RESTR!CTED

FIl f rlPY Report No. AF-60a

This report was prepared for use within the Bank: and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The rep9rt maynot be published nor may it be quoted. as representing their, views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENI'

INTERNATIONAL DEVELOPMENT ASSOCIATION

'rLZI~' i'r CnNTnCVNd V 'V'' T rT-TTt-VOT A

(in five volumes)

VOLUME V

t-%n elA T.TT'7 A 'rT'TCVNT L-'%VD D T A NTJT~TT%T~t( A 'KTt nrit'LrT c'1D?,fVx'r~OL'RGANIZATION .L 1%all FOR pT..L .A NNN ANDi DL-.LO.LMN4TJ

August 31, 1967

Africa Department

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CURRENCY EQUIVALENTS

Unit - Ethiopian dollar (Eth$)

US$ 1. 00 = Eth$2.50Eth$ 1. 00 = Us$o. 40

METRIC SYSTEM.

1 meter (m) 39. 3^7 incheskilorineter U= . 62 miles

1 hectare (ha) = 2.471 acres1 square kilometer = 0. 386 square miles

TIME

The Ethiopian calender year (EC) runs. from September 11a~~~~~~~ a__X -n s_.__: :r__ __1 _C.

LU ':epuLeLIUeuer LUW. ±VIoreuver, there is a 4l luiererice U1 aUUut

7-3/4 years between the Gregorian and the Etihiopian era.For instance, 1959 EC runs from September 11, 1966 toSeptember 10, 1967. Most of the official Ethiopian statisticson national accounts, production, and foreign trade areconverted to the Gregorian calender= Thrsughout the repnortthe Gregorian calender is used.

The Ethiopian budget year begins on July 8. For example,EthioDian budget year 1959 runs from July 8. 1966 toJnly 7, 1967. In the report this year is referred to as

uudUget year 1 96uu/ U .

THR ECONOMfY OF EThTOPIA

VOTITUbE V

OR5,ANT7LATTfN FfPl PT.AM1\T\ICT' Awn nfl V1TlPTMWNT

Page No.

1. INTRODUCTION ........... .. .. ........ . 1

2, PAST EXPERIENCE ................ *.*.*.* ...... 1

Origins of Ethiopian Planrming ................... 1Ie Introduct.L Lf J O .vrlL r .l g.2

The First Five-Year Development Plan . ..... 2Thle 'Second ICLve-Ylear Dueve'lop,nentu P l a n.1.Difficulties and Problem s ....................... 5

3. REORGANIZATION OF PLANNIFG................e.e.eo 6

4. SUIiARY OF HR. WATERSTONTS RECOid EDATIONS....... 9

5. THE MISSION'S !IAIN RECOIENDATIONS ............... 13

APPENDI1X. Ri. JUi-ELIS DETAILEDJ EEA_A; LELi;JDAI 7iUJ

Note

- -~~~~~~~~~2 . --…_'- _ _- -

1rlis report is b asedu on tuhe LJJiU±Ligz U.L of aLLLrwDs±LJL N-Dee.L. r

1966 to Ethiopia composed of Messrs. David Kochav (Chief of Mission-IBRD), Dagfin Juel (IkBRD), Joergen R. Lotz (IP), Wi'ller aa (ID),Sei-Young Park (IBRD), Stuart M. Taylor (FAO), Annibal Villela (IBRD),and T. Elwyn Williams (Grassiand Research institute, U.K.).

Volume V has been prepared by Hir. Dagfin Juel.

1, INTTRODMMTTON

1= In ac_ordance with is terms nf' roforpncp the NN4;sinn pairdspecial attention to planning and plan implementation. In Ethiopia,.s in mnnv ot.hpr develnping countries, economic plannnng has displayed a n-ber of weaknesses. Clearly, improved planning could considerablycontribute to% r nrapn r d.J ''l ennnomj c tlAnd scl gro-th, "dA +)>is ha beeL JSnn

recognized by the Ethiopian Government. In 1966 the status of theplannuincy a8A-, -n+ato asrsd r. -ae^ +o - sellsFlb

establishing a MIinistry of Planning and Development. The Bank was asked

To meet this request, Mr. Waterston visited Ethiopia in September 1966,and prepared a report. nls wUok was f.lUowed up by a mLeUJ.br Uo Uth

Miission, Iir. Juel, who presented the Ilinistry with a number of detailedre oU1Ili- i u DeXU±u V11. 11J±t VU . LU.tit UJ(ft J1'vL UX.', W-L-L-L ULLU UN .5UIlIk UU uadX E

the organizational aspects of planning.

2. PAST EXPERIENCE

Origins of Ethiopian Planning

2. At the end of World liar II the Ethiopian Government initiatedan economic development policy. The conditions then prevailing did notallow coordination by means of an overall economic plan, but during thefirst postwar decade the Government took a number of steps to lay founda-tions for future progress. These included research and preparation ofseparate programs and plans for several sectors.

3. Gradually most aspects of the economy were covered by researchand surveys carried out by Government departments in cooperation withforeign experts. Surveys were made regarding mineral and water resources,agriculture, forestxy, transportation and communication. Other studiesrelated to the possibilities of establishing new industries, constructingpow^rer stations, and developing sea fisheries. A town plan for AddisAbaba was prepared, and schemes were devised for the development ofother urban centers. Furthermore, a good deal of research was under-taken in the fields of public health and education.

4. Several medium-term plans were worked out inter alia, forroads, telecommunications and agriculture. Some long-term sectorialplans were also prepared. Thus, a ten-year program of industrial devel-opment had already been initiated by the Government in 1944/45 andworked out by the United States Technical Project Mission. Later theadministration prepared a twelve-year program for road improvement anda detailed ten-year plan for the expansion of education.

The InT+..rn+i,t3rinn nf' Overa1ll Plnnnlna

5. In 1954 the Government decided to start overall economicplanning, and two five-year --- A plans hv s4enr- beenprepared, covering the periods 1957-1961 and 1962/63 - 1966/67. These

I A-LIL - Pr out u rA d e L rAJLA J. 41 V .a'J. %1. UJ . .aJJA,1 lSJ p-LA-s ufe"e worked Au ---de4 the suerri-o of -l&n Badchaired by the Emperor. This was a policy making body which met from4-me to 4i-- , 4 to revie ,w 4the ecnr,i -- soci4 a' si;tuato 4 .. d- - o deidU-U!L%7L L) UL1IIC: UVJ ± CV.LC; "L4JC L'ILLIL I%.J _)LJL.L L _].L UU.O U-LSJL± OLJ LI'J" U LW I

on major development policies. The Board had an executive committee,tAlu r ±d L1±lI- DUdU-U ltULU.I.VtZ ULgi, ClUIiSLltUi1g; UOf theT r JIIu iLL4 C±

(chairman), the ministers engaged in economic and social development,and thAe Governor oft ihe StaUtue nal'- of Etlilpl a. ±iU±s col,,wtte

initiated development policies and measures, gave planning instructionsto minLLLstries and agencies, and was responsible for the follow-up. ThePlanning Board and its Executive Organ had a joint secretariat, theOffice of the Planning Board, with a staff of planners. -ine neaca ofthe office was Executive Secretary of the Board. He was empowered todeal directly with ministries, agencies, and private sectors of theeconomy as well as with international organizations.

6. iPleasures were taken to engage the operational ministries andagencies in planning and follow-up, and a system of inter-ministerialcommittees was established. The most important of these was the Plan-ning Board Technical Coordination Committee chaired by the head of theOffice of the Planning Board. Step by step the Government set upcertain new agencies of importance for planning and plan implementation.The Development Bank of Ethiopia (DBE) was founded as early as 1951.The Central Statistical Office was organized in 1961. The TechnicalAgency, engaged in economic and technical feasibility studies andpreparation of projects, and the Ethiopian Investment Corporation (EIC)were both established in 1963.

The First Five-Year Development Plan

7. The First Five-Year Plan, which originally covered the period1957-1961, was later extended by the Planning Board to the end of thefiscal year 1961/62. This meant an extension of about half a yearsince the Ethiopian budget year runs from July 8 to July 7. The planhad the following basic targets:

(a) to give priority to the development ofinfrastructure which represents a pre-requisite for accelerating economicgrowth,

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(b) to raise the level of edurntion and todevote attention to the trainring oft.echni nnl ner.nnnPI

tc) to accelerate the developr.ent ofagriculture,

(d) to establish processing industries, and

(e) to direct economic policy toward mobiliz-ing f4Lnara.lcial ar,d hwman res ou rces f or

economic development.

8. The plan included an investment program which implied thatthe buLtr of ir.vesnc+m.er s-^-1A 'db --;-. d i-+no bas-ic f-';1t-ies

especially into the transport system. National income was foreseen toincrase b,y 3)* J percen anLV C.LLJ.''y nLdLU. ILL:.e 1.JCLLIA...sQ ep.oJrI Ub y InIs.rly 6J jJUI. rUcILV.

9. Thn I e 4t ota] arIJ 4 ltci1- -- 4s _4n was k I, -ras b a consider-

able amount. This was mainly due to larger-than-projected investmentsin LJirLng , tr± arLsporU WiU tosUIIJIIIILtctLI. Acw..udIl J_iVesLIVAt,meLnt -in sULcadL

services fell short of the plan. The directly productive sectors-- ag-icu-lture, forestry, nuing, man-ufacturing, etc. -- reUeived som,e-whIatgreater investments thlan planned. The actual growth rate achieved hasueen estimated at 3.2 percent, higher than in previous periods, uutsomew7hat lower than planned. The following explanation was given inthe Second Five-Year Plan: "The implementation oI the nationai incometarget fell short of its expectation because development projects hadnot yet matured." As for exports, the growth target was fully realizedin quantity, but not in terms of value.

10. Although all the targets set in the First Five-Year Plan werenot reached, the Government felt that the plan period had been animportant time in the economic and social development of the country,and that the experience gained was satisfactory. Tne difficulties andobstacles encountered were discussed in the Second Five-Year Plan,where it is stated:

"Low saving capacity and inadequate methods of mobilizingsavings required for an accelerated development wereperhaps the most serious obstacle to faster growth. Inaddition, the investment structure, in which priority wasgiven to infrastructure, was not such as to expand produc-tion to the extent needed. Under-fulfilment of theindustrial programme had unfavourable consequences inagriculture, both in respect of demand for agriculturalraw material and of the supply of improved tools andimplements. The production of raw material, both ofagricultural and mineral origin, lagged behind the growingdemand of the newly established industries."

11. Another statement deals with human factors as well as administra-tive and organizational problems:

"The lack of trained personnel and skilled workers is a wellknown characteristic. of Pnnh developing country nnd thegrowing demand of the economy and social services for cadres

rnnd skill e.nno-t. hR mnt. hv the existiAnga educa.ntionnl svqtpmIn spite of all the efforts the Government has made toprovide the youlng generation with suffic ient and adequatetraining, either in the country or abroad, there has beena -ermanent shortage of tec1ann-calx mtgeria~ l ^n.dr nrlr,'!ni c.rm-.

tive staff. As a consequence, there were many shortcomingsn.d bottlenecks whbich hndered t-e ir.pler,enta+io of t1he P1 ..

The co-ordination of worlc among the various Hfinistries andfC-vxrav,,,m.n,, Agenn,ncies was.' no+- a.ClwayCsV

4e-f--y. --

economic legislation and lack of information did not en-courage the -- 4-ig 4rveto to -- 4 start new une b. hlL,LA U.1 wJ.LLIL LiIv U) U%J.L UkiJ .3 Ud..LU li ~v U.v L dI.L1vQ

clomestic initiative was handicapped by the shortage inmanagerial staff. Th±±e --v elopJ4e4.t and - agen-es,

which are a very important factor in developing countries,were noU establ.ished in all fiVelUs of prJodJUUtUiUve act VViv it ie

so that the Government was not in a position to help theeconomy by its uown Ur.arzationL to overcom,Ue tLhe dIlffilt,ileswhich have appeared."

The Second Five-Year Development Plan

12. Tne Second Five-Year Plan was prepared for the fiscal years1962/63 - 1966/67. The plan contained a long-term perspective indicatingthe economic and social objectives to be reached in the course of twentyyears. The Ethiopian economy was to be changed "from a backward andpredominant'ly agricultural tou a mouern anu eflicient, agro-indus trialone." To accelerate the rate of growth was "the basic national target,"and a gradual increase of this rate during the twenty years was envisagud.

13. Against this background the Government included in the Second

Pnr an..L - r n.c*S .ve proram morA that tw_ce the sizeof- that in +he Firs.

Plan. About one-third of the new program was supposed to be financedOrp',,T abroad.-. A m~rp cQli- f-P- -4 ri + 11 n~n+-; nrw if' J r0'iI-11rna +.' wncz

frorni*~S ~LJA. .JO.Sjk abrad A . -k shift in the alloca of _.vest..e..t was

suggested; about one-half of the total was to be allocated to the

to grow at an average annual rate of lh.3 percent. Merchandise exportswgere fLoreseen to.- iC-Mcraose at ar.L- average ann.ual1 rate of 11lt percent.ThSecond Plan was more elaborate than the First, but it still sufferedfJrom -'.portar.L1 SItJI UU JLU,L..J Udis i r.WDOt%A thL u nj i exut svection ofL +hiss chapter.

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14. It is difficult to get a clear picture of what has beenaccomplished during the period. The system of progress reporting hasbeen inadequate, and up-to-date statistics are lacking. However,preliminary national accounts data up to and including 1965 are avail-able and give some indication of progress made. It seems that the totalinvestment carried out may approach the target level, but that the actuaLallocation will differ markedly from the program. The directlv productivesectors, and in particular agriculture, will receive a much smaller sharethan envisaged; nevertheless their share of total investments increasedfrom 22 percent in 1961 to 37 percent in 1965. The growth rates ofproduction and particularly exnorts may fall somewhat short of the targets.

Difficulties and Problems

15. Ethiopian planning has proved useful, but it has also sufferedfrom wean>esses. These have become apparent in __satisfactoryimplementa-tion in important fields. Above all, the actual allocation of investmen-ts

the cormmodity-producing sectors. Another significant example of unsatis-factory Pollow-up can be seen in regard to the problems of land refo-r.It was a declared policy "that important steps towards their solutionmust be unrdertaken durng the Secornd Five-Year Plan"; however, progresshas been slow.

16. The difficulties and problems experienced in Ethiopian plan-ning r-e .main.ly conLnected -wXitlh the present stage OI economic andadministrative development. The planners in many ways are hampered by lackof .basic, and- essential information. Statistics are inaccurate or non-existent in a number of fields; in particular, information about thesubsistence sector 'nhas been scanty, tnougn the position is beingimproved by recent sample surveys. Defective and slow information aboutplan impiementation has been a serious difficulty.

17. The severely limited administrative capacity has been anobstacle both for planning and plan implementation. This applies notonly to the central planning administration, but even more so to theoperational ministries and agencies which have not been staffed andequipped for effective participation in the planning process. 'Theweaknesses of local administration seriously impede regional planning.The centralization which characterizes the Ethiopian administrativesystem has impeded planning as well as performance. Many privateprojects have been hampered because ministries and agencies have notbeen able to give quick and adequate service regarding permits, decisions,advice, and important information.

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18. A rnnc spcia-nl asiect of +Jhe nminisnhtlivp probepm is the general

lack of educated and skilled staff to fill professional and clericalp +ions. Aboverr all, +kiia ls sh1oi,rt of phvysical tnl economic n1,qnn(irs

and of qualified professionals and experts who can implement plans andcarry through projects T In +he fall of 1966 there wre' nnlv 2hnit ten

Ethiopian professionals on the central planning staff. Although thesewere n _ supemne Uy= pr t_; _A-b --o ffi_ M- +i n"n-l V+.hi onn; on

personnel were urgently needed to enable the central planning administra-tion uo efficienbly carry out its v.tos

U .. U.L LA. UL L L~L±LUj. '. el ± .U.L U 4.- u1VC .i. IJLL_

19. Tihe adUIniU..IU.O U1 .tI dfce ie ave bLen Uarti.O.rl

manifest in respect to preparation and implementation of projects.

Consequently, both five-year plans were characterized by too m.anygeneralities and too few specific measures. In particular the prepara-t'ion of Government projects in or related to the cormm-odity-producingsector has been slow. The following statement in the Second Five-Year

Plan illustrates the effects of these shortcomnngs:

"In the course of the elaboration of the Plan, for understand-able reasons the micro-location for each new industrialproject could not be foreseen. It wiil be possible to makea decision on this only on the basis of detailed studies andinvestigation of all the factors and conditions concerned,but new projects should be erected in all parts of thecountry providing the feasibliity studies allow it."

20. Last but not least it must be stressed that the Governmentpaid too little attention to the problems of coordination. The central

planning administration was not in a sufficiently strong position toprovide for adequate technical coordination. Political and inter-ministerial coordination was too weak. Thus, the plans and the fiscalbudgets were not properly coordinated, which inevitably gave en un-realistic touch to planning.

3. REORGANIZATION1 OF PLANNING

21. As part of a reorganization of the Imperial EthiopianGovernment in 1966, the Planning Board was replaced by a llinistry ofPlanning and Development headed by a cabinet minister. The powers andduties of the kIinister of Planning are defined in the MlLinisters Order,1966:

"The M4inister of Planning and Development is the headof one of the Departments transacting State affairs, name-ly, the iiinistry of Planning and Development. The

]Pnister of Planning and Development. in accordance withthe law, shall:

(a) be generally responsible for the conduct of the Gov-ernment's plsnning activitips;

(vb\ superwv^se n,v.d1 coorvna the acfiv ties oft the. Gov-

erment' s planning administration;

(c) in cooperation with other lHinistries and Public Au-+horities concerned, i-ntite, prepae a-d organizelong-term development plans and submit the same forappro,.v'al hytr +the Proii"l- I rr s.te j

ku) rIecveLvt each yerl- LjVll Ufiro 1".LI.Lm U.L .11Q ±L%d F A iu-

thorities concerned, or, if the same are not so receiv-ed, initiatear.d prepare nuldevelop.mer,t-- pragrmnesed CVJclJAIU1. jJ. J_ %A VKt.LV?l AU IJ.LWr, JUI~

and the supporting development budget proposals; analyse,eva LLuate andk consolidate sa3Ld annuaL UdevelopmentJl pro-

grammes and development budgets and present the same totLh LLiil try of rJJIWCULU Lf I cooidaUCIU.LV±U4 J.IiU With

annual Government budget;

(e) in agreement wuith other Wlinistries and Public Au-thorities uoncere'Uv, establish a-p-rupriLate ailu ei'lec-tive procedures to ensure that approved developmentplans and programmes are properly implemented and thatthe development budget is properly expended for thepurposes fTor wnich appropriated;

(f) carry out or cause to be carried out technical andeconomic feasibility studies of individual developmentprojects;

(g) be responsible for the securing, compilation, analysis,collation and publication of data and statistics;

(h) negotiate and conclude, in accordance with approvedprojects, programmes and plans, agreements andarrangements concerning the provision of bilateral,and multilateral assistance, and coordinate the samewith other ilinistries and Public Authorities con-cerned;

(i) formulate and enforce general credit policies of Gov-ernment financial institutions and corporations en-gaged in the financing of development plans and pro-gralimes; and

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istries and Public Authorities concerned, for repre-sent _ing aw n _A pr te -t4 - - -1 :, - 4 - + 4- S4-s o4' -rA~ .~J~1e C1LI..L '. L. -L. L16 wU1J -"I �Ier u , .1i. - LJSJ U V VA.L -

ment in public financial institutions and corporationsengaged i n luh e fincin of-- -4eomet lrs

programmes."

22. The creation of the new ministry has greatly improved thestuatus of the plni--ng administratiion. In addition, the IMinistly hasbeen given some powerful means to directly influence economic develop-ments. T-h-us certain functions and personnel have been transferred fromthe ilinistry of Finance. Consequently the Ministry of Planning now has,in addition to two pianning departments, an executive department, whichis the overall coordinating agency in all matters pertaining to inter-national and foreign assistance, external and internal loans andcredits to the Governnent, and Government investment and participation.Furthermore, the MIinister of Planning was given jurisdiction over theCentral Statistical Office and the Technical Agency.

23. The Ministry of Planning invited Hlr. W4aterston, the Bank'sAdviser on Planning Organization, to advise "on the task of organizationof our newly created i4inistry," and he visited Ethiopia in the fall of1966. His report, "A Practical Planning Program for Ethiopia,"' wascompleted on October 31, 1966, and contains a number of recomnandations,mainly regarding the planning function proper.

24. 1ir. lWaterston recommended that the next five-year plan bepostponed, and that for the time being efforts be concentrated onpreparing a comprehensive annual plan for 1967/68 and on coordinatingthis plan and the fiscal budget. His report stressed that the planshould include a rationalized program for the public sector based on aninventory of all on-going and proposed projects. In order to identifya sufficient number of projects for the following years, his reportsuggested that steps be taken as soon as possible to initiate aprogram of sector and subsector studies.

25. i.oreover, Mr. Wiaterston recommended strengthening the plan-ning administration by improving the organization of the I;nistry ofPlanning and by establishing prograrmming units in the operationalministries. To further improve coordination and follow up, the creaticnof several coordinating bodies was recommended, such as a Budget ReviewCommittee, an Inter-Ministry Planning Committee, and an AgriculturalCoordination Committee. A more detailed account of Hlr. Waterston'srecommendations is given in Chapter 4 of this volume.

26. l,!hen the Mission visited Addis Ababa. it found that Mr.W;aterston's report had been favorably received. An annual plan for1967/68 was being prepared 1/. The GovernTnant had decided to postpone

1/ The plan was submitted to Parliament in the spring of 1967.

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the Third Five-Year Plan for one year, and consequently this plan willcover the period 1968/69 - 1972/73. L-ne Mission welcomed these declsion5wihich should considerably contribute to the improvement of Ethiopianplanning.

27. The Mission followfed up Mr. Waterston's work and one of itsmembers, Mr. Juel, was assigned to this task. The Miinister of Planningand his deputy, the Minister of State, asked for advice on a number ofquestions, particularly on administrat,ve and organizational problems.The Mission has been impressed by the serious efforts by the EthiopianGovernment to overcome the shortcomings of the past and to improve theirplanning.

28. The Mission's recommendations on planning were formalized ina memorandum, "Suggestions Regarding Ethiopian Planning," dated January9, 1967, and submitted by the Bank to the Minister of Planning. TheMission has been informed that most of these recommendations have beenaccepted, and that many of them have already been implemented. Thememorandum is reproduced in extenso as an appendix to this volume.A summary is given in Chapter 5.

4. SUYOLARY OF

M1R. WATERSTOM's RECOIMENDATIONS

29. The strong sentiment in the Ministry for preparing an annualpj,n fo. 1967/68 an.d for postponing the Third Five-Year Pla is well-grounded. Countries with long planning experience, when faced with cir-cum.st-aces mbLchl L-ave madAe .-,.u 't i- aaa -"-.u p -1 nn ng d Jiffl.- c 't- o r tnfe a s lblenhave resorted to annual planning. The annual plan for 1967/68 should be

3I 11 P,|n b Ltwee +EUX -_f SvJ%iond Wl t-he 71 A r-Xul ; e VS-a 'D C L

3 ±1Ts d.il±Ue an.n.uaL pLar. shoVU-.U iLLA±UUt5d a raIonaLV1Lized PIgV.%± VIr theLJ

public sector. As a first step, an inventory should be taken of allpublic investment projects and programs being prepared for execution aswell as those actually in process of execution.

31. While the inventory is being taken, estimates should be madeof the operat,ng budget surplus likely to be available for the year,-) aswell as the public investment resources likely to become available fromforeign contributions, aid and loans. If possible, tne annuai estimatesof financial resources available for investment should form a detailedpart of more general projections of financial resources likely to beobtained in the next five years.

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32. Tf +tKhe inventonry of' pnubi investmepnt. revear1.q that, more

investment is being attempted or contemplated than can be supported byavailahle finanncial or physical resorTces, priorities bave hto bsptefor the projects and programs by applying to them general economic,fir nni-i +wb t chrincl n.dA -arz y- is+ 4-trn nj + i n criteri. n Ii aigh prio vri tv

project can be made effective only if complementary works are completed.,rmrei nn c:nilr-l bhn mn o fin +1ihmo,n T.TYcr +e% lin ho r'rrneAmf+-.

.r.osio shl be mad _ _ v u - to be _ ie X out._z

33¶)s.lo-w-ever, ar. annua" p a. m'p.ust be r.ore thr a s+ate.ent noP pbl cIi.W1V1 ±, W ~IUS.L t.a. iiii.iJ Liu~ I' UL mna, a .~ i.Lt,r L - - '.. .-

investment estimates. It should, in addition, include the followingelemient-s-

V .L~~~~~~~~iUV1A Li. A-- -- --

a. A description of the econoic and social progress m,ade inthe previous year and the main development bottlenecks andproblems which were enco-utered.

be Physical as we'l as financial targets for investmentprojects, sector programs and the economy as a whole basecdon an evalua-tion of a-vailable financlal and physicalresources.

c. Provision for starting surveys which would lead to thepreparation of multi-annual programs in the basic sectorsof the economy and feasibility studies of potentially higl-l-yield projects identified in the sector programs.

d. A program of coordinated technical assistance for carryingout the public investment and other programs included inthe plan.

e. An estimate of foreseeable private investment and the rolewhich the private sector is expected to play in achievingthe plants targets. This section should list the majorinvestments which the private sector is expecting to start,continue or complete during the year.

f. A foreign exchange budget including estimates of totalforeign exchange resources expected to be available andtheir sources, as well as their distribution among differentuses in the public and private sectors.

g. The specific monetary, fiscal, credit and other financialpolicies and measures, as well as the organizational andadministrative measures, which have been or will be adoptedto mobilize development resources and achieve the plan'sgoals in the private and public sectors. This statementshould include an account of precisely what is being doneto stimulate private investment in agriculture and industryalong appropriate lines, as well as the measures adopted toinsure that the budget reflects the Plan.

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34. Unless the fiscal budget reflects the corresponding items inthe annual plan, the probabilitles are that the public sector portion orthe plan will not be carried out. In this connection, it is imnperativeto recognize the essential unity of the budget. Development outlays inthe investment budget often involve simultaneous expenditures from theoperating budget as well. Indeed, certain current expenditures, e.g. fortraining skilled staff and managers for a project under construction, maybe crucial to the ultimate success of a project.

35. Effective realization of the public investment program requireDsthat the liinistry of Planning coordinate investment estimates supplied 'bythe various technical ministries, and that the Ministry of Finance adjustthe budget and control expenditures accordingly. Machinery should be setup for ensuring the systematic accomplishment of these aims, and the mosteffective apparatus is a Budget Review Committee. The permanent membersof the Committee should be the i'Iinister of Finance or his representativeand the .Iinister of Planning or his representative. Each minister of anoperating ministry presenting proposals for inclusion in the budget, orhis representative, should be in turn a temporary meraber of the Committee.This simple system can ensure the proper relationship between the annualplans prepared by the Hinistry of Planning and the budgets prepared bythe Ilinistry of Finance.

36. Soundly conceived projects often tale longer to identify andorepare than the most elaborate overall plan. Therefore, it is impera-tive to start as quickly as possible a process by which they can beLdentified and prepared in large enough auantities for the years followingL967/68. The best way is to make a survey of each of the basic sectorsDr branches of the economy to be followed by multi-annual sector programs.

37. A good sector program involves an overall look at the cto-r.-)n the basis of clearly defined national objectives for a sector, a survey:s mande of _all th factor"s 'vihhellp de+-emnn a -ratom1 -proach towardlreeting the objectives. An important end result of a sector program is a

A+ ofr pn+-+lly; Tr Tr4 projc+s f-or w,lch h41f4-,,stu bcs c,., be

Ide, for the purpose of acquiring a "shelf " or stock of projects which'.ZU1 L4S al. aG.VJI1 1 0.~ GO .J bLAJLQ UCtLP.A O L.L. UI VVJ. LILA VUU La 1IUA X U;;cLY Z) J11.-1.

-lows a government to start negotiating for external financing for a1-oject far enough n1 advance to ensure construction according to azhedule pre-determined in a plan.

3K It is necessary, of course, to relate the sector programs witho.e another. This car, be done as part of the process of pr-ep-ing m[1ulti-anual comprehensive plans. WThen this is done, the multi-annual plansbcome more meaningful, since 'they are then tied to the actual projectsi. the sector programs.

3' Sector planning requires planning units in the operationalmaistries. Some Ethiopian ministries aiready nave programming units,

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but these need to be strengthened. Other ministries are still withoutsuch units and need to have them established.

hO. The programming unit should be considered for its ministry thecour~,mn+ntePrt-%, Or e a cenra- l pn -'nn ragncr P nnal "nver l fvnn+ T+

should set standards and criteria for the ministry's operating departmentsorr. ,,r.- +c.is 4-o. folo ir. p4 nv.r..,.,nr, and. nrr'n.g n ut poet, FL it, h +oul

formulate the overall development program and the recurrent budget on thebasis ofP ;,,'rectives fro. itP s 4-4-,- -. r.--- it s p 'ternat

LJdO.L 'J. L.L. C. U. VCi J5. Vt.,L . U.] 1L.LLiSV . 4.V is X4JWUJL4.. JJJ "c".0. 0.4. isSS 54. s4.V'

investment policies for the consideration of the minister; it should sel;5 UcI1Ud.LU~± 01I4Jt Up±d. s±Z± U~j~LL 4IL~Jts~ an-U -IL L,. 'O 0.1±0W ±1 £ IC;JUJ 2."t,

on the progress of projects; it should prepare regular, timely andreasonably co,iiplet.e reportus andu eval'at.LonsI o.f its 1IiLLLLtrI.y' pit should coordinate the technical assistance program for its ministry;a&uu L U 11o u auuI.t u d o USa) l41ti ±±_LLL0JI I11 ± LU 1UULU±, '1)l-. W-LULJ t,1JAZ PUJLI±L U±- 01L

Planning.

41. The heads of the programming units should constitute an Inter-Ministry Planning Committee, chaired by a high official of the Ministryof Planning. An official from the Budget Office in the Ministry ofFinance should also be a member to ensure that the budget authorities arekept informed of the Committee's activities. The functions of the Com-mittee would include the formulation of uniform criteria and standards forpreparing projects, sector programs and plans, and for reporting on theirprogress in consistent form. The Committee would also provide a forum forproposing policies and strategies.

b2. In Ethiopia, several ministries are concerned with variousaspects of agriculture. In order to establish a set of policies and anintegrated program for this sector, it will be necessary to coordinatethe activities of all the ministries concerned. To facilitate suchcoordination, it is recommended to establish an Agricultural CoordinationCommittee.

43. The Ministry of Planning should begin without delay to makequarterly reports on the progress of public investments. The reports shouldgive timely and accurate financial statements, as well as physical reportsand evaluations, of the most important and the most troublesome projectsand programs. The objective should be to make information available assoon as possible after the end of each quarterly period so that thoseresponsible for making decisions may take remedial action.

44. It is recommended that the Ministry set up a Statistical StudiesCoordinating Committee, which would include representatives of the planningdepartments of the Plinistry, the Central Statistical Office, the ResearchDepartment of the National Bank of Ethiopia, as well as other bodies,which could prepare studies required for planning.

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45. A series of proposals for organizing the planning activities ofthe Ministry of Planning and Development have been under discussion withinthe MIinistry. A Committee on Organization has considered the variousalternatives and produced an organization proposal of its own. Thisproposal can be streamlined in a number of ways. In particular it isessential that the main planning units (departments) in the £linistryreport to a technician who fulfills the role of chief economist andtechnical coordinator. Only in this way can the Minister and Minister ofState be assured that proposals made to them have first been properlyintegrated from the technical point of view.

46. Because the lMinistry is likely to confront rapidly changingplanning requirements in the immediate future, it is recommended thatserious consideration be given to an interim type of organizationalarrangement which has been employed successfully in several countries. Inthese countries it has been found convenient to set up task forces, eaclwith a work program arranged according to priorities. Available staff isthen assigned to each task force according to the work load.

5. THE MISSION'S HAIN RECOIIENDATIONS

47. The present organizational structure of the MFLinistry of Planning,which includes two planning departments and one executive denartmentbesides services, should permit the Ilinistry to carry out its functions.However, some minor imnrovements in the organnzationa1 chart and in themanual of organization should be considered. When applying the chartand the manual. administrative elasticity is necessarv= After some tAmp,when experience has been gained, the organizational structure should bereconsidered.

48. The activities of the Ministry of Planning are coordinated bya Standing Committee consisting of the PIinister, the Minister of State,the three heads of denartment. thp head of the rnntrnl t.tntj.tin c.ni nlffj

and the general manager of the Technical Agency. The Committee is tohave an office which has not vet been orgnnized= The .Mission advises thatthe head of this office be a senior economist and be given the followingfunctions: (a) the direction and coordin.ation of +he work of the +hree maindepartments, (b) the duties of chief economic advisor to the Minister, and(c) the nreparation of the agenda for the Standing Committee .For thesake of efficiency some ruling on which matters should be discussed inthe rommi tt.e and nih-icnh shoiild not- is desirable.

49. The I-I"'on reom-..n- s that the draft Central] Statvistical OPcOrder and the draft National Statistics Proclamation be approved (with two

I1. V .1e.en) 0I1 is d tbat tbe M to s extent

- 14 -

empower the Office to issue regulations, and matters concerning interna:Ladministration should be left to the Office without interference from theMinistry. Concentrated efforts are necessary to improve population andproduction statistics. A population census should be taken as soon aspossible, but will have to be very carefully prepared. Steps should betaken to make the inter-ministerial statistical committee become anefficient body for coordinating statistical and other studies.

50. It is essential that the Technical Agency be well staffed andequipped so that it can contribute efficiently to long-term planning.After some time, however, the future of the Technical Agency and thefuture organization should be reconsidered to determine the extent towhich actual work could be decentralized in ministries with supervisionand coordination from the Technical Agency. The Mission recommends ap-proval of the draft order to ammend the Technical Agency Order. Imme-diately after approval a senior official in--the dinistry should bedirected on specified terms to act on behalf of the iIinis'ter Inrmattersconcerning the Agency. Furthermore, the M1inistry should limit itself tomajor decisions and leave details to the Agency; in particular, mattersconcerning its internal administration should be left to the Agencywithout interference.

51. Annual plans are important means to implement a medium-term plan.Therefore, it is essential that the annual plan for 1967/68 be followedby successive annual plans covering each year of the Third Five-Year Plan.

52. Th. Miisi on emnhnsi.es the imnortance of comprehensive sectorstudies. The agro-industrial survey, recently decided upon, should provevery useful. In the course of 1967 the Ministry ought to initiate furthersector studies, by means of foreign assistance if necessary.

53. Realistic planning requ3ires that each annual plan and thecorresponding fiscal budget be thoroughly coordinated. Close cooperationbetween the iinistry of Planning and the Ministry of Finance is necessary.Efficient coordination procedures are required on both official andministerial level.

54. According to proposals prepared in the IM-Linistry of Planning,all operational ministries and agencies will take an active part in thepreparation of the Third Five-Year Plan and later on in its implementa-tion. Each minister will supervise and integrate the planning withinhis field, and a comprehensive system of planning units will be developed.The Mission strongly supports these proposals.

The prenaration of a realistic five-year plan and its efficientimplementation requires good inter-ministerial and political coordination.The existing Ryperts flevelopment Comnm-ittee shou1d be considered the firststep towards an Inter-lMlinistry Planning Committee, and the Mission recom-mends that the committee be gradually expanded to include renresent2tiues

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of new planning units. The Third Five-Year Plan has to be coordinatedwith realistic financial projections for the plan period, and a similarprocedure as for annual plans could be used.

56. It is the task of the Council of Ministers, assisted by theI-linistry of Planning, to secure general political coordination, and it isessential that sufficient time be devoted to this crucial phase. Aspecial coordination problem exists in agriculture. Several ministriesare concerned with agricultural questions, and adequate coordinationprocedures should be established.

57. It is important to engage the private sector -- especially bigfirms -- in the planning process. A joint committee or other suitablearrangements of cooperation ought to be established.

APPENDIX

IR. JUEL'S DETAILED RECOII'ENDATIONS,

iADE JANuARY 9, 1967

Page

Organizational Chart of the l,inistry of Planning ......... 2

The Main Departments of the nistry ............nsy 2

Coordination of the 11inistry's Activities

The I!dnistry's Manual of Organization ........ali 5

Central Statistical Office ............................... 5

Technical A g e n c y ........................... 7

The Annual Plan ... ........ .... ... .. 8

Coordination of the Annual Plan andtne Fi8cal Budget ....................... *. , 9

Division of Responsibility for Preparation ofthe Third Five-Year Plan ........................... 10

Interministerial Coordination ................. 11

Laws and Regulations Necessary for EfficientDischarge of the Planning Responsibilities ............. 13

Annex 1. Ministry of Planning. Miain Departments.Annex 2. iMinistry of Planning. Organizational Chart.Annex 3. Department of General Planning.

- 2 -

Organizationi1. CharL. of L.ne

Ministry of Planning

1. I have examined the organizational chart of theuiinistry showing three main departments, a Legal Advisor's

Office, a secretariat, an administration service and in addi-tion two independent agencies, the Central Statistical Officeand the Technical Agency. Although the organizational struc-ture may not in all respects be ideal, it should permit theMinistry to carry out its present functions.

2. However, the organizational chart and particularlyits details should be considered temporary. After some time,when experience has been gained, and the number of professionalshas been increased, the Ministry most certainly will feel theneed for some reorganization.

3. Some minor improvements in the chart could be madeeven at this time without disturbing the work in progress. Inthe next paragraphs I have made a few suggestions regarding themain departments.

The Main Departments of the Ministry

4. Of the three departments only two are really planningdepartments, namely. "Department of Planning and Follow Up" and"Department of Economic Policy and Development". It would benatural to adiust the chart in order to nut these two depart-ments next to each other. They could be given shorter and moreillustrative names by calling them Depnartment of SectorialPlanning and Department of General Planning respectively.

5. The "follow up" is an integral part of the planningprcor-:s- Thp r.hArt. indirntAfpq t.hiq fnr .qot-_.nrin1 (nnei roi nn_

al) planning only, but "follow up" is no less important invanor.-al pn1ingni' This shomAd beo mnad clear,- andit i+. rnn hbct

be done in the organizational manual.

6. The third department, "Department of Technical andFinannicl Resomrces Goordination and Allocation", is aservice or executive department, established consequent to the

Ministers Order of July 27, 1966, which transferred certainfunctions and personnel from the Ministry of Finance to theMinistry of Planning. This new department is the overallcoordinating agency in all matters Dertainine to internationaland foreign assistance, external and internal loans and creditsto the Government. and Government invtstmnnt and participation.In my opinion, this Government decision was a fortunate one asthe effect is to put at the disposnl of tho Ministrv of Plnnningpowerful means to influence economic developments directly. Itsemns. however; that the name of the new department could be madeshorter and better by calling it for instance Department ofTpn.h-ni-.ql anrdr Firincinl ResaRmrces .

7= As regards the s within each department, inseveral cases scarcity of personnel undoubtedly will for sometime make it necessary to combine sections. This im.plies thatinstead of the term "section" one could, if one wanted, use thete.-m "1fulnction_" . Furthem.ore, tuhe Worg&.aizat-onal chart- i6 not-* *'. -_ .S* - - 4 - ULVA. -A vi~' VJ. .~ 5.i.~d U.'J 2.L. LIa U A.J %I

meant to be a static and formal one. As a matter of fact practi-^nll I h i, U -A, I M4-4tr is- fo - th- e t4.ebin worin 4on te

annual plan for 1967/68, and after a while its efforts undoubtedly.. a.L .~ -1 ~W IIn W.4 L%UIU% '.411 U1IC ILVUAU .1.LV t; Jt UL jJ.Ld S.1* JL"O~~UI±iL ~ tive elasticity in my opinion is very valuable and necessary.

8. It would be logical to switch regional planning from theWepartment o'L Sectourial r ±uainLnig to the Deparunenit of ueiera-LPlanning and to switch commodity projections the other way. TheMinistry may also wish to consider Mir. viaterstonis suggestion oftransferring the section "Training, Publication, Documentationand Libtrary" from the Department of General Pianning to theAcdinistration Service. This section has mainly a housekeepingfunction which a planning department should preferably not beburdened with.

9. It seems to me that the Department of Sectorial Plan-ning is not in need of a Finance Section. Such a section appearsin the organizational chart, but not in the draft manual oforganization.

10. In my opinion, the functions (sections) of the Depart-ment of General Planning ought to be more clearly described. Iwill therefore suggest some change in the wording and the additionof a couple of functions. These suggestions are not meant toimply any real changes compared with the present chart.

11. If my suggestions in paragraphs 4-10 are accepted, thesections (functions) of the three departments will be as shownin Annex 1.

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Coordination of the Ministry's Activities

A- 4-- A i +-A,a;4^4r.s ir. 4-hi^wig a

standing committee has been set up to coordinate the activitiesof +Ue M4-4st.,y o. D '-4--4rg .no.s com,i44tt--ee -- convls4- n6 ' ofth'JA. US1~ ~L.J~LLO UJ J S. IL AL4L~L5 .&.LQ L .'JII. A.V U %, Lu.' L QWJ .L ..LAL *J.L. ULL

Minister (chairman), the Minister of State (deputy chairman),O.L4U I.41~~ £1~UO IJL IA1~ ALLL'd , Ut -LA II LLL,O LU LiWU t%t1;LT, J.L UV'

have an office, not yet organized. I understand the intention.Ls that aLi le hleadU of WLJz of.L.Lf.ce ShI-LL be a se-UIior econorn.Lsu -Jldthat he shall have very important functions in the Ministry. Iwoul-d like to emphasILe Wuav these fun1ctionXs in my Upin.ionshould be:

(a) the head of the office of the StandingCommittee should direct and coordinatethe work of the three main departments,

(b) he should be the chief economic advisorto the Minister, and

Cc) he should prepare the agenda for theStanding Committee.

13. If the head of the office is given these functions andthe necessary rank, I think that the Standing Committee and itsoffice will greatly strengthen the planning activities of theMinistry. But it is essential to find the right man for the job.He has to be not only a well qualified economist, but he needsalso considerable administrative and practical experience andadequate ability to understand political problems.

14. As for the coordinating committee, the considerationof efficiency is very important. If too many matters are putbefore the committee, this will hamper the work of the Ministry.Some ruling on which matters should be discussed in the committee,and which should not, is desirable.

15. Assuming that an office of the coordinating committeewill be organized in accordance with the ideas above, I suggestthe "tcp structure" of the Ministry be as shown in Annex 2.There are no important differences from the present chart. Butit should be noted that the two independent agencies now havedirect lines to the ministers in addition to the lines linkingthem with the coordinating office. This, I understand, would beconsiptent with present practice.

The Ministry's Manual of Organization

16. At the request of the Ministry, I have examined thedraft manual. I recommend that the manual now be approved witha few minor changes indicated hereafter.

17. I have no remarks on the Office of the StandingCoordinating Committee and the Private Secretariat.

18. If the Ministry agrees to my proposals to rename thethree main departments and to undertake a minor switch betweenthe two planning departments, this calls for correspondingadiustments in the manual.

19. As for the Dpmartment of Sectorial Planning. I haveone further remark: the word "methodology" should be avoidedhbuse-z if ncreates some ncnnfm-,ion in relation to the nh.nnrtmnntof General Planning. The desired correction can be made bylf.in.a the lanst n.tnr'e in +.he trms of rpfarpnno read asfollows: "Works out measures in order to provide correspondingcoordination and uniformi+ty in sectorial plarning and in follow-ing up the plans and programs".

20. As mentioned before, it is desirable that the functions.L Ldl iieppaitAllent fz ur,en. .s=.-LIlann be diecribeU.w more clval v

Therefore, I propose the text concerning this department be re-p.laced by LAhr new~v text wh"ich I hlave wiritten in ArLLAU& 3I.

21. ~ .a n ave nso resn,ari¶. on. the be.xt abo-utbh 14ey LJtprAlner of

Technical and Financial Resources.

Central Statistical Office

22. At the request of the Ministry I have examined thedraft "Central Statistical Office Order!' and the draft "NationalStatistics Proclamation". They appear to be thoroughly con-sidered and adequate documents. Such an Order and Proclamationwould facilitate the statistical work, and I recommend immediatesteps to get both drafts approved. Two minor textual changes,however, are suggested below.

23. In the Schedule annexed to the draft Order a new itemshould be added: national accounts, including balance of payments.

-6-

This does not necessarily mean that the Central StatisticalOffice itself should prepare these statistics. The work couldbe farmed out to the National Bank, and this step should beseriously considered.

2h. In most countries the Central Statistical Office hasbeen given greater power than provided for in the draft Procla-mation. I am referring in particular to paragraphs 6 (1) and9 which seem to imply that all regulations have to be issued bythe Minister. In my opinion it would be desirable that theMinister should to some extent empower the Central StatisticalOffice to issue necessary regulations. In other words, theMinister decides on the fundamental or major regulations, butleaves it to the Office to decide on all details. There may beconstitutional or legal objections to this, and the Ministry'sLeAil Advisor should bA nakAd whAthAr such obiections aresignificant. If not, I recommend some slight textual change to1-kea rcare of the matte+r= mt. great. care qhnld be taken toprevent this matter from delaying the final approval of the twodrafts.

2. I have been informed that accordinrg to existing ordersand regulations it would be the responsibility of the Ministry ofITnterior to carry throu-g - -'1atior. cer.sus. As fa s- T

understand, this responsibility will automatically be transferredt&o the- Cer, --al 4-4ts4icl Offie beaus of- -PS r+ el pro-LsU ULII V'Je1 L.L .L VLJL.L0U L%LG%L V J.LA.-, VV.LO %J± UIL1 Lv VL J F. - -

visions in paragraph 2 of the Order and paragraph 2 of theTN2- L . .. J 4.J 4.L-L4 - .&l.-- T --- I..rrroclarnation. If he.re i8 sary- OuubDAt, abuou 4i eLegalJ.

Advisor should be asked to look into the matter.

26. It should always be borne in mind that the CentralStatistical Office is meant to be an independenlt agen.cy. Thismeans that matters concerning internal administration, includingpersonnel administration, should be left to the agency withloutinterference from the Ministry. I understand that this is thepractice now, and this practice should be continlued.

prac-Li- 1*e r-- - --- - - *-.- -- _fl L - fl% -- % l.. .. ±_1 fLD - - 4...

27. it is the duty OI tne Centrai Lab.LsLcai. Vfce X1all fields to improve the statistics. As I understand it, themost important task is to improve population and productionstatistics, and this calls for concentrated efforts. A popula-tion census should be neld as soon as possible, but wiii naveto be very carefully prepared.

28. Ethiopia already has a statistical year-book. It isintended in the near future to start publishing quarterly

- 7 -

statistics and montnly foreign trade statistics. It is im-portant that these plans are carried through.

29. Mr. Waterston recommended "that the Ministry set upa Statistical Studies Coordinating Committee, which would in-clude representatives of the planning departments of theMinistry, the Central Statistical Office, the Research Depart-ment of the National Bank of Ethiopia, as well as other bodieswhich could prepare studies required for planning, to lay outa program of statistical and other studies for each on acoordinated basis". One reason behind this proposal is thatstatistics are needed for many purposes, not only for planningpurposes. Another important reason is that it is highly desir-able to pool the limited resources of qualified statisticians.During my stay in Addis Ababa I learned that an inter-ministerial statistical committee had been created, but I hadn'ttime to find out how and to what extent the committee operates.This committee, however, is different from the one proposed byMr. Waterston. But I have the feeling that by some minor changesin the composition of the existing committee and by formulatingsuitable terms of reference one could meet Mr. Waterston'sproposal. I recommend that such a step be considered.

Technical Agency

30= Tn develonped e¶intries fpnsihilitv studies, etc.-_usually are carried out by the ministry in question or by someagency linder the ministry. The main reason whv the TrhninnlAgency was established in 1963 was that some Ethiopian ministries,nn&A nic5l &i-l y +.h.e Mi ni r) f Ag cr ril t-uro onA +.ke Mi nisqtr of

Commerce and Industry, were not sufficiently staffed and equippedto do such wo.-k. It is ese+jal that%+ the Tecnhnict!n Agencyr

now be well staffed and equipped so that it can contributeefficin+.t ly to. long-term nl nni ng.

31. Th+tit shld not be forgotten that deveclped coun-

tries have organized the work differently. It should also betfalfker, into accoL.ut Uhat in several. o+thaer ^. ricanS ^ou.+-tries

centralization of the work in a technical agency has notproveUd success 'IL1. A1.. ter sori,e t4ie11 140.LIJJ.L 0, VL1S 4.11 of

the Technical Agency and the future organization should bereconsiderUed to Udetlermilinve thble rextenMtj to whi.ch actlUall wojrkcould be decentralized in ministries with supervision andcooruldnationL Erom the TecLInical Ager.cy.

- 8 -

32*. I have examined the A-Pt order to --mnA theTechnical Assistance Order. According to paragraph 3 ofthe a~ft "ithe M;iso+er may, A-1eg+e his au+honrit +o pro=perly authorized persons within the limits fixed by him".

Tv9ns poviio souldni be -sed ,-ediA-+elyr aftr+- the -- 1^wof the Order, i.e. someone in the Ministry should be empoweredon specifiNed term,s to actlu on bwdhalf of the - M Instr -,i'JII±L UL ± I. .L dL,J Liii L't .L. .JL ICL.Le I1l."I.Lst e.i ~ * ±I1.LO

would inter alia make it possible for urgent decisions to betOXen e've:n if Ihe 1LMinister is absernt-

33. ~~Acon to - ee proison in paragraph 5 If- 4he1U.UJi A)UVU.Vd± j).UVIc .LUJ.L ±11 VL ii bL UIC

draft, the Minister may give detailed instructions to theTechnical Agency. Tlhis 'lea-ves ruumil f'or rathser a wiLde vareutyof practices, and it becomes important to develop a good andbalanced procedure. As the Technical Agency is intended t4obe an independent agency, the Minister should limit himself tomajor policy decisions and ieave details to the Agency. Inparticular, matters concerning internal administration, in-cluding personnel administration, snoula be leit to tne Agencywithout interference from the Minister; this seems to be thepractice now, and this practice should be continued.

34. The Technical Agency may, according to paragraph 7 ofthe draft order, earn revenues by imposing fees and chargesapproved by the Minister. As the work of the Agency so far hasbeen sanewhat experimental, no fees and charges have beenimposed. In due course steps should be taken to make theAgency become, at least to some extent, a revenue-earningenterprise.

35. With the points above borne in mind, I suggestapproval of the draft order.

The Annual Plan

36. In my opinion, it has been a wise decision at presentto concentrate the Ministryts efforts on preparing an annualplan for 1967/68 and to postpone the next medium-term plan oneyear so that it will cover the five year period 1968/69 -1972/73. I was informed that the Ministry hopes to preparesuccessively annual plans for these years. It is essentialthat this be done as annual plans are important means toimplement a medium-term plan.

- 9 -

37. I understand that work on a public investment programfor 1967/68 now is proceeding as follows: The Ministry hastaken steps to prepare an inventory of all ongoing and proposedprojects. It is the intention of the Ministry to compare thisinventory with an estimate of the total internal and externalresources available for investment, and the Ministry will alsotake into account current expenditure that may be necessaryin connection with the Drojects. After this evaluation andafter decisions on priorities the Ministry will endeavor towork out a realistic oroeram for the public sector, to beincluded in the annual plan. All this is in accordance withl1r Waterston's suggestions and should help improve the plan-ning.

38. Furthermore, I understand that the Ministry is awareof the importannn of nm_rp-hensive sector studies. Time will

not allow for comprehensive studies in connection with theann-ual plnn for 1967/68. But it is intanded that such studiesshall play a significant role in long-term planning. An impor_nnt step was +t.ker. in TDe mber 9Q66 uwhen an areernent wassigned between the Ethicpian and the U. S. Governments on atwo-yea agro-;idustri1 survey, to which the U. S. r1rnrrn anf

will contribute about 2.2 million Eth. dollars. In the courseof 19J6L 7 4-i rM.nist. LyJ aUht1 tAo nitJiiate D-ur.4her secto.r sdes,

if necessary by means of foreign assistance. The EthiopianUv ernment may wish to avail itself of help from the Bank toprepare tenms of reference.

39. As for the substance and composition of the annualplan for 1967/68, I was informed that it will be possible tUtake Mr.Waterston's suggestions into account only to alimited extent. This is understandable, but I hope tnat tneMinistry will endeavor to take his suggestions as far as pos-sible as this will strengthen the plan and increase itsinfluence on the fiscal budget. In particular I hope thatthe Ministry will be able to prepare a complete foreign exchangebudget for 1967/68 because such a budget should be an integ-ral part of any annual plan.

Coordination of the Annual Plan and the Fiscal Budget

40. I understand that the following procedure has beenadopted to secure coordination of the annual plan and the fiscalbudget for 1967/68. A Budget Allocation Committee has been set;

- 10 -

up to secure coordination of the annual plan and the budget.The three department heads in thei Ministrv of Planning arepermanent members, one of them being chairman. The Ministryof FinanGe has one nprmanPnt rpnrPsPntntivP on the commmfittee,

Representatives of other ministries are present in turn asrequired. This committee advises +he Minister of Planning onpriorities and other coordination matters. After having re-ceived +he necessary advice frm +the BudAgn+ Alloca+ion Com-mittee, the Minister of Planning will discuss the public pro-j-+ progam. in a m4niateri"' c-hv..mttee. I.%-.s consiss o.f >-e. - 1 - 51-. ''5 --JI - `- - v~JL A-S LO. ~..wIA5IIJJ. AIAV. US Qb JUUtLAW J UC -J Vi1C.

Minister of Planning (chairman), the Minister of Finance, and>;~~~~~~~~~ ~~~~~~~~ UVV ' * 4w J * A * Z& w | A v'Vile o'U.'er minirlsters engage'U in U-CU-1-0mL; ]evepr,enI -- - |er4.-

these discussions the investment program will be sent to theMi.Lnister ofL Finn.ce fLor consolidation. F±1W.ily t1he whIol..e

annual plan will be submitted to the Council of Ministers.

41. The coordination system established is somewhatLfLlerent Ifrm that suggested by Mr.Waterston, but tne effects

may evidently prove much the same. However, I would like tostress the importance of bringing the Minister of Finance intothe proceedings in good time. This could be obtained throughhis representative on tne Budget Allocation Committee.

Division of Responsibility for Preparation of

the Third Five Year Plan

42. I have studied the document prepared in the Ministryon "Suggested Division of Responsibility for Preparation of theThird Five Year Plan, etc.". I agree campletely with the viewthat all ministries and agencies should take an active part inthe preparation of the five year plan and later on in itsimplementation. To obtain such wide-ranging planning activi-ties it will be necessary, as suggested, for each Minister tosupervise and integrate the planning within his field. Further-more, it will be necessary to realize the proposed comprehen-sive system of planning units, which will be responsible forcoordinating and will serve as contacts with the Ministry ofPlanning. Therefore, I strongly recomnend that the proposalsin sections 1-4 of the document be carried through withoutdelay; the establishment of all the planning units must, ofcourse, take some time.

43. As for the timetable suggested in the document, Ihave no important remarks.

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44. I have a few comments on the planning process. Itis true that the planners at an early stage need some policydirectives frcm the Ministers. But these should be of a pre-lininary nature. Final policy decisions should wait until alater stage. It would for instance be wrong in advance to sayto the nlanners that a npercrnt. rate of growth is to hp nn

unalterable target, because the ministers cannot know in advancewhether this is rnJlisti.J Rut the Ministers may instruct theplanners to present what investments and policies would benecessary to acrhiee a 5 p e orcegtnth. Or hetterstill, the planners may be instructed to show on what alterna-tive conditions the contry col achiee a ate of growth offor instance 4, 5 and 6 percent respectively. As the work onthe plar. progresses, kr.o^.ledge of thle --ssbilities willk, 1 1,v siA -_f +1,~ F-,

4---- 44 A

increase, and at the proper time, rather late in the planningtEtA.oC!^ - ~ ;+ t.7i1 1EA tV -^OQ;9L wt. & Q A r,.A _WA1 <s91A _.±'.wvv _v .A- _ fl&.J h_J_V bJJLw. uJ . ur a Ws^.s .w

target. The same applies to many other targets and policiesfor te S I e r e a so tha knowle,g nd-I-- -4sih gr-4l4

increase during the planning process.

45. It is the duty of every ministry, department andaigenc.y 1IVU±V eu .ULL L.lse PjLU LLI.L11g Uv pI'UUt e L1"W .ueadb Zuu uU

propose better policies. Neither a development minister orhis planners should be haampered in this activity by rigiadirectives given in advance. But each minister, in drawingup a proposed investment program for his sector, Wili needsome directives. The Ministry of Planning should, for instance,indicate the approximate magnitude of a realistic investmentprogram for his sector. It would be useful to indicate a lowerand an upper limit and to ask for alternative investment programs.

46. When the preliminary investment programs for allsectors have been submitted, it will, of course, be necessaryto compare the total program writh the resources likely to beavailable and to decide on a realistic total and on priorities.These decisions are perhaps the most essential step during thewhole planning process. The success of this operation isdependent both on the ability to propose projects and improvedpolicies and on the political will to make realistic decisions.

Interministerial Coordination

47. I was glad to learn that an interministerial ExpertsDevelopment Committee is operating with a senior official fromthe Ministry of Planning as chairman. The Ministry of Finance

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adLu sGite otuihier iriiinistries -are represented on mhe Committee.This is the beginning of the Inter-Ministry Planning Committeeproposed by Mr. Waterston. I recommend that the committee beenlarged with new members by degrees as planning units areestablished or suitable contacts are found.

4i8. Tne Tnird Five Year Plan has to be coordinated withrealistic financial projections in the same way as the annualplan is coordinated with the fiscal budget. But the financialcoordination required for the Five Year Plan is much moredifficult. It would be convenient for the planners if a fiveyear fiscal budget could be prepared, but as this can hardly bedone at the present stage of planning, it is necessary to solvethe financial coordination problen in a simpler way. Thefinancial consequences of all public projects and measures in-cluded in the draft five year plan should be calculated on ayear by year basis, and both capital and current expendituresshould be estimated as accurately as possible. On the basis ofthese calculations, and taking into account the likely volumeand growth of other public expenditure, the Ministry of Planningand the Ministry of Finance will be able to appraise whether thedraft plan is financially realistic, and necessary adjustmentscan be made.

49. It follows that a very close cooperation between theMinistry of Planning and the Ministry of Finance is necessaryduring the preparation of the Third Five Year Plan. A similarcoordination procedure as that described for the annual plan inparagraph hO will be needed.

50. The financial coordination is part of the generalnoliticAl coordination; involving decisions in a great varietyof questions, many of which are far-reaching, for instance,decisions on land reform. Clearly, it is +he task of +heCouncil of Ministers, assisted by the Ministry of Planning, tospcurp this aPnpral nolIticnl coordinationn which is thp finaland indespensable step in preparing the Five Year Plan. Itis P.ssnti21 that miffinipnt time 'h set. aide for thif c __

phase.

51. Mr.Waterston called attention to a separate coordina-tion problem. in agriculture. He teo +1a sministries are concerned with various aspects of agriculture,and he reco menAded tha+t an Agriclatur,al Goor,-rnation o.-mryn

be established. In Addis Ababa I learned that the Ministry ofP1 -ingi wras .rC- +.+ +o org-n1-e such a conm.in+tee. Mr. T.Wa

terston nowi informs me that in view of this reluctance it seems

perfectly acceptable that the agricultural authorities them-s;plIvpq Pstt-nlish the necesmq-,rv nnnrdinnfian- T- thPrPf0rPesuggest that you pass this recommendation of Mr. Waterston

to the Minister of Agricurlture.

Laws and Regulations Necessary for Efficient Discharge

of the Planning Responsibilities

52.±ie Hiisiers Order of UULy 27, 16 gvsxeive

powers to the Ministry of Planning and Development. Inter aliathe MiLniswry snanc --supervibe ana coordinate tne actbivii.es uvi

the Goverrnent's planning administration". It seems to me thatthis together with otner provisions in tne Order to a greatextent will render it possible for the Ministry to take propercare of its responsibilities. Tnus the Ministry undoubtedly isempowered to issue necessary planning instructions to otherministries and to government agencies, and such instructionscan be given in circular letters. However, if the instructionsinvolve unauthorized expenditure, and I assume this is the casewith the proposed planning units, it will be necessary to procurethe consent of the Ministry of Finance.

53. The powers of the Ministry of Planning will be furtherextended by the Central Statistical Office Order, the NationalStatistics Proclamation and the Technical Agency (Amendment)Order. The question arises whether some additional provisionsare required to establish cooperation with the private sectorsof the economy, because it certainly is important to graduallyengage representatives of these sectors and especially of bigfirms in the planning process. The creation of a committeewith the participation of the private sectors could beconsidered.

ANNEX 1

LINISLTRY OF PI,ANJ1NU - MAIN DF;FAR'1'MF;NTS

Department of Sectorial Planning

Agriculture

Building, Construction, Transport and Communication

Industry

Social Services

Commerce, Tourism and Financial Services

Commodity Projections

Department of General Planning

Economic Policy

Planning Coordination

Macro-economic projections

Regional Policy

Methodol no

Department of Technical and Financial Resources

Foreign Assistance

Credit and Loans

Budgetary and Voluntary Contribution

Investment

Financial Control

ANNEX 2

MINISTRY OF PLANNING - ORGANIZATIONAL CHART

Ministerand

Minister of State

AK7//

/ I ~OfficeCnaS ̂/ iratiXof Legal Advisor

Central Statis- Coordinatingtical Office Committee

,,7iii7 ,>~. Secretariat

Technical Agency,/ / //

\\Administration

/ N\X Service

DeparfUment ~DepaItent Departmentof of of

Sectorial Planning General Planning Technical and FinancialResources

ANNEX 3

DTTAD 0YMOTT OF nr?T AT pT A MMUT1M,

1. C1.1oordi1na:LUt2O U±2 the woVrk Uo thllle sec.U1ns 1 . 1Lhe DepaXrUMe11t.

2. Represents the Department in the Coordinating Committee.

3. Appraises the general economic situation of the countryand analyses the general trends prevailing both in the directlyplanned sectors and in the sectors influenced only indirectly bythe economic policy of the Government; special stress is put onthe analysis of the monetary and fiscal problems, the balance ofpayments situation and short and medium term fluctuations in theeconomic activities of the country.

4. Proposes policy measures of a general nature, short-termas well as medium-term and long-term measures; special stress isput on monetary and fiscal policies, general policies affectingthe balance of payments and measures that can counterbalanceadverse tendencies in the economy.

5. Evaluates the economic possibilities of the country and,in close cooperation with the Department of Technical and FinancialResources, the optimal use of the resources likely to be available.

6. Looks after the internal consistency of annual andmedium-term plans and provides for the plans to be realistic.

7. Proposes the general obiectives for annual. medium-term and long-term plans and prepares macro-economic projections;follows un the general targets and policies of the nl ans.

Anri1A vses the 0connmio andri sovinl developm.ent in regionsand sub-regions and proposes measures in regional policy.

9. Initiates research related to the planning of economicc1evplonrnpnt smr look-, aftar thi mpthodo1 ,ov of ni rnninoD