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Cablegate: Ethiopia's Economy From the Viewpoint of the Urban

VZCZCXRO1197
PP RUEHROV
DE RUEHDS #2072/01 2380722
ZNR UUUUU ZZH
P 260722Z AUG 09
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC PRIORITY 5997
INFO RUCNIAD/IGAD COLLECTIVE PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEPADJ/CJTF HOA PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEKDIA/DIA WASHINGTON DC PRIORITY
RHEHAAA/NSC WASHDC PRIORITY
RUEWMFD/HQ USAFRICOM STUTTGART GE PRIORITY

UNCLAS SECTION 01 OF 03 ADDIS ABABA 002072

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON SOCI PHUM ELAB PGOV ET
SUBJECT: ETHIOPIA'S ECONOMY FROM THE VIEWPOINT OF THE URBAN
POOR

SUMMARY
-------

1. (SBU) The rising cost of fuel and imported goods, as well
as the power shortages that have plagued Addis Ababa for
several months, are having a sharply negative impact on
families and livelihoods of the urban poor. Over a two-week
period, EconOff visited several of Addis Ababa's poorest
neighborhoods to examine economic issues from the perspective
of city residents with whom the Embassy does not frequently
engage. During this period, EconOff toured the city's
largest market, visited three soup kitchens, and met with NGO
workers who provide services to the city's poorest residents.
Residents, NGO workers, and police reported a rising trend
in urban migration, and thus homelessness and crime, as a
result of worsening economic conditions in rural areas.
Reported economic growth is not reaching the city's poorest
residents, and all eyes look to the government to fashion a
response -- an expectation that that is not likely to be met
in the near future. End summary.

LOCAL MERCHANTS FEEL IMPACT OF ECONOMIC POLICIES
--------------------------------------------- ---

2. (SBU) Addis Ababa's Mercato, reported to be the largest
open-air market in Africa, continues to do steady business,
but many local merchants complain of a drop in sales and
difficulty in securing inventory. In the past year, the
Government of Ethiopia (GoE) devalued the Ethiopian birr by
nearly 30 percent against the U.S. dollar, resulting in
higher prices for all imports not subsidized by the
government. All vendors questioned criticized the
devaluation of the local currency and its impact on import
prices, singling out the rising cost of fuel as a particular
hardship. Other comments varied by market sector. Vendors
of hardware and household goods, for example, stated that
they have had to increase prices on the vast majority of
their goods, which are imported from China, resulting in a
significant drop in sales. EconOff queried whether customers
had begun to purchase locally made goods in place of more
expensive imports, but vendors uniformly responded that their
customers were reluctant to purchase low-quality domestic
products, even if it meant they had to do without while they
saved to purchase foreign goods. Several hardware vendors
added they had heard their wholesalers were having difficulty
importing the products they sold as a result of Ethiopia's
foreign exchange shortage, and expressed concerns that their
sales would decline even further as a result.

3. (SBU) The Mercato's vendors of building materials had a
more positive outlook, thanks to the current construction
boom in Addis. However, vendors noted the price of both
imported and locally-produced goods had increased, the latter
as a result of power cuts, increased fuel costs, and
unreliable transportation. Vendors surveyed stated that the
cost of lumber and plywood had risen by 50 percent in the
past year, and the cost of locally-produced corrugated metal
had risen by 15 to 30 percent. Sales of imported metal were
down significantly. Iron rebar, for which vendors reported
historical price volatility, has been difficult to obtain
because of domestic power cuts and GoE rationing. Vendors
stated that builders were still buying rebar, but prices had
spiked over 200 percent from the previous year. When locally
made rebar was available, prices dropped accordingly. All
vendors of construction materials indicated they were selling
a higher percentage of their goods to contractors, rather
than to individual home or business owners.

4. (SBU) In the grain market, traders reported that prices of
wheat, barley, and sorghum were stable, and sales remained
strong. In response to last year's dramatic spike in food
prices, the Ethiopian Grain Trade Enterprise (EGTE) has
imported large quantities of these grains and dumped them on
the Addis Ababa market. As a result, while prices in rural
areas continue to fluctuate, prices in the capital have
remained flat. However, merchants were less confident about
the price of teff, the staple grain produced primarily in
Ethiopia and used to make the country's national dish,
injera. (Note: Teff is grown in such small quantities
outside Ethiopia that it cannot be imported, so prices are
unaffected by the EGTE's dumping. End note.) The price of
mixed teff, which averaged 450 birr per 100 kg between 2004
and 2008, rose to over 1000 birr per 100 kg between April and

ADDIS ABAB 00002072 002 OF 003


June of 2008, and has still not receded. Merchants reported
the price of the highest quality teff, which had dropped from
a high of 1600 birr per 100 kg in August 2008, is rising
again (currently around 1300 birr per kg), and that they
expected prices of all qualities of the grain to rise
further. Several traders told EconOff that they anticipated
prices would spike as a result of poor meher (long) rains in
the country, and the resulting poor crop.

RURAL CONDITIONS SPUR URBAN MIGRATION, ASSOCIATED ILLS
--------------------------------------------- ---------

5. (SBU) During a visit to Addis Ababa's largest soup
kitchen, Dr. Alemu Gebre Wold, General Secretary of HOPE
Enterprises (the charity that operates the kitchen), told
EconOff that homelessness and begging in the city are growing
at rates he has not witnessed in forty years of working with
the poor. For many years, HOPE fed between 300 and 500
people each day in Addis Ababa, but eight months ago the
organization increased that number to 1,000 as a result of
increasing demand. Despite the increase in resources,
kitchen workers now frequently must turn away the hungry once
the day's food has run out. Dr. Alemu attributed this
increase to deteriorating economic conditions and food
security in rural areas, and subsequent growth in urban
migration.

6. (SBU) Dr. Alemu explained that it was traditionally common
for residents of rural areas to seek shelter and assistance
from family members already living in the city upon arrival.
In recent months, however, more and more people HOPE serves
had told him that family members were unable to take them in,
given their strained resources in the current economic
climate. Dr. Alemu relayed a story he commonly hears from
beggars (who visit the soup kitchen as a result of HOPE meal
tickets many Addis residents distribute to them instead of
cash): In the countryside, where work and food are become
increasingly scarce, the prospect of starvation is all too
real. Word has traveled from the capital that in an average
day, a beggar can earn 10-15 birr (in the area of one U.S.
dollar), which is sufficient to obtain food and rudimentary
shelter, depending on the size of one's family. Thus begging
in Addis, which is less taboo than in smaller communities,
has become a reasonable job prospect for new migrants. At a
second soup kitchen open only to women and children, EconOff
and FSN Political Assistant identified the overwhelming
majority of clients as newly-arrived migrants. Dr. Alemu
also noted, and EconOff witnessed, that large numbers of
healthy adults and children are now frequenting soup
kitchens, compared to the elderly, disabled, and infirm who
comprised the majority in previous years.

7. (SBU) Addis Ababa has also experienced an increase in
crime in the past six months, according to RSO police
contacts. While the police do not enforce vagrancy laws,
there has been an increase in incidents of petty theft,
principally comprised of non-violent crimes of opportunity.
Police attribute this increase to worsening economic
conditions and to growth in the city's homeless and transient
population. Police specifically note an increase in the
number of street children who appear to be committing petty
thefts with the intention of being arrested, so that they
will have shelter for the night. Because minors who commit
non-violent crimes are generally jailed for one to two nights
and then released, police report that this crime pattern
occurs every rainy season. However, they attribute the
increase over previous years to a greater number of street
children in the capital. Some of these children are recent
migrants, but others are children of local families who have
taken to living in the streets in an effort to support their
families or feed themselves when their families are unable to
do so. Dr. Alemu and Rahel Bisetegne, Coordinator of Our
Father's Kitchen, a local charity that provides daily meals
to orphan children, also reported an increase in the number
of street children in Addis.

COMMENT
-------

8. (SBU) A common theme presented by merchants, NGO workers,
and the city residents they serve was the hardship created by
the increased cost of living in Addis Ababa. Both merchants
who had witnessed a decline in sales and those who had not

ADDIS ABAB 00002072 003 OF 003


noted that their profits were not keeping up with their
increased family and business expenses. HOPE Enterprises and
Our Father's Kitchen both reported higher operational costs
due to rising food prices and worker salaries, and reiterated
that these same factors were creating a greater demand for
the services they provide to the needy. Residents surveyed
uniformly condemned the devaluation of the local currency and
resulting increase in the price of imports, as well as the
negative impact of power cuts and increased fuel prices. The
city's poorest residents are most definitely not seeing the
benefits of economic growth claimed by the government. And
while few of the residents surveyed blame the government for
the financial strain they currently feel, the vast majority
expect the government to take action to improve economic
conditions. Faced with a poor forecast for this year's
harvest and myriad economic challenges -- as well as
elections within the year -- it is unclear whether the
government will be able to meet these expectations. End
comment.
MEECE

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