(Adds more Merkel comments)

By Tsegaye Tadesse

ADDIS ABABA, Oct 4 (Reuters) - German Chancellor Angela Merkel, on her first visit to sub-Saharan Africa, called on Thursday for more democracy in Ethiopia, an ally of the West and under scrutiny over rights issues.

On the first leg of a five-day tour also taking her to South Africa and Liberia, Merkel urged Prime Minister Meles Zenawi to provide greater space in Ethiopia for both political opposition and the media.

"We favour opening the country, opening the political system with the possibility for the opposition to air their views, and respecting freedom of the press," she said at a joint news conference, according to a translation of her remarks in German.

She said these were "the main pre-conditions for economic development".

Her comments came two days after the U.S. House of Representatives passed a bill that would force Ethiopia to make democratic changes or else lose security aid.

Meles said the U.S. draft law, which needs Senate approval and a presidential signature, would not affect ties with Washington, one of Ethiopia's strongest allies.

But Meles said the bill's sponsor, Democratic Congressman Donald Payne, should address human rights violations in Eritrea, Ethiopia's arch foe, if he "is really concerned about human rights issues".

FORMER DONOR DARLING

Ethiopia, sub-Saharan Africa's second most populous country, ranks 170 out of 177 on a U.N. development index.

Once a darling of the West, former guerrilla leader Meles's reputation suffered from post-election violence in 2005, when nearly 200 people died during protests over alleged vote-rigging and the subsequent jailing of activists.

Meles says his government held the fairest multi-party polls in Ethiopia's history, and has been forced to crack down on would-be destabilisers of public security.

It recently freed most of the activists.

Merkel praised Meles for allowing Ethiopia to undergo a peer review mechanism in an African initiative to improve government accountability across the continent.

She said they had discussed the conflicts in Somalia and Sudan's Darfur region. Ethiopia has thousands of troops in Somalia to help the interim government against an Islamist-led insurgency, and it has offered 5,000 peacekeepers for Darfur.

The pair also touched on Ethiopia's border dispute with neighbour Eritrea. Merkel said she had offered German help to implement a boundary commission ruling on the border after a 1998-2000 war that killed 70,000 people.

At the African Union's base in Addis Ababa, Merkel urged African states to spend EU aid effectively, which accounts for half the continent's development assistance.

She said Germany would provide an additional 3 billion euros ($4.23 billion) for Africa's development by 2011.

Merkel later flew to South Africa where she was to press President Thabo Mbeki to take a tougher line on neighbouring Zimbabwe, in the grip of an economic crisis critics blame on the government of President Robert Mugabe.

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