Examination of Witnesses (Questions 83-99)
TUESDAY 25 FEBRUARY 2003
HIS EXCELLENCY
MR MELES
ZENAWI
Chairman
83. We are delighted today to welcome the Prime
Minister of the Federal Republic of Ethiopia. Prime Minister,
thank you very much for coming and giving evidence to this Committee.
Perhaps you would like to start by giving us an opening statement?
(His Excellency Mr Zenawi) Thank you,
Chairman and friends. I would like, first of all, to thank the
House of Commons International Development Committee for giving
me this opportunity to share my views on trade and development
in the context of the Doha development round. I would also like
to take this opportunity to thank the UK Government for being
at the forefront in terms of promoting broad development and global
policies in the area of reforms, debt reduction and trade. I am
confident that the UK Government and the House of Commons will
do more to defend and promote the interests of development in
the poor countries. The first issue that needs to be addressed,
in my view, is why governments such as that of the UK have to
defend the interests of the poor countries and why the poor countries
do not defend their own interests in the upcoming round of trade
negotiations. Let me start with the second aspect of the question.
Despite limitations of capacity the poor countries do indeed have
a proposal that would promote their development interests, but
international trade negotiations are based on bargaining and give
and take. We know that whatever the rhetoric might be, those with
the bigger bargaining power get what affects their interest more.
That is the reality. The poor countries, particularly those in
Africa, because their share in global trade is insignificant,
have no significant bargaining power. They cannot engage in meaningful
give and take. In addition, their trade policy is governed by
the international financial institutions which, in turn, are governed
by the developed countries. When push comes to shove during trade
negotiations the developed countries call the shots directly and
indirectly. Africa is, thus, in substance, unable to defend its
interests in trade negotiations in any meaningful way. Why should
developed countries be altruistic and go beyond defending their
own interests and defend Africa's interests? I believe this has
less to do with altruism and more with enlightened self-interest.
The developed countries cannot shelter themselves from the impact
of a continent that is in deep crisis and which has, in effect,
become the continental ghetto of a globalised world. Unless Africa
develops, it will spawn all sorts of criminal groups en masse,
including drug cartels and terrorists, which will haunt all of
us. Unless Africa develops, people will flee not in their thousands
but, perhaps, in their tens of thousands and hundreds of thousands,
and that will haunt all of us. Unless Africa develops, there will
be environmental devastation in the continent and the rest of
the world. Unless Africa develops, a large part of humanity will
be, in effect, excluded from the global cake and the global cake
will be smaller for all of us. Developed countries have, therefore,
a stake in Africa's development. It is in their enlightened self-interest
to help Africa develop. That is why they have to come up with
real development around trade reforms, regardless of whether Africa
can do this for itself or not. But why, of all developed countries,
the UK? If Africa's development is in the interest of all developed
countries why should not all the developed countries take care
of the problem? The answer, in my view, is that not all developed
country governments are aware of their enlightened and long-term
interests, and even when they are aware of them not all are able
to withstand the pressure of myopic vested interests and do the
right thing. The UK Government has demonstrated that it can do
the right thing when it places itself at the cutting edge of reform
and debt reduction. I believe it can do so on trade reform and
encourage others to join it in such a noble cause. Once you are
convinced that your government should take the lead and do the
right thing the next issue that needs to be addressed is what
is the right thing? What indeed is the right thing for Africa
in terms of trade reforms? Some would argue that across-the-board
and reciprocal trade liberalisation is the right thing. The economic
reforms in Africa over the past 20 years have been guided by such
a view. The results, I believe, can speak for themselves. Obviously,
trade reforms alone cannot be blamed for the failure of development
in Africa. We all agree, on the whole, free global trade is beneficial
to all countries. However, if the answer were to be across-the-board
and reciprocal liberalisation the Doha Round would not need to
be called the development round, it would be more appropriate
to call it a more comprehensive liberalisation round. If we have
all agreed that there should be a special round of trade reforms
designed to promote growth in the poor countries it can only be
because we are all convinced that trade is a key instrument of
development policy and that if the only way, or correct policy,
were to be across-the-board liberalisation then there will, in
effect, be no alternative policies and, hence, no trade policy
as such. We all know that very few countries, if any, have developed
through across-the-board liberalisation. If the Doha Round is
to be a developmental round then the most important consideration
must be to empower the poor countries, particularly the least
developed countries, to design their own trade policies in accordance
with the level of their development and their development strategies.
This, in turn, implies that there must be fundamental reform to
the special and differential treatment provisions of the WTO.
Proposals of developing countries in this regard are on the table.
The UK should not only support but spearhead the efforts to reform
the SDT, to ensure trade policy autonomy for developing countries,
particularly the least developed ones. The Everything but Arms
proposals of the European Union is a crucial step in the right
direction, but it can be undermined by demands for reciprocity.
The EBA should provide non-reciprocal access to EU and other developed
country markets. This is important, for otherwise the special
and differential treatment provisions could be undermined by the
EBA. This is also true because the developmental impact of the
EBA would be nullified if it loses its preferential and non-reciprocal
aspects. I am confident that you all know we are not going to
flood your markets with our goods simply because you give us access
to them. We have no production capability to do so. The whole
point of preferential and non-reciprocal access to your markets
is not to sell products that we are already producing, but to
liberate such access so as to boost investment in our countries
and boost our production capacity. Let me repeat: the whole point
of preferential and non-reciprocal access to your markets is not
to sell products that we are already producing but to liberate
such access so as to boost investment in our countries and boost
our production capacity. The preferential access we get to your
markets would compensate for our lack of adequate infrastructure,
trained manpower etc, and enable us to attract investment using
non-reciprocal preferential access as a liberator. More investment
would, in turn, enable us to improve our infrastructures, train
our labour force etc and, therefore, compete on an even footing
with everyone else. In brief, I believe the UK should commit itself
to making the development round of negotiations a real instrument
for taking Africa out of the quagmire that it is in; it should
see to it that this is indeed designed to specifically and consistently
promote sustainable growth and it should insist that this round
be a developmental round in substance and not just in rhetoric.
I believe the UK should, therefore, insist on change to the SDT
along the lines suggested by many less developed countries and
on providing preferential and non-reciprocal access to developed
markets for the least developed countries. Thank you very much.
84. Prime Minister, thank you very much for
that very considered and thoughtful opening statement. It will
be interesting to see, at the end of our inquiry, which is going
to go on for a number of months, how many of those thoughts we
can take through to conclusions. Can I just start by asking you
this: I think all of us are very keen to see what we can do to
ensure that the world generally meets the Millennium Development
Goals by 2015. What prospect do you think, at the present moment,
there is of Ethiopia meeting those goals and what action by the
developed world do you think would be of most help to you in this
regard?
(His Excellency Mr Zenawi) We believe that achieving
the Millennium Development Goals in Ethiopia and elsewhere in
Africa is going to be a very serious challenge. Despite the problems
that we currently face, I am confident that we can achieve those
goals. Let me say why. For example, with regard to primary school
attendance rates in our country, when we took over in 1991/1992
the primary school attendance rate was in the range of 17 to 19%
and primary school was provided for six years. Since then we have
made some reforms and primary school is now given for eight years.
While the drought this year has affected the attendance rate,
nevertheless we are in the range of 60% now. So I believe we can
complete the remaining 40% in the remaining time we have. Again,
despite the recurrent droughts over the past 10 years we have
achieved growth rates of between 5 and 6%, on average. That is
much less than we need to overcome poverty in our country. We
need to be in the range of 7 to 10% growth per year. I believe
with additional effort on our part and on the part of the international
community we can do that during the remaining period we have.
I believe, also, that an effective and developmental government
is necessary to achieve the Millennium Development Goals. With
all the limitations of capacity that we have as a government,
I think we do indeed provide such an effective institute of government,
and a committed one. I believe that view is shared by many donors
who have assessed the situation in our country. So for all of
these reasons, while it will clearly be a major challenge, I believe
we can achieve it.
Hugh Bayley
85. The Millennium Development Goals, Prime
Minister, are varied and there is quite a number of them on education,
on incomes, on health care, on infant and mortal mortality and
so on. Which of the goals is Ethiopia making progress in meeting,
and which are the hardest to meet? In which areas would you like
to see the greatest help from the international community?
(His Excellency Mr Zenawi) Education is where we have
made the most progress—not just access to primary education
but education across the board. For us education is not just a
key instrument in development and fighting poverty, it is also,
in my view, a key instrument of institutionalising democracy in
a country such as ours. In my view, democracy requires an informed
citizenry and that requires at least primary education. So that
is where we believe we have made some significant progress. Access
to primary health services have also been improved. That, again,
is an instrument of development because you need healthy bodies
to promote growth. Where things have not gone as well as we would
have liked them to go is in promoting proper growth in our country
and that has to do, to a large extent, with the recurrent droughts
that we face. Before the current drought our growth rates were
in the range of 7 to 8%; currently they have plummeted. Hopefully,
we will have good rains next year and if we have good rains next
year I would not be surprised if we go back up again to within
the range of 8 to 9%. So it has been a see-saw. That is directly
related to the drought we face. Now, the peculiar character of
the drought we face in Ethiopia is that, on the whole, the total
amount of rain we get is adequate for at least one harvest. It
is the intermittent nature of the rain that is the problem. That
would not have been a problem had we had water harvesting and
irrigation structures on the ground. That has not been possible
in the past, largely because we are an originator of the Nile
River and there are downstream countries who claim historic rights
to practically all of the Nile water. I am sure some of you will
know that in 1959 Egypt and Sudan signed an agreement to divide
the total amount of water from the Nile. As you probably know,
85% of Nile waters at Aswan come from Ethiopia. Technically, we
do not have access to a litre of it. The Egyptians would obviously
have to come and physically occupy Ethiopia to prevent us from
putting in all the structures, but they do not need to do so because
we need to have access to external funding, and by blocking our
access to external funding they can stop us from carrying out
such projects. So, at the moment, what we have decided to do is
focus on water management techniques that do not require external
funding and which can be carried out at household level, primarily
by utilising the labour of each household. That may not be the
most elegant way of promoting irrigation but that appears to be
the only feasible approach. Even there, there will still be a
need for some funding because all of the materials that you need
for such water harvesting techniques are not produced by the household:
you might need some plastics, you might need some cement and they
are not produced at the household level—you need some funding.
There is a shortfall in that funding. If we can break this cycle,
the cycle of recurrent drought affecting the growth rates in our
economy, I think we can achieve the Millennium Development Goals
in terms of halving people living in poverty, and I think we can
do even more. So what I would hope to see, and it is beginning
to happen but not as fast as we would like it to, is commitment
on the part of our development partners, not just for emergency
assistance but, also, to address the root cause of those emergency
situations—that is, to help us build those small-scale water
management techniques which are not going to affect Egypt downstream
in any significant way. Secondly—and this may come as a
surprise—while we do not currently have much to sell except
coffee (and coffee prices are collapsing), nevertheless access
to your markets would spur investment not only in that but, also,
in commercial agriculture. Ultimately, the famines that we see
after droughts are problems of poverty. I am told there is a serious
drought in the United States now, but one can never imagine famine
in the United States however dry the United States might be. Ultimately,
famine is directly related to poverty. So more investment, more
employment and more access to your markets would mean less poverty,
and less likelihood of famine. Thank you.
Mr Battle
86. Could I ask you a little bit about foreign
debt and about the impact that external debt has on Ethiopia?
To what extent has Ethiopia benefited from the HIPC debt relief
initiative?
(His Excellency Mr Zenawi) Let me see if I can remember
the exact figures. We had stopped paying interest in principle
to the debt that we had to the former Soviet Union when we took
over. That was the major debt burden to us. Now, on the other
debt we had we used to pay between $90 million and $110 million
a year to service the debt. If we had $90 million a year invested
in water management techniques every year and if we assume that
the cost of such water management techniques per household would,
at the most, be, say, $500 to $1,000, then obviously you can figure
out what this means for our food security. Within a matter of
a few years we would have such structures covering practically
all the food insecure people in our country. That is the impact
of debt on our economy. We are beneficiaries of HIPC. We reached
the decision point of HIPC in November 2001 and it is our hope
that we will reach the completion point this November. In between
the two Novembers three things have changed. When we qualified
for the decision point the calculations were such that we were
assumed that after HIPC our debt would be sustainable. I am sure
you know the figures—150% of exports, etc. In between the
two Novembers three things have changed. The first thing that
has changed is that the price of coffee has collapsed. That has
made our debt unsustainable even after HIPC. The second thing
that has happened is the US interest rates have collapsed, and
because they calculate our debt on net present value terms that
has made our debt unsustainable because the discount that they
use is lower now. Thirdly, the euro has appreciated vis-a-vis
the dollar. That means our European debt has increased in dollar
terms and our debt has, therefore, become less sustainable than
was calculated to be the case. The most important factors are
reduction in interest rates in the United States and the collapse
of the coffee price, because most of our debt is through multilateral
use issues. As a result, the World Bank, which according to its
own criteria would have provided up to $500 million of debt and
grant per year, has said it will not lend us money because our
debt would not be sustainable. So they have reduced their assistance
to us by $200 million and they are now giving us $300 million,
and a big part of it is in grants. They cannot lend us money because
the debt would be unsustainable. So you can see how precarious
the benefits of HIPC are: they depend on what the Federal Reserve
in the United States does in terms of interest rates; they depend
on currency movement between the dollar and other currencies;
they depend on commodity prices and they depend on estimates of
how well we are doing in terms of exports. There is not enough
room for flexibility in the package. I understand that before
we reach the completion point there is a possibility of what they
call topping up; they provide additional debt relief before the
completion point in a system they call topping up. We hope to
get such a topping up arrangement, but what happens if our debt
is proven to be unsustainable after November, after we have got
the topping up? Then there will not be any provision for topping
up? So it is a very positive step in the right direction but it
is inadequate.
87. You mention coffee and the price collapse
of coffee. If I understand rightly, 60% of Ethiopia's exports
are coffee. You mentioned, also, in passing, market access. What
do you think should be done and by whom to change the coffee crisis
and improve the situation?
(His Excellency Mr Zenawi) There are price support
arrangements for commodities. There used to be such an arrangement
with the European Union. In the long run I do not believe this
is going to be sustainable. In the long run I think the solution
has to be sought in two directions: firstly, improve the productivity
of agriculture in Africa. The productivity of our coffee producers
is something like a third of the Vietnamese producers. Countries
such as Vietnam are moving up the ladder. If we were to improve
our productivity up to their level then in the nature of things
there would be global division of labour and coffee would not
be within the comparative; they would have to leave that space
for us. Now they are not leaving that space for us because despite
higher salaries and wages in their countries their productivity
is two to three times better than ours, so they can afford to
pay twice the wage and still out-compete with African producers.
So the improvement of the productivity and quality of our agriculture
has to be part of the solution. The second problem, as I see it,
as I am sure you know, is that bean prices are anything up to
between 6 and 8% of the coffee price in the coffee shops. If there
were to be more value added to our coffee then you could compete
more. The coffee price collapse affects primarily beans not the
coffee that all of you drink in the coffee shops. There has not
been a similar collapse in the coffee that you drink. So we are
at the tough end of the market. If we could move to the softer
end of the market—that of value addition—we could
fare well. So one of the reasons why we have not done so in the
past is because of tariff escalations. Now that the Everything
but Arms arrangement is coming into force, hopefully soon, and
if it does not require reciprocity on our part, then we can attract
the coffee roasters in your country to our country and invest
in value added activities, which would improve our competitiveness.
Mr Walter
88. Prime Minister, I was going to ask you what
role you thought trade could play in Ethiopia's future development,
but I think in your opening statement you gave a very impassioned
plea for preferential access. I wonder if I could be, perhaps,
a little more specific, because in terms of talking about preferential
access and the role of trade you said that you were not talking
specifically about your existing market access but you were talking
about other areas where Ethiopia could develop. What are the other
areas of trade that you feel we should be examining for preferential
access for Ethiopia's trade?
(His Excellency Mr Zenawi) The way I look at it is
from the point of view of an investor in the UK: he has access
to electricity without any blackouts at any time and he has access
to first-rate transportation infrastructure, trained manpower
and all the rest. None of this exists in our country. Wages are
much lower in our country but wage costs are not necessarily the
most important costs that these people face. So we have to have
something that the UK does not have in order to attract these
people. The only thing that I can think of, at least initially,
is for us to have access to the UK market and to other developed
country markets that is different from the access that the UK
has to other markets. Different, because that is, at this stage,
the comparative advantage we will have—an artificially created
comparative advantage. Once we attract this investment then we
can build our roads, then we can train our people, then we can
go for across-the-board liberalisation. That is the basis of my
argument that we should have non-reciprocal entry for access to
all your markets. It should not be limited to agriculture, it
should include agri-processing industries and it should include
labour-intensive industries such as textiles, garments, leather
products and so on and so forth. As I said, this is not because
we have goods waiting in the ports to be shipped over to the UK
which are being prevented by tariffs. No, we do not have such
goods, and we do not have such goods because we have no such investment.
So my argument for market access is not so that we send a product
that we now have (we do not have much to send); my argument for
market access is as an incentive, as a compensating mechanism,
for the advantage that those which have already developed their
infrastructure, trained manpower etc, have vis-a-vis us in terms
of attracting investment. So for me it is an instrument of promoting
investment, and it can only be an instrument of promoting investment
if it has these two characteristics: if there is preferential
access and if it is non-reciprocal. If we lose these two then
trade access does not, in my view, have any developmental potential.
89. Can I develop that a little, in that you
talked also in your opening statement about trade negotiations
as being ones where the "haves" tend to get what they
want out of it; the richer you are the more likely you are to
get out of that trade negotiation what it is you want to your
advantage. Ethiopia is not a member of the World Trade Organisation.
I wonder if you could explain why you are not a WTO member and
whether you have any plans to become a member of the WTO?
(His Excellency Mr Zenawi) We have been an observer
of the WTO for quite some time and we have submitted our request
to be members of the WTO. Clearly, we have not been as enthusiastic
as far as the WTO is concerned. I think I need to explain that.
We said "What do we get out of joining the WTO?" In
terms of designing rational trade policy, lowering tariffs and
so on and so forth, we do not need the WTO to tell us to do so.
We can do it on our own and, perhaps more practically, the IMF
and World Bank are telling us to do it in a more persuasive manner.
So as far as trade reforms are concerned, the WTO does not have
a specific advantage. So we asked ourselves "What do we get
by joining the WTO?" We do not get anything by way of advice
on trade reforms because we are already getting it from our own
experts and from the World Bank and the IMF and so on. Therefore,
we said "What is the point of joining?" One advantage
would be that our voice would be heard. Whether it is listened
to or not, at least we would have the right to express ourselves.
We would get some assistance and we would get some rules-bound
assurance to markets of the developed world, but we are not selling
much. Our exports were not visible in any countries of substance.
So we were not rushing to join the WTO. However, since the Doha
Round we said "This thing is becoming serious; it is beginning
to become a developmental institution, so we should try and join
as quickly as possible". So we submitted our request to be
full members of the WTO recently and, fortunately, in our case
our request has been supported very quickly by all of the member
states of the WTO, and our expectation is that within a year or
so we will be full members.
90. That is clear and I hope that that will
be the outcome. When you are full members of the WTO I am sure
you will then get involved in negotiations about agricultural
policies in the industrialised world and the impact that they
have on the developing world. There is our own Common Agricultural
Policy, which subsidises agriculture in the current 15 Member
States to the tune of $40 to $50 billion a year, and the US has
an agriculture support system. What do you think the impact of
those policies currently has on your ability to export into the
industrialised world?
(His Excellency Mr Zenawi) Last year at about this
time the inflation rate in Ethiopia was minus 6. The reason for
it was that cereal prices had collapsed, and the reason for that
was that we had good rains. When we have good rains and good harvests
we thought we could export corn to Yemen. Ours is white corn.
The United States sells corn to Yemen; theirs is yellow corn.
There is no way we can compete with the United States in the Yemeni
market. As you know, Yemen is just next door and so it is not
transportation costs. Part of it is that US farms are much more
productive than ours, but their labour costs are many times more
than ours and so, in effect, one can cancel the other out. Part
of the advantage is first-rate infrastructure which we do not
have, but they are coming from across the world and we are next
door. However inefficient our infrastructure we should do well
next door. So in terms of infrastructure that should cancel each
other out. So the only remaining factor is subsidies. Therefore,
because we cannot compete next door prices will have to collapse
and they did collapse. So this thing is happening both sides of
the equation in Ethiopia. When we have good harvests prices collapse
and farmers lose; when we have droughts production collapses,
prices improve but they have nothing to sell. They are caught
in a pincer that cuts both ways. I think that can give you an
indication as to how damaging it can be. It would be even more
damaging if we were to do better than we are doing now. The whole
idea is that we should be doing better than we are doing now,
and in that case the damage would be even more visible than it
is now.
91. Would you accuse the United States of dumping
its corn surpluses in Yemen?
(His Excellency Mr Zenawi) Dumping is a concept that
has been defined in a very elastic manner by everyone involved.
I would not want to engage in that, particularly because the United
States is a good friend of ours and is providing lots of assistance.
Clearly, I do not think that the trade regime in terms of trading
in cereals that the United States and Europe are engaged in is
fair or pro-development.
Hugh Bayley
92. The Everything but Arms initiative has removed
some trade barriers and so has the American Africa Growth and
Opportunity Act. What benefits has Ethiopia seen from those changes
and what benefits does it expect to see over the next few years?
What are the remaining main barriers to exporting Ethiopian products
into European and American markets?
(His Excellency Mr Zenawi) Let me tell you about AGOA
because the EBA has yet to materialise. As yet we have not benefited
from AGOA as much as we would like to. Even so, we have seen some
clear movement. A few Americans have come and invested in garmenting
factories in our country. The first ones to come were former volunteers.
Our hope is that these will be pioneers. The reason they invested
in Ethiopia is because they knew about AGOA. Their first investment
was in garmenting. They would get the fabric from Taiwan, prepare
the garments in Ethiopia and export them. The good thing about
AGOA is it says after a certain period you cannot do that, you
have to buy the fabrics either in-country or in another AGOA eligible
country. So what do these American companies do? They start building
a textile mill so as to supply their own garmenting factories.
This is only one or two cases, and we hope to benefit much more
than we have done so far, but I think the ball has begun to roll
and AGOA has promoted new investment in Ethiopia; investment by
American companies in Ethiopia—people who would not have
invested in Ethiopia even if they loved it and they loved it before
they began investing in it. Now that AGOA has given them an incentive
their love for the country was manifested in their own pioneering
investment in our country. So it is beginning to produce results.
The ball is beginning to roll.
93. What else do you think your country could
do to take more advantage of the changes in market access which
things like Everything but Arms and AGOA offer?
(His Excellency Mr Zenawi) There are two things that
we should be doing better and more. One has to do with infrastructure,
but that takes time and it takes money. The easiest thing to do,
in terms of cost, is improve the effectiveness of AGOA. It takes
ages to get all the licences and it takes an inordinate amount
of time to have access to land. By changing this radically we
can create a more investment-friendly environment. That will not
fully compensate for lack of investment in infrastructure, but
it should go more than half of the way in removing the barriers
to investment, and that is exactly what we intend to do. That
is exactly what we are now doing through our civil service reform
programme. Our hope, our expectation, is that in a matter of a
month or two we should be in a position to complete all the processes
including access to land in a matter of a week or two weeks.
Chairman: Prime Minister, can we move
on, briefly, to talk about the current food security situation
in Ethiopia?
Mr Khabra
94. Food shortage has always been a problem
in Ethiopia, mostly due to widespread droughts. This year alone,
nearly 1.33 million tonnes will be required for a population of
at least 11.3 million people. To meet this crisis a joint plea
was made by Ethiopia and the UN for humanitarian assistance. Could
you tell me what is the latest situation in Ethiopia as far as
food shortages are concerned, and why Ethiopia is suffering from
food shortages?
(His Excellency Mr Zenawi) The immediate proximate
cause of food shortages is drought. The ultimate cause is poverty.
As I indicated earlier on, the priority should be to address the
water management shortfalls in the irrigation projects that we
need to put in place and fight poverty. In terms of the specific
situation on the ground now, there has been a very positive response,
particularly since November to the appeal that we have made. However,
there are a number of problems. Firstly, not all the food aid
we need has been pledged. Anything from 60 to 70% of what we need
has been pledged but not all. Secondly, not all of the pledged
food aid is coming in time. Thirdly, supplementary feeding is
much less adequate than the food rations. This is affecting children
most seriously. Because of this unless additional pledges are
made and those pledges are delivered in time the expectation is
that we will run out of food by June. The way the system works
is we have what we call a food security reserve. At the beginning
of this current drought we had about 300,000 tonnes of food in
the food security reserve, let us say if the United Kingdom Government
donates 70,000 tonnes of food we do not have to wait for the food
to arrive at our ports before we start using that food we withdraw
food from the food security reserve, exactly the same amount that
has been pledged by the UK Government, and then replenish it.
That is what we did this time. The first step we took as a Government
was to commit about 45,000 tonnes of food on our own, we took
that from the food security reserve and replenished it. The US
provided some assistance. What is happening now it is not being
replenished in time and therefore the reserve is diminishing.
It is possible that we could run out of food by June, and that
is the wrong time because that is the rainy season, that is when
the rainy season starts and that is when transporting the food
aid to the rural area begins to be very difficult. The way we
have managed this in the past was we pre positioned the food aid
in those areas during the dry season so we would not have to transport
it during the rainy season. We are not in a position to pre position
this food now, so there are some serious problems despite the
support that we got after November.
95. What overall impact does it have on the
economy when a famine takes place and a large number of people
are effected by the famine, you see hunger and deprivation but
what is the overall impact on the economy?
(His Excellency Mr Zenawi) The whole economy becomes
depressed. Currently we expect a contraction of the economy to
the tune of 2% to 3%. The previous year we had growth of something
like 7% or 8%, so when the growth goes from 7% or 8% to minus
2 there is a very serious depression as far as the economy is
concerned. Food prices are beginning to creep up but they do not
go up as much as people would expect them to. These are the main
impacts.
Tony Worthington
96. Can I ask you about the international community's
response to the current crisis and, please, do not feel you have
to say things you said before, can I divide that into short-term
and long-term. You talked about the pledges not being fulfilled
and about the possibility of running out of food in June, can
you talk about the style of the response as well: Are you getting
the kind of food that you require? How is it affecting the local
market, those sort of issues? Then we can look at the long-term
issues.
(His Excellency Mr Zenawi) In terms of short-term
responses there are differences in style. The US, particularly
this year, has been quicker and more generous in terms of assistance.
The European Union has, perhaps understandably, been slower and
particularly this year has provided less assistance than has been
traditional. The European Union is more flexible with the type
of assistance it provides, it does not insist that the aid should
be in kind, from time to time they provide assistance in cash,
in which case we can buy domestically or in the neighbourhood
and that does not depress or cut our prices. In this regard the
response of the European Union is better. The United States does
not provide for such flexibility, they provide food aid in kind,
it is a mixed bag. In the current situation the US has been much
more generous than the European Union, traditionally it has been
one third US, one third European Union and currently the support
we get from the European Union in terms of food aid is less than
one third. In the case of the US it is close to it, and they have
been very quick. The USAID has been very quick, they were the
ones who responded immediately. We as the Government bought 45,000
tonnes, the next 50,000 came from USAID, and they came early.
They provide food aid in kind so there is no possibility of buying
food domestically, preventing food aid from depressing agricultural
prices for surplus producing countries. There is a mix there.
In terms of long-term responses the pattern so far has been an
out-pouring of support during emergencies and a collapse of support
as soon as the emergencies are over. It is as if people are waiting
for the next emergency to happen to open their wallets, in the
mean time they keep them shut and therefore we are not prepared
for the next emergency as quickly as we should be because we are
left to our own devices to do so and the resources to us are limited.
This has been a problem in the past. There is more recognition
now than was the case in the past and people are moving towards
a more predictable and more sustained support for food security
programmes and a more flexible utilisation of the food aid. For
example with the emergency food aid we are getting now it is possible
for us to use this food aid for food-for-work programmes at a
household level and therefore in effect this is seen as development
aid. A new flexibility has been added on to it now. I think there
is still some distance that we need to cover to make it more flexible,
more predictable and more sustainable.
97. Can I take it beyond that to what you are
talking about in terms of prevention and how difficult it is to
get money that stops the next crisis rather than respond to it?
We have been looking at this issue across Africa, I made a few
points to you last night about agricultural policy generally and
if that is really shaping up to the needs of Ethiopia at the present
time, also water harvesting, and is the World Bank and the regional
bank assisting in providing the capital that is required? What
are your relationships with the seed producers? Do you get access
to fertiliser in the way that you need to? Could you talk about
those issues that could prevent the next crisis?
(His Excellency Mr Zenawi) Rural development in general
and agricultural development, particularly small-scale agriculture,
have been out of fashion for a decade or two now. The focus, as
you know, has been on AIDS, education, health, and so on, agriculture
and infrastructure are out of fashion. Infrastructure is, to some
extent, taken care of by the EU and the World Bank; bilateral
are no longer involved in the infrastructure. In terms of long-term
investment these key issues of the infrastructure of roads, ports
and agriculture have not been treated adequately in the past.
However, having said that, and in fairness to the Bank, they have
provided the foreign exchange that we need to import fertilisers
and that has helped agriculture, particularly in areas where we
have inadequate rainfall. The World Bank has recently approved
a project of about $80 million over three years for food security.
Some donors have begun to notice the need for more focus on agriculture.
That focus on agriculture in rural areas was initially perceived
to be as a result of our own background and the rural movement,
now, however, people recognise this is the quicker, faster path
to industrialisation, not just agricultural development. It has
garnered more support, even amongst bilateral donors but on the
whole it has been forgotten. There is a specific problem with
Ethiopia, in the case of Ethiopia we need to deal with water in
order to deal with agriculture, we need to have irrigation water
schemes and that requires external funding. The World Bank is
not allowed to do that, they have a provision in their guidelines
to ensure that what we do in Ethiopia does not have what they
called appreciable harm in the downstream countries. The Egyptians
and the Sudanese have to say, "No, this does not have any
appreciable harm on our economy", but they do not respond
positively or quickly to such requests from our side to check
if this is having any appreciable harm to them. Most of them are
reluctant to support Ethiopia at the expense of angering Egypt,
so that limits our manoeuvre.
Chris McCafferty
98. Prime Minister, last year Ethiopia published
its own Sustainable Development and Poverty Reduction programme.
I know that last month you signed a 10 year partnership agreement
with our own DFID which will bring you direct budgetary support
in addition to the humanitarian aid, can you tell the Committee
how you feel that memorandum will benefit Ethiopia?
(His Excellency Mr Zenawi) As of now this is clearly
in terms of quality the best development partnership we have established.
The way it works and way it has worked so far is that the UK Government
had a look at our strategy and they said it was fine, so we can
implement this strategy. They said we are not going to earmark
assistance for this or that particular project we will support
the whole strategy but in return we expect accountability and
transparency in the budgetary process. That is the deal. I believe
they are reasonably confident that our budgetary process has been
reasonably transparent. I believe that they are assured that corruption
in our country is much less than the average elsewhere in the
continent. Nevertheless we have a system in the mechanism of continued
enhancement of budgetary transparency and of continued improvement
in our budgetary process. Before we signed this we already had
a programme of improving transparency, and that is continuity
in the budgetary process as part of our programme. The UK said
this programme is good enough and we will support that in addition
to supporting the rural strategy. If all of the others were to
do this it would mean that we would not have to consult the Egyptians
as to whether a household pond dug by some household somewhere
in Ethiopia is going to have appreciable harm on a river of something
like 85 million cubic metres of water! We would not have to do
that if we had a strategy that everybody agreed is good and would
implement it. For us this is cutting edge development assistance.
99. You would like to see other donor countries
adopt a similar possibility of supporting your sustainable development
programme?
(His Excellency Mr Zenawi) Fortunately some countries
have given an indication they will be willing to do so, the Netherlands
and Sweden are moving in the direction of DFID. We know some others
are not going to do it or are very unlikely to do it any time
in the near future. To the extent that we have a significant part
of the development aid we get managed in the manner that DFID
is beginning to manage in our country that will still be a major
step forward.
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