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Viewing cable 07ADDISABABA90, SCENESETTER FOR DEPUTY USTR ALLGEIER'S VISIT TO

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Reference ID Created Released Classification Origin
07ADDISABABA90 2007-01-12 10:38 2011-08-25 00:00 UNCLASSIFIED Embassy Addis Ababa
VZCZCXRO6538
OO RUEHROV
DE RUEHDS #0090/01 0121038
ZNR UUUUU ZZH
O 121038Z JAN 07
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4033
INFO RUEHGV/USMISSION GENEVA IMMEDIATE 3939
RUCNIAD/IGAD COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
UNCLAS SECTION 01 OF 03 ADDIS ABABA 000090 
 
SIPDIS 
 
SIPDIS 
 
PASS TO AUSTR FLISER AND BJACKSON 
GENEVA FOR DEPUTY USTR ALLGEIER 
 
E.O. 12958: N/A 
TAGS: ETRD ECON PREL ET
SUBJECT: SCENESETTER FOR DEPUTY USTR ALLGEIER'S VISIT TO 
ETHIOPIA 
 
 
1. (SBU) SUMMARY: Welcome to Addis Ababa! Your visit comes as 
the country is focused primarily on the recent military 
operation in Somalia, but Ethiopia is making progress on 
development through growth and diversification of exports and 
substantial advances in education and health care.  Septel 
discusses in more detail the GOE's recent submission of its 
long-delayed Memorandum of Foreign Trade Regime (MFTR) -- an 
important step in getting the country's WTO accession bid 
back on track.  The GOE and other political leaders are also 
working to rebuild public confidence in democratic 
institutions in the wake of disputed elections and unrest in 
2005.  Your visit is an opportunity to welcome the MFTR 
submission and highlight the benefits of WTO accession and 
trade liberalization in general.  You will also be able to 
engage with senior Ethiopian officials, as well as other 
leaders, concerning further economic reform (see paras 7 and 
8).  END SUMMARY. 
 
ECONOMIC OVERVIEW 
----------------- 
 
2. (U) Ethiopia remains one of the poorest countries in the 
world. Ethiopia's GDP for 2005 is estimated at USD 8.5 
billion, with an annual per capita GDP of USD 100.  Since the 
early 1990's, Ethiopia has pursued a development strategy 
based on a mixed economy of both state and private 
enterprises.  While the private sector role is expanding, the 
state remains heavily involved in most economic sectors, and 
parastatal and party affiliated companies continue to 
dominate trade and industry, hampering full and free 
competition.  In addition, increasingly frequent cycles of 
drought, high population growth, and inefficient agricultural 
markets all act as a drag on Ethiopia's economic development. 
 Agriculture contributes 42 percent to the GDP and employs 85 
percent of Ethiopia's 77 million people.  Nearly all 
agricultural production is rain-fed and small-scale, and thus 
vulnerable to drought.  Though GOE economic policies have 
been improving gradually, greater economic liberalization and 
reduction of population growth are critical to reducing 
poverty and increasing food security. 
 
3. (SBU) In November 2006, the Ministry of Finance and 
Economic Development (MOFED) significantly revised real GDP 
growth rates to nearly double the IMF estimate:  11.9 percent 
(vice 11.6), 10.5 percent (vice 9.5), and 9.6 percent (vice 
7.1) in fiscal years 2003/04, 2004/05 and 2005/06, 
respectively.  According to the GOE, from 2003 to 2006, 
agriculture, industry and service sectors grew an average of 
14 percent, 8.5 percent, and 8.3 percent respectively.  Over 
60 percent of the revised growth came from agriculture, the 
mainstay of the economy, contributing nearly half of the 
total GDP.  Major exports include coffee, oil seeds and 
pulses, and hides and skins, though non-traditional exports 
such as flowers have increased significantly over the past 
few years.  Imports increased even faster than exports, 
however, resulting in a growing trade deficit and increased 
risk of a balance of payments crisis.  The private sector has 
experienced some difficulty in securing hard currency for 
imports over the last year.  Ethiopia currently has no IMF 
program, but the USG has urged that it establish one.  The 
IMF has in recent months held some exploratory talks with 
senior Ethiopian economic officials concerning increased 
surveillance, though there has been no discussion of a formal 
program.  Ethiopia participated in the enhanced Highly 
Indebted Poor Countries (HIPC) initiative and G8 Multilateral 
Debt Relief Initiative.  The U.S. and Ethiopia signed a 
bilateral debt agreement in 2004 that provided 100 percent 
cancellation of Ethiopia's debt to the United States. 
 
ECONOMIC GOVERNANCE 
------------------- 
 
4. (U) There has been a great deal of progress on development 
of a free market economy in Ethiopia under the current 
government, particularly in comparison to the 
Military/Communist dictatorship which preceded it.  There is 
a vibrant and growing private sector in the country; however, 
it is still restricted by large state ownership in the 
economy and involvement of "party-statals", ruling 
party-owned companies which dominate some key sectors of the 
economy.  All land in the country remains state owned, 
although leasing arrangements for urban land are becoming 
more market oriented, and rural land registration is 
improving land tenure by providing official certificates for 
land use to farmers.   Foreign investment restrictions are 
widespread, including in key sectors such as finance and 
 
ADDIS ABAB 00000090  002 OF 003 
 
 
telecommunications, but eventual liberalization is assumed as 
part of the WTO accession negotiation.  Overall, despite some 
foot-dragging by the government, economic governance is 
making slow but steady progress. 
 
ECONOMIC REFORM ASSISTANCE 
-------------------------- 
 
5. (U) The USG, primarily through the U.S. Agency for 
International Development (USAID), supports a broad range of 
economic reform projects and activities.  These include: WTO 
accession, land tenure and administration reform, improved 
rural economic policy, establishment of an Ethiopian 
commodity exchange, telecommunications, and policies related 
to investment and competitiveness for targeted sectors 
(coffee, horticulture, oilseeds/pulses, hides/skins/leather, 
and livestock/livestock products).  Both AGOA opportunities 
and U.S. assistance have been effective ways to build on the 
GOE's strong desire to boost its exports by removing 
bottlenecks and promoting investments in key sectors. 
 
6. (U) USG collaborates closely with other bilateral and 
multilateral donors in advancing economic policy reform and 
economic governance.  Four donors (World Bank, European 
Commission, United Nations Development Program, and USAID) 
support Ethiopia's accession to the WTO.  Five donors 
(Canada, Netherlands, Ireland, United Kingdom, and USAID) 
support the Ethiopia Strategy Support Program for rural 
economic policy reform.  Five donors (Canada, World Bank, 
International Fund for Agricultural Development, United 
Nations Development Program, and USAID) support the Ethiopian 
commodity exchange initiative.  USAID and Sweden support land 
tenure and administration reform with World Bank funding 
planned.  Five donors support the USAID-led 
hides/skins/leather competitiveness cluster (Germany, United 
Nations Industrial Development Organization, World Bank, and 
USAID). 
 
MORE REFORM NEEDED 
------------------ 
 
7. (SBU) What else could be done in the near term?  Support 
implementation of recommendations of the Ethiopia Commercial 
Law and Institutional Reform and Trade Diagnostic conducted 
under the USAID-funded WTO Accession Project in late 2006. 
Contract law, real property rights and foreign investment 
code liberalization are needed to significantly expand 
private investment and exports.  Significant foreign 
investment is needed to expand the current cold chain 
facilities at Bole Airport which would increase exports of 
horticultural and other perishable commodities (i.e., meat). 
This is currently not allowed by the Ethiopian Investment 
Code and hindered by Ethiopian Airlines, insistence on the 
need to re-coup its investment in the sole cold chain 
facility at the airport before new facilities can be built. 
 
8. (SBU) Financial sector reform is also desperately needed. 
Allowing foreign banks market access, relaxing requirements 
for letters of credit, reducing excessive collateral 
requirements for borrowers are among the key challenges. 
Customs reform is also need to streamline clearance 
procedures and eliminate taxation on product trade show 
samples.  Liberalization of Ethiopia's telecommunications 
monopoly would also lower costs and increase quality of 
services across all sectors.  Allowing greater private sector 
competition in limited areas would be a good start.  The GOE 
has agreed to allow private sector Internet service providers 
and call centers, but no licenses have yet been granted. 
There is so far little indication that the GOE is willing to 
consider bold action in the financial or telecom sectors, 
however.  There are opportunities, however, to build the 
advocacy role of businesses in the telecommunications sector, 
and to increase business development and employment 
opportunities through telecommunication training and 
development initiatives. 
 
POLITICAL CONTEXT 
----------------- 
 
SOMALIA 
 
9. (U) The Ethiopian military commenced ground and air 
attacks against Council of Islamic Courts (CIC) targets 
throughout southern Somalia on December 24.  The CIC 
structure collapsed and TFG forces routed the CIC from 
Mogadishu and Kismayo.  Remnants of the CIC are fleeing along 
 
ADDIS ABAB 00000090  003 OF 003 
 
 
the Kenyan border or/are dispersing to meld back into their 
home regions.  The United States released a public statement 
calling for all Somali parties to immediately resume peaceful 
dialogue and form an inclusive government based on the 
Transitional Federal Charter.  U.S. policy in Somalia 
includes three goals:  (1) seeking ways to help Somalia 
regain political and economic stability; (2) promoting 
counter-terrorism; and (3) alleviating the humanitarian 
crisis.  All of these goals are being pursued in cooperation 
with Ethiopian, the Somali Transitional Federal Government 
(TFG) and other donors.  The U.S. military also launched a 
strike Jan. 9 against members of the East Africa Al Qaeda 
cell believed to be on the run in a remote area of Somalia 
near the Kenyan border. 
 
DEMOCRACY AND HUMAN RIGHTS 
 
10. (SBU) Ethiopia is still seeking to overcome divisions and 
tensions that grew out of Ethiopia's disputed May 2005 
elections.  The elections were the freest and most contested 
in Ethiopian history, but irregularities in vote tabulation 
prompted charges of fraud by opposition groups.  One of these 
groups, the CUD, chose to boycott public office in spite of 
its unprecedented gains in the elections.  The party's 
strategy of civil disobedience drew a sharp response from the 
GOE in November 2005.  Massive, violent public protests led 
to tens of thousands of arrests.  While nearly all protesters 
were soon released, senior 30 CUD leaders and another 50 
accused "co-conspirators" from the press and civil society 
remain in jail on treason charges.  Their trial, which 
international observers have witnessed, may conclude in the 
coming months.  While the situation on the surface in 
Ethiopia is calm, tensions remain high. 
 
11. (SBU) The U.S. has worked with all sides to pick up the 
pieces from the 2005 elections and move forward with 
democratization.  There is an ongoing political dialogue 
between the ruling party and leaders of opposition parties 
that the U.S. Embassy in Ethiopia helped facilitate.  Party 
representatives, supported by comparative studies funded by 
the U.S. and other donors, have negotiated reforms to 
strengthen the Parliament.  They are currently working on 
similar reforms of the National Electoral Board as well as 
the legal framework for the media.  The U.S. strategy is to 
press the opposition and government alike to strengthen the 
democratic process.  Apart from nurturing talks on 
institutional reform, another challenge is convincing the 
EPRDF to further reduce harassment of opposition party 
activists in rural areas. 
 
ERITREAN/ETHIOPIAN BORDER DISPUTE 
 
12. (SBU) The U.S. worked closely with Ethiopia and Eritrea 
in 2006 to resume demarcation of the border and promote an 
eventual normalization of relations.  The dialogue stalled, 
however, with Ethiopia demanding dialogue on the human impact 
of moving the border and Eritrea, for its part, demanding 
that the border simply be demarcated.  According a 2006 UN 
report, the Eritrean government provided money, weapons, and 
other support to CIC extremists in Somalia who declared jihad 
on Ethiopia. 
YAMAMOTO