Emperor Haile Selassie created the framework of a modern state, including, in 1955, a constitution with an elected, though powerless, parliament. However he made no real effort to change land policy, or adjust the hierarchies of power. Ethiopia remained essentially feudal, with small Amhara-dominated modern sectors in bureaucracy and industry. This provided the impetus for outbreaks of opposition among other nationalities, notably in Tigrai in 1943, among Oromos and Somalis in the 1960s and after 1961 in Eritrea. Haile Selassie himself preferred to concentrate on international affairs. Addis Ababa became the head quarters of the Organization of African Unity (OAU), and the UN Economic Commission for Africa, and Ethiopia participated in UN operations in Korea and the Congo. Its main ally was the USA, and Ethiopia provided the USA with a major communications facility at Kagnew, in Eritrea.

The long-term weaknesses of the regime, including a growing agrarian crisis, inequitable distribution of land, and lack of development, were exacerbated by the costs of the revolt in Eritrea, drought and famine in Wollo and Tigray in 1972-74 (in which at least 200,000 people died), and after 1973 by Haile Selassie's near senility and his failure to designate an heir, fuelled grievances of the military, students and workers. A series of army mutinies started in January 1974, accompanied by parallel civilian strikes, leading to the creation of an armed forces committee which began to arrest senior officials, sixty of whom were arbitrarily executed shortly after Haile Selassie was deposed in September. He died in mysterious circumstances a year later, most probably murdered. The monarchy was formally abolished in March 1975. The Imperial regime was replaced by a Provisional Military Administrative Council (PMAC), the Derg, which under the influence of left-wing politicians saw itself as the vanguard of an Ethiopian revolution. In December 1974, Ethiopia was declared a Socialist state, and a program of revolutionary reform, under the title of Ethiopia Tikdem ('Ethiopia First') was initiated. The aims of Ye-Itiopia Hibrtesebeawinet (‘Ethiopian Socialism') were defined in the program for a National Democratic Revolution. In January and February 1975, the Derg nationalized all Banks and Insurance firms and seized control of practically every important company in the country. It followed this up by nationalizing all land.

In February 1977, Colonel Mengistu Haile Mariam, the vice-chairman of the Derg seized power in a putsch, killing a number of his rivals and declaring himself Chairman. He launched the ‘Red Terror' under which the government security forces systematically hunted down and killed suspected and alleged members and supporters of opposition groups. Tens of thousands died in Addis Ababa alone and many more all over the country. This fueled the insurgencies that had appeared in several areas, most extensively in Eritrea and Tigrai regions. In mid 1977, Somalia, against the wishes of its ally, the Soviet Union, invaded to try and take advantage of the confusion of the revolution to seize the Somali speaking areas of the country as well as a much wider area of the south. Somali forces reached the gates of Harar before being defeated in February 1978 by a greatly expanded Ethiopian army supported by Cuban troops and massive supplies of USSR weaponry. After this victory, Derg forces moved back into Eritrea which had been largely overrun by the ELF and EPLF. It recovered most of the towns but failed to win military victory, despite a series of major offensives and the defeat of the ELF by the EPLF in an Eritrean civil war.  Elsewhere, despite the creation of its Workers Party of Ethiopia, the Derg also faced growing opposition, much of it ethnically based, most prominently from the Tigrai Peoples Liberation Front (TPLF) and the Oromo Liberation Front (OLF).

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