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Cablegate: Scenesetter for Codel Durbin Visit to Ethiopia

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FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7658
INFO RUEHZO/AFRICAN UNION COLLECTIVE
RUCNIAD/IGAD COLLECTIVE
RUEHNR/AMEMBASSY NAIROBI 0050
RUEHNE/AMEMBASSY NEW DELHI 0213
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
RUEWMFD/HQ USAFRICOM STUTTGART GE
RUEAIIA/CIA WASHINGTON DC
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RUEKDIA/DIA WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
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RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 04 ADDIS ABABA 000240

SENSITIVE
SIPDIS

DEPT PLEASE PASS TO SENATE FOR OFFICE OF SENATOR DURBIN

E.O. 12958: N/A
TAGS: OTRA ECON ETRD EAID PGOV AF ET
SUBJECT: SCENESETTER FOR CODEL DURBIN VISIT TO ETHIOPIA

SUMMARY
-------

1. (SBU) SUMMARY: Your visit to Ethiopia comes during a
period of political and economic challenges. Ethiopia takes
pride in being the oldest independent country in Africa. The
modern political landscape of Ethiopia has been shaped by the
1998-2000 border conflict with Eritrea (70,000 Ethiopians and
Eritreans killed) and the aftermath of the May 2005
elections, which was marked by civil disobedience, killings
of protesters, and the imprisonment of opposition party
members. Opposition leader Birtukan Mideksa, party chairman
of the Unity for Democracy and Justice (UDJ) party, is
serving a life sentence in prison. Five members of diaspora
opposition party Ginbot 7 received death sentences in
December 2009 upon being convicted of conspiracy to overthrow
the government after a trial lacking in basic elements of due
process. National parliamentary elections are scheduled to
take place in May 2010, and political space for opposition
parties, the media, and civil society is being progressively
restricted as the campaign season kicks off.

2. (SBU) Economically, Ethiopia remains one of the poorest
countries in the world, with an annual per capita Gross
Domestic Product (GDP) of USD 340. Eighty-five percent of the
population works in the agriculture sector. Chronic cycles of
drought, high population growth, state and ruling party
dominance in numerous commercial sectors, inefficient
agricultural markets, and regular power outages all act to
limit Ethiopia's economic development. Foreign investment
restrictions are widespread, including key sectors such as
banking, insurance, and telecommunications. Ethiopia suffers
a severe trade deficit, resulting in a severe foreign
exchange crisis. Ethiopia is also the second largest
recipient of U.S. foreign assistance in sub-Saharan Africa.
The preponderance of this assistance is humanitarian,
including food aid, and the President's Emergency Plan for
AIDS Relief (PEPFAR). END SUMMARY.


POLITICAL HISTORY
-----------------

3. (SBU) Ethiopia has a rich history and a diverse
population. The Oromo, Amhara, and Tigrean ethnic groups
together constitute more than three-fourths of the
population, but Ethiopia is home to over 77 ethnic groups,
each with a distinct language and culture. Ethiopia is the
oldest independent country in Africa, ruled largely by
Christian nobility until the socialist military regime known
as the Derg seized power in 1974. Lt. Col. Mengistu Haile
Mariam assumed power as head of state and Derg chairman.
Mengistu's years in office were marked by a
totalitarian-style government and massive militarization.
From 1977 through early 1978 thousands of suspected enemies
of the Derg were tortured and killed in the "red terror"
purge.


EPRDF TAKES POWER
-----------------

4. (SBU) Ethnically-based opposition groups joined together
in 1989 to form the Ethiopian Peoples' Revolutionary
Democratic Front (EPRDF). In July 1991, the EPRDF, the Oromo
Liberation Front (OLF), and others established the
Transitional Government of Ethiopia (TGE). The election for
a 547-member constituent assembly was held in June 1994. The
assembly adopted the Constitution of the Federal Democratic
Republic of Ethiopia in December 1994. The elections for
Ethiopia's first popularly chosen national parliament and
regional legislatures were held in May and June 1995,
resulting in a landslide victory for the EPDRF. Since
assuming power, the EPRDF-led government of Prime Minister
Meles Zenawi has promoted a policy of ethnic federalism,
devolving significant powers to regional, ethnically based
authorities.


ADDIS ABAB 00000240 002 OF 004

ETHIOPIA-ERITREA RELATIONS
--------------------------

5. (SBU) On April 23-25, 1993 Eritreans voted for
independence in an UN-monitored free and fair referendum.
Eritrea, with Ethiopia's consent, was declared independent on
April 27. Five years later, Eritrean forces attacked part of
the Ethiopia-Eritrea border region, seizing some
Ethiopian-controlled territory. The strike spurred a
two-year war between the neighboring states that cost over
100,000 lives. Ethiopian and Eritrean leaders signed a
ceasefire on June 18, 2000 and then a peace agreement, known
as the Algiers Agreement, on December 12, 2000. The
agreements called for an end to the hostilities, a
25-kilometer-wide Temporary Security Zone along the
Ethiopia-Eritrea border, the establishment of a United
Nations peacekeeping force (UNMEE) to monitor compliance, and
the establishment of the Eritrea Ethiopia Boundary Commission
(EEBC). The EEBC announced its Ethiopia-Eritrea border
delimitation decision in 2002, but the physical demarcation
of the border has not been accomplished. In mid-2008, due to
lack of Eritrean cooperation, UNMEE units were withdrawn from
the region and the mission was terminated.


2005 ETHIOPIAN ELECTIONS
------------------------

6. (SBU) The May 2005 elections and their aftermath continue
to weigh heavily on Ethiopia's domestic political scene.
2005 saw the opposition ostensibly take 170 seats in the 547
seat national parliament, a dramatic increase over the 15
seats they held for the previous decade. The opposition
claimed it had actually won a majority that the government
had fraudulently undermined in the vote counting. While the
two previous elections were deemed free and fair, allegations
of electoral irregularities in 2005 prompted the opposition
to launch an organized civil disobedience campaign that
turned violent when confronted by security forces. These
security forces killed nearly 200 protesters, detained more
than 30,000 suspected demonstrators, and arrested most
leaders of the opposition.


JUDICIAL ACTION AGAINST THE OPPOSITION
---------------------------------------

7. (SBU) The Government of Ethiopia (GoE) later pardoned the
key opposition leaders, releasing them from prison 18 months
later. However, opposition leader Birtukan Mideksa, party
chairman of the Unity for Democracy and Justice (UDJ) party,
was re-arrested in December 2008 when she noted publicly that
she had never requested a pardon. Her original life
imprisonment sentence was reinstated. In April 2009 the
Ethiopian Government arrested 40 individuals, for involvement
in an alleged assassination plot against government leaders.
The imprisoned consisted largely of Amhara military or
ex-military members allegedly affiliated with Ginbot 7, a
diaspora opposition party. This party was founded in May
2008 in the United States by Berhanu Nega, one of the
opposition leaders in the 2005 elections. The Federal High
Court found 13 of the defendants guilty in absentia and one
not guilty in absentia in August 2009. Three months later,
the court found another 27 guilty and sought the death
penalty for all 40 defendants. On December 22, the court
sentenced five Ginbot 7 defendants to death, 33 defendants to
life terms, and two defendants to 10 years in prison.


CURRENT POLITICAL ENVIRONMENT
-----------------------------

8. (SBU) Since 2005, the government has enacted laws which
limit and restrict party politics, the media, and civil
society, including a law limiting the ability of civil
society organizations (NGOs) to receive funding from foreign
sources and participate in the political process. Ruling and

ADDIS ABAB 00000240 003 OF 004


opposition parties have engaged in little dialogue since the
opposition leaders were freed in 2007. Three opposition
parties did engage in negotiations of an electoral Code of
Conduct with the ruling EPRDF from August to December 2009.
Government harassment made it very difficult for opposition
candidates to compete in local elections in April 2008. The
ruling party won more than 99% of the local seats throughout
Ethiopia.

9. (SBU) National parliamentary elections are scheduled to
take place in May 2010. The U.S. Embassy has strongly
advocated a transparent and open election. As of December
2009, however, leading opposition politicians voiced
skepticism that the Ethiopian Government would permit free
and fair elections. In September, the Forum for Democratic
Dialogue, (Forum), a coalition of major opposition parties,
walked out of the interparty Code of Conduct talks after
complaining the EPRDF refused to hold bilateral Forum-EPRDF
talks. Opposition party leaders reported an intensification
of harassment, arbitrary arrest, and intimidation of their
supporters, especially in rural areas, nine months before the
scheduled elections.


U.S. ASSISTANCE TO ETHIOPIA
---------------------------

10. (SBU) Ethiopia is now the second largest recipient of
U.S. foreign assistance in sub-Saharan Africa at nearly $1
billion annually. The preponderance of this assistance is
humanitarian, including food aid, the President's Emergency
Plan for AIDS Relief (PEPFAR), the Child Survival and Health
Program Funds (CSH), of which a significant share supplements
the Government of Ethiopia budget. Relatively little
assistance, about five percent of the total, directly
contributes to Ethiopia's internal economic stability and
sustainable growth. Assistance designed to promote economic
stability concentrates on agricultural development --
particularly in vulnerable, conflict-prone areas, in order to
achieve food security -- and on healthcare services.
Notably, the operating environment and transaction costs for
non-budgetary foreign aid are increasing, as a result of new
GoE restrictions on non-governmental organization (NGO)
implementing partners.


ECONOMIC OVERVIEW
-----------------

11. (SBU) Ethiopia remains one of the poorest countries in
the world. Ethiopia's 2009 Gross Domestic Product (GDP) was
approximately $32.3 billion, with an annual per capita GDP of
USD 340. Chronic cycles of drought, high population growth,
state and ruling party dominance in numerous commercial
sectors, inefficient agricultural markets, and regular power
outages all act to limit Ethiopia's economic development.
The agricultural sector comprises 43 percent of GDP and
employs 85 percent of Ethiopia's 80 million people. Although
Ethiopia's economy is relatively small, it is growing at a
fast pace. The GoE publicly touts that Ethiopia has
experienced double digit real GDP growth of over 11 percent
in recent years. The GoE stated real GDP growth was 10
percent in 2009. Many institutions, including the World Bank
and IMF, dispute the GoE's growth statistics, stating that
Ethiopia's real GDP growth rate more likely ranged between
six and seven percent last year. Inflation rates skyrocketed
in recent years, peaking at 64 percent year-on-year in July
2008. Inflation has since fallen to 7 percent as of December
2009, primarily due to the GoE's 2008 imposed lending cap on
all banks. This restriction on lending has reduced
inflation, but also restricted the private sector's access to
finance.

12. (SBU) The GoE has identified five priority sectors for
development and export growth, including: 1) coffee; 2)
textile and garments; 3) leather, hides, and skins; 4)
floriculture and horticulture; and 5) oil seeds and pulses.
Total exported goods have increased 20 percent per annum on

ADDIS ABAB 00000240 004 OF 004


average in the five years prior to 2009. Total exports in
2009, however, remained flat over 2008's level of $1.5
billion mainly due to a drop off in coffee exports. Coffee
exports--Ethiopia's major historical export earner--fell
nearly 30 percent in terms of value in 2009 from 2008 ($525
million to USD 376 million). In 2009, the GoE blamed coffee
exporters (who were allegedly hoarding supply) for the
decline in exports and as a result, revoked licenses of six
major exporters, detained some company owners overnight, and
closed the warehouses of over eighty firms. The reduction in
coffee exports appears to be tied to the decline in world
prices as well as domestic problems associated with new
coffee marketing and control legislation and capacity
constraints of the newly established Ethiopia Commodity
Exchange (ECX).

13. (SBU) Despite Ethiopia's export growth, the country
suffers a severe trade deficit year after year. Imports
totaled $7.7 billion in 2009, creating a trade imbalance of
$6.3 billion. Ethiopia mainly imports machinery, fuel, and
consumer goods. This trade deficit led Ethiopia into a
severe foreign exchange crisis and to depend on international
organizations and remittances to relieve some of the
pressure. Foreign exchange reserves plummeted to only four
weeks of import coverage in December 2008 at $700 million and
have only slightly recovered to about USD 1.8 billion a year
later. The GoE has been forced to ration hard currency,
giving priority to exporters. Many companies are suffering
as they are unable to import spare machinery parts and
manufacturing inputs. Additionally, many foreign companies
are unable to repatriate their profits without significant or
indefinite delay. Aimed at easing the balance of payments
and foreign exchange crises, Ethiopia's central bank
depreciated the Birr three times since January 2009--10
percent in January 2009, 10 percent in July 2009, and 5
percent in January 2010. The Birr is now trading at 13.3 per
USD. In the parallel market, the Birr is trading at
approximately 13.8 per USD. Many legitimate businesses are
forced to operate in the parallel market due to the current
foreign exchange crunch.


GOE'S ROLE IN THE ECONOMY
-------------------------

14. (SBU) Since the early 1990's, Ethiopia has pursued a
development strategy based on a mixed economy of both state
and private enterprises. While the private sector role is
expanding, the state remains heavily involved in most
economic sectors. Parastatal and ruling-party affiliated
companies continue to dominate trade and industry, hampering
full and free competition. All land in the country remains
state owned, although long-term leasing arrangements and
rural land registration for farmers have improved in recent
years. Foreign investment restrictions are widespread,
including key sectors such as banking, insurance, and
telecommunications. The state-owned Ethiopian
Telecommunications Corporation (ETC) is the only service
provider in the sector, creating an environment of poor
telecom service and access. In a country of nearly 80
million people, there are only 895,000 fixed phone lines, 3.3
million cell phones, and 44,000 internet connections. The
GoE maintains a hard line stance on these key sectors, but
some eventual liberalization is assumed to take place as part
of the ongoing World Trade Organization (WTO) accession
negotiation.
YATES

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