Ethiopia - Overview of economy

The Ethiopian state consists, territorially, of the only area in Africa that was never colonized by a European power, with the exception of a brief Italian occupation from 1936 to 1941. Indeed, Ethiopia—or Abyssinia, as the area was once called—is one of the oldest independent countries in the entire world. Modern Ethiopia, characterized by political centralization and a modern state apparatus, emerged in the mid-19th century. Throughout much of the 20th century, Ethiopia was presided over by the emperor, Haile Selassie, who ruled the state autocratically (single-handedly and dictatorially), until he was overthrown and subsequently executed in the revolution of 1974.

Under Selassie's rule, the Ethiopian economy relied primarily on agriculture, particularly coffee production. During this time, agricultural production resembled a feudal system since land ownership was highly inequitable, and the vast majority of Ethiopians were obliged to till the fields of the wealthy landowners. Much of the marginal amount of industry that did exist was concentrated in the hands of foreign ownership. For example, by 1962, the Dutch H.V.A. Sugar Company, which commenced operations in Ethiopia in the early 1950s, employed 70 percent of the Ethiopian workforce involved in the industrial food-processing sector. The food-processing sector, in turn, employed 37 percent of all workers involved in manufacturing and industry.

Spouting anti-feudal and anti-imperialist (anti-foreign dominance) rhetoric, an administrative council of soldiers, known as the Derg, overthrew Selassie in 1974, ushering in a lengthy period of military dictatorial rule. The Derg regime, in turn, vocally promoted a Marxist -Leninist system, though according to Ghelawdewos Araia, author of Ethiopia: The Political Economy of Transition, it was only ostensibly (superficially) based on socialist principles. The Derg introduced substantial land reform and nationalized almost all of the country's important industries. The Derg regime, however, known for its particularly brutal suppression of opposition forces, failed to solve Ethiopia's many economic problems. In 1991, massive discontent led by the student movement, declining economic conditions caused by drought and famine, and provincial insurrections led by ethnic separatist groups forced the Derg chairman and Ethiopian president, Mengistu Haile Mariam, to flee the country. Following a period of transitional rule by the Transitional Government of Ethiopia, free elections were held in 1995, resulting in a victory for the Ethiopian's People's Revolutionary Democratic Front (EPRDF).

Since its democratic assumption of power, the EPRDF has supported a process of economic reform based on the privatization of state-owned enterprises, promotion of agricultural exports, and deregulation of the economy. By 1999, the Ethiopian Privatization Agency had already overseen the privatization of more than 180 parastatals , including most state-owned retail shops, hotels, and restaurants.

Since the fall of the Derg regime, the economy has experienced several positive economic developments. In 1992, for example, the International Monetary Fund's (IMF) Staff Country Report No. 98/6 stated that 62,941 persons were registered as unemployed, whereas in 1996, the figure of officially unemployed fell to 28,350 persons. Of course, for both years, many unemployed Ethiopians, and perhaps even the majority, did not register themselves as such. Nonetheless, it would be fair to deduce that a considerable amount of formerly unemployed Ethiopians have found jobs throughout the 1990s. At the same time, however, the UNDP estimates that the annual growth rate in gross national product (GNP) per capita between 1990 to 1998 was 1.0 percent, while the average annual rate of inflation during the same period was 9.7 percent. This means that Ethiopians were having an increasingly difficult time purchasing the commodities, such as food, that are essential for human existence.

The Ethiopian economy remains highly dependent upon coffee production, with 25 percent of the population deriving its livelihood from the coffee sector. Indeed, from 1995 to 1998, coffee accounted for an average of 55 percent of the country's total value of exports. Gold, leather products, and oilseeds constitute some of the country's other important exports. Major export partners include Germany, Japan, Italy, and the United Kingdom, while import partners include Italy, the United States, Japan, and Jordan. Ethiopia's imports include food and live animals, petroleum and petroleum products, chemicals, machinery, and motor vehicles.

Since Ethiopia mostly exports agricultural products and imports higher valued capital goods , the country runs a severe balance of trade deficit. This deficit, in turn, means that Ethiopia must borrow heavily to finance its imports, a factor that has led to the development of a significantly sized external debt (owed to both foreign-owned banks and international financial institutions, such as the World Bank and the IMF). In 1997, the total debt stood at US$10 billion. The frequent droughts that plague the country also prevent the creation of a self-sufficient agricultural economy. Consequently, as many as 4.6 million people rely on annual food assistance provided by the wealthy industrial countries. Indeed, Ethiopia is the largest recipient of U.S. aid in sub-Saharan Africa. Notwithstanding (not including) emergency food aid, in 1996 Ethiopia received a total of US$45 million in Official Development Assistance (ODA) from the United States alone.

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May 5, 2011 @ 6:06 am
Review Questions of the Ethiopian Economy during the past

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