Ethiopia - Foreign Trade

Balance of Payments and Foreign Assistance

Ethiopia has experienced chronic balance of payments difficulties since l953, with the exception of a few years. The major factor in the deteriorating balance of payments was the worsening situation of merchandise trade. The trade deficit that existed during the imperial years continued to grow after the revolution, despite the introduction of import controls. Since EFY l981/82, the value of merchandise imports has been roughly double the value of exports.

Since l974 there has been low growth in the overall volume and value of exports. Coffee, Ethiopia's principal export, accounted for about 60 percent of total merchandise exports, although this level fluctuated in the 1980s. Coffee exports reached an all-time high of 98,000 tons in EFY l983/84 but dropped to 73,000 tons in EFY l987/88. Similarly, coffee receipts declined as the world price of coffee plummeted. The share of noncoffee exports has not shown any significant change. Exports of oilseeds and pulses have declined since imperial times. Industrial exports consistently contributed only about 8 percent of the total value of merchandise exports. In contrast to the slow increase in the volume and value of exports, imports grew by nearly 7 percent during the decade ending in EFY l988/89. This trend reflected Ethiopia's growing dependence on imports and the decline of foreign-financed investment and domestic savings. A high growth rate in import prices accompanied the high growth rate in imports. The result of these deteriorating terms of trade was a severe trade balance problem.

To finance its trade deficit, the government has depended on foreign aid. These import finance funds were in addition to the large volume of development project aid and commodity assistance the international community has provided to Ethiopia since the end of World War II. The volume of official development assistance jumped from US$l34 million in l975 to US$212 million in 1980 and to US$635 million in l987. Most external financial assistance came from Western nations. By the late 1980s, Ethiopia was the principal African recipient of concessionary funding and the largest recipient of EEC aid. In l988 Ethiopia received US$l4l million from the EEC under the provisions of the Lom� Convention. An additional US$230 million was later allocated under the Lom� Convention. Bilateral assistance, mainly from European countries, also increased in the late l980s. World Bank lending for various projects covering agriculture, education, housing, road construction, and power development reached US$400 to US$500 million by l988. Despite this aid, however, Ethiopia still received the smallest amount of aid per capita of all developing countries. The 1987 per capita aid level was US$14, compared with a US$23 group average for all developing countries.

Reliance on foreign aid has created economic problems for Addis Ababa. In 1987 Ethiopia's total external debt amounted to US$2.6 billion, of which US$2.4 billion was long-term debt (excluding military debt). Addis Ababa owed more than one-third of the total to multinational agencies and the remainder to bilateral creditors. Economists estimated the EFY 1986/87 cost of servicing this long-term debt to be 28.4 percent of export earnings and projected the figure to rise to 40 percent of export earnings by l990.

Exports

Ethiopia's exports in EFY l988/89 were primarily agricultural products. The only significant nonagricultural exports were petroleum products such as heating oil, which had no use in Ethiopia, from the Aseb refinery.

The value of exports increased during the l980s, and by EFY l988/89 exports had almost twice the value they had in l973. However, the composition of exports had remained essentially the same, although the relative share of the various agricultural exports had changed. Coffee, the major export, still averaged about 63 percent of the value of exports during the five years ending in EFY l988/89. The relative share of oilseeds and pulses, however, had changed dramatically. Pulses and oilseeds, which accounted for about l5 percent and l9 percent, respectively, of the total value of exports in EFY 1974/75, dropped to l.9 and l.4 percent, respectively, of the total value of exports in EFY l988/89. Droughts, famines, the peasants' preference for cereals and other staples, and the rising cost of producing pulses and oilseeds accounted for the decline in the export of these two products. Exports of livestock and livestock products averaged l8 percent of the value of exports for the five years ending in EFY l988/89, which was slightly higher than the prerevolution share of 16 percent.

After the l974 revolution, exports' relative share of GDP declined, largely because domestic production grew more slowly than total demand. This could be attributed to the agricultural crisis associated with the country's recurring droughts and famines and the dislocation of the farm economy resulting from the revolution. Total domestic production, measured by GDP, grew at an average annual rate of 0.9 percent per year during the 1980-87 period while exports declined at an average annual rate of 0.6 percent. During the same period, the population grew at an average 2.4 percent annual rate. Consequently, Ethiopia's export share of 8 percent of GDP in EFY l988/89 was one of the world's lowest.

The direction of Ethiopia's post-1974 exports remained essentially the same as in the prerevolution period, despite the government's change of policy and realignment with the Soviet Union and Eastern Europe. About 79 percent of Ethiopia's exports went to Western countries, primarily the United States, the Federal Republic of Germany (West Germany), and Japan. Ethiopia's export trade with the Soviet Union, one of its major allies, was less than 4 percent in the five years ending in l987; prior to l974, the Soviet Union had accounted for less than 1 percent of Ethiopia's imports. Beginning in 1979, Addis Ababa sought to encourage exports to the Soviet Union and other socialist countries by encouraging barter and countertrade. Ethiopia used this technique to market products such as spices, natural gums, some pulses, frozen meats, and handicraft items, which are not reliable hard-currency earners. In exchange, Ethiopia usually received consumer goods, industrial machinery, or construction machinery. Although reliable figures on the volume of barter and countertrade were unavailable, it appeared unlikely that the figure exceeded US$50 to US$55 million in any year.

Foreign trade

Both the imperial and the Marxist governments tried to improve Ethiopia's balance of trade, the former by encouraging exports and the latter by curtailing imports. However, Ethiopia's foreign trade balance has basically been in deficit since l953, with the exception of l975, when a combination of unusually large receipts from sales of oilseeds and pulses resulted in a surplus. In general, foreign trade has grown faster than the national economy, particularly in the early l970s, but it has accounted for only a small percentage of the national economy. In EFY 1972/73, exports and imports accounted for l3 and l2 percent of GDP, respectively. By EFY 1988/89, exports had declined to 8 percent of GDP, and imports had jumped to 2l percent. Virtually all machinery and equipment had to be imported, as well as intermediate goods for agriculture and industry, including fertilizer and fuel. Increased cereal shipments accounted for the growth in imports. In the 1980s, Ethiopia faced several famines and droughts. Consequently, the country, which had been virtually self-sufficient in food supplies in the 1970s, became a net importer of food worth as much as 243 million birr annually during the period EFY l983/84 to EFY l987/88. The military government failed to correct the country's historical trade deficit, despite efforts to regulate exports and imports. Consequently, during the 1980s the trade picture worsened as imports grew rapidly and foreign aid slowed.

Imports

Ethiopia's major category of import items was consumer goods, which accounted for about one-third of the value of imports during the period EFY l984/85 to EFY 1988/89. Capital goods, primarily machinery and transportation equipment, accounted for another 39 percent, with fuel, semifinished goods, and durable consumer goods accounting for the other third of the value of imports. A major structural change in Ethiopia's imports was the relative increase in the importation of food items. During the three years ending in EFY l986/87, cereals and other food items accounted for 22 percent of the total value of imports; in l974 cereal and food items had accounted for only 4.6 percent. As a result, the share of nondurable consumer items jumped from l6.8 percent in l974 to 34.2 percent in l985. It dropped to 24.9 percent in EFY l986/87.

Imports provided the capital and intermediate goods upon which industry depended. Imports also satisfied most of the country's demand for nonfood consumer goods, such as automobiles, radios, televisions, pharmaceuticals, and textiles. In the five years ending in EFY l986/87, the relative share of the value of transportation and transportation equipment increased, reflecting the country's increasing demand for trucks and other heavy road vehicles needed to transport food to areas affected by drought and famine.

Most of Ethiopia's imports came from Western countries. Italy, the United States, West Germany, and Japan, in order of importance, accounted for 45 percent of total imports in l987. The Soviet Union accounted for l6 percent of the value of imports in l987. By contrast, Ethiopia's exports to the Soviet Union amounted to only 5 percent of total exports in 1987. The relatively high proportion of imports from the Soviet Union was largely because of oil; in l987 Ethiopia received virtually all its crude petroleum from the Soviet Union. In l987 the United States remained Ethiopia's major trading partner despite cool relationships between the two countries; the United States ranked first in buying Ethiopia's exports and third in satisfying Ethiopia's import needs.

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