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UNCLAS SECTION 01 OF 04 ADDIS ABABA 000240 
 
SENSITIVE 
SIPDIS 
 
DEPT PLEASE PASS TO SENATE FOR OFFICE OF SENATOR DURBIN 
 
E.O. 12958: N/A 
TAGS: OTRA ECON ETRD EAID PGOV AF ET
SUBJECT: SCENESETTER FOR CODEL DURBIN VISIT TO ETHIOPIA 
 
SUMMARY 
------- 
 
¶1. (SBU) SUMMARY:  Your visit to Ethiopia comes during a 
period of political and economic challenges.  Ethiopia takes 
pride in being the oldest independent country in Africa.  The 
modern political landscape of Ethiopia has been shaped by the 
1998-2000 border conflict with Eritrea (70,000 Ethiopians and 
Eritreans killed) and the aftermath of the May 2005 
elections, which was marked by civil disobedience, killings 
of protesters, and the imprisonment of opposition party 
members.  Opposition leader Birtukan Mideksa, party chairman 
of the Unity for Democracy and Justice (UDJ) party, is 
serving a life sentence in prison.  Five members of diaspora 
opposition party Ginbot 7 received death sentences in 
December 2009 upon being convicted of conspiracy to overthrow 
the government after a trial lacking in basic elements of due 
process.  National parliamentary elections are scheduled to 
take place in May 2010, and political space for opposition 
parties, the media, and civil society is being progressively 
restricted as the campaign season kicks off. 
 
¶2. (SBU) Economically, Ethiopia remains one of the poorest 
countries in the world, with an annual per capita Gross 
Domestic Product (GDP) of USD 340. Eighty-five percent of the 
population works in the agriculture sector. Chronic cycles of 
drought, high population growth, state and ruling party 
dominance in numerous commercial sectors, inefficient 
agricultural markets, and regular power outages all act to 
limit Ethiopia's economic development. Foreign investment 
restrictions are widespread, including key sectors such as 
banking, insurance, and telecommunications. Ethiopia suffers 
a severe trade deficit, resulting in a severe foreign 
exchange crisis.  Ethiopia is also the second largest 
recipient of U.S. foreign assistance in sub-Saharan Africa. 
The preponderance of this assistance is humanitarian, 
including food aid, and the President's Emergency Plan for 
AIDS Relief (PEPFAR).  END SUMMARY. 
 
 
POLITICAL HISTORY 
----------------- 
 
¶3. (SBU) Ethiopia has a rich history and a diverse 
population.  The Oromo, Amhara, and Tigrean ethnic groups 
together constitute more than three-fourths of the 
population, but Ethiopia is home to over 77 ethnic groups, 
each with a distinct language and culture.  Ethiopia is the 
oldest independent country in Africa, ruled largely by 
Christian nobility until the socialist military regime known 
as the Derg seized power in 1974.  Lt. Col. Mengistu Haile 
Mariam assumed power as head of state and Derg chairman. 
Mengistu's years in office were marked by a 
totalitarian-style government and massive militarization. 
From 1977 through early 1978 thousands of suspected enemies 
of the Derg were tortured and killed in the "red terror" 
purge. 
 
 
EPRDF TAKES POWER 
----------------- 
 
¶4. (SBU) Ethnically-based opposition groups joined together 
in 1989 to form the Ethiopian Peoples' Revolutionary 
Democratic Front (EPRDF).  In July 1991, the EPRDF, the Oromo 
Liberation Front (OLF), and others established the 
Transitional Government of Ethiopia (TGE).  The election for 
a 547-member constituent assembly was held in June 1994.  The 
assembly adopted the Constitution of the Federal Democratic 
Republic of Ethiopia in December 1994.  The elections for 
Ethiopia's first popularly chosen national parliament and 
regional legislatures were held in May and June 1995, 
resulting in a landslide victory for the EPDRF.  Since 
assuming power, the EPRDF-led government of Prime Minister 
Meles Zenawi has promoted a policy of ethnic federalism, 
devolving significant powers to regional, ethnically based 
authorities. 
 
 
ADDIS ABAB 00000240  002 OF 004 
 
 
 
ETHIOPIA-ERITREA RELATIONS 
-------------------------- 
 
¶5. (SBU) On April 23-25, 1993 Eritreans voted for 
independence in an UN-monitored free and fair referendum. 
Eritrea, with Ethiopia's consent, was declared independent on 
April 27.  Five years later, Eritrean forces attacked part of 
the Ethiopia-Eritrea border region, seizing some 
Ethiopian-controlled territory.  The strike spurred a 
two-year war between the neighboring states that cost over 
100,000 lives.  Ethiopian and Eritrean leaders signed a 
ceasefire on June 18, 2000 and then a peace agreement, known 
as the Algiers Agreement, on December 12, 2000.  The 
agreements called for an end to the hostilities, a 
25-kilometer-wide Temporary Security Zone along the 
Ethiopia-Eritrea border, the establishment of a United 
Nations peacekeeping force (UNMEE) to monitor compliance, and 
the establishment of the Eritrea Ethiopia Boundary Commission 
(EEBC).  The EEBC announced its Ethiopia-Eritrea border 
delimitation decision in 2002, but the physical demarcation 
of the border has not been accomplished.  In mid-2008, due to 
lack of Eritrean cooperation, UNMEE units were withdrawn from 
the region and the mission was terminated. 
 
 
2005 ETHIOPIAN ELECTIONS 
------------------------ 
 
¶6. (SBU) The May 2005 elections and their aftermath continue 
to weigh heavily on Ethiopia's domestic political scene. 
2005 saw the opposition ostensibly take 170 seats in the 547 
seat national parliament, a dramatic increase over the 15 
seats they held for the previous decade.  The opposition 
claimed it had actually won a majority that the government 
had fraudulently undermined in the vote counting.  While the 
two previous elections were deemed free and fair, allegations 
of electoral irregularities in 2005 prompted the opposition 
to launch an organized civil disobedience campaign that 
turned violent when confronted by security forces.  These 
security forces killed nearly 200 protesters, detained more 
than 30,000 suspected demonstrators, and arrested most 
leaders of the opposition. 
 
 
JUDICIAL ACTION AGAINST THE OPPOSITION 
--------------------------------------- 
 
¶7. (SBU) The Government of Ethiopia (GoE) later pardoned the 
key opposition leaders, releasing them from prison 18 months 
later.  However, opposition leader Birtukan Mideksa, party 
chairman of the Unity for Democracy and Justice (UDJ) party, 
was re-arrested in December 2008 when she noted publicly that 
she had never requested a pardon.  Her original life 
imprisonment sentence was reinstated. In April 2009 the 
Ethiopian Government arrested 40 individuals, for involvement 
in an alleged  assassination plot against government leaders. 
 The imprisoned consisted largely of Amhara military or 
ex-military members allegedly affiliated with Ginbot 7, a 
diaspora opposition party.  This party was founded in May 
2008 in the United States by Berhanu Nega, one of the 
opposition leaders in the 2005 elections.  The Federal High 
Court found 13 of the defendants guilty in absentia and one 
not guilty in absentia in August 2009.  Three months later, 
the court found another 27 guilty and sought the death 
penalty for all 40 defendants.  On December 22, the court 
sentenced five Ginbot 7 defendants to death, 33 defendants to 
life terms, and two defendants to 10 years in prison. 
 
 
CURRENT POLITICAL ENVIRONMENT 
----------------------------- 
 
¶8. (SBU) Since 2005, the government has enacted laws which 
limit and restrict party politics, the media, and civil 
society, including a law limiting the ability of civil 
society organizations (NGOs) to receive funding from foreign 
sources and participate in the political process.  Ruling and 
 
ADDIS ABAB 00000240  003 OF 004 
 
 
opposition parties have engaged in little dialogue since the 
opposition leaders were freed in 2007.  Three opposition 
parties did engage in negotiations of an electoral Code of 
Conduct with the ruling EPRDF from August to December 2009. 
Government harassment made it very difficult for opposition 
candidates to compete in local elections in April 2008.  The 
ruling party won more than 99% of the local seats throughout 
Ethiopia. 
 
¶9. (SBU) National parliamentary elections are scheduled to 
take place in May 2010.  The U.S. Embassy has strongly 
advocated a transparent and open election.  As of December 
2009, however, leading opposition politicians voiced 
skepticism that the Ethiopian Government would permit free 
and fair elections.  In September, the Forum for Democratic 
Dialogue, (Forum), a coalition of major opposition parties, 
walked out of the interparty Code of Conduct talks after 
complaining the EPRDF refused to hold bilateral Forum-EPRDF 
talks.  Opposition party leaders reported an intensification 
of harassment, arbitrary arrest, and intimidation of their 
supporters, especially in rural areas, nine months before the 
scheduled elections. 
 
 
U.S. ASSISTANCE TO ETHIOPIA 
--------------------------- 
 
¶10. (SBU) Ethiopia is now the second largest recipient of 
U.S. foreign assistance in sub-Saharan Africa at nearly $1 
billion annually. The preponderance of this assistance is 
humanitarian, including food aid, the President's Emergency 
Plan for AIDS Relief (PEPFAR), the Child Survival and Health 
Program Funds (CSH), of which a significant share supplements 
the Government of Ethiopia budget.  Relatively little 
assistance, about five percent of the total, directly 
contributes to Ethiopia's internal economic stability and 
sustainable growth.  Assistance designed to promote economic 
stability concentrates on agricultural development -- 
particularly in vulnerable, conflict-prone areas, in order to 
achieve food security -- and on healthcare services. 
Notably, the operating environment and transaction costs for 
non-budgetary foreign aid are increasing, as a result of new 
GoE restrictions on non-governmental organization (NGO) 
implementing partners. 
 
 
ECONOMIC OVERVIEW 
----------------- 
 
¶11. (SBU) Ethiopia remains one of the poorest countries in 
the world.  Ethiopia's 2009 Gross Domestic Product (GDP) was 
approximately $32.3 billion, with an annual per capita GDP of 
USD 340.  Chronic cycles of drought, high population growth, 
state and ruling party dominance in numerous commercial 
sectors, inefficient agricultural markets, and regular power 
outages all act to limit Ethiopia's economic development. 
The agricultural sector comprises 43 percent of GDP and 
employs 85 percent of Ethiopia's 80 million people.  Although 
Ethiopia's economy is relatively small, it is growing at a 
fast pace.  The GoE publicly touts that Ethiopia has 
experienced double digit real GDP growth of over 11 percent 
in recent years.  The GoE stated real GDP growth was 10 
percent in 2009.  Many institutions, including the World Bank 
and IMF, dispute the GoE's growth statistics, stating that 
Ethiopia's real GDP growth rate more likely ranged between 
six and seven percent last year.  Inflation rates skyrocketed 
in recent years, peaking at 64 percent year-on-year in July 
¶2008.  Inflation has since fallen to 7 percent as of December 
2009, primarily due to the GoE's 2008 imposed lending cap on 
all banks.  This restriction on lending has reduced 
inflation, but also restricted the private sector's access to 
finance. 
 
¶12. (SBU) The GoE has identified five priority sectors for 
development and export growth, including: 1) coffee; 2) 
textile and garments; 3) leather, hides, and skins; 4) 
floriculture and horticulture; and 5) oil seeds and pulses. 
Total exported goods have increased 20 percent per annum on 
 
ADDIS ABAB 00000240  004 OF 004 
 
 
average in the five years prior to 2009.  Total exports in 
2009, however, remained flat over 2008's level of $1.5 
billion mainly due to a drop off in coffee exports.  Coffee 
exports--Ethiopia's major historical export earner--fell 
nearly 30 percent in terms of value in 2009 from 2008 ($525 
million to USD 376 million).  In 2009, the GoE blamed coffee 
exporters (who were allegedly hoarding supply) for the 
decline in exports and as a result, revoked licenses of six 
major exporters, detained some company owners overnight, and 
closed the warehouses of over eighty firms.  The reduction in 
coffee exports appears to be tied to the decline in world 
prices as well as domestic problems associated with new 
coffee marketing and control legislation and capacity 
constraints of the newly established Ethiopia Commodity 
Exchange (ECX). 
 
¶13. (SBU) Despite Ethiopia's export growth, the country 
suffers a severe trade deficit year after year.  Imports 
totaled $7.7 billion in 2009, creating a trade imbalance of 
$6.3 billion.  Ethiopia mainly imports machinery, fuel, and 
consumer goods.  This trade deficit led Ethiopia into a 
severe foreign exchange crisis and to depend on international 
organizations and remittances to relieve some of the 
pressure.  Foreign exchange reserves plummeted to only four 
weeks of import coverage in December 2008 at $700 million and 
have only slightly recovered to about USD 1.8 billion a year 
later.  The GoE has been forced to ration hard currency, 
giving priority to exporters.  Many companies are suffering 
as they are unable to import spare machinery parts and 
manufacturing inputs.  Additionally, many foreign companies 
are unable to repatriate their profits without significant or 
indefinite delay.  Aimed at easing the balance of payments 
and foreign exchange crises, Ethiopia's central bank 
depreciated the Birr three times since January 2009--10 
percent in January 2009, 10 percent in July 2009, and 5 
percent in January 2010.  The Birr is now trading at 13.3 per 
USD.  In the parallel market, the Birr is trading at 
approximately 13.8 per USD.  Many legitimate businesses are 
forced to operate in the parallel market due to the current 
foreign exchange crunch. 
 
 
GOE'S ROLE IN THE ECONOMY 
------------------------- 
 
¶14. (SBU) Since the early 1990's, Ethiopia has pursued a 
development strategy based on a mixed economy of both state 
and private enterprises.  While the private sector role is 
expanding, the state remains heavily involved in most 
economic sectors.  Parastatal and ruling-party affiliated 
companies continue to dominate trade and industry, hampering 
full and free competition.  All land in the country remains 
state owned, although long-term leasing arrangements and 
rural land registration for farmers have improved in recent 
years.  Foreign investment restrictions are widespread, 
including key sectors such as banking, insurance, and 
telecommunications.  The state-owned Ethiopian 
Telecommunications Corporation (ETC) is the only service 
provider in the sector, creating an environment of poor 
telecom service and access.  In a country of nearly 80 
million people, there are only 895,000 fixed phone lines, 3.3 
million cell phones, and 44,000 internet connections.  The 
GoE maintains a hard line stance on these key sectors, but 
some eventual liberalization is assumed to take place as part 
of the ongoing World Trade Organization (WTO) accession 
negotiation. 
YATES