• the volume of outstanding loan portfolio has shown a decline,
• NPLs have grown by 55%, and
• the volume of international banking business (commissions and charges) has shown significant decline.

III. Decision-Making and Employee Morale at the CBE
The Commercial Bank of Ethiopia has been one of the prime targets and a victim of the so-called "anti-corruption campaign." Among other things, decision making has been paralyzed and employee morale devastated.
Following the imprisonment of the Bank's executives and senior management members, the current management and employee do not have the enthusiasm and zeal to accomplish their routine duty let alone to excel. Fear, indecision, passing-the-back, shying away from taking responsibility are the orders of the day at the CBE. Each employee feels that he/she may be the next candidate for arbitrary harassment and imprisonment under the disguise of "anti-corruption campaign".
Since the beginning of the campaign, credit decisions are not being made. Even renewal of existing facilities is becoming unblessed task. Despite the fact that time is of the essence in the business of banking wait and see has became the statusquo. Knowing very well this state of affairs at the Bank, no customers are applying for new loans. Simply stated the Bank is now living on credit and other decisions made in the past.
Managers from all levels, credit analysts and other high caliber employees are leaving the Bank. Those sent for higher education, workshops, seminars and business trip abroad are not coming back. Those who are still with the Bank are actively involved in job hunting with the objective of abandoning the Bank and free themselves from the possible nightmare they see themselves may encounter at CBE. In a nutshell, employee morale and initiative are at the lowest level they can be.
CBE's employee resistance against the so-called campaign of the Government is easily demonstrated by the recent incident at the Bank. About one month ago, the Bank's employees were asked by the Government to nominate "anti-corruption" officer for the bank from among the employees. The employees protested that the campaign lacks transparency, objectivity and fairness. They didn't hide to express their belief that it is the Government's political agenda having nothing to do with corruption at the Bank. Finally, the meeting called for this purpose was dismissed as the employees rejected the request. The Government, realizing the clear message from the employees of the Bank immediately planted someone from the Prime Minister's Office. One can imagine the effect of deploying a stranger at the Bank to serve as a watchdog for the Government. Under the circumstances, how can one blame the employees for not making decision, taking initiatives and committed to do their best.

IV. Customers' Reaction
The campaign's unwanted effects are not limited to the Bank and its employees only. In deed, it has caused far-reaching mishaps to the way the customers are doing business with CBE. The detention of the prominent members of the business community has let the customers of the Bank to develop the impression that;"borrowing from a government bank is a crime that denies people their constitutional right".
Following the Government's wild action, many customers of the Bank have rushed to settle their loans and other facilities well before their due dates; in order to save themselves from harassment and detention to which their fellow businesspeople have been subjected. Other customers, who couldn't settle their loans from their own sources have arranged with private banks to settle their loans with CBE. Of the prominent customers with the Bank, only those whose loans are too big to be settled with loans secured from private banks remain with the Bank.
Some of the other reactions of the customers of the Bank include freezing expansion plans, scaling down operations, dropping growth opportunities etc. Although difficult to establish its magnitude capital flight is becoming a growing phenomenon. Foreign Direct Investments, which was meager from the outset is dried up completely during the last year.
In general, the campaign has caused the customers and the business community to develop phobia against banking with government banks in particular and all banks in general. This, if it remains unchecked, may have the potential to lead to systemic crises.

V. CBE's Proposed Foreign Management Contract
It is recalled that the Ethiopian Government had a plan to launch a foreign management contract for the CBE. The objective was to transform the Bank to a modern, internationally competitive bank. To bring the plan into effect precious time of the Board and executive management has been spent for more than one year.
The negotiation with the State Bank of India (SBI) was almost concluded. The last response leading to SBI's takeover of the management of the Bank was being awaited. Meanwhile, the SBI learned the imprisonment of CBE's executives. The response from SBI contrary to the expectation on the Ethiopian side, was total cancellation of the deal. It is only intelligent move resulting from the correct heading of the kind of governance, regulatory, and legal environment they would have encountered if they accepted the contract. With this the project was aborted and the government had to take emergency measure i.e appoint management to fight the crisis which has been spirally compounding to date.
In conclusion the wild moves the government has been taking have not done any good to the government, to the country and the Ethiopian economy. It is rather ruining the country economically, socially and politically. If the government feels any sense of responsibility it is time to admit mistakes and correct them before it is too late. Otherwise the peoples of Ethiopia and the international community should join hands to pressurize the government which is leading the country down the drain.

Following the Government's May 2001 offensive, fear and uncertainty permeated the business community. A stampede broke out, some left the country via Bole while others opted for Bale. Those who stayed behind in the country were no where to been seen. By summer, the entire business activity in the country was in a complete disarray. Concern for one's personal safety became the number one priority and managing one's business operations was virtually neglected. Thus the government induced recession, so it appears, was well underway and the economy started going down-hill at a free fall velocity.
The fall-out from the offensive campaign is far reaching and affects various sectors of the economy. The effect can be expected to last a long time, primarily because of confidence crises. The capricious move of the government under the guise of eradicating 'Musena" has left a bad and bitter after-taste that confidence, the foundation for attracting and encouraging investment, has been shattered. Business investment flourishes in an environment where the rules of the game are known to all players. Where government policies and regulations are transparent, competition conducted under the rules of market economy and the judicial system operates in an impartial manner, enforcing the spirit and letter of the law, confidence is enhanced and credibility strengthened. Sudden and unpredictable events, measures and actions, can irreparably damage business development and economic growth. This is particularly devastating when the perpetrator is the government itself.
In such an environment, as the country finds itself since the May offensive, the business community has taken a 'wait-and-see' stance. Business transactions, the buying and selling of goods and services has come near a complete halt. As a result inventory build-up has reached an all time high. Deflationary pressures are building upon as is evident in the collapse of prices across the board. Many learned economists would prefer to see some inflation rather than deflation in a developing country like Ethiopia. As the days pass by, business owners watch helplessly the value of their assets continue to erode for reasons beyond their control.
The immediate effect of this calamity is felt every where in the private sector. The last few years it was experiencing a satisfactory growth but is now retrenching. Workers are laid off, expansion programs suspended, new investment plans discarded, production scaled back and as a result losses from operations are mounting and liquidity crunch is ever-growing. At present no one, except perhaps the government, can see the light or the end of the tunnel. The deep recession that has taken hold of the country is also taking its toll on the nascent, but once flourishing private banks. Because of the dire business condition in the country, non-performing loans among the private banks, much like the government owned CBE, DBE and CBB, are growing to dangerous levels. A renowned economist, Ato Neway Gebreab of the Prime Minister's Office has lately put it as high as 6% of GDP. If this is not controlled in a timely fashion, it can rock the very foundation of the financial system in the country. Loan non-repayments and lack of appropriate turnover of credit facilities are worsening from month to month. Inability of businesses to generate adequate cash flow is the primary reason for the unacceptable jump in non-performing loans. If the current situation continues to prevail, the ratio of impaired credit to total loans will surley catch-up with those banks owned by the government. That ratio is presently hovering around the 50% level as reported in some circles.
Compounding the problem of expanding rate of bad loans, i.e the sharp decline in credit demand from businesses, loan demand from private banks has reached a five year low level. Those few businesses who apply are held at bay and spend an inordinate amount of time waiting for a decision. Despite the low level of credit demand, bank managers of private and public banks remain fearful about approving loans. The May campaign has sent a horrifying terror with a clear message to the banking and business communities based on the dictum of Shakespeare: "neither a borrower nor a lender be". Put differently, taking a loan from a bank or for a banker to approve a credit is hazardous to ones well being. Because if you do, you run the risk of being imprisoned without a cause. There is no doubt that the campaign has stigmatized the lending and borrowing activities to a point where "banking phobia" in Ethiopia may have developed into a new psychiatric discipline by itself. It may however take a long time for the medical field to develop an effective therapy to deal with this new form of psychosis - banking phobia.
Related to the lending and borrowing problem is the current abundance of liquidity in the banking system. With lending activity virtually at a stand-still, banks find themselves awash with lendable funds. The feeble attempt by the National Bank to stimulate the economy through reduction of interest rates has proved an ineffectual remedy. The reason for the failure of this measure is quite obvious from the outset. The recession is primarily psychologically driven and wrought about by the action of the government. Real interest rates have not changed much in the last several years. Business has not complained about high cost of funds. The reason people are not borrowing and bankers not lending is the fear of going to prison. Adjustment of monetary policy is not the much needed panacea for the ills of the country; nor do the disingenuous reports on the air waves alleviate the anxiety of the business community. The government must make a bold and decisive move that should clear the cloud of fear and doubt among its citizens. Only thus can one expect a meaningful improvement in the economy. The aims and objectives of the campaign can be maintained, but the Gestapo techniques to achieve its end must be curtailed. The rule of law as in any democratic society, must be respected and the constitution upheld as the supreme law of the nation. In the current context this would entail the reversal of the draconian proclamations particularly the one that denies bail to corruption suspects, the so-called Seeye's proclamation, because it is unfair and unconstitutional. Citizens should not be considered suspects because of innuendo and hearsay. The gathering of sufficient information and incriminating evidence should precede, the arrest of a citizen. En mass jailing may provide a dramatic political or theatrical appeal but seldom can it be constitutionally supported. Speedy trial must be ensured and legal proceedings must be completed within a reasonable time frame. Continuous court appearance without substantive progress in the case at hand is an egregious abuse of the right of the accused. The entire proceeding is no more than a travesty of justice. This is what must be addressed by the government to win the hearts and minds of its people. The government is pushing the wrong button on the panel of solutions. Interest rate reduction is not a responsive action to the current confidence crisis. What is needed is a political decision to calm the economic environment.
Another fall out of the campaign is the 'state of indecision' that has paralyzed the state machinery, except the Anti-Corruption commission. This is particularly evident among the parastatals. Managers have become unwilling to make decisions. The distinction between managerial decision making and the commission of a crime has become blurred in the eyes of the inexperienced law enforcement personnel. Consequently, managers seem to have made a logical decision not to make any decisions because indecision is not a criminal offense as far as the government is concerned. Where professional judgment is questioned by a layman whose intellectual capacity is at best a suspect, can interpret pollicies and procedures in a rudimentary fashion or as he understand them. The professional's performance is not evaluated by his peers who understand the nature of the specialized business. Such an environment is bound to restrict the freedom of the professional to practice his art and field of expertise. In such a sorry state of circumstances the ability of the country to attract professionals is marginalized and its beckon for talent falls on deaf ears.
Perhaps most of these problems could have been avoided had the business community and the public been invited to present their views during the promulgation of the proclamations. In any democratic society, and at times even in Ethiopia, the public is invited to comment on new legislation. In the proclamation pertaining to the anti-corruption measures, it seems clear that at least, the chamber of commerce should have been invited to comment on the content of the articles. That would have made a great deal of sense as the bill affects the business community as well as public officials. It must be accepted that for the most part, business can be an ally of the government. They both can work for the good of the country. If they can reach a consensus on the objectives of the government with respect to business, the means of achieving the agreed upon goal becomes all the more necessary. In the final analysis, the government has the absolute say and can accept, modify or reject comments received from the other party. In effect the government has nothing to lose and may have a lot to gain. Such a forum will make the business community a partner in the development program of the county.
The wide schism between government and business must be closed, a bridge of healing, must be constructed to allow an unobstructed two-way street for the traffics of ideas from both parties to flow freely.
It is understood that the members of the political leadership and officials of the government lack the experience and thus, the wisdom to effectively provide competent governance. As was the case with the previous regime, political loyalty has remained the most important criteria in filling various posts of the government. Party leaders play key roles in the administration of the government and more importantly, in formulating economic and political policies. Capable and experienced professionals continue to be purged from various offices because they are perceived as political suspects or their removal can serve ulterior political purposes. One can hardly forget the dismissal of several university professors, the technocrats from various parastatatals and most recently public and party officials due to political differences and alleged corruption charges. Dispensing a layer of professionals and experienced managerial talent was a common practice of the past regime and is unfortunately true of the current government as well. Education paid for by the people of Ethiopia, experience gained at the expense of its nationals are wasted because of political consideration. While the elimination of human resource is going on, we hear a lot about new capacity building initiatives.
The country needs to educate its citizens, produce capable managers, bureaucrats and technocrats. But look and behold while as one hand builds the other tears down and in the process the country is the net loser. As usual, this state of affairs creates a sense of instability. Professionals, experienced and skilled people, have left and are leaving the country. Many love their country and do not migrate to the west for economic reasons only. Many professionals do so because they loathe the feeling of uncertainty created by the actions of the government.
In recent months, the government has made some effort to reverse the exodus of professionals. Especially incentives including the passage of legislation that grants equal or similar privileges to Ethiopian expatriates as Ethiopian citizens is in place. The effort is commendable, but the results are dismal.
In a meeting organized by Ministry of Foreign Affairs on this topic, questions were raised regarding the incarceration of government officials and business owners suspected of corruption crime. Although hard statistics are not available, it is apparent that there are more professionals leaving the country than those returning home for good. The reason is no different than the one cited above-lack of confidence and uncertainty. On the business side the opportunity cost of the anti-corruption campaign is indeed high. Not counting the less publicized cases involving managers of the customs office, a total of seventy six government officials and business owners were charged. All, save those who fled the country and those who are reported deceased, were ordered to go to their 'residence', to quote the official euphemism, "Kerchele" or prison. As they continue to languish, the business owners watch their businesses slowly but surley going down the drain. Inevitably, thousands of householders who are under their empoyment are losing their jobs - the only means of earning a living for their families. The businesses owned by those currently in prison are quite significant. Collectively they contribute substantially in the areas of transport, export and import, wholesale distributions and retailing. Volumes of business in these sectors have shown marked decline in the past year.
In this connection it is worth noting the caliber and experience of the public official that are locked up. Many are holders of first and advanced degrees. Their education for the most part, was financed by the government of Ethiopia. In addition their combined years of experience easily exceeds one thousand years. (50 officials with an average experience of 20 years). What a waste! A throw away of public funds and years of hard work. By imprisoning these people on some bogus charges for one year, the country incurs a loss of fifty-man year of experience and actual production decline of similar value. One wonders if Ethiopia which suffers from an acute shortage of manpower, and one of the five least developed countries in the world, can afford to squander away such a valuable national asset!
Reflecting on the effect of the campaign on the economy, one important area is the Direct Foreign Investment (DFI). For a variety of reasons, it is admitted that the country in the past several years has not proved to be an attractive place for foreign investors. In the last decade a flicker of hope was seen as a few foreigners actually passed the planning stage and invested in Ethiopia. Since the May offensive, however, no new DFI has been reported. Alarmed at this trend the government has bent backwards to encourage foreigners to invest. Trade missions are organized, bilateral trade agreements signed and at every opportunity foreigners are inveigled to invest. Try as it may, no expatriate in his right mind can make a decision to invest under the current political and economic climate.
The facts indicate that it is difficult, if not impossible to engage in a long term investment endeavor. Business decision making is a rational process. One can take a calculated business risk, but must not be reckless. The present environment has become dangerous for its own nationals and has scared away foreigners. At the beginning of the campaign, foreigners were not exempted from the onslaught of the government. Among those initially arrested was an Irish subject who worked at joint venture automotive outfit. Another prominent investor in the brewery industry was cited in one of the corruption charges currently under litigation. It is reported that some of the principals of this organization have left the country or do not plan to return any time soon. The much talked about managerial contract between CBE and the State Bank of India was totally scrapped because of the obvious reason. The Indians felt that their safety was not guaranteed under the current banking environment. They are concerned about the indiscriminate arrest and imprisonment of bankers. The anti-corruption hysteria of the government has scared off many foreigners and even nationals. In all sincerity, the country should be lucky to keep the foreign investors who are already in the country, let alone attracting new investment. Inclusion of DFI is an important component in the planning of economic development. The country's problem is that of setting the right tone and creating a conducive and enabling climate to attract DFI. One must learn from other developing countries that have recorded proven track record in this field. It has been shown time and again that the most important success-element in attracting DFI, is the building of confidence and maintaining a stable environment.
It is apparent that the government has not focussed on this point because, if it had, the anti-corruption campaign would have been conducted in a judicious manner befitting a democratic country. Propagating a wholly fictional adherence to the rule of law does not soothe investors' psyche. If the government is serious about attracting and encouraging investment, it must re-evaluate its policies (or lock on them) and rectify the political ills that have precipitated the country into an economic abyss. It should stay on course and avoid veering off the highway at every false alarm. Recognizing mistakes is a source of strength and not a sign of weakness. Adopting a pragmatic policy is by far more effective in developing the economy than maintaining stubborn ideological precepts. An enlightened democracy respects its constitution and subscribes to the rule of law. This can only be manifested by the day to day deeds of the government. Imprisoning citizens without bail and stone walling the judicial process is undemocratic and evil by its very nature. "Justice delayed is justice denied". Speedy trail is a constitutional right and the independence of the courts should not be only a mere concept but a living reality. Therefore, it follows to reason that if the suspects are not sentenced a year after their arrest they should be acquitted and set free.