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Ethiopia Postrevolution Period
The l974 revolution resulted in the nationalization and
restructuring of the Ethiopian economy. After the
revolution, the country's economy can be viewed as having
gone through four phases (see table 10,
Appendix).
Internal political upheaval, armed conflict, and radical
institutional reform marked the 1974-78 period of the
revolution. There was little economic growth; instead, the
government's nationalization measures and the highly
unstable political climate caused economic dislocation in
sectors such as agriculture and manufacturing. Additionally,
the military budget consumed a substantial portion of the
nation's resources. As a result of these problems, GDP
increased at an average annual rate of only 0.4 percent.
Moreover, the current account deficit and the overall fiscal
deficit widened, and the retail price index jumped,
experiencing a l6.5 percent average annual increase.
In the second phase (1978-80), the economy began to recover
as the government consolidated power and implemented
institutional reforms. The government's new Development
Through Cooperation Campaign (commonly referred to as
zemecha
--see Glossary) also contributed to the economy's
improvement. More important, security conditions improved as
internal and external threats subsided. In the aftermath of
the 1977-78 Ogaden War and the decline in rebel activity in
Eritrea, Addis Ababa set production targets and mobilized
the resources needed to improve economic conditions.
Consequently, GDP grew at an average annual rate of 5.7
percent. Benefiting from good weather, agricultural
production increased at an average annual rate of 3.6
percent, and manufacturing increased at an average annual
rate of l8.9 percent, as many closed plants, particularly in
Eritrea, reopened. The current account deficit and the
overall fiscal deficit remained below 5 percent of GDP
during this period.
In the third phase (1980-85), the economy experienced a
setback. Except for Ethiopian fiscal year (
EFY--see
Glossary) 1982/83, the growth of GDP declined. Manufacturing
took a downturn as well, and agriculture reached a crisis
stage. Four factors accounted for these developments. First,
the 1984-85 drought affected almost all regions of the
country. As a result, the government committed scarce
resources to famine relief efforts while tabling long-term
development projects. Consequently, the external accounts
(as shown in the current account deficit and the debt
service ratio) and the overall fiscal deficit worsened,
despite international drought assistance totaling more than
US$450 million. Notwithstanding these efforts, close to 8
million people became famine victims during the drought of
the mid-1980s, and about 1 million died. Second, the
manufacturing sector stagnated as agricultural inputs
declined. Also, many industries exhausted their capacity to
increase output; as a result, they failed to meet the rising
demand for consumer items. Third, the lack of foreign
exchange and declining investment reversed the relatively
high manufacturing growth rates of 1978-80. Finally,
Ethiopia's large military establishment created a major
burden on the economy. Defense expenditures during this time
were absorbing 40 to 50 percent of the government's current
expenditure (see
Defense Costs, ch. 5).
In the fourth period (1985-90), the economy continued to
stagnate, despite an improvement in the weather in EFY
l985/86 and EFY l986/87, which helped reverse the
agricultural decline. GDP and the manufacturing sector also
grew during this period, GDP increasing at an average annual
rate of 5 percent. However, the lingering effects of the
1984-85 drought undercut these achievements and contributed
to the economy's overall stagnation. During the 1985-90
period, the current account deficit and the overall fiscal
deficit worsened to annual rates of l0.6 and l3.5 percent,
respectively, and the debt service ratio continued to climb.
Data as of 1991
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