Ethnic Federalism in a Dominant Party State: The Ethiopian Experience 1991-2000 Lovise Aalen r 2002: 2

Region
Budget subsidy
 (million birr)
Per capita subsidy
 (in birr)
Subsidy share*
 (per cent)
Tigray
255.7
76.1
7.8
Afar
225.8
199.6
6.9
Amhara
725.1
49.1
22.2
Oromiya
826.2
41.3
25.3
Somali
282.3
142.6
8.6
Benishangul/Gumuz
161.1
326.8
4.9
SNNPRS
554.1
50.1
17.0
Gambella
126.1
646.7
3.9
Harari
77.0
534.7
2.4
Addis Ababa
0.0
0.0
0.0
Diredawa
32.0
115.5
1.0
Total
3265.3
58.6
100.0
Source: World Bank (2000:28)
* This is the region’s share of the total subsidies paid to the regions by the
central government.
Table 6.7 shows how the federal grants were distributed according to the
formula in 1997/98. The four lowland regions, and particularly Gambella and
Benishangul-Gumuz, are the greatest beneficiaries and have all a relatively high
per capita share of the subsidies. Harari’s large share shows that the grants
were distributed according to the first formula, where population, revenue
capacity and socio-economic development had equal weight. This gave the less
populous Harari state an advantage, compared to for example the more
populous Oromiya.
The criteria for calculating regional grants have changed during the years.
Before 1995, the size of transfers was decided by the central ministries on the
basis of assessment of each region’s ad hoc needs and specific project requests.
From 1995, a weighted method to allocate grants was introduced (Interview
Worku Yohalashet, November 2000). The grants are what the World Bank
(2000: 30) calls unrestricted block grants, which allow the regions to determine
the spending themselves. The initial formula for calculating each region’s
grants included the share of the total population, an index of a set of socio-
economic indicators
24
, and the revenue collecting capacity of the regional
24
The socio-economic variable was based on eight distinct indicators: length of rural roads,
share of rural population to total population, per capita industrial production, per capita
food production, and density of pupils in elementary schools in relation to total population
(Interview Worku Yohalashet, November 2000).

---

C M I
81
government
25
. Each variable was given equal weight (33.3 per cent each). In
1998, the formula was changed, in order to give the more populous regions a
larger share of the grants. Share of population was weighted 60 per cent, socio-
economic development 25 per cent and revenue capacity 15 per cent (Fenta
Mandefro 1998: 47). In addition, the composition of the socio-economic index
was altered to make it more transparent. The last revision of the formula took
place in 2000, when a new poverty index was added in order to increase the
promotion of the financial base for the poorer regions. The weight of the
population share was reduced to 55 per cent, the socio-economic development
index counted for 20 per cent, revenue collection capacity remained on the
same level as previously, while the new poverty index was weighted 10 per cent
(House of the Federation 2000.
In a poor country like Ethiopia with a generally low level of socio-economic
development, it is natural that the regional governments lack resources. But as
we have seen, it is not only the lack of socio-economic development that makes
the regional financial base so weak. The constitution has assigned the most
lucrative revenue sources to the federal government. This means that although
the regions might improve their resource base in the future due to increased
development efforts, the major income sources in the country will remain in the
hands of the federal government as long as the constitution in not altered. The
federal government’s privileged position reduces regional autonomy, but could
also be used deliberately by the federal government to reduce the economic
gaps between the units in the federation. The current distribution of federal
subsidies appears to promote equity of the units, but is promoted at the cost of
regional autonomy. Whether this will lead to empowerment of the poorer
regions or a continued reliance on the federal government in the longer run
remains to be seen.