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Eritrea: ECONOMY
Overview: In the early 1950s, when Eritrea was awarded to Ethiopia, it possessed a far more sophisticated urban and industrial infrastructure than Ethiopia. Industrialization in the years since then focused on Ethiopia, however, at the expense of further development in Eritrea. By the time of its independence from Ethiopia in 1993, Eritrea’s economy had been destroyed by war and was dependent on income from ports and its small agricultural base. The onset of conflict with Ethiopia in 1998 halted all bilateral trade, severely reducing port activity and income in Eritrea. According to World Bank estimates, Eritrea lost US$225 million worth of livestock and 55,000 homes during the war. Damage to public buildings is estimated at US$24 million. The end of hostilities with Ethiopia was followed by consecutive years of drought, which together have crippled the agricultural base. The impact of these problems is softened only by remittances from abroad, which are estimated to account for 32 percent of gross domestic product (GDP). As of 2005, Eritrea is one of the poorest countries in the world. More than half of the population lives on less than US$1 per day, and about one-third lives in extreme poverty (defined as subsisting on less than 2,000 calories per day). Although the Eritrean government has stated its commitment to adoption of market-based economic policies in the long run, authorities are increasingly reliant on centrally planned economic management. In general, the government produces few consistent and reliable statistics on economic activity.
Gross Domestic Product (GDP): In 2003 GDP was estimated to have grown by 2 percent, a slight improvement over 2002, the last year for which firm figures are available, when GDP expanded by 1.8 percent in real terms to about US$600 million. Despite the growth, GDP per capita declined in 2003 by 10 percent in real terms, according to the International Monetary Fund (IMF). Although in 2001 GDP grew by 10.2 percent, this increase came on the heels of 2000, when, as a consequence of war with Ethiopia, GDP contracted by a staggering 13.2 percent. Growth in 1999 was flat at 0.3 percent growth. Between 1994 and 1997, when relations with Ethiopia and the rest of the world were stable, GDP growth averaged 7 percent. In 2004, according to IMF estimates, GDP per capita in Eritrea was only US$130. Breakdowns of the Eritrean economy by sector are not readily available; however, according to some estimates, in 2003 services accounted for 62.4 percent of GDP, industry for 25.3 percent, and agriculture for the remaining 12.4 percent.
GOVERNMENT Budget: Eritrea does not publish a budget, making its fiscal condition difficult to assess. According to the International Monetary Fund, the overall fiscal deficit in 2003 was 17 percent of gross domestic product (GDP). Government expenditures for that year were estimated to be US$375 million, with revenues of only US$235.7 million. In 2002 the fiscal deficit was 32 percent of GDP. Current expenditures continue to exceed budgeted spending, particularly in defense and other discretionary expenditures. Monetary policy remains subservient to the financing demands of the government, and debt is unsustainably high. This situation is not likely to change until demobilization of the military occurs.
Inflation: Inflation continues to be a problem in Eritrea, particularly as years of drought push grain prices higher and defense expenditures remain high. The International Monetary Fund estimates that in 2003 (the most recent year for which figures are available) average inflation reached 23 percent.
Agriculture, Forestry, and Fishing: In 2003 agriculture employed nearly 80 percent of the population but accounted for only 12.4 percent of gross domestic product (GDP) in Eritrea. The agricultural sector is hampered by the absence of modern farming equipment and techniques, erratic rainfall, exhausted soils, and lack of financial services and investment. Major agricultural products are barley, beans and lintels, dairy products, meat, millet, skins, sorghum, teff, and wheat. The displacement of 1 million Eritreans as a result of the war with Ethiopia, multi-year drought, and the widespread presence of land mines all have played a role in the declining productivity of the agricultural sector. Currently, almost a quarter of the country’s most productive land remains unoccupied because of the lingering effects of the 1998–2000 war with Ethiopia. In 2005 domestic food production is expected to provide for less than 20 percent of domestic demand and will leave between 1.7 and 2.2 million people dependent on humanitarian assistance to meet basic food needs.
Forestry is not a significant economic activity in Eritrea, and reliable figures on the extent and value of the fishing industry in Eritrea are difficult to obtain. However, Eritrea’s long coastline clearly offers the opportunity for significant expansion of the fishing industry from its current, largely artisanal, stage. Eritrea exports fish and sea cucumbers from the Red Sea to markets in Europe and Asia, and there is hope that the construction of a new, jet-capable airport in Massawa, as well as rehabilitation of the port there, may support increased exports of high-value seafood. In 2002 exports were about 14,000 tons, but the maximum stable yield is thought to be nearly 80,000 tons. Italian and Dutch investors built a fish processing plant in 1998 that now exports 150 tons of frozen fish every month to markets in Britain, Germany, and the Netherlands. Tensions with Yemen over fishing rights in the Red Sea flared up in 1995 and again in 2002, and Eritrea’s difficult relations with other nations could hamper further development of the industry.
Mining and Minerals: Eritrea’s substantial mineral deposits are largely unexplored as a consequence of the war with Ethiopia. According to the Eritrean government, artisanal mining in 1998 collected 573.4 kilograms of gold. Eritrea is estimated to have some 14,000 kilograms of total gold reserves. Western observers also have noted Eritrea’s excellent potential for quarrying ornamental marble and granite. As of 2001, some 10 mining companies (including Canadian and South African firms) had obtained licenses to prospect for different minerals in Eritrea. The government of Eritrea reportedly is in the process of conducting a geological survey for use by potential investors in the mining sector. The presence of hundreds of thousands of land mines in Eritrea, particularly along the border with Ethiopia, presents a serious impediment to future development of the mining sector.
Industry and Manufacturing: During the period of federation, industrial capacity largely shifted to Ethiopia, leaving the Eritrean industrial sector with outmoded capital equipment. In 2003 industry accounted for 25.3 percent of gross domestic product . Major products include processed food and dairy products, alcoholic beverages, glass, leather goods, marble, textiles, and salt.
Energy: Households consume more than 80 percent of total energy production. Electricity production in 2001 was estimated at 220.5 million kilowatt-hours. Consumption for that year was estimated at 205.1-kilowatt hours. An 88-megawatt electricity plant funded by Saudi Arabia, Kuwait, and Abu Dhabi was completed just south of Massawa in 2003, its completion delayed nearly three years by the war with Ethiopia. Annual consumption of petroleum in 2001 was estimated at 370,000 tons. Eritrea has no domestic petroleum production; the Eritrean Petroleum Corporation conducts purchases through international competitive tender. According to the U.S. Department of Commerce, opportunities exist for both on- and offshore oil and natural gas exploration; however, these prospects have yet to come to fruition. The Eritrean government has expressed interest in developing alternative energy sources, including geothermal, solar, and wind power.
Services: In 2003 services accounted for 62.4 percent of gross domestic product. Financial services, the bulk of the services sector, are principally rendered by the National Bank of Eritrea (the nation’s central bank), the Commercial Bank of Eritrea, the Housing and Commerce Bank of Eritrea, the Agricultural and Industrial Bank of Eritrea, the Eritrean Investment and Development Bank, and the National Insurance Corporation of Eritrea, all majority owned by the government and ruling party.
Banking and Finance: According to the International Monetary Fund, commercial banks in Eritrea—all government owned and operated—appear to be in compliance with prudent regulations. Although the commercial banking sector is largely profitable, mostly owing to income from foreign exchange transactions, the sector is burdened by a high proportion of non-performing loans. Core lending activities do not generate sufficient income to cover operating costs at most commercial banks.
Tourism: Eritrea’s poverty, the presence of large numbers of land mines, and the continued tensions that flare up between Eritrea and its neighbors have deterred the development of a tourist industry in Eritrea. According to the World Tourism Organization, international tourism receipts in 2002 were only US$73 million (compared with US$730 million for Tanzania).
Labor: Agriculture employs about 80 percent of the population in Eritrea, and the remaining 20 percent are employed in industry and services. Although information is scarce, unemployment is reported to be high.
Foreign Economic Relations: China, South Korea, Italy, South Africa, and Germany are aggressively pursuing market opportunities in Eritrea. There is growing interest in U.S. products and services in Eritrea, although U.S. investment in Eritrea is still small.
Imports: In 2002 (the most recent figures available) Eritrea imported goods worth US$533 million, including food, military matériel, fuel, manufactured goods, machinery, and transportation equipment. Eritrea’s main suppliers were the United Arab Emirates, Saudi Arabia, Italy, Germany, and Belgium. In January 2005, all imports by private businesses and individuals were temporarily suspended because of the country’s shortfall in foreign currency.
Exports: In 2002 (the most recent figures available) exports from Eritrea were valued at US$52 million, and the bulk were skins, meat, live sheep and cattle, and gum arabic. The major markets for Eritrean goods were Sudan, followed by Italy, Djibouti, and Germany. More recently, fish, flowers, salt, and textiles have joined the list of exports, and Sudan is no longer a major trading partner.
Trade Balance: In 2002 imports worth US$533 million far exceeded exports at US$52 million.
Balance of Payments: Asmara’s poor relations with neighboring countries have had a profoundly negative impact on the economy, one reason for the dire balance of payments situation. Exports declined significantly during the border conflict with Ethiopia, a decline exacerbated by a subsequent break in trade relations with Sudan. At the same time, imports—mostly of food aid, manufactures, and transportation equipment—continue to rise, and foreign reserves have declined to precarious levels. According to the International Monetary Fund, in 2003 foreign reserves were just US$17.2 million, sufficient to cover only two weeks of imports. The balance of payments in 2000 was negative US$44.7 million; by 2003 it had improved to negative US$16.4 million. Remittances from Eritreans abroad and foreign aid form a significant portion of Eritrea’s income. Of the two, remittances far exceed foreign aid and are estimated to have reached US$400 million per year in 1999, the last year for which figures are available. In January 2005, the government halted all imports by businesses and the private sector because of the country’s shortfall in foreign currency.
External Debt: In 1997 external debt totaled US$75.5 million. By 2001 (the most recent available information), that figure had grown to US$409.6 million.
Foreign Investment: Foreign investment, although ostensibly favored by the Eritrean government, is nonetheless hindered by government regulations that seek to protect domestic industries from foreign competition and by a generally unfavorable investment climate. Major foreign investors in Eritrea include China, South Korea, Italy, South Africa, and Germany, as well as the World Bank.
Foreign Aid: In 1998 net official development assistance was US$135.8 million; in 2002 it reached US$217.6 million. The government prefers private-sector investment to official aid programs, and its relations with aid-dispensing nations and international institutions have often been difficult.
Currency and Exchange Rate: The official currency is the Eritrean nakfa (ERN), introduced in November 1997. In early 2005, likely in an effort to increase foreign capital reserves, the Eritrean government decreed that all transactions in Eritrea must be conducted in nakfa. In April it became illegal for individuals to hold and exchange foreign currency. As of January 1, 2005, the government set the foreign exchange rate at US$1=ERN15.
Fiscal Year: The fiscal year follows the calendar year, January 1–December 31.
AllAfrica.com,Eid AL-Fetir was today celebrated across the nation in a colorful manner. The celebrations here in the capital took place at Bahti Meskerem Square. ... Ethiopia: Eritrea's Proxy War Jeopardizing Regional Stability ... - Oct 22, 2006 AllAfrica.com,Prime Minister Meles Zenawi on Thursday accused Eritrea of jeopardizing regional stability in its efforts to wage a proxy war against Ethiopia. ... US envoy accuses Eritrea of attacking Ethiopia through proxies in ... - Oct 23, 2006 AND,By www.andnetwork .com. US Rep. Chris Smith (R-NJ) today expressed outrage at the Ethiopian government’s continued silence about ... Eritrea says it not arming Somali Islamists - Oct 20, 2006 Reuters AlertNet,ASMARA, Oct 20 (Reuters) - Eritrea dismissed as a "pure fabrication" a US diplomat's charge that it was opening a new front against arch-foe Ethiopia by arming ... Eritrea: Eritrean-Ethiopian Border Zone is Volatile After Troop ... - Oct 20, 2006 AllAfrica.com,The situation inside the buffer zone along the disputed border between Eritrea and Ethiopia has become volatile after Eritrea moved 1,500 troops and 14 tanks ... Eritrea: Eritrea Rejects Jendayi Fraser's Press Statement - Oct 20, 2006 AllAfrica.com,Secretary of State for African Affairs, Jendayi Fraser's statement to the press in Nairobi on the 19 th of October 2006 , alleging that " Eritrea has opened ... A look at US deaths in Afghan fighting - Oct 23, 2006 Jordan Falls News,The military lists these other locations as: Guantanamo Bay Naval Base, Cuba; Djibouti; Eritrea; Jordan; Kenya; Kyrgyzstan; Philippines; Seychelles; Sudan ... No dirty tricks anymore from the nephews in Ethiopia & Eritrea - Oct 22, 2006 Nazret.com,A new front is about to emerge in the east and the question is if the Ethiopian population will unite when Tigray is forced into a second war with Eritrea. ... Eritrea: Deploying Military Forces into Temporary Security Zone - Oct 21, 2006 NewsBlaze,The United States calls on Eritrea to respond to the October 17 statement issued by the United Nations Security Council by immediately withdrawing the tanks ... Eritrea: Soil And Water Conservation Activities in Geleb Sub-Zone - Oct 20, 2006 AllAfrica.com,The inhabitants of 11 administrative areas in Geleb sub-zone are carrying out effective soil and water conservation activities. ... Eritrea: "Physicians for Peace" Extends Medical Assistance to ... - Oct 20, 2006 AllAfrica.com,An 11-member group from "Physicians for Peace" has extended assistance of surgical and other different medical equipment and drugs to Mendefera Referral ... Ethiopia, Eritrea exchange accusations - Oct 17, 2006 San Jose Mercury News,ADDIS ABABA, Ethiopia - Ethiopia and Eritrea traded accusations of peace-deal violations Tuesday, a day after the UN said Eritrea was moving troops and tanks ... Ethiopia calls Eritrea troop move minor provocation - Oct 17, 2006 Reuters South Africa,ADDIS ABABA (Reuters) - Ethiopia said on Tuesday it would not respond militarily to what it called a "minor provocation" after Eritrea moved troops into a UN ... UN Calls on Eritrea to Withdraw Troops - Oct 17, 2006 Forbes,The UN Security Council called on Eritrea Tuesday to immediately withdraw troops and tanks from a buffer zone next to Ethiopia and urged both countries to ... UN Security Council calls on Eritrea to immediately withdraw ... - Oct 17, 2006 International Herald Tribune,AP. UNITED NATIONS The UN Security Council called on Eritrea Tuesday to immediately withdraw troops and tanks from a buffer zone established after a 2 1/2-year ... Ethiopia's president urges Eritrea to talk peace - Oct 19, 2006 EiTB,The United Nations said Eritrea's decision to move troops and tanks into a UN buffer zone between the two countries was a "major breach" of a 2000 peace ... Un Accuses Eritrea Cease-fire Breach - Oct 16, 2006 Guardian Unlimited,UNITED NATIONS (AP) - The United Nations on Monday accused Eritrea of moving 1,500 troops and 14 tanks into a buffer zone established after a 2-year border war ... UN Accuses Eritrea Cease-Fire Breach - Oct 16, 2006 Forbes,The United Nations on Monday accused Eritrea of moving 1,500 troops and 14 tanks into a buffer zone established after a 2 1/2-year border war with Ethiopia in ... UN Accuses Eritrea Cease-Fire Breach - Oct 16, 2006 CBS News,...(AP) The United Nations on Monday accused Eritrea of moving ... Eritrea's action raised the threat of renewed war between the feuding Horn of Africa neighbors. ... ERITREA-ETHIOPIA: 'Troops harvesting buffer zone' - Oct 17, 2006 AND,NAIROBI, Eritrea has moved 1,500 troops and 14 tanks to a buffer zone along its border with Ethiopia, which was created after the war between the two countries ... UN warns Eritrea over troop shifts nearer Ethiopia - Oct 18, 2006 Reuters AlertNet,UNITED NATIONS, Oct 18 (Reuters) - The United Nations has warned Eritrea that its shift of troops and tanks into a UN buffer zone along the Ethiopian border ... Stay away from buffer zone, UN tells Eritrea - Oct 18, 2006 Independent Online,New York - The United Nations has warned Eritrea that its shift of troops and tanks into a UN buffer zone along the Ethiopian border could raise tensions in ... UN: Eritrea breaching ceasefire - Oct 16, 2006 News24,New York - The United Nations accused Eritrea on Monday of moving 1 500 troops and 14 tanks into a buffer zone established after a 2½ year border war with ... Ethiopia calls Eritrea troop move minor provocation - Oct 17, 2006 ReutersPrime Minister Meles Zenawi said on Tuesday his country would not respond militarily to what he called a "minor provocation" after Eritrea moved troops into a ... ERITREA-ETHIOPIA: 'Troops harvesting buffer zone' - Oct 17, 2006 Reuters AlertNet,NAIROBI, 17 October (IRIN) - Eritrea has moved 1,500 troops and 14 tanks to a buffer zone along its border with Ethiopia, which was created after the war ... Ethiopia and Eritrea trade accusations - Oct 17, 2006 EiTB,The UN accused Eritrea on Monday of moving troops and tanks into a buffer zone established after the Horn of Africa rivals went to war over their still ... US accuses Eritrea of providing arms to Somali Islamists - Oct 19, 2006 EiTB,Eritrea has long denied any involvement in Somalia, but a UN Security Council report in May said it has sent weapons to the Islamists repeatedly in a bid to ... Eritrea moving troops closer to Ethiopia - UN - Oct 16, 2006 Independent Online,New York - The United Nations accused Eritrea on Monday of moving soldiers and tanks closer to Ethiopia in violation of a six-year-old peace agreement ending a ... UN says Eritrea moving troops closer to Ethiopia - Oct 16, 2006 Reuters AlertNet,UNITED NATIONS, Oct 16 (Reuters) - The United Nations accused Eritrea on Monday of moving soldiers and tanks closer to Ethiopia in violation of a six-year-old ... Eritrea defends troop movement in UN buffer zone - Oct 17, 2006 ReutersADDIS ABABA, Oct 17 (Reuters) - Eritrea on Tuesday defended its decision to move troops into a UN-monitored buffer zone along its border with Ethiopia, citing ... Eritrea troops near Ethiopia border - Oct 16, 2006 Aljazeera.net,The United Nations has accused Eritrea of moving soldiers and tanks closer to Ethiopia in violation of a six-year-old peace agreement ending a border war ... US accuses Eritrea of arming Somali Islamists - Oct 19, 2006 ReutersNAIROBI (Reuters) - The United States accused Eritrea on Thursday of opening another front against its foe Ethiopia by shipping arms to Somali Islamists who ... Meles urges Eritrea, rebels to choose dialogue - Oct 19, 2006 Mail & Guardian Online,Ethiopian Prime Minister Meles Zenawi on Thursday urged Eritrea and rebel groups he said it supports to talk peace and stop trying to destabilise his Horn of ... US urges Eritrea pullback from Ethiopia buffer zone - Oct 19, 2006 Reuters South Africa,WASHINGTON (Reuters) - The United States urged Eritrea on Thursday to withdraw its forces from a UN buffer zone along the Ethiopian border amid concerns the ... UN chief urges Eritrea to withdraw from security zone with ... - Oct 16, 2006 People's Daily Online,General Kofi Annan on Monday expressed deep concern at the incursion by Eritrean troops into the Temporary Security Zone(TSZ) separating Eritrea from Ethiopia ... Eritrea sends troops to Ethiopia border, violating peace deal - UN - Oct 17, 2006 Monsters and Critics.com,New York/Nairobi - Ethiopia accused its neighbour and foe Eritrea on Tuesday of breaking a peace deal after it sent at least 1,500 troops and 14 tanks into a UN ... Security Council urges Eritrea to ‘immediately withdraw’ ... - Oct 17, 2006 AND,Expressing deep concern over reports that Eritrea has moved around 1,500 troops and 15 tanks into the Temporary Security Zone with Ethiopia, the United Nations ... This series of profiles of foreign nations is part of the Country Studies Program, formerly the Army Area Handbook Program. The profiles offer brief, summarized information on a country’s historical background, geography, society, economy, transportation and telecommunications, government and politics, and national security. In addition to being featured in the front matter of published Country Studies, they are now being prepared as stand-alone reference aides for all countries in the series, as well as for a number of additional countries of interest. The profiles offer reasonably current country information independent of the existence of a recently published Country Study and will be updated annually or more frequently as events warrant. |
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