthorities. However, although sporadic FRUD attacks against Djiboutian mili-tary targets in northern Djibouti continued during October and November,there is no evidence to suggest that Mr Dini’s beleaguered partisans are benefit-ing from external, Eritrean assistance. The pattern of current incidents issimilar to those attacks staged since September 1997.

Djibouti 43


During the morning of November 1st a convoy of Ethiopian lorries was at-tacked near Daguirrou, on the road from the town of Yoboki to Galafi, thenorth-eastern border post between Djibouti and Ethiopia. It is the principalroute now taken by the Ethiopian trucks ferrying goods to and from Djibouti’sport. One Ethiopian driver was killed in the attack, responsibility for which wasclaimed on the following day by Mr Dini, who is in Paris. Mr Dini explicitlycalled for the liberation of “prisoners of war and political prisoners” held inDjibouti; Mohamed Kadami and several other aides of Mr Dini arrested inEthiopia and deported to Djibouti in 1997 remain in detention without charge(4th quarter 1997, page 36).

Mr Dini went on to claim responsibility for a landmine explosion close to AssaGueula, in the north of the country in mid-November, in which five soldierswere reported killed and nine others wounded. The FRUD leader also allegedthat following these operations Djiboutian military chiefs met local leaders andrequested their co-operation in larger-scale military operations along the bor-der. Mr Dini alleged that Ethiopian troops would participate in such oper-ations, aimed at flushing out FRUD elements, as well as pre-empting anyEritrean infiltration.

A Paris court passes lifesentences for the Djibouti

café attack—

A long-running legal saga drew formally to a close with the end of a trial of fiveDjiboutians in absentia in Paris on November 16th. On September 27th 1990 agroup of Djiboutians hurled four grenades into the Café de Paris, in the centralsquare of Djibouti-ville. The café was full of French military and civilian per-sonnel at the time of the attack. A French child was killed in the blast and19 adults were injured. The attack occurred weeks after the Iraqi invasion ofKuwait, and the perpetrators were generally thought to have both Iraqi andLibyan links.

The trial in Paris was the culmination of a lengthy investigation by a Frenchlawyer, Roger Le Loire, which at times threatened to jeopardise relationsbetween France and Djibouti. The French court sentenced four of the allegedperpetrators of the attack to life imprisonment and the fifth to 20 years’imprisonment. Three of the five are under arrest in Djibouti, but they are un-likely to serve their French sentences as the Djiboutian government apparentlydoes not extradite its nationals.

—but fails to clarify AdenRobleh Awalleh’s role

Aden Robleh Awalleh, a veteran politician and former minister, who in 1992formed his own opposition party, the Parti national démocratique (PND), wasbriefly detained last October as part of the Café de Paris inquiry. Mr Awallehwas originally to have been charged with organising the grenade attack, but thecharges were reportedly dropped because of procedural irregularities. After thesentences were passed in November, Mr Awalleh issued a statement denyingany involvement in the affair, claiming that the accusations against him werepolitically motivated.

The PND remains inturmoil

A grenade was thrown into the Djibouti-ville headquarters of the PND onNovember 2nd. The PND, like the other legally recognised opposition party,the Parti pour le renouveau démocratique (PRD), has since late 1997 beenincapacitated by internal dissent, which in the PND’s case relates to its

44 Djibouti


leadership. On December 4th an extraordinary meeting of party members for-mally designated Mr Awalleh’s rival, Mahdi Ahmed Abdillahi, as the presidentof the PND. In a welter of confusing allegations and counterallegations,Mr Awalleh reportedly tried to organise a rally of his supporters to march to thePND offices the following day to protest against the decision. The march wasbroken up by the police, and relatives of Mr Awalleh in Paris then reported thathe had “disappeared”, having been prevented by police from making a publicspeech. The speech reportedly denounced the government for having orches-trated the divisions within the PND so as to prevent Mr Awalleh from standingas a presidential candidate in the elections scheduled for this May.

The economy

The port is operating atclose to capacity

Ethiopia’s use of Djibouti-ville port as its main trade route had led to fears ofserious bottlenecks in November and December, but these proved unfounded.Both container and bulk-cargo handling facilities continue to operate aroundthe clock, and to date serious logjams have been avoided. However, this ispartly a result of the delayed arrival of several ships, rather than improvedcapacity. Facilities for offloading dry-bulk cargoes such as food-aid grains andfertilisers are largely limited to two of the port’s 16 berths. Pressure on thesewill grow during January and February, when several large consignments arescheduled to arrive.

Transportation logisticsremain fraught

The key to the swift offloading and turnaround of vessels remains the speedand efficiency with which goods can be transferred to the waiting lorries. Thissmooth turnaround was disrupted in mid-November when, at the insistence ofthe Ethiopian authorities, attempts were made to bar lorries driven or ownedby Ethiopians of Eritrean origin (see Ethiopia: The political scene). AfterEthiopia suspended its use of Eritrean ports in May, most of those operatingroad haulage companies in Ethiopia evidently switched operations to Djibouti.

French aid to Djibouti isreviewed

The Djiboutian ministers of finance, defence and transport met the Frenchminister of co-operation, Charles Josselin, in Paris on November 19th. Discus-sions focused on the economic implications of the reduction of France’s mili-tary presence in Djibouti. Following that meeting, France has agreed to provideFFr25m ($4.2m) budgetary support as part of its contribution to Djibouti’seconomic reform.

On January 21st Mr Josselin made a two-day visit to Djibouti, during which heannounced a package of financial assistance worth FFr65m, including FFr10min additional budgetary assistance. Mr Josselin also announced that the Frencharmy would henceforth pay port and airport fees, from which they have pre-viously been exempt. Mr Josselin said that the new aid package was an “excep-tional” measure, aimed at cushioning the economic impact of the scheduledscaling-down of the French base in Djibouti. The agreement marks a funda-mental shift away from direct, compensatory, cash hand-outs by the Frenchmilitary authorities to the treasury, to contributions linked explicitly to serviceprovision by the Djiboutian authorities.

Djibouti 45


Air Djibouti expands The revival of the national carrier, Air Djibouti, continues apace. The airlinewas relaunched in 1998 with private capital (1st quarter 1998, page 46). InNovember it announced that there would be two flights a week to Paris frommid-December using an Airbus 310-200. The company has also begun flights toEntebbe, Uganda and Dubai. However, the government’s rift with the Eritreanauthorities in mid-November has necessitated a rethink of its plan to linkAsmara into its regional services.

Salt production from LakeAssal is exported to

Ethiopia

With the salt trade between the Eritrean section of the Danakil depression andEthiopia disrupted by the border conflict, interest has revived in producing andexporting salt from Djibouti. According to reports in the French press, in 1998several Djiboutian companies obtained licences to take salt from Lake Assal,the saline lake that straddles Djibouti’s western border with Ethiopia, with aview to exporting it to Ethiopia.

46 Djibouti


Quarterly indicators and trade data

Ethiopia: quarterly indicators of economic activity

1996 1997 1998

2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

Production Annual totals

Coffee ’000 tonnes ( 230a ) ( 228a ) ( 204a )

Prices Monthly av

Consumer prices, Addis

Ababa: 1990=100 177.3 174.9 167.1 165.8 168.0 171.4 167.2 174.4 180.3 n/a

change year on year % –7.4 –7.0 –6.1 –7.4 –5.2 –2.0 0.1 5.2 7.3 n/a

Money End-Qtr

M1, seasonally adj: Birr m 9,597 9,702 9,395 9,568 9,661 9,913 10,220 9,858 10,637 9,594b

change year on year % 0.4 1.9 –0.1 3.2 0.7 2.2 8.8 3.0 10.1 n/a

Foreign tradec Qtrly totals

Exports fob $ m 133.4 107.9 99.9 113.0 150.6 145.3 131.8 139.8 n/a n/a

Imports cif “ 348.6 321.7 438.2 343.9 313.9 355.9 418.1 382.0 n/a n/a

Exchange holdings End-Qtr

National Bank:

goldd $ m 10.2 0.6 0.6 0.5 0.6 0.5 0.5 0.4 0.4 6.5e

foreign exchange “ 890.4 821.0 722.0 566.3 577.3 531.0 491.4 454.3 429.8 409.7f

Exchange rate

Market rate Birr:$ 6.35 6.39 6.43 6.64 6.80 6.81 6.86 6.95 7.06 7.27b

Note. Annual figures of most of the series shown above will be found in the Country Profile.a Estimate. b End-August. c DOTS estimate. Figures are subject to revision. d End-quarter holdings at quarter’s average of London daily price less25%. e End-November, 6.6. f End-November, 490.5.

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

Djibouti: quarterly indicators of economic activity

1996 1997 1998

1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr

Money End-Qtr

M1, seasonally adj: Dfr bn 34.94 36.79 36.61 35.78 36.30 32.53 32.36 32.32 26.30 27.29

change year on year % –7.8 –1.4 –0.4 –3.2 3.9 –11.6 –11.6 –9.7 –27.6 –16.1

Foreign tradea Annual totals

Exports fob $ m ( 135 ) ( 143 ) ( n/a )

Imports cif “ ( 399 ) ( 387 ) ( n/a )

Exchange holdings End-Qtr

Foreign exchange $ m 70.9 73.5 70.4 76.8 71.9 71.3 69.6 65.8 61.9 62.7b

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 estimates. b End-3 Qtr, 62.1; end-November, 62.9.

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

Quarterly indicators and trade data 47


Ethiopia: foreign trade($ m)

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Imports cif 1991 1992 1993 Exports fob 1991 1992 1993

Food, beverages & tobacco 24.8 89.3 97.8 Food 126.3 113.2 138.5

of which: of which:

cereals & preparations 14.2 76.3 78.9 coffee 116.2 107.3 129.2

Petroleum & products 50.1 149.5 165.6 Hides & skins 25.1 32.3 32.7

Chemicals 72.7 58.3 106.1 Total incl others 188.6 197.2 201.7

Basic manufactures 76.3 99.4 124.2

of which:

iron & steel 15.6 13.9 38.6

metal manufactures 17.2 15.7 26.2

Machinery & transport equipment 210.5 192.8 208.9

of which:

road vehicles 77.5 96.7 113.4

Total incl others 471.8 656.6 771.6

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Imports cifa 1994 1995 1996 1997 Exports foba 1994 1995 1996 1997

Italy 162 221 174 145 Germany 80 156 126 121

US 157 163 163 133 US 33 31 33 66

Japan 80 120 123 117 Japan 61 56 52 62

UK 81 93 85 105 Italy 32 48 48 51

Germany 117 124 105 105 France 15 21 18 28

Jordan 5 18 70 77 UK 18 23 37 25

Kenya 38 47 55 60 Saudi Arabia 4 22 21 24

China 19 34 46 60 Djibouti 11 14 16 18

Total incl others 1,121 1,379 1,485 1,435 Total incl others 304 472 460 540

a DOTS estimates.

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

Djibouti: foreign trade($ ’000)

Jan-Dec Jan-Dec Jan-Dec Jan-DecImports cif 1991 1992 Exports fob 1991 1992

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

48 Quarterly indicators and trade data


Somalia: trade with major trading partnersa

($ m)


Imports cif 1994 1995 1996 1997 Exports fob 1994 1995 1996 1997

Kenya 53 65 76 84 Saudi Arabia 70 89 89 102

Djibouti 40 49 57 63 Italy 16 20 19 22

India n/a 5 27 32 UAE 13 26 24 27

Saudi Arabia 14 16 25 28 Yemen 26 21 34 15

Brazil 21 13 17 27 Total incl others 143 169 188 176

Total incl others 309 279 330 369

a DOTS estimates.

Source: IMF, Direction of Trade Statistics, yearbook.

Djibouti: trade with major trading partnersa

($ m)


Imports cif 1994 1995 1996 1997 Exports fob 1994 1995 1996 1997

France 56 55 55 58 Somalia 36 45 53 58

Ethiopia 28 34 40 44 Ethiopia 31 38 45 49

Saudi Arabia 22 23 25 28 Yemen 44 8 28 23

Italy 24 24 28 28 Total incl others 118 107 135 143

Total incl others 374 419 399 387

a DOTS estimates.

Source: IMF, Direction of Trade Statistics, yearbook.

Quarterly indicators and trade data 49


Documents

Ethiopia Eritrea Somalia Djibouti · Contents 3 Summary Ethiopia 5 Political structure 6 Economic structure 7 Outlook for 1999-2000 9 Review 9 The political scene 13 Economic policy