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COUNTRY REPORT

Ethiopia

Eritrea

Somalia

Djibouti

December 2001

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

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EIU Country Report December 2001 © The Economist Intelligence Unit Limited 2001

Contents

3 Summary

Ethiopia

5 Political structure

6 Economic structure

6 Annual indicators

7 Quarterly indicators

8 Outlook for 2002-03

8 Political outlook

9 Economic policy outlook

10 Economic forecast

11 The political scene

14 Economic policy and the economy

Eritrea



18 Annual indicators

19 Outlook 2002-03



Somalia







33 News from the Somaliland Republic



Djibouti




38 Quarterly indicators

2





List of tables

10 Ethiopia: forecast summary

15 Ethiopia: effects of debt relief on external debt and debt service

21 Eritrea: signatories of a letter criticising Mr Isaias

34 Somaliland: licensed political parties, Oct 2001

List of figures

10 Ethiopia: gross domestic product

20 Eritrea: gross domestic product

40 Djibouti: gross domestic product

42 Djibouti: trade with Ethiopia

42 Djibouti: money supply

3


Summary

December 2001

Ethiopia

The government appears to have weathered the political disruptions within theTPLF party earlier in 2001, and is expected to move ahead with economicliberalisation and poverty reduction. However, disagreements over a number ofissues, such as what attitude to adopt towards Eritrea, economic reform andgovernment corruption, will continue to cause political tension. Despite thecurrent optimism among both Ethiopian leaders and foreign donors, theEconomist Intelligence Unit believes that these will remain significant politicalfactors in 2002-03. The restoration of external lending, and reductions inmilitary spending, will improve economic prospects, and we expect real GDPgrowth of around 7-8% per year in 2002-03.

The prime minister, Meles Zenawi, has restructured his cabinet, and expandedit from 15 to 18 posts. Most ministers were replaced. It is unclear whether thenewly created federal agencies will be reproduced at the regional level. A newnational security council has been established by the Council of People’sRepresentatives. It includes the prime minister, the ministers of foreign affairsand defence, and the chief of staff of the armed forces.

Delayed and patchy rain in central and southern grain-producing regions haslowered crop estimates, but grain production is likely to be around average.Minimum wages for civil servants have doubled. Ethiopia has abolished itswholesale foreign-exchange auctions. Ethiopia has qualified for HIPC debt relief.

Eritrea

If elections planned for December 2001 are not held, they are likely to be heldbefore mid-2002. Either way, President Isaias Afewerki and the PFDJ party areexpected to remain in power. Disputes with Ethiopia, resulting from the work ofthe UN Border Commission and Claims Commission, are likely to continue into2003. The government clampdown on free speech could lead to a freezing ofdonor funds. In this case real GDP in 2002-03 is expected to growth by 3-4% peryear. If funding is unaffected, real GDP growth of 7-8% is more likely. Bothforecasts assume normal weather patterns.

In mid-September 11 members of the PFDJ who had signed an open lettercriticising the president were arrested. All private newspapers in Eritrea havebeen closed. The Italian ambassador has been expelled. Ambassadors from theEU countries returned in November after being (temporarily) called home.

The crackdown on dissidents has led to concern that donors will freezedevelopment funding. Defence spending dropped from 38% of GDP in 2000 to

Outlook 2002-03

The political scene

Economic policy and theeconomy

Outlook for 2002-03

The political scene


4


15% of GDP in 2001. International donors have pledged US$132m fordemobilisation. UN reconstruction work near the Ethiopian border has begun.

Somalia

High-level national reconciliation talks are possible, but are unlikely to besuccessful. The transitional government is not expected to gain control overthe entire country. Lack of central authority will nullify Central Bank attemptsto control inflation and the exchange rate. The closure of the country’s largestmoney transfer company and a poor harvest will worsen the humanitariancrisis. Elections in Somaliland are unlikely to proceed according to schedule.

A no confidence motion has been passed in the Transitional NationalAssembly, forcing the dismissal of the government. Hassan Abshir Farah hasbeen appointed the new prime minister. President Abdikassim Salat Hassan andrepresentatives of the opposition Somali Reconciliation and RestorationCouncil have attended reconciliation talks in Kenya. An Islamist group, Al-Ittihad, has been targeted in America’s “war against terrorism”.

A leading money transfer company, Al-Barakat, has had its assets seized by theUS. The Somalia shilling has fallen further against the US dollar. The refusal ofsome businesses to accept SoSh500 notes has caused violent protests.

Seven political parties have been officially recognised. The government andopposition have started talks about election issues. The border with Djiboutihas been reopened, and an agreement to end hostilities has been signed.

Djibouti

President Ismael Omar Guelleh will seek to exploit American concerns overterrorism and Djibouti’s role in the Somali peace process to win financing andimprove his international standing. Concessions by Mr Guelleh may allowopposition groups representation in parliament at the 2002 election, but realpower will continue to reside in the presidency. Progress on economic reformwill be slow and growth will be sluggish.

Despite speculation to the contrary, Djiboutian military facilities have not beenused in the military action against Afghanistan. An anti-terrorism committeehas been established. Relations with Somaliland have improved.

Mr Guelleh has stressed the importance of development outside the capital. Amobile phone network has been agreed. An Ethiopian delegation has discussedtrade tensions. New economic data indicate the weakness of the economy.

Editors: Christopher Eads; Paul Gamble (editor); David Cowan (consulting editor)Editorial closing date: November 20th 2001

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] report: Full schedule on www.eiu.com/schedule

Outlook for 2002-03

The political scene

Economic policy andthe economy

News from the Somalilandrepublic

Outlook for 2002-03

The political scene


Ethiopia 5


Ethiopia

Political structure

Federal Democratic Republic of Ethiopia

Federal republic

The federal constitution was promulgated by the transitional authorities in December1994. In May 1995 representatives were elected to the institutions of the new republic,which formally came into being in August 1995

The federal assembly consists of the Council of People’s Representatives (lower house;548 members) and the Council of the Federation (upper house; 108 members). The nineregional state councils have limited powers, including that of selecting members of theCouncil of the Federation

National elections: May 2000 (federal and regional); next elections due in May 2005

President, currently Girma Wolde-Giorgis, who has a largely ceremonial role and isappointed by the Council of Peoples’ Representatives (appointed October 2001)

The prime minister and his cabinet (Council of Ministers), appointed in October 2001

The Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) evolved from thecoalition of armed groups that seized power in May 1991. It includes the Tigray People’sLiberation Front and the Amhara National Democratic Movement, formerly theEthiopian Peoples’ Democratic Movement. Several small parties exist. Having boycottedthe 1995 elections, some participated in the 2000 poll, but won only a handful of seats.

Prime minister Meles ZenawiDeputy prime minister & minister for rural development Addisu Legesse

Agriculture Mulatu TeshomeCapacity building co-ordination Tefera WalwaEducation Genet ZewdeFederal affairs Abbay TsehayeFinance & economic development Sufian AhmedForeign affairs Seyoum MesfinHealth Kebede TadesseInformation Bereket SimonInfrastructure development Kassu IllalaLabour & social affairs Hassan AbddellaMines Mohamed DirirDefence Abdula GemedaRevenue & income Getachew BelaiTrade & industry Girma BirruWater resources Shifera JarsoYouth, sports & culture Teshome Toga

Teklewold Atnafu

Official name

Form of state

Legal system

National legislature

National elections

Head of state

National government

Main political parties

Key ministers

Central Bank governor

6 Ethiopia


Economic structure

Annual indicators

1996 1997 1998 1999 2000

GDP (at current market prices)a (Birr bn) 37.9 41.4 45.0 48.4 51.4b

Real GDP growtha (%) 10.6 5.2 –1.4 6.2 4.5b

Consumer price inflationc (av; %) –5.1 –3.8 8.3 4.8 5.0d

Population (m) 56.4 58.1 59.9 61.4 63.4

Exports fob (US$ m) 418 588 560 467 486

Imports fob (US$ m) 1,002 1,002 1,310 1,387 1,131

Current-account balance (US$ m) 80.3 –40.2 –266 –465 16

Reserves excl gold (year-end; US$ m) 732 501 511 459 306

Total external debta (US$ bn) 10.1 10.1 10.3 5.5 5.5e

External debt service, paida (% of exports) 42.2 9.6 11.3 16.8 17.0b

Coffee productiona (‘000 tonnes) 196b 175b 165b 210 220

Exchange rate Birr:US$ (av) 6.35 6.71 7.12 7.94 8.21

November 19th 2001 Birr8.4:US$1

Origins of gross domestic product 1998/99a % Components of gross domestic product 1998/99a %

Agriculture 44.8 Private consumption 81.3

Industry 11.7 Government consumption 16.4

Manufacturing 4.6 Gross fixed capital formation 18.2

Distribution services 14.8 Exports of goods & services 14.4

Other services 28.7 Imports of goods & services –30.3

GDP at factor cost 100.0 GDP at market prices 100.0

Principal exports fob 1999/2000a US$ m Principal imports cif 1996/97a US$ m

Coffee 259 Machinery 81

Qat 70 Vehicles 75

Oilseeds 29 Metal & metal products 74

Pulses 10 Electrical products 39

Main destinations of exports 2000f % of total Main origins of imports 2000f % of total

Germany 17.8 Saudi Arabia 25.0

Japan 10.8 US 8.8

Djibouti 10.5 Italy 6.7

Saudi Arabia 7.7 Russia 3.5

a Fiscal years ending Jul 7th. b EIU estimates. c Addis Ababa retail index. d Official estimate. e IMF-World Bank estimate. f Based on partners’ tradereturns; subject to a wide margin of error.

Ethiopia 7


Quarterly indicators

1999 2000 20013 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr

PricesConsumer prices Addis Ababa (1995=100) 111.0 105.3 106.0 109.2 105.7 98.8 94.6 93.3 % change, year on year 8.7 4.6 4.0 1.1 –4.8 –6.2 –10.8 –14.6

Financial indicatorsExchange rate Birr:US$ (av) 8.12 8.13 8.15 8.20 8.24 8.28 8.36 8.43 Birr:US$ (end-period) 8.12 8.13 8.17 8.22 8.25 8.31 8.40 8.47Interest rates (av; %) Deposit 6.47 6.67 6.70 6.70 6.70 6.62 7.04 n/a Lending 10.50 10.83 10.99 10.99 10.78 10.81 10.86 n/a Treasury bill 3.25 3.10 3.33 3.17 2.75 1.69 3.94 n/aM1 (end-period; Birr m) 9,991 10,270 11,603 11,395 12,292 11,409 11,509 n/a % change, year on year 7.3 12.3 26.3 17.7 23.0 11.1 –0.9 n/aM2 (end-period; Birr m) 18,309 18,745 20,229 20,560 22,017 21,411 21,774 n/a % change, year on year 3.0 6.7 20.0 15.8 20.3 14.2 7.6 n/a

Sectoral trends (annual totals; ‘000 tonnes)Coffee productiona ( 232 ) ( 230 ) ( n/a )

Foreign tradeb (US$ m)Exports fob 136.6 104.0 119.1 132.7 130.0 121.1 113.3 141.0Imports cif –429.6 –443.2 –423.8 –446.6 –403.8 –419.6 –407.0 –443.5Trade balance –293.0 –339.2 –304.7 –313.9 –273.8 –298.5 –293.7 –302.5

Balance of payments (US$ m)Merchandise trade balance fob-fob –260.1 –227.2 –143.8 –142.7 –156.8 –202.2 n/a n/aServices balance –11.5 17.3 12.2 4.9 2.0 –3.6 n/a n/aIncome balance –9.9 –13.3 –8.8 –9.1 –9.8 –6.5 n/a n/aNet transfer payments 140.3 146.5 127.7 175.5 195.4 181.6 n/a n/aCurrent-account balance –141.3 –76.7 –12.6 28.6 30.9 –30.7 n/a n/aReserves excl gold (end-period) 509.9 458.5 384.1 346.8 299.6 306.3 298.9 n/a

a Estimates. b DOTS estimates.

Sources: UN Food and Agriculture Organisation; IMF, International Financial Statistics; Direction of Trade Statistics; Financial Times.

8 Ethiopia


Outlook for 2002-03

Political outlook

The prime minister, Meles Zenawi, shows every sign of having successfullynavigated the political crisis, which split the Tigray Peoples’ Liberation Front(TPLF; the ruling party) earlier in 2001 and threatened government’s ability toimplement policy. Nevertheless, October’s reform of government ministries,the appointment of a new cabinet and new leaders to head the TPLF’s fragileaffiliates in the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF),coupled with the adoption of the improbable new slogan of “free markets andrevolutionary democracy”, does not mean that the crisis is over. In the short-term, Mr Meles’s control of the intelligence service, the military and the policeis sound. Yet the current corruption trials against former TPLF loyalists,coupled with the purges and arrests of business people, will have long-termand complex political repercussions, which could further erode the executive’slegitimacy, particularly in its heartland of Tigray.

Meles Zenawi and his loyal foreign minister, Seyoum Mesfin, will continue totell journalists and diplomats that the problems at the heart of government areover, and that their priority is now the war against poverty. However, thisignores the fact that the core issues that split the government remainunresolved. Four interlinked issues were behind the schism: differing opinionwithin the TPLF on the attitude to adopt towards Eritrea; hardline versus liberalviews on how to react to foreign pressure to normalise relations with Eritreawithout falling foul of Western governments and donors; disagreement overeconomic ideology and IMF/World Bank policy advice and the difficulties ofcleaning up government corruption; and changing TPLF party procedures toprevent party conflicts from breaking out in public without warning. Despitethe current optimism among both Ethiopian leaders and foreign donors, theEconomist Intelligence Unit believes that all these will remain significantpolitical factors in 2002-03, as many of these differing interests are deeplyentrenched within the system and will not be easily ignored.

The government appears well placed to improve its relations with the UnitedStates, following the attacks of September 11th on the US, having intelligenceabout, and experience in combating, regional militant Islamist networks. Since1996 Ethiopian forces have repeatedly attacked the Somali Al-Ittihad militantIslamist groups operating in south-western Somalia close to the Ethiopianborder, with the aim of preventing the channelling of assistance to dissidentOromo and Somali factions fighting the EPRDF in the south of the country.EPRDF intelligence captured the Islamic militants that infiltrated from Sudanand attempted to assassinate the Egyptian president, Hosni Mubarak, in AddisAbaba in 1996, which caused a diplomatic rupture with Sudan’s Islamistauthorities. Although links with the US and with regional allies were disruptedby splits within the EPRDF’s military and intelligence earlier in 2001, thegovernment’s regional and international standing has improved since theSeptember attacks. Ethiopia may repeat its crossborder operations against

Domestic politics

International relations

Ethiopia 9


factions such as Al-Ittihad, but it will continue to support regional attempts toshore up the transitional Somali government.

In September the UN Security Council renewed for a further six months themandate of the United Nation Mission in Ethiopia and Eritrea (UNMEE).However, given the lack of political and diplomatic reconciliation between theEritrean and Ethiopian leaderships, UNMEE’s presence is likely to be needed forseveral years. The military aspect of the operation is perceived as successful,having maintained the ceasefire, established the temporary security zone, andoverseen the withdrawal of forces and the return of some refugees. Despitebellicose statements from both sides, renewed war is very unlikely, as bothgovernments are preoccupied with internal political problems.

The settlement of the conflict with Eritrea will continue to be a concern, butthere is no likelihood of an imminent political rapprochement between thetwo governments. The three bodies established by the peace treaty—an OAU-supervised enquiry into the causes of the war, the Border Commission, set upto demarcate the border, and the Claims Commission, which will examineclaims for civilian compensation, will all move slowly over the forecast period.In particular, negotiations over compensation for war damage and thetreatment and repatriation of each other’s nationals appear impossible toresolve to the satisfaction of both sides, particularly since under the terms ofthe treaty the costs must be borne by the parties. The inevitable friction arisingfrom the Claims Commission will postpone the debate over the nature of long-term political and economic relations between the two countries.

Economic policy outlook

Though internal political tensions will persist, Meles Zenawi and his ministerswill redouble their efforts to portray the government’s principal policy goals aspoverty reduction and securing the backing of international donors. In aspeech to foreign diplomats on October 25th, the foreign minister, Mr Mesfin,stressed that the government was “back in business” after the splits andsetbacks of the previous six months. Yet, though officials and donors portraythe recent ministerial restructuring as streamlining and improving governmentefficiency, the changes could place additional strain on Ethiopia’s cumbersomeand weak bureaucratic structures. In the past decade these have often lackedthe administrative capacity to handle significant increases in expenditure, andthere is a risk that in the short run the creation of new tiers of governmentmay impede service delivery. Regional state administrations, in particular, willstruggle to adapt to yet another series of structural reforms. The excludedminority faction (hardline elements of the TPLF) had openly criticised the callsfor greater economic liberalisation and the role of external economic assistanceand advice. Yet, despite Mr Meles’s renewed, explicit, commitment to freemarkets, it is not certain that their exclusion will result in an unambiguouscommitment to faster economic reform. Political wrangling is likely to delaypolicy formulation and implementation, particularly over the privatisation ofstate-owned assets.

10 Ethiopia


A further review by the IMF of progress on the reform package supported by apoverty reduction and growth facility (PRGF), scheduled for December 2001,will be largely positive, as most of the structural benchmarks and criteria laidout in the government’s letter of intent in May have been fulfilled. World Banksenior vice-president, Nicholas Stern, praised Ethiopia’s reform process on avisit to Addis in October, highlighting the Bank’s long-term engagement withEthiopia. Conditions for debt relief under the heavily indebted poor countries(HIPC) initiative were announced in November, and Ethiopia appears poised toagain become a favourite of international donors, although progress witheconomic development and reform will be a challenge. As Mr Stern pointedout, Ethiopia simultaneously represents the greatest challenge and opportunityin Sub-Saharan Africa for donors wishing to demonstrate their commitment tothe region.

Foreign financial support for post-war reconstruction and broader economicreform will continue to be linked throughout 2002-03. Specific policyindicators of most concern to donors remain the fiscal deficit, estimated to bearound 13% of GDP in the 2000/01 fiscal year (July 8th-July 7th), and the risein domestic borrowing due to the war. But the resumption of external lending,coupled with HIPC debt relief, will cause domestic borrowing to fallsignificantly in 2002-03. According to IMF figures published in November,expenditure on poverty reduction is scheduled to rise from just under 10% ofGDP in 2000/01 to around 15% in 2002/03-2003/04. However, governmentbudget data clearly indicate a slump in capital spending. Donors will thereforeseek a renewed commitment to investment in roads, schools and otherinfrastructure as part of any post-war recovery lending over the forecast period.

Economic forecast

The economic outlook for 2002-03 remains promising: the IMF forecast realGDP growth rates of 7% in 2001, a figure which is likely to be met given strongagricultural growth. Growth in 2002-3 depends largely on the outcome of themain harvests. The restoration of external lending, coupled with the gradualreduction in military spending, will improve prospects for growth, and weexpect real GDP to increase by around 6-7% per year in 2002-03. Assumingthat the meher main crop harvests in late 2001 are at least average, agriculturalproduction in 2002-03 should continue to grow; the increased production oftextiles, and hides and skins will also fuel economic growth.

Ethiopia: forecast summary

2000a 2001a 2002b 2003b

Real GDP (% change) 4.5 7.3c 6.8 6.8

Consumer price inflation (av; %) 5.0 –6.8 5.1 4.8

Exchange rate (av; Birr:US$) 8.21d 8.35 9.53 9.82

Total external debt (pre-HIPC)e 5.5 5.3 5.9 6.3

a EIU estimates b EIU forecasts. c Official estimate. d Actual. e IMF-World Bank estimates.

After a fall in consumer prices of nearly 7% in 2001 as a result of the recoveryof the food and grain harvests, inflationary pressures will remain more

Ethiopia 11


consistent over the forecast period, with food prices remaining low, althoughhigh fuel prices and higher sales-taxes will create some upward pressure. TheEthiopian birr is expected to depreciate further in 2002-03, from an average ofBirr8.35:US$1 in 2001 to Birr9.53:US$1 in 2002 and Birr9.82:US$1 in 2003,owing to low international prices for Ethiopia’s exports—coffee, hides andskins—and higher import costs resulting from reconstruction efforts.

The political scene

The prime minister, Meles Zenawi, announced a new cabinet and a significantrestructuring of ministerial responsibilities in mid-October, ending months ofuncertainty. The cabinet has been expanded from 15 to 18 posts. Severalportfolios have been amalgamated or renamed, resulting in six new ministriesbeing created. Governmental responsibilities are to be regrouped hierarchicallyunder five co-ordinating, umbrella bodies, called super-ministries by the AddisAbaba press. Mr Meles said that the restructuring was a key element in therenewed drive to improve government co-ordination and efficiency and topush ahead with economic development (see Outlook for 2002-03). However,the deep public schisms within the Tigray People’s Liberation Front (TPLF), thecore of the ruling Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF),and the dismissal of key government and party members over the precedingsix months are thought to be the main causes of this overhaul of the formalstructures of government.

Addisu Legesse, a leading figure in the Amhara National DemocraticMovement (ANDM), was appointed deputy prime minister with additionalresponsibility for rural affairs. Tefera Walwa, also of the ANDM, hithertodefence minister and one of two deputy prime ministers, now takesresponsibility for the new umbrella Ministry of Capacity Building Co-ordination. Kassu Illala, also a former deputy prime minister, takes control of asimilarly broad new co-ordinating umbrella Ministry of InfrastructureDevelopment. The finance minister, Sufian Ahmed, now also has economicdevelopment combined with his portfolio, and the former minister ofeconomic development, Girma Birru, moves to take on enlargedresponsibilities at the Ministry of Trade and Industry. Seyoum Mesfin, remainsat the Ministry of Foreign Affairs. As widely anticipated, Major-General, AbdulaGemeda, a leading Oromo, is defence minister.

In mid-November it was still unclear whether the new structures of the federalgovernment were to be replicated at the regional and state level. Formally,under the 1995 constitution, each of Ethiopia’s nine regional states, plus theAddis Ababa and Dire Dawa municipal authorities, have their own tiers ofgovernment replicating the federal structures. The Oromo regional stateadministration announced new structures mirroring those of the federalgovernment. Leaders of the Oromo People’s Democratic Organisation (OPDO)were the hardest hit by the recriminations and purges within the EPRDF duringmid-2001 (September 2001, page 11). It is unclear whether the other states willemulate the new structures.

Mr Meles rebuilds thegovernment

12 Ethiopia


The government restructuring was approved by the Council of People’sRepresentatives on October 15th, when it also passed legislation establishing aNational Security Council (NSC); the NSC is to provide “additional guaranteesagainst unforeseeable and potential threats and challenges to nationalsecurity”. Its members include the prime minister, plus the ministers of foreignaffairs, defence and the chief of staff of the armed forces.

An elderly ceremonial president is elected

On October 8th the Council of People’s Representatives elected the 77-year-oldGirma Wolde-Giorgis as president of the republic. This was a surprise move,which took even many EPRDF members unawares; earlier the same day, thespeaker of parliament had pushed through a package of proposals relating tothe, largely ceremonial, post of president. These stipulated that the newpresident should not be affiliated to an established political party, and also thatpresidents engaging in political activism after leaving office would lose theirpension and associated benefits. The latter was clearly designed to ensure thesilence of the alienated, outgoing president, Negaso Gidada. As dissent withinthe EPRDF mounted during June 2001, Mr Negaso clashed with allies ofMr Meles; resulting in his leaving the party, while technically retaining thepresidency (September 2001, page 11). The new president, like Mr Gidada, is acosmopolitan urban Oromo. He has considerable political and professionalexperience, notably in the civil aviation industry and the Ethiopian Red Cross.He served as an elected politician under Haile Selassie, and re-entered politicsrecently as a spokesman for environmentalist interests. Speculation that hemight use the post to criticise and curtail EPRDF dominance evaporated daysafter his appointment, when he was rushed to hospital in Saudi Arabia with anunspecified medical condition.

While the 4,200 members of the United Nations Mission in Ethiopia andEritrea (UNMEE) ensure the ceasefire in the temporary security zone (TSZ)between the two countries, regular meetings between UN staff and Ethiopianand Eritrean officials have produced no breakthrough in reconciliation, a yearafter the peace agreement (March 2001, page 10). In September the UNSecurity Council renewed UNMEE’s mandate for a further six months. TheMilitary Co-ordinating Commission meets regularly, the ninth meeting beingheld in Djibouti on October 29th. De-mining work continues in and aroundthe TSZ, and Ethiopia has now provided more detailed maps of minefields, andthe two sides have undertaken to remove human bodies from the battlefields.Nevertheless, problems remain:

• the UN has been unable to restore direct flights between Addis Ababa andAsmara;

• Eritrea refuses to sign a full status of forces agreement; and

• disagreements persist over the precise borders of the TSZ.

The Border Commission, sitting in The Hague, has yet to report, raising doubtsabout how long the UNMEE operation will last. UNMEE is concerned not onlywith the resettlement of refugees and internally displaced persons (of whom

UNMEE holds the peacedespite problems

A new security councilis established

The Border Commission hasyet to report

Ethiopia 13


there are around 55,000 in camps in Eritrea) along the disputed border, butalso the wider human rights implications of the mutual expulsions of citizensthat occurred during the 1998-2000 conflict. On November 7th UNMEEofficials met in Addis Ababa to discuss the consequences and aftermath of theexpulsions policy with Ethiopia’s minister of state for foreign affairs, TekedaAlemu. He stated that Ethiopia was undertaking a review of legislation relatingto foreigners. Most of the estimated 60,000 people who were expelled fromEthiopia were full Ethiopian citizens with family ties to Eritrea. The criteriaunder which they were expelled, as well as the status of those still living inEthiopia, remains unclear—and highly sensitive, as senior figures in the TPLFhave family ties with Eritrea.

In late October, after months of doubt and legal delays, the government filedcharges against some of the politicians and businessmen, that were arrestedfollowing the splits within the ruling party and the subsequent allegations ofcorruption levelled against senior figures linked to the dissidents. A formerminister of defence, Siye Abreha, his brother, Assefa, and several other allegedfamily and business associates, have been charged with a series of crimes linkedto the privatisation of state-owned breweries and hotels. Also arrested orcharged was, Beshah Azmite, head of the Ethiopian Privatisation Agency untilJune 2001. Several other high-profile corruption cases are also under way,notably against the former vice-chairman of the TPLF, Tewolde Wolde-Mariam,and leading members of the Oromo People’s Democratic Organisation.

The recent spate of corruption charges have been filed by the Federal Ethicsand Anti-Corruption Commission (FEACC), the body created by the primeminister’s office in May (September 2001, page 12). Tamrat Layne, primeminister in the 1991-95 transitional government, who was jailed for 18 yearsfor corruption three years ago (2nd quarter 1998, page 10), appeared in courtalongside Mr Siye and his co-defendants in October. FEACC’s lawyers sought tolink Mr Tamrat’s blatant manipulation of import licences for coffee and sugarin the mid 1990s to the new charges against TPLF dissidents. In October AddisAbaba’s independent press published interviews with Mr Tamrat, in which hedenounced attempts to get him to testify against Mr Siye. On November 5th allthe defendants were refused bail.

The attempts of President Meles and his newly appointed ministers to defendthe drive against corruption and favouritism were undermined during Octoberby rumours about the influence of the prime minister’s wife, who hasreportedly taken control of the Mega Corporation, one of the largeconglomerates owned and controlled by the ruling party.

In early November the government announced that 320 youths received jailsentences of between four and ten months for their part in the riots whichwrecked several areas of central Addis Ababa in April (June 2001, page 12). Ofover 1,100 youths held in prison since the disturbances, the majority are yet tobe tried; 530 have been released on bail.

Ethiopia is home to many thousands of refugees from Somalia, who have closelinks to Ethiopia’s own Somali population. Ethiopia reacted cautiously to

Corruption trials continue

Trials of student rioters getunder way

Somalia is now undercloser scrutiny

14 Ethiopia


American allegations that Somali remittance agencies had acted as a conduitfor Al-Qaida funds. On November 13th police in Addis Ababa reported thatthey had closed the offices of Al-Barakat bank. Diplomats quoted by theWashington Post said that Ethiopia was considering renewed action against Al-Ittihad in Somalia.

Economic policy and the economy

In August the outlook for an above average main-crop (meher) harvest—gathered in November and December in most parts of the country—appearedgood (September 2001, page 14). However, delayed and patchy rains in centraland southern grain-producing regions has tempered earlier optimism. InOctober Ethiopia Network on Food Security, a report compiled by the EU and theUS Agency for International Development’s Famine Early Warning Systemfrom agency reports from around the country, suggested that productionduring the current growing season may be well below that of last year’s greatlyimproved harvest. Nevertheless, gain production is still likely to be around theaverage for the past five years, and the food shortages experienced in early2000 should not be repeated.

One result of last year’s excellent main-crop harvest has been that grain pricesare currently at historically low levels. Though benefiting urban consumers,this is a problem for the vast majority of Ethiopia’s peasant producers, whoseterms of trade have declined significantly. During the 2000/01 crop cycle, thestate-owned Ethiopian Grain Trading Enterprise (EGTE) attempted to shore-uprural incomes by bulk buying, but failed to raise farmgate prices significantly.Both domestic and foreign food security bodies are increasingly concerned thatthe government and foreign donors may have to co-ordinate and supportintervention in grain markets to support rural incomes if grain prices remaindepressed.

On November 6th the Council of Peoples’ Representatives approved a billraising the minimum wage for civil servants to Birr200 per month. Hithertothe lowest wage scale for state employees had started at Birr105. The newminimum wage will come into effect in January 2002. The additional cost tothe government is put at Birr280m (US$33m), and parliament approved anadditional supplementary budget to cover the additional expenditure for thecurrent 2001/02 fiscal year (July 8th-July 7th).

On October 24th Ethiopia’s gradual move towards a fully market-determinedforeign-exchange rate took a further step forward with the abolition of weeklywholesale auctions. The Ethiopian authorities had committed themselves tomove to an interbank market by October in an undertaking signed agreed withthe IMF in May. Exchange rates are now determined on a daily basis viainterbank transactions, regulated by a foreign-exchange market interventioncommittee established by the National Bank of Ethiopia (the central bank).Since 1993 exchange rates have been determined by central bank auctions;although since the last significant financial sector reforms in September 1998,

Forecasts for the harvestare lowered

The minimum wage forcivil servants is doubled

Wholesale foreign-exchange auctions replaced

Ethiopia 15


retail banks have handled transactions under Birr500,000. In mid-Novemberthe Birr was trading at Birr8.55:US$1, with just five banks participating in thedaily auctions, which are dominated by the state-owned Commercial Bank ofEthiopia (CBE). Private bankers interviewed by a weekly business newspaper,Capital, expressed reservations about the new system, saying that, as thecentral bank and the CBE were the only suppliers of foreign exchange,competition would remain limited.

On November 12th the IMF announced that Ethiopia had become eligible fordebt relief under the enhanced framework of the World Bank-IMF’s heavilyindebted poor countries initiative (HIPC). The enhanced framework aims tolimit net present value of a country’s debt to 150% of its export earnings, onceother debt relief mechanisms are taken into account (such as Paris Club andother bilateral agreements). Ethiopia received supplementary debt relief fromthe Paris Club of official donors in March 2001 (June 2001, page 16). Lengthyand complex negotiations over the past five years also led to the write-off ofEthiopia’s rouble-denominated debt (valued at over US$5bn), a legacy of thepre-1991 communist regime’s ties with the Soviet Union. According to figuresreleased in November, Ethiopia’s total external debt stock amounted to aroundUS$5.36bn at end-2000/01.

The annual savings from debt relief will average US$96m a year over the nextthree decades. Debt service as a percentage of export earnings is expected tohalve, from 16% to 7%, by 2003, falling to below 4% by the end of 2021. Overthe next ten years, the debt service/government revenue ratio will fall to 7.8%and the debt service/GDP ratio will fall to 1.6%.

Ethiopia: effects of debt relief on external debt and debt service(US$ bn unless otherwise stated)

2000/01 2001/02 2002/03 2003/04

Before traditional debt reliefa

Total debt stock 5.6 6.1 6.5 6.6Net present value 3.3 3.5 3.6 3.7Total debt service (US$ m) 222 163 162 182

After traditional debt reliefa

Total debt stock 5.3 5.9 6.3 6.7Net present value 2.7 2.9 3.0 3.2Total debt service (US$ m) 189 158 164 176

After enhanced HIPC debt reliefTotal debt service (US$ m) – 105 74 85

a Traditional debt relief includes Paris Club rescheduling, bilateral and commercial institutions.

Source: IMF, Decision Point Document for the Enhanced Heavily Indebted Poor Countries Initiative (HIPC), October 2001.

Estimates of the expected financial benefits of HIPC debt relief rest on two setsof assumptions: that current forecasts of GDP, government revenue and exportearnings for the coming years and decades are plausible; and that theobjectives and policy conditions specified for HIPC are met. Reforms of publicexpenditure management, in particular the full consolidation of regional andfederal budgets beginning in 2002/03, the introduction of VAT by January2003, and financial sector reforms, including the delayed restructuring of the

Ethiopia qualifies for HIPCdebt relief

Poverty reduction plansneed to be refined

16 Ethiopia


Commercial Bank of Ethiopia, are all conditions of HIPC debt relief, and couldprove major challenges for the government’s institutional capacity.

After the government published a draft poverty reduction strategy paper (PRSP)in late 2000, Ethiopia’s multilateral donors requested a fuller document,making explicit recommendations and advising wider public consultation(June 2001, page 14). Ethiopia’s fledgling non-governmental sector has held aseries of seminars and debates on the PRSP strategy in recent months; theEthiopian Economics Association, women’s groups and other NGOs havecommented on the draft. The HIPC agreement contains specific reference tohigher social expenditure than envisaged in the PRSP; debt relief being themain means to increase spending on these areas. The IMF estimates that suchpoverty-targeted expenditure will increase from almost 11% of GDP in2000/01, to an average of 15% in 2002/03-2003/04.

Eritrea 17


Eritrea

Political structure

Eritrea

Unitary state

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

Transitional National Assembly of 150, composed of members of the ruling People’sFront for Democracy and Justice

Last election February 1987 (legislative, within Ethiopia); next election scheduled forDecember 2001

President, elected by the National Assembly

The president and the Council of Ministers, latest reshuffle August 2001

The People’s Front for Democracy and Justice (PFDJ), which grew out of the EritreanPeople’s Liberation Front, is the ruling and, in effect, the only legal party; its thirdcongress in February 1994 confirmed the transition to a pluralist system by 1997, but alaw on political parties has yet to be approved

President Isaias Afewerki

Agriculture Arefaine BerheDefence Sehat EphremEducation Osman SalehEnergy & mines Tesfai GhebreselassieFinance & development Berhane AbreheFisheries Ahmed Haji AliForeign affairs Ali Said AbdellaHealth Salh MekiInformation Naizghi KifluJustice Fawzia HashimLabour & welfare Askalu MenkeriosLand, water & environment Weldenkeil GhebremariamLocal government vacantPublic works Abraha AsfahaTourism vacantTrade & industry Giorgis TeklemikaelTransport & communications Andemichael Kassai

Tekie Beyene

National elections

Key ministers

Central bank governor

Official name

Form of state

Legal system


Head of state

National government


18 Eritrea


Economic structure

Annual indicatorsa

1996 1997 1998 1999b 2000b

GDP at market prices (Nfa bn) 5.1 6.0 5.9 6.8 7.6

Real GDP growth (%) 6.8 7.9 4.0 0.0 –1.0

Consumer price inflationc (end-period; %) 3.4 1.8 16.6 12.0 14.0

Population (m) 3.67 3.78 3.88 4.01 4.11

Exports fob (US$ m) 95 54 28 26 24

Imports cif (US$ m) 514 495 527 560 500

Current-account balance (US$ m) –131 –37 –238 –219 –195

Total external debt (US$ m; year-end) 44 76 142 147 281

Exchange rate Nfa:US$d (av) 6.35 7.05 7.30 8.50 9.70

November 19th 2001 Nfa13.50:US$1 (official rate)

Origins of gross domestic product 1999 % of total

Agriculture 16.0

Industry 27.3 Manufacturing 9.9

Distribution services 31.6

Other services 25.0

GDP at factor cost 100.0

Principal exports fob 1998 US$ m Principal imports cif 1998 US$ m

Crude materials 12 Machinery & transport equipment 141

Food & live animals 8 Manufactured goods 88

Manufactured goods 4 Food & live animals 63

Chemical & chemical products 21

Main destinations of exports 1998 % of total Main origins of imports 1998 % of total

Sudan 27.2 Italy 17.4

Ethiopia 26.5 UAE 16.2

Japan 13.2 Germany 5.7

UAE 7.3 UK 4.5

Italy 5.3 Korea 4.4

a All figures are estimates from official or other sources unless otherwise indicated; data on Eritrea should be treated with caution. b EIU estimates.c Asmara price index. d The nakfa replaced the Ethiopian birr as Eritrea’s national currency in November 1997 at Nfa1:Birr1.

Eritrea 19


Outlook 2002-03

The political scene in Eritrea is currently focused on the forthcoming elections,scheduled for December 2001. These could be delayed as a result of the currentpolitical climate. However, the Economist Intelligence Unit expects them to goahead, although they are unlikely to be viewed as legitimate by theinternational community, as a result of the crackdown on opponents of theregime in October. These elections, the first to take place in Eritrea following itsindependence from Ethiopia in 1994, will be for a new parliament ofindependents, for local government at communal and county levels, formayorships and for the presidency. The most likely outcome at the nationallevel is that the current People’s Front for Democracy and Justice (PFDJ) regimeand its leader, Isaias Afewerki, will be re-elected. This outcome has becomeeven more likely following the arrest of 11 members of the PFDJ’s centralcouncil, part of a group of 15 former senior officials of the ruling party, dubbedthe G15, who signed an open letter criticising the president, Mr Isaias, andcalling for greater transparency and democracy. The government’sdetermination to silence dissent—the country’s eight independent newspapershave been shut down, leaving the state-owned Hadas Eritrea as the onlynewspaper now being published—does not bode well for Eritrean democracy.Even when the law on political parties, currently before the National Assembly,is passed, the PFDJ is unlikely to face a credible opposition.

The aftermath of the war with Ethiopia will remain a dominant theme inEritrean politics but, following the signing of the peace agreement onDecember 12th 2000, the emphasis will remain on questions of borderdemarcation, war compensation claims and the demobilisation of troops.Relations between Eritrea and Ethiopia are not expected to normalise duringthe forecast period; instead, offensive rhetoric and mutual mistrust are likely tolast well into 2002.

The most important of the three bodies established by the December peaceagreement—the enquiry into the causes of the war supervised by theOrganisation of African Unity; the Border Commission, whose task is todemarcate the border; and the Claims Commission, which will examine claimsfor civilian compensation—is the Border Commission. Its work will be the testof the two sides’ ability to compromise and to adhere to their undertaking torespect the boundaries that were established at the beginning of the 20thcentury. The United Nations Mission to Ethiopia and Eritrea (UNMEE), whosemandate was extended on September 14th for a further six months untilMarch 15th 2002, will only leave the area when the work of the BoundaryCommission, which is independent of the UN, is concluded. Its mandate istherefore likely to be extended further.

Good relations with the West, including the US and EU, suffered after thearrest of the 11 G15 members in September. Improvements in relations arelikely to depend on the government’s attitude towards dissent and thehandling of the December elections. Overall, Eritrean relations with the Westare expected to remain tenuous into 2002.

Domestic politics

International relations

20 Eritrea


As repression in Eritrea mounts despite widespread condemnation, theinternational community may have no alternative but to suspend its aid for awide variety of desperately needed reconstruction and development projects.The implications for the economy, already severely damaged by war andrecurrent drought, will be serious. Under these circumstances, thegovernment’s forecast of a GDP growth rate of 11% in 2002 looks optimistic.We envisage a worst-case scenario of real GDP growth of 3-5% per year in2002-03 if donor funds are withheld, but real GDP growth of 7-8% per year in2002-03 if donor funding is unaffected. Although the government’s projectedsharp fall in defence spending to around 9% of GDP in 2002-03, from a currentlevel of 21% of GDP, (it reached 38% of GDP during the conflict with Ethiopia)is reasonable, this peace dividend will be offset if project funds for improvinginfrastructure, rebuilding hospitals and schools, and providing technicalsupport for various government agencies are withheld. In addition, remittancesfrom Eritreans living abroad—the largest source of current transfer inflows inthe balance of payments—may also decline if they begin to think of theirgovernment as undemocratic. Inflation, which reached 27% in 2000, hasdeclined to 15% and is projected to fall further to around 5% in 2002-03, asfood-crop harvests improve with better rainfall and no wartime disruption.

The political scene

A crackdown on political reformists and journalists was launched in mid-September, when the Eritrean authorities arrested 11 of the 15 members of theruling political party, the People’s Front for Democracy and Justice (PFDJ)—widely referred to as the ‘Group of 15’ or G15—that wrote an open letter inMarch criticising the president, Isaias Afewerki, and calling for greaterdemocracy (September 2001, page 20). On September 18th, six of thesemembers of the PFDJ’s central council, who are also members of Eritrea’snational assembly, were detained as the government announced that it wassuspending independent newspapers, saying that they had broken press lawsand “put at risk the unity and best interests of the country”. The following dayfive more leaders of the country’s reform movement were detained. Three ofthe other critics were outside the country at the time but had their diplomaticpassports revoked, and another publicly apologised for his criticism. Up to nineindependent journalists were also arrested the following week and are believedto be performing obligatory national service. The 11 arrested PFDJ memberspotentially face the death sentence for treason.

The move to silence dissenters came in the wake of vigorous public debateabout the future of the PFDJ, sparked by the leak of the G15’s letter to thepress. The letter caused shock waves in Eritrea, where the government is rarelycriticised in public. Several university student leaders are also reported to havebeen detained, following the arrest of their union president, Semere Kesete, onJuly 31st for criticising the government for interfering in university affairs. Hewas protesting about an obligatory summer work programme in Eritrea’seastern desert. Ten days later, an estimated 2,700 students were rounded up

Mr Isaias cracks down ondissenters

Economic forecast

Eritrea 21


and sent to the desert, where two died of heat stroke. Five Asmara Universitystudents were reported to be still held in a work camp at the end of October.

Eritrea: signatories of a letter criticising Mr Isaias

Name Former position Status

Petrus Solomon Fisheries minister Detained

Ogbe Abraaha Labour minister Detained

Haile Woldetensae Trade & industry minister Detained

Mohamed Ahmad Sherifo Local government minister Detained

Saleh Idris Kekia Transport minister Detained

Beraki Gebreselassie Information minister Detained

Berhane Gebrezgiabher PFDJ central committee member Detained

Aster Fisehatsion PFDJ central committee member Detained

Hamid Himid Foreign ministry official Detained

Estifanos Seyoum Finance ministry official Detained

Germano Nati PFDJ central committee member Detained

Gabriel Fasil Economic advisor in the presidential office Apologised

Haile Menkarios Permanent representative to the UN Overseas

Mesfin Hagos Defence minister Overseas

Adhanom Gebremariam Ambassador to Nigeria Overseas

Source: Local and international news sources.

The crackdown on reformers was widely condemned by foreign governmentsand human rights groups, many of whom noted that coming so soon after theterrorist attacks in the US on September 11th the timing appeared to reflect ahope that the international community might not react too strongly. In mid-October EU countries said that they would recall their ambassadors fromAsmara for consultations, in protest at the deterioration in human rights. Thisfollowed the expulsion of the Italian ambassador, who was also acting head ofthe EU delegation, on September 28th after he protested on behalf of the EUagainst the government’s treatment of its critics. Italy responded on October2nd by ordering the Eritrean ambassador to leave Italy within 72 hours. FiveEU ambassadors had returned to Eritrea by November 9th.

On October 1st, the Eritrean foreign ministry announced that its ambassadorto the EU, Tesfai Ghermazien, who was accused of acting against thegovernment, had resigned and fled to the US. The government has reactedangrily to Western countries’ censure. On October 11th, the day the USgovernment criticised the Eritrean government for its measures against theopposition, the authorities arrested two local employees of the US embassy inAsmara and accused them of spying for the US. Several foreign governmentsare reported to be considering a suspension of development aid to Eritrea.

The United Nations Security Council voted unanimously on September 14th toextend the mandate of the UN Mission to Ethiopia and Eritrea (UNMEE), withunchanged numbers of troops and military observers, for a further six monthsuntil March 15th, 2002. Although UNMEE has a strong presence in thetemporary security zone (TSZ), the UN continues to be hindered by Eritrea and

The Italian ambassador isexpelled

UNMEE’s mandate isextended

22 Eritrea


Ethiopia in some elements of its work, including the establishment of an aircorridor between Addis Ababa and Asmara, which was to be operational inearly November. Both sides agreed to give free access to the UN’s RadioUNMEE, but transmission of UNMEE’s weekly programme, which has beenbroadcast on Radio Eritrea since January, was suspended on October 24th,while the Ethiopian authorities have so far not given Radio UNMEE access totheir airwaves.

The ninth meeting of the Military Co-ordination Commission (MCC) ofUNMEE, the only regularly scheduled face-to-face contact betweenrepresentatives of Ethiopia and Eritrea, was held on October 29th in Djibouti.The two sides agreed on a new procedure for the recovery, identification andrepatriation of unburied remains in areas on either side of the southernboundary of the TSZ, and appoint officials for this purpose within two weeks.The rotting remains around the former front line have become a health hazardto peacekeepers patrolling the 25-km-wide TSZ between the two countries. Thetenth session of the MCC will be held on November 28th at the Mereb Riverbridge between the two countries.

The exchange of nationals between the two countries has been hampered by anumber of outstanding issues: the whereabouts of an Ethiopian pilot missingsince his plane was shot down over Eritrea in June 1998; the location of 36police and militiamen taken prisoner by Eritrea in May and June 1998; andwhy the Ethiopian foreign ministry suspended the repatriation of Eritreanprisoners of war in August (September 2001, page 22). On October 11th,following the release of 24 Ethiopian POWs by Eritrea, Ethiopia againdemanded that the pilot be released before it was willing to hand over Eritreansit was holding. However, the Ethiopian defence ministry announced onOctober 31st that it had decided to release 23 Eritrean POWs for healthreasons. The repatriations are being conducted under the auspices of theInternational Committee of the Red Cross, which announced on November2nd that since the signing of the Algiers peace accord in December 2000,Ethiopia had released a total of 879 of the 2,600 Eritrean POWs it was holdingwhen the war ended. Eritrea, for its part, had released 653 of its 1,000Ethiopian POWs.

The voluntary repatriation of refugees from Sudan resumed on October 20th,when 433 Eritreans returned home. The operation, which started in May, wassuspended in early July (September 2001, page 22) owing to heavy rain, bywhich time nearly 21,000 refugees had returned home. The return of theselong-term exiles, some of whom have lived outside Eritrea for decades, isplanned to continue until December 2002 with the aim of repatriating a totalof 160,000 refugees.

Officials of the Gash Barka region and Sudan’s Kassala state signed anagreement on November 4th for bilateral co-operation between their tworegions. The agreement, which was signed by the Kassala governor, AdamHamid Mussa, and the governor of Barka, Mustafa al-Nour Hussein, provides

The exchange of nationalswith Ethiopia stumbles on

Eritrean refugees returnfrom Sudan

A regional co-operationagreement is signed

UNMEE’s militarycommission meets again

Eritrea 23


for the creation of joint committees on economic, political-security andcultural-social co-operation.


The government’s repression of dissidents could have a significant economicimpact if, as some observers predict, donors freeze development funding andEritreans living abroad limit their remittances because of the government’saction. This possibility stands in sharp contrast to a statement from thegovernment, made just before the arrests, that GDP was expected to grow by7% during 2001 and by 11% in 2002, after a three-year decline. A significantfactor in the economic upturn is the sharp fall in defence spending, which hadrisen from 13% of GDP in 1997 to 38% during the conflict with Ethiopia. Itcurrently stands at 21%, and is projected to decline further in 2002-03. Othercontributing factors are increased spending on reconstruction, the easing oflabour constraints following the end of the Ethiopian conflict and renewedprivate investment. Agricultural production was expected to triple in 2001, butthis forecast was revised downward in late October when the Ministry ofAgriculture announced that it expected crop production in 2001 to be twicethat of 2000.

Maiden Gold NL (Australia) and Africa Wide Resources (British Virgin Islands)have concluded a preliminary agreement to acquire concessions held by PhelpsDodge Exploration (US) in Eritrea. The partnership will be making a formalagreement with the Ministry of Energy and Mines for exploration permits forthe Debarwa, Medrizien, and Adi Nefas properties, all of which are expected toyield positive results for gold, copper, zinc and lead.

The government’s economic data were presented at the three-day developmentpartners’ conference officially opened by the president, Isaias Afewerki, inAsmara on September 11th. At the conference, donors pledged US$132mtowards the demobilisation of 200,000 soldiers, a programme estimated torequire a total of US$197m. The major contributors will be the World Bank, theEU, Denmark, the Netherlands, Norway and the UN, which is providingtechnical assistance to the reintegration part of the programme. Other donorswho have expressed interest in contributing to demobilisation include Italy,the US, the African Development Bank and the Arab Bank for EconomicDevelopment in Africa. Eritrea announced that 80,000 soldiers would bedemobilised by the end of 2001.

The reconstruction of houses has been taking place in recent monthsthroughout the temporary security zone (TSZ). In addition to work done byindividuals, the UN Development Programme’s post-war emergencyrehabilitation programme had completed 1,900 of 2,000 planned houses inTserona and half of a planned 1,000 houses in Senafe, according to a reportfrom the UN Mission to Ethiopia and Eritrea (UNMEE) on November 2nd. Therehabilitation programme also plans for repairing 2,400 houses in Gash Barka

The improving economycould suffer

Eritrea receives pledges tohelp with demobilisation

The UN helps withreconstruction

Mining projects come backon line

24 Eritrea


region. A total of 57 projects, most in water and sanitation, with a value ofabout US$600,000, have been approved under the UNMEE’s quick impactprojects (QIPs), small-scale schemes designed to address immediate needs inthe TSZ and adjacent areas. Implementing partners for the QIPs include localand international NGOs, local administrations, UN agencies and, in a fewcases, UNMEE itself.

Somalia 25


Somalia

Political structure

Somali Democratic Republic

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

In theory, based on the 1960 constitution; in practice, local authorities or elders enforcelaws based on custom; in some areas the influence of Islamic courts is growing, and theyhave begun to implement Islamic law

The People’s Assembly has not been active since 1991; a Transitional National Assemblywas elected in August 2000 in Djibouti

Last elections 1967 (presidential), 1969 (legislative); next elections are scheduled for2003, but do not appear feasible in the south in current circumstances; Somaliland isscheduled to hold its first presidential election in February 2002 and legislative electionin May 2002, the timing of these is in doubt

A Transitional National Assembly was elected in August 2000 but has little ability toadminister on the ground; Puntland is a self-declared autonomous region in the north-east, with Garoe as its administrative capital; the Somaliland Republic in the north wasdeclared independent in 1991, with Hargeisa as its administrative capital

Abdikassim Salat Hassan is president of the Transitional National Assembly based inMogadishu; Mohamed Ibrahim Egal is president of the Somaliland Republic; thepresidency of the Puntland administration is disputed by Jama Ali Jama and AdbullahiYussuf Ahmed

The Somali Reconciliation and Restoration Council (SRRC) was formed in Ethiopia inMarch 2001 and consists of many of the factions opposed to the Transitional NationalAssembly; United Somali Congress-Somali National Alliance (USC-SNA); SomaliSalvation Democratic Front (SSDF); Somali Patriotic Movement (SPM); Southern SomaliNational Movement (SSNM); National Salvation Council (NSC); Somali National Front(SNF); Rahawayn Resistance Army (RRA). Several political parties have been formed inSomaliland, the largest being the Democratic United National Party (UDUB)

President Abdikassim Salat HassanPrime minister Hassan Abshir Farah

Parliament passed a no-confidence vote in the transitional national government onOctober 28th, in effect sacking the prime minister and the entire cabinet; on November12th the president appointed a new prime minister who, under the constitution, has 30days to appoint a cabinet

Created in May 1991 but awaiting diplomatic recognition; the president, MohamedIbrahim Egal, was re-elected in February 1997; an interim constitution came into effectin February 1997 and was affirmed in a popular referendum in May 2001

Official name

Form of state

Legal system


National elections

Head of state

Main political factions

Somaliland Republic

National government

Key ministers

26 Somalia


Economic structure

Annual indicatorsa

1996 1997 1998 1999 2000

Population (m) 9.5 9.6 9.8 10.0 10.2

Exports fobb (US$ m) 187 177 197 186 n/a

Imports fobb (US$ m) 295 313 280 314 n/a

Total external debtc (US$ m; year-end) 2,643 2,561 2,635 2,606 n/a

November 2001d SoSh23,500:US$1 SolSh6,900:US$1

Principal exports 1990 US$ m Principal imports 1990 US$ m

Livestock 43 Manufactures 204

Bananas 28 Non-fuel primary products 104

Hides & skins 3 Fuels 52

Main destinations of exports 2000b % of total Main origins of imports 2000b % of total

Saudi Arabia 29 Djibouti 27

United Arab Emirates 29 Kenya 12

Yemen 28 India 9

Bahrain 1 Brazil 9

India 1 Thailand 7

a There are few reliable economic data for Somalia; all figures are rough estimates from official or other sources. b Based on partners’ tradereturns; subject to a wide margin of error. c There have been no new disbursements of debt since 1991; statistical changes in the debt stockreflect currency fluctuations and arrears accrued since 1991. d EIU estimates for market rates in Mogadishu (Somali shilling, SoSh) and Hargeisa(Somaliland shilling, SolSh).

Somalia 27


Outlook for 2002-03

Talks in November between the president, Abdikassim Salat Hassan, andrepresentatives of the main opposition alliance, the Somali Reconciliation andRestoration Council (SRRC), have raised the possibility that Mr Hassan maymeet the principal faction leaders of the SRRC. Brokering a deal betweenMr Hassan and the SRRC will be a delicate and lengthy operation, andEthiopia’s involvement in any reconciliation talks is crucial because of itssupport of the SRRC. Ethiopia suspects that Mr Hassan is supported by militantIslamists, and violent clashes between SRRC militias and supporters of theTransitional National Assembly (TNA) are likely to continue—the immediateflash-point being the advance of forces commanded by General Mohamed SiadHersi “Morgan” towards Kismayu. Equally, the history of factional conflictcasts doubts on whether the SRRC can maintain its cohesion over the forecastperiod. With much of the country outside the control of the TNA, the prospectof Somalia becoming a functioning sovereign state after 10 years without anycentral institutions remains slim. Inter-clan violence is not expected to end.

The passing by the TNA of a vote of no-confidence in the fledglinggovernment in October was in one sense a major step forward for democracy,being the first time that a Somali parliament has legally dissolved a Somaligovernment. However, a lack of control over the whole country means that thenew prime minister, Hassan Abshir Farah, will not be able to fully exert hisauthority during the forecast period. For a similar reason, it is highly unlikelythat the legislative election, scheduled for 2003, will be held. Although Somaliorganisations have been implicated in the United States’ “war on terrorism”,direct US military action is not expected—though covert action against certaingroups can not be ruled out. The self-styled Somaliland Republic and the self-declared regional administration in Puntland are not expected to pose amilitary threat to the TNA, but are equally unlikely to accept its authority.

Unless the TNA gains control over the whole country, which is unlikely tohappen in the forecast period, it can do little to manage the economy as awhole. The Central Bank of Somalia, which is currently being re-established,will allow the country representation in various international forums,providing a semblance of normality that the international community willwelcome. However, it will have little influence on domestic monetary controlgiven its inability to influence the major factors affecting the value of theSomali shilling and inflation: the many agents who import their ownbanknotes and the continuing ban on livestock imports from Somalia by SaudiArabia and other Gulf states. The drop in livestock exports and a fall inexpatriate remittances (see below) will worsen the shortage of foreignexchange, putting further pressure on the value of the shilling and in turnraising the price of imported products for local consumers. The reopening ofKenya’s border with Somalia, and Djibouti’s with Somaliland, will give a slightboost to the economy.

Somalia will be prevented from receiving financing under an IMF countryprogramme because of both the new government’s lack of nationwide

Political outlook

Economic forecast

28 Somalia


authority and the lack of institutions with which the IMF usually consults, butproject funding from multilateral institutions should increase. Private-sectorinvestment may also increase now that the country has (in name at least) anofficial government. However, this is dependent on security and is likely to berestricted to the exploitation of natural resources. Far more serious, though,will be the drop in remittance income from the Somali diaspora, estimated torange from US$200m to US$500m annually, that will follow the USgovernment’s closing of the Al-Barakat money transfer company and thefreezing of its assets. Al-Barakat was the largest of a number of money transfercompanies operating in Somalia’s informal banking network, one of themainstays of the country’s fragile economy, and the Economist IntelligenceUnit expects the others to face similar action during the forecast period. Thedisruption to remittance inflows will have a severe humanitarian impact—already an estimated 750,000 Somalis are facing a major food crisis, mainly dueto the worst gu (April-June) crop production for seven years.

Official recognition of seven new political parties in the self-styled SomalilandRepublic in October marks the dawn of a new era of multiparty democracy.However, the prospects for a smooth transition to multiparty democracy by2002 are poor. But the opposition parties will find it difficult to compete withthe newly formed Democratic United National Party (UDUB; in effect a newgovernment party with the president, Mohamed Ibrahim Egal, at its head) foraccess to funds and patronage. As parliament was still debating the country’selectoral laws in early November, it seems likely that local governmentelections, currently scheduled for December 2001, and a presidential election,scheduled for February 2002, will be postponed. Despite these steps towardsdemocratisation, and the region’s relative stability, the chances of Somalilandachieving international recognition will remain slim, as the internationalcommunity will hope for a reunited Somalia as long as the TNA continues toexist. Economically, the disruption to remittance inflows will worsen theimpact of the ban by many Gulf states on livestock imports from Somalia.

The political scene

On October 28th the Transitional National Assembly (TNA) passed a no-confidence vote in the fledgling government of the prime minister, Ali KhalifGalaydh, and his cabinet, ending their tenure after just 13 months. Of the 174legislators attending parliament, 141 voted against Mr Galaydh and his 84-member government, 29 voted in favour and four abstained. The motion of noconfidence, which accused the interim government among other things ofcorruption, violating the national charter, and failing to resolve the country’ssecurity and economic problems, was brought before the TNA on October 12thby 14 MPs. President Abdikassim Salat Hassan appointed Hassan Abshir Farahas the new prime minister on November 12th—Mr Farah has 30 days toappoint a new cabinet. The no-confidence vote is a major step forward fordemocracy in the country, as it is the first time a Somali parliament hasconstitutionally (albeit under an interim constitution) dissolved a government.

Somaliland outlook

Parliament votes out theinterim government

Somalia 29


The no-confidence vote followed rumours in Mogadishu in recent months of asplit between Mr Hassan and his prime minister caused by differences overhow to deal with faction leaders opposed to the TNA. Mr Galaydh is believedto have favoured a more hardline approach than Mr Hassan. With Mr Galaydhremoved from his post, Mr Hassan may step up his efforts at reconciliation,which are likely to be assisted by Mr Farah (see below). The appointment of anew cabinet brings the opportunity to offer posts to leaders of the SomaliReconciliation and Restoration Council (SRRC), the alliance of faction leadersopposed to the TNA, an option Mr Hassan suggested in September.

In his maiden speech, Mr Farah declared that his first priority was nationalreconciliation, which he aimed to achieve by negotiating with the factionsopposed to the TNA, with representatives from the self-styled SomalilandRepublic and with the self-appointed regional administration in Puntland.Mr Farah is thought to command greater popular support than Mr Galaydhand known to have good relations with traditional leaders. The appointmentof the new prime minister was reportedly warmly welcomed in Puntland,Mr Farah’s home region—he is a member of the dominant Majerteen clan.Previously, Mr Farah had served as Puntland’s interior minister beforebecoming co-chairman of the Arta peace conference (September 2000, page 26)and minister of water and mineral resources in the outgoing government.Mr Farah also had several ambassadorial roles under the administration ofPresident Mohamed Said Barre, which collapsed in 1991; these links will notallay the suspicions of the main factions in the SRRC and the Somalilandgovernment that the TNA is a revival of the Barre administration.

An opportunity for reconciliation emerged in Nairobi at a four-day meeting ofvarious political factions from Somalia, opened by the Kenyan president,Daniel arap Moi, on November 1st. The conference, attended by Mr Hassanand representatives of the SRRC, was hailed as a success by both sides, whoannounced that they had agreed to meet again for further reconciliation talksat an unspecified date. The Kenyan minister of state, Marsden Madoka, saidthat the faction leaders had agreed on the need for compromise and that theirvarious legal systems should be reviewed, that power-sharing should be basedon all Somali clans, and that national disarmament should accompany theprocess. Co-operation from Ethiopia, which was reportedly angry at beingoffered only observer status at the Nairobi talks, is crucial if the Kenyan-brokered effort is to make progress. Numerous reports in recent months suggestthat Ethiopia has backed the SRRC against the transitional government becauseof its belief that militant Islamists support Mr Hassan. There were unconfirmedreports that several prominent SRRC leaders, including Hussein MohamedAideed, Musa Sude Yalahow and General Mohamed Siad Hersi “Morgan”, werein Addis Ababa during the Nairobi conference.

The TNA has made further progress in its efforts to assert its internationallegitimacy in recent months. Somalia’s first permanent representative to theUN for ten years, Ahmad Abdi Hashi Hasharo, presented his credentials to theUN secretary-general, Kofi Annan, on September 12th, and Djibouti’s new am-bassador to Somalia was received in Mogadishu on September 30th. Djibouti’s

A reconciliation conferenceis held in Nairobi

The TNA consolidates itsinternational standing

The new prime ministerpromotes reconciliation

30 Somalia


ambassador is the third to be accredited to Somalia. The ambassadors of Libyaand Egypt have been in Mogadishu since before the creation of the TNA.

The TNA’s new Somali passports, announced in May (June 2001, page 29),arrived in Mogadishu in mid-September from Djibouti. The then primeminister, Mr Galaydh, announced on October 1st that the new documents,printed in France, would be issued immediately.

Despite its progress internationally, the TNA has continued to face a high levelof violence and unrest in Mogadishu; several incidents were reported inSeptember alone. At least three people were killed in two separate clashesbetween rival militiamen in the capital on September 2nd, the day of therelease of an MP, Muhammad Abdi Gas, who was held hostage for fourmonths. Mediators who helped secure the MP’s release suggested that themilitia’s ransom demand was not met. Three people were reported killed andseveral others wounded in clashes between rival militia groups on September10th at Sana Junction in Mogadishu. Several hours of heavy fighting onSeptember 20th between militiamen and TNA police left at least twomilitiamen dead and several others wounded at the Hawara-Adde settlement inMogadishu. Outside the capital, the worst incident over the past quarter wasthe death of at least 32 people in three days of fighting beginning on October12th between TNA police and militia loyal to a faction leader, Musa SudeYalahow, in Huriwa district.

A Somali Islamist group, Al-Ittihad, has been targeted in American efforts tostarve of funds those suspected of being involved in terrorism, following theattacks on the US on September 11th. The US decision to freeze Al-Ittihad’sassets was announced in late September as part of a broad effort by the US andthe EU to cut off financial support for Osama bin Laden, the chief suspect inthe September attacks. Al-Ittihad is widely believed to be supporting andtraining ethnic Somali rebels fighting the government in Ethiopia. Althoughmany of its training camps are thought to have closed in response to a series ofEthiopian military incursions in 1997, the group still has strongholds onSomalia’s southern coast and outside the northern port of Bossasso. The UnitedStates’ focus on Al-Ittihad may stem from the group’s alleged involvement in aglobal network of Somali “remittance banks”, which allow Somalis livingabroad to transfer money to a relative in Somalia and operate outside theformal international banking sector (see Economic policy and the economy). Afurther indication that Somalia is among the states being investigated for linkswith global terrorism came in Washington on October 17th, when the USdefence secretary, Donald Rumsfeld, stated that there was no question that Al-Qaida, Osama bin Laden’s organisation, was still involved in Somalia.

Despite condemnation of the attacks by the TNA and Muslim scholars inMogadishu, thousands of Somalis took to the streets of the capital wavingphotographs of Mr bin Laden on September 23rd, as demonstrators burnedAmerican and Israeli flags in protest at US policy in the Middle East. Aidagencies working in Somalia stepped up security in the wake of the Septemberattacks fearing reprisals against foreigners for American strikes against

Violence continues inMogadishu

Al-Ittihad targeted in fightagainst global terrorism

Aid agencies tightensecurity

Somalia 31


Afghanistan (and possibly other Islamic countries). All international UN staffwere withdrawn from Somalia after war-risk insurance coverage for UN flightswas discontinued by the insurance company. Some 30 international staff inHargeisa, Somaliland, and 15 international staff in Baidoa, in southernSomalia, were evacuated by September 24th. The EU also said that it hadevacuated around 80 foreign aid workers from Somalia. On September 29th theUN announced the return of its personnel and the resumption ofhumanitarian flights, having obtained the necessary insurance guarantees.

Bu’aale, the regional capital of Jubbada Dhexe, came under the control ofmilitia loyal to General Morgan of the SRRC in mid-October, a few days afterthe Juba Valley Alliance (JVA), a pro-TNA militia grouping, withdrew from thetown. Reports indicate that General Morgan’s forces met no resistance onOctober 16th as they entered Bu’aale, which had been captured from the SRRCin late August (September 2001, page 30) by JVA forces, who also control theport of Kismayu, 250 km to the south. Some observers say that GeneralMorgan’s forces—which were reportedly bolstered on September 9th by 40soldiers flown in from Gaalkacyo, the administrative base of Colonel AbdullahiYussuf Ahmed, the deposed Puntland leader—are involved in operations to cutthe Mogadishu-Kismayu highway.

The dispute over the presidency of the self-declared regional administration inPuntland escalated in mid-November and it is currently unclear who holds theposition. Jama Ali Jama was elected the new president on November 14th at acongress of clan elders and Ahmed Mohamed Gonle was elected vice-president.The congress began on August 26th and after several months of stalemateproceedings accelerated following the appointment of a new chairman in lateOctober. Mr Jama, a former army officer, has stated that his first priority is torestore peace in the region. However, the outgoing president, ColonelAbdullahi Yussuf Ahmed (September 2001, page 31), refused to recognise theoutcome of the congress, and on November 21st, the day after Mr Jama’sinauguration, launched an attack on the region’s capital, Garowe. Forces loyalto Mr Ahmed, who still considers himself to be the president after parliamentextended his term in April (June 2001, page 29), have reportedly captured thecity. Mr Jama’s whereabouts are unknown, but the situation is likely to remaintense in what had been a relatively peaceful region of Somalia.


A fall in unregulated remittance flows into Somalia, due to suspicions of a linkbetween the money transfer companies and the Al-Qaida network, will have asevere humanitarian impact. Randolph Kent, head of the UN DevelopmentProgramme for Somalia, said in late October that the drop in workers’remittances was one of three factors contributing to a “major food crisis”which has put 300,000 Somalis in urgent need of assistance and made another450,000 vulnerable. The other factors are drought—the gu harvest (April-June)in 2001 was the worst for seven years—and the continuing ban by Saudi Arabia

Declining remittancesworsen humanitarian crisis

Puntland’s presidencyremains uncertain

General Morgan advanceson Kismayu

32 Somalia


on imports of Somali livestock. Somali expatriates are increasingly wary ofbeing linked with remittance companies for fear of being labelled terroristsympathisers, and agents of the remittance companies are reported to havefaced problems from national authorities. Estimates of annual transfers rangefrom US$200m to US$500m, mostly sent in tiny amounts (this compares witha UN estimate that only US$60m was receive in foreign aid in 2000). Thesystem relies entirely on trust, circumventing formal transfer systems—there isno formal banking sector in Somalia—and bank employees often have strongIslamic beliefs. The system has become increasingly efficient over the pastdecade, and offices have been established worldwide. Transfer charges rangefrom 1% to 8%, depending on the location of the remitter and the remittances’ultimate destination; the larger banks are even used by the UN to pay its staffin Somalia. But their operations have caused concern among Westerngovernments, and opponents within Somalia have linked them withextremism. In late September the US government placed Al-Ittihad on a list ofgroups whose assets were to be frozen.

These fears appeared to be confirmed on November 7th when the USauthorities ordered the immediate closure of the Al-Barakat money transfercompany and the seizure of its assets worldwide, accusing it of transferringfunds on behalf of Mr bin Laden and Al-Qaida. Al-Barakat’s chairman, AhmadAli Jimale, immediately denied the claim. In total, 62 individuals andorganisations with ties to Al-Barakat and a Swiss-based money transfercompany, which the US authorities also suspect of complicity in financingterrorism, have had their assets, totalling US$43m, seized. Mr Jimale said heformed Al-Barakat, which operates in 40 countries, following the outbreak ofcivil war in Somalia in 1991 and the collapse of the country’s formal bankingsystem, as a means of helping Somalis who had fled the country to transferfunds to relatives back home. To date, the informal banking network, knownas hawalad, remains the only way of transferring funds to Somalia. Al-Barakatwas the largest of the handful of hawalad companies operating in Somalia. USofficials have claimed that Somalis can use other remittance companies, but Al-Barakat had the largest foreign branch network and distribution network inSomalia, so considerable disruption to remittance flows is inevitable.

The depreciation of the Somali shilling accelerated in the last quarter. Theshilling, which after more than a year of relative stability at aboutSoSh10,000:US$1, began to fall in September 2000 because of a ban onlivestock imports by Saudi Arabia and other Gulf states—a leading source offoreign exchange—and the import of banknotes by various factions. Theexchange rate fell from SoSh20,000:US$1 in August 2001 in Mogadishu’sBakara market, the city’s largest, to SoSh23,500:US$1 in October. Two peoplewere killed during rioting in Mogadishu on October 9th after local shops andbusinesses refused to accept SoSh500 (2 US cents) banknotes because they wereworn out and worth very little, fuelling further inflation. The price of a cup oftea in the capital doubled virtually overnight, from SoSh500 to SoSh1,000, thesmallest denomination many businesses will take. Demonstrators stonedbusinesses and shops, and private security forces responded by firing into thecrowds. President Hassan tried to calm the situation, reassuring Somalis that

US government seizes assetsof money transfer company

The shilling depreciatesfurther

Somalia 33


the note was legal tender and telling the police and the courts to ensure that itwas accepted. The day after the demonstration, TNA police arrested at least 25people for refusing to accept the banknote. Violent demonstrations also brokeout in Beled Weyne in Hiiraan region on October 23rd, when businessesrefused to trade in the SoSh500 note.

The TNA’s tax-collecting exercise in Mogadishu’s main markets, which beganin early September (September 2001, page 29), faltered on September 23rd,when tax collection at Bakara market was halted by security men who went onstrike over non-payment of their salaries. The SRRC, rejecting the legitimacy ofthe TNA, stated that tax payments would only be legitimate when there was anationally or locally elected administration.

The Kenyan president, Daniel arap Moi, ordered the immediate reopening ofthe border with Somalia on November 5th after a three-month closure. Mr Moidescribed the move as a goodwill gesture, following the meeting of the Somalitransitional government and some faction leaders in Nairobi. The closing ofthe border had largely cut off the supply of qat from Kenya, increasing theprice in Somalia of this widely used narcotic.

Horn Africa, a Libyan investment firm, held a ceremony at Mogadishu’s HotelShaamo, attended by senior government officials, MPs and businessmen, onSeptember 30th to launch its investment programme in Somalia. The companyplans to invest in the agriculture, fishing and livestock sectors.

News from the Somaliland Republic

The political scene

The self-styled Somaliland Republic’s National Commission for the Registrationof Political Parties issued certificates of registration on October 1st to sevenpolitical parties (see table) which had officially fulfilled the registrationrequirements by its September 21st deadline. One of the parties, theSomaliland Alliance for Islamic Democracy (SAHAN), was formed the daybefore the registration deadline by combining the Somaliland Salvation Partywith the Somaliland Islamic Party and prominent opposition figures includingseveral members of the Somali National Movement (SNM), veterans of thefight against the former president Mohamed Siad Barre in the late 1980s. OtherSNM members, dismayed at the apparent sidelining of the organisation thathad successfully fought Barre, declared that they would neither register theSNM nor participate in the forthcoming elections. The organisation’s executivecommittee stated that the SNM would devote its resources to finding otheravenues to save Somaliland from the government’s “ill-motivated designs”.

Somaliland’s new political parties have begun to develop their infrastructure inrecent weeks. The Justice and Welfare Party (UCID) opened offices in Buraoand Berbera on October 10th, the same day that SAHAN opened its office in

Kenya reopens the borderwith Somalia

Seven political parties areofficially registered

Somaliland gears up for amultiparty system

Libyan company launchesinvestment programme

34 Somalia


the town of Gabilay and held a public rally in Hargeisa. Although each newparty claims to have a plan of action, none appears to have published amanifesto so far and some have not even managed an inaugural conference.Somaliland’s president, Mohamed Ibrahim Egal, has brushed aside chargesfrom traditional clan leaders that the Ururka Demoqoraadiga UmmaddahaBahoobay or Democratic United National Party (UDUB), effectively the newgovernment party, was illegal, and has opened UDUB branches in mostdistricts of Somaliland. A series of talks on election issues between thegovernment and the new opposition parties began in early October, but theoutcome of these discussions has not been made public.

Somaliland: licensed political parties, Oct 2001

Name (in English) Abbreviationa

Democratic United National Party UDUB

Justice and Welfare Party UCID

Somaliland Alliance for Islamic Democracy SAHAN

Salvation and Protection of Somaliland’s Aspirations BIRSOL

Vanguards for Peace and Prosperity HORMUUD

Unification of Somaliland’s Viewpoints UMAD

Somaliland’s Beacon Light Party ILAYS

a Derived from the parties’ Somali names,

Source: Press reports.

The Somaliland parliament was still debating the electoral laws, which willinclude the establishment of an Election Commission, in early November.Local government elections are scheduled for December 2001, followed by apresidential election in February 2002 and parliamentary elections in May, butmany observers in Hargeisa suggest that rescheduling is inevitable, as theparties are unprepared for the polls. Some legislators also suggest that the orderof these events should be changed—that the parliamentary election shouldprecede the presidential election. MPs from Awdal region have boycotted thedebate on the electoral laws as they claim that the new laws will be based onthe 1960 allocation of electoral constituencies, which they do not believe givesfair representation to their region


The Somaliland shilling has fallen against the US dollar in recent months.Trading at around SolSh5,000:US$1 in August, in September the shilling fellfurther, to SolSh7,500:US$1, before recovering to SolSh6,900:US$1 in earlyNovember. The sharp depreciation in September was in response to thepressure being placed on Somali money transfer companies following theattacks on the US. A further fall in the shilling is expected as the closure of Al-Barakat has caused a reduction in foreign-exchange inflows.

Djibouti reopened the border with Somaliland on November 4th signalling amarked improvement in bilateral relations. This followed a two-week visit to

Elections may berescheduled

The Somaliland shillingdepreciates

The border with Djibouti isreopened

Somalia 35


Djibouti in early October by a delegation, headed by the Somaliland foreignminister, Abdihamid Garad Djama, which produced a six-point agreement toend hostilities (see Djibouti: The political scene). Relations between the twosides were soured by Djibouti’s hosting of the Somali peace talks at Arta in2001, and the border was closed by Djibouti in April after a trade dispute (June2001, page 31).

Some 4,900 Somali refugees were voluntarily repatriated from eastern Ethiopiain late October in three road convoys organised by the UN High Commissionerfor Refugees (UNHCR). The UNHCR announced in Addis Ababa on November6th that about 6,400 others were due to leave Darur camp, which is due toclose by the end of the year, for Hargeisa, in November. The UN World FoodProgramme is giving them food and household tools to last nine months aswell as plastic sheeting and US$30 each. Almost 47,500 Somali refugees havebeen repatriated from Ethiopia in 2001. In 2000 some 139,000 Somali refugeeswere voluntarily repatriated.

Somali refugees returnfrom Ethiopia

36 Djibouti


Djibouti

Political structure

République de Djibouti

Unitary republic

Based on the Napoleonic Code. A referendum in September 1992 endorsed a newconstitution, which allows a maximum of four political parties

National Assembly (Assemblée nationale); 65 deputies, elected by universal suffrage,serve a five-year term; an alliance of the RPP and the FRUD holds all the seats

December 1997 (legislative) and April 1999 (presidential); next elections due inDecember 2002 (legislative) and April 2005 (presidential)

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

The president and his appointed Council of Ministers; last reshuffled in May 1999

Rassemblement populaire pour le progrès (RPP), the former sole legal party, split in 1996,and dissidents formed Groupe pour la démocratie et la république, which was later banned;Parti national démocratique; Parti pour le renouveau démocratique. In 1991 Front pour larestauration de l’unité et de la démocratie (FRUD) launched a rebellion by the Afars. In1994 the government signed a peace agreement with one faction of FRUD. The factionwas legalised in 1997 and contested the legislative election in alliance with the RPP. Apeace deal was signed with the militant FRUD faction in May 2001

President Ismael Omar GuellehPrime minister & minister for land development Dileita Mohamed Dileita

Agriculture & water resources Dini Abdellah BililisCommerce & industry Saleban Omar OudineCommunication & culture Rifki Abdulkader BamakramaDefence Ougoureh Kifle AhmedEconomy, finance & privatisation Yacin Elmi BouhEducation Abdi Ibrahim ObsiehEmployment & solidarity Mohamed Barkat AbdillahiEnergy & natural resources Mohamed Ali MohamedForeign affairs & co-operation Ali Abdi FarahInterior Abdulkader Doualeh WaissInternational co-operation Mahmoud Ali YusufJustice, prisons & human rights Ismail Ibrahim HoumedPresidential affairs & investment promotion Osman Ahmed MoussaPublic works, housing & construction Saleiban Omar OudineTransport & equipment Elmi Osbieh Waiss

Directeur de cabinet Ismael Hussein TaniChef de cabinet Ali Guelleh Abubaker

Djama Mohamed Haid

Official name

Form of state

Legal system


National elections

Head of state

National government


Non-cabinet advisers

Key ministers

Central bank governor

Djibouti 37

© The Economist Intelligence Unit Limited 2001 EIU Country Report December 2001

Economic structure

Annual indicators

1996 1997 1998 1999 2000a

GDP at market prices (Dfr bn) 86.8 88.9 91.4 94.6 97.8

Real GDP growth (%) –3.8 0.5 0.8 1.5 2.3

Populationb (m) 0.61 0.62 0.62 0.63 0.63

Consumer price inflation (%; av) 2.6 2.4 2.0 1.9 2.0

Exports fob (US$ m) 40 43 59 69 n/a

Imports fob (US$ m) 201 204 240 252 n/a

Current-account balance (US$ m) –20 –12 –3 –4 n/a

Reserves excl gold (US$ m; year-end) 77.0 66.6 66.5 70.6 67.8c

Total external debt (US$ m; year-end) 296 274 288 280 n/a

External debt-service ratio, paid (%) 5.8 3.4 6.2d 7.0d n/a

Exchange rate Dfr:FFr (av) 34.7 30.4 30.1 28.8 24.6c

Exchange rate Dfr:US$ (av) 177.7 177.7 177.7 177.7 177.7c

November 13th 2001 Dfr177.7:US$1

Origins of gross domestic product 1999 % of total Components of gross domestic product 1998e % of total

Primary sector 3.5 Private consumption 79.5

Secondary sector 14.9 Government consumption 23.6

Construction & public works 6.6 Gross domestic investment 15.3

Tertiary sector 81.6 Exports of goods & services 45.4

Transport & communications 28.0 Imports of goods & services –63.8

GDP at factor cost 100.0 GDP at market prices 100.0

Exports 1998e US$ m Principal imports fob 1998ef US$ m

Re-exports 45 Food & beverages 53

Locally produced goods 14 Qat 17

Petroleum products 17

Machinery 15

Main destinations of exports 1999g % of total Main origins of imports 1999g % of total

Somalia 50 France 14

Yemen 21 Saudi Arabia 14

France 16 Ethiopia 9

Ethiopia 4 China 7

UAE 4 UK 6

a EIU estimates. b IMF figures, including refugees and expatriates. c Actual. d Calculated by the EIU from Banque nationale de Djibouti data.e Provisional estimates. f Excluding goods for re-export. g Based on partners’ trade returns; subject to a wide margin of error.

38 Djibouti


Quarterly indicators

1999 2000 20013 Qtr 4 Qtr 1 Qtr 2 Qtr 3Qtr 4 Qtr 1 Qtr 2Qtr

Government finance (Dfr m)Revenue & grants 7,551 8,820 6,186 6,553 8,906 n/a n/a n/a Revenue 6,206 6,490 4,719 5,665 6,394 n/a n/a n/a Grants 1,345 2,330 1,467 888 2,512 n/a n/a n/aExpenditure 7,289 8,670 7,374 7,639 9,379 n/a n/a n/a Current 6,967 7,768 7,009 7,291 7,829 n/a n/a n/a Development 322 902 365 348 1,550 n/a n/a n/aBalance 262 150 –1,188 –1,086 –473 n/a n/a n/a

OutputEnergy consumption (mwh) 46,915 38,327 30,532 43,132 46,912 n/a n/a n/a Household 25,667 19,566 14,041 16,993 20,773 n/a n/a n/a Others (industrial etc) 21,248 18,761 16,491 26,139 26,139 n/a n/a n/a

PricesConsumer prices (Mar-Apr 1999=100) 97.5 98.8 99.6 101.0 99.5 n/a n/a n/a % change, year on year n/a n/a n/a 2.5 2.1 n/a n/a n/a

Financial indicatorsExchange rate Dfr:US$ (av) 177.72 177.72 177.72 177.72 177.72 177.72 177.72 177.72 Dfr:US$ (end-period) 177.72 177.72 177.72 177.72 177.72 177.72 177.72 177.72M1, (end-period; Dfr m) 27,737 30,274 27,796 29,164 28,845 27,911 27,466 28,145 % change, year on year 3.7 3.5 –5.2 0.3 4.0 –7.8 –1.2 –3.5M2, (end-period; Dfr m) 50,878 52,021 50,545 51,598 52,348 52,608 52,868 54,311 % change, year on year –3.4 –3.8 –5.9 –4.8 2.9 1.1 4.6 5.3

Sectoral trendsDjibouti port traffic (‘000 tonnes) Incoming goods 862.8 752.7 1,061.2 611.6 958.7 n/a n/a n/a Bound for Ethiopia 453.4 350.0 483.8 358.2 454.0 n/a n/a n/a Outward bound goods 91.6 70.3 97.8 103.0 166.4 n/a n/a n/a From Ethiopia 63.4 20.5 39.0 62.9 65.8 n/a n/a n/a

Foreign tradea (US$ m)Exports fob 46.32 37.64 37.64 33.74 41.29 30.63 77.64 37.39Imports cif –161.64 –170.12 –183.78 –144.43 –140.51 –145.93 –190.42 –147.29Trade balance –115.32 –132.48 –146.14 –110.69 –99.22 –115.30 –112.78 –109.90

Foreign reserves (US$ m)Reserves excl gold (end-period) 62.2 70.6 62.2 62.5 59.1 67.8 63.0 67.5

a DOTS estimates.

Sources: Banque nationale de Djibouti, Indicateurs économiques et monétaires; IMF, International Financial Statistics; Direction of Trade Statistics.

Djibouti 39


Outlook for 2002-03

President Ismael Omar Guelleh will seek finance and concessions from the US,by playing on American concerns that Somalia was used by the Al-Qaidanetwork as a conduit for funds. He was swift to express solidarity with the USfollowing the September 11th attacks, and has sought to capitalise onDjibouti’s role as broker of the negotiated settlement in Somalia that createdthe Transitional National Assembly in 2000. Djibouti’s political andcommercial elite, which has extensive links with Somalia’s merchant class bothin the Horn and the Gulf, will try to distance itself from the Dubai-based Al-Barakat corporation, which is suspected by the US authorities of being afinancier of Osama bin Laden’s Al-Qaida network. US concerns over terrorismappear to have stimulated regional co-operation and prompted the brief visitby the Ethiopian prime minister, Meles Zenawi, to Djibouti on November 10th.The fact that US interest in the activities of Islamist groups in southern Somaliahas tightened intelligence and military ties between Ethiopia and Washingtonshould, through its close relationship with Ethiopia, indirectly benefit theDjiboutian government. Direct US use of Djibouti’s port and military facilities,as occurred during the 1991 war against Iraq, does not appear imminent.Nevertheless, closer regional co-operation spearheaded by Ethiopia shouldincrease the political capital generated by Mr Guelleh’s sponsorship of theSomali peace process in 2000.

Mr Guelleh’s regional diplomatic standing contrasts strongly with hisauthoritarian rule at home. However, there is evidence that he now feels moresecure domestically: in September an amnesty of his most vehementopponents—including Moumin Bahdon, Mr Guelleh’s main rival to succeedPresident Hassan Gouled Aptidon—was declared. Five prominent critics ofMr Guelleh have been permitted to re-enter public life. The governmentclaimed that the amnesty reflected Mr Guelleh’s desire to reconfigure domesticpolitics following the May 2001 peace deal with Ahmed Dini (June 2001, page37), to encourage a more pluralist campaign in the legislative election, which isscheduled for late 2002. Although opposition groups may win seats inparliament at the election, effective power will remain with the presidency.Those opposition groups (largely exiled) that are opposed to the peace accordsigned by Mr Dini are highly unlikely to return to armed struggle, because ofthe changed regional situation and closer ties between Ethiopia and Djibouti.

Credible forecasts of the performance of the Djiboutian economy are madedifficult by the lack of economic data. Recently some steps have been takentowards improving information flows, including better monitoring of fiscalperformance. However, further evidence of commitment to financialtransparency, together with administrative reforms, will be required beforesignificant multilateral financial assistance is forthcoming. In general,multilateral agencies are likely to remain sceptical of President Guelleh’scommitment to financial rigour. The administration’s obvious lack ofcommitment to fundamental change belies recent statements by the presidentand his prime minister on the need for reform. One example of this is thecontinued failure to curb the bloated civil service wage bill, despite an

Political outlook

Economic forecast

40 Djibouti


undertaking to the IMF to do so; the civil service remaining the main vehiclefor patronage and political control. After being stalled for five years, fiscal andstructural reforms are unlikely to accelerate over the forecast period. Otherreforms previously agreed with the IMF, especially streamlining the civilservice, privatisation and labour market liberalisation, will continue to bedelayed. Without domestic political consensus, proper economic reform is notpossible and the economy is unlikely to show any dynamism or substantialgrowth. Instead, its fortunes will continue to depend on Ethiopian trafficthrough its port—Ethiopian trade is not expected to return to Eritrean portsduring the forecast period—and on muddling through the reform programmeto ensure that external financing trickles in.

The political scene

Military action by US and allied forces against Afghanistan, in the wake of theattacks on September 11th, raised the possibility that Djibouti’s strategicallylocated port and airstrip facilities might again be used in the context of anywider military action. During the 1990-91 Gulf war, Djiboutian bases were usedfor refuelling and support services by American and French forces. Reutersreported that the US had indeed promptly requested logistical assistance fromKenya and Djibouti. However, following a meeting between the USambassador, Donald Yamamoto, and President Ismail Omar Guelleh onSeptember 20th, the foreign minister Ali Abdi Farah, told the weeklynewspaper La Nation that Djibouti had received no such request, adding:“when the time comes, we will take the measures deemed appropriate.”Government officials told the UN regional information network that Djiboutihad received no official request for the use of its facilities.

The spokesman for the French Ministry of Defence also played down thelikelihood of an immediate change in the regional role of its Djibouti-basedmilitary forces. France currently has 2,660 men based at its Djibouti garrison,which also acts as a logistical centre for a fleet of four ships based in the IndianOcean. On September 20th France’s six ageing Mirage F1-C aircraft based inDjibouti were replaced by five, more modern Mirage 2000-C aircraft. Militarysources said that this move had been long scheduled and was not linked to theincrease in regional tension.

On October 7th a national anti-terrorism committee (Comité national de luttecontre le terrorisme) was convened under the chairmanship of the justiceminister, Ismael Ibrahim Houmed. The seven-man committee was created bypresidential decree four days earlier. According to local reports, the committeecomprises the ministers of justice, finance, interior and foreign affairs, thearmy chief-of-staff, the governor of the Banque nationale de Djibouti (thecentral bank) and the director of national security. Internal security was visiblystepped-up the following week, with additional police and paramilitary forcespositioned at diplomatic, financial and oil installations. On October 17thPresident Guelleh was one of ten African heads of state to attend a one-daymeeting on counter-terrorism in Dakar, Senegal. Delegates from the 28 African

Speculation over Americanuse of military facilities

An anti-terrorismcommittee is established

Djibouti 41


states present suggested that the African Union should convene a summit onthe issue, noting that though the body had agreed an anti-terrorism pact in1999, only three states had ratified it.

On October 21st Djibouti’s Ministry of Foreign Affairs and International Co-operation confirmed that a six-point agreement had been signed with theauthorities in the Somaliland Republic for re-opening the Loyada bordercrossing between the two countries. This had been officially closed since June,following the latest episode in the fraught bilateral ties between Djibouti andthe Somaliland Republic. Following a visit on October 5th to Djibouti by aSomaliland delegation composed of Ahmad Yusuf Du’ale, the educationminister, and Abdihamid Garad Djama, the foreign minister, the two sidesagreed to end hostilities, which had recently degenerated into vitriolic criticismof Somali clansmen (September 2001, page 41). A bilateral commission tooversee the free movement of goods and people between both countries and toensure private property rights was established. The ministerial visit wasreported to have followed pressure from the governments of both the US andthe United Arab Emirates. A fortnight earlier, President Guelleh had indicatedthat reconciliation was possible if frontier security could be guaranteed;adding, “too much ego, misplaced words, have never helped anyone”.


On November 1st, in his speech to the annual congress of the rulingRassemblement populaire pour le progrès (RPP) in the south-western town ofAli Sabieh, President Guelleh stressed the centrality of regionalisation toeconomic reform. Decentralisation was also a key element of the peace dealsigned with Afar militants in May (June 2001, page 37). Yet in practice there arefew signs of a reorientation of economic activity away from the capital,Djibouti-ville, and its port. A similar credibility gap between stated intent andpractice is likely to undermine a new initiative, launched by the primeminister, Dileita Mohamed Dileita, in October. Under the initiative, designedto streamline government decision-making, a technical committee drawn fromboth public and private sectors is to be established to make proposals onimproving public services and reducing poverty.

On October 30th the Council of Ministers agreed legislation enabling Djibouti-Telecom to establish a mobile phone network. The new GSM900 network, tobe known locally as Evatis, will have a capacity of 25,000 subscribersthroughout the country. According to official reports it will cost DFr800m(US$4.5m) to construct, although no details of financing or contractors havebeen given. Although Djibouti has good international communication links, itcurrently does not have a mobile phone system, and the vast majority oflandline subscribers are concentrated in Djibouti-ville. Two years ago the state-owned telecommunications authority was restructured to attract foreigninvestment in the expansion of telephone networks.

Relations with Somalilandimprove

A new mobile phonenetwork is agreed

Little progress is made withdecentralisation

42 Djibouti


A five-man delegation from the Ethiopian Chamber of Commerce (ECC)visited Djibouti in mid-October as a part of a series of initiatives to try tonegotiate an end to the trade disputes between the two neighbours. TheEthiopians met Djiboutian ministers and officials, as well as their counterpartsin Djibouti’s International Chamber of Commerce. The meetings led to thecreation of a Joint Ethio-Djiboutian Business Council as a forum for thediscussion and resolution of bilateral trade disputes. However, the ECC, whichrepresents mainly private-sector businesses, has only indirect influence on theEthiopian government and the large state- and party-owned companies whichdominate key sectors of the economy. Ethiopia’s state-owned shipping andforwarding agency, Maritime Transit Services Enterprise (MTSE), is thecompany most affected by Djibouti’s attempts to reserve key port handling andforwarding activities for national companies (September 2001, page 41). InSeptember Djibouti’s Ministry of Transport announced that it would delayimplementation of the new legislation until late October. In mid-November,despite the efforts of the Ethiopian business delegation, the position of MTSE,and that of other foreign companies operating at the port, was still uncertain.

Credible economic data on which to base estimates of the state of the economyremain limited; much of the country’s statistics-gathering capacity disinte-grated in the early 1990s. Foreign technical assistance, coupled with tighterexternal monitoring of fiscal policy, appears now to be paying dividends in theform of improved data, although the lack of recent continuous time series stillmakes comparisons problematic. New monetary statistics, published by theBanque nationale de Djibouti (the central bank) in September, show that broadmoney (M3) grew by just under 4% in the year to August 2001 and narrowmoney (M1) contracted by 3.9%. Growth of all monetary aggregates has beensluggish—M3 growth has picked up slightly owing to an increase in timedeposits—illustrating the weak state of the Djiboutian economy. Separate data,published in an economic information bulletin in August, show that govern-ment expenditure was sharply lower in the first half of 2001 than in the sameperiod of 2000. At end-June the budget deficit was DFr1.17bn (US$6.6m), 40%lower than the deficit of DFr1.97bn recorded in mid-2000; this reduction wasachieved despite the steep fall in external financial assistance over the period.

Trade tensions withEthiopia are discussed

Fiscal and monetary datasuggest stabilisation

Ethiopia Eritrea Somalia Djibouti · 2007-08-23 · This publication can be viewed by subscribing online at Reports are also available in various other electronic formats, such as

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