Ethiopia’s war with neighbouring Eritrea has had a devastating effect on the economy, and diverted scarce resources from development, a report by the Ethiopian Economic Policy Research Institute says. A copy of the report - “Impacts of the Recent Border Conflict on the Performance of the Ethiopian Economy” was obtained by the BBC in Addis Ababa prior to its publication. According to the BBC, the report says that when the war broke out with Eritrea on 6 May 1998, the government was forced to mobilise manpower and material and financial resources to help with the war effort. “The size of the army was increased from 60,000 to 350,000 [which] increased the defence expenditure from US $95m in 1997/8 to US $777m in 1999/2000. Thus the military expenditure became 49.8 percent of the country’s total recurrent expenditure,” the report said. The border war, which lasted two and a half years, cost Ethiopia more than US $2.9 billion, the report asserts.
Reduction of external aid was one of the biggest losses to the country, the report said. When the conflict began, the international community froze or suspended new development assistance, and the annual average donation to Ethiopia declined from US $700 million to $500 million. Economic and social infrastructures were destroyed, properties were looted and normal human settlement and economic activities were disrupted, with a significant loss of life, it stated. The cessation of trade and economic relations between Ethiopia and Eritrea also resulted in large financial losses for Ethiopia, the study said. However, despite the fact that private investment, foreign trade, the level of external aid and gross domestic saving declined because of the war, Ethiopia’s GDP registered a reasonable growth rate of 5 percent in 1999/2000, the report said. “The statistics quoted are likely to shock most Ethiopians who supported the conflict”, the BBC report asserted.