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This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accurocy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

ECONOMIC GROWTH AND PROSPECTS

IN

ETHIOPLA

(in five volumes)

VOLUME II

Annex 1: The Agricultural Development of EthiopiaAnnex 2: Manufacturing IndustryAnnex 3: Mining

September 22, 1970

Eastern Africa Department

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BQUIVALENTS

CURRENCY

Unit Ethiopian dollar (Eth.$)U.S.$1.00 Eth.$2.50ETH.$1.00 u.s .$o04o

WEIGHTS

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

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

1 long ton 2,24.0 lb.1,016 kg.

MEASURS

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

TIME

The Ethiopian calendar year (EC) runs from September 11 toSeptember 10. There is a difference of about 7-3/4 years between the Gregorianand the Ethiopian era. For example 1963 EC runs from September 11, 1970 toSeptember 10, 1971. Most of the Ethiopian statistics are converted to theGregorian calendar. Throughout the report the Gregorian calendar is used.

The Ethiopian budget year runs from July 8 to July 7. For example,Ethiopian budget year 1963 runs from July 8, 1970 to July 7, 1971. In thereport this year is referred to as budget year 1970/71.

THE NISSION

This report is based on the findings of a mission inJanuary - February, 1970 to Ethiopia composed of :

Lyle M. Hansen Chief of Mission

R. H. Khandker Chief Economi.st

C. P. Cacho General Economist

S. Please Fiscal Economist

L. Hewes * Agricultural Economist

I. Abu Sharr * Agronomist (FAO)

B. Decaux * Industrial Economist

D. H. F. Bickers Transport Economist

J. Bonnett )) Tourism Specialists

A. El Maaroufi )

* Consultants

The 1-ssion received assistance from the UNDP ResidentRepresentative in Ethiopia (M. R. Gachot) on pre-investmentstudies, Mr. George Mahoney on Transport and Mr 0. J. Markgrenand Mr. G. Pennisi cn Education.

CONTENTS OF THE VOLUKES

VOLUME I Main ReportStatistical AppendixAppendix A - Illustrative Growth and

Investment ProjectionAppendix B - Pre-Investment Studies

VOLUME II Annex 1 - AgricultureAnnex 2 - Manufacturing IndustryAnnex 3 - Mining

VOLUME III Annex 4 - TransportAnnex 5 - PowerAnnex 6 - Telecommnications

VOLUME IV Annex 7 - EducationAnnex 8 - Tourism

VOLUME V Annex 9 - Domestic Resources

THE AGRICULTURAL DEVELOPMENT

OF ETHIOPIA

TABLE OF CONTENTS

Page No.

SUMMARY ANiD CONCLUSIONS................... i

I. AGRICULTURAL DEVELOPMENT STRATEGY.............. 1

II. CONDITIONS OF AGRICULTURAL PRODUCTION............ 5

Physical Characteristics................ 5The Agricultural Economy................ 7Scope for Increased Production............. 8Agricultural Planning...................13Private Investment....................15Land Tenure ....................... 19

Ill. THE DEVELO.PMENT EFFORT .................... 21

Plan Projects.......................21Minimum Package Programs.................26The Marketing of Grains, Pulses and Oilseeds.......27Agric-Iultural Credit .................... 28Agricultural Research...................29Agric-ultural Extension..................30Veterinary Services ................... 32Supply of Seeds, Fertilizer and Machinery.........32Organtization.......................33Responding to Shor-t-Term Constraints. .......... 34

IV. _CoMMODITY PROSPECTS ...................... 38

Coffee .......................... 38Cotton..........................40Trobacco ......................... 42Sugar-cane ........................ 44Cereals, Pulses and Oil Seeds .............. 45Fruits and Vegetables .................. 48Livestock and Livestock Products.............50Fisheries ........................ 54Forestry.........................55

APPENDICES

1. Land Use and Crops by Province2. Estimated Area; Yield and Production of Major Crops in 1967/683. Estimated Livestock Population by Kind, 1967/684. Estimated Financial Requirements for Agriculture, 1970-19755. Estimated Staff Requirements for Agriculture, 1970-756. Prospects for Cultivation of Government Lands7. Estimated Output from Principal Agricultural Training Institutions8. Minimum Package Programs9i. The Veterinary Services

AGRICULTURE

SUMMARY AND CONCLUSION

Characteristic of Agriculture

1. Ethiopia is divided into a dissected mountainous highland centralplateau at over 1500 meter elevation and hot semiarid lowlands. Differencesin temperature, precipitation and elevation provide for a variety of climaticsubregions with specific crop adaptability. Also soils vary widely in phy-sical characteristics, but generally they are nitrogen and phospherous defi-cint; there is very little potassium deficiency.

2. Fifty four percent of the land area is used as pasture, mostlysituated on the 500,000 sq km government-owned land in the lowland region;cultivated and fallow lands comprise 10.4 percent of the area; 21 percentis barren desert or swamp land and forests constitute over 4 percent of thetotal. Agricultural land including the fallow averages about 3 ha per family,though many holdings are much smaller. There are also some large commercialand mechanical farming enterprises which operate under Government concession.

3. The small scale farms of the highland regions produce crops valuedat about Eth$ 1.0 billion, or about half of the national crop output; morethan half of the cattle population is in the highlands. The lowlands producemainly cotton, sorghum, sesame, and cattle; and support large nomadic live-stock herds.

4. The all important coffee crop is a highland product. Long runagricultural improvement prospects favor highland agriculture. Opportuni-ties for lowland agriculture are in cotton - an important substitution crop,export crops of oilseeds particularly sesame, and livestock. There are goodshort: run prospects for relatively large scale mechanized agriculture in thelowlands.

5. Generally the technology of Ethiopian agriculture is still rudi-mentary. Income, skill, and literacy levels are low. Most farmers are at asubsistence level. In subsistence agriculture the planned economic growthrate, 1.8 percent annually, about equals the population increase. Technicalinputs are scarce and land tenure is insecure and complex, and occupancyrights are cloudy. Lack of market facilities and credit, as well as remote-ness and isolation, are major handicaps. Nevertheless, farmers produce 60percent of the GDP. Agriculture is obviously the touchstone of Ethiopianeconomic development. Ninety percent of the national labor force is in ruralareas. Agricultural products constitute almost the entire export trade, ledby coffee which accounted for 59 percent in 1968. In time Ethiopian agricul-ture could substitute for almost all food imports.

The Regional Pattern

6. Central Highlands. This large intensively cultivated subsistencefarm area has perhaps the country's best long range agricultural potential.Portions are remote with difficult access. Soils are relatively stable andrainfall is favorable.

7. Northern Highlands. This densely populated region will be dif-ficult to develop. Erosion is widespread, rainfall is erratic, and holdingsare very small. The communal land tenure system is a barrier to modern agri-cultural technology. Extensive out-migration occurs as farm labor toTessenei, Setit Humera and the Awash Valley.

8. The Eastern and Southern Highlands. In the Chercher highlands ofHarrarge Province farm standards are high but rainfall limits developmentprospects to a narrow area. Coffee is the most important crop followed bysorghum, maize, and chat. Prospects in the Arussi highlands lie in extensionof the so called Chilado (CADU) "package program" to a larger area. Thearea has above average highland production potential, good soils, and ade-quate rainfall. Prospects in the Bale highlands are poor. Northwest areasmay be adaptable for sheep and cereals. Information about this area is poor.

9. Southern and Southwestern Highlands. These are the least developedhighlands in Ethiopia but with favorable rainfall have a good agriculturalpotential. Many areas are remote and small grain farming is on the subsis-tence level. There are good prospects for washed coffee, maize, spices, andlarge dairy herds.

10. The Lowlands. Lack of knowledge of rainfall -- its amount anddistribution -- limits the immediate development prospects. At present onlyabout 200,000 ha out of a potential of 5 million ha is under cultivation.Half of this cultivated area is in the Humera development area, where aBank financed project is underway, and the cultivated area may increase to300,000 ha in six years. Commercial mechanized dryland agriculture is theprime mode of development. Some areas are uneconomic because of drought,remoteness and disease. Livestock production in the southern lowlands shouldhave priority; a National Range Development Project has been initiated.

11. Some of the river valleys, e.g. Awash, Aboy, Wabi Shelele, Takezeand Omo, have distinct irrigation potentials. Over the next two decades150,000 ha of irrigated land in the Awash Valley may develop.

Agricultural Development Strategy

12. The TFYP agricultural strategy concentrates inputs in areas of highpotential response. Concurrently corporate and commercial agriculture is en-couraged to anticipate large short run returns which in turn should increasepublic revenues to support agriculture. Various planned undertakings re-quire large expenditures over the next few years. A key aspect of the strat-egy is to concentrate large resources of manpower and investment in limitedareas, in the form of regional package programs. The major weakness is that

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large numbers of farmers in nonpackage areas are left with no governmentsupport. The current strategy also tends to overlook the development incen-tive in providing proper crop handling and marketing services. Major devel-opment projects underlying the development strategy are described brieflybelow.

:13. Chilalo (CADU), Wellomo-Soddu (WADU) and Ada District Agricul-tural Development Units. These are "package programs" th similar designand purpose. The CADU project is in two phases, the first just ended andthe second just commencing. First phase cost including a Swedish grant ofEth$ 8 million was ETH$ 14 million; total second phase costs is estimatedat ETH$ 19 million by the end of the TFYP. WADU, activated in 1970, isestimated to cost ETH$ 12.6 million including an IDA credit of ETH$ 8.17million. The Ada District plan is still in formulation.

14. The Awasa Rural Extension Project, under jurisdiction of theMinistry of Community Development, is located in Shoa and Sidamo Provinces220 km south of Addis Ababa. It is part of a scheme which includes opera-tion of a State Farm and an industrial complex. The objective of the pro-ject :Ls to improve the maize production of 18,000 small farmers. It willhave a five year term and will cost ETH$ 11 million.

15. The Setit-Humera project, in the Teyemdis - Simen Province 600northwest of Addis Ababa, nw being activated, is directed at providinginfrastructure support to large mechanized agriculture producing cotton,sorghum and sesame. The project is partly financed by an IBRD loan ofETH$ 8.7 million and will cost ETH$ 12 million. A proposed Shashamenneproject, in Shoa and Sidamo provinces 250 km south of Addis Ababa, isdirected at encouraging moderate sized (up to 200 ha) commercial farmschiefly producing cereal crops. It has been prepared by USAID, and willcost about ETH$ 11.1 million.

1.6. The Melka Sadi-Amibara Irrigation Project is in the middle Awashvalley, 175 km east of Addis Ababa. The plan calls for irrigation of 14,000ha at a cost of ETH$ 80 million. Most of this area would be in moderatelylarge-scale commercial concessions. Potential crops are cotton, tobacco,wheat, beans, vegetables and citrus. Further investigation of this projectis underway.

17. A project in support of the cotton-producing Tendaho PlantationShare Company is located in Welo Province 400 km northeast of Addis Ababain the lower Awash Valley, in two units at Dubti and Dit Bahri. Plans arebeing developed to expand Dit Bahri under leadership of the British MitchellCotts Company; capital investment is estimated at Eth$ 10 million, and work-ing caLpital at Eth$ 3.8 million.

18. The National Range Development Project covers a 10,000 squaremile area in three units in Sidamo Province. The proposal was prepared byUSAID. The area is used for grazing the herds of nomadic tribesmen and itspurpose is to combine improved watering, range management, and animal diseasecontrol to improve the 25 million head of livestock. Five year costs areestimated at ETH'j 14.3 million.

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19. Two projects are aimed at developing agroindustry. The AddisAbaba Dairy Project seeks to improve the quantity and quality of fluid milkfor Addis Ababa, through dairy herd improvement, better feeding, crossbreeding, market services, etc. Total cost will be about Eth$ 19.4 million.Coffee washing plants are proposed for Sidamo Province and Keffa Province,respectively, 300 km south and 200 km southwest of Addis Ababa. The pro-ject will include access roads and it will aim converting 18,000 tons ofpoor quality unwashed coffee into mild washed coffee. The total cost isestimated at Eth$ 31.4 milliLon.

Other Possible Approaches to Develonent Strategy

20. Three proposals are offered by the Mission as means of (a) modify-ing the present emphasis on agricultural production, and (b) utilizing theconcept of the "paclcage" technique to reach a larger number of small farmersat moderate cost.

(i) Minimum Package Programs. The idea is to have programs aimedat relieving specific production constraints in a number ofselected areas simultaneously. For example, a miminum packageproject could aim at improving the poor cereal yields of thehighlands using immediately a,!2ilable resources of the Ministryof Agriculture and inputs limited to seeds, fertilizers, and theorganization of credits and markets. A feasable target would beto double the yield of wheat and teff on 1 ha each of 1,500 smallhighland farms in each of, say, 10 locations. This would beequivalent to doubling the yield on 15,000 ha.

(ii) The Marketing of Grains, Pulses and Oilseeds. The imperfect mar-ket for grains, pulses and oilseeds prevents prices from perform-ing their role to allocate agricultural resources. A grainstabilization scheme, costing perhaps ETH$ 20 million over fiveyears, could go far toward eliminating extreme price fluctuations.Given necessary authority and financing the Grain Corporationcould considerably lessen fluctuation through providing storageand marketing facilities in the short run and ultimately super-vising grading and trading, and licensing bonded warehouses.

(iii) Agricultural Credit. Ethiopia badly needs a sound specializedagricultural credit institution. Credit to the sector frominstitutional sources now amounts to about Eth$ 40 million ayear, extended to larger preferred risk agricultural borrowersmostly on the security of urban real estate. Smaller borrowershave to rely on high-cost local money lenders. A specializedagricultural credit department could be created in the newEthiopian Development Corporation, at a development cost of lessthan Eth$ 7.0 million over five years. Costs would cover train-ing and expatriate assistance plus moderate capital funds forlending to smaller borrowers.

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Major Constraints

2:1. The Government is considering the possibility of implementingdevelopment projects which in aggregate would absorb Eth 231 million overthe reamining years of the TFYP. The capital expenditures for 1970/71 wasscheduled under the TFYP to be over Eth$ 44 million, but this has now beenscaled down to about Eth$ 27 million in the proposed budget. The loweramount is still more than double the 1969/70 capital budget for agricul-ture. A considerable amount of external finance and technical assistancewill be required, but these do not appear to be a basic constraint. How-ever, based on recent fluctuations in budgetary allotments, the orderlyflow of domestic funds is an uncertain element -- though the recent firmingof the coffee export prices may make more public funds available for agri-culture. There is little likelihood, however, that the manpower necessaryto implement a program of the size contemplated could be found. The ques-tion has become, not whether projects can be made reacly for implementing,but which projects and at what speed. However, it must be emphasized thatGovernment action is needed to improve and regularize the entire processof budget preparation, and to release funds for agricultural development.An: emergency manpower plan, giving priority to agricultural is anothershort-term need.

Private Investment

22. Ethiopian agriculture has lagged behind other sectors in itsability to attract capital and initiative. The proposed organizationalchanges in credit institutions could do much to improve private investment.However, 80 percent or more of Ethiopian farms do not generate a capitalsurplus. For the farmers who are capable of entering the monetized sector,it is the uncertain, confused, and complex land tenure situation which maybe the dominant deterrent to investment. The communal tenure institutionsof the northern highlands are a barrier to investment in land; south ofAddis Ababa landlord rightss are paramount and tenants can be evicted atwill; in the lowlands, tribal rights prevail. On government lands bound-aries are vague and patronage grants from these lands are subject tochallenge.

23. In the traditional small farming highland areas, capital improve-ments should be labor rather than capital intensive because the latterwould tend to cause tenant displacement. Capital formation should be inthe form of long-term conservation measures. Investment opportunities existin services to agriculture such as retail outlets, supply deposits, storageand institutional credit. An illustration is the cluster of enterprises atDebre Azit, a small farm center.

24. In contrast to small farmer investments is the scope for corporateinvestment in larger scale farming. A number of concessionaires are inoperation, producing such commodities as cotton, sorghum, tobacco, sugar,and dairy products. There have been failures as well as successes. Oneindex of the spread of commercial agriculture is the purchase in recentyears of over 2,000 farm type tractors. Several d2velopment proposals are

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aimed at expanding commercial type oE agriculture. Resolution of landtenure uncertainties is closely tied to continued expansion of this kindof investment.

25. The Government has already created favorable conditions toattract foreign and domestic capital to agriculture. However, effortsshould be made to help investors by improving official facilities fordealing with them. Several state farms which are now unsuccessful mightbe turned over to concessionaires.

Government Services

26. Organization Prospects. There Is a distinct dispersion of agri-cultural functions among a number of Government agencies. Examples are:the semi-independent Institution of Agricultural Research, the Livestockand Meat Board, the Tobacco Monopoly, The Coffee Board. the Awash ValleyAuthority, the Ministry of Community Development and the Ministry of LandReform and Administration. Most of titese operations should be vested in theMinistry of Agriculture. Th.. cpr,-senu- ieeŽd to coordinate these bodies issymptomatic of the prcsent .admidiistra-ive weakness. The Rockefeller founda-tion is undertaking a review of the organization of agricultural servicesand is expected to report shortlv.

27. An important factor is the absence of basic knowledge and dataabout the economics of Ethiopian agriculture and farm management. The Plan-ning Unit of the Ministry of Agriculture could commence immediately to col-lect data from the ongoing regional programs. Also, it is noted that thetraditional provincial lines of organization do not follow the regionalpattern of agro-climatic and soil potentials.

28. Agricultural Research. Research activity covers livestock, irri-gated crops, coffee, sorghum, cereal crops and cotton. Research activitiesshould be nationally coordinated and the Institute of Agricultural Researchhas this responsibility. More research emphasis is needed on farmmanagement, livestock, and grain legumes and oilseeds. Coordination withExtension Services is weak.

29. Agricultural Extension. The Extension Service is in a positionto benefit from the results of limited but indicative research on a fewcrops. Its need for men and money should have priority. Coordination withresearch could be improved through National Crop Improvement subcommittees.

30. Veterinary Services. The veterinary services are spread verythinly among a large cattle population. Allocations of both men and moneyare inadequate but veterinary training is good. A mass cattle immunicationprogram has started and needs to be strengthened. Fifteen percent annualincreases in capital and recurrent Veterinary Department budgets plus alarge scale fellowship program appear justified.

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31. Supply of Seeds, Fertilizers, and Machinery. In 1969 only 1,000cut of 500,000 tons of seed planted were of improved varieties; a substantialseed improvement and distribution system should be implemented to meet theexpected increase in demand. The Plant Production and Protection Divisionof the Ministry of Agriculture has this responsibility but is unable todischarge it. Distribution could be initially handled through CADU, WADUand the minimum package programs as an extension Service operation.Fertilizer imports reached 7,000 tons in 1969, mostly for the large com-mercial operators. Fertilizer prices are high and credit is not avail-able, but demand should increase as a result of the package programs.Farm machinery can be purchased through dealer credit; a tractor assemblyplant and a small implement factory will soon be in operation.

32. Manpower. A serious shortage of professional and technical man-power confronts the IEG for the remaining three years of the TPYP andthrough 1974/75. Even with rephasing of the 1970/71 financing, and aftercounting as available for recruitment all 1970 graduates of agriculturaltraining institutions, there is an irreducible 1970/71 shortage of some94 man-years of professional service. Carrying forward the backlog burdento 1971/72, the shortage becomes over 600 man-years, and over 800 ifminimum package, marketing, and credit proposals are activated -- althoughthis latter figure might be smaller if staff already employed in thesethree programs is counted. During 1970/71 a specific manpower plan shouldbe developed to make maximum utilization of manpower. This task should bedelegated to the Planning Unit, Ministry of Agriculture.

Commodity Prospects

33. Coffee. The Government is taking steps to improve the qualityoif coffee, to assess the coffee economy, to increase washed coffee pro-duction, to rationalize handling, and to increase research. Ethiopiancoffee exports are expected to increase from 93,000 tons in 1970 to110,000 tons by 1974.

34. Cotton. Irrigated cotton agreage will probably increase by17,000 ha by 1975 and dry land cotton acreage by 25,000 ha, and increaseof about 15,000 tons of lint cotton worth over Eth$ 23 million at currentprices. The local market for cotton will continue to expand for another10 years. Under irrigated conditions it may be possible to produce longerstaple cotton for export.

35. Tobacco. The Tobacco Monopoly contracts in advance with about40,000 small farmers, and supplies seed or seedlings, cultivation and plantprotection services. National production is about 1,570 tons of all types;The Tobacco Monopoly's profits were Eth$ 6.5 million in 1969. It is tryingto promote Virginia and to discourage production of oriental type tobacco.Experiments with burley tobacco for blending are encouraging. Substantialirrigated production increases of Virginia tobacco for export may be pos-sible on the proposed Melka Sadi-Amibara irrigation project. This wouldrequire a substantial program of research, extension and technical adviceorL handling, grading, curing and marketing operations.

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36. Sugarcane. This commodity is produced by the Dutch concern, H.V.A.,in the Awash Valley. Production in 1968/69 was 66,200 tons valued at Eth$40.6 million. Ultimate capacity is 135,000 tons; 1968/69 demand was75,000 tons. Exports are problematical because sugar can be imported atEth$ 230 per ton CIF Red Sea ports against a domestic wholesale price ofEth$ 613 per ton. HVA intends to limit output at its Metahara unit untildomestic demand cataches up.

37. Cereals, Pulses and Oilseeds. Prices have recently been stable.Exports of pulses and oilseeds are valued at Eth$ 47.8 million in 1968.Shifts in domestic demand (urban) are toward wheat and teff and away frommaize, sorghum, and barley. In exports, shifts are away from linseed andtoward sesame, beans, chick peas and lentils. Development plans should beoriented accordingly.

38. Fruits and Vegetables. By 1975, exports should increase from thepresent 27,000 tons, worth Eth$ 9.1 million to 35,000 tons worth overEth$ 12 million. Local consumption, principally of yams and potatoes grownin southern, western and southwestern regions, will likely parallel thepopulation increase. The principal demand for fresh fruits and vegetablesis for exports; local demand is small. Thus the future of fresh fruitsand vegetables is closely related to transport costs. Demand is high forthese products in Red Sea, Mediterranean and European countries, partic-ularly for citrus. The chief suppliers will be the large operators. Smallhighland farmers can grow chillies and pepper to supply such concerns asthe U.S. Spice Extraction Company.

39. Livestock and Livestock Prospects. The 55 million head of live-stock represents a neglected resource. Given a number of supportive mea-sures by government, increases in cattle production could become evidentby 1974. Present rates of cattle slaughter are too high to maintain thepresent population, yet the six commercial meat processing plants, with acapacity of 270,000 carcasses, handled only 73,000 in 1968, probably be-cause highland farmers keep livestock primarily for milk and draught pur-poses and distances are too great from the southern ranges. Death lossand disease rates are very high and nutrition, fertility and growth arelow. Improvement of Government services should include:

1. Activation of National Range Development Project.

2. Reorganization and improvement of Livestock and Meat Board.

3. A widening of the scope of Governments livestock survey.

4. Intensification of activities of veterinary development.

5. Expansion of research.

6. Initiation of a highland pilot livestock project.

7. Implementation of a hides and skins improvement program.

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Additional information about the livestock industry is anticipated fromthe report of the IBRD Livestock Review and Project Identification whichvisited Ethiopia in April and May 1970.

40. Fishery. Neither the Red Sea nor the inland fishery resourcehas been systematically developed. Fish meal and dried fish had an exportvalue! of Eth$ 2.5 million in 1966/67, but this export trade was drastic-ally affected by closure of the Suez Canal. Another impediment to expan-sion of fish production is lack of knowledge about the resource; stillanother is the lack of interest in fish as an item of diet. The Interna-tional Indian Ocean Fisheries Commission should be asked to investigatethe Rted Sea fishery resource.

41. Forestry. Ethiopia has 4-5 million ha of natural forests; about2 mi]Llion ha are state forests under the Administration of the Forest Depart-ment of the Ministry of Agriculture. An estimated 80 percent of the totalforest resource is inaccessible. Forest resources have been abused anddepleted for centuries with the result that Ethiopia will have to importwood products for a long time. Increased investment and a conservationprogram are necessary. The lack of professional foresters could be overcomeby employing expatriate professionals as trainers and establishing the pro-posed Forest Ranger Training Centers.

I. AGRICULTURAL DEVELOPMENT STRATEGY

1. Agriculture contributed 60 percent to the GDP in 1969; the nextlargest sector, manufacturing, mining etc., contributed only about 14 per-cent. In terms of the national labor force, over 90 percent of the agegroup, 15-19 years, are classified as rural, and rural literacy rates arewell below the estimated national average of 5-7 percent. These statisticspoint to the crucial role of agriculture in terms of employment, livelihood,and national well being.

2. Roughly 60-70 percent of the farm population is located on smallfarms in the highland regions. Conditions of subsistence farming are prim-itive; malnutrition is prevalent; localized starvation occurs in years ofpoor rainfall. Farming techniques are rational but inadequate; technicalimputs almost totally absent. Large numbers of farms are in inaccessiblelocations and lack even good weather roads; those farmers able to producea surplus have difficulty in marketing it because of poor transport andlack of market outlets. In addition, traditional and complex land tenuresystems provide little security of tenure for large numbers of farm tenants.

3. The critical export trade, with a total value in 1968 of Eth.$ 258million, is, with minor exception, composed almost entirely of agriculturalproducts; coffee, the largest export item, accounted for 59 percent, followedby livestock products, 13 percent; oil seeds and oil c:akes, 10 percent; andpulses, 8 percent -- a total of 90 percent of all exports. A review of theEth.$ 19 million 1968 food imports indicates that nearly all of the compo-nents of this item can be replaced in time from domestic production. Majoritems are cereals, pulses, flour, dairy products, fruits, vegetables, sugarand in additiona, the Eth.$ 7 million raw cotton import item can also be re-placed in time.

4. Given the characteristics of the economy, short-run and even moder-ately long-run Ethiopian planning strategy must be based on the capacity ofthe rural agricultural sector to feed the nation, provide the major sourceof foreign exchange, national savings, and labor force at planned levels ofpopulation and economic growth.

5. The Five Year Plan sets goals of national economic growth rate of6 percent annually, with a 3 percent rate of per capita income expansion.The planned assignment for agricultural production is a 3 percent annualgrowth rate, compounded of a 1.8 percent growth rate for small subsistencefarm units, and a 5.7 percent growth rate for marketed agriculture. Plangoals were set in the context of an annual 2.2 percent overall populationincrease from an estimated 23.7 million total population in 1967 to 26.7million in 1972. This task for agriculture implies a substantial increasein output, but not for the majority of subsistence farmers.

6. In terms of foreign trade, it is essential that the current domi-nance of exported coffee, Qow over half the value of aLl Ethiopian exports,

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be supplemented by substantial exnort crop increases. The present dominanceof coffee exports exposes foreign trade earnings to large and un,-edictableshifts in the world coffee market. The total cumulative decline in the valueof Ethiopian coffee exports from 1965 to 1968 was Eth.$ 85 million, and totalforeign exchange earnings declined by Eth.$ 83 million to Eth.$ 250 millionin 1967.

7. A broader export base should be obtainable in the short term frompulses, oil seeds, cotton (raised for the export market) and in the mediumto long term from grains and from livestock and livestock products. An in-crease in domestic short staple cotton production, currently in prospect inthe northern lowlands and the Awash Valley, would provide foreign exchangesavings in the form of import substLtution.

8. The broad nature of the problem is thus clear. The present agri-cultural development strategy of Ethiopia concentrates on the short-term po-tential: to concentrate men, materLals, and money in areas with high re-sponse potential and the concurrent development of commercial agriculture.This represents a shift in policy. Previously, the emphasis was on buildinginfrastructure and, by implication, the spreading of slender resources overthe entire country. Concentration of effort on selected objectives is like-ly to be much the more effective strategy. Furthermore, the present strate-gy is heavy on a "project" approach:

(a) Regional developments taking the form of so-called "packageprograms" in predominantly crop producing areas. Two suchprograms, e.g. Chilalo and Welamo-Soddu, have been initiated,and a third, in the Ada district near Addis Ababa, has beenproposed.

(b) Regional development of livestock, e.g. the National RangeDevelopment Project and the Addis Ababa Dairy Scheme.

(c) Commercial agriculture chiefly related to larger farms andplantations, e.g. at Humera, Shashamenne, and irrigatedagriculture.

(d) Agroindustry, e.g. coffee processing and the possible de-velopment of a tea industry.

9. The emphasis is on rapid expansion of the market economy, with theexpectation that a portion of the returns could be captured for use in fur-ther agricultural developments. There is every reason to believe that sub-stantial progress can be realized in the next few years. The anticipated re-vival in the economy and the implementation of proposed organizational andfiscal policy changes should enable the Government to end the recent disrup-tion of public expenditure in agriculture. The "project" approach offers theassurance that sources of external finance can be approached, bringing thetwin advantages of foreign exchange finance and adequate economic appraisal.

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The country's policy which welcomes foreign private participation in the eco-nomy should also contribute to success.

10. The strategy for agriculture has three important limitations, how-ever. First, the investment program is greater than can be implemented underthe existing rnanpower constraint and some rephasing is thus in order. Second,the regional package approach leaves the greatest part of Ethiopian agricul-ture with onlv the admittedly deficient regular services of the Ministry ofAgriculture. In addition, the package programs have not yet had time to de-monstrate either actual costs and benefits, or the rate which they can be ex-panded to larger areas; apart from their pioneering value, their national im-pact remains unknown. The third limitation arises from the almost exclusiveinput approach to securing increased agricultural output. While the packageprograms take into account marketing needs, in a broader sense there is lit-tle attention and little if any support or investment planned to facilitatecrop handling,, assemblage, transport, storage, grading, marketing or pricingfunctions.

11. There is a conclusion, in brief, that the present strategy is beingcarried too far. Demand on the Government to start other full-scale packageprojects, similar to the ones already launched, is growing. The Government'sability to reproduce the Chilalo and Wolamo-Soddu Projects in other areas islimited. Furthermore, the more difficult problem of transforming subsistencefarmers into surplus producers for the market cannot be indefinitely post-poned. The normal services have suffered from shortage of funds, absence ofclear programs of work, lack of qualified experienced staff, of necessary in-puts, and of credit and marketing facilities. A possible approach would bethe mounting of what might be called Minimum Package Programs, the scope andcost of which could be such as to allow for a start to be made in a number ofareas simultaneously. In this way, with only modest increase in staff and ex-penditures, the Government would be able to make better use of its existingstaff, to utilize information on improved practices which already exists, andprovide the increased inputs which are necessary to realize the benefits.More attention also needs to be paid to pricing policy and the operation ofthe market system as it affects farmers who are capable of surplus production.The basic need is for more effective incentives for the small-scale farmer.Indeed, the entire range of agricultural economic knowledge in relation toproducers is practically unexplored in Ethiopia.

12. But despite handicaps, impediments and obstacles natural and man-made, it is conceded that Ethiopian agriculture has favorable future pro-spects. There is advance and there is improvement, but painfully and slow-ly. Unfortunately, extraneous and adventititous factors, such as the col-lapse of coffee prices and closure of the Suez Canal, tend to interrupt andobscure the underlying advance. Yet in the next 10 years, research and ex-tension inputs should begin to pay off, as should the experience at Chilalo.The production climate and the ability to support agriculture are improving.Research should begin to pay off, the results of the "packing programs" willbe available, a credit reorganization should increase the availability ofcredit and the improvement of extension will increase yields. The monetized

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portion of agriculture could by the end of the decade be increasing at betterthan the rate assumed in the TFYP. But the indispensable element is an in-creased scope of knowledge as a basis for grasping opportunity.

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II. CONDITIONS OF AGRICULTURAL PRODUCTION

Physical Characteristics

13. Ethiopia, with an area of over 1.2 million Km2, has very distincthighlands and lowlands. Most of the farming is in the highland half of thecountry, a plateau of over 1,500 meters in height which is cut by deep gorgesand towered over by mountains of over 3,000 meters in height. A large partof the lowland half is hot and dry with less than 600 mm of rain a year.

14. The climate and the kind of farming are in the main determinedby the altitude. Temperatures, and to a considerable extent the rainfall,are directly related to elevation; over a large part of the country theamount and distribution of rain are the major factors determining cropand pasture production. In general, the rainfall increases from north tosouth and from east to west (Asmara 600 mm, Addis Ababa 1,100 mm, DireDawa 600 mm, Jimma 1,500 mm, Gore 2,400 mm).

15. The highlands form a pear-shaped central mass divided by theRift Valley. Those northwest of the Rift are mostly over 2,000 meterselevation, and they provide the bulk of Ethiopia's agricultural produc-tion. They may be divided into the Northern Highlands of Eritrea, Tigre(Undependable rainfall), Begemdir and Welo (undependable in part), theCentral Highlands of Gojam, Shoa and Welega (adequate rainfall), theSouthern Highlands of Sidamo and Gemu-Gofa (good rainfall), and theSouthwest Highlands of Kefa and Illubador (high rainfall). The highlandssoutheast of the Rift may be divided into the Chercher Highlands of Harar,and the Highlands of Arusi and Bale. The parts of these highlands thatadjoin the Rift receive adequate rains for crop production similar to theCentral Highlancds, but the larger part is in a low rainfall region.

16. The lowlands surround the highlands and the largest portion isin the east, which is also the driest (Eritrea lowlands receive less than200 mm a year, Awash, Wabi Shebele and Genale lowlands less than 400 mm).In thke narrower western lowlands rainfall increases from north to south(Tessenei 330 mia, Humera 500-600 mm, the Baro and the Omo river basinsover 600 mm).

17. The rivers of Ethiopia run a large part of their course in deepgorges. Surveys have been made by the Awash and Abay rivers and have in-dicated lowland irrigation areas suitable for agricultural development.At present, a survey of the Wabi Shebele river basin is being conducted.The other seven major rivers remain to be surveyed.

18. The soils of Ethiopia are very varied. The red and the darksoilst of the Central Highlands are derived from lava, mainly basalt andare clayey in texture. The color is often associated with the topography,the red, usually acidic soils occurring mainly on the slopes and the darkslightly alkaline soils in bottom land and valleys. Both soils erode but

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are more stable than the limestone and sandstone soils of the northernand eastern highlands. Both the red and the dark soils are deficient innitrogen and the amount of available phosphate is low; there is no wide-spread potassium deficiency. Fertilizer trials on these soils havegiven generally profitable returns to both nitrogen and phosphate appli-cation.

19. The soils of the Rift Valley include the lacustrine soils of thelakes area and the vertisolic soils of the Middle Awash Valley. The firstare sandy, grey-brown to dark brown in color. Their texture suggests a lowwater holding capacity, and they give a marked response to phosphate appli-cation.

20. The soils of the Rift Valley include the lacustrine soils ofthe lakes area and the vertisolic soils of the Middle Awash Valley. Thefirst are sandy, grey-brown to dark brown in color. Their texture suggestsa low water holding capacity, and they give a marked response to phosphateapplication. In the Middle Awash the grey alluvial soils and the vertisolicdark brown soils are deep clay loams with a high content of available phos-phate.

21. In the northwest lowlands the soils are black clay vertisoils.Chemical analyses indicate that they are probably deficient in availablephosphate, but not in total nitrogen.

TAB'LE 2.1

PRESENT LAND USE /a

Sq. KM! Percent

Annual Crops 96,800 8.0

Perennial crops (mainly coffee & enset) lb 10,000 0.8

Fallow 20,000 1.6

Pastures 662,400 54.2

Forests 87,800 4.2

Swamps 51,800 7.2

Barren land 172,100 14.1

Lakes and Rivers 120,900 9.9

TOTAL 1,221,900 100.0

/a Appendix 1 gives the estimated area, yield and production of themajor crops and Appendix 3 the estimated livestock numbers.

/b Enset is the false banana (Ensete ventricosum) cultivated in Ethiopiafor food and fibre.

Source: Central Statistical Office.

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22. Present land use is given in Table 2.1. Land classified asGovernment-owned amounts to about 500,000 sq Km2 of which over 75 percentis in the lowlands, occupied by nomads, and with a grazing potential only.

23. The agricultural land at present in use, including fallow, totalsan estimated 12,690,000 ha, i.e. just over 3 ha per rural family. Thelarge majority of holdings, however, are a good deal smaller, particularlyin the northern provinces. In Tigre 68 percent of the holdings are esti-mated at under one hectare, in Shoa 45 percent, in Gojam 51 percent andin Arusi 31 percent.

The Agricultural Economy

24. The larger proportion of the agricultural population of Ethiopiaare concentrated in the highland regions. The population concentrationappears densest above the 2,000 meter contour. Below the 1,000 meter con-tour population drops to less than five people per square kilometer. Thenumber of farm families is estimated at 4 million.

25. The highland regions produce the greatest volume and value ofcrops. For example, in 1967, when the agricultural contribution to theEth$ 3.5 billion GDP was Eth$ 2.1 billion, the combined value of thehighland grain crops was more than Eth$ 631 million; the highlands alsoproduced pulses and oil seeds valued at Eth$ 160, and coffee valued atEth$ 225 million, making a combined total of over Eth$ 1 billion. Incontrast, maize, typical of middle elevation crops, had a value of Eth$128.12 million and sorghum and sesame adapted to lowland conditions hada combined value of about Eth$ 157 million. Cotton, a lowland to middleelevation crop, had a 1967 value of Eth$ 12 million.

26. There are substantial numbers of cattle throughout Ethiopia.The large nomadic cattle, sheep, and goat herds of the nomadic tribes arein lowland areas. In the highlands, draught oxen and small milch herdsare common. Livestock contributed approximately Eth$ 500 million to theGDP.

27. Highland agriculture is small scale. In the four highlandprovilnces, acreage cropped areas per holding in 1967 were (in hectares): 1/

Shoa 1.7Arussi 1.9Gojam 1.2Tigre 1.3

Moreover, the holding is typically subdivided into smaller parcels. NewsettLers taking up land in the southeast highlands appear to be reproducingthe same small scale pattern.

1/ Source: CSO as cited in The Economy of Ethiopia, Vol. II, Agriculture,May 17, 19157, s. 4.

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28. Main food commodities and their prices are given in Table 2.2.

TABLE 2.2

MAJOR FOOD CROPS

1967/68 1968

1000 1000 Price perHa. Tons ton

Highland Area Production (Eth$)

Teff 2154 1304 220 - 260

Wheat 1028 760 220 - 240

Barley 1693 1430 140

Middle Altitudeand Lowland

Sorghum 1174 989 150

Maize 828 853 120

Source: Central Statistics Office, Grain Corporation.

29. Commercial farming and mechanized cultivation are recent inEthiopia. The number of agricultural tractors registered with the Min-istry of Agriculture and receiving duty-free fuel rose from 62 in 1958to 1,627 in 1969 (not including Eritrea which in 1969 had 415 tractors).For details on private investment in agriculture see later section in thischapter.

Scope for Increased Production

30. The prospects for the major crops and agricultural enterprisesin the various regions are discussed in Chapter IV, and the present landuse in the 14 provinces is tabulated in Appendix 1. The potential of thevarious regions is discussed below.

31. The Central Highlands. At present about half the total area undercrops in Ethiopia is in the intensively cultivated Central Highlands(Gojam, Shewa, Southern pegemdir, Southern Welo, and Eastern Welega).These highlands represent Ethiopia's greatest agricultural potential andprobably the one that will take the longest to exploit fully, as the areais vast and large parts are difficult of access. The soils for the mostpart are relatively stable, rainfall is adequate, and the standard offarming, considering the meager resources, is good. They are farmed inthe main by subsistence farmers who lack an acquisitive outlook. Theland tenure system (communal in parts of Begemdir and Welo, mostly tenancyin the others) coupled with isolation are serious disincentives.

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32. Over most of these highlands, the rainfall in July and Augustis such that waterlogging and lack of soil aeration hinders good cropestablishment. Knowledge is required on how to handle these soils regard-ing: time of planting in relation to soil type, and methods (and cost) ofdrainage that do not contribute to erosion, but aids water retention forplant growth. There are now three research stations serving the highlandsand already some information is available on better cereal varieties (themain crops), fertilizers and cultural practices; put into practice thesewould double the yields of teff and wheat now occupying some 2 millionhectares of the Central Highlands. Varieties of malting barley will beavailable by 1972 and could meet Ethiopia's requirements if multiplied;impcorted barley for bottled beer is estimated to reach 15,000 tons by 1973.

33. Increasing production of oil crops and pulses, both of whichpreslently have an export market, will depend on the provision of technicalknowledge.

34. Livestock numbers in the Central Highlands are high and oxenprovide the maLn source of power. Apart from improving the relativelysmall fattening operations in the vicinity of Addis Ababa, a step thatcan be taken immediately is the improvement of milk supplies to the towns,by the establishment of milk collection schemes similar, though smaller,to the one operating successfully around the capital.

35. The potential of higher production from cattle, and increasedproduction of sheep for export, is vast but veterinary services are stillinadequate and investigations of methods and economics of improving cattleproduction, of the breeding of large sheep as required by neighboringcountries, and of better management, better feeds and pastures, and theutilization of fallow land, have only recently started; their introductionwill be a lengthy process.

36. The focus of the development effort in this region, as set forthin Chapter III, should be in selected areas near existing roads where someconcentration of effort can be achieved.

37. The Northern Highlands. The highlands of Eritrea, Tigre, NorthernBegemdir and Northern Welo have been intensively cultivated for centuries.Their potential now lies primarily in the ability to increase crop andanimal yields as practically all arable land is already cultivated. Thesoils erode much more easily than those of the Central Highlands, andthe: density of population has led to cultivation of steep slopes,destruction of the tree cover, and widespread erosion. Large parts aredeficit areas due to erratic rainfall. Most of the region has a communalland tenure system and the majority of farmers cultivate plots too smallto produce what they need. Large numbers migrate annually for seasonalwork in Tessenai, the Humera area, the cotton and sugarcane plantationsin the Awash Valley, and for coffee picking further south; permanentmigration to towns continues to increase. This is now the most difficultregion of the country for agricultural development and has so far receiveda low priority in the Government's development program.

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38. There is as yet little information about the possibility andmethods of introducing modern agriculture under a communal system of landtenure; modest experiments could be an important and useful step in find-ing out. Perennial crops such as fruit trees, vines, olive, carobs andpistachios might be grown without irrigation if the tenure system allowedfor their planting. A tradition of soil terracing exists and can befurther encouraged, possibly by means of subsidies.

39. The main crops of the Northern Highlands are sorghum, barley,teff, wheat and oil seeds. Improved varieties of wheat and barley havebeen developed. Experimental results in Eritrea can serve as a basis forspreading improved varieties and practices. More work on oil seeds isrequired. Large parts of the region produce good quality wheat andits production can be encouraged; in the drier areas that are marginalfor wheat, barley production could be encouraged. The formation ofproduction and marketing cooperatives could be tried within the contextof the communal holding system.

40. Water is a limiting factor in these highlands; its retentionthrough terracing, and the better use of streams and underground waterresources would widen the potential of these highlands substantially.The Government's present financial situation might not allow a start tobe made within the present five year plan.

41. In the immediate future the contribution to the economy of theNorthern Highlands will continue to come from the further development ofcommercial agriculture. The development of the subsistence sector is along-term process that could start now; the valuable national resource ofhard working people is already available.

42. The Eastern and Southeastern Highlands. In the Harrar highlands,the potential for crop production lies in the narrow region which normallyreceived adequate rainfall. Soils erode easily but a tradition of terracingand contour cultivation exists; the standard of farming is higher than inthe Central Highlands. The most important crop is coffee (over 10,000 tonsa year) and Harrar coffee receives a premium over other Ethiopian parchmentcoffees. Sorghum, maize and chat are next in importance. The College ofAgriculture at Alemaya has been conducting experiments mainly on sorghumand wheat, but no effective extension program has yet been executed. Thescope for increased production lies in further improvement of the quality ofparchment coffee (the lack of water precludes the production of washed coffee)and in the introduction of the higher yielding sorghums now available througha comprehensive extension, credit and marketing program and their extensionto areas that are proving marginal for maize. Vegetables are being grownwhere water is available and small amounts are being marketed cooperativelyin Djibouti, using the railway. Absence of markets and shortage of capitaland experience is hindering expansion of this small pioneering effort.

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43. The experience that: exists on perennial suggest that experimentsshould be started now to study the possibilities of other perennial cropssuch as vines, olives, nut trees, carobs, etc., for the long-term develop-ment of this region.

44. The highlands of Arusi adjoining the Rift Valley have adequaterainfall, good soils, and an agricultural potential above the average ofthe other highlands. Barley, wheat, linseed and pulses are the main crops.The region is the location of a concentrated development effort in the formof a so-called "package program" involving extension services, improvedtechniques, the provision of inputs and credit and marketing facilitiesprovided by the Agricultural Development Unit (CADU) in the center ofChilalo Awraja. The expectation is for doubling of yields, particularly ofwheat, from about 10 thousand hectares, over the next 10 years. Increasesin the production of oil seeds and pulses will depend on finding bettervarieties. Steps to improve cattle and fodder and pasture production havestarted, but it is anticipated that their application will be slow.

45. Prospects in the rest of the Arusi highland lie in extension ofthe efforts of CADU beyond the present area. One of the major social diffi-culties is that the average holdings are larger than in the other highlands;owners often themselves farm part of their land, leasing the remAinder totenants. A rapid increase in mechanized farming would mean the dislocationof small tenants, who in this case could not be given alternate farms, asthe lower altitude areas are limited and their pastures heavily utilized.

46. The Bale highlands have in general a poor potential. They arecut by ravines and for the most part do not receive adequate rainfall. Inthe northwest part there are areas higher than 2,000 meters, now used forcattle, which might be suitable for cereal and sheep production. Muchmore information on these highlands is needed.

47. The Southern and Southwestern Highlands. The highlands ofIlubabor, Gemu Gofa, Kefa and Sidamo are the least developed in the country.More recently settled, the density of population, excepting parts of Sidamo,is lower than in the other highlands. The rainfall is high and well distri-buted, and they have a very good and as yet unexploited potential of becomingone of the most important surplus producing regions of Ethiopia.

48. The main crops are maize, coffee and enset. Sorghum, teff andbarley are less important. Apart from coffee, farming is in the main sub-sistence and at present no surpluses of food grains are being produced.Most of the potentially arable areas are remote and there are very fewinternal roads. The opening of new areas is proceeding, however, and willaccelerate as new roads are constructed. Large tracts belong to absenteeowners who may start developing them if the present draft law on taxationof idle land is passed; greater incentives would be improved accessibilityand credit.

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49. In addition to increasing areas producing traditional food crops,good prospects exist for improving the quality of parchment coffee by expan-sion of the extension services, and by increasing the production of washedcoffee (from the present level of 6,000 tons to about 20,000 tons a year by1976) through the implementation of a coffee processing project now beingdiscussed. There are also good prospects for increasing maize yields andthe introduction of high value spices for which export markets exist. Largeparts of these highlands are suitable for tea production, of which only 10 haare now planted. Although portions of these highlands require drainage,the excellent rainfall distribution suggests that large dairy herds can besupported.

50. The Jima Station of the Institute of Agricultural Research hasbeen working on coffee improvement and processing, and on maize and othercrops since its establishment in 1967. The results of the Bako ResearchStation in Welega may also be applicable to parts of these highlands. Earlyin 1970 the Welamo Agricultural Development Unit (WADU) started a "packageprogram" in Sidamo that should improve the production of 6,000 highlandfarmers and 2,000 lowland settlers in the coming six years.

51. One of the main problems at ,resent is inadequate information onthe effects of forest clearing in the higher rainfall areas. The presentlycultivated small farms growing enset and coffee are well maintained, butevidence suggests that large scale removal of the forest cover withoutadequate conservation measures will lead to severe erosion. A survey ofthese highlands probably could be combined with the survey presently plannedby the Coffee Board, which includes the forest coffee regions.

52. The Lowlands. Until recently the lowland areas were used solelyfor grazing and were inhabited by nomadic pastoralists. Endemic malariadiscouraged highland farmers.

53. Even should a third of the total area estimated as suitable forrainfed arable crop production in thie lowlands prove unsuitable, over 5million ha would still be left for development. At present it is estimatedthat over 200,000 ha (4 percent) are under cultivation, about half of whichis in the Humera area of the Northwest lowlands. The development of Humerahas created an impetus both for private enterprise and Government. TheGovernment has formed a technical group to identify similar areas in thenear future. Areas northeast of Addis Ababa on the Dessie Road, the RiftValley, the Shire area of Tigre, the Didessa Valley and Jigjiga have beensuggested. Private farmers have moved into the Mieso and Jigjiga lowlandsof Harrar province and to the Metema area of Begemdir. All these could befarmed profitably if cotton, sesame and sorghum prove suitable.

54. The amount and distribution of rainfall in most of the lowlandsis not yet known, however. Where the rainfall limits production to sorghum,the remoteness of these areas and the high cost of transport may detereconomic development. This might be true for large parts of the lowlands

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in the Southeast, East and Northeast. The rainfall in the West and Southwestlowlands is higher and more dependable but the problems of communicationsremain.

55. The development of commerical agriculture by private enterpreneursdeserves high priority. A concentration on the further development of theHumera region may bring the total area under cultivation within the next sixyears to 300,000 ha. The Ministry of Agriculture, which controls the issueof permits for duty free fuel, can encourage the development of mechanizedlarge scale farming in suitable areas, and conversely discourage it inmarginal ones. The availability of credit and the inclusion of identifiedpromising areas in the Imperial Highway Authority program will act as addedincen,tives. Rapid progress in many lowland areas will depend on the timerequired for resolving the land tenure situation and grazing rights.

56. The other two major potentials of the lowlands are livestock andirrigated crops. The dry conditions of the Eastern lowlands and the pre-valen,ce of trypanosomiasis in the Western lowlands suggest that developmentof the Southern lowland regions for livestock production should receivepriority. This area has large herds of one of the better cattle breeds inAfrica (Boran) and the management ability of the herdamen is good. Theimplementation of the National Range Development Project, with its emphasison waiter supply1, will be an excellent start. By 1978, it might be possibleto start a similar one in the lowlands of Harar Province,

57. Where irrigation possibilities exist, for example suitable soilsin the basins of Ethiopia's major rivers, a wide variety of crops includingsemitropical and tropical fruits and vegetables can be grown for localconsumption, import substitution and for export. Surveys of the Awash andAbay rivers indicate the availability of about half a million hectares ofsuch soils. A isurvey of the Wabi Shebele and some hydroLogical studies ofthe l'ekeze and omo rivers are now being carried out; other major riversremain to be surveyed.

58. For the development of the Awash Valley, the Awash Valley Authorityis being strengthened, transport facilities are being improved, foreign andlocal concessions are being encouraged, and organized research is beingcarried out. These should lead to the development of the full potential ofthe valley (150,000 irrigated ha) within the next 20 years.

Agricultural Planning

59. At the end of the second year of the Third Five-Year Plan, judg-ments of the progress of agricultural production are limited by lack ofreliable data. Reported production figures are actually estimates; pricedata are weak exccept for export commodities. Available estimates for therelatively favorable years of 1968 and 1969, of doubtful reliability,show that the annual growth rate of agriculture was about 2 percent against

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the goal of 3.1 percent. It does not appear that Plan goals are beingachieved. However, it is noted that, because of the corporate structure ofcotton and sugar production, changes in output can be effected in part bymanagement decision controlling large increments in output. However, inthe case of cereals, oilseeds, and pulses, achievement of plan goals wouldrequire very substantial improvement in the next three years from producerswho are predominantly small farmers who are hard to reach and to change.

60. The development effort needed to raise agricultural productionis discussed in Chapter III. In this section, we wish to concentrate oncertain matters which are of fundamental importance to planning: priceincentives and programming and budgeting procedures.

61. In general, agricultural terms of trade are not favorable. Forexample: agricultural production performance was better in the period1966-69 than in 1961-66. But this was obscured by sharp changes from a 25percent increase in prices for the agricultural crop as a whole in 1961-66to a fall of 2.5 percent in the 1966-69 period. For marketed agriculturalcommodities, the corresponding price changes were 37 percent and 4 percent,respectively. While 1961-66 increases were aggravated by the 1965/66drought, nevertheless, there has been a deterioration in agricultural termsof trade since 1966. The significance of this is hard to judge, but it isa worrisome change of direction. bMore fundamentally the general positionof farmers in the market place is still very weak. Smaller farmers with asurplus tend to sell crops at harvest when prices are at the year's low;moreover, they stand at the end of a long chain of processors, traders andmerchants where the trading margins and transport costs discounted in thefarmer-seller prices become successive increments in the farmer-purchaserprices. The terms of trade for agriculture raise important questions ofpolicy in terms of real income and production incentives. Imporvements inthe marketing process, both in physical and monetary terms, could have asgreat an influence on output as the provision of higher quality inputs.Formulation of development projects, identification of agricultural develop-ment opportunities, and the entire scheduling and programming of developmentactivities form another basic aspect of the planning process. Measures arealready being taken to improve planning. A policy to establish ministerialplanning units has been implemented in the three principal Ministries con-cerned with agricultural development, i.e. Agriculture, Community Develop-ment and Land Reform. Also, the former Planning Ministry has been trans-formed into a Planning Commission headed by a Minister of State under thePrime Minister. The agricultural section of the Planning Commission has asmall but competent staff.

62. It is currently proposed that agricultural development projectsbe identified at provincial levels and reviewed at the capital. Pastpractice has been to identify projects on a more or less ad hoc basis be-tween individual ministries and donor groups for review by provincialauthorities. The proposed procedure, together with the ministerial planning

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units, might make for more orderly flow of development proposals. At thisstage, Ethiopia has a considerable stake in the formulation of projects forconsideration by sources of external finance and technical assistance. Itshould be added that the several multilateral and bilateral groups haveattempted to achieve more adequate coordination in generating smootherproject-finding operations. Despite a somewhat chaotic past, the prospectsfor a more orderly future seem bright.

63. Allocation and disbursement procedures deserve special mention.Difficulty has been caused by arbitrary and often unanticipated changes inthe release of approved funds. The amount of "allocations" to variousprojects often has little relation to the implementation capacity. Table2.3 indicates changes from approved to implemented levels for 1968-1969.

64. The 'Planned" column represents the joint judgement of the Ministriesof Agriculture and the Planning Commission as to budgetary levels requiredto meet Plan objectives. The "implemented" levels, indicating the levels ofexpenditure actually accomplished, were below "planned" and "approved"levels, sometimes substantially so. In the Ethiopia context, capital alloca-tions provide for development projects and for the necessary materials andprocurements other than personnel in the regular establishment. Disruptionscan have serious consequences. In 1968/69, the Extension Service waited sixmonths for release of capital funds. This meant that field workers wereimmobilized because of inability to purchase motor fuel and were unable toadvise farmers about important farm operations. In the same period, thePlant Protection and Production Department received its capital funds in theeleventh month of the year. In seven months out of the year, the ForestryDepartment received no capital funds, with the result that nursery seedlingand afforestation efforts were partially lost for an entire growing season.

65. More efficient budgetary procedures have become urgent becauseof the impact on Government revenues of the fall in coffee prices and theclosing of the Suez Canal. Ad hoc reductions in planned expenditure levelsare not conducive to the systematic development of agriculture. Absence ofan audit function and of adequate communications makes possible unofficialreallocations within Ministries. The mission was informed that disburse-ments to Ministry field operations were made directly to Provincial officeswithout knowledge of the Ministry secretariat or the department involved.Funds were sometimes reallocated at the provincial level again, withoutnotification to higher echelons. The USAID - assisted 800 square mile live-stock development pilot project near Yabello in Sidamo Province has notturned a wheel since June 1969 because of inability to obtain motor fuel forheavy equipment already on the ground, while project staff are unable tocarry on scheduled activities. It should be possible in such circumstancesto redeploy staff to useful work, otherwise more energetic and capableindividuals may seek other employment.

Private Investment

66. The Intention here is to point out some of the conditions whichaffect private investment, since it is the prime means of agricultural

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development. Many of the institutional factors have already been discussed,but there are also special opportunities and dangers which deserve discussion.

67. The conditions of agriculture in the highlands, where an estimated80 percent of farms do not generate a market surplus, severely restrict theopportunity to create new capital. While this present pattern of land hold-ing prevails, investment should be primarily labor related: fertilizer,improved seeds, pesticides, better practices, and better tools. Longer termcapital improvements should take the form of improved farm drainage, soilconserving structures, fencing, small eucalyptus plantations on steep slopes,small unit winnowing devices, and improved on-farm storage facilities. Insome localities, it may be possible to experiment with custom-hire landpreparation, using mechanized equipment owned collectively or provided byprivate enterprise; the Chilalo and Wollamo operations may provide signifi-cant experience in this respect. 1/ The dangers of introducing large unitmechanized agricultural equipment should be recognized. The small holderfarming system would be threatened. The tendency would be toward consoli-dation of holdings to realize l:he efficiency of mechanized equipment. Areaswith a high proportion of tenants would be most vulnerable e.g. Shoa, Arussi,Wallega, Gemu Goffa, and Wallo where 58 percent of the farmers are whollyor partly tenants, because it would be to a landlord's advantage to evicttenants and farm the land himself. iniformal reports from CADU officials saythis has begun to happen in the CADU area.

68. On-farm investment is not the only form of private enterprise inagriculture. The development of service industries is the mark of amodernizing agriculture. The nucleus nature of this investment can be seenin the cluster of enterprises related to agriculture at Debre Zeit in thetypically small farmer Ada district. Among the more notable are the Savajiancattle feed lot and stall feeding and dairy enterprise, the Tedla Destasystem by which a land owner provides to tenants improved seed, a tractorhire service, fertilizer and pesticides; the Riddleberger hybrid maizeenterprise, the Belladini plant and citrus nursery using modern technology,the establishment of a branch of the Commercial Bank of Ethiopia and thebeginnings of fertilizer and pesticide distribution. While the proximity(45km) of Debre Zeit to the Addis Ababa market, making for a good communica-

1/ The Preliminary Report of the Appraisal Team on the Chilalo Agricultur-al Development Unit, (November, 1969, p. 13) makes the following point:"But in such over-crowded areas, with some underemployment of the laborforce, too quick an introduction of the widespread use of tractorscould be too costly, and will further increase underemployment. Thesame holds true where big landowners change from renting out theirland as small tenants' holding to large scale commercial farming withtractors."

TABLE 2.3

MI N IS T RY O F A G R IC U L T U R E

SHIMlS IN BUDGET ALLOCATIONS BY DEPARTMET, 1968/69

(Eth$ million)

DEPARTMENT PLANNED .1/ APPROVED 1/- IMPLEPENTED -/

Capital Recurrent Capital Recurrent Capital Recurrent

Animal Husbandry 2,178,000 500,187 2,044,200 500,187 401,720 337,129

Veterinary 1,083,000 2,409,993 1,083,000 2,756,222 453,391 1,909,351

Forestry 727,000 401,056 727,000 611,063 145,000 476,664

Plant Production & Protection 1,558,000 705,416 1,558,000 1,202,769 101,623 872,078

Fishery 132,000 138,547 138,547 --- 61)108

Head Office

Economics & Statistics 138,000 --_ 138,000 ___ 11,000 ---

Extension Service 145,000 927,690 145,000 988,510 75,300 514,075

Education 258,000 585,759 258,000 585,759 ___

1/ "Planned" and "approved" levels include foreign aid whereas "implemented"does not. However verylittle of foreign aid programs were implemented.

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tion linkage, is perhaps a key factor, the materialization of such a rangeof enterprises is a very important sign that where reasonable investmentopportunities can be seen the private sector is a dynamic factor in ruraldevelopment. In their geographic areas, both CADU and WADU should createa favorable climate for auxiliary enterprise to development.

69. As emphasized earlier, Ethiopia's development strategy placesconsiderable short-term stress on realizing the opportunities for corporateand commercial agriculture. The pattern of such investment, which isnecessarily primarily foreign at this point in Ethiopia's history, isalready well established in the form of concession sites operating onGovernment owned land. Over the years substantial numbers of individualconcessions have been granted. In contrast to Kenya and Tanzania, forexample, most have failed. It is likely that failure was due to lack ofcapital and managerial skill. The record of failure has probably deterredthe expansion of this form of enterprise. But there have been notable casesof success.l/

70. In Eritrea, for example, there are at least three examples ofcorporate initiative based on concessions. The famous Elaboret estate nearKeren, established in 1908, managed by Luigi DeNadai, is an example of bothhorizontal and vertical integration in agriculture. Originally specializingin sisal its principal lines now include dairy, swine, citrus, and vegetables,some products are also processed, packaged and transported. The SocietaImpress Africane (SIA) operates 16,000 ha. of irrigated cotton at Tessenei(Isooha estate and 2,000 share farmers). The Dumco Company, establishedin 1952, produces fibre from wild doom palms along the Barco river; it hasa large labor force. In Welamo, Sidamo province, the Billate firm producesirrigated cotton and chillies. The concession plans to produce vegetablesfor dehydration.

71. Sugar is produced by the Dutch HVA concern on their Wonji-Shoaand Metahara plantations on the upper and middle reaches of the Awashdrainage. The combined potential productive area approximates 12,000 ha;total capital investment is over ETH$ 60 million, about one sixth byEthiopian shareholders. In 1968/69, after paying ETH$ 14.5 million asexcise, transaction, and income tax, HVA paid its yearly dividend of ETH$ 5per share; for the Metahara unit capital return is about 8 percent. Thiswell managed corporation, in operation in Ethiopia since 1951, is an in-stance of profitable investment in specialized crop production under longterm concessional privileges integrated with processing and sales functions.

72. The Tendaho Plantation Share Cordpany on the lower Awash, a partlyBritish owned concern, commenced cotton production in 1962 and now meets

1/ This discussion of corporate and private foreign agricultural concess-ions is based on the 2 volume Burke-Thornly A Policy-Oriented Study ofLand Settlement, December 1969, pages 30-38.

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over 25 percent of the raw cotton requirements of domestic textile mills.Operations are expanding from an original 4,500 ha to 6,700 ha. Afterseveral initial poor years, the plantation is now in the black. Here too,good management and concentration on a single industrial crop has paid offunder a long term government concession. An illustration of how a success-ful venture stimulates enterprise is the successful Dinko-Marko 5,000 haoperation at Setit Humera which apparently sparked a 100,000 ha developmentin dryland cotton, sorghum and sesame. Another possible illustration is thestimulation of dairy farming in and around Addis Ababa by several success-ful foreign owned mixed farming enterprises.

73. The one-man Montenari operation is cotton along with substantialacreage of tobacco, citrus and vegetables. Montenari produced 180 tonsof flue-cured Virginia tobacco in 1969 and employed over 6,000 seasonalworkers. The proposed Melka-Sadi-Amibara 14,000 ha irrigation project inthis same general area may afford substantial opportunities for privateinitiative, both in large and moderate sized commercial agriculture. It isanticipated that land tenure will be in the form of 30-year negotiableleaseholds. Some 12,000 ha are proposed for commercial farmers or corpora-tions. 1/ This proposed project might provide a model of the effect ofprivate enterprice in connection with irrigation development. The proposedShashamane project is a prototype of possible tractor-based cultivation bylarger operators.

74. The Government's attitude toward investors in generally favorableand liberal. The Investment Proclamation of 1966 provides benefits, priv-ilges and exemptions for encouraging and stimulating both foreign anddomestic private capital investments; these apply to agriculture. TheNational Bank of Ethiopia is authorized to make available foreign exchangeto assure repatriation of funds belonging to foreign investors. Moreover,government has assisted in the financing of some foreign agricultural ventures.The principal benefit which the country may receive from foreign investmentis the rapid expansion of exporlt or import-substitution crops. Governmentpolicy viz-a-viz foreign investors should be insistent on this point. TheGovernment should actively seek out prospective investors and help themthrough the preliminary steps for actually securing land. Such a serviceshould be commenced immediately. A number of areas of public land have acrop potential. The 26,852 k2 area in Welega province with a cotton-maizepotential, (Appendix 6) seems to be the only substantial area with goodprospects for the immediate future, the highest priority in this area is2,698 sq Km2 in Lekemt Awraja.

75. Increased opportunities for corporate scale agriculture might bemade available by offering the existing state farms to private enterprise.These would include farms administered by the Ministry of Community Develop-

1/ Draft Appraisal Report, Melka-Sadi-Amibara Irrigation Project, Annex I,page 4.

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ment at Arba Minch in Gema Gofu province; the Awasa farm in Sidamo; the Min-iLstry of Agriculture operates the Aber Nosa ranch in Showa. There seems tobe some doubt as to whether these farms will be successful as state enter-prises. 1/ In general such enterprises have not been successful in EastAfricEt.

;'6. An important hindrance to private agricultural investment is un-certain land tenure, which prevails in one form or another over much ofEthiopian agriculture. The problem relates to highland and lowland invest-ment, as discussed below.

Land Tenure

77. In the heavily populated highlands, principal forms of land tenureare (a) the Communal system of the northern highlands, principally in Tigre,Blegmdir and Gojan provinces, where occupancy rights are based on inheritancethrough the extended family and (b) more conventional tenure forms found inthe Central and Southern highlands, principally in Shoa, Arussi, and Wollegaprovinces. Under the former system, uncertainty is caused by the possibilitythat claimants may challenge an occupant at any time on grounds of familialinheritance. Under the latter form, tenants pay high rents and may beevicted at will. In the lowlands, tribal rights to grazing lands are subjectto intertribal disputes. In these areas too, land disputes arise overoccupancy due to uncertain or erroneous boundaries of government grants.Overall, disputes about land rights are prevalent, litigation is frequentand long drawn-out. Officials of the Ministry of Land Reform believe bothare increasing. In addition insecurity has resulted from the politicallyagitated question of land reform. In 1966, a Ministry of Land Reform wasestablished, and in addition, a three-part comprehensive land reform statutewTas drafted. Despite strenuous official efforts, no statute has been en-acted. Three years of agitation have ensued. Landlords anxious to avoidpossible expropriation have evicted tenants who might, through continuedoccupancy, become owners. The net effect overall may have been to increasetenant insecurity.

78. The uncertain nature of land tenure rights creates a cloudy situa-tion which continues to be a major disincentive to land improvement and bet-ter farm practices along with the disincentive of physical isoloation andlack of market facilities.

1/ Ministry of Land Reform and Administration - A Policy Oriented Study ofLand Settlement, December 1969, Volume I, page 30-35.

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79. These considerations point out the need for (a) passage of pend-ing land reform legislation; (b) a recognition that permissive judicialattitudes toward an increasing volume of land litigation add to tenureinsecurity; and (c) the enforcement of a substantial tax on privately ownedunused lands and absentee landlords: (d) expediting cadastral surveys.

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III. THE DEVELOPMENT EFFORT

Plan Projects

80. Certain projects have been assigned a key role in the near-termdevelopment strategy. Thus there is good reason for leading off the dis-cussion of the development effort with a brief look at the scope of theseprojects. Eleven projects are grouped loosely by category.

81. Package Programs. The objective of so-called "regional devel-opment package programs" is to achieve agricultural development and in-crease,d participation by local people through the "package" approach. Thism,ethod forces intensive application of inputs, of extension service, cred-it and market services along with availability of improved seeds, fertil-izer, pesticides, etc. in a carefully selected, restricted area.

82. The joint Swedish-Ethiopian Chilalo Agricultural DevelopmentUnit (CADU) and the joint IDA/Ethiopian Wellamo-Soddu Agricultural Devel-opment Unit (WADU) are both already under way. A third such project,known as the ADA District Project, has been proposed but not initiated.A more limited extension project in Awasa would be based on the same gen-eral approach, as in fact might be the Government's approach to servicingall large project areas.

83. CADU, located in Chilalo Awraja of Arusi province, 175 km south-southeast of Addis Ababa, was activated in 1967 as a three-year undertakingand has been completed. The second five-year phase is currently beingnegotiated. Phase I CADU costs were about Eth.$ 14 million; the Swedishgrant contribution was over Eth.$ 8 million, estimated internal rate ofreturn is about 20 percent, the estimated cost of Phase II is Eth.$ 19millioni with the same rate of return.

84. WADU is located in Wellamo Awraja of Sidamo Province about 275km south-southwest of Addis Ababa. Both purpose and methods of WADU aresimilar to CADU, but it also includes a substantial settlement operationin the adjoining Rift Valley. Project cost is Eth.$ 12.6 million, IDAcredit is Eth.$ 8.7 million; the estimated economic rate of return is 13percent. CADU and WADU are, so to speak, bell wether projects in thatthey must be looked to for evidence of how effective the "program approach"can be. Farm management studies have not yet been initiated in these proj-ects, sio constraints to progress have not been identified in the order oftheir importance. Both technical agronomic and economic questions needto be answered. Aside from the internal problems connected with the proj-ects themselves, broader issues are at stake:

(at) At what rate could development be expanded to surroundingareas outside the projects?

(b) Are such independent development units the best approachto management under Ethiopian conditions?

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(c) To what extent should the provincial and sub-provinceadministrators be involved in the development effort,and what is the best way of achieving this?

(d) Do such projects make it easier to recruit, train andretain staff in the field? Chilalo's experience to datein this respect has not been encouraging.

(e) Finally, what are the prospects for development of agri-cultural settlements in dryland areas, a field in whichthe Government has had no experience?

85. The proposed Ada District Development Project, very similar inconcept to the CADU and WADU projects, was prepared by USAID in May 1969for Ada District, Shoa Province. The development would be centered aroundthe town of Debre Zeit, 70 km southwest of Addis Ababa. The proposal isbased on research by Stanford Research Institute (SRI). 1/ The projectarea comprises 16,000 farms; its named objectives include improving agri-cultural production, including speciality crops, livestock and dairy,and poultry. Other project objectives include research, marketing, co-operation and credit. The internal rate of return, as estimated by SRI,would be 32 percent. The total cost would be Eth.$ 16 million, of whichEth.$ 12 million is assumed to consist of external loans and grants.

86. A merit of the proposal is the location of the area close tothe capital. This would assure good market opportunities for a varietyof products including fruits and vegetables, poultry and livestock prod-ucts, in addition to the standard highland teff and wheat production.Existing infrastructure in the area includes a veterinary college, aveterinary laboratory, a research station and several substantial commer-cial enterprises. Shoa province has twice the number of extension agentsand supervisors of the other provinces. Intensive fertilizer demonstra-tions have been carried out in the area. However, the condition of farm-ing is at the level of low productivity generally found among subsistencefarmers. More detailed investigations are required to support the pre-liminary project design.

87. The Awasa Rural Extension Project, another possible "packagetype" project, is located in Shoa and Sidamo Provinces about 220 km duesouth of Addis Ababa, on the eastward slope of the highland adjoiningthe Rift Valley. The project cost is Eth.$ 1.5 million. Actually, itis one part of a complex which includes the Awasa State farm of 4,000 haand a processing complex. The Extension Project was estimated to have acapital outlay/value added rate of 3.4 and an economic return of 30 per-

1/ Stanford Research Institute, Report No. 14: A Development Program forthe Ada District. Based on a Socio-Economic Survey: March 1969.

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cent. 1/ The proposed project aims at improving the production mainly ofmaize of about 18,000 small farmers by the provision of extension and de-monstration services. Increasing maize production is linked to the estab-lishinent of a starch plant in the industrial complex. Other possiblecrops include tobacco, peppers, and beans -- these have been encouragingresults in experiments at the Ministry of Community Development Awasa Farm.The proposed project will involve the Ministry of Community Development indirect, full-time agricultural extension work which to date has been thedomain of the Ministry of Agriculture. The area would overlap to someextent the area included in the Shashamenne Agricultural Development Proj-ect (see below), and it is not known how the question of jurisdicationwould be handled. The proposed project does not at present include theprovision of inputs, and it is assumed that these, and the necessary Cred-it and Marketing facilities, will be developed.

88. The Northwest Lowlands Development Project and the ProposedShashamenne Project. The Humera project, for which an IDA credit wasrecently signed, is located 600 km northwest of Addis Ababa. The totalcost of the project is about Eth.$ 12 million. Basically designed toprovide infrastructure (a road, bridge, water supply and a demonstrationfarm) to support the area's expanding commercial agriculture, the projectalso includes studies for a Phase II agricultural development of this area.The IDA loan was for Eth.$ 8.7 million (US$3.1 million), covering foreignexchange costs. The development of the Humera area provides a much neededstimulus to the development of commercial dryland farming; its developmentby private entrepreneurs has been the most significant success story ofEthiopian agriculture in recent years. Extreme care has to be taken inpromoting its further development, particularly with regard to the main-tenance of soil fertility, the marketing of the three principal crops(cotton, sesame and sorghum), and the potential for other crops. Thepermanent capital investment of the entrepreneurs is small, and the landtenure situation is vague, so continued spontaneous development cannot betakeni for granted.

89. The proposed Shashamenne project in Shoa and Sidamo provinces,250 km south of Addis Ababa, is situated on the westward down-slope ofthe southeastern Rift escarpment and extends across the Rift floor. Theestimated internal rate of return is 21.3 percent on an estimated Eth.$ 11millLon investment, of which the donor's estimated share would be Eth.$ 10.2milllion. It is under consideration by USAID. The basic aim is the promo-tion of moderate size commercial agricultural units mainly by the provisionof supervised credit for machinery. Available information indicates that

1/ Societe d'Aide Technique et de Cooperation. Agricultural and IndustrialDevelopment of the Awasa area, Final Report, Summary and Conclusions,July-October, 1968, page 41.

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the collection and interpretation of data on such units and their likelynumbers, the cost of production and the marketability of maize and otheralternative crops, and on the water-holding capacity of the soils of thearea is essential. An alternative approach which might be a less expen-sive way of achieving the desired results would be the provision of cred-it for the purchase of agricultural machinery and the appointment of afew specialized extension agents, one an expert in machinery.

90. The Melka Sadi-Amibara Irrigation Project and Expansion of TendahoPlantation. The proposed Melka Sadi-Amibara Irrigation project lies in theMiddle Awash river valley about 175 km east of Addis Ababa. The project hasabout 14,000 ha of net cultivable land. The public investment portion ofthe capital costs are estimated at Eth.$ 80 million, of which estimated ex-ternal financing would be Eth.$ 50 million.

91. The inability to find foreign or national entrepreneurs withsufficient capital to carry out the farm works in the Melka Sadi AmibaraProject to the required standards will mean that the degree of Governmentinvolvement in the provision of irrigation and supporting works and serv-ices would have to be large and costly. It would be under the managementof the Awash Valley Authority, which apparently is to receive expectedfunds in the 1970/71 budget for strengthening its staff.

92. The concentration on export and import-substitution crops in thisarea is an essential policy decision for this sort of capital-intensivedevelopment of agriculture. Cotton grows well, but as requirements withinthe country are for relatively low to medium quality cotton, available fromother areas, the area can specialize in whatever cotton is best for the ex-port market. The production and economics of growing other crops such astobacco, good quality wheat, confectionary groundnuts, haricot beans, cit-rus, vegetables, and the production of milk and meat from irrigated forage,are being investigated. It is essential that research work of the highorder now being carried on should be continued.

93. The Tendaho Plantation Share Company, with a concession from theGovernment, operates in Wollo province, about 400 km northeast of AddisAbaba, in the lower Awash Valley. Two areas have been developed primarilyfor cotton production by the Concessioneer at Dubti and Dit Bahari, totalingapproximately 8,000 ha. The yields of seed cotton in the past three yearshave been increased from 1.2 to 2.0 tons per hectare. A nucleus of abletechnicians now live on the project. Detailed plans are being developedto expand the Dit Bahari unit from 2,250 ha to 12,000 ha in two stages.It is expected that financing will be jointly arranged between the Govern-ment through the Ethiopian Development Corporation and British interestsunder the leadership of the British Mitchell Cotts concern. capital in-vestment is estimated at Eth.$ 10 million with an additional Eth.$ 3.8million of working capital from the Coffee Diversification fund. Thefinal plan was due May 1, 1970.

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94. The National Range Development Project. This proposed USAIDproject is located in three units: Arrero - 4,800 square miles; Neghele -3,200 square miles; and Darmetu, where the initially planned first unitof 2,000 square mniles may be later extended. This is all government-owned:Land. The purpose is the development of efficient-sized range managementunits initially involving improved cattle watering and controlled grazing;ultimately veterinary services and improved breeds are planned. The totalfive-year cost, 1970/71 to 1974/75, is estimated at Eth.$ 14.3 million,with total foreign exchange costs at Eth.$ 7.0 million, not includingtechnical assistance and training for an 800-square mile pilot projectllow financed by USAID. The cattle population is estimated at 8 million,sheep at 1.5 million. The estimated internal rate of return is 31-32 per-cent. The project approach to the improvement of livestock production inEthiopia's lowlands is based on careful analysis of the factors involved.Unfortunately, the 800-square mile pilot project, located near Yabelloin Sidamo Province, has been poorly supported and has not been able toproduce adequate information on pasture production, the ecology of rangeregeneration, the water status in the ponds, the availability of ground-water and on the social and administrative feasibility of enforcing arotational system of grazing. The project is now undergoing preliminaryconsideration. Work has been continuing since 1965 on the project.

95. The Proposed Addis Ababa Dairy Unit Scheme and the Coffee Proc-essing Pro-ject. The dairy scheme would improve the quantity and qualityof miLk in the milk shed region surrounding Addis Ababa for fluid milkconsumption and processing for the urban market. The scheme includes in-tensification of 400 small dairy farms, the development of 100 new largerinits and improvements on 20 Efxisting large units, establishment of a cross-breeding ranch, operation of the Holleta breeding farm, the import of 4,000high-grade dairy stock, expansion of retail outlets, provision of addition-al market and transport service, intensification of veterinary supervisionand research, and operation of an animal feed processing and supply unit.Proposed external financing would total Eth.$ 12.9 million of an estimatedtotal cost of Eth.$ 19.4 million. The internal rate of return is estimatedat 22 percent. The Government has presented this proposal to the Bank Group.

96. The Coffee Processing Project for the expansion of EthiopianCoffees has been examined for feasibility by the Bank Group's PermanentMission in Eastern Africa. Project locations would be Sidamo Province,300 kn south of Addis Ababa, and in Kefa Province, about 300 km southwestof Addis Ababa. The proposal aims at converting 18,000 tons of hard un-washed coffee into mild washed coffee by installing 180 coffee pulpingstations, constructing 750 km of access roads, and providing the necessarysupporting services of extension, research, training, testing, and storageand marketing. The project's estimated total cost would be Eth.$ 31.4million, the estimated external financing would be Eth.$ 16.9 million;the balance would be financed from Ethiopian public and private sources.D)epending on pric:e differentials for washed coffee, the internal rate ofreturn would be from 21-35 percent. Both the Dairy and Coffee Washing

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projects reflect the Government's wish to invest in quick income produc-

ing projects based on the premise that there is a growing demand and ready

markets for both products: milk in the capital and washed coffee abroad.

Minimum Package Programs

97. Minimum package programs are proposed as a means of attacking a

specific agricultural problem, e.g., the poor yields of cereals in the

highlands, using the immediately available resources of the Ministry of

Agriculture and a relatively modest amount of finance. The need for such

programs arises from the inability of the Government either to undertake

sufficiently large programs to reach most Ethiopian farmers or to support

adequately the existing agricultural services. Apart from using existing

staff, facilities and research data, they would include the provisions ofsome of the inputs required for increased production in these areas, e.g.,

improved seeds, fertilizers, and the organization of credits and markets.

Because of the modest costs of these limited input programs, a number of

them might be launched at the same time in selected areas.

98. The programs should start in easily accessible areas for which

information on improved agricultural practices of immediate applicabilityis available and where present Ministry services and staff can be employed

and strengthened; obvious sites would be in the vicinity of research sta-

tions, agricultural schools, the College of Agriculture, and in ecological-

ly similar areas. The key personnel in these programs should be the staff

of the extension service.

99. A successful precedent is the fertilizer demonstration work

carried out by the Extension Department of the Ministry of Agriculture in

conjunction with the FAO Freedom from Hunger Campaign Fertilizer Programmeand the Institute of Agricultural Research. In 1969 over 900 demonstra-tions in 12 provinces were carried out, and results are listed below.

Yield in Kg./Hectare

Control 40 kg. N 47 Kg. P205 NP

Teff (305 observations) 820 1190 1250 1630

Wheat (135 observations) 900 1210 1290 1680

Barley (69 observations) 1110 1560 1610 2070

In a broad sense, the results can be regarded as the beginning of a fertil-

izer credit scheme for small farmers. Sixty half-hectare demonstrationplots using both fertilizers and improved seeds were planted in 1969 in

three provinces, and more than 300 farmers within the demonstration areas

applied for and received credit for fertilizers. The morale of the ex-

tension staff increased markedly as a result of this work.

TABLE 3.1

AGRICULTURAL RESEARCH IN ETHICPIA.

Stations

Commencement Sources Graduate MainDates of Research Fields

Assistance Staff of Work

Institute of Holetta Guenet, ) Ceareals, animalAgricultural Research Central Highlands ) a/ nutrition.

1966 ) U.N.D.P. 16-

)Melka Werer, ) Irrigated amnualMiddle Awash Valley ) (Special and perennial

1965 ) 5 crops.

) Mund)Jimma, S.W.Highlands) Coffee agronomy

1967 ) 4 and processintg.

Bako, Western Central FederalHighlands Republic Maize,

1964 of Germany 4 oil crops.

College of Agriculture Alem Maya, Eastern Professors Sorghum,Highlands part-time horticulture.

1955

Debre Zeit, Central 4 Teff, wheat,1961 poultry

Department of Asmara, Northern 2 Wheat,Agriculture - Eritrea Highlands barley.

C. 1950

Ministry of National Awasa, Rift Valley France 2 Maize, oil crops.Community Development 1967

Chilalo Agricultural Asella, Arusi Highlands Swedish 4 Wheat, grain,Development Unit under Coll. of Agric. International legumes.

C. 1963 Developmentunder CADU Agency

1967

a/ lHoletta Guenet is the headquarters of the Institute of Agricultural Researchand the number includes staff who also serve the other Institute's stationsin soil fertility, biochemistry, pathology, entomology, economics and farmmanagement studies, animal nutrition and pasture and fodder work.

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100. A theoretical example of a minimum package program is set out inAppendix 8. It takes as its objective the doubling of yields per hectareof wheat (from 10 to 20 quintals) and teff (8 to 16 quintals) by the use offertilizers, improved seeds and cultural practices. The tables give costsand benefits of the program if established in 10 locations (an arbitraryfigure). The programs need not, of course, begin in 10 locations nor needthey all begin in wheat and teff areas. Other areas can be included, pro-vided research results prove equivalent yield increases by the use of thepractices and inputs recommended. It is assumed that 1,500 farmers ineach location could be reachecl by the sixth year after the start of demon-stration work, and further that each farmer grows a half hectare each ofwheat and teff.

101. It is assumed that one university graduate would be needed ateach location, along with two Jirmma or Ambo Graduates and 8 Assistant Ex-tension Agents (plus appropriate clerical and wage labor and equipment).The headquarters complement at: Addis Ababa would require the assignmentof perhaps five expatriate experts, two University Graduates and a coupleof Jiimma or Ambo Graduates plus supportive personnel.

102. An order of magnitude of the costs involved, and the value ofproduction increases, have been estimated. Assuming the cost of fertil-izers and their transport to be Eth.$ 80 per hectare, the programs shouldprovide an internal rate of return of about 15 percent. But recent ex-perience in Ethiopia has indicated that bulk importation of fertilizersand the use of diammonium phosphate (instead of urea and triple super-phosphate) can reduce the cost per hectare to Eth.$ 60. On this assump-tion the rate of return would be several points higher.

103. The Ministry of Agriculture is considering building agriculturalcenters in 50 locations by the end of the Third Five Year Plan, and in-creasing the number of extension staff stationed at these locations. Theimplementation of minimum package programs might not, therefore, requirethe building of additional offices nor the recruitment of eight assistantextension agents. The cost of the offices and the additional staff areincluded in the illustration to indicate maximum costs likely to be in-volved.

Thie Marke_ n of Grains, Pulses and Oilseeds

1(04. The Stanford Research Institute, in a recent study of the Ethi-opian mirket for grains, pulses and oilseeds, cited a number of weaknesses:capricious trading margins, insufficient, poorly located storage facilities,lack of grading standards, unsupervised weights and measures, inadequateand costly transport, lack of market regulation, an inability of govern-ment to intervene in markets, and loose articulation between markets.Losses sustained in handling and storing commodities are caused by adul-teration, lack of proper dehydration, spillage, exposure to rodents andinsects. Price swings are large.

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105. Under these conditions prices do not sharply define market pre-

ferences and do not serve as a guide in allocating agricultural resources.It is difficult for planners to identify comparative advantage among major

food commodities. Lack of quality controls obviously hampers exploitation

of foreign market opportunities and accounts for Ethiopia's poor reputa-

tion in the trade. Furtlhermore, the commodities provide an important com-

ponent of the national diet and consequently price changes significantly

affect the real incomes of producers and consumers.

106. The Stanford study concludes that a grain price stabilization

scheme could improve the pricing and marketing conditions in this trade.With the help of the UN/FAO World Food Program (WFP), a limited start was

made about four years ago with a project to stabilize wheat prices. Man-

agement and other problems have precluded the planned development of the

project. The work could be performed by a reconstituted Ethiopian Grain

Corporation if it were given broader powers and the original authority of

the moribund Ethiopian Grain Board which was given responsibility in the

grains, pulses and oilseeds trade for maintaining a national reserve and

regulating the market system. The finance required for initiating a sta-

bilization scheme could come from the new Ethiopian Development Corpora-tion (EDC) on a revolving fund basis by discounting storage receipts of

the grain corporation as a means for maintaining its liquidity and lend-

ing levels. Organization planning could benefit from expatriate expertise,

say one individual for a year and another for six months.

Agricultural Credit

107. Both the Chilalo and Wollamo-Soddo projects call for credit to

be made available to farmers in the project areas. Apparently this cred-

it will be limited to the.project area. Aside from this operation, in-

stitutional agricultural credit in Ethiopia is currently about Eth.$ 40

million, extended to larger preferred risk borrowers. The principal lend-

ing institutions have been larger banks plus the Ethiopian Investment Cor-

poration and the Development Bank of Ethiopia. Borrowers from these in-

stitutions were frequently required to pledge urban real estate as colla-

teral. Small farmers traditionally obtain credit from local money lenders,

frequently for consumption purposes, at very high interest rates. Local

money lenders often double in brass as landlords, traders and merchants.

Recently farm machinery concerns have extended purchase-hire short term

credit for a portion of the price of tractors to some commercial farmers.

108. Ethiopia needs a sound agricultu'ral credit institution. The most

expeditious method would be to establish an agricultural credit department

in the new Ethiopian Development Corporation (EDC). This institution, the

result of work of the Financial Intermediaries Reorganization Commission

of the Government, merges the former Ethiopian Investment Corporation and

the Development Bank of Ethiopia. It will have as one of its objectives

a General Credit Program for Agriculture, with a $10 million fund foragricultural loans outside approved and planned development projects. It

will necessarily inherit agricultural loans made by predecessors. Hand-

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ling these loans could be made the initial taslc of the new AgriculturalCredit Department: of the EDC. This procedure would be in keeping with the

Commission's finding that like:Ly present volume and profit margins of in-

stitutional credit for agriculture would probably not now justify a separate

agricultural credit institution.

109. There is a proposal in the Plan document that credit funds shouldbe made available through multipurpose cooperatives which would be directlyconcerned with production and marketing matters. However, it would be pre-

ferable for such cooperatives to serve as financial intermediaries respon-sible to the EDC. In addition, branches of commercial banks could becomeagents of the corporation, thus permitting fairly rapid expansion of agri-cultural credit operations to rural areas.

110. The Commission has already recognized the key concept of super-vised credit, which means management of farm units in accordance with farm

plans. This involves advisory functions of the Extension Service. Thus

immediate tasks confront the EDC in developing an Agricultural Credit D)e-

partment: (a) development of a specialized training program; (b) estab-lishment of organizational linkage with the Extension Service and any other

branchies of the Ministry of Agriculture which deal directly with primaryproducer.

111. The training program for Agricultural Credit specialists shouldinclude provisionls for overseas training of upper echelon personnel for

periods of six months to a year and an in-country training program for

middle echelon and junior specialists. Costs might be Eth.$ 75,000 and

E:th.$ 100,000 spread over an 18-month period in addition to salary time.

1.12. The proposed Agricultuiral Credit Department of the EDC would

have t:o take over supervision of the outstanding conventional loans oflarge borrowers and commercial farmers plus any additional applicationsfrom qjualified borrowers in this category. The minimum package program

(described above) if adopted, would also have to be serviced. Loans of

an aggregate amount of Eth.$ 1.5 million, over three years may be required,primarily for fertilizer and improved seed at the rate of Eth.$ 100 per

hectare. Initia:Lly this kind of loan could be advanced in kind, not in

cash, with arrangements for automatic liquidation at harvest. In addition,there should be some provision of credit for smaller farmers outside mini-mum and regional package program areas.

.gricultural Research

113. The organization of agricultural research is listed in Table3.1. In addition, the Institute of Agricultural Research carried out ex-

perimental work at three outstations (North West Lowlands, Rift Valley,

and Sheno, an area over 3,000 metres in the Central Highlands) and co-operates with cotton and coffee growers in various parts of the countryin the carrying out of uniform trials on varieties, fertilizers, cultural.

pract:ices, etc. Some experimental work is done at the agricultural schools

- 30 -

at Jima (maize) and Ambo (cereals). The recently started Agricultural De-

velopment Unit in Welamo will include some experimental work in its pro-

gram. In the private sector experiments are being carried out at Wonji

and Metahara by II.V.A. (sugarcane) and by the Tendaho Plantations Share

Company (cotton and other cropsl). Demonstrations carried out by the Ex-

tension Service through the Freedom from Hunger Campaign Fertilizer Pro-

gramme continue to provide useful data on soil fertility in the country.

114. Coordination of applied research work on a national basis is

the responsibility of The Institute of Agriculttural Research which is

receiving good support in its coordinating role; in 1967, a National Crop

Improvement Committee was formed, and was strengthened the next year by

the formation of subcommittees cdrawn from the staffs of the institutions

listed in the chart, to collect data and organize national trials on the

major food crops. Work on these is proceeding, and the results have formed

the basis of a demonstration program bv the Extension Service. So as not

to dissipate efforts, future research work at new sites or for new proj-

ects should be channelled through the Institute.

115. Three major fields of work require more research emphasis: farm

management, so that recommended practices can be evaluated in economic

terms; livestock, one of Ethiopia's biggest potentials; grain legumes and

oil crops, which suffer from low yields. Tea and pyrethrum adaptability

also should be explored. Shortage of finance and specialist staff may

present difficulties in coping adequately with these fields and considera-

tion should be given to seeking assistance from outside agencies and founda-

tions to strengthen research facilities at the Institute.

116. To further improve coordination between the Extension Service and

the research institutions, permanent liaison offices should be appointed to

take active part in all the National Crop Improvement Subcommittees. It is

a good idea for research staff to involve themselves in survey work, par-

ticularly in areas around their stations, and to continue serving on gen-

eral and specialist planning committees.;

Aricultural Extension

117. The growth of agricultural extension services in Ethiopia has

been slow and their contribution to development poor. The Extension Serv-

ice of the Ministry of Agriculture has 13 graduate supervisors in the field

and 110 field extension agents, mostly from the Jima-and Ambo schools, many

of whom have had a year's training at the American University of Beirut;

plus five graduates in Addis Ababa. This thin spread over a large coun-

try -- together with lack of adequate finance for transport and materials,

the relatively recent availability of research results (and even when re-

sults are available the varieties, fertilizers, veterinary medicines, or

credit for them are not) -- have meant a very haphazard situation. Ac-

complishments include a modest afforestation extension program in Shewa,

Sidamo and Tigre, distribution of better breeds of poultry in a few areas,

and formation of youth clubs. In the last three years the most important

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and most successful function of the service has been the executing of the

fertilizer demonstration program, which in 1969 reached 900 farmers in 12

provinces.

11.8. The Ministry of Community Development's village workers, who

receive some training in agriculture, carry out agricultural extension

work in areas where the Ministry operates. Conflicts with the Ministry

of Agriculture extension staff have arisen in some areas at field level.

119. Specialized and limited extension services are operated by the

Coffee Board (about 50 men with mainly regulatory functions), the Tobacco

Monopoly (about 90 instructors in tobacco growing villages), and the live-

stock and Meat Board (10 men working mainly on hides and skins improve-

ment). The staff of the College of Agriculture conduct a limited exten-

s-ion program in t.he area around the College in Hararge Province.

120. The difficulty of stretching limited extension resources over

the country is one of the reasons why the Government decided to implementpackage programs in selected areas. The first CADU took seven extensionagents and one supervisor from the Service and then recru:ited further

staff. The Unit established its own center for training assistant exten-

sion a,gents in 1970 and hopes to have one agent per 1,800 farmers in the

subprovince over the next few years. WADU will pursue a similar program.

1.21. The 1968 increase in the pay of Jima and Ambo graduates from

Eth.$ 250 to $35(:) a month has meant that the Extension Service is able

to hire fewer of them. Staffing increases are essential and the proposed

establishment of three training centers to provide one year courses to

fifty eigth-grade graduates who can become assistant extension agents

should help greatly, particularly if minimum package programs are adopted

as a means of raising the production of farmers not now in the market econ-

omy.

122. The increasing number of commercial farms and plantations will

require specialists of the type now found only on research stations. Pend-

ing the building up of a cadre of specialists within the Extension Service,

commercial farmers will have to continue to seek advice from research sta-

t:ions.. The improvement of coordination between extension and research isv7ital., and as stated above, an initial step should be the appointment of

permanent extension liaison officers within the National Crop Improvement

Subcommittees.

l23. An outstanding issue is whether the various extension services

within the country should be unified. Although a unified service wouldtalce longer to build up the end result might be superior enough to warrant

the extra effort.

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Veterinary Services

124. The present situation of the veterinary services of the Ministryof Agriculture is illustrated in Appendix 9. It can be generalized that

for many years to come large areas of Ethiopia will be deficient in veter-

inary services.

125. Over the past five years Government has realized the problems itfaces in a geographically difficult country with a huge animal pouplation

and has given priority to veterinary services in its plans, but has beenunable to support them financially.

126. The quality of the present service is good and the training given

at the Animal Health School is well suited to the country's needs. A largemass immunization campaign has been started, and the Veterinary Laboratories

now produce 11 million doses of vaccine against five major diseases. The

Government hopes to eradicate rinderpest and pleuropneumonia within the

coming few years. The major problems of diseases transmitted by the tsetese

fly and those of internal parasites are a long-term job for the future.

127. The Government should aim at a minimum of a 15 percent increasein the capital budget (for field and laboratory equipment and transport)and a similar increase in the recurrent budget of the Veterinary Depart-

ment. A large scale fellowship program should be initiated as soon as pos-sible to increase the number of Ethiopian veterinarians.

Supply of Seeds, Fertilizers and Machinery

128. It is estimated that 500,000 tons of seed of the major food crops

are planted annually. In 1969, less than 1,000 tons of improved varieties

of these crops (mainly wheat, teff, maize) were produced in the whole coun-

try.

129. As experimental results become available and demonstration work

increases, demand for improved seeds especially in areas within package

programs will be created. Seed of improved varieties will have to be

multiplied and distributed and seed laws passed governing the issue of new

varieties and their certification. The Plant Production and ProtectionDivision of the Ministry of Agriculture is officially charged with these

duties but to date has been unable to fulfill them. The Division ran a

seed multiplication station at Kulumsa in Arusi Province until 1967 when

it was handed over to the CADU project. The station produced 400 tons of

improved seed in 1969. The Division has about 1,000 ha of suitable land

in other parts of the country but lacks the necessary manpower and finance

to use it. A modest program, initially in one or two locations, would be

a useful start to activate their seed multiplication program. Technicalassistance should be sought for this and for the drafting of seed laws and

regulations as soon as possible. Contracts with progressive farmers could

be included as part of the scheme.

- 33 -

130. The distribution of improved seed could be done through the ex-tension service as part of, for instance, the minimum package program sug-gested earlier. The regional development programs like CADU and WADU willproduce their own seed for distribution, either on the Government farmswithin them or on contract. CADU plans to produce 1,000 tons in 1970(over half on contract) and expects that demand for the improved wheatvarieties will increase rapidly with the availabilty of credit and market-ing facilities. In other areas demand is at present limited to hybridmaize (60 tons were imported from Kenya in 1969) and to cotton seed, nowbeing bought mainly from the Tendaho Plantations Share Company and fromTessenai. The Institute of Agricultural Research hopes to produce black-arm resistant varieties of cotton by 1972. Their multiplication would notbe a problem.

131. The demand for fertilizers is small but growing. In 1964, 2,600tons were imported, in 1968, 4,000 tons, and in 1969, 7,000, mainly for useby Tendaho, HVA., and the fruit and vegetable farmers in Eritrea. The largerfarmers in the highlands and in the Rift Valley have started to use fertil-izers but the present price of fertilizers and the nonavailability of cred-it are not encouraging. Urea, 46% N costs Eth.$ 280 a ton, triple super-phosphate, 47% P205 , costs Eth.$ 320 a ton; transport costs from AddisAbaba are about Eth.$ 10 a ton per 100 km. In the package programs demandis expected to increase steadily.

132. The Government, in its locust control operations, and the largecotton farmers, are the only users of plant protection chemical in thecountry on a large scale.

133. Dealers in farm machinery in Ethiopia are willing to sell on cred-it. A problem facing farmers wishing to mechanize is the shortage of spareparts and skilled operators and mechanics. The number of tractors in thecountry is expected to dotuble to 4,000 or more by 1978. Apart from its con-trol over the issue of duty free fuel for agricultural machinery, the Gov-ernment has not yet taken action regarding the availability of spare partsand of maintenance facilities. A tractor assembly plant is being put up inAddis Ababa, and a factory producing small agricultural implements willstarlt operation this year.

Organization

134. Officially, the responsibility for the development of agricul-ture falls most heavily on the Ministry of Agriculture. Its responsibil-ity, however, is not fully implemented by jurisdictional authority. Sev-eral functions directly related to agricultural development are delegatedto other ministries or to independent units. Important livestock and meatmarketing functions are in the Livestock and Meat Board. Marketing ofgrain, tobacco, and coffee involve special agencies, and the Ministry ofCommerce and Industry. Land Settlement, Administration and Survey are re-sponsibilities of the Ministry of Land Reform. Cooperative and extensionfunctions overlap with the Ministry of Community Development. There are

- 34 -

other examples. In addition, administration of the two regional agricultur-al package programs, CADU and WADU, although primarily within the Ministryof Agriculture, are in fact largely independent. Moreover, as specific de-velopment emphasis evolves, there is a tendency to resolve resultant admin-istrative problems by prosposing additional proliferation as in the case offorestry.

135. The Government recognizes that this fragmentation of responsibil-ity and function should not continue, especially in a situation where bothtalent and finance are in short supply. Improvements have been proposed,including: establishment of planning units within Ministries, and ofregional development groups; formation of an effective Agricultural Inter-Ministerial Committee; a detailed study of the functions and relationshipsbetween these various bodies; reorganization of state economic enterpriseson a commercial basis; and the formulation of a unified policy regardingresponsibility for Agricultural Settlement projects, Agricultural Coopera-tive, credit and extension which will involve the Ministry of Agricultureand the Ministry of Community Development in programming work at Shashamenneand Awasa. In the Middle Awash some arrangements will be necessary to co-ordinate the Awash Valley Authority with both Community Development andAgriculture Ministries.

136. The Rockefeller Foundation has agreed to a government requestto send a four-man team to Ethiopia for the specific purpose of studyingthe organization of agricultural services. The report of this group andits recommendations will possibly be available in August or September 1970.

137. In the meantime, it should be possible to launch an effort tocollect and analyze data on farm management problems. This would meanadding agricultural economics and farm planning to the existing respon-sibilities of the Planning Unit of the Miistry. A second step would befor the Institute of Agricultural Research to undertake a vigorous programof fact-finding to provide as much "backstop" data and statistical deriva-tives for use by the Ministry. Some of this work could commence immediate-ly using current CADU data.

138. Also, it may be useful to point out that the geographical regionsof Ethiopia differ from the political subdivisions. The regional demarca-tions are very distinct and agricultural patterns conform closely to them.It would seem logical to set up regional organizations for Eritrea, North-west Lowlands, Northern and Central Highlands, East,. South, and SouthwestLowlands and Southern Highlands. Similarly, subregions of similar charac-teristics might be defined with extension and other field staff deployedby area rather than political uni'ts.

Responding to Short-Term Constraints

139. The current five-year plan has three years to run, 1970/71-1972/73.The mission has attempted to assess the implications of the developmenteffort over five years but with etmphasis on the remaining years of the plan.

- 35 -

It was necessary to estimate some expenditure items because of a slightlydifferent breakdown, i.e. in some cases project expenditures may beincluded in the Ministry listing or, in others, projects may not havebeen committed to cost estimates. Since our objectives is to assess thegeneral burden of the development effort, rather than to make a detailedbudgetary analysis, an ad hoc procedure should be adequate to our purposes.The five-year development effort is set out in Appendix 4. At a rather:Late stage in this exercise, the Government's budgetary proposal for 1970/71 was received, after it had been approved by the Council of Ministersand proposed to Parliament in April, 1970. Consequently, the proposedbudget has been added to the tabulation for purposes of contrast and analy-sis of the current situation and short-term constraints.

140. Ignoring the proposed budget for 1970/71 for a moment, the com-pilatLon of Plan expenditures indicates that, for the remaining three yearsof the TFYP, a total of Eth.$ 231.2 million in expenditures would be re-quired. The main demand for resources would come from the projects relatedto the development strategy in force (see Chapter I):

(1) Package programs based mainly on crop production: Chilalo,Wolamo-Soddo, Ada.

(2) Package programs based mainly on livestock production: theNational Range Development Project and the Addis Ababa DairyUnit.

(3) Large scale commercial farming based on crop production forlocal consumption and for export: the Northwest lowlandsand the Shashamenne projects.

(4) Irrigated agricultural projects largely for the productionof import substitution crops and export crops: Melka Sadi-Amibara and the expansion of Tendaho projects.

(5) Agroindustrial: coffee processing.

(6) Agricultural Infrastructure: the strengthening of the AwashValley Authority, the expansion of agricultural research,agricultural education and extension services; and the es-tablishment of a Land Reform and Training Institute and ofa Forest Rangers School.

:141. The projects included in the program represent a basically soundapproach to rapid expansion of the monetary sector of agriculture, thoughas mentioned earlier some require further study before a final decisioncan be made on execution. The main point, hawever, is that this agricul-tural program is much larger than the one the Government has in process ofimplementation. Indeed, in terms of the annual financial requirements,it represents a very rapid acceleration of expenditures on agriculture.The feasibility of this program turns on: (a) favorable economic andtechnical appraisal; (b) availability of external capital assistance;

- 36 -

(c) manpower availability; (d) availability of technical assistance forthe early phases of implementation; and (e) adequate domestic finance.

142. In general it can be said that the bulk of the program is nowor soon will be ready. The program is well founded in terms of attractingexternal assistance and, in fact, the projects are already at some stageof preparation or negotiation with external donors. Hence, availabilityof external assistance does not appear to be a constraint.

143. Manpower availabilty is another matter. The manpower implica-tions of the program are roughly estimated in Appendix 5, in terms of ManYears required. 1/ There is very clearly a very significant gap betweenthe supply of indigenous agricultural staff and the requirements of theprojects and regular agricultural services for the balance of the TFYP.The manpower gap is greatest in 1970-71 and 1971-72 under the illustratedphasing of the program. It is emphasized that this gap does not considerthe mission's recommendations that minimum package programs, as well asincreased manpower for marketing and credit, be implemented in the TFYP.While some of the manpower gap might somehow be bridged or bypassed (withincreased technical assistance, for instance) the evidence suggests thatthe annual phasing of the capitaL program, as outlined in Appendix 4,would have to be adjusted to meet manpower availabilities.

144. Whether or not a sustained flow of domestic funds can be main-tained is another question, but the assumption here is that domestic fi-nance availabilty is not a determining factor as far as what could beachieved, given the high prioritv that agricultural development warrants.It must be recognized, however, that budgetary planning procedures needto be tightened.

145. The 1970/71 budget proposed by the Council of Ministers altersthe phasing of the capital budget from original projections. While allthe implications cannot be assessed yet, it seems reasonably clear thatthe manpower requirements have been reduced. Deletion of items for Meka-

Sadi-Amibara, Shashamenne, Tendaho, Agricultural Extension and Education,as well as postponement of the item strengthening the Awash Valley Author-ity, reduces the estimated staffing requirements for capital items from583 to 307 man years. On the supply side, in 1970/71 there would be avail-

able for recruitment 213 graduates of professional and technical trainingschools. While these are by no means comparable figures, it is clearthat an irriducible shortage of manpower exists. Still, the proposedbudget would require only two completely new starts that year -- theAddis Ababa Dairy and the Northwest Lowlands project, and only a partof the latter refers to agricultural staffing. In any event the 1970/71 rephased financing of the Northwest Lowlands project has been greatly

1/ The situation is being reviewed and may be less serious than the tableindicates.

- 37 -

reduced from original proposals. And the manpower constraint may be lesssignificant for organizations which already exist. Taking a generous viewof the situation -- and recognizing that a certain amount of slippage mayoccur -- it is possible that the staffing constraint may not create in-superable problems for 1970/71 capital budget. The recurrent budget wouldbe less serious from a staffing standpoint.

146. The budget does not contain provision for the proposed minimumPackage Program or marketing and credit projects. These requirements wereestimated at about 175 (Appendix 8) assuming it would be possible to re-cruit for these progams during the 1970/71 year. There is some doublecounting, however. In the case of the Grain Corporation, about 25 profes-sional workers are presently employed, leaving 35 to be recruited in 1970/71, as many as 50 of the 114 projected for the 1970/71 Staff of the Mini-mum Package Program are also "on board".

147. It is not possible at this time to say what should give, givena critical short-term manpower situation. A high priority should be ex-tended to the proposed new programs, and they should be considered aspossible alternatives to full-scale package programs. But whatever theshort-term outcome, a continued rephasing of the developmient program in1971/72 and in subsequent years will quite probably be necessary, eventaking into account the return of some 60 individuals now in overseastraining in agriculture and affiliated subjects. The grace period es-tablished by the 1970/71 rephasing should be utilized for plans to co-ordinate the inevitable manpower constraint for 1971/72 and later.

148. A specific plan should be developed in the Ministry of Agricul-ture for more efficient utilization of all staff skills. This would in-volve a survey and review of existing professional and technical staffand their assignments aimed at upgrading and making better use of profes-sional staff. Emphasis should be placed on such well-known methods suchas assigning routine or repetitive tasks to nonprofessional staff undersupervision, a pragmatic emphasis on personal capabilities as opposed toformal professional training, more emphasis on increasing the mobility offield staff, in-service training, etc. In many countries farmers andcommunity leaders are willing for remuneration to undertake limited semi-formal training to serve as part-time technical workers, assisting atdemonstrations etc. More aggressive recruitment is also needed. Agri-cultural careers can be pursued by graduates from such disciplines asengineering, education, physical science, including botany and biology,and the social sciences particularly economics, as well as dropouts fromvarious University degree disciplines.

149. A manpower plan for agricultural should be drawn up by the Plan-ning Unit of the Ministry of Agriculture. The critical agricultural man-power deficiency could be viewed on a government-wide basis, i.e. otherministries might economize in their recruitment of new staff or secondstaff to help meet the more urgent needs of agriculture. A high level co-ordinating council, chaired by the Minister of Agriculture and in coopera-tion with existing educational and training institutions, would seem to becalled for.

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IV. COMMODITY PROSPECTS

150. The prospects for improved production from the various regions ofEthiopia and from a large variety of crops and agricultural enterprises aregood, provided a steady and sizeable flow of investments in agriculture isassured. Concentration on the traditional areas and crops whose productioncan keep pace with population growth and produce surpluses for export, andon lowland areas suitable for production of export and import substitutioncrops, involves decisions on priorities among a large number of commodities.The problems and prospects of the major ones are discussed below.

Coffee

151. Production statistics for Ethiopian coffee are unreliable and varyaccording to sources. The National Coffee Board estimates the 1966/67 pro-duction at 161,000 tons and the 1967/68 and 1968/69 production at about200,000 tons. The estimate by the CSO for 1966/67 is 155,000 tons. Produc-tion estimation is rendered difficult.-by the fact that most of Ethiopian cof-fee is grown wild in the forest, although there is a substantial amount ofgarden coffee; 1/ the amount of plantation coffee is very small. Informationabout domestic consumption and stocks is also poor. Ethiopia has sought theassistance of the International Coffee Organization to conduct a coffee surveywhich, inter alia, should give a basis to develop better coffee statistics.However, export statistics are fairly reliable. The following describes thegrowth of coffee exports in recent years:

1963 1964 1965 1966 1967 1968 1969

Volume ('000 tons) 66.1 70.2 87.6 73.6 73.6 80.3 88.3

Value (million Eth.$) 110.9 158.8 188.2 155.3 139.2 153.0 173.9

152. Because of the dominance of coffee in Ethiopia's exports, any set-back in price, marketing and production can have repercussions on the rest ofthe economy. Production and marketing are left to the private sector, whilethe National Coffee Board performs some regulatory functions.

153. The Government now plans to concentrate its efforts on:

1/ It is generally recognized that Ethiopia is the center of origin ofArabica coffee grown "wild" in the highland forests of the Southeastregion. Garden coffee refers to trees planted around homes by smallfarmers, and to trees in small areas, within the coffee forest, thathave been cleared and cultivated but otherwise receiving little care.

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(a) Assessing the full potential and structure of the coffe in-dustry, as very little information is available on the ex-tent of the coffee areas, yields and costs of production;

(b) Increasing production, not by more planting but by improv-ing accessibility to the forest coffee areas, and the im-provement of cultural practices and of methods of pickingand drying. The National Coffee Board estimates that over15 percent of the total marketable supply are spoiled beansunfit for sale or consumption. Also by exporting part ofthe coffee production as freeze dried coffee;

(c) Improving coffee quality in general, and washed coffee inparticular. The quantity of washed coffee is to be in-creased substantially, especially in areas where the qual-ity is more suitable for washed processing;

(d) Setting up of a coffee exchange and the introduction of agrading and an auction system;

(e) Encouraging the formation of cooperatives to control pro-duction, processing, transportation and payments to growers;

(f) Financing research on quality and yield improvement, and oncrop diversification in the coffee-growing areas.

154. The Government hopes to obtain the agreement of the InternationalCoffee Organization to use its contributions to the Coffee DiversificationFund to finance some of the above actions, as well as to finance other de-velopment projects that will contribute to Ethiopia's efforts for diversifi-cation.

155. The general approach to the industry appears sound, but any reformthat would raise costs should be examined closely. Past experience indicatesthat coffee supply in Ethiopia is price-responsive and that larger amountsreach the market when prices are high. The commodity experts expect the cur-rent high prices to last for 3-5 years. Moreover, washed coffee productionis rising and will rise much faster if the coffee processing project, whichis being prepared by the Government, is implemented. The prospects will de-pend a good deal on the future of the coffee agreement, on the assessment offuture market requirements, and on the fact that it is the low productioncost of forest coffee that ensures its flow to markets; any improvements inits culture will mean sharp increases in cost of production which will haveto be accompanied by more than an equivalent increase in yield.

156. The following export projections are based on the current assess-ment of coffee prices in the coming years, and on the asstuption that washedcoffee exports, vwhich command an attractive price premium, will increase ra-pidly. The possiblity of opening new roads and of improving existing onesin Kefa, Sidamo, Welega and Ilubabor; the completion of the Bedelle-Meturoad; increase in washed coffee production; the continuation of high prices;

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and finding markets outside quota area, suggest that Ethiopia could exportabout 110,000 tons by 1974.

TABLE 4.1

COFFEE EXPORT PROJECTION /1

1970 197t 1972

Thousand Value Eth.$ Thousand Value Eth.$ Thousand Value Eth.$Tons millions Tons millions Tons millions

Washed 8 25 9 26 12 34

Parchment 85 210 89 211 90 203

Total 93 235 98 237 102 237

1973 1974

Washed 17 44 22 55

Parchment 89 186 88 174

Total 106 230 110 229

/1 Excludes possible exports of freeze dried coffee.

Cotton

157. Cotton has excellent development prospects. The demand for lint bytextile factories is expected to rise to 30,000 tons in 1973 and to about35,000 tons by 1975. In 1967/68, the factories used 15,000 tons of lint (outof a total of 25,000 tons of fibre); 5,500 tons were imported as well as over2,000 tons of cotton yarn and piece goods. As shown in Table 4.2, the risein production since 1966 has been mainly due to the rapid increase in irri-gated areas under cotton in the Awash Valley, and in rain-fed areas in theNorthwest Lowlands.

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TABLE 4.2

ESTIMATED AREAS OF COTTON /a

Area /b Output(thousand ha) (thousand tons)

Seed Cotton Lint /c

1966/67 54.4 31.3 10.9

1967/68 50.2 32.6 11.4

1L968/69 66.9 40.1 14.0

11969/70 70.1 43.3 15.2

/a Figures do not include cotton grown by subsistence farmers for theirown needs and to supply cottage industries, estimated to use 3,000 tonsa year.

/b Of which approximately less than 1/4 is irrigated.

ic At 35% of seed cotton.

158. Plans are now under consideration for extending the irrigated areasat both Tendaho and Tessenai which together might increase the area under ir-rigated cotton by 6,000 ha by 1975. The development of the Melka-Sadi Amibaraplain in the Middle Awash might add another 5,000 ha or more, depending on theratio of cotton Ln the planned rotation. Other irrigated areas might con-tribute an additional 2,000 ha. Increases in the production of rain-fed cot-ton will have to come from the lowlands in the Northwest, West and South, re-ceiving over 600 mm of rain during the growing season. Increases in theseareas might add 20,000 ha by 1975, including the Humera area and the lowlandsof Welamo Awraja. Assuming yields of 1,500 kgs/ha of seed cotton from the ir-rigated areas andl 500 from the rain-fed ones:

20,000 additional irrigated ha 19,500 tons seed cotton

30,000 additional rain-fed ha 8,000 " I

27,500 if

equivalent to 9,800 tons lint

worth over Eth.$ 5 million at present Addis Ababa prices.

159. It may be assumed, therefore, that even if more areas than theabove come under cotton, and if higher yields are obtained, cotton will con-tinue to have a ready local market during the coming 10 years at least.

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160. It si reported that the fiber length of the dry land cottons willmeet the requirements of the mills during the foreseeable future. Recentstudies at Tendaho and Tessenai indicate that under irrigated conditionslonger-fiber better-quality cottons suitable for export can be produced.The relatively high local price of cotton is one reason why no attempt atexporting large amounts has yet been made. Further investigations of lo-cal and foreign markets are necessary before a decision can be taken regard-ing relying on the dry land areas for cotton production for the local marketand on the irrigated ones for export quality cotton or alternatively, evenwhile the local demand is not yet met, exporting the premium cottons and im-porting cheaper varieties.

161. The expansion of the irrigated areas will require large investments.The planned expansion at Tendaho is estimated to cost over 10 million dollarsand the civil works, the drainage and levelling work part of the developmentof the Melka Sadi Amibara plain may cost over Eth.$ 3,000 a hectare. The low-land areas are for the most part thinly settled and far from the importingcenters; their development, as in the Humera area, will require new roads,credit for machinery as well as the organization necessary for the introduc-tion of new ways and techniques. The expansion will also require the conti-nuation of research efforts on cultural practices, costs and returns of var-ious methods of pest control, and on the production of varieties resistant tobacterial blight (Xanthomonus malvacearum), the one serious disease of cottonat present.

Tobacco

162. The tobacco industry in Ethiopia is controlled by a Governmentagency, the Tobacco Monopoly, which until recently has been dealing withoriental type tobacco bought from about 40,000 small farmers in the Awasaand Welamo Districts (1,150 tons in 1968).

163. In 1966, in preparation for the manufacture of new brands of ciga-rettes, the Monopoly started arrangements with larger farmers for the growingof Virginia tobacco under irrigation in areas below 1,400 meter elevation.

164. The production situation in 1969 is summarized in Table 4.3. Inthat year, only 550 tons of the 1,250 tons of oriental tobacco produced wererequired for local consumption, but the Tobacco Monopoly Charter requires itto announce the price for the various grades before the beginning of theplanting season, and to buy the produce of the areas that have been planted.The Monopoly has also been supplying ploughing free of charge and free seedor seedlings, and plant protection services to the small farmers growingoriental tobacco. Because of the build up in stocks, the Monopoly is nowtrying to discourage further planting of oriental tobacco, starting in thevillages that are considered marginal as far as quality is concerned. Ex-perimental work is being conducted at Awasa for the production of burleytobacco for blending. The promising results will eventually help in thefurther reduction of the areas producing oriental tobacco.

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TABLE 4.3

MONOPOLY CONTROLLED PRODUCTION

1969 /a

Staf f of AverageNo. of T.M. working Type Yield Production Price

Location Farnmers in Area /b Tobacco (tons/ha) (tons) per ton(Eth.$)

Awasa 30,000 1 Graduate Oriental)2 Agric. School )

45 Instructors ) 0.6-0.8 1,250 750)

Welaino 10,000 1 Graduate )3 Agric. School Oriental)

32 Instructors )

Robi 450 1 Graduate 120)3 Agric. School Virginia) )

10 Instructors ))

Awara Melka) 1 Agric. School Virginia) 1.0-1.2 130) 1,600) one ) )

Nura Era ) 5 Instructors ) 50)

) )Eritrea one - Virginia) 20)

/a In addition, a large number of farmers in Ethiopia grow tobacco fortheir own tuse and for sale. The Tobacco Monopoly does not have theorganization that would allow it to exercise any control over them.

/b In addition the Monopoly employs two foreign experts, one for orientaltobacco and one for Virginia.

165. The demand for Virginia tobacco is increasing. In addition to the320 tons produced locally in 1969, 257 tons were imported. The Monopolyplans on the production of 400 tons from the above four locations in 1970and on developing 200 ha in the Blatte area in Welamo District by 1973. Inaddition, it plans to award concessions for Virginia tobacco production tofarmers in the Melka Sadi-Amibara plain if the experiments planned for 1970and 1971 prove tobacco growing successful.

166. In 1969, the Monopoly's profits amounted to Eth.$ 6.5 million ofwhich Eth.$ 2.5 million were paid to the Treasury as tax. The Monopoly inaddition pays an import tax of Eth.$ 15,000 per ton of imported Virginia.The Monopoly estimates that consumption will grow at about 10 percent ayear until 1975 at least, and that the requirement of Virginia tobacco, es-timated to be over 1,000 tons a year by then, can be met locally. Samples

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of flu cured Virginia tobacco are being sent to a number of countries, andthe Monopoly plans to further investigate export possibilities.

167. The proposed Virginia tobacco production in the Melka Sadi Amibaraplain for export might depend on Ethiopia finding a "partner" among the coun-tries importing flu cured tobacco, particularly one that can help in thetechnical problems involved, as the production will require skills that arenot available in the country. At present, the general world market picturelooks as if Ethiopia can enter the export market, provided its Virginia to-bacco can meet the stringent export quality requirements. This will requirea special research program,technical advise on growing, care, curing, controlof quality and grading, and marketing arrangements either through a nationalorganization, or through an importing "partner".

Sugarcane

168. Most of Ethiopia's sugar requirements is produced by the H.V.A.Ethiopia Share Company at its Wonji and Shoa estates in the Upper Awash Val-ley. In 1968/69, 66,200 tons valued at Eth.$ 40.6 million were produced.The H.V.A. Metahara Share Company, which is run under the same management asH.V.A. Ethiopia, started its factory operation, at the Metahara estate in theMiddle Awash in November 1969.

TABLE 4.4

AREAS AND PRODUCTION OF SUGAR

Total AreaArea Available Production Estimated Annual

Planted for Cane (000 tons) Planned Production at-(ha) Production 68/69 69/70 70/71 Full Utilization

Wonji-Shoa 5,600 5,600 66.2 67 70 70

Metahara 3,600 5,000-6,000 - 29 /a 45 65

/a Produced from the 1,500 ha harvested out of the 3,600 planted.

169. The consumption of sugar in 1968/69 was 75,000 tons, and in recentyears consumption has been growing at 5 percent per year. On this basisH.V.A. could have surplus production in 1970, which it would export. Until1966, sugar consumption in Ethiopia had been rising at over 14 percent ayear. The reasons for the decrease since then were the fall in the rate ofgrowth of the monetary sector, and the increase in taxes on sugar, which nowamount to Eth.$ 180 per ton.

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170. H.V.A. proposes to keep the volume of production at Metahara be-low capacity until local demand justifies expansion, and to intensify itssales campaigns. Although exports will benefit the country's foreign ex-change situation, Ethiopia's sugar (which sells wholesale at Eth.$ 613 perton within the country) will have to compete with sugar from Eastern Euro-pean countries, which costs approximately Eth.$ 230 per ton CIF Red Seaports.

171. H.V.A. has investigated the possibility of producing industrialalcohol, the distillery uses of sugar, and the possibility of utilizing themolasses for animal feed, but none of these shiows promise for the near fu-ture. It is anticipated, however, that the recent improvement in the eco-nomic situation will result in an increase in sugar consumption well abovethe 5 percent rate of recent years.

Cereals, Pulses and Oil Seeds

172. Cereals and pulses contribute over 75 percent of the caloric in-take of the population. Reliable nationwide data on production and consump-tion are not yet available. In the last three years prices of food cropshave remained relatively stable, and the drought and famine of the 1965/66season have not been repeated. Supplies seem to have been growing alongwith demand, leaving in the case of pulses and oil crops, a margin for ex-port.

TABLE 4.5

PRODUCTION AND EXPORTS 1968 /a

Estimated ExportsProduction Quantity Value

(thousand torts) (thousand tons) (Eth.$ millions)

Cereals /b 5,487 1.5 0.4

Pulses 600 75 21.3

Oil Seeds 437 50 22.4

+ oiL seed cake - 26 3.7

/a D)etails of area and production for each crop are given in Appendix 1.

Jb In addition to cereals, false banana (Ensete ventricosum) is extensive-:ly grown in the South and Southwest where the stem is used as a sourceof flour. Annual production is estimated at 450,000 tons.

Source: CSO: Annual External Trade Statistics, 1968.

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173. A shift in the local consumption pattern of cereals appears to betaking place, mostly in urban areas, towards wheat and teff and away frommaize, sorghum and barley. In 1968, Ethiopia imported 16,000 tons of wheatand wheat flour. In export crops the trend is towards a decrease in linseedand an increase in sesame, haricot beans. chick-peas, and lentils. The de-crease is probably caused by a rise in local consumption with no equivalentincrease in area or quality; also, export prices between 1963 and 1968 haveshown a general downward trend.

TABLE 4.6

EXPORTS OF CEREALS, PULSES, OIL SEED

1963 1968Quantity Value Quantity Value

Crop (thousand tons) (Eth.$ millions) (thousand tons) (Eth.$ millions)

Sesame 8.6 4.3 27.1 14.0

Linseed 37.2 13.4 3.7 1.1

Lentils 16.2 3.9 22.1 7.5

HaricotBeans 9.7 3.5 19.3 6.9

Chick-Peas 8.5 1.6 13.9 3.0

Source: CSO: Annual External Trade Statistics.

174. Development plans should, therefore, promote increases in teff andwheat production for internal use, and of sesame, haricot beans, chick-peasand lentils for export. Wheat, teff, lentils and chick-peas are produced inthe highlands by small, mainly subsistance farmers, while sesame and haricotbeans are produced largely on commercial farms in lowlands and mid-altituderegions. Estimated values of production of these crops per hectare are giv-en in Table 4.7.

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TABLE 4.7

PRODUCTION OF CEREAL, PULSES, OIL SEED

Yield/ha Price per Average'(quintals) (quintal) Value/ha

(Eth.$) (Eth.$)

Wheat 7-10 20-24 187

Teff 5--8 24-28 169

Sesame 3-6 40-45 191

Chick-Peas 6-8 18-20 163

Haricot Beans 7-9 18-20 152

175. On the small chiefly subsistence farms of the highlands, the inputsrequired for wheat and the grain legumes are of a similar order; precise fi-gures however are not vailable. Wheat and teff appear the most remunerative.On highland commercial farms in the main wheat growing areas, yields of 20-25quintals per hectare are being obtained from wheat, but no large-scale teffgrowing has developed - probably because problems of mechanical harvestinghave not been solved, and land preparation for it is more laborious. Wheatand teff do not yield well in areas over 2,700 meters elevation where barleyis better adapted, nor in the rainfed lowlands where maize and sorghum dobetter. Increases in the production of wheat and teff should lead to meetinglocal requirements, and possibly in the case of wheat, oni land which couldthen be released from teff, eventually to exports.

176. Research on wheat and teff has advanced to a stage where the begin-ning of a seed industry on a national basis can be contemplated, along withthe establishment of a credit and marketing system, and the provision of dis-tribution centers for inputs such as improved seeds, fertilizers and plantprotection chemicals. Minimum package programs were recommended in ChapterIII.

177. Increases in the production of lentils, chick-peas and the otherhighland grain legumes (peas and broad beans) will require research as allthe varieties now in use are low yielding. None of them do well in the low-lands, and their performance under irrigation has been poor. It is worth-while in the highlands trying to increase their yield and improve theirquality as their prices have increased steadily and markets for them areassured.

178. The market for sesame will probably remain finn and prices are ex-pected to remain at current levels. It is well suited to lowlands receivingadequate rainfa:Ll, similar to the Humera area, where increases in yield with

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better cultural practices to over six quintals per hectare are thought prac-

ticable. The main problem with. sesame in the large commercial farms of thisarea is the need for concentrated labor at harvest because of the short pe-

riod between ripening and the shattering of the pod. This harvesting diffi-

culty makes sesame suitable for small farms using family labor either underrain-fed or irrigated conditions in the lowlands. It is now successfullyproduced in the Lower Awash by small farmers in the Asseita area and mightbe a good crop in the rotation on small settler farms planned within theMelka Sadi-Amibara Development Project.

179. For the immediate future increases in sesame production will de-pend on the further development of the Humera region and of similar areasin the western lowlands; transport facilities are at present very limitedin all these areas.

180. Research on improved varieties of haricot beans was started in

1966; varieties giving substantial increases under both rain-fed and irri-gated conditions will have to be found before it can economically competewith other crops grown in the same ecological zones such as high-yieldingvarieties of maize, and peppers.

Fruits and Vegetables

181. Reliable data on exports of fruits and vegetables exist, but as inthe case of grains, there are as yet no reliable data on production and local

consumption.

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TABLE 4.8

PRODUCTION AND EXPORT OF FRUIT AND VEGETABLES 1968

Production Value Exports Value(thousand tons) (Eth $ millions) (thousand tons) (Eth.$ millions)

Yams 243 12.5 Bananas 15.7 4.4

Potatoes 151 18 Chillies and 2.3 1.9Peppers

Chillies andPeppers 96 28.7 Other Fruits 8.9 2.8

and VegetablesOtherVegetables 240 21.7

Fruits 70 14

Source: CSO: Annual External Trade Statistics 1968.

182. Increases in production for local consumption will probably paral-lel population growth, particularly of yarns and potatoes in the Southern,Western and Southwest Regions. The demand for other fresh vegetables andfruits in Ethiopia is limited, and apart from chillies, onions, tomatoes anda few greens, they hardly figure in the diet. The supply of fresh produceto Addis Ababa, from production to retailing, is in the hands of a business-minded ethnic group which can be expected to induce a steady supply as demandincreases.

182. Increases in the exports of fruits and vegetables should occur inthe next few years. Reopening of the Suez Canal would be a great encourage-ment to exporters. Reduction in air freight charges may have more relevanceto the immediate future, if it can be achieved. The present cost of 90Ethiopian cents per kilogram from Addis Ababa to Southern Europe is provinga disincentive to increasing exports, apart from speciality crops such asout-cf-season strawberries and fresh haricot beans.

184. The continuing expansion by the present exporters, in particularthe De Nadai group in Eritrea, should result in substantial export in-creases. The latter's efficient organization permiits the finding and thesupplying of new markets and the expansion of existing ones, despite thepresent transport difficulties. It is essential to increase production ofvegetables during the Winter season when demand is high in the countriesbordering the Red Sea and the Mediterranean and in Europe, and also to in-crease the planting of types and varieties of citrus that produce the majorpart of their cl'op outside the Mediterranean citrus season.

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185. From 1974 onwards there should be the development of irrigated

fruit and vegetable production in the Middle Awash. The opening of the

Awash-Assab road, now under const:ruction, will decrease considerably thetime and cost of transport.

186. As far as small farmers are concerned, the Government should en-

courage concentration on crops with which small farmers are familiar and for

which an export potential exists, such as peppers and chillies.

187. The Spice Extraction Company, which started operations in 1967,

could be expanded, as it offers a ready market to producers of a certain

quality of peppers for pigment extraction for export.

188. By 1975, exports of fresh fruits and vegetables should increase,

from the present 27,000 tons worth Eth.$ 9.1 million to 35,000 tons worth

over Eth.$ 12 million.

Livestock and Livestock Prospects

189. The livestock industry is one of the largest and one of the most

neglected resources of Ethiopia. Estimates of animal numbers are: 25 mil-

lion cattle, 12 million sheep, 11 million goats and 7 million horses, mules,donkeys, and camels; recent surveys suggest that the number of cattle might

be less than 20 million.

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TABLE 4.9

EXPORTS OF LIVESTOCK AND PRODUCTS

5 Year1963 1964 1965 1966 1967 1968 Average

Q /a V /b Q V Q V Q V Q V Q V Q

Meat 3.3 2.6 5.3 5.8 8.2 7.4 7.9 7.3 5.9 5.9 5.6 5.6 6.0

Live Animals 1.1 2.5 8.5 3.3 2.4 2.3 3.2 3.2 3.1 3.0 4.3

Total 3.6 8.3 16.7 10.7 10.3 9.6 9.1 9.7 8.7 8.6 11.2

Hides 6.7 6.8 4.4 4.1 5.3 4.4 9.4 9.4 5.8 5.8 3.5 2.8 5.8

Sheep Skins /c 3.9 9.9 4.3 11.5 4.0 11.1 4.8 13.7 4.6 13.6 4.6 13.0 4.7

Goat Skins /c 3.8 5.2 3.8 5.9 4.1 7.3 4.7 12.1 3.9 9.9 4.7 8.7 4.2

Total 21.9 21.5 22.8 35.2 29.1 24.5

/a Quantity (Q) in thousand tons.

/b Value (V) in million Ethiopian dollars.

/c Sheep and goat skins: thousand pieces.

190. The export of meat is mainly in the form of calned and processedproducts. The six commercial meat processing plants in the country have beenoperating below capacity since their establishment partly due to insufficientsupplies and partly due to inadequate organization of supplies from the pro-ducers to the plants. In 1968, their combined capacity was about 270,000 ani-mals but only 73,000 were slaughtered, mainly for export. The number of cat-tle slaughtered annually is estimated at 1.5 million, which suggests that un-less the present animal production and animal health situation is rapidly im-proved, there will be a gradual reduction in the total cattle population.

191. Several factors are responsible for the present unsatisfactory stateof this valuable resource. There is a tradition in Ethiopia that man growshuman food and nature provides animal food. A large portion of the cattlethat are in the highlands are used for draft purposes; milk and meat are con-sidered as by-products. Furthermore, mortality rates are high, due to diseaseaggravated by poor nutrition; it is estimated that the mortality rate in cat-tle bietween 0 and 4 years old may be as high as 50 percent, and that inanimaLs over 4 years old about 8 percent. Poor nutrition, low fertility, andslow growth are characteristics of both the highland and the lowland systemsof management.

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192. In the past five years, Government planners have given high prior-ity to this sector, but priority was not accompanied by increased budgetaryfunds. Only recently has the Veterinary Department been able to somewhat ex-pand its activities. The Animal Production Division of the Ministry has beenlacking in ideas, men and money for a decade; the Livestock and Meat Board,which was supposed to accomplish great changes in the industry's productionand marketing methods, became moribund within months of its establishment in1964; research in animal husbandry and animal nutrition is recent and person-nel are few. The one pilot project that started as a precursor to the pro-posed National Range Development Project has received little support.

193. The lack of information on the various aspects of the industry hasdiscouraged private investors. The few fattening operations near the capitalare reported to be only marginally profitable. The one bright spot has beenthe increase in the supply of milk to Addis Ababa and Asmara from nearby com-mercial dairies, and in Addis Ababa from milk collection centers servingpeasant farmers. The supply (at present 20,000 liters a day) is expected tomore than double within the next five years. The Government has made no at-tempt to encourage the start of livestock oriented projects in the highlands,apart from the proposed dairy scheme; the one commercial sheep enterprise inthe country is losing money because of unsuitable location and poor manage-ment.

194. Conditions affecting livestock could be improved by the followingmeasures:

(1) The pilot range project in Sidamo should be activated to ensurethat sufficient data ar-e available by 1972 on which to base thestart of the National R'ange Development Project.

(2) Research activities should be expanded particularly with regardto:

(a) Study of the potential of the local breeds under dif-ferent systems of management and possibilities and pro-blems of their upgrading and crossing.

(b) Methods and economics of pasture and forage improvementin the lowlands and highlands including utilization ofcrop by-products, possibilities of haymaking, reseeding,undersowing in cereals, and the utilization of irrigatedforages for milk and meat production. Preliminary re-sults of experimental work in the Middle Awash suggestthat growing alfalfa and Sudan grass for milk and meatproduction may prove more profitable than many of thecash crops envisaged.

(c) The work started at the sheep breeding station for thelarge sheep (40 kg carcass weight as opposed to the 20kg average weight of the Ethiopian breeds) for whichmarkets in neighboring countries are assured.

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(3) A hides a skins improvement program should be implemented,possibly as a UNDP-assisted project, or in conjunction withthe establishment of a processing plant producing qualityhides and skins for export. The prices of hides and skinsin general have continued to rise, and Ethiopian goat skinsin particular are highly valued in world markets.

(4) Activities of the Veterinary Department should be intensifiedto enable it to expand its present vaccination campaignsagainst anthrax, rinderpest, pleuropneumonia, blackleg andsepticernia, and to start tackling the hitherto untouched pro-blems of diseases transmitted by the tse tse fly, and those ofliverfluke and internal parasites. A reduction in mortalityrates and the establishment and control of disease-free zoneswould enhance Ethiopia's production and export prospects.

(5) The scope of the Government livestock survey, started in 1970,should be widened. The mission should be strengthened so thatit can gather reliable data by region on livestock numbers,pasture and fodder situation, animal health and vaccination re-quirements, the movement of animals, and their marketing. Thismay be an important step, not only in selecting promising areasfor beef, milk, sheep for meat or wool, etc., but might alsoserve as a guide to preinvestment studies, and possibly as aninducement to investors.

(6) Preparations should be started now for the implementation in1972 of a pilot livestock project in the highlands, utilizingthe present facilities of the Animal Production Division, theVeterinary Department, the Livestock and Meat Board, the Ex-tension Service and the Institutes of Agricultural Research.The pilot project could be started in a limited area, prefer-ably around one of the government stations, for the evaluation,through a modest action program, to determine which improvedpractices now known could be applied by cattle or sheep ownersin the highlands at what costs and benefits.

(7) The future of the Livestock and Meat Board and the Animal Pro-duction Division should be decided on soon. The alternativesappear to be massive strengthening or drastic changes to over-come the present stagnant situation.

195. The implementation of these measures will largely depend on govern-ment decision on a livestock policy and the degree of support it can give.As a minimum the government departments involved with livestock developmentshould be assured of annual increases of about 15 percent in both capital andrecurrent budgets. Possibilities exist for obtaining technical assistancefor most of the above proposals.

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196. Increases in production, however, are unlikely to become evidentbefore 1974, and thus exports of meat, live animals, hides, and skins over1970-1974 will probably be maintained at about the average level of the pastfive years (Table 4.9).

197. A Bank Group Livestock Review and Project Identification Missionarrived in Ethiopia in the latter part of April 1970, to undertake an over-all review of the country's livestock development strategy, policies andproject proposals. The mission Till help to identify projects. The mis-sion's report should prove most helpful in indicating the points of develop-ment which should be concentrated on, as well as the priorities, and thepriorities indicated above may require modification.

Fisheries

198. Ethiopia has two principal fishery resources: (a) the Red SeaMarine fishery which has not been systematically developed; and (b) thefresh water fishery resources of the Rift Valley lakes, of which little isknown. Commercial fishing is almost entirely concentrated in the coastalwaters of the Red Sea.

199. The Plan called for a fourfold increase of annual fish productionto Eth.$ 8.7 million by 1972/73, and a total expenditure of Eth.$ 5 millionof which 80 percent would be capital expenditure. But only a minimum efforthas been made. The only funds received in 1968/69 by the Department of Fish-eries (Ministry of Agriculture) was Eth.$ 61,108 for recurrent expenditure;the revised 1969/70 budget listed a Eth.$ 40,000 capital item for fisheriesbut this was deleted, 1/ however, a similar item is included in the 1970/71proposed budget.

200. The Department of Fisheries is very small. As the above figuresfor recurrent expenditures (mostly salaries) indicate, resources are barelyenough to provide for a department head and assistant at the capital, andtwo junior technicians and mechanic at Massawa and also at Assab. Facilitiesat Massawa and Assab for berthing, boat and engine repair, and for handlingthe catch are minimal. This means that supporting services are barely ade-quate for the small coastal fishing activity which produces enough to sa-tisfy the small fresh fish demand of Ethiopia, which may be as much as 1,000tons annually, and shipments to the Israeli market of 700-800 tons.

201. The largest Red Sea catch, both in terms of volume and value, aresardines, anchovies and sharks for industrial processing for fish meal anddried fish largely for export. Fish meal and dried fish had a 1966/67 ex-port value of about Eth.$ 2.5 million out of a total fish export value ofEth.$ 2.9 million. However, closing of the Suez Canal drastically reduced

1/ Source: 1968/69, Ministry of Agriculture; 1969/70 and 1970/71, Ministryof Finance.

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their export trade and spotlighted the industry's dependence of foreign mar-kets. Unfortunately, the bulk of the Ethiopian population are not fisheaters and domestic demand cannot be expected to increase dramatically.

202. For the remaining years of the TFYP, the Fisheries Department with-in budget limitations will work on methods of improving catch, improve condi-tions of wage eaLrners in the fishing industry, seek to increase domestic de-mand, and perhaps most important, try to interest the International IndianOcean, Fisheries Commission to undertake a Red Sea fishery resource investiga-tion based on UNDP/FAO support.

203. A general lack of interest in commercial development of inlandfisheries is probably due to lack of demand for fish as a food item. Some

intetest has been expressed for stimulating foreign interest in processingtinned fish and frozen fish filets. Due to the limited domestic market, ex-ternaLl outlets for these products would have to be found and these may belimited because of the closure of the Suez Canal. In the meantime, the pro-spects for attracting capital for an expanded and improved fishing fleet andhandling facilities would be enhanced if better information is secured aboutthe basic fish resources.

Forestry

204. Ethiopia has 4-5 million ha of private and pubLicly owned naturalforests. Of th:Ls about 2 million ha are State forests nominally under ad-ministrative control of the Forest Department (Ministry of Agriculture).Only 319,500 ha of State forests have been actually transferred to the Min-istry from public agencies formerly having jurisdiction. It is estimatedthat over 80 percent of the total forested area is now inaccessible. Ex-ploitation of this inaccessible area will depend on a substantial increasein access roads., Under the Second Five Year Plan, Eth.$ 1.6 million was tobe the government's contribution to forestry expenditure, but only Eth.$280,000 was spent; overall only 10 percent of the planned expenditure for

forestry was actually realized.

205. Ethiopia's forestry dilemma, between a growing demand for forestproducts and a remote and costly timber supply, will not soon be resolved.Ethiopia's forest resources have been abused and depleted over a long pe-riod;, substantial improvement cannot be quickly achieved. One result isthat present prices for better quality forest products are 60-80 percentabove world prices; consequently, imports of wood products, paper, andpulp -- which were Eth.$ 1.9 million and Eth.$ 9.2 million respectively in1968 -- will continue to increase for several years. The prospects forpaper manufacture from indigenous pulp is still uncertain. No substantialchange is anticipated for domestic production for better quality wood pro-ducts such as panels, parquetry, or even for more substantial structuralitems for several years.

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206. A partial solution to meet the growing demand for pole timber andfuel is already evidenced by the increased acreage of man-made plantationsof fast-growing eucalyptus. By a rapid and judicious expansion of these man-made forests, a substantial suppLy of pole timber and fuel could be achievedin 7-10 years. It is possible too that part of the pulp demand could be pro-vided from some of the eucalyptus varieties. While man-made plantationsshould be appropriately located near population centers, particularly AddisAbaba and Asmara, plantations near rural communities should also be encour-aged. Wherever possible plantations should be located on steeper slopes asa soil protective meausre. According to one estimate, the 1967 consumptionof pole timber was 1 million M3 and of fuelwood 23 million M3. 1/ By 1980the combined demand for these products would require plantings of 1 millionha. Against this the five-year plan target of 120,000 ha and 120 millionseedlings is inadequate.

207. Overall, the TFYP proposed for forestry a capital expenditure ofEth.$ 14 million and a recurrent expenditure of Eth.$ 3.6. 2/ Current dataindicate a more probable total expenditure in the neighborhood of Eth.$ 3.5million. 2/ The Forestry Departmient has estimated the cost per hectare ofplantations at about Eth.$ 100 per ha. Thus to achieve the afforestationgoal of 120,000 ha would require Eth.$ 12 million. This means that theplanned goal for afforestation, although probably inadequate, will not bemet unless farmers themselves finance the reafforestation.

208. The outlook for 1980 calls for an afforestation program of about100,000 ha per year over the decade, commencing immediately. Two difficul-ties are presented: (a) the anticipated difficulty of securing land forafforestation purposes; and (b) the relatively low rate of seedling produc-tion. The first of these difficulties will require cooperation with theMinistry of Land Reform and Administration. The low rate of seedling pro-duction is in part the result of an irregular flow of capital funds in aninsufficient amount during critical seasons of the year. The defect canbe overcome with realistic budget estimates and timely release of capitalfunds. It will also be necessary to increase the capacity and number ofnurseries.

209. The condition of Ethiopian forested areas is discouraging. Con-tinual abuse of forested areas by the rural population has been toleratedfor years. The government has not had the means to protect against depre-dation of various kinds; more accessible areas are subject to theft oftimber and unauthorized cutting is prevalent. Burning of forested areasby settlers seeking new farm-lands is a traditional practice which has ex-posed large areas to denudation of natural vegetation and consequent severe

1/ Extract from draft report of SIDA Forestry Team to Ethiopia April-May1969, page 9.

2/ Ministry of Agriculture, Ministry of Finance, Planning Commission.

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erosion damage. In the northern part it is already too late for affore-station measures to be effective. The draft report of the SIDA forestryteam estimates that, if the present misuse is allowed to continue, importantnatural forests will be destroyed before the turn of the century. The si-tuation calls for concerted action; Ethiopian forest policy should emphasize,along with forest product supply, the great protective value of forestedareas. This implies a need to increase forest protective efforts, even ininaccessible areas. If existing legal authority is inadequate, additionallegislation should be provided along with the necessary staff increases toprovide effective enforcement of good forestry practices. In addition, aneffort should bet made to incorporate conservation subject matter in formaleducation curricula. One possibility is to provide employment in affore-station plantings for rural people who would thus be exposed to practicalexperience in Forest Preservation.

210. The present areas of natural forest, largely in the south andsouthwest, represent a remnant of the original large forest endowment and amajor effort is now needed to develop proper management and exploitationpractices for this remnant.

211. A somewhat conjectural balancing of production and consumption canbe maLde. The Department of Forestry has considered the exploitation of sev-eral accessible State forests under the TFYP. One of these is the 13,000 haJIBAI State Forest to be managed in conjunction with the JIBAT Project, whichincludes a new middle level school for forest rangers and a sawmill. Thisundertaking has been proposed for assistance from the UNDP(SF). In additionthe Department proposes to exploit five State forests with a combined area of23,500 ha with growing stock estimated at 3.2 million M3, the annual allow-able cut would be 116,000 M3 and a total allowable cut of about 2.0 millionM3. It is estimated that 80-85 percent of Ethiopian log production will comefrom private forests up to 1970; beyond that point, production from accessibleState! forests will provide for the increased demand in 1970-85; by 1985 sawtimber will be available from man-made forests. 1/

212. The management function must be improved. Out of a total of 491employees in the Department of Forestry (1968/69) there were seven profes-sional foresters; five of these were stationed at the Capital. There werethree graduates of the Agricultural College, all stationed in Showa province.The field staff had 33 graduates of the Agricultural Training Schools, 27high school graduates and 409 forest guards. The dilution of professionalfield staff and the low level of education in remaining field staff indicatesthe need for a much greater effort to improve the number of professionallytrained personnel if forestry objectives are to be achieved.

213. It is perhaps the uncertain outlook of the future and lack of pastachievement which has led the Department of Forestry to suggest creation ofan autonomous Forestry Development Agency initially with a substantial ex-patriate staff. This argument, applied in other circumstances, has resulted

1/ SIDA Forestry Team p. 7, 8.

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in creating in the Government a tiumber of independent specialized agencies.

From the standpoint of efficient forestry organization, there appears to be

no need for a separate agency. Moreover, the planting, culture, management,

harvest and marketing functions of forestry parallel the general agricultural

functions which are properly located in a Ministerial grouping. Likewise,

there is no sound basis for creating an independent Forest Research Institute,

a seed center, and a Mixed Government/Foreign Share Company, as has been pro-

posed.

214. The need for much more professional training in forestry will be

partly met by the proposed Forest Ranger Training Center. It is obvious

that expatriate expertise would be of considerable assistance, both in train-

ing and administration capacities for an initial period.

Appendix 1: LAND USE AND CROPS BY PROVINCE

Province Total Estimated % of total areas under % of total Estimated Main crops Other importantArea Crops Fallow Forest Pasture area potential estimated % of total crops(000) and designated arable cropped areaha Wasteland as Govt. land

land withinGovt. land(000) ha

Arusi Z,350 20 2 4 74 4 70 Barley 44, wheat 21, Flax, teff, maize.pulses 8.

Bale 12,460 <1 - 1 98 81 80 Cereals.

Begemdir 7,420 14 2 3 81 >300 Teff 32, sorghum 19, Barley, maize,pulses 18. oil seeds.

Eritrea 11,760 3 1 25 71 * > 40 Sorghum 40, barley 11, Wheat, fruits,oil seeds 8. vegetables, cotton.

Gemu Gofa 3,950 7 2 4 87 44 130 Maize 28, sorghum 18, Teff, coffee.enset 13.

Gojam 6,160 20 2 4 74 21 1,300 Teff 36, barley 20, Pulses, wheat,sorghum 12. oil seeds.

Hararge 25,980 4 1 1 94 79 130 Sorghum 45, maize 21, Chat, pulses,coffee 6. oil seeds.

Ilubabor 4,740 6 1 19 74 58 2,700 Maize 20, teff 18, Coffee, pulses,sorghum 15. enset.

Kefa 5,460 8 1 13 78 46 2,500 Maize 23, sorghum 20, Coffee, enset,teff 20. pulses.

Shewa 8,520 17 3 4 76 2 150 Teff 24, wheat 17, Barley, maize,pulses 17. sorghum.

Sidamo 11,730 5 1 4 90 75 180 Enset 22, maize 17, Barley, teff.coffee 14.

Tigre 6,590 10 6 6 78 * No inform. Teff 24, sorghum 20, Wheat, pulses.barley 16.

Welega 7,120 12 1 4 83 38 2,700 Maize 29, teff 28, Coffee, barley,sorghum 18. enset.

Welo 7,940 13 1 4 82 4 Nil Teff 27, pulses 19, Sorghum, oilseeds,barley 17. wheat.

* Note: Tenure of potentially arable lowlands not yet determined.

Appendix 2: ESTIMATED AREA, YIELD, AND PRODUCTION OF MAJOR CROPSIN 1967/b5

Crop Area Yield Production('00OOha) (qt7ha) ('000 tons)

CerealsBarley 1,693.2 8.5 1,L30.0Maize 824.4 10.3 853.0Sorghum 1,174.0 8.4 988.6Teff 2,154.0 6.6 1,304.3Uilea t 1,028.6 7.4 760.0Other (Dagusa) 299.3 5.0 150.9

Ensete 190.8 24.0 458.0

Industrial Plants

Cotton Fiber 62.8 1.6 10.4Ensete Fiber 190.8 1.0 12.6Sisal 3.4 7.3 2.5Sugar Cane 5.9 1,L54.0 858.0Tobacco 3.2 5.1 1.6

Oil Seeds

Castor Beans 21.5 5.3 11.3Cotton Seeds 62.8 3.3 20.9Ground Nuts 37.9 5.2 19.6Linseed 115.3 5.0 58.2Neug 38L.2 6.3 240.8Rape Seed 13.9 4.0 5.6Safflower 58.5 5.1 30.0Sesame 115.5 4.4 51.0

Pulses

Chick Peas 285.3 6.2 176.7Field Peas 131.8 9.2 121.6Haricot Beans 91.9 7.4 68.2

Horse Beans 136.0 9.3 125.9Lentils 169.6 5.9 101.2Fenuigreek 10.1 5.9 6.o

F'ridts and Stimulants

F'ru 1,ts 5.7 12.9Gesho 96.1 10.0 89.7h a.t, 9.2 6.2

Coffee 611.5 2.6 160.0

Vegetables

Berbere 233.2 4.1 95.6Potatoes 29.1 52.3 152.2Yam 57.lh 42.lh 2L43.3Miscellaneous Vegetables 96.2 25.3 213.2

Source: Central Statistical Organization

Appendix 3: ESTIMATED LIVESTOCK POPULATION BY KIND - 1967/68

Kind and Age

Cattle Thousands

Calves under 1 yr. 3,933.1Cattle, 1-2 yrs. 3,374.0Heifers, 2-4 yrs. 2,359.3Males, 2-4 yrs. 2,320.9Cows over 4 yrs. 7,432.9Males over 4 yrs. 6,54o.5

Total 25,960.7

Sheep

Lambs under 1 yr. 4,4ho.0Ewes 7,030.0Rams 863.2

Total L2,333.2

Goats

Kids uncler 1 yr. 4,241.5Females 5,882.9Males 1,027.4

Total 11,151.8

Other Livestock

Pigs 13.2Horses 1,371.1Mules 1,374.7Donkeys 3,806.0Camels 969.0Poultry

Source: Central Statistical Organization

Appendix 4 ESTIMATED FINANCIAL REQUIREMENTS FOR AGRICULTURE, 1970/71 TO 1974/75

(Eth$ Millions)

GrandProposed Total Total

Budget Total by 1973/74 1970/71-

FROM CAPITAL BUDGET Footnote 1970/71 1970/71 1971/72 1972/73 end of TFYP 1973/74 1974/75 1974/75 1974/75

Ministry of Agriculture 1 1.8 3.8 4.2 4.6 12.6 5.1 5.6 10.7 23.3

Ministry of Land Reform Admin. 2 0.6 0.5 0.8 1.0 2.3 1.2 1.5 2.7 5.0

Ministry of Comm. Development (Agric. Acty.) 3 1.5 1.0 1.0 1.0 3.0 -- -- -- 3.0

Awash Valley Authority 4 (4.8) 1.0 1.0 1.0 3.0 1.0 1.0 2.0 5.0

Institute of Agricultural Research 5 2.5 2.7 3.0 3.0 8.7 3.2 3.4 6.6 15.3

National Parks 6 0.1 0.7 0.8 1.0 2.5 1.2 1.3 2.5 5.0

Contrib. to Coffee Diversifcn. Fund. 7 1.9 2.0 2.0 2.0 6.0 2.0 2.0 4.0 10.0

Development Projects Commenced

Chilalo Agricul. Development Unit 8 5.6 6.4 6.6 5.7 18.7 5.2 5.0 10.2 28.9

Welamo Soddu Agri. Development Unit 9 3.3 3.3 3.3 2.0 8.6 2.0 2.0 4.0 12.6

Awasa Project 10 0.3 0.3 0.3 0.4 1.0 0.4 0.4 0.8 1.8

Development Projects Under Preparation

Northwest Lowlands Project 11 1.3 5.8 3.0 2.1 10.9 10.9

Melka Sadi-Amibara Project 12 -- 3.1 15.1 16.1 34.3 18.3 19.2 37.5 71.8

Addis Ababa Dairy Unit 13 2.8 3.7 3.5 4.0 11.2 4.1 4.1 8.2 19.4

National Range Development Project 14 0.4 -- 5.4 2.7 8.1 3.0 3.2 6.2 14.3

Shashamenne Project 15 -- 3.1 3.1 3.5 (9.7) 0.9 0.5 1.4 11.1

Ada District Development Project 16 -- -- 1.1 1.5 2.6 1.5 3.6 5.1 7.7

Coffee Processing Project 17 __ __ 7.2 9.7 16.9 8.0 6.5 14.5 31.4

Tendaho Plantation Expansion 18 -- (3.0) (2.7) (2.7) (8.4) (2.7) (2.7) (5.4) 13.8

Agri. Extension & Agricultural Education 19 __ (2.2) (1.4) (1.2) (4.8) (4.8)

Proposed UNDP (SF) Assisted Projects

Strengthening Awash Valley Authority 20 -- (2.0) (2.0) (1.4) (5.4) (1.4) (1.4) (2.6) (8.2)

Land Reform and Training Institute 21 -- (0.5) (0.5) (1.0) (1.0)

Forest Rangers School 22 -- 00 (1.5) (1.5) (3.0) (1.5) (1.5) (3.0) (6.0)

TOTAL CAPITAL 26.9 44.6 69.5 68.6 182.7 62.7 64.9 127.6 310.3

FROM RECURRENT BUDGET

Ministry of Agriculture 23 9.5 10.0 11.5 13.2 34.7 15.1 7.4 22.5 57.2

Ministry of Land Reform Administration 24 3.0 3.0 3.5 4.0 10.5 4.6 5.2 9.8 20.3

Awash Valley Authority 25 0.4 0.4 0.5 0.6 1.5 0.7 0.8 1.5 3.0

National Parks 26 0.5 0.5 0.6 0.7 1.8 0.8 0.9 1.7 3.5

TOTAL RECURRENT 13.4 13.9 16.1 18.5 48.5 21.2 14.3 35.5 84.0

GRAND TOTAL 40.3 58.5 85.6 87.1 231.2 83.9 79.2 163.1 394.3

Notes to Appendix 4

/1 Based on a 15% annual increase over a 1970/71 base of 3.8 million Eth$,which includes the capital expenditure of the Divisions of Plant Production& Protection, Animal Health, Forestry, and to which funds for extension wereadded.

/2 Land Reform: estimate does not take into consideration amount required if landreform legislation is enacted. A decision of goverment to start settlementschemes through the Ministry of Land Reform and Administration will necessi-tate further allocations.

/3 The Mission's estimate assumes continued allocation from capital fundslargely for the Awassa and Arba Mench farms of the Ministry of CommunityDevelopment. The former is now a share company and the government proposesto do the same with Arba Mench, but will hold the majority of shares untilprivate enterprise can be made to take an interest.

/A Awash Val'lez Authority: estimated amounts requred by the Authority forcontinuing its studies of the tributaries of the Awash River, of the catch-ment area in general, and for the settlement schemes started at Dubti and atthe Middle Awash. (See also footnotes 20 and 25). The proposed 1970/71budget shows Eth $4,853 million for the Awash Valley Authority and does notshow the item Strengthening the Awash Valley Authority.Although it is understoodthat the Eth $ 3 million is intended to cover both items.

/5 Figures include the Bako Research Station. It is anticipated that anagreement will be negotiated with UNDP for a five year Phase II projectwhen the present one ends in February 1971, and will involve expansion ofthe Institute's activities before the end of the present TFYP.

/6 Based on an annual increase of approximately 15% over a 1970/71 base of0.7 million, until the end of the TFYP. The rate of development of thetourist industry may require larger amounts to be spent.

/7 Contribution bo Coffee Diversification Fund: The Coffee DiversificationFund requires that producing countries pay the equivalent of 60 US centsfor every- bag of coffee over 100,000 bags exported to quota countries.Although the export of coffee from Ethiopia will increase, an annual contri-bution of approximately 2 million is estimated for each year of the period1970/71 to 1974/75. Phase I of the Fund ends in September 1973.

/8 Chilalo Development Unit: The costs of Phase 1 of this project (started1966/67) were 114 million Eth $ of which 67% was a grant from the SwedishGovernment. Phase 2 (started 1970/71) will receive approximately a 19million Eth $ grant from Sweden.

/9 Welamo Soddu Development Unit: The project became operational early in1970. The total figure of 12.6 million includes the amount to be spentbefore July, 1970, e.e., in fiscal year 1969/70.

Appendix 4 Notes con't. (2)

/10 Awassa Project: This is the rural extension program part of a Ministryof Community National Development proposed project to establish anagricultural and industrial complex in Awassa area. The complete pro-ject includes a maize processing unit, a sisal plant, a meat and milk unit,a pimento dehydration plant centered around the present CommunityDevelopment Farm in Awassa.

/11 Northwest Lowlands: the project is expected to become operational at thebeginning of the 1970/71 fiscal year. It is expected that, depending onthe studies in Phase 1, a Phase 2 will be implemented in 1973/74. Noestimates for Phase 2 have been prepared.

/12 Melka-Sadi Amibara Project: In addition to amounts shown 5.1 million areestimated to be spent in 1975/76 and 3.5 million in 1976/77. The appraisalreport by IBRD is ready ,and it is expected that the project might becomeoperational before the Eid of 1970.

/13 Addis Ababa Dairy Development Unit: The project will be appraised byIBRD and might become operational before the end of 1970.

/lb National Range Development Project: IEX3 intends to involve other externalassistance sources in the project proposal drafted by USAID and based onUSAID supported pilot project. The project might become operational during1971/72 fiscal year. The plans anticipate an expenditure of 2.8 millionEth $ in the fifth year of the project. It is assumed that expendituresfor the pilot project are included under capital and recurrent budget ofthe Ministry of Agriculture.

/15 Shashamenne Project: at present (March 1970) is under discussion betweentISAID, who prepared it, and the Ethiopian governmerit.'

/16 ADA District Development Project: In addition to amounts shown, 4.0 millionare planned for 1975/76 and 4.4 million in 1976/77. The mission had forreview a preliminary draft copy of the proposal dated May 29, 1969. A gooddeal of change may occur between this draft and the final proposal. The'breakdown in the table is based on a total cost of Eth $16 million, ofwhich Eth $12 million would be overseas loans and grants.

/17 Coffee Processing Project: A tentative proposal has just been prepared; itis expected to become operational in 1971/72 fiscal year.

/18 Expansion of Tendaho PLantation Share Company: Plans are underway toincrease the area under cultivation in the Dit Bahri unit of TFSC on thelower Awash. Plans should be ready by mid 1970. It is estimated at theend of 1969 that the total cost of the proposal expansion will be Eth$13.8 million, of which Eth $3.8 million are expected to be required asworking capital, and Eth $6 million in foreign exchange. It is understoodthat the plan when published will indicate proposed annual expenditures andpossible sources of finance. The 1970/71 Proposed Budget makes noallowance for this item. It is possible that the intention is to financethe item through the new Ethiopian Development Corporation.

Appendix 4 Notes con't (3)

/19 Proposal for Strengthening Agricultural Education & Extension: Increasingcapacity of Ambo and Jimma Institutes, establishment of three agriculturaltraining centers and associated technical assistance. The proposal hasjust been appraised by an IBRD mission.

/20 Strengthening the Awash Valley Authority: The amnounts listed represntthe estimates for Phase 3 proposal for assistance to the Awash ValleyAuthority (UNSF Project Ethiopia 25). The estimates are based on a two-year first period where the government contribution would be 1.0 millionEth$ and the UN Special Fund Eth 3 million ; followed by a three-yearsecond period during which the government contribution would be also Eth$1.2 mi:Uion, and the UN Special Fund Eth $3 million; followed by a three-year second period during which the government contribution would be alsoEth $1.2 million, and the UN Special Fund Eth $3 million. The 1970/71Proposed Budget does not show this item,however the item Awash ValleyAuthority Eth $4.953 million may be intended to cover this item.

/21 Land Reform and Training Institute: It is expected that this UNDP (SpecialFund) Project will become operational by 1971/72 fiscal year.

/22 Forest Rangers School: A project for a school and a Pilot Forest Administra-tion Unit is under consideration by I.E.G. It is estimated that the projectmight commence in 1971/72.

/23 MinistryT of Agriculture: Based on an annual increase of approximately15% over the 1970/71 base of 10 million until the end of TFYP.

/24 Ministry of Land Reform Administration: Estimate does not take intoconsideration amount required if land reform legislation is enacted. Adecision of governmernt to start settlement schemes through the Ministry ofLand Reform and Admiinistration will necessitate a still further allocation.

/25 Awash Vallez Authority: Based on an annual increase of approximately 15%over the 197071 base of 0.4 million Eth$ until the end of TFYP.

/26 National Parks: Based on an annual increase of approximately 15% over the1970/71 base of 0.5 million until the end of TFYP. The rate of development.of the tourist industry may require larger amounts to be spent.

Appendijx 9 ESTIMA'TED STA.4FF REQUIREEMNTS FOR AGRICULTUTRITE 1970-71 to 1974-75(man years)*

Footnote 1970/71 1971/72 1972/73 1973/74 1974/75

Capital Budget

Development Projects Commenced

Chilalo Agricultural Development Unit 1 99 127 157 181 200Wilamo-Soddu Agricultural Development Unit 2 182 322 296 172 149Awasa Farm 3 30 30 30 30 30

Development Projects Under Preparation

Norchwest Lowlands Project 4 3 8 9Melka Sadi-Amibara Project 5 125 150 175 180 190Addis Ababa Dairy Unit 6 70 90 106 109 113National Range Development Project 7 - 100 150 200 200Shashamenne Project 8 12 25 25 25 25ADA District Development Project 9 - 26 36 46 76Coffee Processing Project 10 - 59 121 175 204Tendaho Plantation Expansion 11 (20) (30) (40) (50) (60)Agricultural Extension & Agricultural Education 12 (116) (116) (116)

Proposed UNDP(SF) Assisted ProjectsStrengthening Awash Valley Authority 13 (15) (20) (25) (20) (15)Land Reform and Training Institute 14 - (4) (4)Forest Rangers School 15 (10) (10) (10) (10) (10)

Total Capital Account 682 1,117 1,300 1,198 1,272

Recurrent BudgetMinistry of Agriculture 16 1,015 1,170 1,350 1,550 1, 780Ministry of Land Reform Administration 17 445 455 465 475 485Awash Valley Authority 18 34 40 50 (60) (70)National Parks 19 130 140 150 160 170

Total Recurrent 1,624 1,805 2,015 2,245 2,505

Estimates are for Ethiopian supervisory, technical, and sub-professional man-power in agriculture only, expatriates and skilled and unskilled laborand noni-agricultural staff (like irrigation engineers) are not included, Mission estimates in brackets. These estimates will increase if new projectsnot now visible are added in any one of these years.

Source: Most of the capital budget items are taken from estimates contained in project proposals, recurrent budget items were furnished to the missionby the agency involved, some verification of capital items involved use of Institute of Agricultural Research Publication,The National Coffee Plan of Ethiopia, December 1969.

Notes to Appendix 5

1. Chilalo: 123 man years of expatriate assistance excluded.

2. Wolamo Soddu: 52 man years of expatriate assistance excluded.

3. Awasa Farm: 30 man years of expatriate assistance excluded.

4. Northwest Lowlands: 20 man years of expatriate assistance excluded.

5. Melka Sadi-Amibara: Estimates are for agricultural requirements only itexcludes irrigation engineers, etc.; 125 man years of expatriate assistance.

6. Addis Ababa Dairy: 45 years of expatriate assistance excluded.

7. National Rtange Development Project: Estimates assume all 3 units of theproject are developed simultaneously, but that it would not be possible tofully stalt all units in the first year of development; 50 years of expatriateassistances excluded.

8. Shashaman,e Project: 45 years of expatriate assistance excluded. Estimatesare based on judgment for services to be provided under contract as indicatedin proposaLL.

9. ADA District Development Project: 45 years of expatriate assistance excluded.

10. Coffee Processing Project: 55 man years of expatriate assistance excluded.

11. Tendaho Plantation Expansion: These are Mission judgments of increased per-sonnel required for settlement activities resulting from expansion at Dubtiand Assayita. No estimates available for expatriate assistance.

12. Assumes lL0 teaching staff at 50 training centers and Ambo and Jimma agri-cultural schools, plus 6 administrators. 9 man years expatriate assistanceexcluded.

13. 65 man years of expatriate assistance excluded.

14. Estimate based on proposed Ministry of LandReform request to UNDP, February,1970. 8 mnan years expatriate assistance excludea.

15. Estimate based on Department of Forestry Budget proposals for 1970/71 andrecommendations of SIDA Forestry Team, 1969. 5 man years expatriate assistanceexcluded.

16. Based on TFYP and Ministry of Agriculture. 140 man years expatriate assistanceexcludea.

17. Ministry of Land Reform.

18. Projections are based on present professional and technical staff of 34 andstaff increases proportional to budget increments of Etn. $100,000 per year.Also assuLnes substantial amount of staff increases in Melka Sadi-AmibaraProject shown under that Project. Estimates do not include substantial ex-patriate services to be provided under contract with the Victoria State Riversand Water Supply Commission of Australia.

19. Estimates based on present staff and proportional budget increases. 55 manyears expatriate assistance excluded.

Appendix 6: FROSPEC TS FOR CULTIVATICO OF GOVERNMENT LNDS

Province Government Land-KM /2 Potential Crop Prospects-KM /2 Quality

Bale 100,956 15 Sorghum/Sesame/Cotton scattered area(S9.5% grazing only) too small for development146-h0% Wheat/Teff/Barley access fair to none

Gemu Gofa 1?,542 1,265 low input/output(92% grazing only) Sorghum/Sesame/Cotton remote

Harrarge 204,634 735 Sorghum/Sesame/Cotton fair(99,4% grazing only) Maize

1888 same good in litigationIlulabor 27,276 100% Maize/Cotton

Sorghum/Sesame/Cotton/Tea remote

Kefa 24,96o 13,000 Cotton/Maize remoteSidamo 88 201 960 Sorghum/Sesame/Cotton future(98% grazing only) 86 Cotton/Maize development only

795 Teff/Wheat/Barley malarial

Welega 26,852 100% Cotton/Maize2698 Lekemt Awraja priority

Gojam 13,000 50% Sorghum/Sesame malaria and50% Cotton/Maize Tsetse - doubtful

Welo 3200 (grazing only) malarial

Total 506,621 86,018 (17%) *

* Note: A large area of land in Begemdir and Simen is being cultivated and more land is potentiallly available.The ownership is indeterminate although it is administered by public authority.

Source: Ministry of Land Reform and Administration A Policy Oriented Study of Land Settlement; December 1969, Vol. II.

Appendi.x 7: RTTMATED OUTPT'>1' FROM PRINCIPAL AGRICULTURAL NST TTIL1TIONS /

Output

1970/71 1971/72 1972/73 1973/74 1974/75 TOTAL

Alemaya Agricultural College 35 40 45 45 45 /2 210

Institute of Agriculture - Jimma 80 92 105 115 125 517

Institute of Agriculture - Ambo 33 42 52 54 54 235

Veterinary Training Center - Debre Zeit 25 30 30 35 40 /3 160

Holetta Training Center - Shoa 40 40 40 40 40 200

Adwa Training Center - Tigre - 40 40 40 40 160

Alemaya Training Center - Harrarge - - 40 40 40 120

TOTAL 213 284 352 369 384 1,602

/1 Excludes training by CADU and WADU to the extent those have independent training programs

/2 This estimate assumes intensive effort to improve very high dropout from 1st to 4th year. In 1968 thedifference between 1st and 4th year enrollment was 108.

/3 This estimate is for veterinarians only; it does not include an estimated 65 vaccinators.

Source: IBRD Education Mission to EthiopiaTFYP page 208.

Appendix 8

MINIMUM PACKAGE PROGRAMS

The purpose of this appendix is to illustrate the organizational implica-tions, staffing, likely costs, and value of increased production of minimumpackage programs, as proposed in the main text. The illustration is based onthe establishment of programs in 10 locations. Concentration of efforts wouldbe on doubling the yield of wheat per hectare from 10 to 20 quintals, and thatof teff from 8 to 16 quintals, by the use of fertilizers, improved seeds, andcultural practices. The programs need not, of course, begin in 10 locations,nor need they all begin in wheat and teff areas. Other areas could be included,provided research results prove equivalent yield increases by the use of thepractices and inputs recommended.

It is assumed these improvements would reach 1,500 farmers in each loca-tion by the sixth year after the start of demonstration work. The illustrationis based on each of the 1,500 farmers growing one-half hectare of wheat andone-half hectare teff.

Increases in the number of existing extension staff already working inthese locations would be mainly through the appointment of one graduate inagriculture to be in charge of extension work in the area, and a number ofassistant extension agents, of the type that will be produced by the AgriculturalTraining Centers now being established, or tenth graders from rural areas whoreceive intensive in-service training. The headquarters of Extension Serviceof the Ministry of Agriculture would be strengthened by assigning the executionof the program to it, and by assisting it with additional staff and facilitiesas detailed in Table A below. The only additions to staff would occur wherepersonnel is not already hired and on the job.

The Ministry of Agriculture is considering building agricultural centersin 50 locations by the end of the Third Five Year Plan, and increasing thenumber of extension staff stationed at these locations. Therefore, the imple-mentation of a minimum package program at each might not require the buildingof additional offices nor the recruitment of eight assistant extension agents.The cost of the offices and the additional staff are included in the illustra-tiorL to indicate maximum costs likely to be involved.

The order of magnitude of the cost of these programs, and the value ofincreased production, is given in Tables B and C. In the calculations Eth.$80per hectare, the maximum cost of fertilizers and their transport, were used.On this assumption, the programs would have an internal rate of return of about15 percent. However, recent experience in Ethiopia has indicated that by bulkimpcrtation of fertilizers and by the use of diamonium phosphate instead ofurea and triple superphosphate, the cost of fertilizers required for wheat andteff per hectare, including their transport can be reduced to Eth.$60. Usingthis figure the internal rate of return of the programs will be over 19 percent.

Appendix 8-A

In Addis Ababa

1 Senior Extension Specialist (Foreign)2 Extension Agents (Foreign)1 Farm Management/Agricultural-Ekonomics Expert (Foreign)2 National Graduate Counterparts2 Jimma or Ambo Graduates6 Accountants, Secretaries, Clerks2 Drivers

Office building and furnitureRunning and travel expenses

3 VehiclesIn Each of Ten Locations

1 Graduate (Officer in Charge)2 Jimma or Ambo Graduates8 Assistant Extension Agents1 Clerk1 Storekeeper

Daily Wage LaborersOffice and FurnitureStoresSeed Cleaning machineryWeighing machines and tools

3 Vehicles1 Truck

Running expenses, travel and operating costsRevolving fund for credit

(to be administered by the Ethiopian Development Corporation)Revolving fund for seed production

(to be administered by the Plant Production Department of thethe Ministry of Agriculture with the help of the Institute ofAgricultural Research in the initial stages)

-en14< c,-B: ILLUSTRATIVE COSTS AND BENEFITS OF MINIMUIM PACKAGE PROGRAM IN 10 LOCATIONS

(Eth.$ thousands)

Re foreProgram Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Years 10-20

I. INVESTMENTSStaff: National 450 450 450 450 450 450 150 150 150 150

Foreign 180 180 180 120 30 - - - - -Total ~~~~~~~~~~~~~~~0 ~~~~~~0 _60 570 480 -450 -1750 150 150 150

Offices and stores 370--- - - - - - -Vehicles 330 - - - 110 -- 20Seed cleaningmachinery 100 - ---- -- 10

Weighing machineand tools 20 - - -------

Trucks 150 - - - - - 150 - - 25Revolving - Seed

Production 16 32 48 64 80 16 32 48 64 40Total Investment 1,616 662 678 634 560 466 442 198 214 245

II. OPERATING COSTSViechicles and travels 500 500 500 500 500 500 170 170 170 170Trucks 120 120 120 120 120 120 120 120 120 120Seed Cleaning

machinery 10 10 10 10 10 10 10 10 10 10Office Rent 8 8 8 8 83 8 8 - - -Fertilizers

1,000 farms -0 80 80 80 80 80 802,000 farms- -D 160 160 160 160 1603,000 farms- - -D 240 240 240 2404,000 farms-- - -D 320 320 3205,000 farms - - - - -D 400 400

Total Fertilizers 80 240 480 800 1,200 1,200 1,200 1,200 1,200Seeds-Wheat - 16 32 48 64 80 16 32 48 40Total Operating Costs 638 734 910 1,166 1,502 1,918 1,516 1,532 1,548 1,540

III. BENEFITSWiheat

Entry: 1,000 farmers 110 1100 220 220 220 220 220 2202,000 farmers 220 220 2200 440 440 440 440 4403,000 farmers 330 330 330 3300 660 660 660 6604,000 farmers 440 440 440 440 440D 880 880 8805,000 farmers 550 550 550 550 550 550D 1,100 1,100

Total Wheat 1,650 1,650 1,760 1,980 2,310 2,750 3,300 3,300 3,300 3,300 3,300Teff

Entry: 1,000 farmers 96 960 192 192 192 192 192 1922,000 farmers 192 192 192D 384 384 384 384 3843,000 farmers 288 288 288 2880D 7 5 76 5 76 57 64,000 farmers 384 384 384 384 384D 768 768 7685,000 farmers 480 480 480 480 480 4800 960 960

Total Teff 1,440 1,440 1,536 1,728 2,216 2,400 2,880 2,880 2,880 2,880 2,880Subtotal benefits 3,090 3,090 3, 29 6 3,708 4,526 5,150 6,180 6,180 6,180 6,180 6,180Incremental benefits - - 206 618 1,436 2,060 3,090 3,090 3,090 3,090 3,090Farmers own seed not used -- 11 22 33 44 55 51 22 33 33Total benefits 217 640 1,469 2,104 3,145 3,101 3,112 3,123 3.123

COSTSI.) Investments 1,616 662 678 634 560 466 442 198 214 245II.) Operating costs 638 734 910 1,166 1,502 1,918 1,516 1,532 1,548 1,540

Total costs 2,254 1,396 1,588 1,800 2,062 2,384 1,958 1,730 1,762 1,785

Net benefits -2 ,254 -1,179 -948 -331 58 76 1 1,143 1,382 1,361 1,340(IllI-Il1)

Source: Mission estimates; Also derived fron experience of Institute of Agricultural Research. Extension Service and TAO in conduct of FreedomFrom Hunger Campaign Fertilizer Program.

Appendix 8-C: TENTATIVE ESTIMATE OF COSTS OF MINIMUM PACKAGE - MARKET AND CREDIT PROJECT 1970-71 to 1974-75

Total by end Total Grand Total70/71 71/72 72/73 TMYP 73/74 74/75 73-75 70/71 - 74/75

Minimum Package Program - (2.0) (2.0) (4.0) (2.0) (2.0) (4.0) (8.0)

Marketing Project /b (6.9) (3.3) (3.3) (13-5) (3.3) (3.3) (6.6) (20.1)

Credit Project /c (1.1) (1.2) (1.0) (3.3) (1.5) (2.0) (3.5) (6.8)

TOTAL (8.0) (6.5) (6-3) (20.8) (6.8) (7-3) (14-1) (34.9)

/a Plus another 2.0 million in 1975/76 and 2 million in 76/77

/b Plus another 3.3 million in 1975/76

/c Assuming 1 million for credit outside the MIPP and 300,000 Eth$ in 70/71 and 71/72 for training andorganization with the amount increasing as the proposed Ethiopian Development Corporation gains experienceand staff.

Appendix 8-D: TENTATIVE ESTIMATES OF ETHIOPIAN ADMINISTRATIVE,PROFESSIONAL AND TECHNICAL STAFF REQUIREMENTS FOR

MINIMUM PACKAGE, MARKET AND CREDIT PROJECTS1970-71 to 1974-75

70/71 71/72 72/73 73/74 74/75

Minimum Package Program /a ---) (114) (114) (114) (114)

Marketing Project /b (60) (80) (100) (120) (160)

Credit Project - (15) (20) (25) (30) (35)

TOTAL (75) (214) (239) (264) (309)

Note: Brackets indicate mission estimates. Estimates include professionaland technical staff of existing organizations. New hires in 1970/71would be 35 for marketing and about 8 for credit. Possibly one halfof minimum package program are already on board.

/a Excludes 19 man-years of expatriate assistance.

/b 1970/71 doubles existing grain corporation top level staff, excludes20 man-years expatriate assistance.

/c Assumes creation of agricultural credit unit in Ethiopian DevelopmentCorporation, excludes 30 man-months expatriate assistance.

Source: All staff requirements are mission estimates based on analysis.In case of the marketing project initial estimates were expansionof present professional staff of the grain corporation.

Appendix 9: THE VETERINARY SERVICES

Estimated Number of Veterinarians /a Nube loProvince Cattle Animal - Number of/

Population Health Vaccinators

(Millions) Ethiopian Foreign Assistants

Arusi 0.8 1 2 9 26

Bale 2.5 1 - 9 28

Begemdir 2.0 - 2 7 26

Eritrea 1.4 3 _ 4 21

Gemu Gofa O.8 1 1 7 26

Gojam 2.5 1 2 7 28

Harrarge 3.0 - 2 9 30

Ilubabor 1.0 - - 4 21

Kefa 1.0 - 1 6 22

Shewa 1.5 4 - 15 50Sidamo 2.2 - 2 12 32

Tigre 1-5 - 2 7 23

Welega 1.5 1 - 7 32

Welo 3.0 1 2 8 24

TOTAL 24.7 13 16 111 389

Addis Ababa 2 1 2 -

Animal Health School 1 7 1 -

Veterinary Laboratory 1 5 3 -

GRAND TUTAL 17 29 117 389

/a Graduates of the Animal Health School at Debre Zeit (2-year course).

/b Normally receive six months training at the Animal Health School.

VOLUME II

ANNEX 2: MANUFACTURING INDUSTRY

MANUFACTURING INDUSTRY

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ...................................

I. EVOLUTION AND STRUCTURE OF ETHIOPIAN MANUFACTURING INDUSTRY 1

Industrial Output ........................................ 1Industrial Investment .................................... 2

Utilization of Capacity .................................. 3

Employment and Productivity .............................. 4Foreign Management: and Ownership ......................... 6

Government Role ..... ...................... 6

Financial Profitability .................................. 7Import Dependence ........................................ 7Efficiency of Industries as Measured by "Value Added" and

Prices ................................................. 8

II. TARIFF POLICY ............................................... 10

Customs Tariff ....................... 10

Structure and Administration of the Existing Customs

Tariff and Other Import Taxes ...................... 10Rates of Protection ................................... 12Setting Tariff on an Effective Protection Basis ... .... 15

Other Anomalies on the Existing Customs Tariff .... ....... 17Other Aspects ............................................. 18

The Customs Tariff in Relation to Other Forms ofIndirect Taxation .................................. 18

Problem of Special Duties to Countervail Dumping ...... 20

Temporary Import Regulations for Promoting Exports .... 21

Protection of Export Industries ....................... 21

-tII. INCENTIVES FOR MANUFACTURING ................................ 23

Existing System of Incentives ............................ 23

Proposed New Investment Code ............................. 26

IV. INDUSTRIAL FINANCE ........................................... 31

V. PROSPECTS FOR INDUSTRTAL OUTPUT AND INVESTMENT .... .......... 38

TABLE OF CONTENTS (Continued) Page No.

VI. ORGANIZATION FOR INDUSTRIAL DEVELOPMENT AND SERVICES ... ..... 42

Administration ........................................... 42

Plan Objectives in the Field of Administration andIndustrial Services ................................... 44

Reorganization of the Administrative Set-Up for IndustrialDevelopment ........................................... 45

TABLES

1. Manufacturing Industry, Value Added at Factor Cost (1961-1969)

2. Gross Value of Production (1967-1969)

3. Production of Major Manufactured Articles (1965-1969)

4. Investment in Manufacturing Industry (1963-1967)

5. Investment Cost and Employment in Selected Industrial Projects(1968-1969)

6. Profitability of Selected Ethiopian Industries (1967-1969)

7. Employment in Manufacturing (1962-1967 and Plan Target for 1973)

8. Classification of Establishments by Size of Employment (1966-1967)

9. Ethiopian Industry = Import Dependence

10. Comparison of Prices of Local. Products as a Percentage of CIF Costsof Comparable Imported Products and Rates of Protection

11. Comparison of Prices of Local. Products and CIF Costs of ComparableImported Products

12. Relative Efficiency as measured by Value Added and Prices

13. Specific Duty Rates on Selected Imported Industrial Commodities

14. Nominal and Effective Protection on Selected Industrial Products

15. Development Bank of Ethiopia - Industrial Loans Commitments

16. Development Bank of Ethiopia - Equity Investments in the IndustrialSector (1965-1969)

TABLES (Continued)

17. Ethiopian Investment Corporation - Disbursements of Industrial Loans(1963/64 - 1968/69)

18. Ethiopian Investment Corporation - Net Equity Investments in theIndustrial Sector (1963/64 - 1968/69)

19. Major Shareholdings of the Ethiopian Government at End December 1969

20.. Shareholdings of the Ethiopian Government in Government FinancialIntermediaries

21. Estimates of Production for Major Industrial Products

22. List of Identified Industrial Projects

23. Capital Expenditures (1969-1973) - Ministry of Industry and OtherGovernument Participations

24. Disbursements by EIC/DBE (1963-64 - 1968/69) and Projected Disburse-ments up to 1972/73).

Appendices

I. Calculation of Nominal and Effective Protection -- Eritrean CementCompany

II. Suggestions to Calculate Desirable Rates of Protection

MANUFACTURING INDUSTRY

Summary and Conclusions

1. The role of moderni manufacturing industry in the economy is smalleven by comparison with other African countries. It contributed 5% toGDP in 1969 - roughly equal to the share of GDP of handicrafts and cottagetype industies.

2. Manufacturing consists overwhelmingly of producing import sub-stitutes behind frequently high protective tariff walls. It is highlydependent on imported human and material inputs. As a result the benefitto the economy from manufacturing is lower than it could be - frequentlythe value added is low, the employment content is small, the effects onthe balance of payments are not significant, and the prices of most domesticmanufactures are as high as 60% above the c.i.f. price of similar importedgoods.

3. The Government has taken a number of measures to encourage thedevelopment of manufacturing industry. An Investment Code provides somerelief from income taxation to concerns with capital exceeding Eth.$ 200,000. Government has provided some Eth. $ 281 million of capital formanufacturing concerns through the financial intermediaries -- the EthiopianInvestment Corporation and the Development Bank of Ethiopia - and by directinvestment as whole owner, majority shareholder, and miniority shareholder.An important factor is tariff protection which is further reinforced by a7 percentage points differential in favor of domestic production in the

relative rates of transactions tax on imported goods and domestic products.

4. Tariff protection is given on an ad hoc industry-by-industry basisand the main determinant of the level of protection seems to be the bargain-ing persuasiveness of the particular entrepreneur. In the circumstancesthere are various levels of tariff on raw materials and finished goodsand the levels of protection bear no relationship to the economic benefitsin terms of value added, employment, and the balance of payments. Thetariff policy should be geared to the development of industries in whichthe country has comparative advantage and which maximize benefits to theeconomy. The objective may be achieved by a uniform nominal tariff forall inputs and products so that all industries are on an equal competitivefooting; making detailed studies of effective protection levels, and seekto have a uniform effective tariff; or seeking to simplify the tariff intoat most two or three groups with a reasonable uniformity of nominal tariffrates for each group. These and other policy measures need systematicstudy, but the Ministry of Commerce and Industry is not adequately staffedto do this and other necessary work in the industrial development field.The staff should accordingly be strenghtened.

i2

5. As a result of the Financial Intermediaries Reorganization

Ccmmittee's work, Government's participation in the finance of industrialdevelopment, is likely to be made more effective through the establishment

of a new development finance concern by the merger of the EIC and the DBE.

It is hope that the new concern will be better equipped to mobilize domestic

resources, to encourage industrial investment, and to influence the quality

of direct government investment in manufacturing industry.

6. Value added in manufacturing is estimated to have grown at 16%

per annum between 1961 and 1969. This was based on import substitution

industries the further development of which is likely to be much slower

than in the past. The scope for appreciable industrial expansion lies

in the processing of indigenous raw materials - for example beef - for

export. In addition the net benefit to the economy is likely to be greater

from this type of industrial development. But special steps must be taken

to promote manufacturing for export. The transections tax on non-

traditional exports should be removed, aXd the arrangements for importduty drawbacks on the import contents of exports should be made more effi-cient. The manufacturer of exports does not get a concession similar tothe protective tariff which the manufacturer for the domestic marketenjoys. If exports are to be encouraged the export manufacturer should beno less preferred to the producer for the domestic market; in this connec-tion consideration should be given i,o the i:icroduction of export subsidies.

7. A draft new investment code is now being considered. It providesincome tax relief to export industries, considerably lowers the qualifyingcapital of the development concern to accord more with current Ethiopian

conditions, and generally goes further than the present relatively liberal

Investment Code.

I. EVOLUTION AND STRIJCTURE OF ETHIOPIAN MANUFACTURING INDUSTRY

1. The level of industrial development in Ethiopia is still quite lowas compared with some other African countries, and manufacturing in 1969 con-stituted only 5% of the GDP. It is limited to about 400 small, medium and afew large scale manufacturing enterprises engaged in food and beverage pro-cessing and the production of cement, petroleum products (from imported crudeoil), textiles, shoes, cigarettes, soap, matches, leather goods, paper pro-ducts, furniture, reinforcing bars and rods, galvanized sheets, aluminium andplastic consumer goods.

Industrial Output

2. The two single largest industrial sub-sectors are food processingand textiles. Within the food processing sector, sugar and wheat flour arethe most important items. T'extiles include cotton goods, nylon fabrics, gun-ny bags and ready made cloths. In 1969, the food processing industry repre-sented 28% of the gross value of industrial production 1/ and textiles 27%.The textile industry has been rapidly expanding in recent years. Other re-latively significant industries are, in order of importance, beverages (beerand wine), metal products, leather products, oil refined products and nonmetallic minerals (mainly cement, bricks and tiles). Wood products, chem-icals, paper and printing have contributed so far relatively little to thevalue of industrial output.

3. The handicraft and small scale industries production is said to beas Large as th,e medium and large scale manufacturing sector and may have re-presented about 5% of GDP in 1969. Little is known of the state and composi-tionl of small scale industries. Such industries are usually located inhouseholds or small workshops employing less than five people, and dependmositly on own or family labour. Maniual skills rather than machines play thepreponderant role in these establishments.

4. There are no reliable statistics on value added by large scale man-ufacturing. The Central Statistical Office, on the basis of available dataon gross value of output makes estimates for value added assumed to representabout 40% of the value of production. National Accounts statistics indicatean annual average growth rate of "estimated" value added of 16.2% from 1961to :1969 (at conistant prices). 2/

5. There have been relatively wide fluctuations from year to year inthe index of industrial production. For instance in 1967, value added (atconstant prices) increased by 25.4% as against 16.3% in 1966. This is ex-plained by the combined effect of the coming into production in 1967 of sub-stantial new capacity in cotton textiles, nylon textiles, iron bars, corru-

1/ See Table 2.

2/ See Table 1.

gated iron sheets. During the same year, production of sugar and wheacflour also increased significantly (see Table 3). In 1968 and 1969, growthof industrial output was substantially lower. 13.8% in 1968 and 10.9%o in1969. In fact the increase of production was only 8% in 1968 if one ex-cludes the exceptional production resu'ting from the coming on stream ofthe Assab oil refinery. Sugar production fell substantially in 1968 and1969 below the exceptional high leve], reached in 1967, due to very goodweather conditions during that year. Cotton textiles production continuedto increase but at a reduced pace due to poor market demand. Production ofcement also slackened as well as that of iron bars and corrugated sheets.

6. Almost all industrial growth has been domestic market oriented.Industries have been started in response to the already existing or anti-cipated demands in the internal market heretofore satisfied by importedproducts, such response being stimulated by Lhe generously extended in-centives in the form of high tariff protection granted to facilitate theestablishment of domestic production facilities. Export industries, whichgenerally depend upon domestic raw materials, have grown much less rapidlythan import substitution industries, which can freely import raw materials.For example, the Second Five Year Plan export target of Eth.$ 80 millionfor 1967 (in 1962 prices) is now estimated at Eth.$ 19 million only.

Industrial Investment

7. Investment in manufacturing industry, from both private and publicsources, reached an estimated Eth.$ 276 million during the Second Plan (1963-1967) 1/ as compared to an investment target of Eth.$ 318 million. The re-latively close approach to the investment target was the result of privatedecision to meet market demands plus inducements given by the Government toprivate investors. For example, investment in the beverage, tobacco, textile,wood and printing and publishing industries was higher than planned. Thefood industry (including sugar) was close to the plan but the leather andshoe, chemical and metallic products industries received less than the plan-ned investment.

8. There are no comprehensive data available for total investment inmanufacturing in 1968 and 1969. However, a number of projects have been com-pleted or undertaken during these two years. 2/ The most important expend-itures have taken place on the HVA Metahara Sugar plant (Eth.$ 18.8 millionin 1968 and Eth.$ 28.6 million in 1969) and on the paper plant (Eth.$ 12.0million in 1968 and Eth.$ 6.0 million in 1969). Total cost of other projectsshown in table 4 amount to Eth.$ 43.1 million. Most of these projects havebeen completed during the two last years. To this must be added expendituresfor expansion in the textile industry (particularly by the Cotton Company ofEthiopia, Indo Ethiopian Textiles and the Fibre Bag Company of Ethiopia), byTobacco Monopoly and by HVA Ethiopia SC. The Oil Refinery has also increased

1/ See Table 4.

2/ See Table 5.

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its capacity in 1969. There are also other smaller projects for which nodetailed information is available. Finally, fixed capital assets werevalued at Eth.$ 342 million in 1967. Assuming depreciated equipment is re-placed and depreciation is in ten years, replacement would have been Eth.$35 million in 1968 and Eth.$ 40 million in 1969. On that basis, investmentmay have reached Eth.$ 95 million in 1968 and Eth.$ 106 million in 1969.

Estimated Capital Expenditures in Manufacturing

(Eth.$ million)

1968 1969

HVA Metahara 18.8 28.6

Paper Plant 12.0 6.0

Oil Refinery 1.5 5.0

Other new projects /1 21.5 21.6

Expansion of existingmajor companies /2 6.3 4.8

Sub-Total 60.1 66.0

Replacement 35.0 40.0

95.1 106.0

/1 See Table 5.

/2 See Table 6.

The volume of investment is evidently influenced by exceptionally large in-vestments in sugar and paper but there had been also a number of othersmaller projects completed and it can be said that on the whole industrialinvestment in 1968 and 1969 has been held up despite the recession in theeconomy.

Utilisation of Capacity

9. Production capacity is not always used fully. This is the case forthe cotton textile industry,, where according to a study made in August 1969by the Battelle Advisory Group in Ethiopia, textile factories in the northernregion are working at 60% capacity. Also Indo-Ethiopian Textiles, the secondlargest mill in the country, has had to cut operations to about 50% of normallevels in part of 1969 due to poor sales. The paint industry has only 40% ofits capacity utilised, the match factory 10%, the cardboard and wrapping paperplant 27%, the two alcohol producing plants 23%, the several plants making in-dustrial gases (oxygen, ace'! lene, carbon dioxide) from 20 to 40%. Also only

- 4 -

part of the soap industry, cosmetics and glue capacity is utilised. A new

paper plant recently installed will be able to operate only at a reduced per-centage of its capacitv for some time due to lack of market. In the sugarindustry the installation of a new unit will result in excess capacity, un-less cane sugar can be exported. One cement plant in Eitrea is exporting toSaudi Arabia at prices below cost because otlherwise part of its capacitywould remain idle, due to lack of market. There are obviously other reasonsthan the lack of demand to explain the low utilisation of capacity of a num-ber of industries. They include inadequate ploject oreparation, inefficientoperations and lack of experience by both managers a-d workers. Certain com-panies experience raw material difficulties (e.g. lack of cattle for the meatindustry or of good quality hides for the lea::her industry) contributing tolow operating levels. Other concerns, supply:Lug piotected markets, have be-come so profitable that a motivation toward efficiermcy may have been lacking.There is little doubt however that, due to the srnall market demand (the in-come per capita is low) and the fact that import substitution has made sub-stantial progress in the sixties, it will take time before existing capacitycan be more fully utilised in a number of industries.

Employment and Productivity

10. Total emplovment in manufacturing was estimated at 59,000 in

1967 1/ of which more than half in food industries (29,000) 2/ and in tex-tiles (19,300). In 1957, employment was 18,700 and 27,600 in 1962. Most

of the increase in emplovment has been in food and textiles. Of the total

labor force, 19,000 persons are employed in Addis Ababa (including 6,000in neighboring Akaki) and 12,000 in Asmara. Also about 10,000 workers areemployed in Wonji and Metahara sugar estates and plants and at Dire Dawa(4,500). There are a few hundred workers employed at Assab (900), Massawa(460) and Nazareth (460), Harrar, Gondar and Jimma. More than half of the

labor force is employed in 15 establishments with 500 workers and over, and

less than 10% of the workers are in 248 enterprises with employees number-ing from 5 to 49. 3/

11. There are almost-no data on skills. Handicraft and later mechan-ical skills were traditionally regarded as a symbol of low status to those

who possessed them. The vestige of this attitude, combined with widespread

illiteracy and the scarcity of training programme, result in acute shortage

of manual skills in all areas. These shortages have led to a dependence on

foreigners. Over half the engineers employed in Ethiopia are foreigners.Only scattered statistics on labor productivity are available. In the cotton

textile industry productivity has recently improved through the installation

of new machinery, the establishment of regular procedures for the handling

1/ See Table 7.

2/ Including about 900 Sugar estate workers.

3/ See Table 8.

of labor management disputes by unions and management, and by on-the jobtraining and improvement programmes. However, some employers in this sector,which includes a large number of women, complain that the constant turnoverin their work forces because of marriages and confinements renders theirtraining efforts almost meaningless. Other employers have reported the lackof familiarity with modern practices and lack of training as the major causesof low productivity in Ethiopia. Other contributing factors include the pre-valence among the work force of debilitating diseases, the high altitude atwhich many activities are carried on, rigorous and frequent fasting requiredby the Ethiopian Orthodox and Muslim religions, and a lack of motivation towork hard stemming, apparently, from a general satisfaction with life as itis. One the whole, turnover of the labor foce is high for new workers whofind it difficult to adjust to industrial environment and schedules but be-comes later on low, for those who have been able to stay on the job. Highlabor turnover rates are not: always due to absenteism but also to erraticrates of output, provoked by poor management. Also, the present level ofwages (which has not significantly increased in the sixties) should not beconsidered as excessive by itself (Eth.$ 114/month in Addis in 1968 foraverage employee in manufacturing) as poor management is at least as respon-sible for low productivity as in the inferior quality of skills. Overall,alt'hough some consideration was given to the productivity of labor duringthe sixties, labor productivity remained about constant. 1/

12. There were 915 employed foreigners in manufacturing in 1966/67 inEthiopia. Foreign nationals seeking employment in Ethiopia are required topossess work permits, which can be granted if similar skills are not avail-able in Ethiopia. It is reported that there is a tendency by prospectiveemp:Loyers to exaggerate the qualifications required for a particular job inorder to circumvent this legal obligation. Although investigation of suchpractices continues, the regulation is difficult to enforce effectively.Because expatriate personnel, brings into Ethiopia the technical skills mis-sing, it might be a wise policy to analyse the qualifications and experienceof the expatriates from the point of view of the needs of the country, andwhen expatriates are determined to be essential, to induce or oblige the em-ployers to take Ethiopian counterparts. The problem, of course, could besolved to some extent if the government starts a more extensive programme ofmanagerial and vocational training. Such a programme is in its inception in

Ethiopia at the moment. The Center for Ethiopian Management (CEM) was recent-ly established as well as the Center for Vocational Training. These twocenters, which have the support of the UNDP, are expected to give some prac-tical solutions to the prevailing dearth of nationals with management and vo-cat:Lonal training. It will be time, however, before these projects have anysignificant impact on the indtvstry. There are of course other technical andvocational schools in Ethiopia run by the Ministry of Education. The possi-bility to expand technical edtucation integrated with practical on-the-jobtra:Lning should be investigated. Part of the cost could be subsidized bygovernment and a programme set up in consultation with industry.

1/ The ratio of the labr! farce to vaile added was practically the same in

1962 and L967.

Foreign Management and Cwnership

13. Most of the existing factories are owned and managed by expatriates,because the size of the Ethiopia's indigenous managerial and entrepreneurialforce, although expanding is still, quite small. In 1967, the CSO surveyes atotal of 489 commercial and industriial firms operating in Ethiopia with apaid up capital of at least Eth.$ 10,000. The survey revealed that only 104of these firms were owned and managed by Ethiopians. The remaining 385 firmswere owned or managed primarily by Italians, Greeks, Armenians and Indian na-tionals. However, in recent years, Fthiopians have Began to take middle man-agement or supervisory functi,ns in factoiries. There has also been a raisingtrend in the upgrading of Ethiopian niddle managemenit, which has been workingdirectly under expatriate supervisors, to the extent that the latter arebeing replaced increasingly by Ethiopians. However, this trend is very re-cent and more systematic efforts will have to be done as regards training(see paragraph 12 above).

14. Both the domestic and foreign private capital have participated inthe industrialization process. During recent years increased efforts weremade by the Ethiopian Government to attract private foreign investment. Pre-cise and recent data on the extent of foreign capital invested in manufactur-ing are lacking but we can cite relatively large foreign investments in tex-tiles (Japanese and Indian), steel (Japanese), meat canning (Italian), sugar(Dutch), etc. Foreign capital has participated in several ventures in asso-ciation with domestic enterprise and witlh public and semi-public agencies.

Government Role

15. The Government continues to exercise a major influence on invest-ment decisions. Some projects, notably in petroleum refining, a tannery anda tyre plant, are government-owned. The government authorities to a largeextent decide on the structure of output through the tariff policy andthrough licensing of new investment. An essential link in the relationshipsof the public and the private sector is the role played by the Ethiopian In-vestment Corporation (EIC) and the Development Bank of Ethiopia (DBE) andalso by the Ministry of Finance as direct investor in projects in participa-tion with private capital. The government-owned Banks have participated inthe financing of a number of industrial projects in the last few years. TheGovernment (partly through its tariff policy and other incentives) and theDevelopment Banks are in a position to exercise strategic leadership in in-dustrialisation, while continuing to rely on private sources of savings andprivate management of industrial enterprises. 1/

1/ See Chapter 2 for an analysis of the tariff policy, Chapter 4 for amore detailed analysis of the Industrial Finance Institutions andChapter 3 for an analysis of the incentives offered to manufacturing.

-7-

Financial Profitability

16. An analysis of the accounts of 14 important companies surveyed bythe mission shows wide discrepancies between firms as regards their finan-cial profitability. 1/ Three companies are making losses: the Oil Refineryat Assab, Bahar Dahr Textiles and the Ethiopian Drug Co. The oil refinerydoes not have a balanced suoply/demand for its products and must exportheavy fuel oil at a loss. rhis situation will improve progressively as de-mand for light products increases and makes up for the financial loss onfuel oil exports. The Bahr Dahr Textile mill suffers from a management pro-blem and acute; competition. The Ethiopian Drug Company operates on a tem-porary basis. Difficulties arise on the management side, unavailability ofskilled mechanics and of packaging materials at a reasonable price. 2/ Onthe other hand, the two largest cotton textiles companies have had a returnof 16.8% on invested capital in the last three years. HVA Ethiopia (sugar)has had a profit of 10%. The cement industry (2 companies) also had a re-turn of about 10%. Overall (excluding the refinery which is a major sourceof loss, distorting the results for all other companies) the average annualrate of return on investment has been 12.5% from 1967 to 1969, according todata available on companies surveyed. This result is confirmed by state-ments from manufacturers and bankers who often indicate that prospective en-trepreneurs usually expect a financial return of around 15-20%, but usuallyearn about 10-15%. These financial rates seem to compare with those in thecommercial agriculture sector but are thought to be rather low for potentialinvestors. They indicate that despite high levels of protection (seeChapter 2), factors such as low utilization of capacity, low efficiency andpoor management act as strong deterrents, preventing manufacturers to reapall benefits they had expected.

Import Dependence

17. The import dependence of the industry remains relatively high insom,e sectors. A compilation has been made by the mission of a list of pro-ducts fairly representative of the present industrial structure of Ethiopia.The results are shown in Table 9. They indicate what is the percentageshare of imported inputs in the value of output. The lower the number shown,the greater the proportion of total output that is attributable to domesticcomponents of production. This will happen when either the industry is laborintensive, so that a large part of the total cost is accounted by the wagebill (e.g. garments) or when the inputs of raw materials and components areprimarily of domestic origin (e.g. flour milling or cement).

1/ See Table 6.

2/ At present, plastic containers, for example, have to be bought fromabroad although plastic. manufacturers are operating in Ethiopia; fur-thermore, prices of the metal tins assembled locally from importedpressed fLats are relatively high.

- 8 -

18. At the present time, of the 31 industrial products listed in Table9, for about half (17 products) the share of imported inputs is less than 30%of the value of output. Industries like iron sheets, plastic tubes and house-hold articles aluminium ware, rubber footwear and printing have a high importdependence since they are based on imported materials. However, some in-dustries which are normally based on local resources have also a relativelylarge import component. They include textiles (a substantial part of theirraw cotton needs is imported as well as rayon), tobacco (still largely rely-ing on imported raw tobacco), fibre bags (partly based on imported jute),matches (made out of imported wooclsticks). An industry like meat canninghas a 40% import dependence due to import of tin cans. The beer industryhas to rely on imported malt. Flour milling, sugar and cement are among theindustries with the lower import dependence.

19. A comparison of prices of local products with CIF costs of importedproducts reveals that domestic prices are in some cases very high. Tables 10and 11 give a list of 23 typical products and the percentage of local productprice above (or under) the imported CIF price for the same commodities.About half of the products have domestic price in excess of 60% above CIFprice. Only 6 items have an excess of domestic prices over CIF import pricesof less than 35%. The higher price of locally made goods in relation to CIFimport prices results sometimes from high domestic cost of production (cementis high cost due to the smal:I capacity of the plants; textiles are costly dueto relatively low efficiency and high price,of cotton). One reason may also bethe high amount of taxes or because of lack of demand (printing paper). Alsoindustries are able to charge high prices as they are protected by substan-tial import duties such as 113% on textiles and 138% on sugar.

20. There is in fact little relation between the level of effectiveprotection and the importance of value added. A number of industries whichhave a relatively high value added enjoy an effective protection lower thanthose industries relying on imported raw materials. 1/ The fact that an in-dustry has a high or low value added does not seem to be a criterion for es-tablishing the level of protection which is invariably high.

Efficiency of Industries as Measured by "Value Added" and Prices

21. Table 12 shows a ranking of industries indicating in a rough waythe relative economic efficiency of selected industries. This is measured(a) by the "value added" 2/ which indicates each industry contribution toG.N.P. and (b) by the level of the excess of domestic prices over CIF prices.

1/ See Chapter 2 on tariff protection.

2/ Detailed value added in terms of payments to the factors of production,depreciation, and indirect business taxation are not available for allindustries in Ethiopia. As explained in Chapter 2, to estimate "valueadded" it is necessary to seek data through an alternative route, name-ly sales less materials purchased.

- 9 -

There are two major groups shown in Table 14: industries with a relativelyhigh value added but also high prices and industries with a low value addedand relatively high prices. On the contrary the group of industries whichfrom the national economic viewpoint is the most profitable and yields ahigh value added and relatively low prices is small: it only includes tobac-co, tanning, vegetables oils and cakes, tomato extract and spice extraction.The complication here is that domestic prices reflect not only productioncosts, but also protective custom duty rates. This complication prevents usfrom drawing too hard conclusions from the data. On the other hand, however,some industries, although well protected, are bound to be high cost due totheir small size and the low competitive import price (e.g. currugated ironsheets, nylon fabrics, plastics, etc.) But some industries may also becomemore competitive if they can find local resources at low prices and goodquality such as natural fibres and leather or if production units may be setup with a more economic size (cement).

- 10 -

II. TARIFF POLICY

22. Incentives for manufacturing are important to determine andassist investors in establishing new industrial ventures. However, pro-tective measures play in Ethiopia a central role in the industrial policyof the country. Such protective measures (e.g. the Customs tariff) areparticularly important in influencing the level of profitability ofEthiopian industries. An analysis of the degree of protection affordedby the present tariff (and other taxes) will help to understand the ex-tent to which the movement of domestic resources (land, labor and capi-tal) is being induced into protected industries.

The Customs Tariff

Structure and Administration of the Existing Customs Tariffand 0 her Import Taxes

23. A review of the Ethiopian tariff shows that rates are mostoften set on an ad valorem basis, although there are numerous instanceswhere a specific rate is set.l/ The Customs Department uses the UN Stand-ard International Trade Classification to classify the goods subject totariff control, and the same heading is used in the compilation of itsstatistics. Of the over 900 headings, there are some 450 tariff cate-gories. The range in ad valorem rates is from 0% to 100%. Items im-ported into Ethiopia not specifically listed in the tariff schedule bearan ad valorem duty of 35%. The Customs Department is in the process ofadopting the Brussels Tariff Nomenclature (BTN), which is also used bythe Economic European Community.

24. Besides the ordinary customs tariff, an argument is made thatthe transaction tax and the municipality tax are disguised tariffs - atleast to the degree that the rate of the transaction tax on imports ex-ceeds the transaction tax on domestic products, and to the degree thatthe municipality tax is collected only on imports. For example, thetransaction tax on imports is set at 12% ad valorem, while the tax ondomestic production is 5%. If a tariff is defined as a tax on interna-tional trade, there is an effective increase in the import tariff of 7%.Also the municipality tax of 1% is collectible on imports. If this ar-gument is accepted, there is, in total, 8% added to the stated tariffrates.

25. Other additional taxes apply to imports (in particular cases)such as the Alcohol Excise Tax, Tobacco Monopoly taxes, and Salt tax.

1/ See Table 13 on specific rates.

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26. The export picture is less complicated but even here goods maybe subject to two taxes, i.e. Customs Export duty and transaction tax onexports. However, manufactured goods destined for export may be exemptedfrom export duties and transaction taxes on exports for a reasonable pe-riod of time if such exemption is found necessary to assure the competi-tive position of these goods on export markets. It will be shown belowthat in practice such exemption is not always easily obtained.

27. In 1968/69 Customs duties provided 21% of the total ordinaryrevenue of the Ethiopian Government. The transaction tax on importedgoods yielded 8% while other excise taxes on imports provided 1%. Therelative importance of such duties and tax receipts on imports indicatesthe extent to which emphasis is still placed upon the revenue rather thanon the protective aspects of the tariff structure l/.

28. According to the Investment Proclamation of 1963, the industrialitems subject to import duty relief to be granted by the Investment Com-mittee are: industrial machines, implements, appliances, spare parts 2/,building, structural, and other construction material. The conditionsfor relief are that they are for exclusive use in industrial enterprisesand similar goods are not being produced within Ethiopia. The Invest-ment Proclamation lays out in language sufficiently accurate for mostinvestors the nature of the above incentives to be granted to new enter-prises and the mechanism for qualifying. The process for arranging fortariff protection for an infant industry is a much more subjective matter.When protection for the products of a new enterprise is sought, the TariffCommittee 3/ makes a recommendation but the decision and the degree of pro-tection lie with the Minister of Finance, or the Council of Ministers.

1/ In 1963/64, customs duties provided 26% of ordinary revenues, transac-tion tax 10% and other excise taxes on imports 0.5%. The total amount-ed then to 36.5% against 30% in 1968/69.

2/ Spare parts may be imported duty free only at the time of the originalimportation of machinery. This negates some of the value of the in-centive.

3/ The Tariff Committee has no legal basis. It is an ad hoc Committee toadvise the Ministry of Finance. Members of the Committee include theMinister of Finance (Chairman), the Minister of Commerce and Industry,and such others as may be designated from time to time. Its purDoseis to advi3e the M1inister of Finance on tariffs and to make recommenda-tions when any investor asks for protection. The Ministry of Industrystudies ill detail t.'.e proposed project and gives the necessary recom-mendations. which the Minister of Finance may or may not accept. TheCommittee., which meets whenever an application is to be considered hasno author-,:y of its owl.

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29. In 1968, the Government formed a special committee whose role

was to make proposals for setting new tariff rates on industrial products.

It consisted of representatives from the Ministries of Finance, Commerceand Industry, Planning, Agriculture, Communications, Public Works, theCentral Statistical Office, and the Customs Office. The Government strat-

egy would apparently be to announce some new tariff rates when, as men-tioned above, the present tariff schedule is converted from the Ethiopian

classification system to the BTN nomenclature. Work on the conversionhas been in progress for several years and is now nearing completion.It was thought at one time that the prospect of Ethiopia's joining theEast African Common M1arket, under which it might have to accept thecommon external tariff of thiat grouping, could conceivably cause thework on a revised tariff to be futile. However, this prospect is miti-gated by two factors: (1) entry may be delayed by negotiations permittingEthiopia to improve its tariff in the interim; and (2) the possibility mayexist which would allow the external tariff to be negotiable in which caseEthiopia's bargaining position should begin from a more scientific andsatisfactory set of tariff rates.

Rate of Protection

30. To evaluate the level of protection granted to Ethiopian in-

dustries, a distinction must be made between nominal and effective ratesof protection. This is an approach to thinking about protection which

economists have employed in recent years 1/.

31. Estimating the level of protection enables us to rank products

according to the percentage excess of domestic over foreign prices whichis taken to represent the nominal rate of protection (product protection).

But the protection of individual industries is also affected by tariffsbased on material inputs, such as industrial materials, fuels, parts, andcomponents. These tariffs reduce the extent of protection accorded to aparticular industry by raising the cost of material inputs, and can beregarded as a tax on the processing of such inputs.

32. The joint effects on individual industries of tariffs applied

to inputs and outputs are indicated by the so-called effective rate of

protection (margin of protection on value added rather than on the prod-

uct price). This is defined as the excess of domestic value added, ob-tainable by reason of the imposition of tariffs and other protective

measures, expressed as a percentage of world market value added. While

the effective rate of protection is a relatively new conception in eco-

nomic discussions, it has long been known to businessmen whose main con-

cern is how tariffs on the product and its input affect the protectionof their processing activity.

1/ See Bela Balassa, "Tariff Protection in the Industrial Countries:An Evaluation", The Journal of Political Economy (December, 1965).

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33. As an illustraticon, let us take the case of a product (e.g.clothing), the CIF import price of which is US$1.00. Converted at thecurrent exchange rate of Eth.$ 2.50 to the US dollar, the price will beEth.$ 2.50, of which the cost of material inputs (textile fabrics) onthes world market is equivalent to Eth.$ 1.50, and world market valueaddled in producing clothing Eth.$ 1.00. A 20% tariff on clothing willraise the domestic price of the product to Eth.$ 3.00 (i.e. by Eth.$ 0.50)while a 10% duty on textile fabrics increases material costs to the do-mestic producer to Eth.$ 1.65 (i.e. by Eth.$ 0.15). Protection will thusenable the firm to operate with a value added of Eth.$ 1.35 - the differ-ence between the domestic price of clothing of Eth.$ 3.00 and the materialcost of Eth.$ 1.65 - as against a value added of Eth.$ 1.00 abroad. Themargin of Eth.$ 0.35 means that the effective rate of protection of thedomestic processing activity - the percentage excess of domestic overworld market value added - will be 35Z. Had the duty on textile fabricsbeen 20% (i.e. Eth.$ 0.30 instead of Eth.$ 0.15), the margin would havebeen only Eth.$ 0.20 and the effective rate of protection also 20%.

34.. Apart from tariffs on inputs and outputs, the effective rateof protection depends on the share of value added in the product price.Consider, for example, the case of pharmaceutical products which are im-ported in bulk into Ethiopia duty free but bear a 15% duty in packagedform. If bulk pharmaceuticals cost 90% of the packaged product on theworld market -- i.e. foreign value added is 10% of the product price -ancl the import price is Eth.$ 100, domestic value added will be Eth.$ 25(the difference between the domestic price of Eth.$ 115 and the Eth.$ 90paid for bulk pharmaceuticals). By raising the price of the product by15%,, protection thus enables domestic producers to operate with a domesticvalue added two and half times higher than value added in the world mar-ket, i.e. the effective rate of protection is 150%. Accordingly, the ap-parently low nominal protection corresponds to high effective protectioncases when vaslue added is a small proportion of the product price. Inthe example, t:he effective rate of protection is greater on pharmaceuticalsthan on the mainufacturing of clothing although the latter had higher nomi-nal protection 1/. It would seem consequently more appropriate to studythe! protection- really afforded to industrial products, i.e. the effectiveprcitection, than to limit the analysis to nominal duties which may varywidely without giving a true picture of the existing situation. If therewas a uniform nominal tariff rate on all products and inputs, then theeffective tariff would be uniform for all products. However, as inEthiopia, when variable nominal rates apply to different products andinputs, then t:here is a wide range of effective tariff rates dependingupon the proportion of value added to output.

1/ Examples on clothing and pharmaceuticals taken from "IndustrialProtection and Project Selection in Development Countries", Belaiialassa, August, 1969.

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35. To calculate the level of nominal and effective tariff protec-tion the Mission has visited a number of industries to obtain the relevantstatistical data. As is clear from above, it was necessary to find thevalue added of the companies. This is the total payments to the factorsof production, depreciation, and indirect business taxation. As this ap-proach to the interview would have required to touch upon sensitive data,namely gross profit margins 1/, it was decided to seek the value addedthrough an alternative route, namely sales less materials purchased 2/.In addition to sales and materials purchased, data were obtained on im-ports and domestic materials purchased separately. The question withrespect to raw material imports were designed to reveal the duty rateson such imports. An illustration of the method employed will be foundin Annex I. It shows the extent to which the effective rate of protec-tions can differ from the nominal rate set in the Customs tariff. Table14 gives nominal and effective tariff protections on selected industrialproducts. It speaks for itself. Ethiopian employs a large range ofeffective protection rate fo support local industry, and it providesvery high protection in some instances. For some industries, there areeven cases of "negative" effective protection which seems absurd. Inreality, this means that the industry is so highly protected that thevalue of its output at CIF prices falls short of the materials it usesup when they are valued at CIF prices. In other words the industry re-duces the gross domestic product. The figures between brackets shownon Table 14 gives the percentage by which the value of the materials usedexceeds the value of the output, both at CIF prices.

36. To justify protection, it is sometimes argued that the expansionof manufacturing industries provides indirect benefits by increasing em-ployment and improving the quality of the labor force through training.There is some merit in this argument (although modern agriculture canalso have such effects) but the level of industrial development and theextent of employment in Ethiopian industry (even assuming a high rate ofgrowth for the years ahead) does not seem to justify levels of effectiveprotection of 100 to 300X or above. Also no correlation has been foundbetween the effective rates of protection and the labor intensity of pro-tected industries. A industry like cement which has relatively smallerlabor cost per unit of sale has a much higher effective protection thanthe textile industry which is more labor intensive.

1/ Information on depreciation and profits was made available in somecases however.

2/ The same method was used by Mr. Wilson Schmidt, US A.I.D. Consultantin an analysis of tariff protection for industry in Ethiopia in 1967.

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Seeting Tariff on an Effective Protection Basis

37. Fromr what has been said above on the structure and anomaliesencountered in the existing tariff, it can be easily concluded that itis time a new tariff policy be devised by Ethiopian authorities. Theauthorities have broadly three choices to achieve a tariff structurethat would contribute to allocative efficiency. The first is to seek auniform nominal tariff rate on all products and inputs which would resultin a uniform effective tariff for all products except in cases where thereis a substantial amount of domestic materials used in the process whichare not otherwise taxed. If a uniform nominal tariff rate is not feasi-ble, then the objective should be to achieve as much as possible uniform

effective tariffs. The latter method would of course require detailed

ancd complex investigations of each product, but does offer the possibili-ty of variable nominal tariff rates provided there is a uniform effective

rate on value added. A third solution to the tariff policy problem com-pared to achieving a uniform nominal tariff or basing it on uniform ef-fective tariff levels would be to simplify the tariff structure. Thus,if it is accepted that the nominal tariffs are in some cases too high toachieve efficient allocation of resources, then the line should be held

on further tariff increases. Moreover, it is probably desirable to re-

duce the average tariff over a period of years as revenue requirementspermit. As an illustration, one could visualize a simple tariff struc-ture with low revenue tariffs on capital goods and those intermediategoods for which Ethiopia does not have prospects of economic productionin the near future, with moderate tariffs for consumer goods and thoseintermediate products for which there are possibilities of future economicproduction in Ethiopia. The tariffs should be arranged in broad hands by

industry groups rather than by individual products with a uniform nominal

tariff for each "band". The reduction in tariffs could be achieved by

stepping down tariffs progressively over 5 years. This would give local

manufacturers due warning and enable them to increase efficiency and look

for foreign markets. The reduction in average nominal tariffs need notresult in a commensurate reduction in customs revenue as the averaging

of existing high and low items will balance each other, and to the extent

that the new average nominal tariff for each industry group is judiciouslychosen. If the authorities select the method of case by case achievementof effective tariffs, the following recommendations can be made:

(a) Specialized studies are urgently required of various "pro-tective" situations in the Ethiopian tariff both for thepurpose of adapting that tariff to the new BTN and of enter-ing into negotiations with East Africa. Through arrangementswith the Ministry of Commerce and Industry, industrial in-

quiry should be made so that from individual responses ofcompanies it should be possible to calculate desirable nominaltariff rates of protection for local industry for the con-sideration of the Tariff Committee. Some preliminary in-vestigation has been already made by the Mission throughvisits to a number of industrial companies but more detailed

and accurate information has to be obtained on structures

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and costs if one wishes to exactlv calculate the effectiveprotection now enjoyed by Ethiopian industry. I/ Only ifsuch information is available, will it be possible toenable the tthliopian authorities to see clearly the prob-lem for individual industries and to take appropriateaction. It is understood that the Ethiopian authoritieswould very much appreciate having all possible relevantinformation available put at their disposal.

(b) No consistent rationale or criteria for the level of pro-tection afforded the various industries and companies hasbeen found by the Mission. It may be conjectured that thedegree of protection obtained by the companies was more a

result of the indivi(lual company bargaining strength andabilities than of any rational policy. Customs duties arethe single largest revenue source of the Government. Acustoms policy needs to weigh satisfaction of revenue needsagainst such other policy objectives as allocative efficiency,

equity in taxation, and investment incentives. Fortunately,elements of the Government are showing some awareness of theneed for reshaping the Ethiopian structure in terms of revenue

and allocative efficiency. Such reshaping should be madehaving in mind the need to provide protection not on the

final cost of manufactures but on the value added (the ef-

fective rate of protection concept), taking into account(1) labor skills or cost above opportunity cost, (2) theneed to give protection to infant industries and (3) revenue

aspects.

(c) The following approach may be followed in revising the present

industrial structure:

(i) calculate the "true" value added by each major industryin Ethiopia 2/;

1/ The measurement of effective protection is far from easy and the

possibilities of error are considerable. One difficulty arises

from redundant protection that is associated with prohibitive tariffson inputs (e.g. textiles and leather in Ethiopia) since this callsfor direct price comparisons. However, the task is made much easier

in Ethiopia since there are no quantitative restrictions, which makes

it unnecessary to estimate "implicit tariffs" by comparing domesticand world market prices.

2/ It is to be recalled that there is no industrial census in Ethiopia

giving detailed information on value added in industry. The rela-tively small number of large scale firms should enable to make sucha census fairly rapidly and at low cost.

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(ii) apply a uniform rate of protection on the value addedobtained;

(iii) adjust this rate of protection taking account (a) theexcess cost of labor in manufacturing over the costin agriculture and other sectors; and (b) the need togive temporary protection to infant industries;

(iv) derive the level of nominal tariff protection on theproduct from the level of protection on value added:while there would be an adjusted rate of protection onvalue added, the nominal rate of protection on the prod-uct would also vary in accordance with the relative im-portance of value added in the product, the employmentfactor, the foreign exchange savings and the degree ofmaturity of the existing industry 1/.

(d) Once the new possible tariff rates have been calculated, itwill be necessary to evaluate the total volume of incomeaccruing to Government as a result of the new set ofrates. However, such a calculation should be dynamic,taking into account the change in the revenue caused bya change in the quantity demanded due to the increase orreduction in prices, as a result of the change in customstariffs.

Other Anomalies in the Existing Customs Tariff

38. A study of the existing customs duty rate reveals several anom-alies which, it is hoped, c:ould be remedied even in the absence of an im-mediate restructurating of the whole customs tariff. They are caused bydiffering rates of duty in the tariff for similar articles, or for arti-cles having approximately the same use, and in some cases lower rates forthe more elaborated-type articles. A few examples (there are many others)can be given:

Item 45

Oil seeds Free

It seems to have been accepted throughout the Tariff thatthe normal agricultural products of Ethiopian should beheavily protected, e.g. tomato products at 100% (item 54),onions at 30% (23(f)), etc. yet oilseeds-, being a majoragricultural product, are encouraged as imports.

1/ For a detailed presentation of the method suggested, see Annex II.

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Items 47 and 17

Extracts for flavoring food 25% ad valoremSpices 40% ad valorem

The raw materials are dutied at a higher rate than the processedproduct.

Items 139 and 142

Woven textile fabrics $1.25 per aq. metre or 100%ad valorem

Clothing 75% ad valorem

The processed and manufactured goods have a lower rate thanthe materials of which they are made.

Item 308

Dyes, chemicals, reagents and other articles imported bylocal tanneries, textile industries and refineries asprocessing or finishing materials. Exemption from thetransaction tax paid on imported items is only granted tothe above mentioned new materials, but is not granted ingeneral for raw materials for other industries.

Items 345 and 349

Plywood 60% ad valoremVeneers for furniture 30% ad valorem

Since veneers form the decorative surface of plywood inthe manufacture of furniture, it would seem reasonablethat they should bear the same rate. The rate of ply-wood is protective, but veneers, which are polishedstrips, are produced by the same process.

39. Several reports have been made by the Ministry of Commerce andIndustry asking removal of anomalies in the Tariff. For example, onereport indicates that Ethiopia is importing Eth.$ 14 million of outer-garments and other sewn products per year. On the other hand, under pres-ent circumstances (lower duty on ready made cloth and higher duty on ma-terials) it is difficult to further expand the garment industry. Adecision to correct this anomaly has been awaited for some time.

Other Aspects

The Customs Tariff in Relation to Other Forms of Indirect Taxation

40. As regards the structure of indirect taxation in as much as ithas a bearing on imports and exports of industrial products, the follow-ing observations and recommendations can be made:

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- Inefficiency

41.. A system whereby goods entering the country may be subject to2, 3 or 4 duties, each of which has to be assessed, levied and accountedfor individually must complicate the work of Customs officials, take moretime and possibly divert their attention from more. important issues (e.g.proper valuation). It cannot be conducive to efficiency or to promptclearance of goods.

- Inconsistency

42. The Ethiopian transaction tax discriminates against expenditureson imports to the extent that it is levied at 12% on imports against 5%on local production. As a tax on expenditure, some people believe thatit should fall, equally on all consumers, i.e., it should be non-discriminatorybetween persons and products. Moreover, such discrimination may in factamount either to a protective duty or simply a flat ad valorem addition tothe customs duty. As such, some people argue that it should be imposedthrough the customs tariff. While this has merit if there is a uniformprotective tariff, when, as in Ethiopia, there is no uniform tariff thedifferential transaction tax does introduce a degree of uniformity inthe protection tariff. Hence, if there is to be no uniform nominal tariff,there is merit in retaining the transaction tax differential on imports.Indeed, one way of indirectly introducing a more uniform tariff would beto increase the differential transaction tax on imports.

- Conflict Between Tariff and Transaction Tax

43. Municipal tax on imports is bad policy. Permitting the city ofAddis Ababa to levy taxes on imports does not seem right because giventhe fact that Addis Ababa is an entrepot for most of the trade of southernEthiopia, to the extent that such products are consumed in rural areas,it amounts to imposing on the rural population a tax in favor of otherpeople, i.e. the residents of the capital city (who are probably also inmost cases better off than the rural population).

44. Some reform of the existing structure of indirect taxation wouldtherefore seem most timely on grounds of efficiency and internal consist-ency. It is also essential to the restoration of the proper role of theCustoms Tariff as a flexible instrument for government revenue and in-fluencing the level of imports in those directions most conducive to in-dustrial development and to national welfare. The main difficulty islikely to arise in the revenue field. In present circumstances the Gov-ernment cannot probably afford to forego any significant source of revenue.It should however be possible to meet both needs, i.e. for reform and theconservation of the revenue, along the following lines:

(a) Tran3action tax on industrial exports should be abolished(to avoid present difficulties in obtaining exemption forexport of industrial products).

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(b) Municipal taxes should be abolished. The tax would beabsorbed by the Customs Tariff or the excise or transac-tion tax system. In lieu the Central Government shouldmake a monthly payment to the entitled authorities togive them the same sum as they would otherwise have obtainedfor themselves.

(c) The Customs Tariff should be restructured on the BrusselsNomenclature, to provide a more rational tariff from theeconomic point of view (see above). It would also achievea system which would yield as high a revenue and be asincome-elastic as the existing structure of indirect taxa-tion and, if possible, even more so.

Problem of Special Duties to Countervail Dumping

45. It is often argued in Ethiopia that duties have to be imposedat a very high rate to protect industries from dumping. This reason isalso given to advocate the imposition of specific duties. The allegationof dumping is so widespread that it seems to have been one essential argu-ment for not changing anything in the present tariff system.

46. In consequence, if a revision of the Customs Tariff on the basisof either a uniform nominal tariff or the proposed equality of effectiverates is to be made acceptable, ways and means have to be found to coun-tervail dumpig or at least to convince industrialists that they can beprotected against it.

47. The revised Draft Investment Code (article 53) makes some pro-vision against dumping, which would be of significant help in preparinga new tariff. The proposed procedure is the following. First, the Boardof Investment must receive representation from one particular enterprisewhich is adversely affected by dumping practices. Then, if the Boardconsiders that there is a prima facie case for the imposition of an antidumping duty, it shall refer the application to an "Anti Dumping Commit-tee". The Committee will investigate the case and report to the Boardwhich, if appropriate, will recommend to the Minister of Finance to im-pose an Anti-Dumping duty or a Prohibition on Imports of the goods con-cerned. Finally, a countervailing duty or a prohibition on imports maybe imposed for a limited period not exceeding 12 months, but which maybe extended from time to time by the same procedure. Anti-dumping dutiesor prohibition on imports may be expressed to apply to all imports ofgoods or only to such goods when it appears to the Customs Authoritiesthat they have been exported from or produced in particular countries.

48. If it appears that a threat of foreign dumping is of such animminent character that substantial damage might be done to the nationalinterests by waiting for the report of the Anti-Dumping Committee, theBoard may request the Minister of Finance as a matter of urgency to im-pose a "provisional" anti-dumping duty or "provisional" prohibition onimports pending the receipt of such report and for a period not exceed-ing four months.

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Temporary Import Regulations for Promoting Exports

49. Several industries which suffer from excess capacity would be

apparently willing to export part of their production. However, they are

encountering a number of difficulties.

50. According to the Investment Proclamation, exports of manufac-

tured goods may be exempted from the general 2% tax on exports. However,

this exemption is not applied in many cases, because some smaller firmsdo not know the procedure to be followed, while others think the proce-

dure is too complicated and time consuming.

51. Duties and taxes on raw and auxiliary materials are relativelyhigh in Ethiopia. This puts Ethiopia's manufactured products in a more

difficult position as far as export prices are concerned. It is in prin-

ciple possible to import temporarily duty free materials for the purposeof being further processed or manufactured in Ethiopia into products which

are to be exported within six months from the date of import. Normally

this provisiorL should concern not only raw materials, but also chemicals,auxiliary materials, and packing materials to be incorporated in the

finished product destined for export. Unfortunately this regulation does

not seem to have been applied and manufacturers are complaining about dif-

ficulties faced by them whenever they request the benefits set by the law.

The Ministry of Finance should instruct the Customs Officials to apply

the regulation in the widest way possible inspite of some difficultieswhich may arise. This may perhaps open some possibilities to exportplastic products (especially to Djibouti), more cement from Massawa,

more salt, textile fabrics and thread, mosaic and wall tiles, meat,

shoes, wooden products, matches, etc.

Protection of Export Industries

52. There are several industries which are now exporting or may be

susceptible to enter export markets in the years to come. T'hese are meat

and meat prodtucts, vegetable oil, oil cake, leather and shoes, cement,sugar, etc. It is consequently of interest to consicier possible addition-

al incentives to these industries to encourage exports. In the Ethiopian

market, industries can obtain the tdriff inclusive domestic price while,

in the absence of export subsidies, they get the world market price on

export sales. Yet, unless the industry is reimbursed for tariff paid on

imported materials, it has to pay the same price on material inputs ir-respective of whether they are used in domestic production or in exports.

CorLsequently the industry may have to operate with a sraller profit when

it exports than when it produces for the home market. Discrimination

agatinst exports in particular industries could be reduced if firms were

reimbursed for tariffs levied on imported inputs. Thlis is legally possi-

ble in Ethiopia hut, as indicated above, not always practical. Even in

the absence of import duty refunds, however, the same incentives would

be provided to exports and to import substitution if export subsidies were

apT lied at the same rate as tariff, si-ice the Ethiopian producer would get

the iamn nrico whether he exnorts or produces for the highly protected

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home market. But this is not the case to day for Ethiopian industries.Yet exports of Ethiopian manufactured goods could play an important rolein industrial development by increasing the size of the market and foreignexchange earnings and enabling firms to use large scale production methods.For instance, instead of production on a small scale for the domestic mar-ket, the vegetable oil industry (based on local seeds) could eventuallyexpand if it were able to make a breakthrough into export markets withexport subsidies.

53. Moreover, a distinction could be made between enterprises thatare foreign market oriented (vegetables and canned or frozen meat, spices,vegetable oil cakes, etc.) and those that are domestic market oriented.The former industries should be entitled to benefit from a relatively betterset of incentives so as to influence the direction of factors of productiontowards export. Additional incentives to exports of manufactured goodscould also be justified by the cost involved in entering foreign markets.

54. Fortunately, the Revised Draft Investment Code (lst February 1970)includes provision to provide export rebates (article 27). "An export re-bate shall be granted in any fiscal year in the same percentage ratio to

the income tax which would otherwise be payable by the enterprise in theyear, as the exports of the enterprise bear to its total sales in the samefiscal year." For example, should exports represent 50% of total sales,an export rebate equal to 50% of the payable income tax would be granted.

55. Also the Revised Draft Investment Code (article 55) envisagesa waiver or refund of indirect taxes on exports which fall on such exportsin the process of production or packaging. However, such refund will notbe given automatically, being provided on an ad hoc basis when it willappear to the Investment Board that the promotion of export by a "devel-opmental enterprise" is impeded by the incidence on an enterprise of in-direct taxes. The final approval will be made by the Minister of Finance.

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III. INCENTIVES FOR MANUFACTURING

56. The investment climate of Ethiopia may generally be viewed asfavorable in terms of those conditions of importance to potential inves-tors. The Ethiopian Government considers increased investment of foreignand domestic private capital vital to the growth and development of thecountry's economy and welcomes foreign private investment. Its policytoward stimulating domestic and foreign investment is supported by liberalinvestment incentives. While investors find it sometimes difficult tounderstand clearly the goals and priorities of the Government in partic-ular investment sectors and despite a tendency for unnecessary delaysbefore making a decision on investment, the increased volume of invest-ments in recent years is evidence to support the view that, in spite ofthe problems, the incentives now in force have been of value in assistingindustrial development.

Existing System of Incentives

57. The Investment Proclamation of 1966 provides benefits, privi-leges, and exemptions for encouraging and stimulating private capital in-vestments in Ethiopia. The provisions of the Proclamation apply not onlyto in,dustry but also to agricultural, mining, transport and tourist enter-prises. The incentives include (1) income tax relief for a period ofyears; (2) import duty relief under certain conditions on agriculturaland industrial machines; (3) export duty and transaction tax relief fora period of time on exported manufactured goods if the exemptions arenecessary to assure their competitive position in export markets; and(4) the availability of foreign exchange for remitting the savings offoreign personnel employed in the enterprises and profits of foreignenterprises.

58. Income Tax Relief. In order to profit from income tax relieffor Et period of five years in the case of a new establishment, or fora period of three years in the case of an extension or expansion, anenterprise must fulfill a number of conditions. These are: a minimuminvestment of Eth.$ 200,000, a favorable decision by the Investment Com-mittee (see below), operate as a separate technical unit in case of ex-pansion or extension and keep separate accounts in such a case. One maywonder whether a minimum investment of Eth.$ 200,000 is justifiable underthe present stage of economic activity. A number of reasons suggest thatthe anmount is too high, especially when taken in conjunction with theperiod of exemptions. The minimum investment set by the Proclamationseems to be beyond the bounds of potential capacity of the multitude ofdomestic investors. If the incentive threshold was lowered (if no thresh-old was set at all) savings could be more rapidly utilized. The settingof an arbitrary amount for all sectors and industries ignores the factthat they all differ in capital requirements. In industry optimum plantsize varies widely, and the appropriate amount of capital for one industryis inappropriate for another. Also given the small size of the Ethiopianmarket, combined with the many examples of over-capacity in the existing

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industries of Ethiopia, the smaller investments may in many cases be themore economically viable. There is also much to be said for the encourage-ment of less capital intensive and more labor intensive investment.

59. Another aspect of income tax relief concerns the exemption period.The time limit of five years, or three years in case of expansion, irrespec-tive of the amount invested over the minimum, the type of activity, or thelocation of the activity, deserves reconsideration. Although the periodof tax holiday in Ethiopia (i.e. five years) is to be found in many coun-tries, there are some instances where longer periods are granted. Somedifferential in income tax exemptions in relation to the categories ofenterprises, to their contribution to national economic profitability andto their location may be justifiable.

60. Import Duty Relief. 1/ The items subject to import duty reliefare: agricultural and industrial machines, implements, appliances, orparts, and building, structural and other construction material. The con-ditions for relief in the case of the former are that they are for exclu-sive use in agricultural and industrial enterprises and similar goods arenot being produced within Ethiopia. The Investment Proclamation does notcover raw materials used in industrial processing. While exemptions aregranted in specific cases, such as the importation of crude petroleum tofeed the refinery at Assab, there is no general exemption. However, insome cases import duty relief might be of particular benefit where suchraw materials are not available. It may be appropriate to consider that,at the least, raw materials be granted duty free import where the materialis a component of production for export. Also, if it is necessary to im-port a product as a component of a manufacturing process utilizina a sub-stantial quantity of locally produced raw materials, import duty reliefmight be desirable.

61. Export Duty Relief. "Manufactured goods destinated for exportmay be exempted from export duties and transaction taxes on exports fora reasonable Deriod of time if such exemption is found necessary to assurethe competitive position of those goods on export market." 2/ It may bedesirable, if an industry is found to constitute a source of foreign ex-change, to exempt its products nol: for a limited period but on a continuingbasis. Moreover, for the same reason export industries should be entitledto benefit from a relatively better set of incentives than domestic marketoriented industries (for instance in the form of a reduction of their pay-able income tax).

62. Remittance of Foreign Exchange. The National Bank of Ethiopiais authorized to make available foreign exchange necessary to assure:

1/ Including transaction tax and municipality tax.

2/ Investment Proclamation of 1966.

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(1) the remittance of profits of foreign investors to theircountries of origin;

(2) the repatriation of the net proceeds belonging to a for-eign investor upon partial or total sale of liquidation ofhis investment;

(3) the payment of interest and the repayment of foreignloans contracted by enterprises;

(4) the remittance of Savings of foreign personnel employedin enterprises to their countries of origin;

(5) the purchase of replacement and spare parts and othermaterials and goods required in connection wit:h operations.

63. Certain conditions must be met before the foreign exchange canbe secured. 1/ However, there has not been a case when a foreign exchangerequirement of an investor could not be met.

64. Acquisition of Land. "Foreign investors establishing industrialenterprises in Ethiopia shall be allowed to acquire lancl required for theestablishment there of." The question of land ownership, particularly bynon-Ethiopians, is extremely complex. In most cases an Imperial Order isrequired for such ownership. The Proclamation should set up a mechanismby which there would be no need to obtain such an Order.

65. The Investment Proclamation has established an Investment Commit-tee which studies and determines measures to be taken with respect to facil-ities, tax exemptions and other benefits to be accorded to investors. TheCommittee is composed of the Ministers of Industry, Finance, Agriculture,the Head of the Planning Commission and the Governor of the National Bankof Ethiopia. The Chairman is the Minister of Industry (the majority ofrequests are from industry). Past experience indicates that the Committeehas been meeting on the average twice per month. The Committee is au-thorized to have a permanent staff, which is located in the Ministry ofIndustry. This staff numbers only two.

66. As regards investment assistance, there is no government agencyin Ethiopia whcose purpose is to assist the investor in finding his waythrough the bureaucratic channels or to act as his advocate in presentinghis case to the government. The foreign investor is left pretty much onhis own to determine what opportunities exist, what incentives are avail-able, and what procedural rules he must follow. There is no true invest-ment promotion organization that supplies basic information to potentialinvestors or publicizes Ethiopian investment opportunities and incentives.Efforts may be made to better organize assistance to investors (see Chap-ters 4 and 6).

1/ Authorization has to be obtained from the National Bank of Ethiopia.

- 26 -

Proposed New Investment Code

67. The Third Five-Year Plan 1/ stated that "the level of inducements

for investment, and the criteria for granting the inducements, will be

reviewed and made known within Ethiopia and abroad, in the form of a re-

vised Investment Law." A draft Investment Code has been prepared and is

now being studied by the various administrations and other interested

parties. 2/

68. The Draft Investment Code makes a distinction between (1) "Devel-

opmental Enterprises', (2) "Preferred Enterprises" and (3) "Major Invest-

ment of Outstanding National Importance."

69. Developmental Enterprises are enterprises engaged in agricul-

ture, animal husbandry, fishing, manufacturing 3/, tourism and mining 4/.A list of Preferred Enterprlses will be included in a "Schedule of Pre-

ferred Development Enterprises", the establishment of which is considered

to be of "particular importance to national economic development". A

suggested amendment to the Draft Investment Code notes that the impact

upon national economic development may include the effects on (2) national

economic productivity (i.e. net value added to the gross domestic product);

(b) the balance of payments; (c) the prospects for employment of Ethiopian

personnel particularly in technical, executive and supervisory positions,

and (d) public revenues. 'Major investments of outstanding national im-

portance" are those with a capital investment of Eth.$ 10 million or more

and which are likely to be of outstanding economic importance.

70. Income Tax Relief. For each of these three above categories,

the Draft Investment Code provides different sets of incentives.

71. (a) Developmental enterprises which "incur expenditure on eligi-

ble capital investment shall be entitled to claim in respect thereof a

deduction for tax purposes called "Initial Allowance" equal to 50% of such

expenditure (Article 15). Initial allowance shall be deducted for tax

purposes from the net available gross income of the enterprise for the

fiscal year in which the expenditure on the eligible capital investmentwas incurred, provided however that if the amount of the allowance exceeds

such net available gross income any undeducted balance shall be carried

forward to and deducted from net available gross income in the next and

any subsequent fiscal year until it has been fully deducted. In the event

1/ Chapter XI, Manufacturing Industry.

2/ Draft Investment Code - Latest Revision dated February 1, 1970.

3/ "The manufacture from local or imported products of any industrial

product."

4/ It is not certain whether transportation has been included or not.

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that a developmental enterprise entitled to Initial Allowance is also con-

currently entitled to a Tax Holiday (see below), the deduction of the Ini-

tial Allowance may be deferred until after the conclusion of such tax holi-

day period.

72. When deductible costs have exceeded a company's gross income in

any given year, a "tax loss" is assumed to have occurred and may be carried

forward and deducted for tax purposes from net available gross income until

it has been fully deducted. However, a limit of six years after that inwhich it was originally incurred is set for carry over of a loss. 'rhe

tax loss shall always be deducted before any Initial Allowance to which

the enterprise may be entitled in the same year.

73. Finally, every Developmental Enterprise shall be entitled to deduct

for tax purposes expenditures occurred in respect of training programs,

research and investigations.

74. (b) Preferred Enterprises. A "Schedule of Preferred Development

Enterprises" will include a Part A which will consist: of a general descrip-

tion of products and seri:Lces for which it is considered desirable to offer

special incentives to private enterprise, and a Part B which will list the

names and products of each enterprise for which a "Certificate of Status

as a Preferred Enterprise" has been issued.

75. A Preferred Enterprise should be substantially a new enterpriseand would have to make a net contribution to the national economy commen-

surate with the capital investment and cost involved.. It will receivethe benefit of either a "Hligher Rate of Initial Allowance' or a "Tax Holi-

day" 1/. The 'higher rate" will be equal to 100% of the eligible capitalinvestment (50% for development enterprises) and be confined to eligiblecapital investment made prior to and during the fiscal year in which theenterprise first comes into regular commercial production and for fiveconsecutive fiscal years thereafter. Thie tax holiday will take the form

of an exemption from any liability to income tax during the fiscal year

in which the enterprise first comes into regular commercial productionand for five consecutive years. In addition, in exceptional cases, a

"Selective Investment Allowance" may be granted and take the form of adeduction from net available income of a sum equal to a maximum of 30% ofthe capital expenditure. The deduction will be made in respect of the

fiscal year in which the expenditure occurred but any balance undeductedmay be carried forward until the whole has been deducted. 2/

1/ Such enterprise is free to choose one of the two incentives. If noelection is made, the tax authority shall deem the enterprise tohave elected in favor of the Tax Uoliday.

2/ The Investment Allowance will be deducted first and the Initial

Allowarnce deferred Lutil the Investment Allowance has been deducted.

28

76. (c) Developmental Enterprises with a Capital Investment ofEth.$ 10 million or More. A special agreement may provide these enter-prises, in addition to other incentives, for the remission of any otherliabilities to taxes, beyond the tax holiday period. However, a condi-tion is that the Government always receives not less than 51% of the netprofits 1/ of the enterprise.

77. Import Duty Relief. A waiver of indirect taxes will be grantedif an enterprise can prove that its activities are impeded or renderedunduly costly by indirect taxes on capital goods.

78. Any developmental enterprise which considers that its currentor proposed production is threatened by foreign imports at rates of dutywhich provide an insufficient margin of protection may ask for the im-position of a new or higher rate of "protective duty". A ProtectiveDuties Committee will be set up which, inter alia, will determine whetherthe applicant is or not likely to become or remain economically and tech-nically efficient. The Minister of Finance may impose a protective dutyfor a period not exceeding seve_years (but this period may be extendedfrom time to time). 2/

79. Incentives to Exports. "An Export rebate 3/ shall be grantedin any fiscal year in the same percentage ratio to the income tax whichwould otherwise be payable by the enterprise in the year, as the exportsof the enterprise bear to its total sales in the same fiscal year" (Arti-cle 27). However, a minimum of 5% of sales has to be exported to benefitfrom that incentive. The rebate shall apply for 10 years but may be ex-tended for a further period not exceeding 10 years.

80. If it can be proved that the promotion of exports of any devel-opmental enterprise is impeded by the incidence of indirect taxes 4/ fall-ing on goods used up or incorporated in exported goods, such indirecttaxes may be waived or refunded in respect of exports.

Development Area Rebate

81. A rebate equal to 25% of the income tax payable by a develop-mental enterprise may be granted to it if it is located wholly and exclu-sively within one or more Development Areas and is wholly engaged in types

1/ Gross income less deductible costs, tax losses carried forward andcapital allowance.

2/ For anti-dumping measures, see Chapter 2.

3/ See Chapter 2.

4/ Including (a) import duties paid directly by the producer-exporteron imports of goods used by or incorporated in the production of thegoods exported and (b) any indirect taxes other than import duty.

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of production which will be specified later. The Development Areas havealso still to be defined. In no circuntstances shall the total amount ofthe export and the Development Area rebates exceed in one fiscal year 40%of the income tax otherwise payable. The Development Area rebate willapply for 10 years from the date of the notice establishing the Develop-ment area concerned.

Foreign Investment Capital

82. The National Bank may authorize the bringing into Ethiopia ofinvestment capital and also the remission to the country of origin of suchcapital, any shaire in the distributable net profits of the eniterprise orany debt service obligations, due and payable in respect of suci capital.Remittance of part of salaries; earned by foreign employees is also allowed.No foreign investment capital shall be subject to expropriation except inaccordance with the provisionis of a special law and upon payment of justcompensation.

Land Ownershlp by Foreign Ente! pise

83. If an application for ownership made by an enterprise is approvedby the Board of Investment, a "Property Certificate" will be issued and willserve as evidence to any Ministry or Agency of the right of the enterprisetc acquire title.

84. For the implementation of the new Investment Code and its provi-sions, a single authority, to which entrepreneurs and investors can resortfor advice, assistance and support, will be established; a "National Invest-ment Board" which shall be an autonomous agency of the Govenmment. Thepermanent members of the Board wll consist of the Ministers of Industry,Finance, and Agriculture, the Chief Planning Commissioner, and the Governorof the National Bank of Ethiopia. The Minister of Industry shall be theChairman and the Minister of Finance the Deputy Cliairman. The Board shallestablish a Secretariat. In order to ensure effective consultation withand collaboration by private enterprise in the attainment of the objectivesof the Code, a "Consultative Coz,iaittee for Private Investnent and Develop-ment" will be established. 1/ The National Investment Board will have verylarge powers. However, it will also work closely with the Minister ofFinance (represented anyway in the Board), the National Bank and the Coun-cil of Ministers. For instance, the latter will have to approve incentivessuch as "Special Agreements" for investments of more than Eth.$ 10 million.As regards the waiver of indirect taxes in relation to developmental enter-prises, the Board may only make recommendations to the Minister of Financeand sometimes also to the Council of Ministers. As concerns foreign in-vestment capital, the National Bank of Ethiopia will continue to play a

1/ It will include representatives of the Board, other Ministries,LDepartmnerts, financial organizations, Chambers of Comnerce, bankinginstitutions and developrental enterprises.

central role in granting permissions. There is no doubt, however, thatthe new Investment Code would give the National Board much more weightand influence than the existing Investment Committee, and also that theproposed new set of incentives is more coherent and attractive than theexisting regulations, thus meeting a number of the critical comments andsuggestions made in Section 1 of this Chapter.

85. The proposed new Investment Code has been inspired by thedesire of the Ethiopian authorities to offer potential investors a ration-al legislation. Tnere is a need to ensure that the actual intent andpolicy of the Government is accurately and clearly stated and that allrelated legislation is consistent with it. The new Investment Code goesa long way in achieving that aim. The spirit of change which inspiresthe proposed legislation must be stressed and it is to be hoped that thedraft Code will be approved in the near future. However, while all theabove described incentives have merits, care must be exercised to ensurethat they are effectively implemented. Great flexibility in the actualadministration and actual use of the incentive system will be required.The most generous Investment Code could prove a failure if there is nostrong directive and control in the process of investment implementation.The National Investment Board with a strong supporting Secretariat couldfulfill this role.

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IV. INDUSTRIAL FINANCE

87. There are at present four main institutions providing financialassistance to industry: the Development Bank of Ethiopia (DBE), theEthiopian Investment Corporation (EIC), the National Resources DevelopmentCorporation SC (NRDC). In addition, the Commercial Batnk of Ethiopia (DBE)also participates in the financing of industrial activities.

88. The Development Bank of Ethiopia (DBE) is a chartered institutionfully owned by the Ethiopian Government. It was created in 1951. The sub-scribed capital of the Bankc is Eth.$ 13 million, out of which Eth.$ 11 mil-lion is paid - in, all of which is owned directly or indirectly by the Ethio-pian Government. Since its inception, DBE has granted 358 indusrial loansamounting to Eth.$ 25.4 million. 1/ Of this total 167 loans amounting toEth.$ 13.9 million were for the setting up of new enterprises and 191 loansamounting to Eth.$ 11.5 million were for the expansion of existing enter-prises. The major sectors of lending have been textiles and vegetable oilmilling. Most loans are below Eth.$ 50,000 (283 loans of a total value ofEth.$ 4.1 million), 38 loans from Eth.$ 50,000 to Eth.$ 250,000 have beengranted for a total amount of Eth.$ 4.7 million and 37 loans of more thanEth.$ 250,000 have been made amounting to Eth.$ 16.6 million. Total dis-bursements on industrial loans amounted to Eth.$ 0.7 million in 1964 andEth.$ 2.5 million in 1969, averaging Eth.$ 1.6 million during the period1964 to 1969. The Bank grants loans for periods extending to up to tenyears. Loans for periods of one to five years account for about 73% of in-dustrial loans. The balance is for loans for periods of six to ten years.Industrial loans bear an interest rate of 8.5%. The geographical distribu-tion of projects financed by DBE indicates that uneven regional developmentof the country. Nearly 60% of the industrial projects financed by the Bank,whLch account for about 50% of the total value of industrial loans, were lo-cated in or around Addis Ababa. DBE has also made some equity investments.The largest are in HVA Metahara (sugar) and in Sabean Metal Products Co.Thiey amounted to Eth.$ 1.39 million by December 31, 1969. 2/

89. In 1969, DBE net profit amounted to Eth.$ 166,000. Total provisionfor doubtful debts stood at Eth.$ 3.1 million on January 1, 1969.

90. The Ethiopian Investment Corporation (EIC), established in 1963,was designed to supplement the tasks of DBE. Specifically EIC objectivesinclude investing funds in "profitable development projects by way of equityparticipation and medium and long term loans." 3/ To accomplish this, EICis empowered to raise funds by such means as the sale of equity holdings andthe acceptance of deposits.

1/ See Table 15.

2/ See Table 16.

3/ EIC, Report of the Directors, 1966-67, p. 21.

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91. Out of the authorized capital of Eth.$ 35 million, Eth.$ 25.9 mil-lion is fully paid. The Ministry of Finance is the major shareholder, hold-ing more than 99% of the shares. In addition to this capital, EIC receives

funds locally available by way of deposits and also uses funds temporarilyleft with it by new companies in anticipation of the time when capital ex-

penditure is to be made. Further, EIC arranges for lines of credit and sup-pliers' credit. It has signed an agreement with US AID for a Eth.$ 20 mil-lion line of credit. In addition, EIC is used as a channel for the utilisa-tion of funds set aside in the budget for investment in directly productiveactivities.

92. During the period 1963/64-1968/69, the total amount of industrialloans and credits disbursed by EIC amounted to Eth.$ 23.8 million. The most

important sectors have been leather, metals, glass and cement. 1/ Equityholdings were valued at Eth.$ 15.2 million on July 1, 1969, the bulk beingin textiles, rubber shoes, sugar and cement. 2/

93. The profit and loss statement for 1968/69 shows a net profit ofEth.$ 354,651. The provision made for doubtful debts exceeds Eth.$ 4 mil-lion and Eth.$ 0.4 million was transferred from general reserve to this

provision in 1968/69 to cover an anticipated loss on a loan made to theNational Meat Corporation.

94. The National Resources Development Corporation, SC (NRDC) wasformed in 1966 to take over and administer the property previously owned by

the former Ministry of State Domain. The initial capital was Eth.$ 4 mil-lion but has since been increased to Eth.$ 21 million. NRDC is a whollyowned company of the Ministry of Finance. Its functions are broadly to de-

velop and utilize state property. It is authorized to operate in agricul-ture, hotels, real estate and manufacturing. In the latter field, it hasonly taken over from the Ministry of State Domains a mineral water factory.

It is understood that NRDC is contemplating an investment in Ethiopian Meat

Extract SC.

95. The Commercial Bank of Ethiopia (CBE) was formed in 1964 with acapital of Eth.$ 20 million, wholly owned by the Government. Loans and ad-vances to industry amounted to Eth.$ 32.3 million in 1966, Eth.$ 38.8 mil-lion in 1967 and Eth.$ 42.1 million in 1968. About half has been grantedto the textile industry. In addition to the usual commercial banking ac-tivities, CBE participates in equity investments. Thus, despite the exis-tence of DBE and EIC, the volume of CBE's advances to industry have greatly

exceeded those of the two specialized institutions.

1/ See Table 17.

2/ See Table 18.

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916. The Government is a very substantial investor in, and owner of,various enterprises throughout the economy. At the end of 1969, as isshown in Table 19, the Government, directly or indirectly, was an equityinvestor in forty-four enterprises with a total equity stake of Eth.$ 281million, 73% of the total paid up share capital of these enterprises. In27 out of the 44 enterprises (61%), Government, through its direct or in-direct holdings, holds a majority of the shares, and hence, if it wishes,hbas a controlling interest. In addition to the enterprises shown in Table19, Government had Eth.$ 91 million of shares in four financial and semifinancial intermediaries (CBE, DBE, EIC and NRDC). The details are shownin Table 20 and they are shown separately from those in Table 19 s0 as toavoid double counting of the money invested by the financial intermediariesin the equity capital of other companies.

97. Tke Financial Intermediaries Review Committee, set up to re-view this area, issued a draft report recently. The report states that"In spite of the number and importance of these Government investments, thepresent institutional arrangements do not ensure that Government's scarcefunds are allocated or used to best advantage. Operational efficiency isnot as high as it should be, and Government is not getting good value forthe money it has invested. The roles which the various organizations shouldbe playing are unclear."

98. "The existence of several financial intermediaries operating in asector has militated against concentrating within one institution the expertspecialized staff necessary for the proper evaluation and subsequent supervi-sion of projects. Frequently the Government holding in a single project issplit between the Ministry of Finance and one or more of the financial inter-mediaries, and where this happens the Ministry of Finance, which is notg,eared to follow up this kind of investment, usually has the majority of theGovernment shares. In some cases, the holdings of the financial intermed-iaries have been taken up by them on the instructions of the Government, andwithout the management of the financial intermediaries being given the oppor-tunity to comment on, or to modify, the projects in which they are to becomeinivestor. Under these conditions many projects have not been well evaluated,and do not receive the subsequent close attention from their shareholdersthat they require."

99. The shortage of investible local funds has led to an imbalance be-tween the overhead costs of the financial intermediaries (particularly theD]iE) and the volume of new investments which they have been able to finance.But more especially the overall shortage has led to uncertainty about theavailability to the financial intermediaries of fresh investible local re-sources. On a number of occasions budgeted Government contributions havenot been paid to the intermediaries, while, on others, the contributionshave been earmarked by Government for other purposes than those which theintermediaries would themselves have recommended. Uncertainty has dislo-cated forward planning and forward commitment by the financial intermedia-ries."

100. "The DBE has never been encouraged to raise new money from localnon-government sources and has not been strong enough to attract such funds.Much of EIC's resources are in the form of shares transferred from Govern-ment's own portfolio. These shares give a certain appearance of strengthto the balance sheet without generating commensurate income for investment.Neither of these institutions, alone, are yet strong enough to mobilize newresources on the scale required for the Third Five Year Plan."

101. Fully aware of these defects, thy Government appointed in April1969 a Financial Intermediaries Reorganization Commission (FIRC). 1/ TheChairman was the Head of the Planning Commission and four members were re-presentatives of the Ministries of Industry, Agriculture and Finance andof the Commercial Bank of Ethiopia. The Council of Ministers directed inSeptember 1969 that there should be an amalgamation of DBE and EIC ratherthan a delimitation of their respective functions. In February 1970, theFIRC submitted its report to Government, having ascertained from the maincreditors concerned (AID, KFW and the Bank) that the proposals in the re-port were broadly acceptable.

102. The FIRC report recommends that DBE and EIC be reorganized intoa new corporation called the Ethiopian Development Corporation (EDC). Theprincipal functions of the EDC shall be investment in the agricultural andindustrial sectors and the raising of funds for these investments. Theshares in EDC should be held by the Ministry of Finance and the NationalBank.

103. The FIRC report also recommends the creation of a second new cor-poration, called the Ethiopian Tourism and Hotels Investment Corporation(ETHIC). The NRDC should in the future restrict its activities to financingthe development of the real estate and of the mineral waters which it hasinherited from the Ministry of State Domain. If the NRDC invests in theMeat Extraction S.C. these shares should be transferred to the EDC.

104. The future Government investment in projects of a commercial na-ture should be undertaken by the EDC, ETHIC and NRDC and not directly byGovernment ministries. In order to implement this policy certain sharesnow held by the Ministry of Finance would be transferred to EDC or ETHIC.The FIRC report recommends that the Government should adopt and publicizea statement of policy in respect of future investments of public funds.As stated in the FIRC report "the main features of this policy are:"

(1) "The Government will continute to invest in suitable enter-prises where such investments are considered to be neces-sary and in accordance with the objectives of successiveeconomic development plans."

1/ The Third Five Year Plan had also expressed the intention to appointsuch a Commission to advise the Government.

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(2) "The Government will channel direct investments in projectsfalling within the proper spheres of the EDC, the ETHIC andthe NRDC through these intermediary financial institutions."

(3) "Where the Government negotiates on behalf of, or makes com-mitments for financing through these financial institutions,it will do so aLt the specific request of their Boards. Wherethe Government wishes to direct any of the financial interme-diaries to invest in any project, it will first make arrange-ments, satisfactory to the Board of the financial intermediaryconcerned, to provide the intermediary with special fundsand/or to guarantee it against any losses which may be in-curred by investment in that project."

(4) "rhe Government intends that each financial intermediary shallspecialize in a particular sector and, in normal circumstances,only one intermediary will invest in any one sector."

1L05. It is anticipated that approval of the measures recommended bythe FIRC report can be obtained, and legislation passed, in time for therecommendations to come into effect before the end of 1970.

1]06. The internal organization of EDC will be studied by the newbanagement to be appointed. It would seem, however, that EDC will be inneed of a strong technical and economic unit for project promotion, identi-fication, evaluation, and implementation (see Chapter VI).

107. One important problem is the future size of the EDC's future oper-ations. "Orer the last five years, the average annual value of industrialinvestment by the DBE and EIC combined has been Eth.$ 7.3 million with amaximum and minimum" of Eth.$ 13.7 uaillion and Eth.$ 4.3 million respective-ly. 1/ In addition the Ministry of Finance has invested in industrial proj-ects which normally it will no longer do in the future (except for the cur-rently built tannery and tyres projects and the expansion of the Assab OilRefinery). "Average annual investment by the financLal intermediaries inindustry during the course of the Third Five Year Plan was projected atEth.$ 20 million." 1/ In addition the Plan assumed investment in the agri-c:ultural sector by the financial intermediaries of Eth.$ 14 million per an-num and Eth.$ 2 million for the mining and handicraft sectors. The totalin all four sectors assumed by the Plan is therefore Eth.$ 36 million peryear on an average.

108. The FIRC report, assuming that the supply of justifiable projectswill not be the limiting factor, has made two sets of projections on alter-native hypotheses of the flows of funds and hence possible levels of futureinvestment in the next five years by the EDC. "The crucial difference be-tween the two sets of projections is in the size of the annual subvention

1/ FIRC report.

16 -

from Government. In one alternative (A) an annual subvention of Eth.$ 6.1million in cash has been assumed, in the other (B) the same level of aver-age annual free cash subvention that has been made to DBE and EIC togetherover the last three years. (Eth.$ 2.05 million is assumed.) 'Past sub-ventions in the form of shares were excluded, because they do nothing toraise the level of new investments or of possible borrowing from abroad." 1/

109. "According to the projections, alternative A would lead to anaverage annual new investment by EDC over the period 1968/69-1972/73 ofEth.$ 22.2 million reaching Eth.$ 29.7 million in 1972/73." "By alternativeB, average annual investment by EDC would amount to Eth.$ 16 million in thePlan period reaching an annual total of Eth.$ 17.5 million in 1972/73.'"Alternative B Therefore falls far short of the Plan proposals." 1/

110. The FIRC report does not give a breakdown of projected investmentbetween industry and agriculture. However, in the last four years, indus-trial investment has represented 51% of total financing provided by EIC andDBE. Assuming that this proportion remains relatively constant in futureyears, the EDC would invest the following amounts in industry:

USES OF FUNDS FROM DBE/EIC AND EDC /1

(Eth.$ million)

Actuals for DBE and EIC combined Forecast1966/67 1967/68 1968/69 1979/70 1970/71 1971/72 1972/73

(est.)

TOTAL 14.9 7.3 19.5 15.3 24.7 24.7 29.7to to to

27.3 14.5 17.5

of which:INDUSTRY annual average of 7.3 12.6 12.6 15.1

to to to13.9 7.6 8.8

/1 Source: FIRC Report.

111. According to the FIRC projections, and assuming that industrialinvestment represents about half of total investment by EDC, funds channeledto industry would average Eth.$ 8.9 million during the Plan period in alter-native B and Eth.$ 11 million in alternative A. 2/ In both cases this would

1/ Source: FIRC Report.

2/ The annual average would be from Eth.$ 9.9 million to Eth.$ 13.4 mil-lion for the three years 1970/71 to 1972/73, i.e. an average of Eth.$11.7 million.

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be clearly below the Plan forecast of Eth.$ 20 million per annum. Whetherenough resources can be found to meet alternative A requirements would de-pend, as indicated above, on the amount of cash contribution from Governmentto EDC. The FIRC report supports strongly alternative A and recommends suchflow of funds to EDC. The report suggests that one such method might be toarrange that 40% of the National Bank's annual profit now credited to the ac-count of the Ministry of Finance be transferred automatically to EDC eachyear to give to EDC resources necessary under alternative A. It is estimatedthat this arrangement would provide about Eth.$ 6 million per year. Such atransfer would terminate when EDC becomes financially self supporting as re-gards local resources.

112. It can be seen from the above that funds channeled to industry byDBE/EIC and the future EDC would total from Eth.$ 44.5 million to Eth.$ 55million during the Third Five Year Plan period (1969/1973). These amountswould represent from 9.5% to 11.7% of the total industrial investment nowestimated by the Mission to reach Eth.$ 470 million during the Plan period(see Chapter V).

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V. PROSPECTS FOR INDUSTRIAL OUTPUT AND INVESTMENT

113. The increase in industrial production during the Second Plan(1963-1967) was substantial, attaining approximately 16% per year, but

was lower than the planned target of 27%. During the period 1961-1969,industrial production grew also by about 16% per year. The Third FiveYear Plan forecasts a doubling of the gorss value of production from

Eth.$ 350 million in 1968 to Eth.$ 700 million in 1973, i.e. a growthrate of 15.2% per aninum.

114. On the basis of provisional estimates available the gross valueof output has increased by 8.4% inl 1969, i.e. substantially below the pro-

posed Plan growth rate. This represents a slow down compared to increasesregistered in recent years. The gross value of output amounted to Eth.-$400 million in 1968 1/ and to Eth.$ 434 million in 1969. The Mission es-

timates that it could reach Eth.$ 640 million by 1973. 2/ Such an increase

would correspond to an average annuaL growth rate of 1OZ from 1968 to 1973,i.e., below the growth rate projected by the Plan. The shortfall would bedue to a lower volume of output projected for such important industrial pro-

ducts as sugar, cotton yarn sold by the mills, canned and frozen meat,edible oil, paper, tyres, galvanized iron sheets and assembly of trucks.It is expected that production of upper and lining leather, cement and oil

products will be somewhat higher than estimated by the Plan. Cotton tex-tiles may also be produced in somewhat larger quantities than assumed in

the Plan, as new capacity has been installed and since there is still roomfor some import substitution. The growth of output now anticipated for theearly seventies will be to cater for the expansion of the present internal

market (textiles, beverages, petroleum products, cement, etc.). However,domestic demand is small, the ralge of local raw materials is at presentlimited, transportation costs are high and power is costly in some areassuch as Eritrea. Therefore, there is a limit to the amount of import sub-stitution that can be implemented. The mission forecast does not take in-

to account for 1973 potential further increases in output which may be

achieved later by export oriented industries such as meat processing andcanning, spice extraction, tanned leather and vegetable oil and cake.Serious efforts would have to be made to supply these industries with raw

materials in appropriate volume and quality and to give them maximum sup-port in increasing their competitiveness and in finding export markets in

particular in the Middle East and in Europe.

115. As regards investment, an analysis of projects completed sincethe beginning of the Plan as well as of identified new projects and ex-pansion of existing industries reveals that their total investment cost

1/ On the basis of latest Ministry of Industry statistics, this total out-put is somewhat higher than Plan estimates which were based on provi-

sional data for 1968 of Eth.$ 350 million.

2/ See Table 21.

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amounts to about Eth.$ 210 million. This compares with a forecast of Eth.$2:36 million in the Third Five Year Plan. 1/ The missLon estimates (seeTable 22) show lower investment in the food, beverages, leather and metalgoods sector. However, this is partly compensated by a Eth.$ 12 million in-vestment for the expansion of the Assab Oil Refinery which had not been con-templated by the Plan. Other possible projects (including a Eth.$ 25 mil-lion soluble coffee plant and a Eth.$ 4 million solvent extraction plant)total Eth.$ 34 million, but other potential projects would probably be forth-coming, even assuming a very limited number of them. Finally, annual re-placement and minor balancing and modernization of existing plants, assumedat 10% of existing fixed assets, may amount from Eth.$ 40 to Eth.$ 50 mil-lion in 1973. Taken together, total possible investment may reach Eth.$ 470million during the Plan period as against Eth.$ 530 million assumed in thePlan.

INVESTMENT-EXPENDITURES

(1969-1973)

(Eth.$ million)

PLAN Mission Estimate

Identified projects 230 210Non-identified projects 100 60Replacement and minor

expansion 200 200

530 /1 470

/1 Source: Draft Plan for manufacturing industry, November 1967.

116. In 1969, investment in manufacturing may have been more thanEth.$ 100 million (see Chapter I). This relatively high level was due tothe achievement of large investments in the HVA/Metahara sugar plant, andin the paper plant. However, substantial expenditures are forthcoming incement, tyres, leather processing, in oil refining and a number of smallerplants are being installed. It should however, be pointed out that inseveral cases investment costs have been higher than anticipated withoutan exactly corresponding increase in possible output. As a result thecapital/output ratio for industry will be higher than previously thought.In fact, it is already high in some sectors where utilization of capacityis low due to lack of markets. During previous years, investment costshave been also relatively high when considering the increase in output.An analysis of industrial growth during the Second Five Year Plan showsthat "manufacturing industry as a whole required a larger than expectedcapital investment, relative to the increase in gross production; this

I/ Based on Draft Plan for manufacturing, November 1967.

- 40 -

was owed, among other causes, to the failure of markets to justify thecapacity installed or to capital costs being higher than planned or, inother cases, to the failure of management to attain production goals." 1/

117. The estimated gross fixed capital requirement of Eth. $470 millionwill be supplied by private sources, by the earnings on the Government's pre-vious investments in public and joint ventures companies and by the Govern-ment budget and by financial intermediaries. Table 23 shows Governmentcapital expenditures in manufacturing from 1963/64 to 1969, and projectionsup to 1973. Expenditures occur for direct investment in industrial projectsand for subscriptions and advances to EIC and DBE (and to the proposed Ethio-pian Development Corporation). They amounted to Eth.$ 106.2 million from1964 to 1969 or an average of Eth.$ 17.7 million per annum. In 1970, capitalexpenditures would amount to Eth.$ 15.6 million, and Eth.$ 14.7 million in 1971.In 1972 they may reach up to Eth.$ 14.7 million and Eth.$ 10.6 million in1973. Two major industrial projects are currently under construction (onetannery and tyre plant financed by government funds and loans from Czechos-lovakia). No firm decision has been reached yet as regards the total ex-penditure envisaged for the expansion of the Assab Oil Refinery from 630,000tons to 1 million tons but, on the basis of bids presented by an Italian com-pany, government expenditures would total Eth.$ 4.8 million in 1971 and1972. 2/ Budgetary allocations have been made in past years to EIC and DBE,but according to the report of the Financial Intermediaries ReorganizationCommission (FIRC), the creation of the new Ethiopian Development Corporation(EDC) with a source of income of its own may bring a reduction in directgovernment advances in the long run. However, an initial government ex-penditure of Eth.$ 5.3 million is still contemplated in the 1970/71 budgetfor DBE/EIC. Beyond 1971, the FIRC report envisages an annual level ofadvances to EDC from Eth.$ 2.1 milllon (alternative B) to Eth.$ 6.1 million(alternative A). Such transfers would terminate when EDC becomes finan-cially self supporting as regards local resources.

118. As regards financing provided by the Development Banks, loans andequity disbursements to industry averaged Eth.$ 7.3 million per annum from1964 to 1969. As indicated in Chapter IV, they may average Eth.$ 12 mil-lion per year up to 1973. Total disbursement would then amount to Eth.$ 62million from 1969 to 1973. 3/

1/ Source: Third Five Year Plan -- Chapter XI. Manufacturing Industry.

2/ See Table 23.

3/ See Table 24.

- 41 -

ESTIMATED SOURCES OF FINANCING FOR INDUSTRIAL INVESTMENT

(1969-1973)

(Eth.$ million)

Direct government financing /1 32.3

DBE/EIC and EDC 62.0

Private and other 375.7

TOTAL 470.0

/1 Excluding advances to DBE/EIC and EDC.

It can be seen from the above that the bulk of investment in manufacturingis to be financed from private sources, and also by the earnings on the Gov-erunent's previous investment in publicly owned plants and by joint ventures.

- 42 -

VI. ORGANISATION FOR INDUSTRIAL DEVELOPMENT AND SERVICES

Administration

119. Tasks related to industrial development are divided, sometimesalong rather unclear lines, among a large number of institutions. The maingroups involved are the Ministry of Industry, the Ministry of Community De-velopment, 1/ the Planning Commission, the Technical Agency, 2/ the Ministryof Agriculture, 3/ the Ministry of Education, 4/ the various financial insti-tutions such as DBE, EIC, NRDC and other autonomous bodies of which theBerhanenna Selam Printing Press and the Ethiopian Metal Tools Company aretwo examples. 5/ It can be seen from this enumeration that the responsibil-ities of the Ministry of Induistry are reduced since entire sections of theindustrial sector are placed more or 'Less outside its supervision by substi-tuting other bodies in this role. In other cases, such as ownership by theFinance Ministry, the Ministry of Industry. often has minimal influence onthe public sector enterprises because it is not always directly representedon the board of directors.

120. Subject to the limitations noted above the Ministry of Industryis charged with the tasks of fostering the development of industry in Ethio-pia, licensing and supervising the operations of business and trades, estab-lishment of general rules and regulations to govern the licensing of spe-cific businesses and trades, and to ensure compliance with these rules andregulations. In addition, the ministry is responsible for organizing exhi-bitions of trade, industry and handicrafts inside and outside of Ethiopiaand to "be principally responsible together with other ministries and PublicAuthorities concerned, for representing and protecting the interests of theGovernment in commercial and industrial enterprises in which the Governmenthas a financial interest."

1/ Including training activities in the field of handicrafts.

2/ This agency carries out the operational tasks involved in the buildingup of projects and also acts in preparing feasibility studies for spe-cific proposals and in the carrying out of other types of economicstudies and surveys.

3/ Dealing with rural cottage industries or handicrafts.

4/ Several technical and vocational institutes.

5/ One can also cite Bahar Dar Textile Mills Co., Ethiopian Cement Cor-poration, Eritrean Cement Company, Ethiopian Drug Manufacturing Co.,Oil Seeds Development & Co., Rubber and Canvas Shoes Co., EthiopianPetroleum Share Co., etc.

- 43 -

121. Under the Minister of Industry, Commerce and Tourism, the ViceMinister for Industry is responsible for three sectors: (1) ManufacturingIndustry, (2) Small-Scale Industry and (3) Industrial Licensing. In addi-tion, he is Chairman of the Permanent Investment Committee which is com-posed of the Ministries of Agriculture, Industry and Finance, the Governorof the National Bank of Ethiopia, and the Head of the Planning Commission.The Secretariat of this Committee is composed of two administrative person-nel and professional assistance is provided by the staff of the IndustryDepartment of the Ministry.

122. At present, the Industry Department has only 4 senior officers(including one Yugoslav expert) 1/ who virtually attend to all the numerousactivities of the department at both the policy making and operational lev-els. The activities include compilation of industrial statistics, provisionof technical advice, checking compliance with health and safety regulations,handling applications for licenses and for incentives under the InvestmentLaw, investigations and recommendations in connection with tariff protection,investigations and evaluation of projects for government investment and for-mulation of industrial policy. In addition, some attention is recently beingpaid to the problems of underutilization of capacity. This is not only awide range of activities for the existing limited personnel of the departmentto handle efficiently, but they also constitute a mixture of the development-al and regulatory functions which have to be clearly demarcated for satisfac-tory execution. The Ministry is an active client of the Technical Agency andto that extent supplements its own limited stock of professional skills,which to a considerable degree and of necessity, get diverted to essentialadministrative tasks. Nonetheless the relationship between the two set-upsdoes not appear to be characterized by mutual feedback. Understaffing at theprofessional level and lack of specialization have meant that several impor-tant tasks (promotion of industrial possibilities; information about Ethio-pia's actual output, diffusion of information on industry in or out of Ethio-pia) have not been performed at all or rather inadequately. The absence of aplanning unit in the Ministry has had the result of rendering the contact withthe Planning Commission a discontinuous and limited operation. Even in early1970, the industrial programme of the Plan had not been broken down into de-tailed component sub-sector programmes, let alone preparation of specific pro-jects. There is no detailed formulation available of the extent to which theproposed industrial output targets can be related to new projects, extensionto existing enterprises, extra shifts, or more extensive working of existingshifts. No implementation programme exists which corresponds to the targetsof the Plan. Indeed the whole relationship between the Industry Department,the Technical Agency of the Planning Commission needs administrative re-structuring once the reorganization of the financial intermediaries takesc:Lear shape (see Chapter 4).

1/ Total professional staff numbers 8.

- 44 -

Plan Objectives in the Field of Administration and Industrial Services

123. The Plan envisages a number of actions to improve the present ad-ministration set-up and to encourage industrial development. Hlowever, onlya part of the measures have been undertaken.

(a) strengthening of the Ministry -- it has been possible to hireonly one professional who will help in the establishment of aDesign Development Center to help artisans. Budgeting re-straints prevent further increases in staff.

(b) expansion of the Ministry's representation in the provinces --there are 11 Branch offices (Asmara, Nazareth, Jimma, DebreMarkos, etc.). One or two branches have been recently openedbut these offices seem to have relatively little coordinationwith the Ministry.

(c) gradual build-up of commercial representation in key foreigncountries -- there is only one professional located in Geneva(also following UNCTAD mattetrs).

(d) establishment of a Center for Ethiopian Management and Indus-trial Services by combining the present Center for EthiopianManagement and the proposed Center for Industrial Services --this project is unlikely to come through. The Center for En-trepreneurship and Management has been established independent-ly with the assistance of UNDP. It is an autonomous agency.It is too early to evaluate the effectiveness of the Center'swork in relation to the objectives for which it was set up(training for entrepreneurs in the small scale sector, advisoryservices in management and management training for managerialstaff in large enterprises). One may however mention that theCenter's declared objective of reaching out to the "potential"entrepreneur has not become an operational reality, as of early1970. In fact, since it will take time for the Center to becomewell established, one may wonder about the usefulness of crea-ting a "Center for Industrial Services", which purpose is notclear, and then to merge it with the Management Center.

(e) opening of an Investment Promotion Office -- this Office to becalled "Ethiopian Trade and Investment Center" is to be imple-mented with US financial and technical assistance supplementedby Ethiopian Services. 1/ The Center, to be set up in colla-boration with the Addis Ababa Chamber of Commerce, aims at in-vestment promotion and export expansion. The five year project

1/ The total cost of the project is US$1,825,000 of which US$1,145 is tobe provided by US AID.

- 45 -

(1969-1974) is expected to be finalized in the second halfof 1970. The main items will include: summary and train-ing courses, setting up of a modern international marketinglibrary, operation of a Commodity Trade Inquiry Service,preparation of an export promotion programme and developmentof appropriate company export programmes with selected localcompanies and selection and financing of trainees in theUnited States. Such a Center may prove helpful in promotingnew local and foreign investment, particularly until the newEDC promotional facilities have been established (see below).

(f) Institute of Standards and Quality Control -- One UNIDO ex-pert is expected to join the Standardization division of theMirListry of Industry in May 1970. Efforts made by a previousUNIDO expert had not been successful. However new legisla-tion on standards and quality control is now before Parlia-ment and when it is passed, budgetary funds may be availablein 1971 for setting up an Institute. The task of setting ap-propriate standards for Ethiopian Industry is of high prior-i ty.

(g) Organization of cluster-training centers for artisans andsetting up of production and demonstration centers -- Lackof financial resources and staff have prevented any action.

(h) Setting up of a inarketing organization for handicrafts andcottage industries -- no action taken for lack of budgetaryfunds.

(i) Establishment of an autonomous government agency to providedevelopment land for industrial use -- the cost of land incities such as Addis Ababa is relatively high. Private own-ers prefer renting land for housing. No public resourceshave been made available for the proposed agency to buy landfrom private owners and resell it or rent it to new indus-trial enterprises.

Reorganization of the Administrative Set Up for Industrial Development

124. Three major tasks have to be fulfilled:

(a) Industrial policy and regulatory functions.

(b) Industrial planning.

(c) Promotional activities and techno-economic studies.

125. It would seem that the first task should be performed by the Min-istry of Industry, the second by the same Ministry (in liaison with thePlanning Commission) and the third by the new Ethiopian Development Corpora-tion (in liaison with the Ethiopian Trade and Investment Center).

- 46 -

126. The Ministry of Industry would have two main Divisions. The first

would be an operative Division in charge of activities related to the de-

velopment of the factory enterprises (public as well as private), to the de-

velopment of the artisan sector and to the control, regulation and licensing

of industrial enterprises. Besides its normal administrative and regulatory

functions, the Division would be concerned with the formulation of industrial

pMo icy, developing broad guidelines for the industrial sector. This is infact the present set up of the Industry Department but, as already mentioned,

one major problem is understaffing and lack of qualified personnel. The tasks

which have to be carried out are numerous: maintaining of a current inventory

of industrial activity and of new enterprises and expansions, recommendations

for the grant of "preferred" status to enterprises for government investment,setting policies and criteria for providing loans to small scale industries,

etc. Increased emphasis should be placed on the work of the Artisan Industry

section. There is little hope that much can be done during the Third Plan

but the first task would be to gather minimum information in the handicraft

sector. The section should also strengthen the relationship with the Ministry

of National Community Development with the immediate objective of establishingco-operative societies of traditional artisans, in introducing modern techno-logies and marketing systems and to ensure that loans are available to quali-

fied cooperatives. To carry all these tasks, the Industry Department staff

could be perhaps doubled (from 8 to 16) particularly by increasing the number

of junior professionals, which could assist senior staff, now overburdened by

detailed administration tasks. Present staff in the large scale industry sec-

tion is only 4 and since it is obviously insufficient, 4 to 6 additional staffmembers may be provided.

127. The Second Division would be a brand new Division in charge of plan-

ning. Very little is really known about the Ethiopian manufacturing structure

(ownership, profitability, productivity, utilization, costs). Surveys are ur-

gently needed. Major tasks would also be to prepare sub-sectors plans within

the industry sector, to prepare annual plans within the framework of the Plan

targets and translate them into capital and current annual budgets and to pre-

pare annual reports for the Ministry and for the Planning Commission and other

appropriate Government Agencies. The staff could be composed of one senior

industrial economist and one statistician. 1/

1/ As indicated in Chapter 2, the question of setting up appropriate tariff

protection rates is of high priority to ensure sound industrial develop-

ment. Pending the setting up of a Tariff Committee with permanent staff,

one may visualize that the Planning Division includes additional person-

nel to study tariff rates structure and advise government on requests re-

ceived from industries for obtaining tariff protection. Such additional

staff may include one industrial economist expert in tariff matters and

one cost accountant.

- 47 -

128. It was mentionedl above that the third major task to assist in suc--cessful industrial development is the promotion of new industries and theevaluation of projects on the basis of techno-economic studies. Such acti-vities should be entrusted to the proposed new Ethiopian Development Corpor-ation (EDC). 1/ The internal organization of EDC will be studied by the NewManagement to be appointed. It should be said already however, that the newEDC should build up a strong technical and economic unit for project promo-tion, identification, evaluation, and implementation. 2/ Only the corpora-tion itself could undertake the whole exercise starting with the promotionof projects until their most efficient execution because it will realizethat it will be expected to finance these projects in the future. To avoidduplication with the techno-economic role of the Technical Agency, it wouldbes advisable to place with EDC the sections of the Agency now concerned withfeaasibility studies. As regards private industry projects, when EDC is tohave a major shareholding and in the case of so called government projects,EDC will need a small implementation unit (engineering works, test runs,etc.) to select the most economically and technically efficient processes.ED)C should also have some promotional service abroad to seek new investmentsand better marketing of industrial products. Small-scale industries could belooked after by a separate division of EDC, supported by the same technicalexpertise available for large- and medium-scale industries. To carry out itsnew activities, the management of the new FDC should be as strongly develop-ment-oriented as able to finance commercially sound projects.

1/ See Chapter 4.

2/ One important task of the EDC would be to carry out negotiations withthe Planning Commission, the Ministry of Industry, the Investment Com-mittee, and other agencies on viable and feasible projects up to thetime when the contract is signed for the implementation of projects.

Tabl.e 1: MANUFACTURING INDUSTRY - ETHIOPIA VALUE ADDED AT FACTOR COST

(in million ETH $)

Annual PercentageCurrent Prices At 1961 Prices Increase at 1961 Prices

1961 43.9 43.9 -

1962 55.6 50.7 15.5

1963 61.5 56.3 11.0

1964 76.1 68.3 21.3

1965 94.5 79.6 16.5

1966 108.2 92.6 16.3

1967 119.8 116.1 25.L

1968 1]9.h 132.1 (est.) 13.8

1969 169.9 1-6.5 (est.) 10.9

Source: Central Statistical Office

Table 2: GHOSS VALUE OF I'RODUCTION

In thousand Eth.$ Percentage Growth(constant prices)

1967 1968 1969 1968/67 1969/68

Food 111,096 116,516 122,h65 4.9 5.2

Beverages 1h0,715 40,952 45,108 0.5 10.1

Tobacco 5,905 6,766 7,027 14.6 11.3

Textiles 96,201 107,515 118,721 ii.8 10.4

Leather 22,455 23,4i8 25,155 4.3 7.4

Wood products 9,057 9,811 10,952 8.3 11.6

Paper 3,160 3,228 3,2h7 2.2 o.6

Printing 7,995 8,500 9,600 6.3 5.9

Chemicals 6,510 8,223 9,8h2 26.3 19.7

Oil refining 4,043 23,500 23,750 481.7 1.1

Non-metallic minerals 17,702 18,715 20,776 5.7 11.0

Metal products 28,712 33,100 37,542 15.3 11.3

Total 353,551 Lh00,244 434,185 13.2 8.

(excluding oil refining) 3h9,508 376,744 410,435 7.8 8.9

Source: Ministry of Industry

Table 3: PRODUCTION OF MAJOR MANUFACTURED ARTICLES

1968 19691965 1966 1967 (Estimate) (Estimate)

Food ITddustry (tons)Wheat Flour 40,358 142,030 58,952 60,000 62,000Sugar 61,898 68,861 76,868 66,200 66,200Meat frozen 6,543 8,000 2,920 3,000 3,200Meat canned 4,000 t 5,035 6,000 6,500Edible oil. 5,633 5,343 8,146 8,500 9,000Oil cakes n/a n/a 19,098 20,000 21,000Salt 205,310 220,150 202,035 235,000 300,000

BeveragesBeer hectoliters) 157,395 184,600 215,500 227,000 230,000Wine (hectoliters) 35,343 45,900 144,131 49,000 50,000

Tobacco ManufactureCigarettes (O000units) 4,409,910 5,278,490 5,879,710 6,740,000 7,600,000

TextilesCotton Yarn (tons) 5,620 7,459 9,221 10,000 11,000

Cotton Fabrics (000 sq. meters) 46,700 55,800 65,400 71,500 73,600Readimnade Clothes (pieces) -- 13,783 12,092 20,000 25,000

Gunny Bags (000 pieces) 3,800 14,207 4,852 5,000 5,500

Leather & Shoes IndustryUpper &- Lning Ieather (000 sq.mts.) 2,999 2,376 3,842 4,000 4,500

Leatler Shoes (pairs) 627,828 648,000 762,570 770,000 775,000

Canvas & Rubber Shoes (pairs) 8,896 521,043 938,789 950,000 960,000

Wood IndustrySawn Wood (cub. meter) 13,000 14,502 15,700 15,900 16,500Plywood ( It if ) 1,752 1,851 2,183 2,200 2,300Particle Board (cub. meter) -- 313 2,348 2,500 3,400

Chemical IndustryMathees (000 boxes) 17,000 16,800 22,752 22,800 22,500Soap (tons) 2,625 2,7614 4,102 4,600 5,500

Refined Oil Products (tons) 80,949 470,000 475,000

Nlon-Meta-dl Mlineral ProductsCement (tons) 72,o99 88,930 137,649 1140,000 150,000Cement Floor Tiles (sq. mtr.) 103,116 170,412 215,000 216,000 220,000Mosaics (sq. meters) 55,000 68,684 314,500 45,ooo 50.000Glass Ware (000 units) 7,168 7,500 10,200 11,000 12,000

Glass Bottles (000 units) 15,721 18,000 1'5,100 18,000 20,000

M4etal Products (tons)R.oind. Iron Bars n,:a 8,800 12,000 12,500 12,700

Corrugated Iron Sheets ni/a 5,567 l1i,259 15,000 17,000

direG n/a 2,573 2,600 2,700 2,800Iail n/a. 2,972 3,210 3,500 3,600

Source: Central Ftati tical Off ice .-; ' rr of Industry

Table 4: EMPLOYMENT IN MANUFACTURING

Plan1962 1965 1967 1973

Food Industry 10,200 16,189 22,170 33,600

Beverages 1,350 2,235 2,548 4,5oo

Tobacco Manufacturing 450 445 489 2,300

Textile Industry 10,100 14,854 19,271 29,500

Leather and shoe industry 960 1,859 2,100 8,000

Wood Industry 1,450 1,877 3,026 4,500

Building and non-metallic minerals 1,290 2,770 4,336 8,000

Printing and publishing 400 1,024 1,690 1,600

Chemicals, Petroleum - 1,414 2,227 8,000

Metal products - 778 1,028 7,500

Others 1,400 138 n.a. -

Total 27,600 43X583 58,885 107,500

Source: Ministry of Industry

Table 5: CLASSIFICATION OF ESTABLISHMENTS BY SIZE OF EMPLOYMENT

(1966/67)

Size of Number of Number of As percentEmployment Establishments Employees of total

' _ 49 248 5,211 8.9

5C - 99 63 4,528 7.7

100 - 2149 h 6,889 11.7

25C - 499 25 8,547 14.6

500 & over 15 33,519 57.1

Total 395 58,694 100.0

Source: Survey of Manufacturing - June 1969. Central Statistical Office

Tat)le 6: -NVESTM nT IN MAN'FACT1JiIN(;f INDUSTRY

EMli $ mil.ion

rotal Second Plan 1965 1966 1967(-1963-67)

Food 60.9 12.8 20.3 1h.8

Beverages 27.5 5.5 8.5 5.3

Tobacco 2.1 0.4 0.1 0.6

Textile 69.h 19.5 14.L 1h.2

Leather and shoes 6.4 1.2 0.6 0.6

Wood 2h.0 I.h 2.h 1.2

Non-metallic minerals 7.L 8.0 0.7 2.7

Printing 7.3 4.4 0.7 0.2

Chemical 60.3 12.5 2h.h 11.3

Metal and electrical. 10.6 1.9 2.7 1.5

TOTAL 275.9 67.6 7h.8 52.4

Source: Central Statistical Office and Ministry of Industry

Note: Data include additions under new or second-hand assets, valued atpurchase price. Besides purchase prices, they include customduties, other taxes, transfer fees, delivery and installationcosts. They include also value of work done by workers on theestablishment (inclusive of' materials used), on buildings, otherconstruction, manufacture or installation of machinery and equip-ment and capitalized alterations, improvements or rebuilding.

Table 7: INVESTMENT COST AND EMPLOYMENTIN SELECTED INDUSTRIAL PROJECTS

(1968-1969)

Investment, cost Employment(ETH $ thousands)

FoodhVA Metahatra Sugar plant. 56,300 2,800Ethiopian Spice extraction 1,600 LIPetratos oil mills (edible oil) 1,615 87Flour mill (Debre Zeit) 802 8bSopral Slaughterhouse (CambolchiA) 5L6 90

BeveraresBottling plant for mineral water 3,07L 120

TextilesBlanket factory 3,0)4 222Gunny bags factory (Akaki) 3,000 813Ethiori.qxn yarn, thread 3,000 IL8Papassinos gunny bags factory (Addis) 1,85) 509National Woolen Textile 1,590 138

Leather and shoesCrocodile skins tannery 477 I5

W4ood industrySoft and Hard board 1,600 165

Paper and p.aper productsEthiopian pulp and paper 23,000 300

Non-metallic mineral productsEthiopian cement. (Addis) m 125Addis Shekla Bricks 2,225 70Glass and Bottle Manufacturing 8,308 188

ChemicalsSoap factory (Addis) 1,229 12b

Source: Ministry of Industry

Table 8: PROFITABILITY OF SELECTED ETHIOPIAN INDUSTRIES

Equity and reserves Investment (Eth $ thousands) Savings

1967 1968 1969 1967 1968 1969 1967 1966 1969Net Profit Depreciation Net Profit Depreciation Net Profit Depreciation

1. Ethiopian Refinery n.a. L8,500 n.a. 46,671 1,L59 n.a. -3,816 1,768 -5,433 3,673 n.a. n.a.

2. Bahar Dar Textiles 10,691 11,063 n.a. 7 170 n.a. -120 571 -88 606 n.a. n.a.

3. Cotton Company of Ethiopia 14,604 16,375 18,0l16 2,314 200 993 2,719 995 14,270 1,216 L,172 1,258

4. Indo Ethiopian Textiles 13,934 14,961 15,130 530 615 2,617 2,549 869 1,937 799 ?.IU 803

5. Fiber Company of Ethiopia 1,593 2,1L6 n.a. 517 2,86? n.a. 922) 77 173 29 n.a. n.a.

6. Ethiopian Cement Corporation15,639 13,348 n.a. 705 -219 n.a. 2,079 760 1,2U0 3,794 r.a. r.a.

7 Eritrean Cement Company 14,582 4,582 n.a. 7 10 n.e. 69 7L5 155 167 n.a. n.a.

d. Tobacco Monopoly n.a. U,311 n.a. 595 Q42 n.e. 4,165 261 a,338 n.a. n.a. n.a.

9. Rubber and Canvas Shoes 4,212 4,212 4,212 20 300 66 247 200 70 203 90 208

10. Ethiopian Drug Mfg. n.a. 1,0L- n.a. 12 5 n.a. -233 42 -302 !13 n.a. n.a.

11, iNA Ethiopia 67,357 66,075 68,728 1,526 1,775 948 1C,031 1,765 5,254 1,796 %,653 1,832

12. Ethiopian Chipwood 1,558 1,553 1,746 91 72 52 1C 78 32 92

1149 136

13. Match Company n.a. r.a. 1,227 n.a. n.a. 185 n.a. n.a. nae. n.a. * 51 b3

1L. National Oil (Asmara) n.e. a ; 1J250 n.a. n.a. n.a. n.a. n.a. n. a. n.a. 126 12C

TC'TAL 134,170 192,351 110,337 52,995 7,305 L,795 17,940 31il 9,700 12 J 10,2, '

(lxcluding Refinery) (113,170XL1,3-iXllC,137)(6,12b(6,3Ti6)(h,795)(21,76ij) (6,313) (15,137 (5) (1D,3-' (4,?20)

Source: Mission estimates

Table 9: ETHIOPIAN INDUSTRY: IMPORT DEPENDENCE

Share of Imported Inputs in Sales Value

I. Consumer Goods

A. Food productsFlour milling negligibleMeat packing 8Meat canning 40Tomato extract 9Sugar 9

B. BeveragesWine 9Beer 15Soft drinks 15 - 25

C. Tobacco 38

D. Textiles

Cotton textiles 28Woolen textiles 26Nylon fabrics 39Garments and hosiery 16

E. FootwearLeather footwear 25 - 30Plastic footwear 25Rubber footwear 45

F. OtherFurniture and joinery 20 - 40Glasses, bottles 13.Household plastic articles 70Matches 35Alumirlum ware 75Umbrellas 65Printing 40

II. Intermediate Products

Plastic tubesE 60Chipwood 30Pa.per 35Natural fibers (bags) 22

Ill. Capi.tal Goods

Cement 9Mo-c.,._.s) bricks 10Iron oars, .n-:i.I.s atli ;Ltr> :tliLctures 25Corrugated iron sheets3 75

Source: selected industrial pIL.r:ts

Table 10: COMJ'AR1:SON OS' PRICES OF LaOCA PPODU(TS WITH CIF CO,Sl OFCOMPARABLE IMPORTED PROT)DUC'I AND QATMS OF PROTECTTON

% of Local Product Price Nominal Protect'on mProduct Above(or Under) (,IF Price/l Over CIF Price/Z2

Wheat Flour 441.1 63

Tcnato Extract 41.0 113

Sugar 80.9 138

Vegetable Oil (27.5) 62.5

Tobacco 33.3 161

Dyed Twill 60.3 113

Dyed Poplin 50.0 113

Dyed Drill 31.7 113

Printed Satin 88.8 113

Nylon Taffeta Printed 88.4 113

Leather Shoes 150.0 263

Basketba-1 Shoes 33.9 156

Jute Bags 73.0 77

Woolen Blankets 167.8 214

Cotton Yarn 54.1 71

Exercise Books 20.0 23

Writing, Printing Paper 63.1 90

Wrapping Paper 86.6 127

Corrugated Boxes 31.6 50

Cement 71.2 113

Ceramic Tiles 75.0 73

Iron Bars 44.6 43.5

Corrugated Iron Sheets 52.6 53Source: Mission estimates

/1 CIF price includes transport cost to main market when appropriate.72 Protection over CIF price at port of arrival--Protection including Customs Duty,

12% transaction tax on imported products and 1 municipal tax levied on importedproducts.

Table 11: COMPARISON OF PRICES OF LOCAL PRODUCTS ANDCIF COSTS OF COMPARABLE. IMPORTID PRODUCT¶S

(Ethiopian Dollars)

Product Unit CIF Duty Trans. Tax Total Local Product

lWheat Flour quintal 27.0 13.5 3.5 44.0 39.0

Tonaato Exctract ton 780.0 780.0 101.4 1661.14 1100.0

Sugar quintal 34.0/1- 30.oL2 3.2 67.2 61.5

Vegetable Oil. (salad) Kg 2.00 1.00 0.25 3.25 1.1t5

Tobacco Kg 13.50 20.oL5 1.75 335.25 18.00 est.

EVed N:will (Cotton) 41/42"x 60 58.0 58.0 3.5 123.5 93.0yd

Dyed Poplin (Cotton) 36" x 30 yd 26.0 26.0 3.4 55.4 39.0

Dyed Broadcloth (Cotton) 36" x 30 yd 23.0 23.0 3.0 49.0 31.0

Dyed Drill (Cotton) 36"x 40 yd 41.0 41.0 5.3 87.3 54.0

Printed Satin (Cotton) 36" x 140 yd 36.0 36.0 14.7 76.7 68.0

Nylon Taffeta printed Yard 0.95 0.95 0.12 2.02 1.79

Leather Shoes Pair *'4. 10.0 0.52 14.52 10.0

Basketball Shoes Pair 2.80 4.00 0.36 7.16 3.75

Jute Bags Bag 0.78 0.50 0.10 1.38 1.35

Woolen Blankets Piece 5.60 11.25 0.73 17.58 15.00

Cotton Yarn Kg 2.40 1 . 3 5 /3 0.32 4.07 3.70

Exercise Books 16 pages 0.05 0.005 0.007 0.062 0.06

Writing, Printing Paper Ton 8 4 0.ok4 554.0 914.0 1488.0 1370.0

Wrapping Paper Ton 675.o/4 633.0 72.0 1380.0 1260.0

Corrugated Boxes Ton 980.0k 318.0 112.0 1410.0 1290.0

Cement Ton 50.0 50.0 6.5 106.5 85.6

(3eramic Tile Sq. Meter 8.00 4.80 1.04 13.84 14.00

Iron Bars Ton 415.0/5 120.0 42.0 577.0 600.0

Corrugated Iron Sheets Ton 590.015 200.0 65.0 855.0 900.0

Source: Mission estimates

/1 Including $10 transport fran Djibouti to Addis Ababa72 Including excise tax $10.0?3 Including '0.10 excise tax.7C Including $120/ton for inland freight and handiling - Data based on project evaluatic

for near paper plant.,/5 Including $90/ton for inland frei.' and handling.

Table 12: ETHIOPAN TINDUITRY: ECONOMIC PROFITABILITY RATING4(

A. High Domestic Component and Relatively Low Pri.ces

Meat packingVegetable oils and cakeTomato extractSpice extraction

B. Low Value Added and Relative Low Prices

Meat carning /1Tobacco /2Rubber footwearPrintingMatches /3

C. High Value Added and Relatively High Prices

Glasses, bottlesChipwoodNatural fibers (bagging)TextilesWoolen blanketsLeather shoesCementMosaics, bricksBeerGarments and hosierySugar /AFlour milling

D. Low Domestic Component and Relatively High Prices

Nylon fabricsHousehold plastic articlesAluminum wareUmbrellasPlastic tubesCorrugated iron sheetsSteel pipesPaper _5

Source: Mission Estimates

/1 Low value added due to imports of tin cans.75 Low value added due to imports of raw tobicco.7T Low value added due to imports of wood sticks.7 High prices partly due to large excise tax.77 Low value added due to imports of pulp.

Table 13: SPECIFIC DUTY RATES ON SELECTEDIMPORTED INDUSTRIAL COM9IODITIES

Comnmodity Unit Duty

Sugar, all kinds 100 kgs. 20.00Alcohol in bulk litre 10.00Ale, beer, cider

- bottle containing not more than 350 cc bottle 0.35- bottles containing more than 350 cc

but no more than 650 cc bottle 0.50

Cigars, cigarettes Kg. 10.00Cotton, raw, for manufacturing purposes Kg. 0.10Sweaters and similar knitted garments Piece 10.00 /1Other hosiery, including knitted shirts and Dozen pieces 9.00 72

undergarmentsCotton yarns Kg. 1.25 to 5.00Gunny bags 100 kg. 50.00Yarn of synthetic fabrics Kg. 0.20Blankets Kg. 5.00Aluminum--Ingots or Slabs 100 kg. 30.00Alumiurm sheets and plates 100 kg. 40.00Copper bars and rods 100 kg. 30.00Iron and steel galvanized or ungalvanized 100 kg. 10.00Iron and steel pipes and tubes 100 kg. 10.00Iron and steel rods and bars 100 kg. 12.00Cement Portland 100 kg. 5.00Soap 100 kg. 20.00Calciiun Carbide 100 kg. 7.00Boots and shoes of leather per pair 10.00 /3Other footwear, n.e. per pair 4.00 7;Tires (for cycles and motor passengar cars) per kg. 0.50Matches Gross box 1.50 to 3.00Umbrellas Piece 3.00 /A

7lTor ioo5 ad valorem,, whiichever is. the higher.72 or 60% ad valorem, whichever is the higher.75or 50% ad valorem, whichever is the higher.__ or 80% ad valorem, whichever is the higher.

Source: Revised Customsi Import and Export Tariff,February 6, 1969.

Table lh: NOMINAL AND EFF3RTIVE TARIFF FROTBCTION01 SE.CTE) INDUTRIAL PR0DMT~S

(Import duties and protective amount included in transaction tax)

% Nominal % EffectiveProtection Protection

Food ProductsWheat Flour 57 11.3Sugar 158 318Tomato extract 108 120

BeveragesWine 59 77 to 88Beer 120 158 to 180Soft drinks 38 41

Tobacco 78 149

TextilesFibre bags & sacks 60 (11 to 17)Cotton textiles 108 275 to (15-30)Blankets (woolen) 15Nylon fabrics 108 (18)Garments & Hosiery 68-83 428 to negative

FootwearLeather 83 101 to negativeRubber & Canvas 91 15687Plastic footwear 91 12

Wood ProductsFurniture & joinery 33 46 to 103Chipwood 68 180

Non-metallic MineralsMosaics, bricks 30 149Cement 108 2,200Glass bottles 38 1,576

Printing 3 3

ChemicalsPlastic Tubes 16.5 7Household plastic 43 214articles

Matches 60 93

Metal ProductsWires, nails & steel 45 143structures

Aluminum Ware 43 (7)Corrugated Iron Sheets 50 252

MiscellaneousUmibrellas 88 724

Source: Mission estimatesNote: 1) Above figures are based on 1966/67 data. Since then nominal protection

rates have sometimes been modified. (See Table)2) Figures between brackets show the rate of negative effeetive protection;

i.e., when protection is so high that the value of output at interna-

t 4 mlqes S l pzathe value of the materials employed whenstatd a-nterauon-L pice.

Table 15: DEVELOPMENT BANK OF ETHIOPIA

Industrial Loan Commitments

Cumulative as at 31/12/681 9 6 7 1 9 6 8 (since inception)

No. E$000 % of Total No. E$000 % of Total No. E$000 % of Total

Transportation 1 4O 8.5 1 21 1.3 16 1,0h9 4.1

Bakery 1 55 11.7 1 26 1.6 17 877 3-4

Flour mill 3 68 1.5 3 11 0.7 103 1,187 h.6

Oil well 1 17 3.6 1 1h 0.8 31 2,196 8.7

Metal and Wool work - - - 1 50 3.0 20 255 1.0

Tannery and Shoe Factory - - - - - - 6 865 3.L

Saw mill 2 100 21.3 1 45 2.7 32 1,289 5.4

Marble and stone cutting 1 85 18.2 1 250 15.1 - - -

Textiles (includingfibre processing) 1 70 1h.9 1 1,090 65.8 22 8,385 33.0

Brick factory - - - 1 150 9.0 - - -

Power Plant 1 9 1.9 - - - - -

Cement factory 1 25 5.h - - - - -

Other industrial loans - - - - - 111 36.h

Total 12 h69 100.0 11 1,657 100.0 358 25,372 100.0

Source: Development Bank of Ethio:a - Annual Report 1968

Table 16: DEVELOPMENT BANK OF ETHIOPIACUMIJLATIVE EQUITY INV1BMTMI;N TS

TN T1E INDUSTRIAL SECTOR

Eth 1;

1965 1966 1967 1968 1969

H1,TA Metahara 792,000 792,000 792,000 792,000 792,000

--VA Ethiopia 61,8)0 100,091 131,152 138,353 138,353

Indo Ethiopiain Textiles - 5,300 27,795 20,545 20,5)45

Cotton Company of Ethiopia - 7,738 15,350 15,350 9,650

National Textiles - 30,000 30,000 30,000

Ethiopian Fabrics 10,000 10,000 10,000 10,000 10, 000

Bahar Dar Textiles 100 100 100 100 100

Rubber and Canvas Shoes - 15,250 27,300 20,300 20,300

Ethiopian Cement 100 100 100 100 100

Bottling Co. Ltd. 21,000 17,280 17,305 6,5(5 -

Paper Company 10,000 10,000 14,500 13,500 13,500

Sabean Metal Products 250,000 250,000 300,000 300,000 300,000

Suntu Coffee 60,9245 60,245 60,245 60,245 60,245

Total 1,204,585 1,268,144 1,425,847 1,406,998 1,394,793

Source: Development Bank of Ethiopia

Table 17: ETHIOPIAN INVESUENT CORPORATION

Disbursements of Industrial Loans by Industry

(E$000)

(1963-4) (1964-5) (1965-6) (1966-7) (1967-8) (1968-9)

Inclustries

Textiles - 2,337.0 221.0 750.8 676.0 449.7

Flour mills,Bakery, etc. 25.8 3.0 - 423.9 70.8 7.0

Wood 152.0 8.2 430.5 43.4 0.3 52.2

Meat - - - 325.0 - _

Film - 39.3 0.1 - - _

Oil Extraction - - - 242.3 389.4 583.6

Bottling - 325.0 _- - 53.8

Spice - - - - 125.0 697.2

Paper - - - 1,013.8 - -

Boot -Shoe - - 201.0 104.6 28.2 62.5

Coffee Processing - 2,833.0 104.0 848.1 50.3 191.2

Metal - - 701.0 - 4.1 1,223.5

Cement Brick & Tile - - 1,000.0 117.0 1,475.1

Tannery - - - - 100.0 -

Glass - - - - 4,990.1

Matches & Candles - - - - - 67.2

Others - - - 208.2 - -

Total 177.8 5,545.5 2,657.6 3,960.1 1,561.1 9,853.1

Source: Financial Intermediaries Reorganization Commission (FIRC)

Table 18: ETHIOPIAN INVESTMENT CORPORATION

Net Eouity Investments in the Industrial Sector

(Eth. $ OGO)

1963/64 1964/65 1965/66 1966/67 1967/68 1968/69

Meat - 9.0 2082.0 -

Oil seeds and spices 1().0 15.0 17.0 36.C

Sugar 99.0 185.8 181.6 2681.6

Textiles 300.0 1h74.C0, 6447.0 5715.7 5666.3 5264.2

Rubber & Shoes 1.0 24L1.0 3906.0 3933.2 3939.9 3958.1

Pa.per and matches 3.0 3.0 106.0 4186.c h8L.7 1:^'1.6

Beverages - 68.C 183.0 272.2 3(02.1 25S-

Cement & Lime - 1008.0 1052.7 1- 053 1202.8

Electricity - 2,3 2 231.8

Glass - - 183.0 ,c0.3

Metals _ _ 3.0 71.6 465.o 5o0.c,

Total 30L.0 1,L95.0 13,844.0 11,732.8 12,535.8 15,215.8

Source: Ethiopian Investment Corporation

.~~~~~Hl-..._.... _§ Oz -IM.PP.YRIAL ETTOlOPTAN GOVEENMICN1 D!ET MS- 1 (N'' % 40EtiNT-JytdtED INSTILi'TIGNS ~.AT END - DECEMBER 1969

Totalnior.-,ch oid oc fod tevWsaos EC

holdingoad p Mmi-st Eth. In-et. Oar.,,!,5V005t COSo-orita; an 7, of

,ercai- Ssprin an. or non_, or ther Total 110 paid-up4:6. 0 ~~~~~~~~S.C. Eth-inpr Ethiopia .ME DISC IEEC hoidigs capital

CHARTERED BODIES

eorlMedical Store fcrporsio 1. 00,030 1,000,(000 1,000,000 100Ethiopian filectrie Li;ght &Powe Aothori:r 55.000.000 55,000,000 - ---- 55,000.000 100Ethiopian Grain Corporatio 9,2265,000 4,765,000 1,500,000 3,000,000-- 9,265,000 100National Bank of Ethiopia 10,000,000 10,000,000--- - - 10.000.000 100-mprial oard si T- -~aoi-ainn.. 20.1000,000, 20.000,00 - - 20,000,000 100Tohascc Monopoly 4.311,459 4,311,459 - ---- 4,311.459 100

SUB-TOTAL. CHARTERED BODIES 99,576,459 95,076,459 1,500,000 -3,000,000 -- 99,576,459

0090PANIES ESTABLISHED UNDER C(fl(RELkL LAW

Ahadir Ag,ninuletral Development S.C. 200,000 - -- 99,800 - 99,800 50African Matches and Paper Factory S.C. 1,000,000 - 550,000- - - 550,000 55Awansa Agro-Onduastrial S.C. 4.000,000 3,999,700 - - - 3,999,700 100Bahar Oar Textiles 'IOls S.C. 9.292,200 4,291,800 5,000,000 - (i) 9,291,800 100lerhar'ensa Seliuc P Pols ress 0.0. 2,969,750 1,140,000 - -2,000 -251,500 1,393,500 47Cossno Enebna For i.C. 350,000 - 150,00 - - - 150,000 43Ceren Co. Ltd. 300,000 - - 300,000 -- 300,000 100Che-ir Be Fer (Djibouti A- Adis Ahaaa) 4,325,000 2,162,500---- - 2.162.500 50Tebre Berhan, Wonl Factoro S.0. 3,133,100 3,132,700-- - - -(ii) 3,132,700 100Duvelopment and Hotel S.C. (Hilton) 12,550,000 9,433,300 - 527,100 2,424,600- 1,165,000 12,550,000 100Eritrean C eme nt S.C. 4,582,000 1,535,400 6,053,800- - - - 2,589,200 57Ethiopian Airlines S.C. 25,000,000 24,999,600 - - 24,999,600 100Ethiopian Cement Corportion 10,000,000 9,999,600 - -- (iEil 9,999,600 100Ethiopian Express S.C. 200,000 -- - - 199,600 199,600 100Ethiopian Farm Development S.C. 1,100,000 889,600- - - 899,600 81Ethio-Japanene Sy thetic TextLien S.C. 3,333,333 1,188,500 -85,900 - 1,274,400 38Ethin-Line Senkelle S.C. 350,000 - 149,700-- - 149,700 43Ethiopian Petroleem S.C. 53,998,932 53,878,805--- - - 53,878,805 100Ethiopian Pulp and Paper S.C. 8,500,000 2,219,900 385,750 14,000 144,050-- 2,763,700 33Ethiopian Shipping Lines S.C. 17,005,200 11,954,300 5,025,100- - - - 16,979,400 100Glans and Bottle Making S.C. 1,262,500 - 560,250 - 257,500 - 817,750 65CGinro Tea Plantations S.C. 400,000 -95,000 - -- - 95,000 24BOVA. Ethiopia S.C. 50,400,000 - 409,800 113,940 l,a.41,040-- 2,364,780 5H.V.A. Metahrar S.C. 32,000,000 5,667,000 2,300,200 792,000 990,500- 9,749,700 30Imperial Insarance Ce anrom S.C. 1,000,000 - - - 150,000 - 150,000 15In,do-Ethiopiar. Tetls S.C. 6,750,000 -- 1,118,900 - 1,118,900 ESMaritime and Trannit Servicen S.C. 5 00,00 - - 397,000 -- 397,000 80Mortgage Company of Ethiopia S.C. 3,000,000 --- 2,999,600-- 2,999,600 100Mu~tual Pond Management S.C. 100,000 - 30,900 5,000 - -- 35,900 36Northern Ethiopian Railwmay, S.C. 4,000,200 3,999,600--- - - 3,999.600 100Sa. Hotels S.C. 3,344,000 2,081,800 1,011,900 - 174,700-- 3,268,300 98Rohher and Canvas Shoes S.C. 4,200,000 - 1,962,200 20,000 4,400-- 3,987,100 95Sahean Metal Products S.C. 4,000,'000 - - 400,000 16,800- 416,800 10Sabean Utility Earporati-r S.C. 3,000,000 -304,600 - 174.000 - - (iv) 478,600 16Societe So.celiere du Tosrosme S.C.(Ethiopia Hotel) 2,805,800 -- - 249,000 1,300,000 500,000 2,049,000 73S-nta Coffee Processing S.C. 90,000 - 63,000- - - - 63,000 70Tendaho Plantations S.C. 6,180,000 1,600,000 464,000 1,000 154,200 - -(v) 2,299,200 37Wanza S.C. 383,830 - 1.'000) - 1.000 53.900 41,000 96.900 25SOS-TOTAL COMPANiIES lOItDER COMMIERCIAL LAW 285,604,645 141,176.005 23,505,000 2.173.040 10,927,690 1,711,200 2.157,100 181,740.735G R A N' D T 0 T A85..Lj 3 - 252, 4 2505700 21730 00 13 927,690 1,711,200 2,157,100 281,317,194

SC tensal The tahir -clodes all permanent holdengs held by the principal E.E.C. - ownd innti tiarisn (financial and otherwise), including the Ministry of Finance with thee'centi'-specens ld in, notes (5) and fe), (d) and 10).6) The Mnist-; 0 Fssance's shareholdin,gs in the financiail intermediaries are esrliaded.rI Eve a ed a- r lirge in prisatn limited ..anpa-ies and holdings where the total goerr. ent, direct and isdsrot, holldicg is that company is less than $250,000eocep, .,her- a6 total go-r-nnt ho,lding iv that enterprise is 152/,orme of total1 paid op eapital.d, Also, r, a. rxr-ssl'ina sdsg f n inal share (to Oanplvalithl th oorn sOf the Consoocial rode.)a. for-aor' -o-e ssl: f so) "ove.Soorar,' is, o--registered eot-rpr!r: are ascioded. and also these in enterprise which appear to have ceased activeoperatiass or hnich are on the point of 1iqoidation.

"i Si r macscaEon and Fin., Arts ~ir i.thiopion Airline.s S.C. Eth.$1,054,200, Rac Hotel S.C. EIH.S110,dOC (iii) Ithiopias Airlines S.C.'iv) Itlosiar irlinesS.C. FEci.105,OSC. Pos Ho.tels S.C. Ech.(400,000 (vi, Ethiopian Airlico- EcIs.S4H.OOG

TootnDr rA~t~- - A -er0::0'

Table 20: SHAREHOLDINGS OF THE IMPERIAL ETHIOPIAN GOVERIENETIN GOVEMThMENT FINANCIAL IN1TE MEDIARIK;

Intermediary Paid-up Capital.Eth.s

Commercial Bank of Ethiopia S.C. 30,000,000/1

Development Bank of Ethiopia 11,292,100

Ethiopian Investment Corporation S.C. 29,000,000

National Resources Development S.C. 21,000,000

TOTAL 91,292,100

/1 Except for Eth$1,000,000 of shares in the Development Bank ofEthiopia held by the National Bank, and token shareholdingsin the others for the purposes of the Commercial Code, allshares in these intermediaries are held by the Ministry ofFinance.

Table 21: ESTIMATES OF PRODUCTION FOR MAJOR INTDISTRIAL PRODUCTS

1968 1973

Plan Bank Mission

Foo(dSufgar (tons) 66,200 115,000 93,00(Wheat flour (tons) 60,000 70,000 70,000Edible oil (tons) 8,500 18,000 15,000Meat(canned and frozen) (tons) 9,000 22,000 -10, 000

BeveragesBeer (hectoliters) 227,000 280,000 280,000

TobaccoCifTarettes (000 units) 6,740,000 1,188,000 1,100,000

TextilesCotton yarn(sold) (tons) 10,000 11 000 9,000Cotton textiles(rnillion sq. meters) 71.5 90 95Nylon fabrics(OOOsq. meters) 3,870 6,300 6,150Gunny bags(OOO units) 6,000 12,000 10,000

Leather and shoesUpper and lining leather(OOO sq. ft.) L,000 7,000 16,000Leather shoes (000 pair) 770 1,100 1,000

Paper (tons) 1,800 7,250 7,000

Non-metallic mineralsCement (tons) 140,(00 170,000 240,000GDlissware (million-pieces) 29 90 75and bo-ttles

ChernicalsSoap (tons) 4,6oo 12,50(0 12,000Tyres (units) - '.8,0oc) 60,000Refined oil, products (tons) 470,000 (30,000 780,000

S-teel prodlcts, chemic.-ille and others[ron sheets (tons) 1',,00() 1.0,0()0) 20),000Triw-k ansembly (uinits) - .,O()0

TOTAJ., GROSS VALUE OF OUTPUTF'th $. mi.llion l,oo.? 7(00.? 0.°

Source: Ministry of Industry and Mission Estimates

Table 22: SUMMARY LIST OF IDENTIFIED INDUSTRIAL PROJECTS(Achieved Since the Beginning ofthe Plan or Under Construction)

(Cost in thousands of Eth $)

Bank Estimate Plan lorecast

Food 37,233 43,216Beverages 5,224 15,870Tobacco 3,000 3,000Textiles 25,199 24,983Leather 29,8h9 39,870Wood 2,600 1,352Paper 1,500 14,000Non-metalic 37,833 39,382Chemicals 34,353 29,060Metals 19,567 25,356

TOTAL 209,358 236,089

Other Possible Projects (identified)

Oil/cake extraction 3,750Feed meal plant 1,250Hide pickling 750Detergents 2,800Soluble coffee 25,000 ?

33,550 100,000

Cost of Projects in Uiich Government Participates Directly orProjects Financed by Major Government-owned Plants

Tarmery 29.9Tire plant 16.5 Actual Investment Expenditure duringOil refinery 15.3 2nd Plan (1963-67) - includes expansionTobacco monopoly 3.0 and replacement = $276 millionEthiopian cement 25.0

Investments completed in 1963-67 -$ million 89.7 excludes replacement = $202 million

Source: Ministry of Industry, TFYP, and Mission Estimates

Table 22: LIST OF IDENTIFIED IhDUSTRIAL PROJECTSPage 2

Year of PlanFood Industry Commencement Project Cost Forecast

Macaroni plant (Addis) 1969 820ft it (Addis) 1969 600

Oil Mill (Nazareth) 1 970 500Oil Mill (Addis) Patriots 1971 1 ,615Ethiopian Spice 1970 1,732Extraction (Addis) (+100 in 67/68) (602)Lidade (Asmara) 1971 200National Oil (Asmara) 1970n 766 (expansion)Oil Mill (Addis) 1970 600Flour Mill (Debrezeit) 1969 200

(+600 before 1969)Salinas Assab (expansion) 1971 450HVA Metahara 1970 28,600

(+27,700 before 68/69) (19,000)

ECE Mills (Asmara) 1970 350Macaroni Santi (Decamare) 1971 400Ethiopian Fisheries (Assab) 1969 400

Sub-total 37,233 43,216Beverages

Bottling Mineral Water (Ambo) 1970 3,074Alexandrakis wine(Addis) 1969 800Mata Abo Brewery(Sabata) 1969 1,200

(+3,000 in 67/68)Fenili (Asmara) 1969 150

Sub-total 5,224 15,870

Tobacoo

Tobacco monopoly (Addis) 1969+(expansion) 1971 3,000 3,000

le Industr

Blankets Lazarides (Addis) 1970 350Fiber Company of Ethiopia (Addis) 1969 2,979Fiber Bags Factory (Addis) 1969 200

(+1,400 before 68/69)Manufacture Sacchi (Asmara) 197C) 1,070Baratollo ginning (Asmara) 1971 3,500Ethio-Japanese (Mojo) 1970 7,000(expansion)Cotton Company of Ethiopia(Addis) 1970-71 6,600(expansion)Yeret (Ginning) (Kaliti) 1970 500Ethiofil (Yarn thread) (Asmara) 1969 3,000

Sub-total 25,199 24,983

Table 22: LIST OF IDENTIFIED INDUSTRIAL PROJECTSpage 3

Year of PL.nCommencement Project Cost Forecast

Leather and Shoe Industry

Tannery (Addis) 1972 29,849 202200

Sub-total 29,849 39,870

Wood Industry

Chipwood (Jimma) 1969 500Hardboard and Softboard (Addis) 1969 1,600Furniture (Riva) (Addis) 1971 500

Sub-total 2,600 1,352

iaper and Products

Ethiopian Pulp and Paper (Nazareth) 1970 14,000 (+9)000 14,000before 68/69)

Toilet paper (Addis) 1970 500

Sub-total 1)4,500 14,000

Building and Non-Metallic

Ceramical bricks factory (Addis) 1970 800Shekla bricks (Addis) 1970 2,225Ethio bricks (Addis) 1970 800Industria ceramica (Asmara) 1970 4ooCemenit expansion (Addis) 1972 25,000 14,000GLass and bottle (Addis) 1972 8,308 3,224Gypsun works (Addis) 1971 300

Sub-total 37,833 39,382

Chemicals

Paint; factory (Addis) 1970 500Tire plant (Addis) 1971 16,500Thermo-plastic (Asmara) 1970 770Sava glass (Asmnara) 1971 1,000Plastic tip top floors (Asmara) 1970 240African marble expansion (Asmara) 1969 93Assab refi.nery (Assab) 1969 3,250

1970/71 12,000

Sub-total 314,353 29,060

Table 22: LIST OF IDENT:IFIED INDUSTRIAL PROJECTSpage I

Year of PlanCommencement Project Cost Forecast

Steel and Metal Products

Metal tools (Addis ) 1970 3,212Fiat vehicle (Addis) 1972 4,155 3,100Dry cell batteries (Addis) 1973 5,250 500Crown cork (Addis) :1971 400Croce container (Kaliti) 1969 800Tin containers (Akaki) 1971 250Steel Company Ethiopia (Asmara) 1969 1,600Francesco Magnati (Asmara) 1970 900

Steel Pipe (Addis) 1971 3,000

19,567 25,356

Table 23: CAPITAL EXPENDITURES - MINISTRY OF INDUSTRYAND OTHER GOVERNMENT PARTICIPATIONS

(in millions of $Eth)

/3196a-/ 1965 1966 1967 1968 1969 1970 1971 1972 1973

Vehicle Tire Plant - - - - - 0.4 2.1 3.7 1.3 -Tannery - - - - - 0.1 0.5 .5 6.0 4.5Oil Refinery 4.1 4.2 20.5 9.2 7.3 4.2 - 3.5 1.3 -Cement Plant 6.4 - - - - - - - - -

Textile Bahr Dar 1.5 _ - 1.5 1.0 - _ _ _ _Woolen Factory 1.5 0.5 0.5 1.3 - _ _ _ _ _Paper Mill - - 2.2 - - - - - - -

Meat Corporation 0.2 1.2 - 0.4 - 0.2 - - - -

Oil Seeds Processing - - 1.0 - - - - - - -

Drug Manufacturing Corp. - - - 0.5 0.2 - - - - -

Sisal Factory - - - 0.1 - - - - - -Printing Press - - - - 0.1 - - - - -

Rubber and Canvas Shoes - 0.5 _ - 1.3 -

Total 16.4 8.5 24.2 13.0 9.9 4.9 2.6 11.7- 8.6- 14.5

Subscription to Capital

EIC 3.8 2.3 1.7 9.6 2.0 3.0 11.0 . - -DBE - - - - 3.0 1.0 2.0 - - -EDC (new) - - - - - - - 3.0 2.1 to 6.1 2.1 to 6.1

To t-a 1 6.1~~~~~~~~~~~~~~~~~~~~2/2Total 3.8 2.3 1.7 9.6 5.0 4.0 13.0 3.0 2.1 to 6.1- 2.1 to 6.1-

/1 Assuming no funds channeled through EDC for direct investment.75 Higher figure assumes funding from National Bank, funds now collected by Government.73 Calendar years.

Source: Annual Reports and Mission Estimates.

Table 24: DISBURSEMENTS BY EIC AND DBE FOR INDUSTRIAL PROJECTS(in thousands of Eth$)

1963/4 1964/5 1965/6 1966/7 1967/8 1968/9 1969/70 1970/1 1971/2 1972/

Equity(net)

EIC 304 1,191 12,349 (2,112) 1,604 1,880

DBE 63 991 _ 63 150 (18) (12)

367 2,182 12,412 2,062 1,586 1,868

Loans

EIC 178 5,546 2,658 3,960 1,561 9,853

DBE 724 2,212 913 531 1,1h3 2,507

902 7,758 3,571 4,491 2,704 i2,360

TOTAL 1,269 9,9L0 15,983 6,553 ,290 14,228 Annual average of 12,000"

End of Financial Year: EIC - July 7 Note: Major disburseiients in 1968/69 (First Year of Plan) wasDBE - December 31

DBE = loans = aDer and textiles

EIC = ecuity = sugarloans glass, bricks and cement, metal

/1 Source FIRC Report. Annual average l963/4 to 1968/9 was 8,710 thousa!lds o-f dollars.

Appendix I - CALCULATION OF NOMINAL AND EFECTIVE PROTECTION

ERITREAN CEME!1T CCMPANY (Massawa)

1. BASIC DATA:

Location: Massawa (Eritrea)

Ownership: Ethiopian Government (60%), Krupp AG (Germany),Ethiopian private shareholders.

Output: (1969) - 62800 tons (of which 23195 tons exported)(1968) - 56104 tons (of which 20500 tons exported)

Percent of inland market (Eritrea)s 100%

Value of sales (1969): 4,092,000 Eth. dollars(1968): 3,714,087 " "

Original cost of plant (1965): 8,600,000 Eth. dollars

Net profit (1969): 930,000 Eth. dollars(1968): 154,000 n 11

Personnel employed: 180 (including one German technical manager)

2. RAW ?4ATERIALS /1

A. ImPorted Eth. Dollars

Paper bags 203,543Explosives (quarry) 70,651Fire bricks 30,747Grinding balls 18,170

Sub-total 323,111

B. Local

Limestone h14,310Clay 12,610Gypsum 12,120

Sub-total 439,040

UTILITIES

Electricity 521,048Fuel 495,O73Water _3,777

Total 1,019,898

WAGE; AND SALARES /1 706,839

/1 Data are for 1968.

Appendix I - Page 2

3. PRICES

A. I e? ment: from Japan and/or Pakistan, cif prices would beat Massawa $50/ton - Previous Israeli prices (before Suez Canalclosure) was $42/ton - Duty is $50/ton (since end 1967; used tobe $25/ton previously). Transaction tax is 13% on $50/ton cif,i.e., $6.50 - landed cost for imported cement is then $106.5/tonbefore dealers margin.

B. Local cement: Ex factory cost before profit is $42/ton. Cementis exported to Saudi Arabia at dumping price of $40/ton or lessand selling price ex factory $80/ton to which must be added 5%tax paid by consumer fl .

4. DUTIES AND TRANSACTION TAX - EFFECTIVE PROTECTION

1. Duties on imported materials: 10% on $323,11 $ $32,3118% differentialtax /2 25,849

Total $58,160

2. Calculated cif value of imported materials: $323,1ll- 58 160

$264, 951

3. Nominal duties on imported cement: $56.5/ton on $50/ton

cif price - 113%

4. Total cif value of materials

a. imported $ 264,951b. local 439,040 (materials)

1,019,898 (utilities)

Total $1,703,889

5. Nominal Protection on total materials (cif): 58,160 3.41%1,,703.,889

6. Total value (after duties) of materials: .$1,762,049

/1 To which must be added another 2% tax.75 8% difference between tax on imports -13% and tax paid on

local products = 5%.

Appendix I - Pag_ 3

7. Value added: Sales $ 3,714,089- materials = 1,762,0L4 9

Value added= $ 1,952,040

8. Effective Protection (on value added):

L,952,040 - 1 2300%3,71h,059 - 1,762,049

2 .08 1.0341

Append!x II - SUGGESSTIONS TO CALCULATE DESIRABLERATES OF PROTECTION

The first prerequisite of a tariff policy formulation is theknowledge of the existing situation, the structure of protection andits effects on resource allocation and economic growth. Such studieshave been undertaken by Pr. W. Schmidt in 1967 and 1968 and the EthiopianGovernment has favored research on the structure of protection. The Bankmission has also obtained additional and more up-to-date information,although much more work needs to be done to gather data in a more system-atic way. However, assuming such data can be obtained (which should notbe very difficult) the question remains what are reasonable rates oftariff and subsidies and whether all manufactured goods should receiveequal treatment.

It has been suggested that a more economic approach in calculatingtariff protection would be to apply a given level of protection to thevalue added effectively obtained by Ethiopian industries than to applysuch protection to the price of the product. But what should be the levelof protection offered to local value added?

Three factors need to be taken into account:

a) the general advantages of manufacturing in Ethiopia;

b) infant industry considerations;

c) balance of payments considerations.

a) General advantages of manufacturing

One may argue that manufacturing offers some advantages throughexternal economies in the form of lator training and in encouraging theexpansion of other industries which cb not enter into the profit calcu-lations of the firm yet benefit the rational economy. Moreover, manu-facturing activities can contribute to the full utilization of the laborforce although there may be a trade off between economic growth and fullemployment. An O.E.C.D. Development Center study suggests a rough approxi-mation of 10-15 percent as a rate of protection for any advantages manu-facturirng can offer over primary activities. The World Bank presentlyprovides a flat 15 percent preference to domestic sources of procurementfor industrial equipment to be used in domestic projects financed by theBank. But Ethiopia does not produce such equipment and the question ofthe choice of a realistic rate for Ethiopian industry needs further study.

Another possibility may be to study the excess cost paid by Ethiopianmanufacturers to their workers as compared to labor cost in other sectors.It has been estimated that in developing countries, real wages in theindustrial sector are two or three times those in the agricultural sector/l.If in Ethiopia, the wages of the industrial worker were twice that of his

/1 Fred Dziadek - Unemployment in the less-developed countries -June 1967.

Appendix II: - Page 2

next best alternative, it would be possible to justify an effectivetariff equal to 50 percent of the contribution of labor to the valueadded in a given industry. The rationale is quite simple: if the privateemployer must pay twice as much for his labor as the true cost to society,i.e., what the labor should produce in alternative employment, then atariff equal to the excess cost offsets the incorrect wage. Accordingto latest Ethiopian statistics, the average wage bill for manufacturingwas Eth. $114 a month /1 per person employed. No statistical evidencehas been found for earnings by agricultural workers but it is widelyheld that the latter, many are seasonal workers, are paid substantiallyless. More research will have to be done in that field of labor costsbut, for the present purpose, it may be provisionally estimated thatindustrial workers are paid twice the alternative or opportunity costof labor /2. For a more detai'led study, one should also mantion thatthe wage adjustment in each industry should differ according to theskill levels required.

b) Infant industry considerations

The traditional infant industry argument is that some degree ofprotection can be accepted on the grounds that firms need assistance atan early stage of their operations to compensate for lack of experienceand uncertainty with respect to future prospects. Again there is littleinformation on the level of protection that could be justified on infantindustry grounds since there is little empirical evidence on the learningprocess in individual firms. It does not appear likely, however, that arate of effective protection much mcre than 20 peoernt could be warranted.The infant industry argumont for protection is essentially an argunent forinvestment; the nation pays out funds to cover excess costs during theinfancy of an industry and reaps rewards in terms of lower costs when itgrows up. l'hat must be compared is the present value of future permanentsavings over import costs through domestic production with the presentvalue of the excess cost of domestic production over imports which occursuntil the infant industry matures. It can be calculated that to justifya 20 percent protection one has to obtain a 30 percent permanent reduction

/1 Chamber of Commerce - Statistical Digest - October 1969 - Dataon for December 1968.

/2 The tariff solution only solves the problsm of unemployment by givinga better break to those industries which are labor intensive. It doesnot change the relative prices of capital and labor, indacing, theemployer to hire more of the latter and less of the former. This couldbe achieved by a subsidy to wages or a tax on capital. But either oneof these might have adverse effects on the level of private investment.Thus the subsidy to wages requires additional taxes which might affectprivate investment. The tax on capital would reduce capital formationunless the proceeds of the tax were returned to the private sectorinvestors as for example through a tax cut on profits.

Appoiidix II - Page 3

in domestic costs compared to the price of imDorts after ten years /1Since 30 percent is already a high percentare of savings, clearly theinfant industry arg-ument does not support very high rates of pro-tection /2 . Obviously if for practical reasons an across-the-boardrate of protection for infant industries had to be applied (it isextremely difficult to forecast which prospective industries are likelyto provide future savings), the conmon tariff rate should be the effectiverate and not the nominal rate because a coicron nominal rate will providea wide range of effective rates, depending upon the proportion of value -added to gross output.

c) Balance of payments conisiderations

If Ethiopia were to remove all duties and if the monetary authoritiesrofused to adjust the exchange rate as part of their monetary and fiscalpolicies, it is possible that Ethiopia would run a balance of paymentsdeficit. To estimate net effective protection in this type of situation,it is necessary to adjust for the evaluation of the exchange rate ascompared to the free trade situation. It is conceivable that in theevent, theoretically, of the removal of all duties, the Ethiopian dollarwould have to be dGpreciated by more than 30 percent,that is the percent-age on average by which duties on imports raise the cif prices and theamount by which devaluation would have '-JO increase the price of importsif they are to be kept in check in the absenco of duties. In fact, itseems reasonable to assume that the degree of devaluation would be smallerinasmuch as an increase in export earnings is likely, increasing the supplyof foreign exchange to Ethiopia /3. Naturally detailed calculations wouldhave to ba made to permit an est3imate of the equilibrium exchange rate.

T1. at a 10 discount rate.

/2 cf. also Dr. Bela Belassa's study on industrial protection(August 1969) suggesting 20 to 30% protection.

/3 Suppose that a proposed local industry requiras Eth. $100 ofimported raw materials to produce Eth. $200 worth of finishedproducts, assuming no duties on imports on raw materials and onthe finished product, the value added in intornational prices (anddomestic prices) is Eth. $100, at the prevailing exchange rate.However, for instance assuming that the Ethiopian dollar is over-valued by 30 percent, the true international value added would beEth. $13() based on a value of Eth. $260 for the finished productand Eth. $330 for the raw material. Hences a 30% effective tariffon the activity would be justified to offset the over valuationof the Ethiopian dollar.

Appandix II - Pae4

Application to a specific Ethiopian Industry

Eth. $

Wages 20,000

Finished Product sales 900,000

Imported materials 200,000

Local raw materials and otherimports 250,000

Duties and transaction tax onimported materials 4 0,000 (20%)

Duties payable on similar finishedproduct imported 270,000 (30% protection)

The actual effective rate of protection is 57% in this example /1. Tocalculate a desirable rate of protection by applying the above describedcriteria, one would need to use the following formula:

a) Desirable rate of effective protection (on value added)

50% wages+20% infant industry+30% (value product cif--value of imports cif)excharjne rate adjustment

value added cif

which gives in our example a rate of 80% on value added cif.

b) Desirable rate of nominal protection on the final product

This rate is given by the formula:

rate of effective protection x value added cif + total value of imputs cif _/2Value of finished product cif

which gives in our example 31% of nominal duty on the finished product.

/1 See Appendix I on example for calculation of effective rate of protection.

/2 Defined as value of finished product cif - value of total imputs(local and imported) cif.

VOLUME II

ANNEX 3: MINING

MINING

TABLE OF CONTENTS

Page No.

Output ...........................................................

Investment .......................................................

Gold and Platinum Mining ......................................... 1

Nickel, Copper and Sulphur ....................................... 2

Oil and Gas Exploration .......................................... 3

Potash Mining .................................................... 3

Surveys .......................................................... 4

Administration and Legislation ................................... 5

Prospects for Output and Investment .............................. 5

TABLES

1. Mining - Value Added

2. Gross Value of Selected Mineral Products

3. Volume of Mineral Production

4. Investment in Mining

5. Sources and Allocation of Investment Funds

6. Capital Expenditures - Ministry of Mines

7. Estimated Annual Public and Private Investment in Mining (1968-1973)

MINING

Output

1. Mining output is very small amounting to 0.3 percent of total GDP.From 1961 to 1969 value added in the mining sector increased at a 16.9 per-cent annual rate or from Eth.$ 3.3 million to Eth.$ 11.5 million.

2. Mining and quarrying is confined at present to alluvial gold, plat-inum, salt, clay, gypsum, limestone. In addition, small quantities of suchminerals as baryte and mica are produced. Gold is the most important andin 1969 represented 91.3 percent of the value of mineral products listed inTable 2. Salt and anlydrite are the next most important minerals in valueof production.. Salt is relatively important, and is produced both by evap-oration on the Red Sea at Assab and Massawa and in the Danakil depression.Of the 240,000 tons produced at Assab and Massawa, 20 to 30 percent is soldlocally and the balance exported. Total capacity at Assab and Massawa mayinc:rease to 340,000 tons by 1973.

Investment

3. Public and private investment in mining rose from Eth.$ 9.6 mil-lion in 1964 to Eth.$ 15.9 million in 1969 (see Table 4). During the pe-riod 1964-19693, about one-third of expenditures have been for the develop-ment of existing mines (principally the Adola gold mine and the Dallolpilot potash mine) and two-thirds on prospecting and exploration (petro-leum and geological mapping). Total investment in potash exploration andmining (Eth.$ 15.4 million) and oil prospecting (Eth.$ 56.8 million) re-presented 80 percent of total investment in mining between 1964 and 1969.During this period investment in the public sector (Eth.$ 15.8 million)was 17.6 percent of total investment in mining. Public investment was ongold and platinum mines and since 1968 on geological survey, such invest-men,t rose front Eth.$ 2.5 million in 1964 to Eth.$ 5.1 million in 1969.

Gold and Platinum Mining

4. The Adola gold mine is at present operated by the Ministry ofMines. A recent proposal to hand over the operations t:o a wholly ownedcommercial company was not accepted. The mine consists of placer depo-sits in the southern province of Sidamo where large deposits areworked by draglines and small deposits by hand workers. Known reservessuitable for clraglining amount to 16 million cubic meters averaging 0.44grams of gold per cubic meter.

5. The present situation of the mine is not satisfactory. There areno proper commercial accounts from which an accurate financial picture ofthe mine can be judged; equipment is worn out and supply of spares is inter-mittent; and development prospecting is not regularly carried out. Current

budgetary cost is about Eth.$ 200,000 per month, and over the past fiveyears actual expenditures have exceeded the value of output (estimated atEth.$ 11.9 million between 1965 and 1969) by Eth.$ 2.0 to Eth.$ 2.5 million.This is a cash estimate and makes no allowance for depreciation. The minepays no rents, royalties or taxes, since it hands over its output to theTreasury at a price of US$32 per ounce unrefined.

6. Output has fluctuated. Improvements in management in recent yearsraised it from 660 kg. in 1967 to 1,222 kg. in 1969. However, production isfalling due to the dilapidated state of the equipment, for which insuffi-cient budgetary provision has been made. Moreover, given present trends,the entire production would soon come from "hand workers" as reserves fordraglining are being exhausted. Production would then decline to perhaps800 kg. per year. About Eth.$ 300,000 is needed immediately for the mosturgent repairs to the equipment.

7. In order to more efficiently develop and manage the mine, the Min-istry of Mines proposes to establish a "National Ethiopian Corporation"whose function will be to establish the Adola Gold Mine as a self-sufficientproject run on business principles. The Corporation would take over the ex-isting facilities and assets for a term of 30 years. It was hoped that byreorganizing management, repairing existing equipment and purchasing modernequipment, the Adola mine could operate on a profitable basis. Output isplanned to increase from 1,222 kg. in 1969 to 1,800 kg. in 1972. On thebasis of presently known reserves, output would fall thereafter unless anextensive exploration program confirms the existence of new reserves suffi-cient to sustain or increase output. Exploration prospects based on geolo-gical survey results are encouraging. The Corporation would require aboutEth.$ 2.4 million of capital to implement the new plan, and the Corporationwould be granted a tax holiday. Acceptance of the reorganization of theAdola Mine would avoid a drastic reduction in gold production and enhancethe prospects for profitable operations. However, the proposal has notbeen favourably received.

8. A small amount of platinum is recovered each year at the Yubdo Platinum Mine in the province of Wollega. The U.N. mineral survey conducted in-vestigations of the platinum deposit in 1968/69, and the Duval Corporationundertook prospecting from June 1969. However, the company recently aban-doned its concession.

Nickel, Copper and Sulphur

9. There are nickel occurrences in the Adola area and in Wellega andthe UNDP is presently drilling to establish the nature and extent of the re-serves. The Duval Corporation was granted in June 1969 exclusive prospect-'ing rights for copper in an area of 2,800 sq. km. near Asmara. Ethiopian-Canadian Exploration Co., Inc., a subsidiary of Eltra Corporation of NewYork, has applied for mining concessions adjacent to those granted to DuvalCorporation. Sulphur deposits occur in the Danakil depression and theBritish Canadian Mining Corporation applied for a concession in early 1970.

-3-

OiL and Gas Exploration

10.. Expenditures by the oil companies have ranged from Eth.$ 6 millionto Eth.$ 13 million per year between 1964 and 1969. Six companies have beenor are prospecting for oil. The Gewerkschaft Elwerath Oil Company had a con-cession in the Ogaden district from 1959, but abandoned the concession afterdrilling two dry wildcat wells. The Gulf Oil Company of Ethiopia has a con-cession from 1963 in the offshore area of the Red Sea coast. They drilledtwo holes with no success. The Mobil Petroleum Ethiopia, Inc., also ob-tained a concession in 1963 in the offshore area of the Red Sea coast, northof the Gulf Oil concession (see attached map). Mobil drilled two holes in1969, and struck gas in one of them. The gas strike was plugged as it was oflittle economic value. The Baruch-Foster Corporation has a concession in thesouthern portion of the Red Sea coast since 1966, but no well was drilled andthe concession has been terninated. The Oil Organization, Ltd. has carriedout geological activities in its concession in the Assab area. Finally, theTenneco Ethiopia, Inc. was granted a concession in 1969 in southern Ethiopiacovering an area of 266,640 sq. km.

Potash Mining

11. Possibly the most important mining possibility over the mediumterm is potash. The potash deposits in the Danakil depression are located450 miles northeast of Addis Ababa and 125 miles southeast of Asmara, up to75 miles from potential port facilities on the Red Sea. From 1965 to 1969,Ralph M. Parsons Company carried out exploration and drilling in the Dallolarea in the northwest part of the Danakil depression. While the companyproved a large body of ore, a pilot mine at Musley was flooded in 1967.The company gave up the concession in 1968 after spending an estimated US$9million.

12. Concessions were then taken out to the south of Dallol bySalzdetfurth Aktiengesellschaft and to the north by Ethiopian Potash PrivateCompany, Ltd. (EPCO), a Kaiser-Seatankers joint venture. SalzdetfurthAktiengesellschaft carried out geological surveys and drilling before surren-dering the concessions in 1969. The EPCO concession area is within the boun-daries of the old Parsons concession, but generally north of the Musley minesunk by Parsons.

13. A principal condition of the EPCO 50-year concession is that thecompany must conduct various stages of exploration, pilot mining, feasibil-ity, financing and commencement of operations within defined time limitsand with a minimum investment of at least Eth.$ 8 million. The concessioncalls for a one million ton mine which would pay a rent of Eth.$ 2.50 persq. km. held at the beginning of each year and royalties per ton shipped ofEth.$ 1.00 on potash or Eth.$ 0.25 on salt. In return, benefits are grantedto lIPCO in the form of tax exemption and import duty re:lief.

14. The phase I exploration was to be completed in 1970; phase IIpilot mining and feasibility study by 1972; and, if initiated, construction

- 4 -

of mining and infrastructure over the next 26 to 36 months. Thus, if allwent according to schedule, the mine might be operational by 1974/75 at theearliest.

15. Cost and markets are the key interrelated aspects governing theoutlook for potash mining. On the cost side, EPCO had hoped to find shallowore bodies suitable for strip mining as well as being close to the coast tominimize transport costs. However, the ore bodies found thus far are toodeep for strip mining which raises the issue of technical and financiallyfeasible mining methods. A second cost element is transport which involvesa road, railroad or a slurry pipeline. It is believed that competitivecosts at Vancouver, Canada, are US$26 to US$29 per ton f.o.b.

16. Besides cost, a major problem is marketability. At present potashprices are depressed and the outlook is for firmer prices by the mid-1970's.By that time, the major markets for Ethiopian potash would be the Indian aub-continent, East Africa, and possibly Japan and Oceana. These markets are ex-pected to absorb one million tons or more by 1975, and Ethiopia has a trans-port price advantage to them compared to potash from Canada. Naturally, ifcompetitors lowered prices on potash, this would affect the viability ofEthiopian potash.

17. Combining considerations of mine development logistics and worldmarket outlook, it would appear that Ethiopian potash exports, if feasibil-ity issues are resolved successfully, would be unlikely to commence before1975. But assuming one million tons and an f.o.b. price of US$28 per ton,potash exports would be Eth.$ 70 million per annum or, roughly, 20 percentof total 1969 exports. However, since EPCO recently sought the suspensionof the concessions for 5 years, the prospects of production by 1975 are be-ginning to look remote. A more realistic target year might be 1979.

Surveys

18. Geological prospecting and surveys were unsystematic until 1968when the Geological Survey of Ethiopia was established. Since then system-atic survey work has begun incorporating modern survey techniques. TheGeological Survey is a department of the Ministry of Mines. It was estab-lished initially without substantial external aid, but now such assitancecomes from Israel, U.S. AID, Canada, and the UNDP. The Geological Surveyhas started work in four lines of concentration: (1) regional mapping ofthe northern provinces of Tigre, Beghunder and Eritrea; (2) detailed in-vestigations of gold reserves at the Adola mine, of high grade copper nearAsmara, and any geochemical anomalies found in the areas mapped in thenorthern provinces; (3) geothermal exploration of the potential for geo-thermal energy sources in the Rift valley; and (4) hydrogeology surveys aspart of the geothermal project and to support agriculture.

19. A UNDP four-year mineral survey was launched in 1967 encompassing100,000 sq. km. in the provinces of Sidamo, Wollega and Gojjam. Approxi-mately 75 percent of Wollega/Gojjam and 60 percent of Sidamo areas have

been covered by geochemical drainage reconnaissance surveys. The overallcost of the program is Eth.$ 5.5 million divided between the Government andthe UNDP. The survey is expected to end in 1971. The UNDP recently startedproviding assistance for the geothermal exploration of the Rift Valley.

20. Regarding future surveys, priority is given to completing the on-going program. Tentative planning attaches priority to more work on hydro-logy,regional geology, and mineral exploration in the areas shown on the at-tached map. The Government is also seeking Canadian assistance for a geo-logical survey of a large sub-region.

Administration and Legislation

21. The Ministry of Mines has established a division of its activitiesbetween the Geological Survey Division and the Mineral Resources Division.Following the work of the Geological Survey, the Division will be concernedwith bringing mineral occurrences to the point where private enterprises areattracted and are willing to exploit economic deposits. This will requirethe preparation and evaluation of feasibility studies, negotiations and ap-proval of concessions, and general supervision of operations under the MiningCode. Consultants will be engaged from time to time (in particular for oilexploration questions). The coordination between the two departments will beachieved through the Vice Minister.

22. A Mining Code is now in the final stage of consideration by the Le-gislature. The Code details the rights enjoyed in and limitations to be im-posed on, prospecting, exploration and mining activities, including such mat-ters as employment; safety, etc. Concerning the issue of concessions, theCode will enable the Minister of Mines to enforce the Government's rights, ifregulations are broken or developments not proceeded with; conversely, a con-cession holder complying with the Code may count on the full protection ofthe law for unhindered development of his area.

Prospects For Output and Investment

23. The Third Five-Year Plan was extremely ambitious as regards miningoutput. It assumed in particular that 750,000 tons of potash would be pro-duced in 1973 for a total value of Eth.$ 45 million (US$24 per ton). As in-dicated above, potash may not be produced, if at all, before 1975. The Planalso envisaged some increase in gold output but at present prospects arevery uncertain and it is not even clear whether the present level of produc-tion can be sustained. The only increase now envisaged would be for marinesalt, which has a competitive advantage in the export market. Overall,there will be a considerable shortfall in mining output as compared with thetargets.

24. As regards investment, the Plan might also be optimistic. It en-visaged Eth.$ 10 million annual expenditures on oil exploration. It is truethat oil companies invested an average of Eth.$ 9.5 million per annum from1964 to 1969. The Tenneco Oil Company will invest Eth.$ 6.3 million in 1970

- 6 -

and 1971. But uncertainty looms very large over further investment by MobilOil Company after its results in the Red Sea. It is not possible at presentto give any indication on the future level of expenditures in oil explora-tion in the years ahead. As regards potash, the Plan underestimated costsby assuming a total investment of Eth.$ 75 million excluding the transporta-tion facilities. Other estimates range from Eth.$ 130 million to Eth.$ 143million. At any rate, construction work would not start before 1973, thisconsiderably later than envisaged by the Plan. The total investment targetenvisaged by the Plan of Eth.$ 179.4 million (see Table 7) during the pe-riod 1969 to 1973 will certainly not be achieved.

25. Capital expenditures by the Ministry of Mines are estimated toreach Eth.$ 2.9 million in 1971/72 but would decrease thereafter upon com-pletion of the UNDP mineral survey and geothermal investigations (see Table6). Capital expenditures are provisionally budgeted at Eth.$ 2.9 millionfor 1970-71.

Table 1: MINING - VALUE ADDED

(Eth $ million)

At current prices At 1961 prices Annual growth rate(percentage)

15961 3.3 3.3

1 9t'2 3.71 3.6 9.1.

1963 L.0 11.1

19(1 5-h 4.7 17.5

196'7 9-h 7,.? 61.7

1966rf la.6 9.1 . 19.7

1967 12.1 8.9 (2.?)

1.9('8 13.7 10.1 13. a

1-969 15.3 11.5 13.8

)otir-re: Centr,al Statistical Office

Table 2: GROSS VALUE OF SELECTED MINERAL PFRODUCTS

(Eth. thousands)

1965 1966 1967 1968 1969

Gold 1,720.1 1,829.0 1,686.2 2,904.6 3,710.6

Platinum 57.3 46.7 48.4 56.9 38.8

Quarry salt 130.0 130.0 130.0 130.0 130.0

Quartz sand 40.0 40.0 40.0 40.0 40.0

Clay 10.0 10.0 10.0 20.7 16.7

Anlydrite 100.0 120.0 120.0 120.0 120.0

Talc 2.0 2.0 2.0 - -

Manganese ore 85.0 170.0 170.0 -

Iron ore 10.0 10.0 10.0 -

TOTAL 2,154.4 2,357.7 2,216.6 3,722.2 4,o56.1

Source: Statistical Abstract 1967-1968 and Ministry of Mines.

Notes: In addition to the commodities listed, Ethiopia has producedsmall qualtities of bayte, copper ore, lead ore, iron ore, urica,pumice, sulphur, kaolin, white sand for glass and variousconstruction materials but quantitative data are not available.

Table 3: VOLIME OF MTNERAL PRODUCTION

1965 1966 1967 1968 1969

Gold (kg) 683 726 669 958 1,2224

i'latinum (kg) 10.4 8.5 8.8 10.3 10.7

Quarry salt (tons 10,000 10,000 10,000 10,000 10,000

Quartz sand (tons) 2,000 2,000 2,000 2,000 2,000

Clay (tons) 500 500 500 3,529 2,943

Anlydrite (tons) 5,000 6,000 6,000 6,000 6,000

Talc (tons) 100 100 100 - -

Manganese ore (tons) 1,000 2,000 2,000 /2

Source: Statistical Abstract 1967-1968 and Ministry of Mines

/1 During 1969 65% of gold produced was by hand workers and 35%by mechanical mining. In 1970, production would beentirely by hand workers.

/2 No mention of manganese production made by the Mines Departmentfor 1968 and 1969.

Above data do not include marine salt from salinas at Assab andMassawa. Salt production amounted to 205,310 tons in 1965,202,035 tons in 1967 and ab)ut 235,000 tons in 1968.

Table 4: TNVESTMEN'r IN MINING

(Eth $ 000)

1. Investment in existing mines

1964 1965 l966 1967 1968 1969 1]96b-1969

Gold 1,6OO.O 1,500.0 500.0 90.3 2,070.2 2,197.4 7,9<7.9

Platinum _- - 7.2 L7.3 1,1.9 99.1J

Potash - 9,282.0 - 5,505.( 296.1 Y0.0 I 5,h33 .

Other 98.0 100.0 100.0 2h2.0 n.a. n.a. 5110.0

TOTAL i,698.0 10,882.0 600.0 5,844.5 2,h13.6 2,592.3 2h,030.U

2. Prospecting and exploration investment

Petroleum 6,918.0 11,980.0 13,,0().0 8,352.5 5,993.8 10,158.8 56,813.1

Platinum 95.0 b2.0 20.0 23.4 7h.2 94.1; 349.0

Mineral Survey - - 75.0 34.0 - - 109.0

Geological mapping - 85.1 - 19.3 2,376.9 2,77L.5, 5,255.8

Other-- 893.0 996.7 234.0 488.1 195.0 300.0 32106.8

TOTAL 7,906.o 13,103.8 13,829.0 8,917.3 8,639.9 13,327.7 (r,633.6

3. TOTAL investment

( 1 + 2) 9,60h.0 23,985.8 14,h29.0 1h,761.8 1,053.5 15,920.0 89,66h.o

/1 Iron, copper, nickel, barite,etc.

Source: Statistical Abstract 1967-1968 and Ministry of Mines

Table 5: SOURCES AND ALLOCATION OF INVESTMENT FUIDS

Total

1964 1965 1966 1967 1968 1969 1964-1969

Government Sector

Development of existing mines 1,600.0 1,500.0 500.0 239.5 2,144.3 2,291.8 8,275.6Prospecting and exploration 868.o 654.0 329.0 564.8 2,376.9 2,774.5 7,567.2

-TOTL 2,468.0 2, 5140 829.0 84.3 4,521.2 5,066.3 15,842.8

Private Sector

Development of potash mines - 9,282.0 - 5,505.0 296.1 350.0 15,433.1DeveloDment of other mines 98.0 100.0 100.0 100.0 n.a. n.a. 398.0Prospecting of petroleum 6,918.0 11,890.0 13,500.0 8,352.5 5,993.8 10,158.8 56,813.1Prospection and exploration

of other products 120.0 469.7 - - 242.4 344.9 1,177.0

TOTAL 7,136.0 21,741.7 13,600.0 13,957.5 6,532.3 10,853.7 73,821.2

Total Investment 9,604.0 23,895.8 14,429.0 14,761.8 11,053.5 15,920.0 89,644.0

Source: Statistical Abstract 1967-68 and Iinistry of Mines

Table 6: CAPITAL EXPENDITURES - MINISTRY OF MINES

(Eth $ 000)

1969 1970 1971 1972 1973(Actual) (Budgeted) (Budgeted) (Projected) (Projected)

Sidamo Wolega mineral survey 1,226.0 1,144.2 1,187.1 -

Ceothermal Investigation - 373.8 413.8 - -

Geological mapping 357.2 535.h 499.4 300. 0 300.0

Mining operations 100.0 - - - _

Preparation of mining legisl. 14.0 - - -

Omo River Basin min. survey - - 385.6 420.0 -

Miscellaneous investigations 10.0 352.3 422.3 450.o 500.0

1,707.2-/ 2,h05.7- 2,90o.2- 900.0 800.0

1/ The Revised Capital Budget amounted to Eth. $2,392,611 of which Eth. $949,00would come from UNDP for Sidamo and Wollega Mineral Survey. Therefore, only Eth.$758,218 were actually paid from domestic sources.

2/ Of the Budgeted amount of Eth. $2,405,700, Eth. $1,179,500 were expected to comefrom UNDP for Sidamo-Wollega Mineral Survey and for Preliminary GeothermalInvestigations (Eth. $946,500 for Sidamo-Wollega; Eth. $233,000 for GeothermalInvestigation.)

3/ Of this amount Eth. $1,745,800 from foreign sources (UNDP, Canada, U.K., France).

4/ Of which Eth. $300,000 from foreign sources (U.K. and Canada).

Source: Planning Commission

Table 7: ESTIMATED ANNUAL PUBLIC AND PRIVATE IVETMENT IN MINIG (1968-1973)

(Eth $ million)

Actual Plan Forecast

'I m1968 1969 ' ' 1969 1970 1971 1972 1973 Total Plan

Prosnection and exploration 8.6 13.3 11.9 12.2 12.6 12.6 12.2 6i6

Mineral Development and mining 2.4 2.6 8.8 12.6 50o. 45.6 0.5 117.9

TOTAL 11.0 15.9 19.7 2h.8 63.0 58.2 12.7 179.4/1 /2

/1 Including $75 million as expenditure on potash mine buildings, plant, equipment and $25 million for potashtransportation facilities.

/2 Including $50 million for expenditure on petroleum and gas.

Source: Ministry of Mines and Third Five Year Plan

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