Meles Zenawi, the prime minister who has led Ethiopia since the rebel movement he belonged to overthrew dictator Mengistu Haile Mariam in 1991, spoke to Barney Jopson, FT East Africa Correspondent, at his office in Addis Ababa on August 21, 2008. The following is a transcript of the interview.

Financial Times: The president and the prime minister of Somalia are here in Addis Ababa and have been here for the last few days. There’s been a lot of talk about a rift between the two of them. I wonder if you could give me your perspective on that and what affect it is having on the situation in Somalia?

Meles Zenawi (MZ): Well, there is still some rift between the key political leaders and inevitably that does tend to undermine the joint effort of all of them to achieve peace and fight terrorism. They’re all here. We have provided a space for them to be able to talk to each other outside of the daily hustle in Mogadishu and my hope and expectation is that they will sort out their problems.

FT: How exactly are those problems getting in the way of the effort to find peace?

MZ: All of them need to pull together and that is not happening to the extent that we would all like to see. It is not having an immediate and direct impact on the [peace] talks in Djibouti. As you know they have progressed well, but that’s only one aspect of achieving peace albeit an important aspect, and therefore the efforts of everyone in the TFG [Transitional Federal Government] are required for us to make progress in the right direction.

FT: What’s your understanding of the underlying causes of these disagreements?

MZ: I’m not privy to their discussions but I would be surprised if the usual problems amongst Somali politicians were to be absent.

FT: Meaning clan issues?

MZ: Clan issues.

FT: Of course you’ve still got troops in Somalia. How close or far away are you from being able to bring them back home?

MZ: Well, as I said in the past technically we could bring them back home tomorrow. We feel we have done what we planned to do in terms of preventing a total takeover of Somalia by a jihadist group. We have done what we could to help an alternative framework so technically we could remove our troops any day, but we have obligations including to the African Union to hold the rein until they are able to deploy their troops and they have been hindered by all sorts of problems, but most particularly, logistical ones. So we feel we need to continue to hold the ring until the African Union is able to deploy actional troops and hopefully the Somalis sort out some of these lingering problems amongst them so that they can take care of their own security requirements together with the African Union.

FT: So would you want to see a full Amisom [African Union Mission to Somalia] force of 8,000 people before you take your own soldiers out?

MZ: We would preferably want to see a full deployment or as close to full deployment as possible.

FT: When you think about withdrawal, do you see a stable and functioning TFG as a precondition or would you be willing to take your troops out even if the TFG is not functioning as well as it might?

MZ: We will try everything in our capacity to create an environment where our withdrawal would not seriously disrupt this process in Somalia but that is not necessarily precondition for our withdrawal. Our obligation towards peace in Somalia is only one aspect. There are also requirements of our own including financial requirements. The operation has been extremely expensive so we will have to balance the domestic pressures on the one hand and pressures in Somalia on the other and try to come up with a balanced solution.

FT: But that means that you could withdraw even if that withdrawal then left the TFG in danger.

MZ: We would try to avoid that but our legs are not joined at the hip.

FT: It’s 19 or 20 months since your troops came in. When you came in nobody seemed to expect that the troops would remain for this long. Looking back were there things that you think you didn’t anticipate, or things that developed in a way that was unexpected, which explain why you’ve been there for quite so long now?

MZ: We didn’t anticipate that the international community would be happy riding the Ethiopian horse and flogging it at the same time for so long. We had hoped and expected that the African Union would be able to intervene much quicker and that the international community would recognise that this is a unique opportunity for the stabilisation of Somalia and capitalise on it and act quickly.

FT: You mean by providing financial assistance?

MZ: By providing financial assistance and providing peacekeepers and so on. That hasn’t happened. Problems amongst Somalis could perhaps be anticipated and there may not be any surprises in that regard.

FT: People often compare the situation in Somali with Ethiopian troops to the Americans in Iraq. Do you see any sensible parallels there?

MZ: No. In the case of Ethiopian intervention in Somalia, it was purely defensive. The jihadists who had taken over southern Somalia had declared war publicly against Ethiopia. And we had been invited by a proper government, the TFG, which was recognised by United Nations among others, to intervene, and our task was very limited. We didn’t have a mission of transforming Somalia in one way or the other, just to prevent a jihadist takeover in Somalia. Now having done that, it was perhaps reasonable on the part of the international community and ourselves to try and capitalise on the opportunities opened up by that intervention to try and help the Somalis stabilise the situation. That is what kept us there for so long. The original mission had been completed let’s say, within a few weeks of our intervention and we could have withdrawn in a month or so.

FT: Are you using the possibility of withdrawal to put some pressure on the Somali president and the prime minister here? Is that one of the levers you can use?

MZ: No. We don’t need to use any levers. This is their country. They are more interested in peace than anybody else outside of their country and in the end only a solution that they are comfortable with can be sustained. External pressure may give the impression of short term movement in the right direction, but it does not provide a lasting solution so we do not need any such leverage and we do not think any such leverage would be helpful. What I’m telling you is first that we would do everything in our capacity to stay as long as possible to help them out. Hopefully our withdrawal will come as a result of more progress in peace in Somalia and more deployment of the African Union, but given past practise we could never be sure when the African Union could deploy in any meaningful sense and so it doesn’t make sense for any government to say that we have an open ended commitment until the international community, in its own good time, decides to relieve us of that responsibility. So what I’m saying is we do not have an open-ended commitment.

FT: You mentioned the financial cost and to use an over-used metaphor it would seem Ethiopia is at the centre of a financial perfect storm, funding Somalia on the one hand, while dealing with the consequences of a drought, and the consequences of food and fuel price inflation on the other. Could you tell me a little bit more about where all that leaves the government finances?

MZ: Government finances in terms of the budget deficit and so on and so forth have been reasonable as the IMF would tell you but of course there is what the economists would call opportunity cost. Every dollar we spend in Somalia could have been spent elsewhere in dealing with issues of a domestic nature. And that is what I meant. That’s why I said that our commitment to Somalia is not open-ended. As far as the economic situation here is concerned, some people see a perfect storm. I don’t. I see a bit of a rough stretch, but not the perfect storm. The perfect storm has the risk of wrecking the ship or the boat, or at least that is my assumption. There is no risk here of shipwreck. The economy on balance is growing very well and we expect it to continue to do so, however the fuel prices have very significantly undermined our balance of payments situation. The increase in food prices has pushed a significant number of Ethiopians, particularly among the urban poor and in some pastoralist regions and areas of drought, to the brink and so these are very serious challenges even though they do not pose an extensive threat.

FT: There’s been a lot of discussion about hunger in Ethiopia and I’m interested in putting this in the context of agricultural development. In the past few years of course, the agriculture sector has been performing well and indeed it’s been driving GDP growth, but what we’ve seen this year is that when the rains fail, problems emerge again. So it strikes me that whereas people thought agriculture was getting stronger in the last few years, maybe it was just getting lucky and maybe there are some underlying structural things that keep the sector vulnerable. What would you say to that?

MZ: Well, I think it’s very important to look at the macro issues and local specific issues. When we look at the macro issues, agriculture has been growing at double-digit rates for five years now. Now the chances of being lucky five years in a row, of growing at double digit growth rates, is not that high.

FT: But they have been five good years of rains as well, have they not?

MZ: We have always had good rains in some parts of the country and droughts in other parts of the country. What has happened is in the areas where we normally have good rains we have had sustained growth in productivity, and in those parts of the country millions of people have seen very significant improvements in their lives. Agriculture has been the key driver of growth as a whole and of export growth in particular so the macro situation as far as agricultural growth is concerned is very good. Now we have two groups that have been hit by the dramatic increase in commodity prices including agricultural prices and hit negatively.

But by the way, there are more people in Ethiopia who have benefited from the high food prices than those who have lost out from them. Farmers selling their own products have benefitted enormously and there are many more of them than those who have been damaged, but of course the purpose of government is not to hail those who have succeeded. The purpose of government is to support those who have not. What has happened is the pastoralist areas have not benefitted from the agricultural development activities because most of our agricultural development activities are based on settled farming. These are pastoralists and as pastoralists they will always be vulnerable to any change in precipitation. The pastoralists regions have the main problems as far as the rural areas are concerned.

There is an exceptional problem in the south. The exceptional problem in the south is that we have had two failed crops: the first one because there was too much rain, the second one because there was too little rain, and the loss of two harvests was well beyond the capacity of the farmers to cope. If you remove this freak event of two consecutive failures, then you see the structural problems. The structural problems are that the pastoralist areas have not been involved and have not benefitted from the growth that has happened. The second structural problem in our growth has been in the urban areas where the growth has not been such as to provide adequate employment opportunities to the urban poor. When agricultural prices moved against consumers who in any case were on the precipice many of the urban poor suffered, so the structural problem is related to how fast we can create jobs in the urban areas and how quickly we can integrate the pastoralist regions in the economic growth process. The problem in the south is in the short term a very serious problem but it is a freak event. It does not show a basic trend. The basic trends are the ones that I mentioned.

FT: But some people would say that there are also structural problems with arable farming in the south, namely that productivity remains low compared to neighbouring countries and that the population growth is such that the land simply cannot support the people.

MZ: I am told that many journalists feel that Ethiopians are procreating at a faster rate than is healthy for them. We have had programmes to deal with that and there has been a very significant reduction in the population growth rate. The latest data that some journalists are bandying around is that there are about 80m people living in Ethiopia. The census of 2007 seems to indicate that we have significantly less than 80m, about 6m less, and the population growth rate, which was close to 3 per cent has been sliding towards 2 or 2.5 per cent and I think it is continuing to slide. So those who think that Ethiopians are procreating with abandon because they are being given food assistance, assuming that is what they are saying, are getting their facts wrong.

FT: What about the productivity issue though?

MZ: The productivity issue is a challenge. Productivity was extremely low and has been growing very significantly throughout the five years of growth that we have had. Interestingly, fertiliser prices have gone through the roof but fertiliser consumption during the rainy season now has also gone up and interestingly again in many of the surplus-producing regions of our country farmers, unlike in the past, were not given credit to buy fertiliser. They bought with cash so the fact that many millions of farmers were able to buy fertiliser at such high prices cash is very encouraging just as the fact that there are many Ethiopians who do not have enough to eat on a daily basis is a very serious challenge.

FT: Yes. But in the context of commodity price inflation it looks unfortunate that the government was encouraging a shift from growing food to growing cash crops, because if people had been growing food perhaps they would not have to deal with the problem of buying very expensive goods in the market. Are you thinking about that shift any differently nowadays, given that food has become so expensive?

MZ: The point is the farmers should make the decision and the farmers should make that decision on the basis of the net benefit to them. If it is beneficial for them to produce sesame and sell it at $2,000 per ton and buy wheat at $400 per ton, if they find the productivity difference between sesame and wheat is such that it makes sense to produce and export sesame and buy wheat from the Ukraine, then I see no reason why this should be a problem.

There is no reason why every person has to produce whatever he consumes. Actually our programme was designed to commercialise small scale farming so that these market pressures will result in more efficient allocation of land, labour and so on, and would result in improved livelihoods for those who are producing. The fact is that those who did not face the challenge of the pastoralists, those who did produce have benefitted enormously. So the way to help the urban poor is for us, for example, to use the foreign exchange earned by the farmers to buy wheat and we are doing this. We have already bought about 150,000 tonnes of wheat in Europe and we are distributing it through the market. We completed a contract for another 150,000 tonnes of wheat and that will help us dampen the prices in the urban areas and that’s the way it should be.

FT: One comment I’ve heard from several people about agriculture is that the government has been focusing very much, as you said, on commercialising small-scale farms. But these people say is you should be focused on big-scale farming and creating large commercial enterprises, because that’s the way to prevent a recurrence of the food shortages. Why have you decided to focus on the small scale rather than go big?

MZ: Because the alternative is patently stupid.

FT: Why is that?

MZ: Let’s look at two factors. The first factor is the availability of capital and savings in this economy. There are very, very low savings and very limited capital availability. If we were to invest in large-scale, commercial, mechanised farming, then we would have to deplete whatever savings we have in establishing these large-scale farms, and what do we get in return? We get in return some employment, but not much. If we were to focus on the commercialisation of small-scale farming, we wouldn’t need that much capital. We would be using the excess resource we have, which is labour and land, and we would be combining these two without too much capital to produce more. Secondly, we would be employing millions of people on their farms and giving them income. The problem that we face this year is not about production. It’s about income distribution and income distribution in Ethiopia is not going to be improved by abandoning small-scale farms and concentrating on large-scale farms. Fortunately in our case, to the extent that capital can be imported from abroad, we can do both because we have unutilised land in the lowlands where there is not much labour and we can combine that with foreign capital to supplement the small-scale farming. Such supplementary large-scale commercial farming is part of our strategy, but it is not the central piece of our strategy.

FT: And this is why you were meeting a delegation from Saudi Arabia a couple of weeks ago?

MZ: Yes, and many other investors including those who are involved in flower farms, horticulture and so on.

FT: They will be given land which is not being farmed at the moment?

MZ: Yes, and we have quite a bit of it, in the western lowlands and part of the eastern lowlands. We have a shortage in the central highlands and that’s where 70-80 per cent of the population live.

FT: But your strategy remains focused on the small scale?

MZ: Yes, because the small-scale farms are where we have the 9m households and what happens there determines their income. Large-scale commercial farming is not going to create millions of jobs and without those jobs, even if we had mountains of food in the country, it would not mean that people had access to that food.

FT: Because they wouldn’t have money to buy it?

MZ: They wouldn’t have the money to buy it and that has been the real problem here. It is not the availability of food. It’s the availability of money in the pockets of individuals.