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Ethiopia's economy has undergone major reforms since May 1991, when a market-oriented government came to power. Droughts, civil war, and cross-border conflicts have devastated the economy as much as socialist-style totalitarianism. The government continues to institute economic reforms designed to liberalize the economy and increase the role of private capital. Land, however, as of 2002 remained firmly in the hands of the government. A large trade deficit hampers economic development.
Agriculture, hunting, forestry, and fishing engaged 85% of the Ethiopian population and in 2002 accounted for over half of GDP and almost all exports. The agricultural sector is diverse, producing maize, sorghum, millet, other cereals (barley, wheat, and teff), tubers, and sugarcane. Coffee generated $175 million in exports in 2001 (down from $262 million in 2000), which was 60% of export earnings. Livestock production is also important, responsible for around 20% of export earnings.
The manufacturing sector, centered around Addis Ababa, produces construction materials, metal and chemical products, and basic consumer goods including food, beverages, leather, clothing and textiles. Over 90% of large-scale industry is state owned.
Ethiopia produces gold and has additional undeveloped deposits of platinum, marble, tantalite, copper, potash, salt, soda ash, zinc, nickel, and iron. Natural gas is found in the Ogaden.
While Ethiopia's industrial sector engages primarily in food processing, it also produces sugar, alcohol and soft drinks, cigarettes, cotton and textiles, footwear, soap, ethyl alcohol, and quicklime. Cement production is also significant. Industrial facilities are concentrated around Addis Ababa, depend heavily on agricultural inputs, and primarily serve the domestic market.
Since 1991, privatization of Ethiopia's industry has been a major objective of the government. In 1995, the government established the Ethiopian Privatization Agency to help privatize companies. By 1999, about 180 government enterprises had been privatized, including Pepsi-Cola and Coca-Cola bottling plants, the St. George Brewery, and the Lega Dembi Gold Mine. Other companies for sale included the Kenticha Tantalum Mine, the Calub Gas Company, and the Wonji-Shoa Sugar Factory, hotels, tanneries, textile mills, and garment factories.
Ethiopia has few proven oil and natural gas reserves, although the potential of these industries is seen as promising. Hydrocarbon exploration began in the Ogaden Basin in the 1920s, and in 1994, the World Bank approved a $74 million loan to develop natural gas fields in the Ogaden Basin. As of 2002, there were plans to build an oil refinery.
One of the key components of Ethiopia's industrial success is its access to ports. Two-thirds of Ethiopia's goods passed through the Eritrean port of Assab prior to the 1998–2000 border war. Ethiopia subsequently shifted its trade to Djibouti, but Port Sudan and Berbera in Somaliland were targeted as future outlets for trade.
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