THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

STATEMENT TO THE THIRD UNITED NATIONS CONFERENCE ON LEAST DEVELOPED COUNTRIES, BRUSSELS, MAY 15, 2001

BY H.E. ATO GIRMA BIRRU, MINISTER, MINISTRY OF ECONOMIC DEVELOPMENT AND

COOPERATION (MEDAC)

Mr. Chairman,

Your Excellencies,
Ladies and Gentlemen,

From the outset, allow me to express my gratitude for being honored to address this august assembly on behalf of the government of the Federal Democratic Republic Ethiopia.

I would like to convey my government's deep appreciation to the United Nations (UN), the United Nations Conference on Trade and Development (UNCTAD), and other bi-lateral and multilateral partners for their commitment to promote the cause of LDCs. My gratitude also extends to the European Union and the Government of Belgium for their generosity in hosting this important and timely global initiative. My special regards also goes to Mr. Rubens Ricupero, the General Secretary of UNCTAD and to his staff for their relentless effort in coordinating the development of the global framework for partnership and for successfully discharging the organization of this conference.

Mr. Chairman,
Ladies and Gentlemen,

Ethiopia attaches special weight and look forward to the success of the "Third United Nations Conference on the Least Developed Countries" in its deliberation which represents an extraordinary opportunity to conclude "Global New Deal" to combat poverty. As a representative of one of the poorest nations in the world, my delegation strongly believes that the conference will go beyond re-affirming the declaration of the “Millenium assembly "those who suffer or who benefit least deserve help from those who benefit most".

Mr. Chairman,
Ladies & Gentlemen,

In the context of the Conference's agenda, the case of Ethiopia represents the challenge of poverty at its extreme confronting individual LDCs. With a population of over 60 million in 2000, Ethiopia, stood as the second most populated -LDC and the first among the African LDCs. With more than 50 percent of the population living in extreme poverty, Ethiopia for sure is one of the few most impoverished nations in our continent.

The extent of the problem and its complexity, as depicted by socioeconomic indicators asserts the high prevalence and multi-dimensional nature of poverty in Ethiopia. As per the LDCs 2000 report of UNCTAD, per capita GDP in 1995 dollars in Ethiopia in 1998 was USD 113, the least among LDCs-about 35 percent of the average for all LDCs. Currently, good number of our population is chronically food insecure. Consistently, social indicators confirm the extreme low level of access to clean water, basic health and education service among the group.

Mr. Chairman,
Ladies & Gentleman,

As mentioned in a number of occasions, the expectation of reducing poverty and insuring sustainable growth in an increasingly globalized environment so far turned out disappointing for most LDCs. In the contrary, it has become clear that these countries are increasingly marginalized from the global economy. As a result, LDCs are forced to remain under poverty equilibrium trap; a situation where economic regress, social stress, political instability and vulnerability interact in a vicious circle.

The experience we had in the 1990s does not basically differ from other LDCs. Like most LDCs, Ethiopia entered the past decade with optimism to face the challenges of poverty in a globalized environment. Among the major reasons for being optimist in the 1990s was the intensity of international initiatives and expression of good will to address the issue of poverty globally and through partnership.

In-line with the two-part strategy, at the turn of the decade, Ethiopia initiated an ambitious reform agenda to address the short-term need of restoring socio - economic stability and for tackling the long-standing challenges of poverty. Most important, the adoption of the Agricultural Development Led Industrialization Strategy (ADLI) in 1993 made the path towards poverty alleviation clear. At this junction, I would like to stress that the choice of ADLI as a development framework for Ethiopia was a necessary step to reduce poverty, achieve broadbased growth, promote industrialization and insure a dynamic and self-sustaining growth.

Recent socio-economic assessment of Ethiopia indicates that encouraging progress has been made in creating conducive business environment. The economy recovered from pre 1990 depression and macro economic stability was restored. Progress was also made in restoring peace and stability, and democratization is well under way with the establishment of a federal system of government and the introduction of political pluralism. Concrete steps were also taken in creating the necessary policy; legal and institutional environment for the restoration of a market led economy with the private sector at the forefront. Moreover, an initiative was taken to design and start implementing sector development programs in areas where the scope for poverty reduction is high. To this end, the response of the international development partners particularly during the early years of the reform was encouraging.

Mr. Chairman,
Ladies & Gentleman,

The road - we have traveled so far is necessary for creating conducive domestic environment but is not sufficient enough to combat poverty. For Ethiopia, the war against poverty is declared. However, the battle is yet to be fought. Now, Ethiopia like most LDCs has to confront the challenges of poverty, where the causes are deep-rooted and complex.

Poverty in Ethiopia by and large is a rural phenomena. Thus, the prevalence of poverty is associated with low growth and productivity of the economy in general and the subsistence agricultural sector in particular. On the other hand, it is this subsistence sector which is the mainstay of the economy employing more than 80 per cent of the labor force, accounting for about 50 per cent of the GDP, and contributing for more than 80 per cent of foreign exchange earning from export. From this, it is evident that the structure of production and export show heavy dependency on primary commodity.

The root causes of underdevelopment in turn is complex and deep-rooted interacting with each other to keep the economy within a vicious circle of poverty. To start with, low productivity is associated with extremely low technical progress emanating from underdeveloped human and physical capital as well as weak technological and institutional capability. Equally important, adverse impact of externalities with increasing frequency and intensity worsen the situation. Among the externalities, the extreme dependence on rain fed agriculture stood as the major source of vulnerability to the economy.

Moreover, Ethiopia's prospect to progress under globalization with the existing structure of trade and access to finance is beyond imagination. With respect to Ethiopian export trade, two distinct characteristics can be identified -as shortcomings. First, the domain of merchandise trades, coming from agriculture, and second, concentration on primary product, coffee. On the demand side, Ethiopia depends on few developed markets for its trade. Besides, like other LDCs Ethiopia is a price taker from world market. As a result, Ethiopia is vulnerable to volatility of world market price for primary commodity causing sustained deterioration in terms of trade. Moreover, the ineffectiveness of the existing commodity market stabilization schemes forced Ethiopian small producers and through them the economy to bear the burden of declining terms of trade.

To minimize the adverse effect of external shock and to be competitive Ethiopia has to diversify its export base and increase the production and export of value added goods and services. Success in diversification, however, remains subject to market access in areas where Ethiopia has comparative advantage.

Equally important, Ethiopia's access to development finance and the problem of debt burden deserves due attention. In spite of the fact that Ethiopia is among the poorest of the poor nations, per capita ODA flow so far remains very low. According to recent World Bank report per capita ODA flow to Ethiopia in 1998 stood at USD 11 while the average for Sub Saharan Africa was USD 21. In addition, Ethiopia has been classified as highly indebted poor country deserving the benefit from HIPC initiative. However, its implementation has been delayed until now.

In this regard, the issue of resource becomes more serious as the country faces a major resource leakage due to deteriorating terms of trade, debt servicing and other international payment obligations. It is unimaginable how a country with a total resource leakage in only one year amounting to 142 and 139 percent of total public expenditure on social and economic services respectively during the same year can think of doing away with poverty. How can a country talk of educating its people while such annual leakage amounts to two and half years of public expenditure on education? How can a country think of expanding health facilities to its people when such annual leakage amounts to seven years of government expenditure on health?

Mr. Chairman
Ladies and Gentlemen,

The lesson drawn from the 1980's and 1990's clearly demonstrates that worsening poverty and deteriorating human life in LDCs can not be eased without global concerted effort in the spirit of partnership and mutual commitment from all parties. Hereafter poverty should not be considered as the problem of LDCs alone while its effect being felt globally through unsustainable resource utilization, deteriorating environment and increasingly threatened world security.

In this regard, I would like to underline two important points in the context of this conference. First, the challenges to overcome poverty and transform the economy should be addressed in a comprehensive coherent manner with a longer-term perspective. Broad based and sustained growth can only be realized if the existing supply side constraints tackled adequately. For this, physical, technological infrastructure have to developed; the human and institutional capability have to be strengthened; the weak production and export base have to be diversified both horizontally and vertically; programs aimed at reducing vulnerability to external shock and protecting and developing the environment needs to be effected.

Second, in order to avoid the mistakes committed in the 1980s and 1990s, there is a need for deep commitment from LDCs and their development partners to move in one direction with clearly set targets and intermediate bench marks so as to objectively measure the implementation of the global plan of action.

Finally, I would like to stress that the LDCs effort in eradicating poverty should not be frustrated for the lack of commitment from the international community. Given the unstable export earning, limited access to private capital flows, small domestic savings and accumulated debt problem, Ethiopia like other LDCs require ODA for financing the envisaged development programmes. At the same time, the quality, coordination and management of ODA needs due attention so as to improve disbursement and effective utilization of aid. To this effect, harmonization of donor procedures as well as moving towards budgetary support in the context of sector development programmes will avoid stretching implementation capacity of recipient countries and enhance aid effectiveness.

With respect to debt, Ethiopia would like to urge development partners to accelerate the implementation of HIPC initiative. Furthermore, there is a need to effect the recommendation of Cologne Summit to "faster, broader and deeper " debt relief and enlarge cancellation of ODA debt. Likewise, there is a need to put into action the declaration of the second HIPC ministerial meeting adopted in Geneva on 7t" June 2000 for further improvement of the enhanced HIPC initiative.

At the same time the flow of FDI which is believed crucial for transfer of technology has to be enhanced. In response to the effort made by LDCs in creating conducive domestic business environment, the international community and multilateral agencies are expected to play a significant role in increasing flow of FDI.

Equally important, LDCs effort to diversify their trade has to be matched by improving global market environment through such measures as granting duty and quota free access to all export products from LDCs. Moreover, to mitigate the adverse effects of price volatility, the effectiveness of existing initiatives including Common Fund for Commodities and the International Force on Commodity Risk Management has to be realized. In addition, there is also a need to give due attention to the issues of compensatory finance to fluctuations in LDCs export earning.

Mr. Chairman
Ladies and Gentlemen,

As I have tried to highlight the major challenges of poverty and key strategic issues for global action with my country in focus, I believe reflects the concerns of other LDCs. Therefore, LDCs and their development partners should have to strive for poverty eradication in the framework of the global plan of action and framework for partnership which is going to be adopted on this conference.

I thank you.

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