Background Economy:
The economy of Eritrea is more of a planned and strict command economy dominated by state or state sponsored PFDJ enterprises. The government owns and operates most of the industries and majority of the labor force is employed by the state. All sectors of the economy have been severely impacted by ruling party poor regulations and economic policies. The Eritrean government has not implemented specific measures that would truly reform the command aspects of its economy, nor has it taken steps to loosen business practices or correct macroeconomic imbalances since independence. The World Bank’s 2020 “Doing Business” index ranked Eritrea below average, 189 out of 190 economies overall. The standard of living and quality of life are very poor due to lack of employment, and other basic necessities such as oil, electricity, water.
In 1991, when Eritrea achieved its independence its physical, financial, administrative infrastructure, and its economy in general was in poor condition due to 30 years of war and destruction. To rehabilitate the economy and lay down the foundation for a sustained economic growth, in 1994, the Provisional Government of Eritrea of that time drafted an Economic Financial Management Program (EFMP) and Public Sector Management Program (PSMP) and began implementing these programs with the technical and financial assistance of international organizations. At the same time, it also drafted a Macro Economic Policy Framework (MEPF) with the objective of building “an outward oriented strong manufacturing sector, modern irrigation based commercial agriculture and a highly efficient service sector” by “motivating private external and internal initiative and investment.” Although, efforts were made by dedicated Eritreans within the establishment to implement the EFMP and MEPF programs until 1997, the PFDJ clique led by the self-proclaimed President, Isaias Afewerki, gradually undermined these efforts by bringing all economic activities under the control of PFDJ owned state companies, and thereby sabotaging the objective of creating a vibrant mixed economy as stated in the Macro Economic Policy Framework.
Eritrea has an extensive amount of resources such as copper, gold, granite, marble, and potash. There are a few international companies either conducting exploration or mining and the government owns up to 40% and the rest is owned by the mining companies. The substantial mineral revenues benefit only a small group in the population as there is no accountability in the governing system that controls the financials. Given Africa’s history, Eritrea has to carefully regulate and implement the mining and mineral laws. Sub-Saharan Africa provides ample evidence of this flawed government regulations where ruling elites and their foreign partners loot nations dry with nothing trickling down to the general population. Even though, Eritrea has many resources and potentials that drive economic growth, military spending appears to drain all kind of resources including the human power.
Finance:
The financial sector remains fully under the control of PFDJ government. As there are no alternative private sector financial institutions, availability of credit to the public is very limited. The Millennium Challenge Corporation (MCC) in its 2014 report ranked Eritrea 188 out of 190 on access to “Starting a Business” and 186 for getting Credit. An Eritrean citizen is allowed only $5,000 Nacfa (~ 330USD) to withdraw money from his/her own bank account per month. The major three government owned banks: the Bank of Eritrea, the Commercial Bank, and the Commerce and Housing Bank operate without adequate accountability or transparency. The African Development Bank Group stated Eritrea’s gross public debt reached 189.2% of GDP in 2019, up from 185.8% in 2018, and the country is in debt distress.
Business and Investments:
It is extremely tough to do business in Eritrea for the natives or foreigners. Most medium and large businesses in Eritrea are controlled by either the government or the PFDJ ruling party. Since 2005, all private construction companies have been suspended to do any kind of activity and leaving only PFDJ-run firms in operation for this purpose. Investors in Eritrea face significant risks, including: lack of transparency in the regulatory process, severe limits on the possession and exchange of foreign currency, difficulty in obtaining licenses, and infrastructure challenges. The president and his small circle of senior advisers and military commanders exercise almost complete control from politics to major business and investments.
Goals of the Economics, Business and Finance (EB&F) Focus Group
The Economics, Business and Finance focus group is one of ERIPS’s ten focus groups. It envisions an economically vibrant Eritrea as a foundation of security and stability in the region. Its members include Economists, scholars and academics, Financial and accounting professionals, business owners and many more expertise in different fields. ERIPS will do well identifying good partners (governments and private businesses), who have the will and the means to drive the development programs home for our benefits and theirs. Members of EB&F FG share their ideas and research on what technologies, business and financing laws are most appropriate for Eritrea. Those ideas can eventually be synthesized into a coherent program as a potential economic roadmap for Eritrea.
The EB&F FG main goal is to conduct research and studies in Eritrea’s state of the economy and to provide comprehensive recommendations by developing policies, strategies and plans that can be utilized by government, businesses and individual citizens.
Key other Goals:
- Perform economic evaluation and analysis to support planning and policy in different sectors of economy including energy, transportation, construction, mining, manufacturing etc. Identify the sectors of the economy that need an immediate attention for sustainable recovery.
- Conduct Economic and business surveys to strengthen the research program efforts.
- Host seminars and conferences which focus on Eritrea’s short term and long-term path to Economy Recovery and Growth.
- Through our outreach program, to continue bringing more professional to join ERIPS and support its mission.
- Maintain effective communication and working relationships with the other Focus Group professionals in the organization.
EB&F FG Outlook
Eritrea’s future economy needs to be based on enabling infrastructures and technologies first (example: clean energy, hydrogen production, hydroponic farming, blockchain technology etc.). This approach is highly likely to create a sustainable growth-oriented economy, resulting in datadriven smart government, gainful employment, equitable wealth creation without poverty, quality education and other public services. Once these foundational capacities are solidly in place, exploitation of natural resources can come as a next step. To make this all possible, the full potential and creativity of every Eritrean citizen should be unleashed. ERIPS, with strong emphasis on the Policy and Strategy part of its name, can pave the way by creating well-thought out choices Eritrea can follow to join the developed world. ERIPS can and should approach Eritrea’s potential development partners as early as possible to start the conversation and to make all feasible programs as shovel-ready as possible.
Conclusion
A country with a small population, enlightened leadership that is highly focused on development-oriented strategies, and the right alliances; Eritrea’s successful transformation out of the current stagnation becomes an achievable outcome.
For such transformation to take place, however, the magnitude of our existing challenges must be fully acknowledged and addressed. Eritrea’s resources, especially its human resources have been severely diminished under the current regime. An empty treasury, dysfunctional or non-existent institutions and lack of relevant skills are huge challenges awaiting Eritrea when the regime exits the scene.
Jumpstarting the Eritrean economy will not be an easy task after more than a half century of destruction. When the current regime is replaced, Eritrea will have an opportunity to reenergize its economic reform agenda to promote sustainable growth and stability. To that effort, ERIPS can play an important role as a source of information and consultancy to the transitional government. ERIPS is bringing diverse group of members like EB&F FG that combine deep knowledge of the Eritrean context with recognized expertise in recovery, sustainability, economic development, and business acumen in order to support Eritrea’s development efforts and achieve optimum long-term economic results.
Reference:
- Burgis, Tom, 2015, “The Looting Machine”.
- The Heritage Foundation, 2014 Index of Economic Freedom,
- Millennium Challenge Corporation (MCC), 2014, mcc.gov/
- Stephanos, Tewelde, 2019. Eritrea’s Revival (https://unfilterednotes.blogspot.com/)
- World Bank, 2020 Annual Report, worldbank.org
- The African Development Bank Group, 2020 Eritrea Economic Outlook, afdb.org/
- Macroeconomic Policy Framework, Government of the State of Eritrea, 1994, Asmara, Eritrea