DASD HUDDLESTON DISCUSSES ETHIOPIAN ECONOMY WITH

UNCLAS SECTION 01 OF 03 ADDIS ABABA 002936

SENSITIVE
SIPDIS

DEPARTMENT FOR EEB/IFD/OMA - JWINKLER AND EEB/CBA -
DWINSTEAD
USAID FOR AFR/EA HELLYER AND DALTON
DEPT PASS TO USTR FOR PATRICK COLEMAN, CECILIA KLEIN, AND
BARBARA
GRYNIEWWICZ
DEPT OF COMMERCE WASHDC FOR ITA MARIA RIVERO
DEPT OF TREASURY WASHDC FOR REBECCA KLEIN

E.O. 12958: N/A
TAGS: ECON EINV ETRD EAGR EAIR ET
SUBJECT: DASD HUDDLESTON DISCUSSES ETHIOPIAN ECONOMY WITH
FINANCE MINISTER

ADDIS ABAB 00002936 001.2 OF 003


SUMMARY
--------------


1. (SBU) Government of Ethiopia (GoE) Minister of Finance and
Economic Development Sufian Ahmed reviewed local economic
conditions with visiting Deputy Assistant Secretary of
Defense for African Affairs Vicki Huddleston during a
December 10 meeting. DASD Huddleston congratulated the GoE
on strong economic growth and controlling inflation.
Minister Sufian stated Ethiopia has weathered the global
financial crisis relatively well, but that he still has
concerns regarding the urban economy and the widening trade
deficit. He thought increased foreign investment in
agriculture would prove to be a "win-win" for both Ethiopia
and investors and cited high transport costs and security
concerns as barriers to additional foreign investment.
Minister Sufian expressed commitment to Ethiopia's World
Trade Organization (WTO) accession process, but believes that
the government still needs to play a temporary role in
certain sectors. He also commented on the welcome support of
Ethiopian Diaspora remittances, but lamented the loss of
entrepreneurial skills from emigrating Ethiopians. Finally,
Minister Sufian voiced his concerns about potential problems
with Citibank's financing of Ethiopian Airlines' Boeing
aircraft purchases. CDA Mushingi responded by saying the
Embassy will investigate this matter accordingly. END
SUMMARY.

MEETING ATTENDEES
--------------


2. (U) December 10 meeting attendees included:
- Ambassador Vicki Huddleston, DASD of Defense for African
Affairs
- H.E. Sufian Ahmed, Minister of Finance and Economic
Development, GoE
- Dr. Tulinabo Mushingi, Charge d'Affaires, US Embassy
- Brigadier General Wallace Farris, USAF
- Mr. Jim DeLoach, A/GSO, US Embassy (notetaker)
- Mr. Hailemichael Kinfu, Ministry of Finance and Economic
Development (notetaker)

STATE OF THE ETHIOPIAN ECONOMY
--------------


3. (SBU) DASD Huddleston congratulated Minister Sufian on
Ethiopia's strong economic growth while clamping down on
inflation. Minister Sufian responded by stating the GoE has
successfully managed the global economic crisis, food price
increases, and oil price increases. He claimed the Ethiopian
economy is growing 10 percent annually, due to a strong rural
agricultural sector largely decoupled from the international
economy. Minister Sufian said the rural economy is strong,
but that "there are some pockets which are struggling due to
poor rain, but associated food issues will be easily
managed." Currently, Minister Sufian's main concern lies
with the urban economy. To help in the urban areas, the GoE
is importing and selling wheat at subsidized prices and
reducing taxes on food items. Minister Sufian's stated
economic goals for the next five years were to strengthen the
manufacturing base, expand agricultural processing, expand
the service sector, and increase technology transfer. He
also reiterated that foreign investment is critical to
meeting these goals.


4. (SBU) Minister Sufian remarked that inflation is steadily
decreasing, and that November's moving average inflation
figure was ten percent for food components. He claimed this
coincided with the International Monetary Fund (IMF)
estimate, which predicted single-digit inflation by December

2009. Despite the recent recovery of Ethiopia's foreign

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currency reserves, Minister Sufian believed Ethiopia's
balance of payments deficit was a major concern. Ethiopia's
trade deficit remained significant, despite strong historical
export growth. He believed fuel cost increases, which
accounted for 20 percent of imports, were a key reason for
this.

FOREIGN INVESTMENT AND PRIVATIZATION
--------------


5. (SBU) DASD Huddleston inquired about foreign investment in
agriculture in light of the recent New York Times article on
"agro-imperialism." Minister Sufian opined that foreign
agricultural investment is a "win-win" situation for Ethiopia
and the investors. He cited the example of cotton
production, where he claims there is an extreme shortage of
labor for harvest. Foreign investment should enable
increased mechanization to compensate for the lack of labor.
Minister Sufian singled out Saudi investors as being
particularly involved in the new agricultural investment.


6. (SBU) Minister Sufian stated that high transport costs --
both in terms of money spent and time -- caused by poor
transportation infrastructure was a barrier to foreign
investment. He believes there is no real alternative to the
Port of Djibouti at this time. Minister Sufian also said
perceptions about the security of the region were a barrier
to foreign investment.


7. (SBU) Minister Sufian agreed increased sector
privatization was a good goal, but Ethiopia's is faced with
unique circumstances which do not make this a viable option
in all areas. He believed government must continue to play a
temporary role in certain sectors. Minister Sufian did
emphasize the banking sector is open to domestic competition
now, and cited the recent market entry of ten new
locally-owned private banks. He also stated that, "we are
ready and committed" to the WTO accession process, which will
determine the role of international banks in the future.

ROLE OF THE ETHIOPIAN DIASPORA
--------------


8. (SBU) Minister Sufian expressed concern about the loss of
key skills and the entrepreneurial spirit of departing
Ethiopians, but was also encouraged by the benefits the
Diaspora provide to the economy. Minister Sufian affirmed
Ethiopia receives about 60 percent of its Diaspora
remittances from North America and 30 percent from the Middle
East. He emphasized Ethiopia's presence in the Middle East
is growing, citing the fact that there are 25,000 Ethiopians
in Kuwait alone.

ETHIOPIAN AIRLINES FINANCING CONCERNS FOR BOEING PURCHASES
-------------- --------------


9. (SBU) Minister Sufian raised the issue of potential
problems with Citibank's financing support of Boeing aircraft
purchases by Ethiopian Airlines. He cited a 50-year history
of Boeing purchases with U.S. bank involvement and emphasized
that "it would be unfortunate if U.S. banks were not involved
in the financing of upcoming Boeing aircraft purchases."
Minister Sufian went on to say U.S. business could "lose
other opportunities" if financing could not be provided for
the Boeing deal. He said he did not know if the source of
the problem was with Citibank or another party. CDA Mushingi
responded saying that the Embassy would follow-up on this
issue to determine the source of the problem. (Comment:
Boeing Sales Director for the Middle East and Africa
indicated to PolEconOff that this financing issue was not a
major problem and should be resolved soon. EconOff will

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investigate this issue further with Boeing representatives
and the U.S. Export-Import Bank (which is involved in
Boeing-Ethiopian Airlines financing deals). End Comment.)


10. (U) This cable was cleared by DASD Huddleston.
MUSHINGI