DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTINTERNATIONAL DEVELOPMENT ASSOCIATION

Not For Public Use

Report No. 9a-ET

RECENT ECONOMIC PERFORMANCE

AND

FUTURE PROSPECTS

IN

ETHIOPIA

(in four volumes)

VOLUME I

MAIN REPORT

June 15, 1973

Country Programs Department IEastern Africa

This report was prepared for official use only by the Bank Group. It may not be published, quotedor cited without Bank Group authorization. The Bank Group does not accept responsibility for theaccuracy or completeness of the report.

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EQUIVALENTS

CURRENCY

Unit Ethiopian dollar (Eth.$)U. S. $1.00 Eth. $2.070ETH. $1.00 U. S. $0.4830

WEIGHTS

Unless otherwise stated, tons in this report refer to long tons.

1 metric 2,205 lb.1,000 kg.0.9844 long tons

1 long ton 2,240 lb.1,016 kg.

MEASURES

1 meter (m) 39.37 inches1 kilometer (km) 0.62 miles1 hectare (ha) 2.471 acres1 square kilometer 0.386 square miles

TIl4

The Ethiopian calendar year (EC) runs from September 11 toSeptember 10. There is a difference of about 7-3A years between theGregorian and the Ethiopian era. For example 1963 EC runs from September11, 1970 to September 10, 1971. Most of the Ethiopian statistics areconverted to the Gregorian calendar. Throughout the report theGregorian calendar is used.

The Ethiopian budget year runs from July 8 to July 7. Forexample, Ethiopian budget year 1963 runs from July 8, 1970 to July 7, 1971.

In the report, this year is referred to as budget year 1970/71.

THE MISSION

This report is based on the findings of a mission which visitedEthiopia in May-June 1972. The mission comprised:

Lyle M. Hansen - Chief of Mission

C. P. Cacho - Deputy Chief of Mission

G. E. Okurume - General Economist

M. A. Jalil - General Economist

V. P. Gandhi - Fiscal Economist

E. A. Anyanwu - Small Industries Specialist

S. K. Malik prepared the model elaborated in the TechnicalAppendix.

CONTENTS OF THE VOLUMES

VOLUME I MAIN REPORTTechnical Appendix (Growth Model)Statistical Appendix

VOLUME II COTTAGE AND SMALL-SCALE INDUSTRYIN ETHIOPIA

VOLUME III FISCAL POLICY AND THE AGRICULTURALSECTOR

VOLUME IV INSTITUTIONAL ASPECTS OF PRIVATESECTOR SAVINGS MOBILIZATION

TABLE OF CONTENTS

Page No.

COUNTRY DATA

MAPS

I. INTRODUCTION (to be read also as Summary andConclusions) .......................................... 1

II. RECENT ECONOMIC PERFORMANCE

i. Growth of the Economy ..... ............ 8ii. Balance of Payments ...... ........... . 8iii. Savings and Investment

(a) Overall ....... ........................... 11(b) Central Government Capital Expenditure

and its Finance ... ..................... 11iv. Central Government Current Revenues and

Expenditure(a) Current Revenues ......................... 13(b) Recurrent Expenditures ................. .. 15

v. Money and Credit ...... ........................ 16vi. Performance of the Main Sectors

(a) Agriculture ............................... 18(b) Manufacturing ....... .. ........... 19(c) Tourism .... ............. . . ........ 20

vii. Some Key Social Indicators(a) Population ...... ......................... 21(b) Employment ............................................ 22(c) Income Distribution ................. ..... 22(d) Prices ............................ .... 23

III. REVIEW OF SOIE SECTORS

i. Agriculture ... .............................. 24ii. Small Industries ........................... 26iii. Tourism and Internal Air Transport ........... 28iv. Education .. .......................... . . ........ 30v. Health .............. o ......................... 33

IV. BASIC DEVELOPMENT ISSUES

i. Growth and Mobilization of Domestic Resources . 37ii. Balance of Payments ........ . . ....... ................... . 39iii. Investment Promotion .......................... 44iv. Absorptive Capacity ................. .*........ 46

TABLE OF CONTENTS (continued)

Page No.

V. FUTURE PROSPECTS

i. The Short Term ****....... ..... *.*.... ....... 47ii. The Longer Term ...... ......................... 48iii. Creditworthiness ..................... ....... .. . 50iv. External Financing of Local Expenditures ...... 50

VI. TECHNICAL APPENDIX * * **.......................... * ...... 51

VII. STATISTICAL APPENDIX ......... ............ ......... . 57

VIII. ANNEXES

Volume II - Cottage and Small-Scale Industry in Ethiopia

Volume III - Fiscal Policy and the Agricultural Sector

Volume IV - Institutional Aspects of Private SectorSavings Mobilization

Page 1 of 2COUNTRY DATA - ETHIOPIA

AREA POPULATICN D-NSITY

1,221,9C0 km 25.89 million (1972) 21 per k:m 2Rate of Gro-w,th: 2.-5 (fron 1570 to 1971) 30 per k2 of agricultural land

POPULATION CHIARACTERISTICS (1966) IiALTH (1 970)

Crude Birth Pate (per 1,000) 5C.1 Population per physician 68,300Crude Death Rate (per 1,000) 25.3 Pop2lation per hospital bed 2,650in'ant Plortality (per 1 ,O00 live births) 155

DISTRIBUTION O1P LO D OD NERSIPITICCTE DISTRIBUTION

I oined by top 1C% of owners iKSa of national income, low-est quintile -a- % owned by smallest 10' of owners .-;

highest quintile **ACCESS TO ELIECTRICITY

ACCESS TO PIPED WIATER% populatien - urban 7T*

p of population - urban *5- - rural *pk- rural *5-

EDUCYLTION (1971)NUTRITION

Adult literacy rate % 7Calorie intake as % of requirements *5- Primary school enrollnent P 16Per capita protein intaLe .

'1GNP Pr-, CAPITA IN 1970 : U'S$ 6

(Ov 0$. NATIOQNAL PRODUCT IN 1,969 A`TT'I,A_L RATE OF CT_W__tant rric_s)

US.j 'in. 5 7 S6-65 1965-6n 1'-71

CGD at Yark2t Prices 1,6o31 1CO.0 5.3 34.5Gross Dco.cstic fixed Investment 200 12.3 4. 9 6.9Gross National Saving 179 11.3 5.3 9.6 6Current Account Balance -9 -0.5 4-.0 -4.14 IsExport of Goods, T,FS 177 1G.8 9.3 3.4 '8^Lrscorts of Gcods, i:S 11.6 8.9 1 .1 5*

OUP-FUT, LABOR FORCE AiD PRODUCTIVITY IN 1 969

!a]vie Ldded Labor Force V.A. Pc! !c,irrU; ln.~ $ 0 i-an. ,7 U S j

Agariculture c7v 57.0 --s- -s- . -XIncOustry '18 1 l.2 *5 ,v,; ,,> -Servi ces 325 21.2 . -s--Unallocated 115 7.7 -- *5 ,-s

Totae /Average 1,5140 1CO.0

CGOVEEWNiEINT FILANCEntc~eiel CJcverrnment Central Govcrr-ncnt

Eth.>, _ ^ . o0 Gf Gil? Eth.$ ian. Eth.$ iMin. % of GD?197-7'7' 1Fc7/73. 1966/69 1972 /72 1570/71 1 c70/71 "9f(65'69

Current Receipts ) 45C 466 10.1 9.cCurrent Expenditvre ) I.Je 1o6 8.8 9.0Current Surplus ) not available b 67 1Capit2l Expenditures 125 112 2.4 1.9External. Assistance (net) ) 4414 40

I 'lhe Per Capita CNP estiirate is at 1970 ,-2rket prires, calculatedby trhe same conversion techni,ue as t-e 1572 '1c-]d At:Las. Alloth.r conversaons to dollars in this tiabIe arce at tho avoragee:.-change rate prevailing during the nericd c3OrE;od.

c- not available

yage, 2 of 2

006 pRY V. -D ,."A 6

OCNE?, CJEDIT AIMID PICSE:

1665 -1AC 1 5jO 1971

(1t¶1IZr 3d'.4. I ooscafldlfg Thperiodl

Forye and 0Uasi *rxoney 5-2 '2 61 L 623

Rank freeit to u'eIlic Sector a47 '11 1 t. ? .!conk Crednt to Private Sector 154 326 1L14 U8

(porcer.tagc3 or ILoex r.-cbers)

Itnay and Qsasi Iloney as X of GDF 12.14 1e1.2 13.6 1 3.3

C,Georal. Price Index (1963 -1C3) 1'3.7 1114.9 l21.7 121.7

Ars-al paerentaeg 0:acgeas its

flneoer Price lobes 6.2 2.' 5.*9 zaall• iPe;0i to Pbl:ic 2ector -11.0 t23.E -G.1 -1.0

Croo d C-ed- to Pri-vlat Saec2t2 22.2 326 2i.5 '

t;'.r Y B5leI%5T2ER _15c65 iS7t 1571

&rno-ts cf GoDoub, 1N3S -3 1 A lS1 Coffea 71 56

2511rt of Gocd3, NFl - 25 _2

!LP.sc- oe ripdei ( ct = -- 'tlO ott.er corsad"tiOs 92 a'

liverS' ?srittaccS2 -. -t 123

Facto: Fk,emor (ret) 2610DB WCU 1 j7

"et barsBalerce on CLrrent Account 9 -j u In.

D rae. P 5Fro0r. nlvastmee t 14 6 Ptb4ic ebt, Aol. g.aranteed 4.

'.6t B2swrd-atg Non-g:;2-r.nteOd PtrIests IkbJt a-a

Dzstc-rse ... sn2~s 2en2s 22 1

f*r-cztlzottl 11 6 ; Total outartendoog &D:rbcrsed ;uc.yFr:-.-teali. ' *

o . 1 .-. * ._ /-

Ct22 tU2te.5 ....... ) eU ~ . upo

fro~c-se :L 2ozen3ea (a-) 14 -1 GrCos R=3csnCes (end year) F6 53 S Public 216t. 1r.z. .zrcc.tgco 016

'.etl ?ezZebas (era- parer) 72 5S 37 icn-50vrcotood h-irata tt

Total out,terdinag ^: OjisLrsad '-A-

I.Y ISP Exd I t - V. 6-23 f '13cc 2n. ,

l' :h- 1r71 2.'? IL2

us .7 1.00 rti.$ 2.50 COzAstnr.ing & 11zObrted $1.; cOO

.S 1.G=1'a.00 0 Crdivbuysnt 1: . r. U

3:2, -! 5i$7' Norsico ir:rg '-Indis:zrsed c3.2 *

125 S 1 - Etb .$ 2.13r. 1 G. 3 C; US S h. ?t

Sl:,c.---' 2/1377

' j 1.00 us t. 2.17

/1 Satiz ci Debt Sriza to Exporto- c- Coods and Nun-factor $srvices

*0 nor ava!ab1e

IBD 10200'A NO VEMBER 1972

( AFRICA < / \ 9 ; E T H I O P I AAANE ETHIOIAf CO\ N | I olod

OCEAN t I Oi E7T.D,-- 0' W.h,~ R-Id.

& U D ~~CA N / 'LII c,. O...o,o.os On,rAI 5oo,ASR + bJI A, \

U D A N ' O.2 .Z

< 1 ~ ~ ~ _ _ _ _ _ _ _ _ *> _

/ -~~~~~~~~~ 0 50 ~~~~~~~~~~ 00 '50 200

Aboo~~~~~~ CZ~~~~~~~A'sc ~~~~~MILES

-12' t Lt M.b 8 I/ S z 0 GULF ADF 12'-

0R Ab.wh.O~~~~~~~~~~~~~~~~fADA

0 4 a)+t A r - ' b/ ,c. S O M A L I A

dIS ; A Al b-)\

0 E F. A\

U G A N D A ( K E i,- N Y ~>--z _>,/ / ,-2. 5 Xtx

UGANDA' K E.N 'y >122z.-/C,

MAP 1

403 QuA qrr < 44- ETHIOPIA

./ >, Agricultural Sector Surveyn 1e- > <> ; ~~~~ROADS, RAILROADS, AIRPORTS, LAND TENURE AREAS,

'BANK BRANCHES, AGRICULTURAL TRAINING INSTITUTES

[4,IG . -) l. 4 R e d ROD RALOAS AIPOTS LANDrWsderodru1> TEUR AREAS,-Al arilla rods, ropsed 05 Bark brooh,,

rHar road5 0 Bok branch,, -ndar asroebrhnh-

KrTrgouln~~~~~~~~~~~ S e > Co ~ ,3R@:,-,> rPoia°muoao4r lak orrrai craned loads 1

_l parjorrrn ,p B.aa. /4 'C Dol' ; B POaco M)Ar lrorar oI e load

k- SUDAN . ,RG r /G .. - -

L~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~..t

60 0ra.r

S U D A N~~~~~~~~~~l! oa.

* ' Bp .7) 00~ Or 4 % ~rG

;rar 544 ~ A/d-r

(1 ('c2 ~~~~~~~~~~~~~~~~~~~~~~~~~~~Gulf o f Acden

~ >1 0 dle n WardM ALIA

/ R u d olf -.------..~~~~~~~~~~~~~ Ac I,R I

I E~~~~~~~~~~~~~~~~~~~~~Troodr,I 4 or,,r or olodsollard

MARCH 107 1440.470

I. INTRODUCTION

(To be read also as Summary and Conclusions)

1. During the past ten years there have been four major Bank reportson the Ethiopian economy. All four have concluded that the main problems ofeconomic growth are the balance of payments, inadequate levels of domesticresources for financing development particularly of public expenditures, andinadequate absorptive capacity. Since those reports were written, compre-hensive studies of agriculture, education, internal air transport, road trans-port and tourism have been made with Bank Group assistance or involvement,and miore detailed work has been done in other areas such as indirect taxesand tariff protection. These studies, together with those of others engagedin assisting the Ethiopian authorities, have greatly expanded knowledge ofthe Ethiopian economy.

2. This present report has the benefit of this much-improved informa-tion base. It both updates and reinforces the analysis of the previous Bankreports. While its conclusions are in general along the same lines as arrivedat in the previous reports, it is now considered that increasing attentionneeds to be given by the Government to the balance of payments constrainton the rate of growth of the economy and to the identification of the precisenature of the problem of absorptive capacity.

3. The Ethiopian economy has continued to grow very sluggishly (about2 percent per capita) from a very low base (US$67.4 1/ per capita in 1968).This performance reflects, of course, the major constraints on developmentbut it should not be taken to reflect Government indifference to the problems.A number of steps have been taken to improve absorptive capacity. They in-clude training and other measures to improve the effectiveness of the publicservice, and creation of the Agricultural and Industrial Development Bank,the Institute of Agricultural Research and autonomous bodies like the Live-stock and Meat Board. The Government has introduced limited tax increasesand mDre recently has taken steps to control recurrent spending on defense,internal security, and general administration in order to deal with the do-mestic resource problem. The attack on the balance of payments has comprisedvigorous promotion of potash exploitation for export (which has, unfortunately,been overcome by unfavorable world market prospects); a short-lived controlof imports through the imposition of a pre-import deposit system; an increasedpromotion of tourism and, more recently, by efforts to improve the quality ofand consequently export earnings from coffee. In investment promotion, asthe report shows, whilst action has been taken, the quality of the InvestmentCode and the administrative and other measures that have been adopted, havebeen inadequate.

4. The persistence of these basic development problems is, therefore,the result not so much of indifference as of the inadequacy of the measures

1/ Unless otherwise indicated all dollars ($) are Ethiopian dollars.

taken in the changed circumstances of a greater development consciousnesswhich suggests that the development effort must be vastly increased if Ethiopiais to achieve a reasonable per capita growth rate. A much greater effortplaces strains on the balance of payments, on domestic resources, and onthe absorptive capacity of the country. The strains increase at a fasterrate than the effects of the efforts being taken to relieve the developmentproblems. W4hile this situation brings with it the danger that the effortsbeing made will pass unrecognized, it is equally important that its extremeinadequacy be emphasized.

5. The Bank's economic report dated September 22, 1970, focussedon the Third Five-Year Development Plan 1968-1973 (TFYP). The present reportis concerned with the experience of the first four of the plan years; it com-pares achievements with targets and with the outcome of the immediately pre-ceding four years or with other periods as data permit. It also projects thefuture path of the economy based on assumptions of little change in the rateof growth of the development effort, and proposed policies which, if adopted,are likely to improve the future growth path of the economy. Some of thepolicy conclusions are not new, but they now have the advantage of beingbased on improved knowledge of the economy. However, this report does notintend to be all inclusive in that many aspects of the economy such as im-portant sectors are not dealt with or are dealt with only in a summary fashion.

6. In summary, the TFYP set a target economic growth rate of 6 percentwhich would yield a per capita income growth of around 3 percent per annum.Judged against the low level of the economy as evidenced, for example, by aper capita GDP of US$76, this was a very modest target; yet, so far, therate of overall growth and the growth rate of per capita GDP are thought tohave been no more, and probably less, than 4.5 percent and 2.0 percent re-spectively. These have fallen short not only of the plan targets, but alsoof the actual growth rates of approximately 5 percent and 3 percent respec-tively in the first half of the 1960s. As already indicated and as subsequentmore detailed analysis shows, the major causes of the slow growth rates werefirstly the balance of payments, reflecting primarily the slow growth of exportearnings (in particular of export earnings from coffee which account for 60percent of the total), secondly the inadequate levels of investment causedby low level of domestic resource mobilization, and thirdly inadequate abilityboth to promote investment opportunities and to execute and utilize them ef-fectively.

7. During 1968 to 1971 coffee export earnings increased at 5.9 percentand non-coffee export earnings at 5.0 percent, giving a growth rate of 5.5percent for total export earnings. The unsatisfactory nature of this exportgrowth becomes clearly evident when it is viewed against an average annual risein the wholesale export price index of 3.7 percent, and in the wholesale importprice index of 2.3 percent.

8. Available data indicate that domestic savings and domestic invest-ment were significantly below the plan targets. Table 16 shows that annualgovernment current budget savings started in 1968/69 from $30.1 million -almost equal to the comparable figure of four years earlier - rose sharplyto $60.4 million in the three years to 1970/71, then declined to $55.4 million

- 3 -

in 1971/72. Annual government capital expenditures doubled from a four yearlow of $64.7 million in 1968/69 to $125.9 million in 1971/72. Neverthelessthis increase was well below the expectations of the TFYP, and was, moreover,only made possible by a marked rise in the proportion financed by externalcapital inflow from 36.5 percent in 1968/69 to 54.9 percent in 1970/71 and50 percent in 1971/72.

9. Even if substantial additional finance had been available, thereis some doubt whether the public sector would have been able to absorb effi-ciently a much larger investment program. In particular, the capacity toidentify and prepare projects has been weak. Now that this problem is begin-ning to be overcome with donor help, and the pipeline of projects is growing,evidence of inadequate capacity to implement projects is also beginning toemerge. An important reflection of this problem is not only in the higherproportion of senior expatriates in externally financed agricultural projectsbut, more significantly, the severe lag in their planned replacement byEthiopians.

10. As regards private investment, this requires the stimulation of abuoyant economy. However, despite the sluggishness experienced in Ethiopiait is believed that private investment might have been larger had the invest-ment promotion effort been more effective.

11. It is against this background of sluggish growth that in 1971 theGovernment extended the TFYP by one year to July 1974. The financial dimen-sions were revised and the annual growth target for the remaining three yearsreduced to between 5.4 percent and 5.7 percent.

12. Experience of the 1960s suggests that the main determinant of therate of growth of the Ethiopian economy is the rate of growth of export earn-ings. The growth rate of export earnings was higher in the first than in thesecond half of the decade, and the rate of growth of monetary GDP in the twoperiods followed a similar pattern. Also domestic consumption expendituresgrew at a higher rate when the rate of increase of export earnings was higher.While there is room for further import substitution in both agriculture andmanufacturing, there are indications that much of the 'easy phase' of importsubstitution in manufacturing has been exploited, and that the rate of growthof the domestic market will depend on policies which will relieve the demandconstraints, including policies to increase export earnings.

13. A sufficiently high rate of growth in net capital inflow would,of course, diminish the need to stimulate exports and control imports inorder to deal with the balance of payments- implications of higher rates ofgrowth of GDP. Thus, in the early 1960s, net capital inflows in excess ofthe requirements of the current account deficit enabled Ethiopia to accumu-late reserves despite rapidly growing imports and a steadily widening tradedeficit. However, these international capital flows are largely outsideEthiopia's control. The history of the past decade gives no reason foroptimism regarding the level and growth of net capital inflow, and suchoptimism would therefore be an unwarranted basis for Ethiopia's developmentand balance-of-payments policies. Even if capital inflows continue to in-crease, it is unlikely that they will be sufficient to remove the external

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resource constraint. It is Ethiopia's ability to earn steadily growinglevels of foreign exchange that will solve its balance of payments problem,and thus the growth of the Ethiopian economy is likely to be determinedeven more than in the past, by the rate of growth of exports.

14. The basic assumption of the growth model elaborated in the Tech-nical Appendix is that the growth of the Ethiopian economy is constrainedby the availabilty of foreign exchange. The model assumes that gross publiccapital inflow will rise from US$47.5 million in 1972 to US$96.5 million in1985, but that the more important element will be foreign exchange earnedby exports. The assumptions of export growth are based on forecasts throughto 1985 of production and world market conditions in the absence of a majoreffort to increase exports. It is assumed that there will be no potash ex-ports, and that wqhile tourism is expected to continue its brisk growth, itstotal contribution is unlikely to be very significant. On conservative as-sumptions, exports at current prices are expected to grow at 6.6 percentfrom 1972-1975 and 3.7 percent from 1976-85. The corresponding growth ratesof exports at constant prices are 4 percent and 3.3 percent respectively.The average GDP growth rates based on these rates of growth of exports andassumed capital inflows are 4.3 percent in 1972/75 and 2.7 percent in 1976/85,or average per capita growth rates of 1.8 percent and 0.2 percent respectively.The latter figure implies a rate of GDP growth in the terminal year (1985) ofabout the rate of growth of population (if not slightly below) and thereforea decline in per capita income. Even if more optimistic export assumptionsare used, corresponding to a continuation of the higher export prices pre-vailing in early 1973, the growth rate of GDP would decline to 3.5 percentper annum in 1976-85.

15. If this grave outcome is to be averted, the Government must designand implement policies to increase export growth. The probability that thegestation period of some of the policy measures may take some time, suggeststhat the sooner the policies are implemented, the better. The Bank's analysisshows that an export growth rate of 8 percent is required to achieve a growthof the economy of 6 percent a year. This export growth rate is double the rateprojected for 1972/75 and is some 2-1/2 times the projected rate for 1976/85.Clearly major policy and institutional measures will be required to bringabout such a change in the growth of export earnings. Real growth in exportearnings from coffee is unlikely to exceed 2 percent a year, particularlyafter 1975, because of the slow growth of demand. Consequently, non-coffeeexports will have to carry the burden of markedly increasing the growth rateof exports. Indeed, the rate of increase required of non-coffee exports isof the order of 12 percent per annum. While efforts must be continued to in-crease coffee export earnings through quality improvement, the strategy forraising the rate of total export growth must focus on diversifying exports.The Bank's Agricultural Sector Mission regarded the natural potential and in-ternational imiarket conditions for achieving this diversification as muchmore favorable in respect of agricultural commodities, than for many otherLDC's. There are also possibilities for beginning exports of manufactures.

16. The Agriculture Sector Report concludes that a much larger devel-opment effort would also require certain basic reforms, the most importantbeing tenancy reform. The main characteristics of the system are insecuretenure and crop sharing with up to 60 percent of the gross output going tothe landlord in some cases. This leads to indifference of the tenant to-wards soil conservation and probably contributes to Ethiopia's alreadyserious soil erosion problem, and dampens the price/income incentive tothe tenant since his income from increased effort - or looked at anotherway, the effective price to him - is diminished by the crop sharing arrangement.

17. In Ethiopia's type of economy, increasing exports depends on pro-viding the appropriate motivation to producers and marketing intermediaries.Experience in other countries suggests that the pattern of agricultural outputis very responsive to changes in the relative prices of agricultural commod-ities. Furthermore, some preliminary work undertaken in Ethiopia concludesthat the supply of a number of export commodities has responded positivelyto changes in prices. The mission has therefore concluded that if the for-eign exchange constraint is to be confronted in an effective manner, one nec-essary requirement is that policy measures be taken which affect relativeprices in a way which discourages imports and encourages exports. Both im-port and export prices have been affected by two major events in the past sixyears. The closure of the Suez Canal raised freight charges and costs, andadversely affected the domestic prices of both imports and exports. Morerecently the Government decided to maintain the parity of the Ethiopian dol-lar with gold while the U.S.A., its largest export customer, and some com-petitors and prospective competitors, such as Israel, Kenya and Argentina,devalued their currencies. The decision has changed the relative internalprices of imports and exports in the opposite direction to that needed todiscourage imports and encourage export production, and has given Ethiopia'scompetitors a price advantage in the international market.

18. The report examines a series of alternatives for achieving thispurpose, including quantitative control of imports, a marketing board typeof arrangement, generalized import surcharges and export subsidies, adjust-ing selectively protective tariffs and export subsidies, and adjusting theexchange parity. All of these measures aim, either selectively or acrossthe board, to change the effective price both of using foreign exchange andof earning foreign exchange. It is the mission's view that unless quantita-tively significant steps are taken in this direction, other policy and in-stitutional changes such as tenancy reform will be fighting to overcome in-adequate price and profit signals.

19. While foreign exchange will continue to be a major constraint, with-out marked and steady improvement in absorptive capacity, economic developmentis likely to continue to be slow, even if capital inflows were to rise sig-nificantly and a major effort were to be made to curb consumption and raisethe savings ratio. The improvement of absorptive capacity is so crucial,and the problem so involved and wide ranging, that it requires an early anddetailed study. Such a study would determine the precise nature of the ad-ministrative, legislative, legal, technical, managerial, supervisory, and

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other barriers to the more rapid and efficient identification, preparation,execution and operation of projects, both in the public and the private sec-tors of the economy.

20. A significantly larger development effort would require the pro-vision of a network of infrastructure, such as penetration roads, manpowerdevelopment, marketing services, credit, and extension, although in theinitial period exports may be increased on the basis of existing infra-structure. Provision of this infrastructure would require much higherlevels of investment which could not be achieved without a much higher andgrowing marginal savings rate. Gross domestic monetary savings (GDMS) aver-aged 15.1 percent of monetary GDP at current factor cost from 1965 to 1969and reached as high as 17.1 percent in 1968. While the effort is higherthan the experience of some less developed countries structurally similarto Ethiopia, it is below that achieved by others, for example, Uganda andCameroon. This suggests that an improved savings performance is feasibleand should be an objective of development policy. The marginal savingsratio could be increased to achieve a domestic monetary savings ratio of20 percent to 22 percent within a reasonable period.

21. The report proposes how to raise the rate at which domestic re-sources may be mobilized. The report suggests that mobilizing and allocat-ing savings in the private sector may be improved by changes in the interestrate policy, and by measures to improve the institutional framework, throughencouraging a more widespread adoption of the banking habit, strengtheningthe cooperative movement, the insurance industry, and improving the effi-ciency of mobilizing funds through the banking system. In the "other public"sector, it should be possible to increase savings by improving efficiency andby using the tariffs of public utilities as tax instruments. The feasibilityof the latter would depend on whether the benefit from raising savings throughincreasing public utility tariffs outweighs the cost to the economy of pos-sible consequential lower use of utility services. This would be determinedby the elasticity of demand for the services. Recent studies conclude thatEthiopia's tax effort is among the lowest and suggests unexploited taxablecapacity. This report shows how, by reforming the indirect tax structure,widening the tax net along the lines suggested in Volume III, reducing thenumber of tax exemptions and improving revenue administration, both theelasticity of the tax structure and its yield could be raised. If thesetax measures are accompanied by continued steps to contract or to restrainthe growth of recurrent expenditures on defense, internal security, generaladministration and some social services, central government savings and in-vestment could be markedly increased.

22. Possibly less significant than the elements already discussed, butregarded as sufficiently important for inclusion in an enlarged developmenteffort package, is the promotion of private investment involving both domesticand foreign entrepreneurs and finance, to complement the infrastructure andGovernment assistance to small producers. Although the main objectives ofeconomic policy are export diversification and growth, employment creation,and development of agriculture including livestock, the present incentive

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policies appear not to be geared to these objectives. For example, thepolicies seem to be directed overwhelmingly towards import substitution andonly incidentally towards export development; the five-year duration of thefiscal incentives is too short to be a sufficient incentive to certain typesof development, such as livestock, which have long gestation periods; the mini-mum qualifying investment for income tax relief - $200,000 - may be beyondthe reach of too many Ethiopian entrepreneurs and should probably be lower-ed; and the indiscriminate import duty relief on capital goods, remission ofexcise taxes on fuel for agricultural machinery, and availability of capi-tal at subsidized interest rates, distort price signals which prefer andencourage the use of capital and discourage labor use. Appropriate revi-sion of investment promotion policies should, therefore, be undertaken assoon as possible to meet the need for increased private investment, par-ticularly in export production.

23. The outlook for public sector savings suggests that some externalfinancing of local expenditures is desirable. Because of its poverty, theunfavorable outlook for the balance of payments, and the low annual percapita net resource inflow of US$1.57, Ethiopia will require increasingamounts of external capital on the most concessionary terms possible.

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II. RECENT ECONOMIC PERFORMANCE

i. Growth of the Economy

24. Since the economic mission to Ethiopia in March 1971 final na-tional accounts have become available for 1968 and 1969, and data for earlieryears to 1963 have been revised. The new figures (Tables 1 and 2) show mar-ginally higher GDP, mainly attributable to agriculture and forestry, than hadpreviously been estimated. But the growth picture in the 1960's is essen-tially as painted in the 1970 and 1971 economic reports, except that withthe new series, two periods of growth 1961-65 and 1965-69 stand out moresharpiy than before. During the first period, real growth rate averaged5 percent for total and 8.1 percent for monetary GDP respectively, whilein the second period the corresponding growth rates dropped to 4.6 percentand 6.9 percent. For the period 1961-69 average annual real growth ratewas thus 4.8 percent for total GDP and 7.5 percent for monetary GDP; thegrowth rate for non-monetary GDP shows a slight doi.mwnard trend but remainedaround 2.0 percent.

25. The two growth periods in the 1960s reflect the behavior of ex-port receipts and in particular the secular movements of coffee export pricesand earnings. This dominant role of exports in determining the level ofEthiopia's GDP continues to be evident. Total export earnings increasedby under 2.5 percent in 1970 and 1971; coffee export earnings increased byonly 4.2 percent in 1970 and fell back the following year to approximatelytheir 1969 level. Available indicators suggest a total GDP growth rate of4.5 percent in 1970 and 4.0 percent in 1971 at constant prices compared toabout 4.3 percent in 1969. If non-monetary GDP is assumed to have grown at1.8 percent a year, the above estimates imply a real monetary GDP growth rateof 6.6 percent and 5.7 percent in 1970 and 1971 respectively. Ilhile disag-gregation of this growth by sectors is not possible there are no indicationsthat relative sectoral growth rates were markedly different from those in theearlier years of the Plan.

26. The growth rates over nearly four years of the TFYP are below thePlan target of 6 percent for total GDP and 9 percent for monetary GDP. Withtotal population now estimated to have grown at 2.5 percent per annum, theestimates for GDP growth indicate that real per capita growth rate duringthe Plan has been at most 2 percent compared to the Plan target of 3 percent.

ii. Balance of Payments

27. For the second year in a row, Ethiopia in 1971 had an overallbalance-of-payments deficit and a consequent substantial loss in net externalreserves. The situation showed little sign of improvement in 1972. In con-trast, the country realized overall surpluses and growth in external reservesin 1968 and 1969, the first two years of TFYP. The mixed picture of thisfour-year period is similar to the experience of 1964-67. More significantly,it falls short of the expectations of TFYP.

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28. Total export earnings after declining for two successive years,increased by 7.0 percent in 1968 and 9.5 percent in 1969. Since then, theyhave been growing at 2.3 percent annually and amounted to Eth$315 millionin 1971. These figures may be compared with the Plan assumption that, evenif potash production and export did not materialize, export earnings, follow-ing the trend of the early 1960s, would increase at an average annual rateof about 8 percent.

29. Total export earnings have generally followed the lead of coffeeexport earnings, which account for about 60 percent of Ethiopia's total ex-port value. After five years of rapid increases, coffee export earningsfell substantially in 1966 and 1967. In the following three years, due tohigh coffee prices, they recovered steadily and, at the end of 1970, werealmost at the 1965 peak level. In 1971, however, despite a sizeable in-crease in export volume, coffee earnings fell slightly because of a sharpdecline in price.

30. An increase of 11 percent in non-coffee export earnings, benefit-ting from volume and price increases alike, more than offset the fall incoffee earnings in 1971. The main contributors to export earnings were oil-seeds, pulses - particularly, haricot beans - and meat and meat products.There appear to be the beginnings of a departure from the experience ofthe previous decade when non-coffee export earnings fluctuated withoutshowing any clear upward trend.

31. In contrast to exports, the value of commodity imports increasedby 11.4 percent in 1970 and 9.5 percent, or about the same as the TFYP tar-get rate of 9.8 percent a year, in 1971. Machinery and transport equipment,and petroleum and chemical products accounted for most of the increase inboth years. Food imports increased substantially in 1970 but its impacton the balance of payments was small, since food imports claim less than10 percent of total expenditure on imports. In 1971, the increase in thevalue of imports was significantly influenced by high import prices due toforeign inflation and appreciation in the currencies of Ethiopia's main im-port suppliers, such as Japan and the Federal Republic of Germany. At thesame time export prices fell substantially resulting in adverse terms oftrade. The net outcome was a widening of the trade deficit in 1970 andagain in 1971 when it reached Eth$155 million, or about the same as in1968, which holds the record for the period 1960-71. This import growthis a continuation of the trend, established in the late 1960s, which wasclearly upward, in spite of year-to-year fluctuations in the import level.

32. Since 1964, the non-factor services account has always had a netsurplus, just as net investment income has traditionally been negative. Thepast two years were no exception. The positive balance on non-factor serv-ices has remained at unusually high levels since 1968. In spite of sharpdeclines in the preceding two years, an increase of 40 percent in 1971raised its level to Eth$59 million, the second highest since 1960. On theother hand, net investment income paid abroad increased by about Eth$10

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million in 1970 and in 1971. As the amounts of net private transfers andpublic grants were virtually unchanged, the current account balance fullyreflected the deterioration in the balance of trade.

33. In 1970, the net private capital inflow jumped to its highest levelsince 1964, but this was largely offset by a sharp decline in net officialcapital inflow due to a fall in gross inflows and a rise in public debt serv-ice. In 1971, gross public capital inflow nearly doubled while debt repaymentstayed constant. Accordingly, net public capital inflow more than quadrupledwhile net private capital inflow also increased considerably. These capitalinflows, however, were inadequate to cover the current account deficits andEthiopia had an overall deficit in both 1970 and 1971.

34. Consequently, Ethiopia's net external reserves fell by Eth$42 mil-lion in 1970 and by another Eth$13 million in 1971. An additional foreignexchange loss of about Eth$5 million, resulting from the United States de-valuation of 1971, reduced Ethiopiats net external reserves to Eth$118 mil-lion at the end of 1971. This level of reserves is equivalent to aboutthree months of imports, as against four months at the end of 1970 and nearlysix months at the end of 1969.

35. During the last decade, net capital inflow increased rather slowly,as can be seen from the following data:

CURRENT ACCOUNT BALANCE AND CAPITAL INFLOWS

(Annual Averages in Eth$ million)

Current A/c Balance Net Capital InflowPeriod (Before public transfers) (Including public transfers)

1960-71 - 81 821960-64 - 54 711965-71 - 99 90

In the period 1960-71, net capital inflow into Ethiopia was sufficient tocover the current account deficit. This was possible. however, only becausein the first half of the period, net capital inflow was more than adequate tocover the current deficit and Ethiopia accumulated reserves. In the secondhalf, net capital inflow was inadequate and Ethiopia lost reserves duringmost of the period. It thus appears that what happens to Ethiopia's overallbalance of payments and the level of net external reserves will increasinglybecome the direct result of what happens to the current account balance.This suggests that, unless net capital inflow grows much faster than in thepast, it is Ethiopia's ability to earn foreign exchange that will determineits balance of payments and reserve position.

iii. Savings and Investment

(a) Overall

36. Overall savings and investment increased in 1968 and then declinedin 1969. As a result, the rate of growth of savings during the first two yearsof the TFYP was only half the growth rate achieved between 1961 and 1967, andinvestment actually declined in the two year period 1968 and 1969, comparedwith a 10 percent to 13 percent growth rate in the previous six years. Ex-cept for central government,there is no sectoral breakdown of savings or in-vestment; neither are any data available for 1970 and 1971. However, indica-tions are that total savings and investment may have stagnated in the lattertwo years and that, therefore, the growth rates of savings and investmentduring the first four years of the TFYP have been below the Plan targetsand the rates achieved in the previous four year period.

(b) Central Government Capital Expenditure and Its Financing

37. Central Government capital expenditures were at a five year low in1968/69 but have since recovered. In the four plan years, the increase incapital expenditures averaged $21 million a year. Actual expenditures were$64.7 million, $92.1 million, $111.5 million and $125.9 million in each ofthe years from 1968/9 to 1971/2. The TFYP estimated average capital expendi-ture of $190 million a year, while in the first four years of the Plan theannual average has been $98 million. Even in 1971/72, for which a revisedtarget was fixed at $171 million, actual expenditure was only $126 million.

38. There have been no firm trends in the composition of central gov-ernment capital expenditures in the last four years. Table 13 shows thatbetween 1963/64 and 1966/67 the percentage shares of capital expenditureon economic development, social development, public buildings, and theircomponents were fairly stable. From more recent experience, it appearsthat capital expenditure on social development is growing faster than oneconomic development, expenditure on infrastructure is regaining previousground and is around 50 percent of the total, the share of agriculture hasrisen, the share of mining, industry and commerce has now settled at about10 percent compared with the previous average of around 24 percent, andthe shares of health and education have grown.

COMPOSITION OF SOURCES OF FINANCE FOR CENTRAL GOVERNMENT CAPITAL EXPENDITURE

Actual TFYP Actual Revised TFYP Actual1963/4-1967/8 1968/9-1972/3 1967/9-1971/2 1971/2-1973/4 1971/72 1971/72

$ %$ %$ X$%$ $ %Budget Savings 115 36 266 28 108 27 221 36 51 30 37 29

O uher Domestic 77 24 249 26 91 23 40 6 18 10 26 21ources

Foreign Loans and 129 40 438 46 195 50 360 58 102 60 63 5°Grants

TOTAL 321 100 953 100 394 100 621 100 171 100 126 100

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39. The table above (page 12) summarizes the financing of central gov-ernment capital expenditures by source. It shows a growing dependence onforeign sources. In the TFYP, the proportions from other domestic sourcesand foreign sources were expected to increase slightly and the share ofbudget savings to decline correspondingly, compared to 1963/64-1967/68. Theexperience during 1968/69-1971/72 was a larger share from foreign financing,and somewhat smaller shares from other domestic sources and budget savings.

40. The revised targets for the final three years of the extended TFYP -

1971/72-1973/74 - show a marked change in emphasis. The dependence on for-eign financing is expected to become more pronounced - from 46 percent in theoriginal Plan to 58 percent. The share from budget savings is also expectedto increase, while that from domestic borrowing is projected to decline from26 percent to 6 percent. The outcome for 1971/72, the first of the finalthree years of the Plan, is a larger proportional contribution from domesticsources than was envisaged, but foreign financing still provided 50 percentof the resources. The greater dependence on foreign inflows reflects thefailure of growth of Government budget savings to keep pace with the increaseof capital expenditure.

iv. Central Government Current Revenues and Expenditures

(a) Current Revenues

CURRENT REVENUES - COMPARATIVE GROWTH RATES

Actual Actual1963/4/1967/8 TFYP 1967/8/1971/2

Direct Taxes 7.7 12.1 14.8Income Tax (18.2) n.a. (15.2)Land and Other Direct Taxes (-7.9) (13.5)

Indirect Taxes on DomesticProducts 22.0 n.a. 9.8

Excise Taxes (21.0) (9.2)General Sales Taxes (27.0) (12.3)

Taxes on Foreign Trade 1.0 n.a. 2.6Taxes of Imports (1.0) (1.9)Taxes on Exports (-0.3) (5.4)

Total Tax Revenue 7.5 14.8 8.2

Non-Tax Revenue 5.3 9.1 6.6

TOTAL REVENUES 7.2 12.0 8.0

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41. Current revenues increased at 8.0 percent a year during the firstfour years of the TFYP. This is above the 7.2 percent rate of increase inthe previous four years 1963/64-1967/68, but falls short of the original andrevised Plan target of 12 percent per annum. Of the four revenue categories,namely, direct taxes, indirect taxes on domestic products, taxes on foreigntrade, and non-tax revenues - direct taxes have achieved the highest growthrate - 14.8 percent. The main contributors to this achievement have been theintroduction of the Agricultural Income Tax in 1967 and the education tax onurban land and personal incomes in 1970, and, more recently, the marked im-provement in the administration of direct taxes with assistance from theI.M.F. The growth rate of 14.8 percent is almost double the rate in theprevious four years and above the 12.1 percent Plan target for direct taxes.

42. The TFYP sets a growth target of 16 percent for indirect taxes as

a whole but the rate of growfth achieved has only been 5.8 percent. The Planhad envisaged that a 16 percent annual increase would require a heavy rise

in taxes levied on domestic production to compensate for the tendency oftaxes on foreign trade to rise slowly due to import substitution of thehighly dutiable consumer goods traditionally imported. However, althoughincreases in some excise tax rates were introduced in 1971, the growth rateof indirect taxes on domestic production from 1967/68 to 1971/72 has onlybeen 9.8 percent. The rate of growth in the previous four years was 22%.The factors that account for the shortfall are a reduction in the rate ofgrowth of import substituting industries, lower increases in the rates ofexcise duties than was apparently envisaged, and the effect of the recent

sluggishness of the economy on the yield of the turnover tax. The taxes onforeign trade have continued to grow at a lower rate than direct taxes, in-

direct taxes on domestic products, and non-tax revenues, but the recent growthrate of 2.6 percent per annum is an improvement on the 1.0 percent rate ofincrease from 1963/64 to 1967/68. The improvement derived from increasedimports and the high coffee prices during 1969/70 which improved the yieldof the coffee export surtax. The slower growth of revenues from foreigntrade compared to the other revenues is the result of the continued erodingeffect on imports of import substitution, the rising proportion in totalimports of goods which attract low rates of duty, and growing exemptions frompayment of import duties. The performance of non-tax revenues has improved

due largely to higher returns from Government investments in various concernsincluding the National Bank of Ethiopia (NBE) and the Conmercial Bank ofEthiopia (CBE). The growth rate of 6.6 percent compares favorably with therate of 5.3 percent for 1963/64 to 1967/68 but falls below the planned 9.1percent increase.

43. This growth pattern of the various components of total revenue hasresulted in a levelling off of their respective shares of total revenue.Table 8 shows that shares of taxes on foreign trade, indirect taxes on do-mestic products, and direct taxes seem to he stabilizing at about 32 percent,29 percent and 26 percent, respectively, of total revenue. This is in contrastto the previous four years, 1963/64-1967/68, when the share of taxes on foreigntrade declined from 49.4 percent to 38.4 percent and that of indirect taxeson domestic products rose from 16.7 percent to 27.9 percent.

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(b) Recurrent Expenditures

RECURRENT EXPENDITURES - COMPARATIVE GROWTH RATES

(Percentage Rate Per Year)

Actual Actual1963/4/1967/8 TFYP 1967/8/1971/2

General Administration 9.1 6.0 2.7Administrative Service (7.8) n.a. (-)Defence and Internal Security (9.5) (3.4)

Economic Services 3.1 9.9 4.6Agriculture (13.9) n.a. (8.3)Industry and Commerce (4.8) (6.3)Public Works, Infrastructure

and Communications ( - ) n.a. (2.8)

Social Services 13.7 13.1Education and Culture (14.2) (16.3) (13.9)Health (5.6) (11.2) (5.8)Social Affairs (27.0) n.a. (18.2)

Interest on Public Debt 68.0 n.a. 11.3

TOTAL 9.9 9.5 6.0

44. The overall growth of recurrent expenditures in the Plan periodof 6.0 percent per annum is below the Plan target of 9.9 percent, but isconsistent with the lower rate of current revenues. It almost equals therevised target growth rate of 6.3 percent for the last three years of theextended TFYP. The striking features of this performance are the fiftypercent increase in the rate of growth of expenditures on economic servicesfrom 3.1 percent in the four years preceding the Plan to 4.6 percent, thereduction in the rate of increase of general administration expenditures from9.1 percent to 2.7 percent, and the levelling off of the growth rate of ex-penditures on social services including education at around 13 percent a year.These features accord with the proposal in the 1970 Bank Economic Report thatefforts be made to contain the growth of expenditure on general administrationwithin 4 percent to enable a much higher rate of spending on economic andsocial services.

45. It is particularly worth noting that expenditures on administrativeservices declined compared to a 7.8 percent growth rate in the previous fouryears; and that the rate of increase of expenditures on defence and internalsecurity has declined from 9.5 percent to 3.4 percent. Under the category

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economic services, there has been a fall from 13.9 percent to 8.3 percent inthe rate of rise of expenditures on agriculture. This should not be takenas an indication of neglect of agriculture; rather it is probably the resultof the rationalization of the agricultural service, requiring the transfer ofsections of some services, such as extension, which were previously part ofthe recurrent budget, to capital projects such as the minimum package program.

v. Money and Credit

46. The rate of growth of total money has declined to 8.1 percent inthe four years of the Plan, compared to 10.5 percent in the preceding fouryears. Since quasi money maintained its growth rate of 21 percent in bothperiods, the decline was due wholly to a fall in the rate of growth of moneyfrom 8.2 percent to 3.5 percent. Of the two components of money, privatedemand deposits declined absolutely in 1970 and 1971 and increased at anaverage of only 0.2 percent over the four years 1968-1971, compared with anaverage increase of 11.7 percent in the preceding four years. The rate ofgrowth of currency in circulation also declined, but less steeply from 6.9percent to 4.9 percent. Although the growth rate of quasi money has beenmaintained, the growth rates of its two components have moved in differentdirections. The rate of growth of savings deposits has increased slightlyfrom 24 percent to 25 percent, while that of time deposits has decreasedfrom 15 percent to 13 percent.

47. The continued high rate of increase of quasi money has been largelyspontaneous. Branch banking has expanded, but the deposits mobilized by thenew branches have been a small part of the increase in commercial bank deposits.The marked reduction of the rate of growth of currency in circulation and pri-vate deposits, the lower rate of growth of time deposits, and the high leveland marginally rising growth rate of savings deposits, probably indicate thatdepositors may now be seeking higher returns on their savings. The raising ofall deposit rates by one point from August 1971 may have added to the momentum.The share of currency in total money was 85 percent in 1963, 78 percent in1967, 70 percent in 1970 and 65 percent in 1971. This decreasing preferencefor liquidity while total money is growing means that an increasing proportionof total money is being made available for lending. This is particularlysignificant because of the shortage of short-term loan funds in the bankingsystem.

48. The rate of growth of domestic credit has also declined, from 19percent in 1963-1967 to 15 percent since 1967. Credit to the private sec-tor increased at the same rate of 17 percent in the two periods, but creditto the central government grew at the much-reduced rate of 9 percent, com-pared with 26 percent in the preceding four-year period. There was an ab-solute decline in the amount of C-overnment borrowing in 1970 and 1971, re-flecting greater dependence on foreign aid and some improvement in the fiscalsituation compared with the period of fiscal stringency from 1966-1969, whenGovernment had to resort to domestic borrowing to avert too large a declinein the annual level of capital expenditures. While the rate of growth of

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credit to the private sector has been maintained, it has been markedly unevenin 1970 and 1971. In 1970 the growth was 27.5 percent compared with an aver-age 17 percent for 1963-67, 18.9 percent for 1968, and 12.9 percent for 1969.But the rate of growth a year later in 1971 was only 8.2 percent. Thesetwo movements suggest that more recently credit has tended to follow ratherthan influence the tempo of economic activity. Since the latter part of 1970,the economy has been sluggish, and the response of the banking system has beento curtail credit, leading to a reduction in the rate of growth of credit tothe private sector in 1971.

49. Despite the high growth rate of savings deposits, the commercialbanks have had to be assisted by the National Bank and by foreign loans tosatisfy part of the demand for credit. This was particularly so in 1969when the NBE raised its advances to the commercial banks by $40 million.A further sum of $20 million was made available in 1970, but the increasein 1971 was only $1.2 million. The commercial banks' ratio of loans andadvances to deposits has been rising and reached 114.5 percent at December31, 1971, and the commercial banks have managed to meet the legal reserverequirements only with help from the NBE. This tight resource situation ofthe commercial banks presents an opportunity for the monetary authorities tohelp stimulate the economy out of its present sluggish state by continuingto supplement the resources of the commercial banks and, if necessary, ofthe central government. The limit of such additional assistance would, ofcourse, be determined by the need for maintaining internal equilibrium andan operationally desirable level of external reserves. Much more consulta-tion than exists at present would be required between the NBE, the Ministryof Finance, and Planning Commission Office (PCO) for the successful imple-mentation of such a policy.

50. The expansion of credit has to some extent been at the cost ofdrawing down external reserves. Table 17 shows that this was particularlyso in 1970, when reserves declined from $180.8 million to $139.5 million asdomestic credit increased by $80 million. There was a further decline to$117.7 million at December 1971 but this was due to other causes.

51. Table 19 shows some improvement in the allocation of the resourcesmobilized by the commercial banks. Loans for agriculture have traditionallybeen disproportionately small, compared to the contribution of the sector tothe economy. Although the situation still exists, the share of loans to thethree categories "agriculture, exports, and domestic trade in agriculture,"which comprise total loans to agriculture, has risen from 24.6 percent in1967 to 31.9 percent in 1971. Other trends worth noting in the period aredeclines in the shares of loans for industry and building and construction,and an increase in the share of loans for imports, and, in particular, forimports of capital goods.

52. The interest rate has continued not to be an active tool of eco-nomic policy. The only change in deposit rates since the launching of theTFYP in July 1968 was made effective in August 1970. It was an increase ofeach of the deposit rates by one point, making 6 percent the highest rate,

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and of NBEts rediscount rate on other eligible paper and treasury bills byone point and half point to 6.5 percent and 6.0 percent, respectively. Therewas a corresponding increase in lending rates.

53. The role of the nonbank financial institutions, such as AID Bank,the two specialized housing finance organizations, and the insurance indus-try, in mobilizing and allocating funds is growing but is as yet not signifi-cant.

vi. Performance of the Main Sectors

(a) Agriculture

54. The agriculture sector grew at 1.8 percent a year from 1961 to1967, slightly lower than the rate of population growth. In order to in-crease domestic food supplies and raise agricultural exports the TFYP seta target growth rate of 2.9 percent for the sector, made up of 1.8 percentin subsistence and 5.7 percent in monetary agriculture. The plan foresawthat to achieve the value and production targets, resources for agriculturewould have to be raised considerably, and accordingly earmarked some $111million and $97 million of internally mobilized government budget funds forcapital and recurrent expenditures, respectively, over the period of the Plan,in addition to amounts to be mobilized in the private sector and from abroad.The Plan included supporting policies in fields such as soil conservationand land reform, and says of the latter that 'very little progress in agrarianreconstruction and development, particularly in peasant agriculture, can bemade under the existing conditions of tenure and farm size.' 1/

55. MIore recently, the agricultural sector continued to grow at only1.8 percent in 1968 and in 1969. This compares unfavorably with the TFYPtarget of 2.9 percent and population growth of 2.5 percent. No figures areavailable for 1970 and 1971, but the sharp increase of 10 percent in the priceof domestically produced food items suggests that marketable supplies in thedomestic market were apparently growing slower than effective demand. Thehigher prices continued through most of 1971 and only started declining withthe 1971/72 harvest, probably indicating an improvement in production. Thequantum index for exports, mainly of agricultural commodities, showed a riseof 5.9 percent per annum for the two years 1967-69, then dropped by 16 per-cent in 1970 only to recover by about 13 percent in 1971, thereby giving agrowth rate of 2.3 percent over the four years. Export receipts increasedat 5.6 percent during the same period. There has been no particularly ad-verse weather since the Plan was launched and reasons for the unsatisfactoryoverall performance must be sought elsewhere.

1/ IEG - Third Five Year Development Plan (1968-73) para. 35, page 195.

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56. Because of the structure of Ethiopia's agriculture, the develop-ment of the sector is,largely dependent on central government investmentsand implementation by the Government of policies such as improved marketing,communications, and land tenure. The Government's tight fiscal positionallowed average annual recurrent expenditures of $11 million compared with$19 million in the Plan, and total annual average capital expenditures of$9.3 million compared with the Plan's annual average of $22 million fromdomestic resources alone. There was therefore a sizeable shortfall in theGovernment's financial effort. Even if the resources had been available,disbursements would probably not have been much larger, because more projectsthan have been financed, were not ready for financing. Also many of the keypolicies on land reform and marketing, for example, have not been agreed, letalone implemented.

57. There has been some progress, as the following samples show. Heigh-tened private interest in agriculture, probably generated by improved profit-ability due to higher grain prices, had led to a rise in the number of tractorsallotted duty free fuel from 1,986 in 1968/9 to 2,913 in 1969/70 and an in-crease in the area cultivated by tractors. Imports of chemical fertilizershave also risen from about 1,200 tons in 1966 to more than 10,000 tons in1970. The minimum package program was started in 1970 in eleven project areasand the Plan being implemented is to start ten new project areas annually.Each project area includes about 10,000 farm families. The Planning and Pro-gramming Unit of the Ministry of Agriculture has been strengthened, as havethe Awash Valley Authority and the Livestock and Meat Board, and the AID Bankwent into operation in October 1970. The private medium and large scale farm-ing developments in Setit Humera are continuing. Starts have been made onprojects such as the Addis Ababa Dairy and Ada peasant developments, and agrowing list of potentially productive projects are in the pipeline. A Bankfinanced in-depth survey of the Agricultural sector was recently completedand a summary of the main findings and conclusions is given in Section III(i)below.

(b) Manufacturing

58. The sector grew at 11.8 percent during the first two years of theTFYP. This compares favorably with the Plan target of about 10.5 percent,but is below the 13.5 percent growth rate achieved from 1963 to 1967. Ofthe two components of the sector, handicraft and small scale industry per-formed more consistently and much better than was expected. It grew at 9.1percent, which almost equals the 1963-67 growqth rate and surpasses Plan ex-pectation of a 5.5 percent annual average growth. The growth rate of 15.1percent achieved by middle and large scale industry is 4.6 percent belowthe previous period but equals the TFYP target.

59. The continued higher rate of growth of the middle and large scalecompared to the handicraft and small scale sub-sector is probably due totariff protection, fiscal, monetary and other incentives enjoyed by theformer but not granted to handicraft and small scale operators. Up to

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1969, the smaller scale operations continued to make a higher contributionto GDP than larger scale industries, but the situation may have been re-versed by now.

60. The available information on manufacturing since 1969 is sparseand does not provide a basis for a reliable assessment of performance. How-ever, it appears that the growth rate of each subsector, and therefore ofthe sector, may have declined and that manufacturing production may evenhave stagnated. While the output of a number of industries, such as cottontextiles and oil refining, has been rising, the output of some main indus-tries in food processing, synthetic textiles, shoes, and building materialsappears to be declining. This probably reflects the effects of the slow growthof export earnings and of investment in building and construction on incomesand, consequently, on demand for domestically produced consumer goods.

61. The sizeable government investment in commercial type enterprisehas been taken over by AID Bank, which has embarked on a systematic study ofeach concern with a view to determining the cause of poor profitability whereit occurs, and taking the measures necessary to improve the situation. Fu-ture public investment in commercial type enterprise is to be undertaken byAID Bank and is, therefore, more likely to be based on efficiency criteriathan has been the case in the past.

62. Up to 1969 manufacturing contributed only 10 percent of GDP. Theshare of manufactured goods in export earnings is negligible, suggesting thatproduction is overwhelmingly for import substitution. The recent experienceof the sector indicates that the further high and steady growth necessary tohelp stem the growth of unemployment and raise the rate of overall economicgrowth, requires a broader based market than the narrow domestic market, withits high dependence on an undynamic and unstable world coffee market. Pos-sible policies which may contribute to expanding manufacturing production andexports are discussed in paragraphs 147 - 152.

(c) Tourism

63. Tourism has not developed as rapidly as was envisaged by the TFYP.The Plan projected the number of visitors to more than double and grossreceipts from tourism to rise steadily from Eth$9.5 million to Eth$24.5million between 1968 and 1971.

64. The growth rate of 10-15 percent a year in the number of visitorsexperienced so far is substantially below the target of trebling this numberduring the Plan period. The number of visitors to towns along the HistoricRoute alone, however, has increased rapidly, particularly in 1969 and 1971, andmay have doubled during the first four years of the Plan. Also there is in-dication that the number of nights per guest in Addis Ababa hotels is risingand that bed occupancy rates in major Addis Ababa hotels are rising rapidly.It is not known to what extent these trends apply to the rest of the countrynor how much tourism is contributing to the increases. The poorest tourismdevelopments appear to have been along the Red Sea Coast, particularly in

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1970, on account of political unrest in Eritrea. Data on receipts fromtourism since the beginning of the Plan are not available but these receipts,on a gross basis, probably grew somewhat faster than the number of visitors.

65. On the institutional side, the Ethiopian Tourist and Hotels In-vestment Corporation (ETHIC) was set up in late 1970 to take over Governmentinvestment in hotels and to promote, assist, and make direct investment inthe development of hotels and other tourism facilities. So far ETHIC hasbeen mainly involved with consolidation and planning. The Ethiopian TouristOrganization (ETO), the Government's tourism promotion body, continues todevelop its promotional efforts.

66. For the time being, tourism in Ethiopia is largely undeveloped andits contributions to income growth, employment and foreign exchange earningsare small but growing. Only 20 percent of the foreign visitors are touristsin the sense of travellers for pleasure and leisure. The number of touristsis of the same order of magnitude as neighboring Kenya receives in two orthree weeks. Much scope remains for the development of this sector.

vii. Some Key Social Indicators

(a) Population

67. Ethiopia has not had a population census. The best availabledemographic data comes from the first round national sample survey (1964-67), which covered about 63 percent of the rural and 92 percent of the urbanpopulation. Based on the survey, the population in 1970 is estimated at24.3 million, with 21 million in rural and 2.3 million in urban areas. (Anurban area is defined as a locality with more than 2,000 inhabitants). Therural population is estimated to be growing at 2.1 percent, the urban at6.5 percent and total population at 2.5 percent per annum. Since popula-tion movements in and out of the country are believed to be negligible, thetotal growth rate is the same as the natural growth rate, which derives froma high birthrate of 50 per thousand and a high death rate of 25 per thousand.The high death rate reflects the inadequate coverage of the country's healthservice.

68. Four percent of the 6.5 percent growth rate of urban populationrepresents migration from the rural areas, and the growing trend is likelyto continue with improving communications unless sufficient employment op-portunities are created in rural areas to absorb the presently unemployedand underemployed and the roughly 2.5 percent natural annual addition tothe rural labor force. Already the social and economic problems of poorhousing and sanitation, and high unemployment are evident in urban areas.Some amount of migration within rural Ethiopia has occurred partly inspontaneous response to economic opportunities and partly as a result ofpressures of land shortage in some areas and displacement in others.

69. Government has no declared population policy. Government institu-tions do not propagate family planning, probably because of anticipated op-position on political and religious grounds, but voluntary agencies do have

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family planning programs attached to their maternal and child health activ-ities. The material quality of life of the vast majority of Ethiopians isextremely poor by normally accepted standards, and life expectancy is onaverage only 37-38 years. At the present growth rate the population willdouble in 26-27 years. One crucial question derives from this situation,if population policy is to be related to economic and social development -it is whether, as far as can be foreseen, the rate of population growth isa constraint on improving the material quality of life of the vast majorityof the increasing population of Ethiopia. While the statistical base forthe projection may be questionable, the outlook suggests that it may be timeto begin to formulate and implement a population policy. This should notawait the outcome of the request to the UN for financial and technical as-sistance to conduct a population census, since in any event the results ofthe census are unlikely to be available for another five years.

(b) Employment

70. There is no available credible data on the labor force and howmuch of it is employed, unemployed, or underemployed. It is popularly be-lieved, though, that there is much underemployment in the rural areas, andhigh and rising unemployment in both rural and urban areas. This situationsupports the concern of the Government that development policy pay particularattention to the creation of employment.

(c) Income Distribution

71. Information about income while distribution is sparse, but availableevidence gives some indication of what the general pattern probably is. Table32 for example shows that about 50 percent of employees of central governmentand autonomous authorities in Addis Ababa in April 1968 received only about13 percent of the emoluments, while some 15 percent received as much as 50 per-cent. While the income distribution used is not necessarily representativeof the overall distribution in Ethiopia, it indicates a severe skewness. Onfirst appointment to the Government service, a university graduate with noworking experience receives $6,000 a year - almost as much as his counterpartin the United Kingdom, where the average level of income is much higher. Al-lowing for a family of four, the per capita income of a new graduate's familyis $1,500 a year. This compares with the national annual average income of$76. Much of Ethiopia's income derives from the land. The pattern of dis-tribution is for most land owners to have small holdings, however, there areheavy concentrations of ownership. One example which, though not representa-tive of the whole country, is nevertheless significant, is given in a studyof distribution of land ownership in Hararge province in 1964: it showedthat 2 percent of owners owned 74.6 percent of the land. This inevitablygives rise to corresponding heavy concentrations of incomes.

72. As yet, redistribution through the fiscal mechanism has hardly begun.Public services are still largely for the urban dwellers, who are the majorityof those in the monetary sector. In addition, Volume III shows that a sig-nificant number of substantial income earners in agriculture who receive

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public services are either avoiding or evading taxes, or are not taxable underexisting legislation for reasons which may be inappropriate to present cir-cumstances. However, the focus in the Government's policy on raising incomesand employment in the rural areas, through the minimum package approach andimproving rural transport, marketing, health, and education, is at once amove towards increasing the national income and a more positive redistribu-tion of income than at present.

(d) Prices

73. The only available composite index of domestic prices is the retailprice index based on households in the $100-$400 income bracket in AddisAbaba. The rate of increase of both the general index and the food indexdeclined sharply over the first four plan years, compared to the previous fouryears, 1963-67. The growth rates of the general and food price indices from1967-71 were 2.9 percent and 4 percent, respectively, while the correspondingpercentages for the period from 1963-67 were 6.3 and 7.4.

74. The main influence on the general index is the movement of pricesof domestic foodstuffs. These rose steeply due to supply shortages resultingfrom the drought of 1965-66, and thereafter remained stable at higher levelsthan in the predrought period. However, in response to short supplies inlate 1969, prices started rising, increased by 11.5 percent in 1970, andremained at 1970 average levels in 1971. By mid-1972, the food price indexhad returned to the 1969 level as the abundant 1971/72 harvest, probably dueto the incentives created by the high prices of 1970 and 1971, brought pricesdown again. Throughout, the general index tended to reflect the movementsof the food price index. The experience of these recent years emphasisesthe need for economic policy to continue to emphasize the production ofdomestic food grains.

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III. REVIEW OF SOME SECTORS

i. Agriculture

75. A survey of the agriculture sector was recently carried out bya Bank mission, and the following is a summary of their main findings andconclusions.

Agriculture contributes 58 percent of G.D.P., produces nearly allexports, and provides livelihood for about 90 percent of the population.Although Ethiopia allegedly has the largest number of livestock in Africa,crops account for 71 percent and livestock for only 29 percent of agriculturaloutput. 60 percent of export earnings are from one crop, coffee, and only25 percent of total agricultural production is marketed. Of the quantitiesmarketed, sugar and cotton account for about 35 percent, cereals, pulses andoilseeds make up another 30 percent and livestock 18 percent.

76. Over half the nation's land area of some 122 million hectares isused as permanent pasture. Cereals occupy nearly 8 percent, and pulses andoilseeds each occupy less than 1 million hectares. All crops taken togetheraccount for about 9 percent of total land area. Although there are largecommercial farms, most farms are small. A large proportion of agriculturaloutput is produced by traditional methods at low yields, leaving a smallsurplus above the needs of the farm family. Modern inputs are still littleused. Fertilizer use averaged 6,000 tons in the two years 1969 and 1970,but increased sharply to 24,000 tons in 1971. Although imports of plantingmaterials were worth only $0.47 million in 1969, this was almost three timesthe corresponding figure for 1966. There are 3,000 farm tractors and thenumber is growing rapidly.

77. During the first two Five-Year Development Plans a start was madeon institutional development. The Awash Valley Authority was established, anational agricultural research institute was created and began to operate,and various undertakings were started in technical training, extension, co-operatives and community development. A Grain Corporation was establishedand the Ministry of Land Reform and Administration was created.

78. The TFYP envisaged an accelerated rate of growth of agricultureproduction through the development of large as well as small-scale agricul-ture, but, as yet, hardly 5 percent of the rural population have been exposedto modern agricultural technology, and the task of bringing modern farmingand marketing methods to some four million rural families is immensely complex.To do so will require a strong national commitment, skilled statesmanship,and willingness at every level of the society to accept profound changes,such as land tenure reform, heavier taxation, and modern managerial practices.

79. The absence of any significant alternative suggests that the futuregrowth of the Ethiopian economy and the absorption of the growing labor force

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will depend on the development of agriculture and, in particular,'the growthof agricultural exports. The outlook of the potash market is such that thechances for exploiting the potash resources, Ethiopia's main known mineral,in the near future seem modest. Although expanding steadily, tourism isstill small, and is not expected to provide significant employment and incomefor some time. The domestic market for manufactures depends on export earn-ings, and the export market for manufactures is limited by Ethiopia's lackof comparative advantage in processing imported raw materials.

80. There is an adequate, though deteriorating, resource base for agri-cultural development. Despite localized intensive settlement, much agri-cultural land is still unused. The country has many types of natural vege-tation, but between the extremes of lowland desert scrub and alpine heath,which can be put to very limited use, there are eleven major ecological as-sociations with substantial agricultural potential. Also there are some26 million cattle, 12 million sheep, 11 million goats, 2.8 million horsesand mules, 3.8 million donkeys, 1 million camels, and a further 13,000 pigsand 48 million poultry.

81. The possibilities for agricultural growth are generally not con-strained by product markets. On the domestic side, the demand outlook issatisfactorily strong, and, taken together, the export markets for presentexport items, except coffee, have potential for satisfactory growth. Newexport possibilities include citrus, spices, tobacco and gum arabic. Thedemand constraint is therefore minimal. The main problem is to producecommodities of good quality at competitive prices.

82. The production and employment roles required of agriculture makesit essential that the development strategy place vastly more emphasis onagriculture than has been the case so far. It should concentrate developmentfor both subsistence and commercial farmers in areas of high production po-tential; design programs in such a way as to promote a maximum spillovereffect outside the areas of direct impact; and intensify labor use on farms,as well as promote opening up of new lands to agricultural uses. These stepsare necessary to accommodate the expanded labor force and to prevent furtherfragmentation of holdings, reduced farm incomes, and increased urban migration.In addition, there is need for a nationwide effort to build more rural roads,spread credit and cooperatives, increase use of modern agricultural inputs,institute an effective marketing system, expand the program of research, andorient it more on a commodity basis towards problem-solving, introduce aninformation system to spread research results to farmers and, perhaps themost important, improve the land tenure system, since rapid progress inagriculture cannot be expected until bold and detailed measures in landreform are taken.

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83. Faced with these responsibilities, it is important that the Govern-ment takes the necessary political decisions along with increasing and im-proving its administrative, financial, and staff capabilities. An Organi-zation and Management study in the specific field of agriculture may guideessential improvements in administration, and an expansion of the trainingfacilities at all levels is needed to improve the staff capabilities.

84. The mission indicates a program of investment for overall agri-cultural development. The program for the public and private sectors wouldcost about $479 million in the first five years and $988 million the secondfive years, or a total of $1,467 million over a ten-year period. The mainissues considered in designing the indicative program are the need to: (i)develop the production capacity of peasant farmers as widely as possible; (ii)help finance development through expanded commercial farming; (iii) protectthe wasting land resource; (iv) improve the public services to agriculture;and (v) modernize tenure arrangements, which is probably the most basic ofthe measures needed to promote agricultural and national progress; it is alsothe most intractable.

85. The indicative program places a heavy burden on the Government'sfiscal system, mainly because much of the needed investment in agriculturecan best be done by Government. The domestic share of the required financecan be mobilized if there is a higher rate of growth of public revenue thanwas experienced in the 1960s. This appears feasible if appropriate adjust-ments are made in the tax system, including land taxes and improved taxadministration.

ii. Small Industries

86. The contribution of cottage and small scale industries to GDP grewat about 9.5 percent a year in the 1960s and in 1969 accounted for 5.2 per-cent of GDP while larger scale industries accounted for 4.6 percent. De-tailed information about the sub-sector is sparse; this is because the firstcensus of cottage and small scale industries is still in progress. If the40 establishments interviewed by the Bank Mission are representative of thesub-sector, it may be concluded that there has been an increase in the numberof establishments with substantial contribution to growth. Some 40 percentof the concerns interviewed were established in the past 5 years and over62 percent in the past ten years.

87. Sole proprietorship is the dominant form of ownership in cottageand small-scale industries. Whereas in developing countries with long-standing commercial experience, the typical small-scale entrepreneur in pro-cessing tends to come from commerce, in Ethiopia the majority of small entre-preneurs are from landowners, the Church, the military or the civil service.Most of the inadequacies in management being experienced are due to lackof background in business. Many small-scale enterprises are not registeredin the Ministry of Commerce, Industry and Tourism, avoid legal recognition,and thus also avoid payment of excise duties on their output.

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88. Small-scale enterprises are found all over the country and areengaged in diversified lines of business with very large spread-over effects.Average employment per establishment in the cottage industry was 4.5 accord-ing to the first stage of the census, but in the 15 cottage establishmentsinterviewed by the mission it was 3.0; in the 23 small-scale industries alsointerviewed it was 31. They are major employers of labor outside agricultureand being scattered all over the country, they tend to minimize the disadvan-tages of unbalanced concentration of medium and large industries in AddisAbaba, Asmara and Nazareth, and thus act as a counterbalance to the drift ofpeople, in search of employment, from the provinces to these three cities.Furthermore, small enterprises are a training ground for entrepreneurship;many small businesses have prospered and grown into large enterprises.

89. Investment prospects in the sub-sector are likely to be over-shadowed by competing attractions of real estate, distribution, and agri-culture. In a country with low GDP per head even by African standards,savings are necessarily low, and where there are many alternatives for in-vestment of the small savings, only a small proportion of the savings islikely to be available for investment in small manufacturing enterprises.As these enterprises are not able to provide adequate security, they usuallyfind it very difficult to obtain credit from commercial banks. The plough-back of profits is therefore the main source of expanding investment, buthere again profits are small, and hence so is investment. A typical metalworkshop had a net-of-tax profit of only $650 (=US$282) in 1970. It appearsthat if small scale industries are to develop rapidly, public policy will needto be geared specifically to removing these and other constraints.

90. Although the TFYP contains several proposals for providing incen-tives to small enterprises, very little has been done to implement them. In1968, a Center for Entrepreneurship and Management was established to providetraining and consulting services to small entrepreneurs, but these serviceshave not been sufficient to encourage many small-scale entrepreneurs to in-vest in processing enterprises. Effective arrangements for the supply ofcredit are also needed, but the establishment of the AID Bank in 1970 didnot improve the situation since its minimum size of loan excludes most smallscale enterprises. Moreover, by restricting incentives to large industries,the Investment Code of 1966 has discriminated against small scale enterprises.

91. One prompt and positive way in which the rapid development of thesub-sector may be accomplished is by removing the constraints which resultfrom these discriminatory policies. To this end, it would be desirable thatthe small scale sector be granted financial incentives as comparable as pos-sible to those granted to the large enterprise sector. A major step wouldbe to assure that the sub-sector had access to loan funds at an interestrate cost no higher than available to large enterprises. This could beachieved either by inducing the commercial banks to offer such lending, orby establishing a special loan fund. Inducing the commercial banks to offerthis lending would require a government guarantee of all or most of the risk.In this connection, it must be appreciated that the risk of failure is likely

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to be higher than for large enterprises, and therefore the government mustcontemplate a form of subsidy as a develonment cost. Several African govern-ments have established such guarantee funds, and these can be examined forguidelines. Alternatively, a separate loan fund could be established, butthis obviously raises a staffing question. An advantage of a separate fundis that it could be integrated with a business advisory extension staff whichis also necessary. (These proposals are more fully discussed in Volume II.)

92. The other types of obstacles to the rapid development of small-scale and cottage industries include shortage of entrepreneurship, skilledlabor, managerial and particularly accounting skills. There is also a lackof trust among businessmen and between businessmen and their managers. A moregeneral problem is poor communications, particularly in the rural areas.These are exacerbated by wrong choice of business, little or inadequateplanning and budgeting, keeping inadequate or no books of accounts, under-employment of expensive machinery when available, ignorance of the marketpotential and the nature of market trends, poor product design leading tolow quality goods, and lack of effective production planning and control,staff training and specialized tools and machinery, and credit facilities,including inadequate supply of technical services.

93. There is potential for growth of cottage and small-scale industries,but its full realization is likely only if these various constraints areremoved. There are several alternative institutional approaches open to theGovernment to achieve these objectives. One approach would be to establish aSmall Industries Development Corporation (SIDC), specifically geared to theneeds of the small entrepreneur. The corporation would provide finance if thecommercial banks are not to be used, training and technical assistance, buildindustrial estates, promote the development of cottage industries throughcooperatives, and assist with the provision of marketing facilities. Becauseof the staff problem, this institution could be established in stages. Anotherapproach would be to build on an existing institution like the AIDB.

iii. Tourism and Internal Air Transport

94. Tourism has much untapped potential which, if developed, wouldcontribute considerably toward the diversification of the Ethiopian economyand to national income, employment and foreign exchange earnings. The Govern-ment's awareness of the situation, and its recognition of the interdependencebetween tourism and aviation development, led the Government to commission astudy of tourism and aviation development in Ethiopia. The study, which wasfinanced by the UNDP was to draw up fully evaluated investment programs forthe sectors. The final draft of the study was issued in early 1972.

95. Defining tourists as people who travel for pleasure rather thanfor business, the study assumes that future growth in the number of foreignvisitors to Ethiopia will be due primarily to increases in the number oftourists. In the absence of any investment program, the number of foreignvisitors is projected to grow at 3.7% made up of 5.9% for tourists and 3.1%for non-tourists. Alternative investment programs would have the effect of

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increasing these growth rates, particularly the one for tourists. The studyexamines three alternative tourism plans. The investment program for eachplan takes into account the implied internal air transport requirements,including aircraft and aviation infrastructure. Each investment programconsists of two phases: 1973/74 - 1978/79 and 1978/79 - 1983/84.

96. Under the recommended investment program, the number of touristsis expected to grow at 19.2 percent a year during 1971/72 - 1984/85, whiletotal foreign visitors would increase at 3.3 percent annually. Investmentswould aim at developing tourist centers in Ethiopia which, together with theprovision of charter flights from Western Europe, would make it possible topromote two-to-three-week holiday trips to be spent entirely in Ethiopia.

97. The total investment package under this program is thus designed tomake Ethiopia a viable single-country destination for tourists. An alterna-tive program considered in the study would, if successfully implemented, yielda slightly higher economic rate of return but would require a considerablyhigher level of investment, particularly during the first five years (Phase1). A third investment program considered by the study would involve onlythe development of tourist facilities along the Historic Route. The programassumes that future tourists to Ethiopia would normally take in the IHistoricRoute as part of a larger African tour. The number of tourists would beexpected to increase, on the average, by 13.5% a year and total foreign visitorsby 5.4% a year during 1971/72 - 1984/85. Although this investment program issmaller and more manageable than the other two, it would yield a lower eco-nomic rate of return than the recommended program.

98. The estimated total cost of the recommended investment package is$170.4 million, of which $115.5 million is to be spent in Phase I and $54.9million in Phase II.

99. The recommended investment program would need all the promotionaleffort that the Ethiopia Tourist Organization and ETHIC could mobilize.Aside from basic tourist facilities, it calls for the preservation of nmonu-ments and other national attractions, particularly those that are unique toEthiopia. To facilitate the implementation of the program, the study pro-poses the formation of a government body to coordinate the development ofaviation and tourism. There has been too little coordination in the pastin developing tourism, air services and related infrastructure. The require-ments of tourism and aviation are often interdependent and cannot be effec-tively developed independently of each other. The success of the recommendedprogram would depend very heavily on the degree of future cooperation amongthe various agencies concerned with tourism and aviation.

iv. Education

100. The education system consists of a six-year primary course from age7, a second level with a two-year junior cycle and a four-year senior cycle,

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and a tertiary level of university and non-university courses. Total en-rollment in 1970/71 was about 800,000, of which 82% were at the primary and17% at the secondary level. Enrollment at the third level was a little over6,000, representing less than one percent of total enrollment. Three fourthsof the enrollment was in government schools and the rest mainly in primaryschools operated by the Ethiopian Orthodox Church, other missions and privateagencies.

101. Over the past 15 years enrollment in government primary schoolshas grown at 11 percent a year, and in secondary schools and university at19% and 20%, respectively. In 1970/71, primary school enrollments were slightlybelow, secondary enrollments very substantially above, and university enroll-ments slightly above the TFYP targets.

102. Despite this recent rapid growth, only 16 percent of the 7-12 agegroup are in primary schools, and participation rates at second and thirdlevels are 5 and 0.4 respectively. Drop-out and repetition rates are veryhigh. About 30 percent of the primary and senior secondary school teachersin government institutions are untrained; 55 percent of the secondary schoolteachers are expatriates.

103. The distribution of schools is heavily biased towards urban areas.There are wide disparities in participation rates at the provincial and

awraja levels. Little use is made of modern equipment and audio-visual aids.Universities have inadequate physical facilities, and teaching suffers fromthe poor preparation of incoming students.

104. Government expenditure on education increased at about 15% a yearin the last five years, and in 1970-71 amounted to Eth$ 85 million or about19 percent of recurrent expenditures. The education system has however farfrom adequately met the socio-economic development needs of the country.Though most primary level students do not go any further, the primary schoolcurriculum is designed to prepare them for general secondary education andhas little relevance to the rural economic environment in which 90% ofEthiopians live. Although secondary education has been broadened to includepractical subjects, it is still basically academic and urban-oriented, andits products are inadequately prepared for the labor market. The technicalschools have not developed proper communication with industry, and insuf-ficent attention has been given to agricultural education.

105. Faced with this situation of very low economic and social returnsto the already high proportion of government resources devoted to education,the government recently undertoolc a study of the education sector, with Bankassistance. The main findings and conclusions of the review are given below.

106. The basic objectives for educational development proposed by thereview are (a) national integration through promotion of Amharic at variouslevels (b) equitable distribution of educational opportunities amongst regionsand between urban and rural areas (c) improvements in the quality of life, bymaking meaningful and practical education available as fast as possible to

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the maximum number of people (d) and assisting national development throughthe supply of skilled and trained manpower. The review report discussed threealternative approaches to attaining the objectives. The approaches have muchin common and differ mainly in the rate at and the means by which the educa-tional base is broadened. The important common features are: (i) Enrollmentexpansion at the secondary level to be reduced to 2.6 a year, the growth ofhigher education contained at 5-6 percent per year, and primary enrollmentsexpanded as rapidly as possible toward universal literacy. The secondary andtertiary growth rates are based on projections of manpower requirements andare considered adequate; (ii) Curriculum to be drastically altered to reflectthe fact that only a small proportion of students go on to further education.At the primary and secondary levels, curriculum would emphasize vocationalrelevance for school leavers, particularly agricultural relevance in ruralareas. At the third level, students would be steered by levy of charges andgrant of scholarships into areas of critical manpower needs. A nationalcommission for higher education would plan and coordinate post-secondaryeducation; (iii) Supply of teachers at reduced costs to be effected by train-ing teachers for first level in an 8+1 program rather than 10+2. To raisethe overall pupil-teacher ratio, primary schools would operate on a two-shiftsystem (often with pupils attending every other day) over a longer schoolyear. Use of radio, better supervision and more refresher courses wouldcomplement these changes; (iv) Location of schools to be determined by theneed to equalize educational opportunities throughout the country; (v)Development centers in rural areas to be established and to include strongelements of non-formal education in their programs. Schools and other exist-ing government buildings would be used whenever possible; (vi) the Ministryof Education to be restructured and the educational system graduallydecentralized in line with projected local government reforms. Constructioncosts of first level schools to be borne mainly by the awraja in which theyare situated.

107. The first alternative approach (Alternative I) would provide fora continuation of the existing 6-2-4 school system with the reforms outlinedabove. The primary schools would be expanded to achieve universal primaryeducation as soon as possible. Non-formal education would also be expanded,the major component of which would be literacy training, with emphasis on work-oriented functional literacy programs. Alternative II would shift the schoolsystem to a 4-4-4 structure with most pupils entering the labor force afterthe first four years of "minimum formation education". This program wouldconsist of reading-writing-arithmetic, physical culture, practical arts andstudy of the local environment. Instruction in both primary and middleschools would be in Amharic. At both first and middle level, practicalcourses would be taught by extension agents, artisans and the like, who wouldsupplement different mixes of 8+1 and 12+1 teachers. Non-formal educationwould be strongly emphasized and institutionalized under the inclusive term"community practicums". These would include skill training centers, communityand rural development centers, public works programs with industry and govern-ment agencies. Alternative III would move more emphatically in the directionof mass education by postponing and curtailing formal education, which wouldbe a 4-2-4 system with minimum formation education addressed to more mature

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pupils starting at age 9. Alongside this system, a two years "basic formationprogram" would be offered to young people of 13 years and upward who had nothad first stage education. This program would include numeracy, literacy andhealth education, supplemented by practical rural studies and take place(usually in schools) in the later afternoon to serve those who are at workduring the day. Most of these students would join the labor market or followa three year practical "secondary formation program". A very small numberwould cross over into the formal system.

108. The strategy recommended by the review conference in Juily 1972,which led up to the final report, is a modification of Alternative II, whichwould incorporate certain key elements of Alternative III. This would providefor four years of minimum formation education (MFE) for all children in the7-10 age group as rapidly as finances will permit, two years of basic formationfor youths 13-16 years old who have been unable to attend MFE programs and afour year each of junior and senior secondary schooling for a limited numberof graduates of MFE and basic formation programs. Closely related to theformal system would be an extensive system of non-formal educational programsfor youth and adults. If this strategy is adopted, total enrollment in Gov-ernment MFE programs and non-government primary schools in 1979/80 would beequivalent to 44 percent of the population aged 7 to 10. In the same year,enrollment in basic formation programs would represent 31 percent of thetotal number of 13 and 14 year olds. 90 percent participation rate would beachieved for children born in 1982/83 and thereafter, well before the end ofthe century.

109. The review report was considered by the Council of Ministers inJanuary and February 1973, which accepted the basic findings and recommendationsof the Sector Reviews. A number of task forces have now been set-up to examinethe implications of the various proposals with a view to planning their gradualimplementation. The Government is conscious that a major restructuring andchange of direction of the education system require consideration of the fol-lowing points: (i) availability of resources; (ii) organization and adminis-tration; (iii) orientation and retraining of administrators and teachers; (iv)simultaneous and accelerated action in rural development; (v) development oflocal government; and (vi) political and social acceptability.

110. The cost of each alternative is the same, since the expansion ofprimary enrollment is treated as a residual, after providing for secondaryand higher education and for the measures to reduce cost per pupil. Govern-ment expenditures on education are envisaged at 20 percent of governmentrevenues from 1974/75. In absolute amounts, government educational expenditurewould increase from Eth$80.4 million in 1970-71 to $609.6 million in 1999/2000,due primarily to anticipated growth of monetary GDP. This would be supple-mented by local contribution (including labor and in-kind contributions), ris-ing slowly from 3 percent of the Government contribution in 1970/71 to 15percent at the end of the century, and charges to students receiving highereducation, which would by the same date account for more than one eighth oftotal expenditure. The share of total education expenditure of monetary GDPwould rise from its current level of about 1.9 percent to about 3.9 percentby the end of the century, which would still be below the current average ofmany African countries.

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111. In general the strategies proposed are in line with the importancewhich the Government accords to agricultural development and, in particular,to improving the economic condition of the broad rural masses.

v. Hlealth

112. The TFYP, wililst fundamentally continuing the policies of develop-ing generalized basic health services which combine a curative function witha preventive one, emphasized malaria eradication. The further developmentof basic health services would complement the malaria program. The healthservices would be developed to deal with all medical care and health controlnieasures, and the hospitals would be integrated into the basic health serviceto enhance preventive activities, particularly in the field of maternal andchild health and in communicable disease control. In accordance with growingdecentralization, provincial health departments would be developed to ensureeffective supervision of all health activities in the provinces. The maintargets of the Plan for physical facilities and personnel were:

Targets - Third Five-Year Plan

1968 1973 Percent increaseestimated target 1968/73

Hospital beds 8,830 9,850 12Health Centers 68 124 82Health Stations 587 997 70Doctors and interns 370 630 70Registered nurses 677 1,041 54Health officers 163 458 120Community nurses 183 355 92Sanitarians 185 330 78

113. A recent review of Plan implementation from 1968 to 1971 shows thatactual performance has lagged behind the targets. The ratio of basic healthinstitutions to population has not undergone any significant change. In someprovinces the situation is worse than it was at the end of the Second Five-Year Plan. Instead of the planned 39 new health centers, only 20 have beenput into operation, and of the expected 210 new health stations, only about60 have been established. Health centers are understaffed, underequippedand underfinanced. The provincial health departments have developed at avery modest scale but supervision of the health institutions in the provincesis far from satisfactory. On the manpower side, even with the planned in-crease in 1973 and 1974 under the extended TFYP, there is likely to be asevere shortage of all categories of medical and health personnel. To meetthe requirement, existing training institutions need to be extended and in-tensive short-term training courses and in-service training programs intro-duced. During the first three years of the TFYP, total government expenditureon health was Eth$127.6 million, or 81 percent of the planned expenditure.While the plan target for external financing was over fulfilled, only 73percent of the planned financing from domestic sources was achieved. The

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per capita expenditure of the Government on health services, as well as pro-portion of expenditure on public health to total Government expenditure, hasdecreased. In spite of this, it has not been possible to utilize fully thecapital and recurrent budget allocations, particularly revenues from healthtax. Although implementation of the capital budget is expected to improveduring the rest of the plan, a study of this apparent deficiency of absorptivecapacity would be useful.

114. The health and medical facilities continue to be grossly inadequate.According to a study made in 1970, there were 3,000 persons per hospital bed,298,000 per health center, 45,000 per clinic, 72,000 per doctor, 145,000 perhealth officer, 113,000 per community nurse and 126,000 per sanitarian. More-over, these facilities and personnel are unevenly distributed between regionsand between urban and rural areas. Because of heavy demand for treatment ofdiseases, health and medical personnel are heavily occupied with curativemedicine to the relative neglect of the preventive functions, including healtheducation. Low per capita income and high prices of modern drugs result invery low per capita expenditure on such medicines, estimated roughly at about50 Ethiopian cents per head per year.

115. Only about 10 percent of the population live in areas served byhospitals and health centers. One-half of the inpatients are from the sametown or locality as the hospital. The percentage may be higher for out-patients.Many health stations have been established at the district level but theytend to be inadequately staffed and provisioned and may therefore be lessbeneficial to rural health than is desirable.

116. Malaria is the biggest single health problem, and about 50 percentof the population live in malarious areas. Diseases like TB, smallpox,typhus are also rampant. Mlalaria eradication was started as a special projecttwelve years ago and has since spread fairly widely. HHowever, even in thisfield achievement was less than expected due to lack of local funds to com-plement the foreign aid provided by USAID and to difficulties in programoperation. The program has now been revised. Of the four zones into whichthe work was originally divided, two are being tackled, but neither hasreached the consolidation stage. The TB Control Program is well organizedin Addis Ababa, Asmara and Harrar. There has been extensive BCG vaccinationand the program is being integrated within the basic health services. Small-pox surveillance started in 1963 and seems to be going well.

117. Mtalnutrition is believed to be widespread in Ethiopia. Accordingto a Nutrition Survey covering more than 6,000 men, women and children in52 sites, there is an average calorific deficit of about 400 calories perperson per day, as well as protein and amino acid deficiency. The EthiopianNutrition Institute has done studies and investigations but, except for ababy food project, has not been directly involved in improving nutrition.

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118. The revised TFYP gives increased priority to preventive measuresand particularly to the control of communicable diseases. Special projectslike eradication of malaria and smallpox are to be gradually integrated withthe basic health services. It is intended to lower the TFYP target of onehealth center for every 50,000 persons and one health station for every5,000 persons by aiming at one center for each Awrajah (sub-province) andone station for each Woreda (district). Hospitals and health institutionsare to be increasingly involved in maternal and child health, basic healtheducation and environmental sanitation.

119. It has been realized that the high cost of formal institutionbuilding, inadequacy of recurrent funds, manpower shortages, and central-ization of authority make it difficult for widespread health facilities tobe provided in a short period. While gearing up the present structure offacilities to the new policy, the Government is searching for lower costsolutions to the urgent health problems. The upgrading and training of tra-ditional medicinemen, medicine vendors, and midwives, and their use in spread-ing elementary health facilities in the rural areas at nominal cost, is underconsideration. The use of the school system in health education is also beingconsidered. The Ministry of Education which has a health education unit forthe Teachers' training centers and the schools, is planning to strengthenthe work of the unit with foreign technical assistance. In the importantfields of maternal and child health, nutrition and environmental sanita-tion, nationwide programs with maximum utilization of medical, para-medical,auxiliary health staff, as well as teachers, auxiliary workers and agricul-tural may be worth exploring.

120. A major obstacle to health improvement is the scarcity of potablewater. Only some 3 percent of the country's population has access to whole-some drinking water. The problem is more acute in the rural areas, where thescattered population makes the task of organized water supply more difficultand expensive. Apart from improvements to health, there would be other socialas well as economic advantages from a water supply program. The long treksin search of water would be eliminated and the time and effort thus savedcould be used on more productive work. In the last few years, over 300 wellsand corresponding water supply facilities have been provided in the ruralareas, in addition to drinking water facilities in new schools and healthcenters and stations. It is proposed to seek assistance for a preinvestmentstudy in connection with provision of rural water supplies on a pilot projectbasis to cover about 4 million inhabitants, and external assistance has re-cently been obtained for the investigation and development of undergroundwater resources.

121. The pace at which the policy of greater emphasis on preventivemeasures is implemented may depend on what is decided about the future ofthe Duke of Harrar Hospital. The hospital has remained virtually unusedsince its completion almost three years ago. Another $6 million - $9 mil-lion are required for furniture and equipment before it can be brought fully

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into use; thereafter some $4.6 million, equal to 15 percent of the total re-current Health Ministry budget for 1972/73, will be needed to meet annuallyrecurring expenditures. Unless budgetary allocations for health are corres-pondingly increased, the preventive program would have to be curtailed. Thisparticular case underscroes the dilemma of developing badly needed healthservices in Ethiopia.

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IV. BASIC DEVELOPMENT ISSUES

i. Growth and Mobilization of Domestic Resources

122. Raising the growth of per capita income appreciably above the2.0 - 2.5 percent attained in the 1960s requires a much higher rate of invest-ment. This was foreseen when the investment levels to achieve both the 6 per-cent overall economic growth target of the original TFYP and the 5.3 - 5.7 per-cent target of the revised TFYP, were determined.

123. The shortfall of investment compared with the Plan target hasbeen due mainly to shortage of domestic resources. Volume IV gives detailsabout recent savings performance. Although the data available is incomplete,it is safe to conclude that the shortage occurred in both the public andprivate sectors. The questions that follow logically are whether there iscapacity for increased domestic savings and, if there is, how the additionalsavings may be mobilized.

124. Gross domestic monetary savings (GDMS) averaged 15.1 percent ofmonetary GDP at current factor cost from 1965 to 1969 and reached as high as17.1 percent in 1968. W4hile the effort is higher than the experience of someless developed countries roughly structurally similar to Ethiopia, it is belowthat achieved by others, such as Uganda and Cameroon. This suggests that animproved savings performance is feasible and should be an objective of devel-opment policy. The marginal savings ratio could be increased to achieve adomestic monetary savings ratio of 20 - 22 percent within a reasonable period.

125. The division between the public and private sectors of the task ofmobilizing increased savings depends on many factors, including the amountof the country's untapped taxable capacity, the Government's investment needsand policy on borrowing from the private sector, the NBE's policy on creditexpansion, and the pricing policies of Government owned public utilities andtransport companies. Recent studies conclude that Ethiopia's tax effort isamong the lowest and suggests unexploited taxable capacity. If increasesin recurrent expenditures continue to be satisfactorily controlled, higherbudget savings would depend on higher current revenues. Volume III shows thatthe agriculture sector is undertaxed and that with a more elastic tax struc-ture and improved tax administration, the sector could yield much higherrevenues. Another source of higher revenues might be a rationalization ofthe customs and other tax reliefs to provide at least the same investment in-centive at a lower cost in revenue foregone. For example, in 1970 there wasabout $16 million of exemptions from transaction tax on imports compared tototal transactions tax collected from importers of about $29 million; andsome $18 million of exemptions from customs duties compared with collectionsof $80 million. A third source is making both the direct and indirect taxsystems more elastic. Indirect taxes, in particular, have become increasinglyinelastic due to the lower tax burden of import substitutes compared withthe imports replaced, the shift in the composition of imports in favor ofgoods which attract lower rates of duties, and the growing number of exemp-tions already referred to. Finally, although there have been improvements

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in the administration of direct taxes with help from the IMF, there is scopefor further improvements which would increase revenues. Some preliminarywork is already being done in most of these fields - for example an IMFadviser is assisting with the revision of indirect taxes, and an interminis-terial working party is expected to consider the revision of direct taxes.

126. There may be potential for raising savings in the "other public"sector, but the extent depends largely on a number of factors which will needto be determined. For example, the feasibility of raising the tariffs ofpublic utilities and, in effect, using the tariff as a tax instrument, hangs onthe price elasticity of demand for utility services, which would determine thesocial cost, if any, of such a tax through possible lower usage of utilityservices, compared with the benefit of an easily administrable tax. Savingsof public utilities may possibly also be raised through improved efficiencyand consequential lower costs. The return on Government investment in com-mercial type enterprises is around 3 percent, due to poor management, under-utilized capacity and other factors. These undertakings now vest in AIDBank, which is undertaking studies to help determine how to improve efficiencyand profitability. Until the studies are completed it is not practicable to

determine the extent of the potential for increased savings.

127. The largest mobilizers of domestic savings in the private sectorare the commercial banks. Their savings and time deposits grew at 21 per-

cent a year from 1963 to 1971 and were $214 million on December 31, 1971.Despite this effort, there is substantial unsatisfied demand for short termfunds. An array of non-bank financial institutions, comprising the AID.Bank,ETHIC, Savings and Mortgage Corporation, ISHIOPA, insurance companies, AddisAbaba Share Market, pension funds, and cooperatives, also mobilize domestic

savings; however, their contribution is as yet too small to satisfy the demand

not only for short but also for medium and long term funds. Improved performancewill depend on a variety of monetary, fiscal, organizational, and operationalmeasures. For example, the real interest rates on deposits may be too low.In some years they have been negative or only half the nominal rates. Thereare no premium rates to compensate savers for leaving their deposits for overone year or for holding medium and long term instruments of banking institu-tions. Because of the high rate of reinsurance, some 60 percent of premiumincome is sent abroad. Steps are being taken to induce greater cooperationand risk sharing among insurance companies to reduce reinsurance. Moretrained staff and aggressive salesmanship may be required if insurance is toexpand. The cooperative movement is still very small and its savings negligible.The emphasis so far is on marketing and obtaining external finance rather thanmobilizing internal savings. It is clear that the expansion of the movementand its savings effort will depend on the number of trained and dedicatedcooperative extension staff, managers, secretaries, and treasurers. A PostOffice Savings Bank is planned for early 1974. Its success in mobilizingadditional savings, rather than in diverting savings from the commercial banks,largely depends on the number of branches that will be located in areas not

served by commercial banks.

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128. An even larger amount is mobilized and a larger number of personsserved by the Ekub 1/ and by money lenders. Although an efficient mobilizerof funds, far too much of the funds generated by the Ekub goes into consump-tion, rather than into the savings stream for investment. Ideally, therefore,ways should be found to harness the Ekub's mobilizing efficiency while at thesame time improving its allocative function. Two possibilities worth explor-ing are for commercial banks to service meetings of Ekubs, and for the cooper-ative extension service to make special efforts to transform Ekubs into coop-eratives. In the money lenders' market, interest rates typically range from47 - 200 percent, loans are for short periods of mainly a few months and mainlyfor consumption purposes. Although the interest rate contains substantialelements for risks and high costs of administering loans, there is every pro-bability that the pure interest rate is appreciably above the rates in thebanking system.

129. One approach to luring some of the funds into the banking systemmay be to raise interest rates. There is evidence that the rate of interestmay be below the opportunity cost of capital in Ethiopia and that the ratestructure is distorted. Since it appears that higher interest rates mayboth encourage higher savings in the private sector and improve their allo-cation, studies should be undertaken as early as possible to verify theseobservations with a view to adjusting interest rates appropriately in thenear future.

130. On the fiscal side, while interest received by natural persons isnot taxed, interest paid to legal persons, including pension funds, is taxed.Relaxation of this discrimination and fiscal incentives to plough back profitsshould be explored.

ii. Balance of Payments

131. Total foreign trade amounts to about a third of monetary and 18percent of total GDP. Yet even this degree of openness of the economy un-derstates the importance of external trade to economic growth. The experienceof the 1960s and the continued smallsize of the monetized domestic market sug-gest that high levels of economic activity and economic growth depend on highrates of export growth. Besides, Ethiopia imports most investment goods andmuch manufacturing materials, and, therefore, its growth potential is limitedby import capacity, which is determined principally by the ability to earnforeign exchange. Continual balance-of-payments deficits would also adverselyaffect the growth of savings and therefore of investment.

132. A sufficiently high rate of growth in net capital inflow would,of course, diminish the need to stimulate exports and control imports inorder to deal with the balance of payments implications associated with

1/ The Ekub is an association each of whose memebers saves a given amount,which is collected at agreed regular intervals and paid over as a lumpsum to each member in turn. The arrangement terminates when every memberhas received a lump sum payment, but it may be renewed.

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higher rates of GDP growth. In the early 1960s, net capital inflows in excessof the current account deficit enabled Ethiopia to accumulate external reserves.However, these international capital flows are largely outside Ethiopia'scontrol. The history of the past decade gives no reason for optimism regardingthe level and growth of net capital inflow. Even if capital inflows continueto increase, it is unlikely that they will be sufficient to remove the externalresource constraint. It is Ethiopia's ability to earn steadily growing levelsof foreign exchange that will solve its balance of payments problems, and thusthe growth of the Ethiopian economy is likely to be determined even more thanin the past, by the rate of growth of exports.

133. This statement is supported by the growth model elaborated in theTechnical Appendix. The model assumes that the growth of the Ethiopianeconomy is to a large extent determined by the availability of foreign ex-change. For example, a substantial share of manufacturing production,transport and most of investment depend upon import availability. The modelalso assumes that gross public capital inflow will rise from US$32.4 millionin 1970 to US$96.5 million in 1985. The balance of foreign exchange supplywill be what is earned by exports. Conservative and optimistic alternativeassumptions of export growth are based on forecasts through 1985 of productionand world market conditions in the absence of a major effort to increaseexports. It is assumed that there will be no potash exports, and that whiletourism is expected to continue its brisk growth, its relative contributionis unlikely to be significant. In the conservative alternative, exports atcurrent prices are expected to grow at 6.6 percent from 1972-1975 and 3.7percent from 1976-85. The corresponding growth rates at constant prices are4 percent and 3.3 percent, respectively. The average GDP growth rates, basedon these rates of growth of exports and assumed capital inflows, are 4.3 per-cent in 1972-75 and 2.7 percent in 1976-85, or average per-capita growth ratesof 1.8 percent and 0.2 percent, respectively. The latter figure implies astagnation or decline in per capita income. Even if more optimistic exportassumptions are used, corresponding to a continuation of the higher exportprices prevailing in early 1973, the growth rate of GDP would decline to 3.5percent per annum in 1976-85.

134. If this grave outcome is to be averted, the Government must designand implement policies to increase export growth. The model shows that anexport growth rate of 8 percent is required to achieve a growth of the economyof 6 percent a year. This export growth rate is double the rate projected for1972-75 and is some 2-1/2 times the projected rate for 1976-85. Clearly, majorpolicy and institutional measures will be required to bring about such a changein the growth of export earnings. Real export earnings from coffee are unlike-ly to exceed 2 percent growth a year, particularly after 1975, because of theslow growth of demand. Consequently, non-coffee exports will have to carrythe burden of markedly increasing the growth rate of exports. Indeed, therate of increase required of non-coffee exports is of the order of 12 percentper annum; this compares with a recent growth rate of 5 percent. While effortsmust be continued to increase coffee export earnings through quality improve-ment, the strategy for raising the rate of total export growth must focus ondiversifying exports. The Bank's Agricultural Sector Mission regarded the

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natural potential and international market conditions for achieving thisdiversification as much more favorable in respect of agricultural commodities,than for many other LDC's. Recent studies suggest that there are also pos-sibilities for significantly increasing exports of manufactures.

135. In Ethiopia's economy, increasing exports depends on providing theappropriate motivation to producers and marketing intermediaries. Experiencein other countries suggests that the pattern of agricultural output is veryresponsive to changes in the relative price of agricultural commodities.Furthermore, some preliminary work undertaken in Ethiopia concludes that thesupply of a number of agricultural export commodities has responded positivelyto changes in prices. Additionally, recent studies of manufacturing inEthiopia conclude that several industries have the capacity to export, butthat export prices are substantially below domestic prices. The mission has,therefore, concluded that if the foreign exchange constraint is to be confrontedin an effective manner, a necessary requirement is that policy measures betaken which affect relative prices in a way which discourages imports andencourages exports. Both import and export prices have been affected by twomajor events in the past six years. The closure of the Suez Canal raisedfreight charges and costs and adversely affected the domestic prices of bothimports and exports. More recently, the Government decided to maintain theparity of the Ethiopian dollar with gold, while the U.S.A., its largest exportcustomer, and some competitors and prospective competitors, such as Israel,Kenya and Argentina, devalued their currencies. The decision has changed therelative internal prices of imports and exports in the opposite direction tothat needed to discourage imports and encourage export production, and hasgiven Ethiopia's competitors a price advantage in the international market.

136. Appropriate policies to attain the objectives of increasing exportswill at some point include additional investment in direct production ofexports and in the infrastructure to facilitate or to remove bottlenecks tothis production. However, if comparative country experience is relevant, asignificant amount of export growth can be accommodated within the existingEthiopian infrastructure system.

137. Appropriate policies to achieve export growth and discourage im-ports range from direct to indirect measures, which can be combined in variouspackages depending upon the priorities sought. Obviously, there are severalother objectives involved in altering relative prices. There is legitimateconcern to minimize general price increases. The feasibility from the pointof view of fiscal burden,and administrative capacity must also be considered.

138. One alternative to altering relative prices is quantitative importcontrols. This theoretically permits discretionary determination of thetotal and the composition of the import bill. Obviously, this is dealingwith the symptom rather than the cause of the problem, as import demand wouldbe restricted behind a wall of controls. Experience in other countriesindicates this is a second best measure, as there are usually high economicand administrative costs associated with them, aside from inducements tocorrupt practices.

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139. Another alternative is to organize state marketing board monopoliesto direct production into exports. The crux would be to offer remunerativeproducer prices which, given relative prices in Ethiopia, are likely to re-sult in marketing board deficits and, in effect, subsidies requiring governmentbudgetary appropriations. It would be administratively and fiscally simplerto give direct export subsidies. Like export subsidies, marketing boardsoffer the opportunity to discriminate between products and price levels.Neither, however, would benefit export earnings associated with tourism.Finally, marketing boards would have to be organized from scratch, with allthis entails for a country hard pressed for staff.

140. A third alternative is direct export subsidies financed by auniform import surcharge. This offers discriminatory options in coverage andlevels of inducements, but does not benefit invisible earnings. The directand indirect effects of export growth are likely to increase revenues, therebymaking it unnecessary to impose import surcharges equivalent to the exportsubsidy cost. One problem with an import surcharge is that by raising effectivetariff levels, it would exacerbate the problem of appropriate incentives forindustrialization. (See the 1970 Bank Economic Report, where a lower andmore uniform tariff is recommended to establish more appropriate incentivesfor industrialization.) Moreover, a uniform import surcharge, if completelypassed on to consumers, would fully reflect the extent of the price increase.This need not be of undue concern, however, since imports are only a fractionof monetary GDP. For example, a 20 percent import surcharge, if completelyshifted to final consumers, would involve approximately a 4 percent overallprice increase.

141. A direct exchange rate change would be the most pervasive and uniformmeasure in its coverage and effects. Unlike export subsidies, it wouldbenefit invisible earnings, such as those from tourism. Another advantageis that the structure of existing tariffs offers the opportunity of bothachieving a more economically efficient allocation of imports through a moreuniform tariff and minimizing consumer price increases, if tariff adjustmentsare combined with an exchange rate change. Existing import tariffs average70 percent on consumer non-durables; 44 percent on consumer durables; 21 to41 percent on raw materials and semi-finished products; and 8 percent oncapital goods. Reducing the import tariffs on consumer imports and increasingthe import tariffs on capital goods and semi-finished products would resultin a more uniform tariff. This would contribute to more rational incentivesfor industrialization as recommended in the 1970 Bank economic report. Atthe same time, the reduction in import tariffs on consumer goods imports,when combined with an exchange rate change, would minimize the necessity toincrease consumer prices for these goods. This would be important forconsumer essentials or so-called "wage" goods. This would not only improvethe allocation of resources spent on imports and the use of capital relativeto labor, but preliminary quantitative work on its fiscal implications indicatethat it is also likely to result in increased government revenue.

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142. If increased revenue is sought along with an exchange rate changethis could be achieved in several ways. Revenue could be augmented byincreasing excise taxes on non-essential consumer imports when the importtariff on them is reduced for allocative benefits as described above. Thiscombination of exchange rate change, reduced tariffs on consumer importsand increased excise taxes on consumer non-essentials, means reducing thenecessity for increasing prices for essential consumer goods, permittingprices to rise on non-essential consumer goods while at the same time achiev-ing positive fiscal revenue results and more appropriate industrializationincentives. Revenue could be further augmented by considering taxation ofsome part of the windfall profits of existing coffee exports that would re-sult from an exchange rate change, at least up to the point where smugglingof coffee would become serious. Obviously, an exchange rate change is thesimplest measure in terms of administrative burden.

143. Whichever method is adopted, unless quantitatively significantsteps are taken towards changing the relative prices of using and earningforeign exchange, other policy and institutional changes, such as tenancyreform, will be fighting to overcome inadequate price and profit signals.Moreover, the probability that the full effects of relative price measureswill take some time to materialize suggests that the sooner the policiesare implemented, the better.

144. The issue of easing the balance of payments constraint is boundto confront the Ethiopian planners when they prepare the next plan scheduledto begin in 1974. It is relevant to mention in this context that the GDPgrowth outlook described above can be altered not only by an increase inexport growth, but by measures to affect the level and pattern of imports.This would involve changing the structure of demand and therefore the patternof investment and production related to demand, and thereby the pattern ofimports. For example, a relative shift of income to the lower income groups,largely rural, might shift demand toward goods that would have a lower importcontent. This shift might be emphasized if appropriate policies resulted inmore small scale production, using local materials, to meet the consumptionpattern of low income groups. One implication of such a strategy would be todirect more investment into peasant agriculture in rural areas, into smallscale industry and into employment creating activities, possibly housing, inurban areas. This assumes that significant import substitution by manufacturingintermediate and capital goods is unlikely to be economic in Ethiopia, becauseof the economies of scale of most such industries and the relatively small sizeof the Ethiopian market. However, if such industries could export a significantamount of their output, some of them might become viable and contribute togenuine import substitution. This again points to the priority of appropriateexport policies even when attempting import substitution.

145. In any event vigorous promotional efforts would be required toexpand old markets and open up new ones, particularly for non-coffee commodityexports and selected manufactures, such as textiles and shoes, for which thereappears to be some potential. Plans already in hand to develop tourism andinternal air transport would, if successfully implemented, give a welcomeboost to earnings from services.

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146. So far, Ethiopia has not joined the Special Drawing Rights (SDR)scheme of the International Monetary Fund. SDR's would be a costless supple-ment to the external reserves, and participation would therefore benefit thecountry, particularly during the gestation period of policies designed toimprove the current account balance, when the external reserves are likelyto come under growing pressures.

iii. Investment Promotion

147. The need for special measures to promote private investment hasbeen recognized and some steps taken to that end. The measures fall intothree broad categories, namely, relief from taxes and duties, tariff pro-tection, and assurances to foreign investors about remittance of foreignexchange and acquisition of land. Another, but perhaps not deliberateinstrument, is a subsidized interest rate in the banking system.

148. The core of the investment promotion policy is in the InvestmentProclamation of 1966, which succeeds the Investment Decree of 1963. Thesectors covered are agriculture, manufacturing, mining, transport, andtourism. Briefly, the proclamation provides that newly established enter-prises which invest at least $200,000 be exempt from income tax for fiveyears from the date of commencement of operations, and that an enterprisewhich invests at least $200,000 in an extension or expansion be exempt fromincome tax for three years from the date of commencement of operations.The Proclamation also provides for relief from import duty and other taxeson capital equipment, including materials for industrial buildings; relief fromexport duty and transaction tax on exports, repatriation of foreign capital;remittance of dividends and interest on foreign capital; the availability of for-eign exchange to purchase necessary spare parts and materials; and permission forforeign investors establishing industrial enterprises to acquire land requiredfor the enterprise. Tariff protection is granted on an ad-hoc basis, and thedifferential in the rates of transaction taxes of 12 percent on imports and5 percent on domestic products provides added protection. Fuel for agriculturaluse is exempt from payment of excise duties.

149. Three of the main objectives of economic policy are export diver-sification and growth, employment creation, and development of agriculture,including livestock. These objectives should be reflected in the investmentpromotion policies but, on the whole, the present policy package appears notto be so geared. Indiscriminate import duty relief on capital goods, theremission of excise taxes on fuel for agricultural machinery, and the avail-ability of fairly cheap capital tend not to accord with the objective ofemployment creation. Assuming that income tax relief is economically justi-fiable, the periods of relief seem to be short, given the long gestationperiod of livestock and tree crop farming - two activities that are likelyto contribute significantly to the development objectives. The investmentpromotion measures appear to be geared overwhelmingly towards import sub-stitution and only incidentally towards export development. The need todiversify and increase exports probably requires that more should be done

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along the lines suggested in paragraphs 135-142. The minimum qualifying in-vestment for income tax relief - $200,000 - may be beyond the reach of toomany potential Ethiopian entrepreneurs and should probably be lowered.

150. Although some efficient industrial operations are now producing forexport, tariff protection appears to have encouraged some high-cost indus-trial production, under-utilization of capacity, and low value added. Such asituation is not conducive to the level of industrial efficiency which isneeded to expand exports. The introduction of efficiency criteria intodecisions about tariff protection may lead to more efficient industrializa-tion and, therefore, a higher probability of expanding exports of manufactures.Also, protective tariffs can hurt producers by raising internal prices inEthiopia. The rise in prices among protected industries reduces the poten-tial for exports by drawing labor and capital into import substitution ratherthan export activities, and commodities which might otherwise be exportedget used as inputs in import-substituting industries. Finally, the subsi-dized interest rate, which is discussed in detail in Annex IV, probablyencourages inefficient industries and leads to uneconomic allocation ofscarce capital resources.

151. Efforts were started some three years ago to revise the InvestmentProclamation. These efforts are continuing. Work which may eventuallyresult in appropriate revision of tariff protection and export promotion hasbegun; also, a study of the policy of import duty relief on fuel for agri-cultural machinery has been initiated. Although these steps are in a desir-able direction, revision of the Investment Proclamation and of tariff protec-tion appear to be regarded as separate and unconnected, either with each otheror with the revision of the structure of indirect taxation. This approachcould reap less than optimum results for both revenue and investment promo-tion. The various tax reliefs and the protective tariff are part of thefiscal system, are directly related particularly to indirect taxes, and greatereconomic benefit is likely if the work of revising the indirect tax struc-ture and the investment incentives are closely coordinated.

152. The procedures to obtain fiscal incentives and to establish pro-ductive industries in Ethiopia tend to be cumbersome, inefficient, and apossible deterrent to investment. Far too many agencies have to be nego-tiated with, practices tend to be at odds between agencies, and in someagencies, investment promotion is subordinated to the task of regulation.For example, although there is a drawback system in connection with importsof raw materials to be processed for export, it is unsatisfactorily ad-ministered and probably discourages some development of processing ofimported raw materials for export. Unless these arrangements are stream-lined - preferably by having one agency responsible for actively promotinginvestment and processing all requests expeditiously - the benefits of suit-ably revised investment promotion measures may not be fully reaped. TheMinistry of Commerce, Industry and Tourism is studying a proposal to estab-lish an Export Promotion and Investment Center which is expected to servethese purposes.

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iv. Absorptive Capacity

153. There are indications that Ethiopia's absorptive capacity isprobably beinc stretched by the present investment program. For example,it is apparent that the Ministry of Agriculture has difficulty in disburs-ing appropriations, there are delays in the Ministry of Wsorks which hasresponsibility for most government construction and building works, there aredelays in project implementation due to inadequate interministerial coordina-tion and possibly other causes, and many projects, particularly in agriculture,are staffed at senior level by expatriates who are not being replaced byEthiopians as quickly as scheduled. Ihile these are only a few limited exam-ples, the impression is that they are probably representative of a more widelyspread situation.

154. It may, therefore, be of benefit to Ethiopia to accord high priorityto a study of its absorptive capacity. The concept of absorptive capacityis intricate, involved and wide ranting. The proposed studv would determinethe precise nature of the ad,ninistrative, legislative, legal, technical,m.anagerial, supervisory, and other barriers to the more rapid and efficientidentification, preparation, execution and operation of projects both inthe public and private sectors of the economy.

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V. FUTURE PROSPECTS

i. The Short Term

155. The sluggishness of the economy which has been evident since aboutthe second quarter of 1970 is likely to persist through to the end of the TFYPand probably beyond, with consequent stagnation if not decline in the rate ofeconomic growth compared with the 1960s. This outlook is based on the expectedperformance of export earnings and investment which are the two main deter-minants of the growth of the Ethiopian economy.

156. As a result of the "Geneva accord" of certain major coffee exportersand frost damage to coffee in Brazil, the average price of Ethiopian coffeein 1972 is estimated at US$0.46 per pound or Eth$1,014 per ton. Althoughthis is 18 percent higher than the 1971 price, coffee export earnings in 1972are likely to remain at the previous year's level of Eth$175 million due to afall in export volume. If both prices and volume on conservative assumptionsrise as expected in 1973 and 1974, export earnings would increase by 23 percentand 6 percent respectivelv. The increase in non-coffee exports which startedin 1970 is not expected to be sustained, and non-coffee export earnings areestimated to grow at 2.3 percent a year from 1971 to 1974. Total exportearnings at current prices are therefore likely to increase at 2.6 percent in1972, 13.8 percent in 1973, and 4.4 percent in 1974, or an average of 6.8 per-cent over the period. This is less than the 11.6 percent average annual growthrate achieved between 1961 and 1965 when monetary CDP grew at 7.5 percent, andthe 8 percent annual rate of growth of export earnings from 1967 to 1971, al-though the latter started from a somewhat depressed base.

157. Information on the prospects for investment during the remainder ofthe extended TFYP is incomplete. However, there are indications that thetrend of slow growth which characterized the earlier plan years is likely tocontinue, and that total investment during the three final years of the planwill be appreciably below the revised targets of the TFYP.

158. Unless special measures are taken to raise central government rev-enues much more rapidly than in the recent past, the amount of the annualcurrent budget savings is unlikely to be much larger than in 1970/71, andeven the projected capital expenditure may not be realized, unless it is de-cided to increase domestic borrowing or draw do'm cash balances. In turn,this means that central government capital expenditure is likely to be muchlower than was envisaged in the revised TFYP, as the following table shows:

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CENTRAL GOVERNMENT CAPITAL EXPENDITURE AND ITS FINANCING

1971/72 1972/73 1973/74 TOTALTFYP Actual TFYP Budgeted TFYP Projected /1 TFYP Expected

Central Government $m $m $m $m $m $m $m $mCapital Expenditure 171 126 204 150 246 180 621 454

Current BudgetSavings 73 55 96 65 120 70 289 195

Less: Foreign LoanRepayment 22 18 23 22 23 22 68 65

51 37 73 43 97 48 221 130Gross Foreign Grants

and Borrowing 102 63 119 85 139 101 360 257

Other DomesticSources 18 26 12 22 10 31 40 67

/1 Bank projections.

159. Investment in the "other" public sector is expected to increaseslightly from about $84 million in 1970/71 to about $86 million in 1971/72, andthen to decline significantly to a projected $72 million in 1972/73. The out-look for 1973/74 is expected to improve but not to exceed the 1971/72 figure.

160. Data on private investment is so sparse that no meaningful assess-ment of its future performance is practicable. AIDB envisages steadilyrising financing during the rest of the TFYP, but the total investment in-volved is only a small part of total private investment. The possible effectson private investment of the uncertainties arising from the pending revisionof the Investment Code - the Government's main investment incentive policyinstrument, is not known.

ii. The Longer Term

161. For the period beyond the TFYP, if special measures - some of whichwere discussed earlier - are not taken to increase non-coffee exports andmarkedly raise the export growth rate, the future path of the economy islikely to be as indicated in the following table. Both the savings and invest-ment ratios might fall, the dependence of investment on capital inflows mightrise, and the rate of growth of the overall economy is likely to decline by1985 to about, or slightly below, the population growth rate, thus making anegative per capita growth rate quite probable. The table reflects conservativeassumptions regarding exports. Even if more optimistic assumptions regardingexport prices, corresponding to the higher prices prevailing in early 1973, areused, the GDP growth rate will decline to 3.5 percent in 1976-85, not much dif-ferent from the 2.5 percent rate resulting when conservative export priceassumptions are used.

- 49 -

IMPORT, EXPORT AND GDP PROJECTIONS to 1985(Amounts in Eth$ million)

Imports and Exports Actuals Projections1965 1969 1970 1971 1972 1973 1974 1975 1980 1985

Exports of Coods andNon-factor services 390 443 470 488 502 558 588 609 714 864

Coffee 188 174 181 175 175 215 228 233 237 262

Other M1erchandise 102 124 125 139 143 147 150 155 172 193

Imports of Goods andNon-factor services 456 473 549 584 581 635 663 727 847 997

Resource Gap 66 30 79 96 78 77 76 118 133 133

Annual Average PercentReal GDP Growth Actual Estimated Projections

1961/65 1965/69 1970 1971 1972 1973 1974 1975 1980 1985

Monetary GDP 8.1 6.9 6.6 5.7 5.8 6.0 5.8 5.8 3.5 2.2

Total GDP 5.0 4.6 4.5 4.0 4.1 4.3 4.2 4.3 2.9 2.0

Savings Ratio 11.5 12.1 11.9 11.4 7.4 5.1

Investment Ratio 13.0 13.6 13.3 13.4 9.1 6.5

Public Capital Inflow aspercentage of Investment 17 - - - - 47

Source: Technical Statistical Appendices.

162. The assumptions and properties of the table are elaborated in theTechnical Appendix, which also suggests that the desired overall economic growthrate of 6 percent is unlikely to be achieved unless exports grow at a minimumof 8 percent per year in real terms. Since coffee exports are expected toincrease at 2 percent a year, non-coffee exports would have to grow at about12 percent a year if an overall export growth rate of 8 percent is to be achieved.

163. Efforts to improve the savings ratio in order to increase invest-ment without raising exports, would result in the availability of goods whichcannot be exported and are not substitutes for imports. This initial surplusof goods would tend to drive down prices of consumer goods, increase consump-tion and decrease savings. While the balance of payments constraint could berelieved by increased foreign aid, the prospects for larger increases thanare assumed are probably doubtful judged bv the already likely high percentageof investment which is expected to be financed by capital inflows by 1985.

- 50 -

164. It appears, therefore, that while every effort should be made to re-lieve the various constraints on development, such as the shortage of domesticresources, the really binding constraint is likely to be the adverse effectof slow export growth on the balance of payments. This indicates that markedlyhigher growth may be likely only if export diversification and growth areaccorded very high priority.

iii. Creditworthiness

165. At the end of 1971, total external public debt outstanding wasUS$310.3 million, including US$105.4 million in undisbursed commitments, butexcluding US$219.4 million committed under frame agreements with Russia,China and Italy but as yet unallocated to projects. Total amortization andinterest payments in 1971 amounted to US$20.2 million, or about 10.6 percentof the year's total foreign exchange earnings from exports of goods andservices.

166. The low debt service ratio suggests that Ethiopia would be ableto service additional external debt. However, because of its poverty, (theUNDP recently designated Ethiopia one of the least developed among the devel-oping countries), the unfavorable otutlook for the balance of payments, and thelow annual per capita net public capital inflowi (US$1.57 in 1970), Ethiopiawill require increasing amounts of foreign capital on the most concessionaryterms possible.

iv. External Financina of Local Expenditures

167. The public investment program for the next few years is not availa-ble in sufficient detail to be divided into local and foreign exchange costcomponents. It is known, however, that the program is moving away fromforeign cost intensive projects, such as trunk roads with local cost componentsof around 30 percent, to peasant agriculture, education and rural roads, whichare likely to have local cost components of 55 percent to 60 percent. Somepart of the investment program will not attract foreign assistance and will,therefore, require 100 percent domestic financing. This means that thedomestic sources available to finance the total program, estimated at 44 to48 percent of the program, will in fact be available to finance a loweraverage amount of project costs eligible for foreign financing. It followsthat external funds would be required to finance 65 to 75 percent of projectcosts, or about 21 to 27 percent of local costs on average, in addition tothe foreign exchange costs. If the requirements of economic stability orother factors suggest lower levels of domestic borrowing, or if the revenuegrowth rate is not achieved, then foreign sources would be needed to financean even higher proportion of total public investment.

- 51 -

VI. TECHNICAL APPENDIX

Growth Model

168. This exercise attempts to project the trends in the Ethiopian economyover the next 14 years, with the aid of a simple trade gap model. While itwould be desirable to construct a more disaggregated model, the current database is insufficient for such purposes. The model is an availability model,i.e., given the available resources of export earnings and gross capital in-flows, it computes the most feasible path of growth of the economy. However,it can easily be converted into a requirement type model, i.e., assuming agrowth rate for the economy, it can compute the required resources to achievea given growth rate.

169. The essential assumption of this model is that growth in Ethiopiais constrained by the availability of foreign exchange. The supply of foreignexchange is determined by the level of exports and capital inflows. Importsare disaggregated into capital goods, intermediate goods and consumer goods,and depend upon the level of investment, GDP and consumption, respectively.Since investment and consumption are themselves related to GDP, the level ofimport demand depends largely on the level of GDP. The model is constructedso as to hunt for the growth rate of GDP that will bring import demand andforeign exchange supply into line.

170. Since the level of capital inflows determines the size of the re-source gap, and the model determines the level of investment, the requiredsavings rate is a residual. With the given level of investment, consumption,imports and exports, the model calculates the level of savings necessary tobring aggregate supply of goods and services in line with aggregate demand.It is assumed that domestic production is an imperfect substitute for foreigngoods. A reduction in consumption, brought about by increased savings, resultsin the availability of goods which cannot be exported and are not substitutesfor imports. This initial surplus of goods will tend to drive down the pricesof consumer goods, increasing consumption and decreasing saving. This adjust-ment procedure is assumed to occur every year so that ex post there is equalitybetween the investment savings gap and the export-import gap with no accumula-tion of excess stocks (unplanned investment).

The Model

171. The economy is composed of two distinct parts, the monetized partand the non-monetized part. Both parts have been treated separately.

- 52 -

Non-Monetized Economy

173. It is assumed that the non-monetized economy does not participatein external trade, nor does it require any foreign resources for its invest-ment program. Gross domestic product is projected to grow at an exogenouslygiven growth rate. This growth rate is based on the historical rate andexpectations about future growth. Thus:

NMYt = NMYt-,* (1 + g)

where g is the growth rate and assumed to be 1.7% per annum in real terms.

Savings are assumed to be a fixed proportion,o< (=5.8%) of GDP.

NMS = 0.058 * NMY.t t

Investment is equated to this saving and consumption is calculatedas a residual. Thus,

NMIt = NMS

NMC = NMY - NM tSt t t

Monetized Economy

174. Since it is an availability model, exports and gross capital inflowsare given exogenously. From the balance of payments we can calculate thegross inflows required as follows:

GPUB = RG + II + INT - PTR - GR - DFI + AIMT + A RES

where RG is the resource gap (Mg + NFS - Xg + NFS), II is the investmentincome, PTR is private transfers, GR is grants, DFI is direct foreign invest-ment, AMT is the amortization on public debt, INT is the interest on publicdebt andARES is the increase in reserves. INT and AMIT are computed by astandard debt routine built into the model, II, PTR, GR and DFI are assumedto be given. It is also assumed that the present level of reserves will bemaintained into the future. GPUB is composed of the disbursements of commit-ments by IBRD, IDA, USA and SC. From this equation RG will be

RG = GPUB - II - INT + PTR + GR + DFI - AMT

175. By definition imports of goods and NFS is the sum of exports ofgoods and NFS and resource gap. Exports have been divided into coffee,other merchandise and NFS.

Xcoffee = XcoffeeXother XotherXNFS = XNFS * (1 + n)

t t-1where n is the growth rate.

X = Xcoffee + Xother +XNFS.

Thus, total imports will be equal to

M = X + RG

176. M stands for total foreign exchange available for imports. On thedemand side, imports (Ml) are divided into consumer goods, intermediate goods,capital goods and non-factor services. In the absence of a time series forthese end use imports, each category has been related to the assumed mostlikely national income component with the aid of simple averages over thepast few years. Thus, consumer imports are assumed to be 4% of total consumption, intermediate imports form 5% of GDP and capital imports constitute 40%of gross fixed investment. Non-factor services have been projected at thehistorical rate.

M CON =_ 0.04 * C

M INTER = °°S GDP

M CAP = 0.40 *GFI

MNFS MNFSt-1

Thus, on the demand side total imports (Ml) is the sum of all these fourcategories.

Ml=MCON + INTER + CAP ' MFS_

177. Thus, there are two estimates of imports, one on the supply side andone on the demand side. However, imports on the demand side cannot exceedthe imports on the supply side. Their equality is brought about by an iter-ative procedure which adjusts GDP until import demand and supply are equal.

178. In the past the ICOR has fluctuated between 0.6 and 22.2. ICOR has

been related to-growth of GDP, increase in GDP and their reciprocals. 1l/Though the results are statistically significant a low rate of growth o~f GDPwill yield a very high ICOR which will be unrealistic in the present context,since it is essentially the resources available for imports that determine GDPand not investment.

GFI = ICOR *AGDPSTK - STK

GDI = GFI +A STK

179. As a first iteration GDP growth is given an initial value (it canbe any positive number), and the first estimate of Ml arrived at. The iter-ative procedure works as follows:

1/ I9OR = 0.2 - 149.4 (/ Y) + 26.282 (1/Yg)

R = 0.99 t 1= -5.9 t 2 = 15.1 D.W. = 1.9

- 54 -

IF M1> M Y Y * 0.99g g

IF M1ZM Y = IY * 1.01g g

180. The first equation states that if the demand for imports is greaterthan the supply, the growth rate of GDP is lowered from the rate prevailingin the last iteration. If the demand for imports is less than supply, theGDP growth rate is increased from the one prevailing in the last iteration.The iterative procedure is carried on till M and Ml are equated (within arange of + or - 2%) and that GDP growth rate is selected wlhich prevails atthat equality. This procedure is carried on for each year. Once the GDPgrowth rate is computed investment is determined from the ICOR. Savings andconsumption are calculated as follows:

GDS = GDI - RG

C = GDP - GDS

Terms of Trade

181. In the base run exports in current prices are assumed to grow at6.6 percent per annum between 1972-75 and 3.7 percent per annum between1976-85. The same are converted into constant 1971 prices with the aid ofthe weighted export price index. For imports a 2 percent per annum inflationrate is used. The terms of trade effect is then calculated and exports adjustedfor the gains/loss from trade.

T/T = I- 1) * X(MPI c

XADJ = X + T/T

M = XADJ + RG

182. In the base run exports in real terms grow at 4.0 percent per annumbetween 1972-75 and at onlv 3.3 percent per annum between 1976-85. Grosspublic inflows in current prices increase at 10.4 percent per annum between1972-75 and then decline to 4 percent per annum in the later period. Sinceresource gap is calculated from gross public borrowings and other balanceof payments items, it also grows at a very slow rate (1.3 percent) in thesecond period compared to the earlier period (12.2_percent). All this results inthe available resources (It) growing at 7.4 percent between 1972-75 and atonly 3.4 percent between 1976-85. Since GDP is determined by availableresources, the growth in the second period (3.2 percent) is considerablylower than achieved in the first period (5.8 percent). The following tablesummarizes the results of the base run.

- 55 -

Table 1: BASE RUN

1972-75 1976-85

X growth rate (current prices) 6.6 3.7(constant prices) 4.0 3.3

M growth rate (current prices) 7.4 3.4(constant prices) 5.3 1.3

GPUB growth rate (current prices) 10.4 4.0Monetary GDP growth rate 5.8 3.2Total GDP growth rate 4.3 2.7

I/Y monetary (%) 17.9 10.3Total (%) 13.3 8.8S/Y monetary (%) 15.3 7.9Total (%) 11.7 6.3RG/Y (x) 1.6 1.6TT/Y (%) 0.7 -0.3

Thus, when GDP growth declines, investment declines which causes the savingsto decline.

183. To have reasonable growth of GDP in the second period, the resourcesavailable in the form of imports will have to increase. Imports can increaseeither by greater export efforts or increasing capital inflows. Since theassumptions about gross disbursements from various agencies are rigid andstay the same for all the runs, increase in the resources available for importsand therefore in the rate of growth of the economy can be brought about onlyby an increase in exports. In addition to the base run which represents theexpected trend, two other runs have been tried, one with high exports (exportvalue assumed to be 15 percent higher than used in the model) and the otherwith low exports (export value assumed to be 15 percent lower than used in themodel). The results are summarized in Table 2.

184. Increase in GDP can also be brought about by lowering the demandfor imports. This means some degree of import substitution especially inthe 1976-85 period. It has not been incorporated in any of the three alterna-tives.

- 56 -

Table 2

1972-75 1976-85Low High Low High

X growth rate (current prices) 4.3 9.6 3.6 5.0(constant prices) 3.7 5.4 3.1 4.9

M growth rate (current prices) 5.6 10.0 3.2 4.5(constant prices) 3.5 7.8 1.2 2.5

GPUB growth rate (current prices) 10.4 10.4 4.0 4.0Monetary GDP growth rate 5.1 6.9 2.8 4.3Total GDP growth rate 3.8 5.0 2.4 3.5

I/Y monetary (%) 16.2 20.6 9.1 13.6Total (%) 12.2 15.0 7.9 11.2

S/Y monetary (%) 13.6 18.0 6.5 11.4Total (%) 10.6 13.4 6.2 9.7

RG/Y (%) 1.6 1.6 1.7 1.5TT/Y (%) 0.2 1.2 -0.8 -

The specific assumptions concerning gross and net public capitalinflows, net transfers and the resource gap are shown in chart 1 attached tothis appendix.

The assumptions regarding export projections are described below.

Ethiopia $ million (unless otherwise indicated)

1973 1974 1975 1976 1977 1978 1979 1980 1985

1. Coffee

(a) Quantity (000 ton) 85 86.7 88.4 90.2 92 93.8 95.7 97.6 107.8

(b) Median projectionunit price (U.S.J/lb. f.o.b.) 50 52 52 50 49.5 49 48.5 48 48

(c) High projectionunit price (U.S.O/lb. f.o.b.) 57.5 59.8 59.8 57.5 56.9 56.4 55.8 55.2 55.2

2. Non-Coffee

(a) Median projectionexport value 147 150 154 157 161 165 169 172 193

(b) High projectionexport value 161 173 185 198 213 228 244 262 370

SB___ O _ __

3DEnOS38 @ - - @ _- _ .O Xh I

C

.L\3N

O153CINd *dV*3

Srmoid )Vl<ad v 3N ANW' 5SO!

- 58 -

VII. STATISTICAL APPENDIX

List of Tables

Table No.

1 Gross Domestic Product by Industrial Origin atCurrent Factor Cost, 1961-69

2 Gross Domestic Product by Industrial Origin at1961 Factor Cost, 1961-69

3 Ethiopia: Expenditure on GNP at Current MarketPrices, 1961-1969

4 Savings and Investments, 1961-1969

5 Implicit GDP Deflators, 1961-1969

6 Central Government Current Revenues, 1963/4 - 1973/4

7 Central Government Current Revenues PercentageAnnual Increases, 1963/64 - 1972/73

8 Central Government Current Revenues -Composition 1963/64 - 1972/73

9 Central Government Current Expenditures, 1963/64 - 1973/74

10 Central Government Current Expenditures:Percentage Annual Changes, 1963/64 - 1972/73

11 Central Government Current Expenditures:Composition, 1963/64 - 1972/73

12 Central Government Capital Expendittires, 1963/64 - 1973/74

13 Central Government: Composition of CapitalExpenditures, 1963/64 - 1973/74

14 Annual Changes of Central Government CurrentExpenditures, Current Revenues andTax Revenues,Net Savings and Capital Expenditures, 1963/64 - 1973/74

15 Central Government Current Budget Savings, CapitalExpenditures Cash Deficit and its Financing, 1963/64 - 1973/74

16 Central Government Sources of Finance for CapitalExpenditures, 1963/64 - 1973/74

- 59 -

17 Monetary Survey, 1963 - March 31, 1972

18 Monetary Survey - Percentage Growth Rates, 1963-1971

19 Commercial Banks: Breakdown of Loans, Advances

and Bills Discounted for the Private Sector, Dec. 31, 1965 - March 31, 1972

20 Commercial Banks: Reserves, Liquidity Ratio,Turnover of Deposits and Ratio of Loans to

Deposits, 100;4-1071

21 Branches of Commercial Banks in Ethiopia 1905-1971

22 Interest Rates, 1-'-1al7t

23 Balance of Payments, 1960-1971

24 Export Values,1961-1971

25 Exports Quantities, 1963-1971

26 Monthly Coffee Exports, 1969 - 1971

27 Unit F.O.B. Prices of Ethiopia's Exports, 1963-1971

28 Commodity Import Volumes, 1965-1970

29 Commodity Import Values, 1965-1970

30 Summary of Disbursements on ForeiRn Loans Receivedby Public Sector, 1902?-!h6

31 Bilateral and Multilateral Technical Assistance, 1963/64 - 1968/69

32 Persons Employed and Salaries Paid by CentralGovernment and Autonomous Authorities in Addis Ababa

in April 1969

33 External Public Debt Outstanding as of December 31, 1971

34 Retail Price Index in Addis Ababa, 1966 - May 1972

Table 1 GROSS DDMESTIC PRODUCT BY INDUSTRIAL ORIGIN AT CURRENT FACTOR COST, 1961-69(Million Ethiopian dollars)

1961 1962 1963 1964 1965 1966 1967 1968 1969

I. Agriculture 1,434 .4 1,439.1 1,470.2 1,641.5 1,871.6 1,929.0 1,811.2 1,900.0 2,011.8Forestry 65.9 67.4 74.9 76.9 77.7 79.5 85.7 88.9 92.7hunting 1.3 1.5 2.1 1.0 1.3 1.6 1.5 1.3 1.2Fishing 2.9 2. 4 3.1 3.6 3.3 4.5 4.2 3.0 3.0Construction of Tukuls Zl 76.0 77.2 78.5 79.9 81.3 82.8 84.3 85.8 87.4

Sub-Total 1,580.5 1,587.6 1,628.8 1,802.9 2,035.2 2,097.4 1,986.9 2,079.0 2,196.1

II. Mining and Quarryirg 3.3 3.7 4.2 5.4 9.4 11.6 12.1 11.2 9.1Manufacturing 43.9 55.6 61.2 76.1 94.5 108.2 149.4 176.6 211.5Handicrafts and smal industries 98.4 10o.4 103.5 118.1 126.6 136.8 148.7 157.3 177.2Buildlng and Construction £2 54.8 67.3 70.1 76.6 84.5 104.4 133.3 122.7 126.9Elertricity anid Water 10.2 10.4 11.5 13.6 14.2 14.9 17.9 20.5 21.7

Sub-Total 210.6 238.4 250.5 289.8 329.2 375.9 4 61.4 488.3 546.4

III. Wholesale andRetail Trade 139.7 150.4 162.9 204.4 236.0 256.1 246.2 286.0 319.8Banking, Insurance and Real Estate 20.2 22.4 25.2 28.0 33.8 39.0 40.0 43.7 49.5Transport and Comunication 70.7 76.4 84.3 99.8 116.4 124.1 125.7 139.8 142.8

Sub-Total 230.6 249.4 272.4 332.2 386.2 419.2 411.9 469.5 512.1

IV. Public Administration and Defence 88.9 110.1 114.2 124.7 155.8 165.8 178.8 191.2 203.9Education 20.5 22.1 25.0 40.0 45.5 53.2 60.4 64.7 70.0Health and Medical 13.8 14.6 16.5 18.8 20.7 21.9 23.3 24.5 24.8

Sub-Total 123.2 146.8 155.7 183.5 222.0 240.9 262.5 280.4 298.7

V. Ownership and Dwellings 99.9 103.1 106.5 110.1 113.9 123.5 131.5 138.6 147.4Damestic Services 51.2 51.2 52.3 53.0 54.2 55.2 56.6 57.6 58.6Other Services 27.3 30.1 33.1 40.0 48.0 57.6 64.5 80.9 90.6

Sub-Total 178.4 184.4 191.9 203.1 216.1 236.3 252.6 277.1 296.6

VI. Grces Daestic Product 2,323.3 2,406.9 2,500.3 2,811 .5 3,188.0 3,369.7 3,375.3 3,594.3 3,849.9£3

VTT. Non-Monetary Agricultlre 1,124.0 1,130.6 1,141.1 1,262.4 1,413.0 1,467.3 1,403.7 1,468.3 1,554.2Construction of Tukuls 76.0 77.2 78.2 80.2 81.2 82.3 81.6 84.8 88.3Imputed Rent 64.6 65.5 66.2 67.9 68.8 69.7 69.1 71.9 74.4

Non-Monetary GDP 1,264.6 1,273.3 1,285.5 1,410.5 1,563.0 1,619.3 1,554.4 1,625.0 1,716.9

VIII. Monetary GDP 1,058.7 1,133.6 1,214.8 1,401.0 1,625.0 1,750.4 1,820.9 1,969.3 2,133.0

Li Tukuls are round-shaped thatched cottages built by farmers; construction of these isconsidered agricultural activity for national accounting.

2 Excluding construction of Tukuls3 Due apparently to an arithmetic error, Statistical Abstract 1970 shows a figure of Eth$3,606.0 million for 1968

and Eth$3,860.7 million for 1969.

Source: Statistical Abstract, 1970

Table 2: GROSS DOMESTIC FRODUCT BY INDUSTRIAL ORIGIN AT 1961 FACTOR COST, 1961-1969

(Eth.$ million)

1961 1962 1963 1964 1965 1966 1967 1968 1969

I. Agriculture 1434.4 1459.3 1492.6 1527.4 1588.0 1598.8 1647.8 1661.0 1694.5Forestry 65.- 67.4 74.9 76-9 77.7 79.5 85.7 88.9 92.7Hunting 1.3 1.5 2.1 1.0 1.3 1.6 1.5 1-3 1.2Fishing 2.9 2.4 3.1 3.6 3.3 4-5 4.2 3.0 3.0Construction of Tukuls/ 76.0 77.2 78.5 79.9 81.3 82.8 84.3 85.8 87.4

Sub-total 1580.5 1607.8 1651.2 1688.8 1751.6 1767.2 1823.5 1840.0 1878.8

II. ILining and quarrying 3-3 3.6 4.0 4.7 7.6 9.1 8.9 8.3 6.6Manufacturing 43.9 50.7 56.3 68.3 79.6 92.6 116.1 127-4 153.8Handicrafts and Small Sca]e Industry 98.4 101.4 103.6 118.1 126.6 136.7 149.4 176.6 177.7Building and ConstructionL 54.8 67-3 70.1 76.6 84-5 104.4 133-3 122.7 126.9Electricity and Water 10.2 12.5 14.7 17-7 21.2 23-7 27.6 33.7 35.8

Sub-total 210.6 235.5 248.7 285.4 319.5 366-5 435.3 468.7 500.8

III. Wholesale and Retail Trade 139.7 153.5 164.5 185.8 204.5 226.6 228.0 256.5 285.5Banking, Insurance and Real Estate 20.2 22.0 23.8 24.1 27.4 30-7 29-5 32.2 36.0Transport and Communication 70.7 78.0 84.4 97.3 110.2 121.4 130.1 138.9 142.1

Sub-total 230.6 253-5 272.7 307.2 342.1 378-7 387.6 427.6 463.6

IV. Public Administration and Defence 88.9 109.0 111.0 116.1 141.0 148.2 155.3 166.0 176.0Education 20.5 22.5 25.7 28.5 31.8 36.o 44.6 49.1 56.6Eealth and M1edical 13.8 14.7 17.0 18.7 20.8 21.4 23.5 25.0 22.4

Sub-total 123.2 146.2 153.7 163.3 193.6 205.6 223.4 240.1 255.0

V. Ownership of Dwellings 99.9 103.1 106.5 110.1 113.9 123.5 131-5 138.6 147.4Domestic Services 51.2 51.7 52.3 53.0 54.2 55.2 56.6 57.6 58.6Other Services 27.3 29.5 31.2 34.5 38.9 45.4 47.6 59.6 65.8

Sub-total 178.4 184.3 190.0 197.6 207.0 224.1 235.7 255.8 271.8

VI. Gross Domestic Product 2323.3 2427.3 2516.4 2642.3 2822.1 2942.2 3105.5 3232.2 3370.0

VII. Non-Monetary Agriculture 1124.0 1142.0 1166.0 1187.2 1225.5 1235.1 1263.1 1293.4 1319-7Construction of Tukuls 76.0 77.2 78.5 79.9 81.3 82.8 84.3 85.8 87.4Imputed Rent 64.6 65-5 67.0 68.4 72.2 71.9 73.2 75.2 77.2

Non-Monetary GDP 1264.6 1284.7 1311.6 1335.5 1379-0 1389.9 1420.6 1454.4 1484.3

VIII. Monetary GDP 1058.7 1172.6 1204.9 1306.8 1443.1 1552.4 1684.9 1777.8 1885.7

LA Tukuls are round-shaped thatched cottages built by farmers; construction of these is considered agricultural activity for national accounting.

/2 Excluding construction of Tukuls.

/8 Due to an arithmetic error, Statistical Abstract 1970 shows a figure of Eth$3369.5 million

/4 Mission estimates

Source: Central Statistical Office.

TABLE 3 rTHOPIA: EXPENDITURE ON GNP AT CURRENT MARKET PRICES, 1961-1969(Eth$ million)

1961 1962 1963 1964 1965 1966 1967 1968 1969

1. Private Consumption 1,983 2,074 2,111 2,370 2,709 2,853 2,777 2,947 3,195

2. Govt. Consumption 167 199 256 283 336 376 384 403 411

3. Gross Domestic FixedCapital Formation 284 308 312 353 400 448 511 554 500

4. Increase in Stocks 11 9 9 10 11 11 11 11 11

5. Sub-total (1-4) 2,466 2,589 2,688 3,016 3,456 3,688 3,683 3,915 4,117

6. Exports of Goodsand Services 238 272 290 346 390 398 377 427 443

7. Imports of Goodsand Services 269 328 341 375 456 497 455 512 473

/2 /28. GDP 2,434 2,535 2,637 2,987 3,390 3,589 3,605 3,830 4,087

9. Net Factor Income -18 -10 -14 -15 -10 -13 -17 -23 -20

10. GNP 2,416 2,525 2,623 2,972 3,380 3,576 3,588 3,807 4,o67

Source: Ethiopia Statistical Abstract

Table 4: SAVINGS AND INVESTMENTS, 1961 -1969(Eth$ millions)

1961 1962 1963 1964 1965 1966 1967 1968 1969

1. Gross Domestic Product (GDP) at current factor cost 2,323 2,407 2,500 2,811 3,188 3,370 3,375 3,594 3,8502. Non-Monetary GDP at current factor cost 1,265 1,273 1,286 1,411 1,563 1,619 1,554 1,625 1,7173. Monetary GDP at current factor cost 1,058 1,134 1,215 1,401 1,625 1,750 1,821 1,969 2,1334. Indirect taxes (net of subsidies) 111 127 136 175 202 220 230 236 2375. Monetary GDP at current market prices (3+4) 1,169 1,261 1,351 1,576 1,827 1,970 2,051 2,205 2,3706. GDP at current market prices 2,434 2,535 2,637 2,987 3,390 3,589 3,605 3,830 4,087

7. Gross fixed investment 284 308 312 353 400 448 511 554 5008. Gross fixed investment in kind 81 89 91 89 91 92 93 94 979. Gross Monetary Fixed Investment (7-8) 203 219 221 265 309 356 418 460 403

10. Net Imports of Goods and non-factor services 17 53 52 30 66 98 77 84 3211. Gross Domestic Savings (7-10) 267 255 260 323 334 350 434 470 46812. Gross Domestic Monetary Savings (9-10) 186 166 169 235 243 258 341 376 371

13. Fixed Investment Rates (7 as % of 6) 11.7 12.1 11.8 11.8 11.8 12.5 14.2 14.5 12.214. Monetary Fixed Investment Rates (9 as % of 5) 17.4 17.4 16.4 16.8 16.9 18.1 20.4 20.9 17.0

15. Savings Rates (11 as % of 6) 11.0 10.0 9o9 10.8 9.9 9.8 12.0 12.3 11.516. Monetary Savings Rates (12 as % of 5) 15.9 13.2 12.5 14.9 13.3 13.1 16.6 17.1 15.7

Source: DeriVed from Central Statistical Office data.

Table 5 IMPLICIT GDP DEFLATORS , 1961-1969

1961 1962 1 963 1964 1965 1966 1967 1968 1969

I. Agriculture 100.0 9&.6 96.5 107.5 117.9 120.7 109.9 114.4 118.7ForestryHuntingFishingConstruction of Tukuls

Sub-total 100.0 96.7 56.6 1C6.8 116.2 116.7 109C. 113.0 116.5

II. Mining and QuarryingYanufacturing 100.0 109.7 106.7 111.4 116.7 116.8 128.7 136.6 137.5Handicrafts and SmallScale IndustryBuilding & ConstructionElectricity & Water

Sub-total 100.0 101.2 10c.7 101.5 103.0 102.6 106.0 104.2 109.1

III. Wholesale & RetailTrade 100G. 96.0 99.0 110.0 115.4 113.0 106.0 111.5 112.0

Banking, Insurance &Real EstateTransport & Communication

Sub-total 100.0 98.4 99.9 106.1 112.9 110.7 106.3 109.6 110.5

IV. Public Administration& Defence 100.0 1C1.0 1C2.9 107.4 110.5 111.9 115.1 115.2 115.9EducationHealth & Medical

Sub-total 100.0 10C.4 101.3 112.4 114.7 117.2 117.5 116.8 117.1

V. Ownership of Dwellings 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0Domestic ServicesOther Services _

Sub-total 100.0 100.0 101.0 102.8 104.h 105.4 107.2 108.3 109.1

VI. Gross Domestic Product 100.0 99.2 99-S 1C6.4 113.0 114.5 108.7 111.2 114.2

VII. Non-Monetary Agricul-ture 100.0 99.0 97.9 1C6.3 115.3 118.8 111.1 113.5 117.8

Construction of TukulsImputed Rent

Non-Monetary GDP 100.0 99.1 98.0 105.6 113.3 116.5 109.4 111.7 115.7

VIII. Monetary GDP 100.0 96.7 100.8 107.2 112.6 112.8 108.1 110.8 113.1

Source: Central Statistical Office

Table 6 : CENTRAL GOVERNMENT CURRENT REVENUES, 1963/64-1 973/74(in millions of Ethiopian dollars)

Actual Actual Actual Actual Actual Actual Actual Actual Actual Budgeted Projected 121963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74

1. Direct Taxes 56.9 59.1 63.2 77.1 76.6 97.7 102.3 121.8 133.1 146.7Income taxes 3 32.5 35.9 49.5 5906 790 0 954 10o4.9 Land and other direct taxes 26.4 26.6 27.3 27.6 17.0 18.7 21.7 26.4 28.2 27.6

2. Excise Taxes on Domestic Products 37.4 41.3 45.1 55.7 80.2 86.6 96.3 101.9 113.7 123.6On petroleum - - - - 732 39. 4 ThT-41.o 45.0On domestic liquor 12.7 14.8 15k5 17.1 17.2 17.8 1801 20.6 21.6 25.0On salt 5.7 5.9 6.4 6.2 6.8 7d2 7.9 7.7 8.8 8.5Tobacco Monopoly tax & profits 3.6 3.7 5.1 7.2 4.9 5.0 6.1 3.8 6.7 4.6Other Excises 11.8 13.4 13.9 20.9 18.1 18.7 20.3 23.7 28.0 33.5Stamp duties 3.6 3.5 4.2 4.4 4.5 4.7 4.9 6.1 6.8 7.0

3. General Sales Taxes on domestic products 7.7 10.0 11.9 14.8 20.1 24.4 25.5 29.7 32.0 35.8Transaction tax 6. 7.0 1. l97 11. 12.o 13.4 TTirnover tax & tax on construction 1.3 3.0 3.9 4.7 8.3 11.6 12.1 14.4 16.2 17.8

4. Taxes on imports 107.8 121.6 145.2 139.0 112.2 104.7 113.3 118.7 121.1 147.0Import duties 61 .0 o 6 77 71.4 70. o 77. o l 7. 93.5Excise duties on imported goods 2.3 2.8 7.2 4.7 3.3 4.1 ) 6.3 3.6 7.3 6.oPetroleum products 20.3 22.6 26.5 26.1 8.8 2.4 ) 3.2 2.7 8.0Transaction tax on imports 23.1 26.0 29.l 29.4 28.0 26.7 28.4 30.3 30.7 39.5Miscellaneous import charges 1.1 1.3 1.1 1.0 0.7 0.7 0.7 - -

5. Tax on exports 26.1 33.4 24.6 26.8 25.8 23.5 39.4 36.4 31.9 30.8Export duty 2 MT 7 21.1 19.5 3 . 31 .2 5 77.4Transaction tax 4.5 5.4 4.5 5.2 4.7 4.5 5.4 5.4 5.4 5.4

Total tax revenue 235.9 265.4 290.0 313.5 314.8 336.8 376.8 408.5 432.0 483.9

6. Revenue from state propertyZ 12.1 9.8 12.8 18.1 18.9 26.1 19.6 22.8 21.7 27.8

7. Other nontax revenue 21.8 17.4 20.9 22.0 21.9 23.5 27.1 28.7 29.7 36.5

8. Government employee pension contribution 2.7 3.1 3.3 3.6 4.0 5.5 5.3 6.o 6.4 7.4

Total nontax revenues 36.5 30.3 37.0 43.7 44.8 55.o 52.0 57.5 57.8 71.7

Total revenues 272.5 295.7 327.0 357.2 359.6 392.0 428.8 465.9 489.8 555.6 580.0

, 1 Mostly revenues,from capital investmentt2 Mission Projection.

Source: Ministry of Finance. Totals may not tally because of rounding

Table 7 : CENTRAL GOVERNMENT CURRENT REVENUES, 1964/65-1972/73PERCENTAGE ANNUAL INCREASES

Actual Actual Actual Actual Actual Actual Actual Actual Budgeted1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73

Direct Taxes 3.8 7.0 22.0 -1.0 27.5 4.7 19.1 9.3 10.2

Indirect Taxes on Danestic ProductsExcise Taxes 10.5 9.3 22.0 44.0 8.0 11.2 5.8 11.6 8.7General Sales Tax 30.0 19.0 24.2 36.0 21.4 4.5 16.5 7.7 11.8

Taxes on Foreign TradeTaxes on Imports 12.8 19.5 -4.2 -19.3 -6.7 8.2 4.7 2.0 21.3Taxes on Exports 26.5 -26.3 8.9 -3.8 -9.0 67.6 -7.6 -13.5 -3.4

Total Tax Revenue 12.5 9.3 8.1 0.4 7.0 11.9 8.4 5.7 12.0

Non-Tax Revenue -17.0 22.3 18.1 2.3 22.7 -5.5 10.5 - 24.0

TOTAL REVENUES 8.5 10.6 9.2 0.7 9.0 9.4 8.6 5.1 13.4

Source: Mission Calculations

Toble 8: CENTRAL GOVERNMENT CURRENT REVENUES - COMPOSITION, 1963/64-1972/73

Actual Actual Actual Actual Actual Actual Actual ; Actual Actual Budgeted1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73

Direct Taxes 20.9 20.0 19.3 21.3 21.3 25.0 24.0 26.1 27.2 26.4

Indirect Taxes on DaaesticPro duzts

Excise Taxes 14.0 13.9 13.8 15.6 22.3 22.1 21.5 21.9 23.2 22.2General Sales Taxes 2.7 3.8 3.8 4.0 5.6 6.2 6.o 6.4 6.5 6.4

Taxes on Foreign Trade

Taxes on Imports 40.0 41.0 44.3 39.0 31.2 26.6 27.4 25.5 24.7 26.5Taxes on Exports 9.4 11.3 7.5 7.5 7.2 6.0 9.2 7.8 6.5 5.5

Total Tax Revenue 87.0 90.0 88.7 87.4 87.6 86.0 88.1 87.7 88.2 87.1

Non-Tax Revenue 13.0 10.0 11.3 12.6 12.4 14.0 11.9 12.3 11.8 12.9

TOTAL REVENUES 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Mission Calculations.

Table 9: CENTRAL GOVERNMENT CURRENT EXPENDITURES, 1 963/64-1973/74(in millions of Ethiopian dollars)

Actual Actual Actual Actual Actual Actual Actual Actual Actual Budgeted Projectedt 6

1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74

1. General Administration 146.5 164.7 179.5 190.8 207.3 212.9 213.9 217.6 230.2 236.2General Services 64 17.4 T1. 22.4 22.0 24.1 21.2 23.7 . 21 .5National Defence 57.6 67.4 74.8 73.5 86.8 86.8 85.4 87.4 92.8 94.9Internal order & justice 51.2 58.5 63.2 69.2 69.5 75.1 81.9 81.3 86.1 89.5Foreign relations 7.7 6.8 7.0 7.9 7.3 8.0 9.4 8.1 8.7 8.8Finance and planning 13.6 14.6 15.9 17.8 21.7 18.9 16.0 17.1 17.8 21.5

2. Econcmic Services 35.4 36.9 31.8 37.5 39.9 43.3 44.1 47.0 47.7 58.8Agriculture -6.6 66 9. T1 0 o.o 12.5Industry and canmerce 3.9 3.8 4.1 4.6 4.7 4.8 4.7 5.3 6.0 8.1Public Works, infrastructure and/~2 ~3

ccunications L 26.1 26.5 21.1 24.5 26.1 28.4 28.9 30.2 29.2 35.9

3. Social Servrices 5t.3 59.6 69.3 77.6 85.9 93.2 113.2 126.6 14o.4 185.2Education and culture 29.9 34.1 4TT. 5 0. 54 .9 770 75 77Health /4 15.9 17.7 18.2 18.9 19.8 18.8 20.6 23.4 24.8 30.8Social affairs 5.5 7.8 10.0 12.9 15.2 19.5 23.6 26.2 29.7 33.8

4. Interest on Public Debt/ 5 2.2 4.2 5.1 8.4 10.5 12.0 12.7 14.2 16.1 20.8

5. Provision for Salary Adjustment 10.0

Total current expenditures 235.4 265.6 285.7 314.3 343.6 361.4 383.9 405.5 434.4 490.2 510.0

Memorandum item:External assistance 53.2 83.6 100.6 86.3 78.0 74.0 73.9 80.6 68.8 68.5

Source: Ministry of Finance. Totals may not tally because of rounding.

1 Excluding expenditures financed as external assistance, but inclucing those financed from foreign loans.2 Includes subsidy to Ethiopian Air Lines (EAL) equal to difference between debt service by Government, minus

recovery from EAL, in 1963/64: Eth$ 3.2 million; 1964/65: Eth$ 5.1 million; 1965/66: Eth$ 4.1 million(minus): 1966/67:Eth$ 0.7 million; 1967/68(actual): Eth$ 1.0 million (minus); 1968/69: Eth$ 1.0 million.

3 Excludes Post Office operations which are now self-accounting.4 Includes pension expenditures.

75 Does not include interest paid on EAL loans: 1963/64: Eth$ 2.6 million; 1964/65: Eth$ 2.1 million; 1965/66: Eth$ 1.9 million;1966/67: Eth$ 1.6 million; 1967/68: Eth$ 1.3 million; 1968/69: Eth$ 1.0 million.

Z6 Mission Projection.

Table 10: CENTRAL GOVERNMET CURRENT EXPENDITURES: PERCENTAGE ANNUAL CHANGES, 1963/64-1972/73

Actual Actual Actual Actual Actual Actual Actual Actual Actual Budgeted1963/64 1964/65 1965/66 1966/67 1 9%7/68 1 968/69 1969/70 1970/71 1971/72 1972/73

General Administration 12.4 9.6 6.3 8.6 2.7 - 2.2 5.8 2.6Adninistrative ServicesDefence and Internal

Order and Justice

Economic Services 4.2 -13.8 17.9 6.4 9.5 -4.4 12.4 1.4 23.3Agriculture 22.2 - 27. 3 11.0 5.0 11.0 T17Industry and CommercePublic Works etc.

Social Services 16.2 16.3 12.0 10.7 8.5 21.4 11.8 10.9 31.9Educati on and CultureHealthSocial Affairs

Interest on Public Debt 90.9 21.4 64.7 25.0 14Q3 5.8 11.8 13.4 29.2

TOTAL 12.9 7.5 10.0 9.3 5.0 5.2 6.5 7.1 12.8

Source: Mission Calculati ons

Table 11: CENTRAL GOVERNMENT CURRENT EXPENDITURES: COMPOSITION, 1963/64-1972/73(Percentages)

Actual Actual Actual Actual Actual Actual Actual Actual Actual Budgeted1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73

3eneral Administration 62.2 62.0 62.8 60.7 60.3 58.8 55.9 53.7 53.0 49.2Administrative Services 163 14 3 14.1 12.0 12.1 1T- 1 0.8Defence and InternalOrder and Justice 45.9 47.4 48.3 45.4 45.5 44.7 43.9 41.6 4n .2 38.4

Economic Services 15.0 13.9 11.1 11.9 11.6 12.1 11.0 11.6 11.0 12.2Agriculture 2.3 2.3 2.3 -S -77. 2.7 - 2.9 3.1Industry and CommercePublic Works etc.

Social Services 21.8 22.4 24.2 24.7 25.o 25.8 29.7 31.2 32.3 34.2Education and Culture 12.7 TWU7 T4.4 14. T1. 15.2 15.5 19.0 19.7 20.8Health 6.7 6.7 6.4 6.0 5.8 5.2 5.4 5.8 5.7 6.4Social Affairs 2.4 2.9 3.4 4.1 4.4 5.4 8.8 6.4 6.8 7.0

Interest on Public Debt 0.9 1.6 1.8 2.7 3.0 3.3 3.3 3.5 3.7 4.3

TOTAL 100 100 100 100 100 100 100 100 100 100Source:= =i= si== =Cu i

Source: Mission Calculations

/1Table .12: CENTRAL GOVERNMENT CAPITAL EXPENDITURES, 1963/64 - 1973/74

(In millions of Ethiopian dollars)

Actual Actual Actual Actual Actual Actual Actual Actual Revised Budgeted Projected (21963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74

1. Economic Development 55.6 38.7 70.1 62.3 56.4 39.8 63.2 93.1 101.5 112.7Infrastructure and communications 3 19.4 25.1 29.2 24r.3 14.9 35.8 6 2. *0 Mining, industry, commerce and tourism 16.5 6.8 25.5 15.9 15.1 9.7 8.6 i1.5 15.0 16.5Agricalture and Land Reform 4.3 3.1 3.9 2.9 10.6 6.1 4.2 11.9 15.0 23.4Multipurpose projects 3.1 4.3 3.4 2.7 4.3 5.2 4.1 1.8 2.4 3.3Assistance to financial institution 3.5 5.1 12.2 11.6 2.1 4.0 1o.4 13.4 7.1 7.5

2, Social Development 2.8 3.0 3.5 6.o 11.1 23.0 27.9 16.9 22.5 35.8Education 1 0. 1 6.2 10 . 0 7Health 0.9 0.8 2.5 3.5 4.1 8.9 16.2 9.8 12.0 13.0Ccumunity development and social

welfare 0.1 0.5 0.2 0.3 0.9 1.6 1.6 0.9 0.5 1.1

3. Public Buildings 3.0 2.6 2.4 3.1 4.0 1.8 0.9 1.4 1.0 1.2

TOTAL CAPITAL EXPENDITURE 61.4 44.3 76.0 71.4 71.7 64.7 92.0 111.5 125.0 149.7 180.0

Memorandum Item: Technical Assistance 0.5 4.3 4.1 5.6 9.5 11.2 14.1 12.8 19.0 23.1 26.0

1 Includes External Assistance[2 Mission ProjectionsSources: (i) Ministry of Finance, Addis Ababa, Ethiopia

(ii) Planning Ccmmmission, Addis Ababa, Ethiopia

Table 13: CENTRAL GOVERNMENT: COMPOSITION OF CAPITAL EXPENDITURES, 1963/64-1973/74(Percentages)

Actual Actual Actual Actual Actual Actual Actual Actual Revised Budgeted1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 *1972/73

1. Economic Development 90.5 87.3 92.2 87.2 78.7 61.5 68.7 83.5 82.0 75.3Infrastructure 46.1 33.0 33.9 23.0 38.9 5 70-. 41.4Mining, Industry and

Commerce 26.8 15.3 33.5 22.2 21.0 15.0 9.3 10.3 10.5 11.0Agric. and Land Refonm 7.0 7.0 5.1 4.1 14.8 9.4 4.6 10.7 13.3 15.6

Multipurpose Projects 5.0 9.7 4.5 3.8 6.o 8.0 4.6 1.6 1.9 2.2Financial Institutions 5.7 11.5 16.1 16.2 2.9 6.2 11.3 12.0 5.5 5.0

2. Social Development 4 6.8 4.6 8.4 15.5 35.5 30.3 15.1 18.0 24.0Educati. on 2.9 5 1.0 3.1 19.3 11.0 5.5 8.8 14.5Health 1.4 1.9 3.3 4.9 5.7 13.8 17.6 8.8 8.2 8.7C.D. and SocialWelfare 0.3 1.1 0.3 o.4 1.3 2.4 1.7 0.8 1.2 0.8

3. Public Buildings 4.9 5.9 3.2 4.4 5.8 3.0 1.0 1.4 - 0.7

100.0 1 00.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Mission Calculations

Table 14: ANNUAL CHANGES OF CENTRAL GOVERNMENT CURRENT EXPENDITURES,CURRENT REVENUES AND TAX REVENUES, NET SAVINGS ANDCAPITAL EXPENDITURES, 1963/64-1973/74

Met Capital

Current Expenditures Current Revenues Tax Revenues Government Savings Expenditure

Ord. Annual Ann. rate Total Annual Ann. rates Tax Annual Ann. rates Annual Capital AnnualExpan. Growth of Growth Rev. Growth of Growth Revs. Growth of Growth Savings Growth Expen. Growth

$m $m % .$m _ $m % $ $m_% $m $m $m $m

Incl.Eritrea

1963/64 235.4 272.5 235.9 29.6 61.41964/65 265.6 30.2 12.9 295.7 23.2 8.5 265.4 29.5 12.5 21.4 -8.2 40.0 -17.11965/66 285.7 20.1 7.5 327.0 31.3 1o.6 290.0 24.6 9.3 30.9 9.5 76.0 31.71966/67 314.3 28.6 10.0 357.2 30.2 9.2 313.5 23.5 8.1 29.9 -1.0 71.4 -4.61967/68 343.6 29.3 9.3 359.6 204 o0; 314.8 1.3 0.4 2.6 -27.3 71.7 0.31968/69 361.4 18.2 5.o 392.0 32.6 9.0 336.8 22.4 7.0 6.4 3.8 64.7 -7.01969/70 383.9 18.9 5.2 428.8 34.6 9.4 376.8 39.0 11.9 25.1 18.7 92.0 27.31970/71 40 21.6 6.5 465.9 37.1 8.6 408.5 31.7 8.4 39. 5 14. 111.51971/72 434-4 28.9 7.4 489.8 23.9 5.1 432.0 23.5 5. 37.0 -2 125.9

1972/73 490.2 55.8 12.8 555.6 65.8 13.4 483.9 51.9 12.0 43.4 6.4 149.7 23.81973/74 510.0 19.8 4.0 580.o 24.4 4.4 n.a. n.a. n.a. 48.o 4.6 180.0 30.31974/75

Source: Campiled from various tables.

Table 15: CENTRAL GOVERNMENT CURRENT BUDGET SAVINGS, CAPITAL EXPENDITURESCASH DEFICIT AND ITS FINANCING, 1963/64-1973/74

(in millions of Eth$)

Act al Actual Actual Actual Actual Actual Actual Actual Actual Budgeted Projected1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 1973/14

Current Revenue 272.5 295.7 327.0 357.2 359.6 392.2 428.8 465.9 489.8 555.6 580Current Expenditures6l 235.3 266.6 285.7 315.0 343.6 361.8 383.9 405.5 490.2 510

- -- - - - - - ~~~~~~~~~~~434.4 Current Budget Savings 37.2 29.1 41.3 42.2 16.0 30.4 44.9 60.4 55.4 65.4 70

Capital Expenditures 61.4 40.9 76.o 71.4 71.7 64.7 92.0 111.5 125.9 149.7 180

Cash Deficit 24.2 10.9 34.7 29.2 55.6 34.3 47.1 51.1 70.5 84.3 110

Financing:Foreign Bcrrowing (net) 18.8 3.0 27.9 15.2 12.6 -. 4 27.3 39.8 44.1 62.8 79Borrowing 2Th 10.7 23.0 273.6 2 -377 6762. U47. 101Redemption 7.6 7.7 10.4 12.3 13.4 24.0 21.0 20.9 18.4 22.0 22

Other Domestic Sources 5.4 7.9 6.8 14.0 43.0 34.7 19.8 11.3 26.4 21.5 31

External Assistance Z2 .5 4.3 4.1 5.6 9.5 11.2 14.1 1208 24.1 23.1 26

1 In some years includes small amounts for extraordinary accounts.t2 Memorandum entry

3 Mission Projections

Source: Ministry of Finance; Planning Cammission

Table 16: CENTRAL GOVERNMENT SOURCES OF FINANCE FOR CAPITAL EXPENDITURES, 1963/64-1973/74(in millions of Ethiopian dollars)

Actual Actual Actual Actual Actual Actual Actual Actual Actual Budgeted ProjectedLl1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74

Capital Expenditures 61.4 40.0 76.0 71.4 71.7 64.7 92.0 111.5 125.9 149.7 180.0

FINANCING

Domestic 35.0 29.3 37.7 43.9 45.6 41.1 43.7 50.0 63.4 69.0 79.0

Current Budget Savings 37.2 29.1 41.3 42.2 16.0 30.4 46.1 60.4 55.4 65.4 70.0LessForeign Loan Repayment 7.6 7.7 10.4 12.3 13.4 24.0 21.0 20.9 18.4 22.0 22.0Net Govt. Savings 297 2T7 T -.9 29.9 2.6 -Z - 25.1 W390 37.0 b:: 7 Other Domestic Sources

5.4 7.9 6.8 14.0 43.0 34.7 18.6 11.3 26.4 21.5 31.0

Foreign - Borrowing 26.4 10.7 38.3 27.5 26.0 23.6 48.3 60.7 62.5 84.8 101.0

PERCENTAGES

Foreign Borrowing 37.0 26.7 50.4 38.5 36.2 36.5 52.5 54.9 50.0 56.7 56.o

Net Government Savings 48.2 56.o 40.6 42.8 3.6 9.9 27.3 35.1 29.0 29.3 27.0

Other Domestic Sources 14.8 17.3 9.0 18.7 60.2 53.6 20.2 10.0 21.0 13.0 17.0

100 100 100 100 100 100 100 100 100 100 100

~1 Mission Projectaon

Source: Ministry of Finance

Table 17: MONETARY SURVEY, 1963 - March 31, 1972(million Ethiopian dollars)

31 st. 31st.Actual March March

End of Year 1963 1964 1965 1966 1967 1968 1969 1970 1971 1971 1972

Composition

Money 259.5 303.3 350.1 363.8 356.1 383.8 431.7 427.9 439.5 408.6 430.4Currency in Circulation 19.9 221T.7 253.9 267.5 MM 27. 19-.1 323.2 332.5 3073. T17.TPrivate Demand Deposit 67.6 81.6 96.2 96.2 105.3 110.0 112.6 104.7 107.0 104.8 113.3

Quasi-money 47.0 68.6 71.4 85.7 100.3 125.1 150.0 186.6 192.9 214.6 220.1Savings Deposit 2575 335.4 43.2 53.9 T-7T3 86.1 106.3 133.7 170.5 T=F- 766.9Time Deposit 19.0 33.2 28.2 31.8 33.0 39.0 43.7 52.9 52.1 53.0 53.2

Money and Quasi-money 306.5 371.9 421.5 449.5 456.4 508.9 581.7 614.5 632.4 623.2 650.5

Uses

Domestic Credit 160.5 212.3 240.5 270.3 320.0 384.1 444.4 523.9 539.3 557.1 568.8Claims on Government (net) 30.6 54.0 47.0 40.-7 78T. -96.7 119.5 109.7 105.5 108.6 T109.Claims on Private Sector 129.9 158.3 193.5 229.6 241.9 287.6 324.8 414.2 433.5 448.5 459.0

Foreign Assets (net) 153.8 180.6 214.3 206.6 162.8 170.7 180.8 139.5 163.9 117.7 153.3

Other Items - 7.8 -21.0 -33.3 -27.4 -26.4 -45.9 -43.5 -48.9 -70.8 -51.6 -71.6

Total Uses 306.5 371.9 421.5 449.5 456.4 508.9 581.7 614.5 632.4 623.2 650.5

Source: International Financial Statistics (IMF) and National Bank of Ethiopia

Table 1b: MONETARY SURVEY - PERCENTAGE GROWTH RATS6, 1Y63 - IY71

1963/1967 1968 1969 1970 1971 1967/1971

Composition % % % % %

14oney 8.2 7.7 12.5 -0.7 -4.5 3-5

Currency on Circulation, (6.9) (9:2) (16-5) (1-3) (-6.0) (4.9)Private Demand Deposits (11.7) 4 7 (2.3) (-7-1 - 0.2

Quasi Honey 21.0 24.8 20.0 24.4 15.0 21.0

Savings Deposit (24.0) (27.9) (23.4) (25.8) (20.8) (25.0)Time Deposit (15.0) (18.2) (12.0) (21.0) (1.7) (13.0)

MIoney and Quasi Yoney 10.5 11.5 14-3 5.6 1.4 8.1

Domestic Credit 19.0 20.0 15.7 17.9 6.3 15.0

Government (26.0) (23.5) (23.8) (-8.4) (-1-0) (9.0)Private (17.0) (18.9) (12.9) (27.5) (8.2) (17.0)

Reserves 1.4 4.8 5.9 -22.9 15.6 -27.0

Source: Based on information obtained from the National Bank of Ethiopiaand International Financial Statistics.

Table 19: COMMERCIAL BANKS: BREAKDOWN OF LOANS, ADVANCES AND BILLS DISCOUNTED FOR THE PRIVATE SECTOR,Dec. 31, 1965 - March 31, 1972(million Ethiopian dollars)

Actual1965 1966 1967 1968 1969 1970 1 971 1972

Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 March 31

Agriculture 10.7 12.6 10.2 26.8 30.3 34.0 31.7 27.0 32.4 35.9 35.4

Exports 26.8 35.0 30.5 49.2 61.9 73.5 94.9 75.8 59.3 73.3 84.8

Domestic Trade 40.5 45.7 48.5 53.9 62.0 89.7 88.8 84.7 87.4 92.7 101.0Agriculture (16.4) (13-5) (18.8) (18.8) (21.8) (23.8) (28.2) (23.0) (20.2) (25.0) (34-0)Other (24.1) (27.0) (29.7) (35.1) (40.2) (65.9) (60.6) (61.7) (67.2) (67.7) (67.0)

Industrial 39.6 46.2 59.5 57.0 58.1 66.9 61.0 62.8 67.2 78.1 81.0

Building and Construction 39.2 43.4 44.1 46.8 52.7 68.o 74.0 71.7 72.6 70.5 70.5

Imports 33.4 42.7 43.7 49.1 55.9 76.0 77.1 82.5 93.1 92.1 81.6Vehicles and Spares (9.5) (12.1) (9.3) (13.9) (13.7) (13.1) (17.9) (18.2) (19.1) (17-5) (17-7)Building Materials (3.7) (4.0) (3-3) (4.9) (9.6) (9.5) (8-4) (9-3) (9.2) (10.1) (9.2)Machinery and Tools (4.1) (3-0) (3.8) (10.2) (9.4) (15.4) (32.0) (19.1) (20.1) (23.3) (23.5)Other (16.1) (23.6) (27.3) (20.1) (23.2) (38.0) (18.8) (35.9) (44.7) (41.2) (31.2)

Personal 4.5 3.6 4.9 4.6 7.2 6.3 6.1 5.5 5.1 5.9 4.4

TOTAL 194.6 229.2 241.4 287.4 328.1 414.4 433.5 410.0 417.1 448.4 458.8

Source: National Bank of Ethiopia

Table 20: COMMERCIAL BANKS: RESERVES, LIQUIDITY RATIO, TURNOVER OF DEPOSITS AND RATIO OF LOANS TO DEPOSITS. 1964 - 1971(milTion Ethiopian dollars)

Ratio ofLoans and

Credit from Reserves & Liquidity Advances to TurnoverEnd of Reserve L/ Actual g/ Excess National Bank Foreign Foreign Ratio j Deposits 4/ Debit ofPeriod Requirements Reserves Reserves of Ethiopia Assets Total Short Term Long Term Assets(Net) (%) (%) 2Balances Deosits

1 2 ~~~~~~3-2-1 1 =.S 790 11 12 1

1964 Dec. 11.6 24.5 12.9 -- 36.9 9.2 9.2 __ 52.3 64.1 90.31965 " 13.2 28.9 15.7 5.1 36.5 15.1 15.1 -- 50.4 52.4 83.41966 " 13.9 22.1 8.2 6.2 29.6 19.1 19.1 -- 32.6 33.9 96.81967 " 15.5 36.7 21.2 4.5 19.3 17.0 13.9 3.1 39.1 37.1 91.3

1968 Mar. 15.9 36.8 20.9 33.0 36.4 17.8 12.7 5.1 55.3 53.0 95.6Jun. 16.7 37.6 20.9 4.5 28.8 21.1 17.2 3.9 45.3 41.8 90.1Sep. 17.2 46.7 29.5 -- 35.6 17.3 12.9 4.4 65.o 58.6 85.0Dec. 17.3 42.2 24.9 13.5 38.2 32.6 12.9 19.7 47.8 43.5 96.6

1969 Mar. 17.9 40.3 22.4 36.8 54.2 28.9 12.2 16.7 65.7 58.9 97.4 364.7 2.7Jun. 18.8 46.6 27.8 28.7 48.6 31.9 15.4 16.5 63.1 53.1 88.8 301.6 2.1Sep. 18.5 44.4 25.9 35.2 47.9 30.4 13.9 16.5 61.9 54.1 90.3 338.1 2.4Dec. 18.8 52.8 34.0 53.5 35.1 28.8 12.5 16.3 59.1 52.5 98.3 457.6 3.2

1970 Jan. 18.6 41.6 23.0 59.5 42.3 26.6 10.3 16.3 57.3 52.3 102.6 445.9 3.0Feb. 18.5 46.9 28.4 62.5 54.2 42.3 10.1 32.2 58.7 54.2 102.7 470.2 3.2Mar. 19.9 48.1 28.2 63.9 68.9 43.7 11.5 32.2 73.3 61.1 97.9 470.2 3.0

Apr. 19.6 53.5 33.9 61.4 64.5 40.9 11.1 29.8 77.1 67.9 95.3 472.6 3.1May 20.4 53.7 33.3 44.7 51.3 41.2 11.4 29.8 63.8 53.7 94.5 464.6 3.0Jun. 21.0 53.1 32.1 38.0 48.2 36.2 6.4 29.8 65.1 53.2 91.1 436.9 2.7

Jul. 21.2 48.1 26.9 25.0 38.0 42.9 1 3.1 29.8 43.2 35.0 95.3 466.1 3.0Aug. 21 .1 63.2 22.1 24.7 27.3 41.5 11.7 29.8 29.0 23.9 98.8 389.7 2.5Sep. 20.3 51.8 31.5 30.2 22.1 44.9 15.1 29.8 29.0 25.8 100.7 612.4 2.9

Oct. 20.0 47.6 27.6 37.6 24.7 43.5 13.7 29.8 28.8 26.9 103.1 419.9 3.0Nov. 20.4 41.2 20.8 44.7 22.7 42.6 12.8 29.8 21.3 19.2 107.7 430.7 2.9Dec. 19.8 55.6 35.8 72.4 30.3 64.2 34.4 29.8 21.7 20.7 115.5 542.0 3.8

1971 Jan. 19.1 47.4 28.3 74.5 39.7 57.2 27.4 29.8 29.9 30.4 116.6 512.3 3.7Feb. 19.4 45.3 25.9 73.7 42.7 54.4 24.6 29.8 33.6 33.7 115.7 491.5 3.4Mar.r 20.3 55.7 35.4 88.9 55.4 63.7 28.4 35.3 47.4 47.7 114.5 565.5 3.9

Apr. 20.9 52.0 31.1 82.8 56.3 52.9 17.6 35.3 55.4 50.0 109.3 538.2 3.5May 22.1 55.6 33.5 82.8 63.9 54.5 19.2 35.3 65.o 53.5 105.7 490.5 3.1Jun. 21.5 5o.8 29.3 53.5 38.8 53.8 18.5 35.3 35.8 31.9 104.8 479.3 3.2

Jul. 21.4 56.7 35.3 48.9 37.4 52.7 17.4 35.3 41.4 38.5 104.1 540.4 3.6Aug. 22.1 50.8 28.7 41.4 37.9 49.3 14.0 35.3 39.4 34.3 103.1 424.6 2.8Sep.. 22.2 56.3 34.1 43.3 28.7 48.0 12.7 35.3 37.0 31.7 105.2 540.4 3.5

Oct. 21.7 53.3 31.6 46.8 25.8 48.7 13.4 35.3 30.4 27.7 107.7 454.5 3.1Nov. 21.0 40.0 19.0 50.9 29.1 54.3 19.0 35.3 14.8 14.4 113.4 453.6 3.2Dec. 21.2 52.0 30.8 73.6 31.3 63.7 26.5 37.2 19.6 18.7 114.5 464.4 3.2

j Reserve Requirements: 10% (desand deposits private & others, less uncleared checks danestic) plus 5% of time & savings deposits.Actual Reserves: Reserves with the National Bank plus cash in hand (local currency).

/ Liquidity Ratio: (Actual reserves + foreign assets 'net' ) divided by private demand deposits (ret).Ratio of loans and advances to deposits: Commercial Banks' loans and discounts divided by

(gross demand deposits 'private and others'* time and savings depositso gross government deposits with commercial banks)

0/ Debit balance: Total debit balances less debits against banks' deposits.'Turnover of Deposits: Debit balancesaIided by

demand deposits (gross) private & oitersplus gross government deposits.

r - revised

Source: National Bank of Ethiopia

Table 21: BRANCHES OF COMMERCIAL BANKS IN ETHIOPIA, 1905- 1971

Foreign Owned Total TotalCommercial State Commercial Annual New Cumulative

Banks or their Bank of Bank of Bank of Addis Ababa Banco di Number of Number ofYear Branches + Ethiopia Ethi2oia Ethiopia Bank Roma (Eth.) Branches Branches

Period I1905 (6) 6 61931 (6) 6 619351936 1 1 11941 11943 1 2 3 3

Period II1944 3 3 61947 1 1 71948 1 1 81951 1 1 91952 3 3 121953 1 1 131954 2 2 151956 1 1 161958 1 1 171961 1 1 18

Period III1963 4 4 221964 6 1 7 291965 7 2 9 361966 1 1 2 401967 7 2 5 14 541968 10 3 13 671969 15 5 2 22 891970 9 3 12 1011971 6 2 8 109

Total 1 (6) 21 61 19 7 109

( ) This symbol signifies that the branches of the respective Commercial Banks had closed down before the next period.+ It is reported that there were more foreign owned branches of Commercial Banks than indicated here during the

Italian Occupation.

Source: Commercial Bank of Ethiopia

Table 22: INTEREST RATES, 1964 - 1971

(% per annum)

Jan. 19Y64 Feb. 1965 Sep. 1966 Feb. 1967 Apr . 1969 Aug. 1970 Dec. 1971

National Bank

Discounts, Re-discountsand Advamces

Eligible paper cover-ing exports 4.50 4.50 5.00 5.00 5.00 5.oo 5.00Other eligible paper 5.00 5.00 5.50 5.50 5.50 6.50 6.50Treasury Bills 4.50 4.50 5.50 5.50 5.50 6.oo 6.oo

Commercial Banks

Deposits

Savings 4.50 4.50 4.50 5.00 5.00 6.oo 6.oo

Time30 days to 6 months 3.00 3.00 3.00 3.00 3.00 4.00 4 .oo6-12 months 3.50 3.50 3.50 4.00 4.00 5.oo 5.ooOver 12 months 4.50 4.50 4.50 5.00 5.00 60oo 6.oo

Lending

Exports 6.oo-9.oo 6.00-9.00 7.00-9.00 7.00-9.00 7.50-9.50 7.50-9.50 7.50-9.50

Others 7.00-9.00 7.00-9.50 7.00-10.00 7.00-10.00 8.00-10.00 3.00-10.00 8.50-11.00

Other Financial Institutions(including subsidiaries)

Deposits

Savings 5.00 5.00 5.00 6.oo 6.oo

Time30 days to 6 months 3-00 3.00 3.00 4.00 4.006-12 months 5.50 6.00 6.oo 6.ooOver 12 months 5.50-6.75 5.50-6.75 5.50-6.75 6.20-6.80 6.20-7.00

Lending 6.00-lo.oo 6.00-10.00 6.00-10.00 6.50-10.00 6.50-13.00

NATIONAL INCOME - IfPLICIT PRICE INDEX

1964 1965 1966 1967 1968 1969

106.4 113.0 114.5 108.7 111.6 114.6

Source: National Bank of Ethiopia and Statistical Abstract, 1970.

Table 23: BALANCE OF PAYMENTS, 1960-1971(million Ethiopian dollars)

Year End 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971

Exports FeOoBo 190 196 205 223 263 292 281 257 275 301 308 315

Coffee (94) (94) (107) (111) (159) (188) (155) (139) (153) (174) 181 175Other exports (96) (102) (98) (112) (103) (102) (123) (113) (113) (124) 125 139Non-monetary gold (1) (2) ( 3) ( 5) ( 9) ( 3) 2 1

Imports CoI.Fo 208 224 249 274 308 376 404 358 432 385 429 470 r

Trade Balance -18 -28 -44 -j -45 -84 -123 -101 -157 -84 -121 -155

Non-Factor services (net) -2 11 -9 -1 15 18 25 24 73 54 42 59

Transportation (15) (17) (26) (37) (36) (40) (39)Travel (-9) (-9) (-7) (-1) (-2) (-3) ( 2)Government n.i.e. (15) (13) (10) (10) (14) (16) (24)Other services (-3) ( 4) (-5) (27) ( 6) (-11) (-6)

Net exports and non-factor services -20 -17 -53 -52 -30 -66 -98 -77 -84 -30 -79 -96

Investment incane (net) -12 -18 -10 -14 -15 -9 -13 -17 -23 -20 -19 -29Private transfer -8 -7 -8 -5 -3 2 - -10 -6 -8 -7 -5

Current account balance before publictransfer -40 -42 -71 -71 -48 -73 -111 -104 -113 -58 -105 -130

Puiblic grants (net) 20 23 34 17 19 31 29 24 35 35 27 27Gross public loans (19) (23) (68) (51) (23) (58) (78) (53) (87) (69) (55) (103) /2Repayment of public loans (3) (5) (6) (13) (14) (16) (22) (26) (28) (32) (41) (40) /3Net public loans 16 18 62 38 9 42 56 27 59 37 14 63Private capital (net) 5 19 9 25 41 26 16 7 16 -5 28 /1 33

Monetary movement (increase -) -9 -4 -22 -3 -27 -34 8 44 -8 -11 42 13 /4

Errors and Omissions 8 -14 -12 -6 6 8 2 2 11 2 -6 -6

Source: National Bank of Ethiopia and International Monetary FundProjections by the Mission

/1 See footnote /1 of Table 30 - Summary of Disbursements on Foreign Loans Received by the Public Sectorr - revised/2 Preliminary: excludes Eth$ 7.4 million loan to the Commercial Bank of Ethiopia included in

Monetary movements03 Official estimate

Excluding valuatdon changes due to exchange rate alterations.

Table 24: EXPORT VALUES 1961-71

(Eth$'000)

1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971

COFFEE 93,839 106,995 110.882 158 841 188.180 155,31 139,182 152,957 173,947 181,269 175,168

OILSEEDS 15.051 19,535 29,132 26,609 24,795 24.265 22,700 21,422 23,183 28,353 31,987

Sesame 3,658 3,861 4,254 6,766 9,993 11,221 11,365 14,041 15,607 23,294 24,096Ground Nut 1,760 1,806 2,641 3,702 1,910 1,245 831 1,106 822 264 513Linseed 4,188 8,488 13,390 10,044 6,130 3,557 2,895 1,137 97 0.2 35Cotton Seed n.a. n.a. 556 814 864 1,486 2,465 1,157 1,654 1,268 2,322Castor Seed 1,647 2,255 2,185 2,063 1,257 1,298 571 405 619 211 341Niger Seed n.a. n.a. 4,760 2,583 3,506 2,486 3,032 3,074 3,983 3,002 4,336Other Seeds 3,879 3,125 1,346 635 1,115 2,972 1,521 502 401 314 344

OIL CAKES 2,325 4,106 3521 3 517 3,401 2,813 4,375 3 677 4j107 3.394 5,571PULSES 17,900 16,303 024 13,379 14,451 21,627 19.666 21,324 21,949 15,836 21,018Lentils 10,455 b,381 3,911 2,401 1,461 5,441 5,192 7,526 9,292 4,915 5,650Horsebeans 3,663 3,924 5,000 3,441 3,367 5,663 5,151 3,613 5,256 3,521 4,441Haricot Beans 1,327 4,485 3,546 3,951 6,935 7,000 6,257 6,895 5,042 6,783 10,094Chick peas a-d other peas 2,465 1,513 2,567 3,586 2,b86 3,523 3,066 3,290 2,359 617 833

HIDES and SKINS 22,542 24,665 23,bO2 21,947 23,662 35,647 29,838 24,855 29,158 25,024 25.866Cattle Hides 7,922 7,181 6,753 4,090 4,351 9,444 5,776 2,776 4,196 5,848 5,673Goat Skins 4,372 5,408 5,216 5,926 7,334 12,087 9,890 8,695 8,456 7,955 10,553Sheep Skins 9,224 11,106 9,968 11,515 11,107 13,741 13,357 13,006 14,921 10,506 9,500Other Skins 1,024 970 1,665 416 870 375 815 378 1,585 715 140

ANIMAL and MEAT 3,719 2.056 3,552 8,379 10,751 9,584 9_70 8,669 8,172 8,674 10,994Live animal 506 497 1,106 2,533 3,346 2,255 3,595 3,067 3,749 2,705 2,186Meat 3,212 1,559 2,445 5,846 7,405 7,329 6,135 5,602 4,423 5,969 8,808

OTHER EXPORTS 26,812 22,536 J33741 26,481 17,804 19,366 24,485 25,095 i8,291 16,919 16,834Bees Wax 1,489 1,105 1,295 1,088 1,415 1,337 1,441 2,176 2,129 1,483 1,354Chat 10,844 10,444 12,544 5,051 1,839 2,170 2,921 3,003 5,003 1,747 3,043Fruits andVegetables 1,070 4,413 6,424 6,479 5,392 7,674 8,533 7,547 7,229 8,437 5,877Salt 604 1,194 1,301 747 660 1,211 1,121 1,080 1,584 1,085 1,323Cereals 127 546 1,066 399 666 30 1,038 399 1,025 954 1,123Sugar - - - - - - - 648 1,321 3,213 4,114Other 9,678 4,834 12,377 12,717 ,732 7,044 9,431 10890 - - -

TOTAL EXPORTS 182,189 196,196 219,454 259,153 283,044 268,615 249,976 258,017 292,606 294,622 309,954

Source: Customs Head Office and Central Statistical Office.

Table 25: EXPORTS QUANITITES, 1963-1971

(in thousands Kg)

1963 1964 1965 1966 1967 1968 1969 1970 1971

COFFEE 66,14 70,163 87,654 73,642 73,604 80,250 88,383 70,761 80,802

OILSEEDS 84,742 75,848 66,510 53,438 57,978 50,197 56,o86 56,313 66,637

Sesame 8,556 14,346 21,457 20,343 19,752 27,015 30,683 39,739 35,991Ground nut 5,410 7,131 3,371 1,997 1,587 3,083 1,866 651 1,100Linseed 37,152 31,047 18,308 10,505 9,689 3,715 290 1 85Cotton seed 3,846 4,920 4,958 7,860 11,206 6,891 9,878 7,289 12,982Castor seed 7,249 6,789 4,453 5,173 1,919 1,056 1,962 735 1,263Niger seed 10,076 9,344 10,848 6,804 8,841 6,933 10,323 7,163 11,017Other seed 12,453 2,271 3,115 756 4,804 1,444 1,084 735 4,199

PULSES & CEREALS 75,569 63,743 59,430 69,579 73,130 76,370 82,489 54,662 63,992

Lentils 16,187 10,541 5,766 14,936 15,031 22,089 24,534 15,751 17,900Horsebeans 29,138 19,954 17,808 22,438 24,749 18,470 27,420 15,641 16,583Haricot beans 9,660 10,695 19,712 19,473 17,885 19,329 16,672 17,134 22,570Chick peas 8,527 15,316 9,541 10,959 10,724 13,863 7,981 2,148 2,471Other pulses & cereals 12,057 7,237 6,603 1,773 4,741 2,439 5,882 3,988 4,468

OIL CAKES 26,408 22,852 23,335 31,149 31 ,289 25,846 34,056 26,710 37,175

HIDES & SKINS 14,494 12,471 10,542 14,939 11,408 8,840 11,790 10,646 15,391

Hides 6,738 4,406 5,293 9,409 5,873 3,466 5,265 5,830 4,979Goat skins 3,790 3,759 1,806 2,154 1,739 2,096 2,150 1,966 2,122Sheep skins 3,954 4,299 3,076 3,353 3,295 3,259 4,363 2,848 8,188Other skins 12 7 367 23 501 19 12 2 102

ANIMALS & MEAT 3,262 5,3o9 14,055 10,392 9,150 8,718 7,637 7,393 7,583

Live animals - - 5,811 2,424 3,212 3,110 3,643 2,348 2,1521Mat & meat products 3,262 5,309 8,244 7,968 5,938 5,608 3,994 5,045 5,431

OTHER EXPORTS 186,422 103,442 119,444 204,736 202,422 223,023 338,054 392,010 413,275

Chat 4,802 1,966 812 799 854 842 1,212 606 1,931Fruits & Vegetables 22,893 21,378 22,242 27,142 28,206 25,020 22,392 28,263 17,528Bee Wax 532 423 556 509 424 599 541 398 399Salt 158,195 79,675 79,455 165,523 156,480 159,524 178,301 141,256 148,362Petroleum & petroleumproducts - - - - - - 93,396 137,368 169,755

Other - - 16,437 10,763 16,658 38,036 42,121 84,119 75,300

Source: Customs Head Office and Central Statistical Office

Table 26: MONTHLY COFFEE EXPORTS, 1969 - 1971

1969 1970 1 971Quantity in Value in Quantity in Value in Quantity in Value in

Kgs. Eth$ Kgs. Eth$ Kgs. Eth$

January 12,523,708 23,725,193 11,511,749 28,912,015 11,493,817 23,732,882February 11,768,440 21,869,620 9,636,748 22,012,803 12,469,256 26,569,178March 9,002,836 16,705,295 11,433,381 28,909,168 10,357,794 22,587,872

April 4,137,089 7,613,922 8,226,152 22,034,395 11,381,488 25,138,231May 4,492,802 8,086,957 5,305,174 14,320,790 6,558,545 14,543,698June 4,648,828 8,273,219 3,313,035 9,083,516 5,031,660 11,225,810

Ju:Ly 4,693,573 8,087,619 5,486,607 15,115,010 8,273,165 18,106,837August 8,822,288 15,815,401 2,859,525 8,020,797 1l,637,406 3,498,387September 8,181,774 15,921,368 3,401,417 9,234,739 1,755,574 3,410O,534;

October 4,418,469 10,474,374 2,206,520 5,603,296 3,637,840 8,018,003November 6,430,695 15,689,618 4,130,758 10,142,809 2,965,607 6,379,481December 9,262,go6 21,684,029 3,349,789 7,879,483 5,240,245 11,956,637

TOTAL 88,383,408 173,9)46,615 70,860,855 181,268,821 80,802,397 175,167,550

Source: Custcms Head Offioe

Table 27: UNIT F.O.B. PRICES OF ETHIOPIA'S EXPORTS, 1963 - 1971

(Eth$ per ton or per unit specified)

1963 1964 1965 1966 1967 1968 1969 1970 1971

COFFEE 1,677 2,263 2,146 2,110 1,891 1,905 1,968 2,562 2,163

OILSEEDS

Sesame 495 473 467 553 575 518 509 586 667Ground Nut 489 521 562 623 519 357 441 406 466Linseed 360 324 318 339 298 307 334 200 412Cotton Seed 146 166 177 188 220 168 167 174 178Castor Seed 303 303 279 250 300 368 315 284 266Niger Seed 471 278 325 366 345 446 386 419 506

PULSES

Lentils 241 229 252 365 346 341 379 312 316Horsebeans 206 172 189 253 209 195 192 225 267Haricot beans 366 369 352 359 350 3H? 302 396 447Chick peas 189 187 231 289 267 219 234 239 337

HIDES & SKINS

Hides 101 93 82 100 98 80 80 100 114Goat Skins (000 pieces) 137 156 179 265 254 185 187 180 235Sheep Skins (000 pieces) 256 268 278 279 290 284 246 246 227

MEAT 790 1,103 903 916 1,040 1,000 1,107 1,183 1,622

FRUIT & VEGETABLES 279 303 243 283 302 290 300 299 335

Source: Derived from Tables24 and 25.

Table 28: COMMODITY IMPORT VOLUMES, 1965-1970

(Metric tons)

Commodity 1965 1966 1967 1968 1969 1970

FOOD

Cereals, pulses & flour 27,026 55,057 28,063 19,646 25,924 66,429Meat & meat products 48 112 80 103 54 108Milk, cheese & butter 3,227 3,136 5,197 3,231 4,022 3,878Fruits & vegetables 4,140 4,764 1,495 1,243 4,054 3,559Edible oils & margarine 944 945 548 2,417 1 ,535 1 ,089Spices 750 763 696 796 460 661Sugar 4,056 18,265 2,810 1,729 416 91Tea 613 992 763 765 1,016 888Alcohol 1,015 1,149 1,353 1,683 1,658 1,444Tobacco & products 249 295 245 489 263 215

TEXTILES

Cotton raw 3,151 4,508 2,681 5,453 5,742 2,989Cotton yarn & thread 942 1,021 1,010 1,094 849 816Woollen yarn 320 480 394 774 917 898Silk & Art-silk yarn 1,615 639 2,171 291 392 701Cotton fabrics 2,819 1,613 1,163 464 266 266Silk & Art-silk fabrics 1,909 1,457 780 386 495 915Woollen fabrics 79 63 82 114 89 83Cotton clothing & manufactures 5,075 2,193 827 1,511 1,332 917Woollen clothing & manufactures 301 213 168 136 39 53Silk & Art-silk manufactures 621 459 61o 829 672 1,503Gunny bags 740 184 327 161 28 281

MACHINERY & TRANSPORT EQUIPMENT

Agricultural machinery 2,428 2,949 2,142 2,561 2,892 2,771Industrial machinery & appliances 13,024 10,193 7,962 12,218 9,813 11,025Office machinery 56 74 69 186 79 76Elec. machinery & appliances 4,559 4,116 4,800 1,241 4,923 5,660Telecommunication equipment 940 908 1,916 1,994 2,162 771Motor vehicles 7,980 8,591 1,593 5,508 7,248 7,033Motor vehicles parts 1,735 1,822 1,691 1,968 1,849 2,145Aircraft and parts 325 49 370 803 235 210

I1ANIUFACTURED ARTICLES

Drugs & medicines 1,683 1,436 3,295 1,833 1,309 1,510Dying, tanning & coloring materials 2,749 3,399 4,953 4,451 3,005 2,567Soap 7,430 8,940 8,383 11,157 5,592 6,544Toilet preparations 5,003 1,131 845 1,264 1,126 928Chemical products 5,095 4,498 14,711 4,898 5,945 31,389Rbabber tyres & tubes 2,536 3,463 4,057 3,282 3,349 4,672Footwear 1,501 507 421 457 63 71Wood & manufactares 3,723 6,958 4,037 2,748 1,915 1,127Paper & manufactures & books 7,365 6,259 7,895 11,183 9,471 9,287Glass & glassware 2,616 2,768 2,500 2,540 3,537 2,974Cement 27,509 6,088 2,666 1,906 804 1,000Pottery & ceranic ware 386 622 1,820 396 439 860Metals & metal products 39,504 54,o88 103,069 68,831 50,706 64,443Plastic & plastic goods 1,191 1,084 1,207 2,705 3,064 3,658

PETROLEUM & PRODUCTS

Benzine 49,792 62,998 48,336 19,427 17,749 14,794Naphtha 113,318 127,428 74,015 21,399 22,977 28,036Crude oil - - - 605,411 484,334 559,074Kerosene 3,814 5,434 6,o63 3,o49 2,290 9,614Fuel oil, furnice oil, etc. 32,287 66,418 78,669 6,076 876 51Lubricating oil & greases 3,235 5,148 6,933 3,174 4,585 4,531Petroleum product n.e.s. 446 11,626 37,481 4,416 4,402 14,406

OTHERS 59,418 72,768 32,868 72,109 65,724 70,512

Source: Central Statistical Office

Table 292 COMMODfITY IMPORT VALUES, 1965-1970

(Eth$'000)

Comwdity 196, 1966 1967 1966 1969 1970

FOOD

'ereals, pulses & flour 6,224 12,746 6,779 4,256 4,519 14,147M'oat & meat Trodacts 99 241 *164 176 143 220lilk, cheese & butter 3,678 3,635 4,945 3,694 3,993 4,976Fruit3 & vegetables 2,290 2,940 689 973 2,610 2,316Edible oils & marg,arine 1,081 1,170 641 1,873 1,434 1,258Spicns 1,116 1,356 1,235 1,o46 708 1,240Sug.-r 752 5,015 480 311 367 47Tea 1,581 2,572 1,777 1,878 2,467 2,162Alcoho. 1,765 2,089 2,313 2,686 3,218 3,o67Tobacco & products 2,612 2,525 2,308 2,526 1,824 1,495

TEXTILS

Cotton raw 4,525 6,469 3,510 6,715 7,602 3,786Ca-ton yarni & thread 5,382 5,781 5,817 6,113 4,850 5,031hoollen yarn 2,855 3,038 2,820 2,616 1,759 1,521

SiLc & Irt-silk yarn 2,593 1,723 4,172 1,868 2,453 4,087Cot,ton fabrics 13,764 8,212 5,775 2,607 1,562 1,683Silk & A-t-silk fabrics 10,877 7,672 4,309 2,857 3,678 5,585v.oollcn fabrics 1,007 834 1,069 1,078 1,o48 1,060Cott3n cloi'iing - manrufacturLs 11,245 7,691 8,151 6,304 5,744 4,33347ec.acllen clothing & manu!,ctures 2,056 1,592 1,236 1,117 462 547Silk & trt-silk manufectures 3,224 781 3,344 5,650 4,862 4,962G-0uiny bags 682 193 326 130 60 328

MkACHINERY & TRAKLESFORT E L.;Y'O

Agricultural machinery 8,750 lo,828 7,979 8,471 9,063 9,985Industrial nacnine:y & arpliances 43,891 32,358 30,363 49,407 44,570 51,664Of.fice machinery 992 1,406 1,664 1,927 1,583 2,422Elec. machinery & adpliaxc3s 14,946 5,743 13,061 5,862 15,155 16,940Telccom;rninication ecuipnient 9,350 7,335 10,208 8,365 10,320 9,391Motor vehicles 29,677 59,102 28,637 27,378 29,032 30,371'=otsr vohicles parts 8,960 10,360 9,016 9,277 9,495 13,331Aircraft and parts 19,143 5,740 5,575 46,378 11,404 6,438

M1'[UFACTUIJED ARTICLE5

DrTugs & viedicires 8,102 8,744 12,031 10,082 11,059 13,507Dying, tanning & coloring materials 3,659 4,298 6,405 5,732 4,397 6,278Soap 5,032 3,091 4,718 6,364 4,o54 5,289Toilat crecarations 1,929 1,538 2,284 2,844 2,648 2,597Chu_mcai products 3,248 4,129 5,378 5,600 7,937 19,561R-bber tyres & tubes 9,436 13,054 12,476 11,873 11,303 15,356Foo twear 3,699 2,074 1,386 1,339 361 434-Wocd &. mnnufactures 1,540 2,470 2,087 1,307 1,953 1,528Pacer & manufactures & books 9,875 5,251 9,444 12,028 15,192 11,184Glass & glassware 2,181 2,087 1,815 1,997 2,055 2,227Cemer.t 1,359 1,338 205 446 271 157PotTery & ceramic ware 395 641 1,753 457 1,976 989Metals & metal products 28,236 35,901 36,085 41,859 37,790 49,303Plastic & rlastic goods 2,684 2,783 2,756 3,983 3,960 4,955

PETP.OL.,U;D & PRODUCTS

Ben-ire 6,566 5,136 8,481 4,722 3,531 4,186Nachtha 8,790 10,900 7,562 2,304 2,427 3,282Crade oil - - - 14,572 16,241 18,472Kerosene 551 676 653 355 301 1,239Fuel oil, furnice oil, etc. 5,682 2,760 3,263 1,575 203 4Lubricating.oil & greases 1,727 2,374 3,028 1,474 2,877 2,816Petroleum produ-t n.e.s. 274 2,479 1,446 1,790 2,115 3,129

O.;0 Rs 55,589 81,379 65,750 86,280 69,666 58,193

TOTAL 375,671 404,250 357,369 432,522 388,302 429,080

Source: Central Statistical Office

Table 30: SUMMARY OF DISBURSEMENTS ON FOREIGN LOANS RECEIVED BY PUBLIC SECTOR, 1962 - 1974(NOT INCLUDIm PRIVATE DEBT GUARANTEED)

(thousand Eth $)

1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974

IBRD 6,135 6,554 8,538 14,854 19,296 15,888 11,990 16,952 13,924 31,178IDA - 2,363 5,099 7,515 6,879 6,475 10,366 11,081 7,047 9,176U.S.A. 59,579 31,248 2,773 14,740 12,863 11,524 48,200 20,360 14,076 39,382U.S.S.R. - 5,833 121 8,455 9,183 9,517 5,243 966 140 690Yugoslavia 1,562 5,100 1,816 2,025 1,033 1,523 40 255 200 40Italy - 1,071 586 - - 2,657 10,659 12,530 21,100 10,756Fed. Republic of Germany - - 1,914 6,522 128 5,025 424 1,424 3,401 9,028Sweden - - - 2,002 - - 72 3,898 2,574 4,731Netherlands - - - - 27,237 - - - - *Czechoslovakia - - - - - - - - 5Y900 *Other 1,201 806 1,902 1,713 1,176 167 636 1,641 - 5,171

71 Z3 T24- LTTOTAL 68,477 53,975 22,749 57,826 77,795 52,776 87,630 69,107 68,700 110,152 1 576 115,000 120,000

Source: Ministry of Finance

* = not availablel Includes $13.4 million drawing of Commercial Bank of Ethiopia from line

of credit from Italian Banks shown under Private Capital in Table 23- Balance of Payments/2 ProvisionalZ3 Include Eth$ 74 million loan to th-e Commercial Bank of Ethiopia included in monetary

movements in Table 23 - Balance of PaymentsZ4 Mission estimates

Table 31: BILATERAL AND MULTIIATERAL TECHNICAL ASSISTANCE, 1963/64-1968/69(Million Eth.$)

1963/64 1964/65 1965/66 1966/67 1967/68f 1968/69Bilate. Multi. Bilate. Multi. Bilate, Multi. Bilate. Multi. Bilate. Multi. Bilate. Multi.

Education 15.134 0.166 18.145 0.355 20.990 0.910 25.034 0.866 29.900 2.300 27.956 1.01(64.4) (0.7) (29.5) (0.6) (28.6) (1.2) (32.9) (1.1) (40.5) (3.1) (47-3) (1.7)

Public Health 2.850 1.050 5.205 2.395 5.749 1.051 8.837 1.163 11.800 1.500 6.289 1.09(12.1) (4.5) (5.5) (3.9) (7.8) (1.4) (11 ;6) (1.5) (16.0) (2.0) (70.6) (1.8)

Agricultare, Commerce andIndustry and Natural 2.444 0.856 1.165 1.535 2.131 2.469 14.546 2.754 9.000 5.200 9.283 2.917Resources * (10.4) (3.6) (1.9) (2-5) (2.9) (3.5) (19.1) (3.6) (12.2) (7.0) (15.7) (4.9)

Transport and 0.029 0.271 3.921 0.279 0.333 0.267 0.114 0.186 0.750 0.150 1.169 0.801Crmsunication (0.1) (1.2) (6-4) (0.4) (0.5) (0-4) (0.2) (0.2) (1.0) (0.2) (2.0) (1-4)

Community Development 0.089 0.111 0.225 0.075 1.076 0.224 0.494 0.206 0.200 0.300 0.502 0.132(0.4) (0.5) (o.4) (0.1) (1.5) (0.3) (0.6) (0.3) (0.2) (0.4) (0.9) (0.2)

Mapping 24.200 - 24.200 - 20.000 - 10.000 0.100 0.262 -

- - (39.3) - (33-0) - (26.4) - (13.6) (O.1) (0.5) _

Other Fields ** 0.434 0.066 3.301 0.699 13.404 o.496 1.900 - 2.200 0.500 7.112 0.611(1-8) (0.3) (5.4) (1 .1) (18.3) (0.6) (2-5) - (3.0) (0.7) (12.0) (1.0)

Sub-Total 20.980 2.520 56.162 5.338 67.883 5.417 70.925 5.175 63.850 10.050 52.573 6.671

10.8% 8.6% 7.4% 6.7% 13.5% 11%

Grand Total 23.500 6i.500 73.300 76.100 73.900 59.244

* Includes Mining, Water Resources, Wildlife and Land Reform

** Planning, Statistics, Technical Agency, Financial Intermediaries, FinanceInformati on, Public Administration and Miscellaneous

Note: Figures in brackets are percentages

Source: Planning CommisEion Office

Table 32: PERSONS EMPLOYED ANM SALARIES PAID BY CENTRAL GOVERNMENTAND AUTONOMDUS AUTHORITIES IN ADDIS ABABA IN APRIL 1969

Income Number of EmolumentsBracket People % ($ 0OOO) %

Under 25 456 1.5 8.5 0.1

25 - 49 4,808 15.5 184.0 2.3

50 - 74 3,926 12.6 249.1 3.1

75 - 99 2,353 7.5 200.1 2.5

100 - 149 3,304 10.6 396.4 4.9

150 - 199 2,784 8.9 467.1 5.8

200 - 249 2,1452 7.9 541.9 6.7

250 - 299 2,072 6.6 559.7 6.9

300 - 349 1,727 5.6 547.8 6.7

350 - 399 1,338 4.3 494.6 6.1

400 - 449 907 2.9 379.8 4.7

450 - 499 600 1.9 279.8 3.4

500 - 599 1,138 3.7 616.7 7.6

600 - 699 964 3.1 613.7 7.6

700 - 799 860 2.8 644.7 7.9

800 - 899 327 1.0 272.8 3.4

900 - 999 288 0.9 271.9 3.4

1,ooo - 1,499 430 1.4 511.1 6.3

1,500 & above 379 1.2 864.4 10.6

31,113 100.0 8,104.1 100.0

Source: Statistical Abstract 1970 - C.S.O.

TABLE 330 ETHIOPIA

EXTERNAL PUBLIC DEBT OUTSTANDING AS OF DECEMBER 31.1971

DEBT REPAYABLE IN FOREIGN CURRENCY

IN THOUSANDS OF Us. DOLLARS

DEBT OUTSTANDING DECEMBER 31,1971

CREDITOR COUNTRY UND1STYPE or CREDITOR DISBURSED BURSED TOTAL

OEI.GIUM 152 ' 152GERMANY (FED.REPeOF) 368 * 368ITALY 1,799 483 2P282JAPAN 127 ' 127NETHERLANDS 3,0035 3,035SWITZERLAND 149 * 149UNITED KINGDOM 336 - 336USA 555 - 555

SUPPLIERS 60521 483 7.004

ITALY 26.967 196 27,163SWITZERLAND 220 ' 220UNITED KINGDOM 31 31USA 5673 5,000 10.673

PRIVATE BANKS 32.891 5.196 38#08?

IBRO 57,004 18,913 75,997IDA 26.401 22,499 48.900

LOANS FROM INTL. ORGANIZATIONS 63.465 41J412 124.097

CZECHOSLOVAKIA 5P632 4,122 9,754GERMANY (FED.REP.OF) 7.804 19,293 27,097SWEDEN 4.850 6,266 11.118UNITED KINGDOM ' 2,215 2,215USA 49.062 26.441 75.503USSR 12.168 11 12.179YUGOSLAVIA 2,437 . 2.437

LOANS FROM GOVERNMENTS 81.953 58.350 140.303

TOTAL EXTERNAL PUBLIC DEBT /1 204.650 105.441 310.291

NOTE: DEBT WITH A MATURITY OF OVER ONE YEAR./ EXCLUDES THE OLLOWiING:

UNCOMMI[TTED PARTS OF PRAME AGREEMENTS:CHINA $81,300,000 (All unallocated)CZECHOSLOVAKIA $ 9,799,995 ($930,000 unallocated)GERMANY (FED.REP.OF) $ 2,o49,000 (All allocated)U.S.S.R. $99,900,000 ($89,544,Coo unallocated)UNITED KINGDOM $ 4,800,000 ($2,997,000 unallocated)YUGOSLAVIA $10,000,000 ($3,087,000 unallocated)ITALY $148,561,000 (Al. unallocated)

Source: Economic and Social Data Division, Economic Program Department (1971)

Table 34: RETAIL PRICE INDEX IN ADDIS ABABA, 1966 - May, 1972(excluding Rent)

1963 = 100

G R O U P S

General Household Transport- Medical Personall Reading and I Other goodsIndex Food items Clothings ation care care Recreation & Services100.0 57.3 1 7.1 7.9 5.3 2.1 .9 3.0 6.4

1966 Average 126.8 135.6 121.4 116.7 100.0 107.2 145.7 112.2 108.41967 127.8 133.2 130.2 123.0 100.0 109.8 146.8 113.7 111.01968 128.0 132.2 132.8 122.7 100.0 119.3 155.8 117.5 110.31969 129.8 135.0 129.6 128.5 100.0 123.8 155.8 112.0 111.31970 143.0 155.6 131.4 137.8 100.0 131.5 156.3 121.5 113.91971 143.3 155.8 133.5 141.1 100.0 138.6 161.7 120.7 115.9

1970 I qrt. average 138.5 146.8 135.0 135.7 100.0 129.7 156.3 121.8 113.7II " ,,142.8 155.9 130.8 136.1 100.0 130.0 155.8 121.5 113.6III " " 146.2 158.4 130.3 137.2 100.0 131.5 157.4 121.4 113.7

IV 144.5 158.0 129.5 142.3 100.0 134.9 155.8 121.4 114.6

1971 I 141.5 152.7 129.9 141.1 100.0 136.8 155.8 121.5 114.6II " 150.5 167.5 133.9 140.7 100.0 137.9 155.8 120.4 114.9

III " " 144.1 155.1 135.8 141.7 100.0 139.0 173.5 120.4 116.6IV i , 138.8 146.2 135.2 141.6 100.0 140.6 161.7 120.4 117.6

1971 January 142.0 153.8 129.2 141.1 100.0 136.6 155.8 122.1 114.6February 139.6 149.7 129.0 140.6 100.0 136.8 155.8 122.1 114.5March 142.9 154.7 131.5 141.7 100.0 137.1 155.8 120.4 114.8

April 150.3 168.4 130.0 141.7 100.0 137.2 155.8 120.4 115.0May 151.6 169.7 133.4 139.1 100.0 137.1 155.8 120.4 114.8June 149.7 164.5 138.2 141.4 100.0 139.3 155.8 120.4 1 4.8

July 146.2 158.9 135.5 142.2 100.0 138.9 173.5 120.4 114.8August 144.3 155.0 136.8 141.4 100.0 139.0 173.5 120.4 117.3September 141.9 151.3 135.1 141e6 100.0 139.0 173.5 120.4 117.6

October 141.0 149.2 136.4 142.2 100l 0 141.0 173.5 120.4 117.6November 138.9 146,8 135.4 141.3 100.0 140.4 155.8 120.4 117.6December 136.5 142.5 133.9 141.3 100.0 140.5 155.8 120.4 117.6

1972 January 137.1 143.2 134.6 141.9 100.0 141.4 155.8 120.4 117.5February 137.2 143.8 135.1 138.7 100.0 141.4 155.8 120.4 117.5March 135.6 140.0 136.9 141.9 100.0 141.8 155.8 120.4 117.5

April 132.4 134.3 136.2 142.1 100.0 140.2 155,8 120.4 117.5May 132.3 131.2 144.8 145.8 100l 0 141.8 155.8 120.4 117.5

Source: Central Statistical Office