VZCZCXYZ0014
RR RUEHWEB

DE RUEHDS #3368/01 3251210
ZNR UUUUU ZZH
R 211210Z NOV 07
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 8620
INFO RUCNIAD/IGAD COLLECTIVE

UNCLAS ADDIS ABABA 003368 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EAGR ET
SUBJECT: ETHIOPIA: MONTHLY ECONOMIC REVIEW FOR OCTOBER 2007 
 
REF: ADDIS ABABA 2983 
 
¶1. SUMMARY 
 
-- Joseph Stiglitz cites Ethiopia's impressive economic growth. 
 
-- Consumer Price Index (CPI) continues to rise: General inflation 
reached 19.3% and food inflation 29.2% in October. 
 
-- The Birr continues to depreciate: the official exchange rate 
continues a slow crawl, but the parallel market rate indicates 
significant depreciation. 
 
-- Balance of Trade: Ethiopia secured $1,185.1 million USD from 
merchandise exports while the total import bill rose to $5,126.2 
million during fiscal year 2006/07.  Fuel imports alone took 75 
percent of the total export earnings. 
 
-- Telecommunications: Ethiopia will not issue new mobile licenses 
to private investors until at least 2010 according to the Minister 
of Transport and Communication. 
 
-- Foreign Investment: The Chinese government has embarked upon 
increased activities with a view to encouraging Chinese investors to 
widely involve in Ethiopia.  End SUMMARY 
 
ECONOMIC GROWTH 
 
¶2. In a lecture to the Ethiopian Economic Association and the 
Ethiopian Development Research Institute, Professor Joseph Stiglitz, 
a leading economic educator, said that Ethiopia's economy has been 
doing well over the last few years.  He seemed impressed by 
Ethiopia's economic growth, although he was concerned about 
sustainability. While most east African and Asian countries have 
experienced significant economic growth, Stiglitz was struck by the 
source of Ethiopia's growth.  He is quoted as saying "Some of the 
growth these developing countries registered over the last several 
years is a result of hike in commodity prices, particularly in the 
case of China.  The success in Ethiopia is clearly far more than 
that. It has got to do with an increase in production output, 
diversification, and going into new areas."  He further highlighted 
Ethiopia's highly egalitarian distribution of income. 
 
PRICE DEVELOPMENTS--INFLATION STILL ON THE RISE 
 
¶3. Inflation is on the rise in Ethiopia over the past three years. 
According to official statistics published by the Central Statistics 
Agency (CSA), the annualized moving average country level headline 
inflation rate reached 19.3 percent in September 2007, up from 18.5 
percent in August and 12.4 percent a year earlier.  Annual general 
inflation was 23.3 percent while food inflation rose to 29.2 percent 
in September. See Reftel for discussion of possible causes of this 
inflation. 
 
 
EXCHANGE RATE--BIRR CONTINUES DEPRECIATION 
 
¶4. Ethiopia follows a managed floating exchange rate regime where 
the official exchange rate is determined by the daily inter-bank 
foreign exchange market in which National Bank of Ethiopia (NBE), 
Ethiopia's central bank, intervenes to regulate the market.  The 
inter-bank rate at the end of October was Birr 9.0414 per USD in 
contrast to Birr 9.0383 at end September and Birr 8.7018 a year 
earlier.  Meanwhile, the Birr is significantly depreciating in the 
parallel market, reaching Birr 9.32 per USD in October from Birr 
9.26 in September.  The depreciation in the local currency is 
triggered by the acute problems of foreign exchange in the country. 
Driven by rising domestic inflation relative to prices of Ethiopia's 
major trading partners, the real effective exchange rate is 
appreciating, making the country's exports less competitive. 
 
TRADE DEFICIT GROWS-- MAJORITY OF EXPORT RECEIPTS SPENT ON FUEL 
 
¶5. During fiscal year 2006/07, Ethiopia's imports totaled 5.1 
billion USD and export totaled 1.2 billion USD, indicating a trade 
deficit of 3.9 billion USD.  The deficit is narrowed by net service 
payment of 1.6 billion USD, and private & official remittances of 
2.9 billion USD.  Major imports include transport and industrial 
capital goods (36.5 percent), petroleum products (17.1 pecent), raw 
materials such as chemicals, consumer durables and non-durables such 
as cereals and textiles (43.5 pecent).  China is the largest 
supplier (16.6 percent), followed by Saudi Arabia (15.3 percent), 
Italy (7.7 percent), India (7.0 percent), and United States (3.8 
percent).  In the export side coffee (35.8 percent) is still the 
leading export followed by oilseeds (15.8 percent), gold (8.2 
percent), khat (7.9 percent), leather and leather products (7.6 
percent), pulses (5.9 percent) and flowers (5.4 percent).  Major 
export destinations include Germany (11.8 percent), followed by 
Italy (6.3 percent), Saudi Arabia (6.2 percent), Japan (6.1 
percent), United States (5.0 percent), China (5.0 percent), and 
Netherlands (4.8 percent) and Africa 15.5 percent).  The majority of 
exports to Africa go to Djibouti. 
¶6. Ethiopia spends more than 75 percent of its hard currency earned 
from foreign trade and commercial activities to finance fuel 
imports.  During fiscal year 2006/07 the country imported close to 2 
billion liters of fossil oil and spent 875.1 million USD.  Its needs 
in terms of volume, however, are comparatively low as Ethiopia stood 
as 198th out of 205 countries in per capita oil consumption in 2004, 
requiring only 0.379 barrels per 1,000 people. 
¶7. Importation of petroleum products is monopolized by the Ethiopian 
Petroleum Enterprise (EPE) and distributed among petroleum companies 
such as TOTAL, Shell, National Oil Company (NOC) and Yetebaberut 
Beherawi Petroleum (YBP) as well as the new entrant, Kobil. 
Distributors earn margins per liter of Birr 0.595 for benzene and 
Birr 0.583 for diesel. 
TELECOM--NO PRIVATE SECTOR INVOLVEMENT UNTIL AT LEAST 2010 
¶8. Ethiopia has launched a $1.5 billion project with Chinese company 
Zhong Xing Telecommunication Equipment Company Limited (ZTE) to lay 
down a fiber optic cable network and erect base stations across the 
country that will bring 85 percent of the country under mobile phone 
coverage.  "Our policy at the moment is that we are not looking at a 
second operator.  Once the basic infrastructure is deployed by 2010, 
then we can look at such an issue," Juneydi Sado, Minister of 
Transport and Communications, told Reuters.  "Because of the 
universal access issue, sometimes operators might not be interested 
in the remote areas where financially it might not be viable, so we 
want to address this issue first and after that we can talk about 
this public-private issue."  The government project plans to 
increase the fiber optic network to 14,000km from the current 
4,000km and the government also intends to install 65,000 public 
phones throughout the country.  The Ethiopian Telecommunication 
Company (ETC)has targeted to increase the mobile and fixed-line 
subscriber base to over 10 million by 2010 from the current 3.6 
million. 
 
FOREIGN INVESTMENT - THE CHINESE CONTINUE TO ENGAGE 
 
¶9. The Chinese government has embarked on increased activities to 
encourage Chinese investors in Ethiopia, the Chinese Ambassador to 
Ethiopia told reporters.   Several Chinese investors are showing 
interest to engage in investment activities in Ethiopia.   The 
Ambassador is quoted as saying "we consider Ethiopia to be a very 
good country for Chinese cooperation; the political situation is 
stable and the government is trying to encourage democracy and 
people's participation." Currently, Chinese companies are investing 
significantly in Ethiopia in the mine, roads, health, and ICT 
sectors. 
 
YAMAMOTO