Economy of Eritrea
Encyclopedia
The Economy of Eritrea has experienced modest growth in recent years, indicated by an improvement in Gross domestic product
(GDP) in 2004 of 2.5% over 2003. However, worker remittances from abroad are estimated to account for 32 percent of gross domestic product.
, it possessed a far more sophisticated urban and industrial infrastructure than Ethiopia. Eritrean critics said industrialization in the years since then focused on other parts of Ethiopia. But the then-province of Eritrea was the second highest recipient of Ethiopia's budget and development, only preceded by the province of Shewa
. 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, which lasted from 1998 to 2000, 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. GDP growth fell to zero in 1999 and to -1% in 2000. Planting of crops was prevented in Eritrea's most productive western region, causing food production to drop by 62%. 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
(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.
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 lentil
s, 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.
Farmers are largely dependent on rain-fed agriculture, and growth in this and other sectors is hampered by lack of rain
and inadequate water storage
. Erratic rainfall and the delayed demobilization of agriculturalists from the military kept cereal
production well below normal, holding down growth in 2002-2004.
Although forestry
is not a significant economic activity in Eritrea, its forested area covers 1,585,000 hectares (3,916,000 acres), or 13.5 percent of the total land area. Total roundwood
production in 2004 was 1,266,000 cubic meters, nearly all of it used for fuel
. Since 1993, the Eritrean People’s Liberation Front army has been involved in tree planting; the annual average rate of deforestation
during 1990–2000 was 0.3 percent.
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.
s, cattle
(especially zebu
), and camel
s make up the majority of Eritrea’s livestock. In 2001, Eritrea had 2,100,000 sheep, 1,700,000 goats, 1,950,000 head of cattle, 75,000 camels, and 1.4 million chicken
s. Total meat production that year was 30,900 tons; cow’s milk, 39,200 tons; and eggs, 2,000 tons. The government is emphasizing development of agriculture and animal husbandry in order to decrease the reliance on international relief, caused by war and drought.
. Eritrea is estimated to have some unknown 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.
Nevsun completed its Bisha mining project in early 2011. Estimated production will be 350,000 ounces of gold per year until the gold runs out, at which point the mine will produce copper and zinc.
, leather
, textiles, metal products, chemicals, printing, nonmetallic minerals, construction materials, salt
, paper
, and matches. The government sought privatization of these industries, and issued incentives such as exemptions from income tax, preferential treatment in allocation of foreign exchange for imports, and provisions for remittance of foreign exchange abroad. In 2002, there were approximately 2,000 manufacturing companies operating in the country.
The oil industry has potential, as major oil deposits are believed to lie under the Red Sea
. In 2001, the United States firm CMS Energy
entered into an exploration agreement with Eritrea for exploration in the Dismin Block in northeastern Eritrea. Due to high operating costs, the country’s sole oil refinery, at Assab
, was closed
in 1997. It had a crude refining capacity of 18000 oilbbl/d. The construction industry is growing, as projects range from the construction and expansion of power plants; road, airport, and dam construction; upgrading sea ports; and the construction of schools and hospitals.
In 2005, industry had a 26.3% share of the GDP; services were the largest sector with a 65% participation in the economy; agriculture was least economically important sector (with only an 8.7% share in the GDP), but was by far the largest employer (80% of the total labor force). Recent industries include food processing, beverages, clothing and textiles, salt, cement, and commercial ship repair.
, 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.
, international tourism receipts in 2002 were only US$73 million (compared with US$730 million for Tanzania).
, 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.
is reported to be high. Mean wages were $0.36 per manhour in 2009.
See the decision of the United Kingdom Asylum and Immigration Tribunal
inMA (CG).
(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.
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.
, 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.
In 2002 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. In 2002 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. In 2002 imports worth US$533 million far exceeded exports at US$52 million.
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.
In 1997 external debt totaled US$75.5 million. By 2001, that figure had grown to US$409.6 million. A 2005 US House hearing on the horn of Africa described that "nearly 80 percent" Eritreans of receiving food aid.
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
.
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. Despite claims of self-reliance, Eritrea has been one of the highest recipients of food aid in the world. In 2006, Eritrea was the fifth most food aid recipient in the world, taking in 272,042 metric tons of food according to UN's World Food Programme
(WFP). However per capita, Eritrea was arguably the most food aid dependent nation.
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
(GDP) in 2004 of 2.5% over 2003. However, worker remittances from abroad are estimated to account for 32 percent of gross domestic product.
Economic history
In the early 1950s, when Eritrea was awarded to EthiopiaEthiopia
Ethiopia , officially known as the Federal Democratic Republic of Ethiopia, is a country located in the Horn of Africa. It is the second-most populous nation in Africa, with over 82 million inhabitants, and the tenth-largest by area, occupying 1,100,000 km2...
, it possessed a far more sophisticated urban and industrial infrastructure than Ethiopia. Eritrean critics said industrialization in the years since then focused on other parts of Ethiopia. But the then-province of Eritrea was the second highest recipient of Ethiopia's budget and development, only preceded by the province of Shewa
Shewa
Shewa is a historical region of Ethiopia, formerly an autonomous kingdom within the Ethiopian Empire...
. 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, which lasted from 1998 to 2000, halted all bilateral trade, severely reducing port activity and income in Eritrea. According to World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
estimates, Eritrea lost US$225 million worth of livestock
Livestock
Livestock refers to one or more domesticated animals raised in an agricultural setting to produce commodities such as food, fiber and labor. The term "livestock" as used in this article does not include poultry or farmed fish; however the inclusion of these, especially poultry, within the meaning...
and 55,000 homes during the war. GDP growth fell to zero in 1999 and to -1% in 2000. Planting of crops was prevented in Eritrea's most productive western region, causing food production to drop by 62%. 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
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 FundInternational Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(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.
Agriculture, Forestry, and Fishing
In 2003 agricultureAgriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
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
Barley
Barley is a major cereal grain, a member of the grass family. It serves as a major animal fodder, as a base malt for beer and certain distilled beverages, and as a component of various health foods...
, beans and lentil
Lentil
The lentil is an edible pulse. It is a bushy annual plant of the legume family, grown for its lens-shaped seeds...
s, dairy products, meat
Meat
Meat is animal flesh that is used as food. Most often, this means the skeletal muscle and associated fat and other tissues, but it may also describe other edible tissues such as organs and offal...
, millet
Millet
The millets are a group of small-seeded species of cereal crops or grains, widely grown around the world for food and fodder. They do not form a taxonomic group, but rather a functional or agronomic one. Their essential similarities are that they are small-seeded grasses grown in difficult...
, skins
Skinning
Skinning, a gerund from the verb to skin, commonly refers to the act of skin removal.The process is usually done with animals, mainly as preparation of the meat beneath and/or use for the fur...
, sorghum
Sorghum
Sorghum is a genus of numerous species of grasses, one of which is raised for grain and many of which are used as fodder plants either cultivated or as part of pasture. The plants are cultivated in warmer climates worldwide. Species are native to tropical and subtropical regions of all continents...
, teff
Teff
Eragrostis tef, known as teff, taf , or khak shir , is an annual grass, a species of lovegrass native to the northern Ethiopian Highlands of Northeast Africa....
, and wheat
Wheat
Wheat is a cereal grain, originally from the Levant region of the Near East, but now cultivated worldwide. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...
. The displacement of 1 million Eritreans as a result of the war with Ethiopia, multi-year drought
Drought
A drought is an extended period of months or years when a region notes a deficiency in its water supply. Generally, this occurs when a region receives consistently below average precipitation. It can have a substantial impact on the ecosystem and agriculture of the affected region...
, 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.
Farmers are largely dependent on rain-fed agriculture, and growth in this and other sectors is hampered by lack of rain
Rain
Rain is liquid precipitation, as opposed to non-liquid kinds of precipitation such as snow, hail and sleet. Rain requires the presence of a thick layer of the atmosphere to have temperatures above the melting point of water near and above the Earth's surface...
and inadequate water storage
Water resources
Water resources are sources of water that are useful or potentially useful. Uses of water include agricultural, industrial, household, recreational and environmental activities. Virtually all of these human uses require fresh water....
. Erratic rainfall and the delayed demobilization of agriculturalists from the military kept cereal
Cereal
Cereals are grasses cultivated for the edible components of their grain , composed of the endosperm, germ, and bran...
production well below normal, holding down growth in 2002-2004.
Although forestry
Forestry
Forestry is the interdisciplinary profession embracing the science, art, and craft of creating, managing, using, and conserving forests and associated resources in a sustainable manner to meet desired goals, needs, and values for human benefit. Forestry is practiced in plantations and natural stands...
is not a significant economic activity in Eritrea, its forested area covers 1,585,000 hectares (3,916,000 acres), or 13.5 percent of the total land area. Total roundwood
Roundwood
Roundwood, historically known as Tochar , is a village in County Wicklow, Ireland. It was listed as having a population of 589 in the census of 2006....
production in 2004 was 1,266,000 cubic meters, nearly all of it used for fuel
Fuel
Fuel is any material that stores energy that can later be extracted to perform mechanical work in a controlled manner. Most fuels used by humans undergo combustion, a redox reaction in which a combustible substance releases energy after it ignites and reacts with the oxygen in the air...
. Since 1993, the Eritrean People’s Liberation Front army has been involved in tree planting; the annual average rate of deforestation
Deforestation
Deforestation is the removal of a forest or stand of trees where the land is thereafter converted to a nonforest use. Examples of deforestation include conversion of forestland to farms, ranches, or urban use....
during 1990–2000 was 0.3 percent.
Reliable figures on the extent and value of the fishing industry
Fishing industry
The fishing industry includes any industry or activity concerned with taking, culturing, processing, preserving, storing, transporting, marketing or selling fish or fish products....
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
Massawa
Massawa, also known as Mitsiwa Massawa, also known as Mitsiwa Massawa, also known as Mitsiwa (Ge'ez ምጽዋዕ , formerly ባጽዕ is a city on the Red Sea coast of Eritrea. An important port for many centuries, it was ruled by a succession of polities, including the Axumite Empire, the Umayyad Caliphate,...
, 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
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, and the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
. Tensions with Yemen
Yemen
The Republic of Yemen , commonly known as Yemen , is a country located in the Middle East, occupying the southwestern to southern end of the Arabian Peninsula. It is bordered by Saudi Arabia to the north, the Red Sea to the west, and Oman to the east....
over fishing rights in the Red Sea
Red Sea
The Red Sea is a seawater inlet of the Indian Ocean, lying between Africa and Asia. The connection to the ocean is in the south through the Bab el Mandeb strait and the Gulf of Aden. In the north, there is the Sinai Peninsula, the Gulf of Aqaba, and the Gulf of Suez...
flared up in 1995 and again in 2002, and Eritrea’s difficult relations with other nations could hamper further development of the industry.
Animal husbandry
Sheep, goatGoat
The domestic goat is a subspecies of goat domesticated from the wild goat of southwest Asia and Eastern Europe. The goat is a member of the Bovidae family and is closely related to the sheep as both are in the goat-antelope subfamily Caprinae. There are over three hundred distinct breeds of...
s, cattle
Cattle
Cattle are the most common type of large domesticated ungulates. They are a prominent modern member of the subfamily Bovinae, are the most widespread species of the genus Bos, and are most commonly classified collectively as Bos primigenius...
(especially zebu
Zebu
Zebu , sometimes known as humped cattle, indicus cattle, Cebu or Brahmin cattle are a type of domestic cattle originating in South Asia, particularly the Indian subcontinent. They are characterised by a fatty hump on their shoulders, drooping ears and a large dewlap...
), and camel
Camel
A camel is an even-toed ungulate within the genus Camelus, bearing distinctive fatty deposits known as humps on its back. There are two species of camels: the dromedary or Arabian camel has a single hump, and the bactrian has two humps. Dromedaries are native to the dry desert areas of West Asia,...
s make up the majority of Eritrea’s livestock. In 2001, Eritrea had 2,100,000 sheep, 1,700,000 goats, 1,950,000 head of cattle, 75,000 camels, and 1.4 million chicken
Chicken
The chicken is a domesticated fowl, a subspecies of the Red Junglefowl. As one of the most common and widespread domestic animals, and with a population of more than 24 billion in 2003, there are more chickens in the world than any other species of bird...
s. Total meat production that year was 30,900 tons; cow’s milk, 39,200 tons; and eggs, 2,000 tons. The government is emphasizing development of agriculture and animal husbandry in order to decrease the reliance on international relief, caused by war and drought.
Mining and minerals
Eritrea’s substantial mineral deposits are largely unexplored as a consequence of the long standing colonial period . According to the Eritrean government, artisanal mining in 1998 collected 573.4 kilograms of goldGold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
. Eritrea is estimated to have some unknown 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.
Nevsun completed its Bisha mining project in early 2011. Estimated production will be 350,000 ounces of gold per year until the gold runs out, at which point the mine will produce copper and zinc.
Industry and Manufacturing
Ethiopia nationalized Eritrea’s 42 largest factories and systematically dismantled the Eritrean industrial sector during the protracted civil war. By the end of the civil war, however, all production had stopped. Plants were generally inefficient, and most of these industries required significant investment to achieve productivity. Manufactured items in 2002 included beverages, processed foods, tobaccoTobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...
, leather
Leather
Leather is a durable and flexible material created via the tanning of putrescible animal rawhide and skin, primarily cattlehide. It can be produced through different manufacturing processes, ranging from cottage industry to heavy industry.-Forms:...
, textiles, metal products, chemicals, printing, nonmetallic minerals, construction materials, salt
Salt
In chemistry, salts are ionic compounds that result from the neutralization reaction of an acid and a base. They are composed of cations and anions so that the product is electrically neutral...
, paper
Paper
Paper is a thin material mainly used for writing upon, printing upon, drawing or for packaging. It is produced by pressing together moist fibers, typically cellulose pulp derived from wood, rags or grasses, and drying them into flexible sheets....
, and matches. The government sought privatization of these industries, and issued incentives such as exemptions from income tax, preferential treatment in allocation of foreign exchange for imports, and provisions for remittance of foreign exchange abroad. In 2002, there were approximately 2,000 manufacturing companies operating in the country.
The oil industry has potential, as major oil deposits are believed to lie under the Red Sea
Red Sea
The Red Sea is a seawater inlet of the Indian Ocean, lying between Africa and Asia. The connection to the ocean is in the south through the Bab el Mandeb strait and the Gulf of Aden. In the north, there is the Sinai Peninsula, the Gulf of Aqaba, and the Gulf of Suez...
. In 2001, the United States firm CMS Energy
CMS Energy
CMS Energy is a public utility supplying electric power and natural gas to Metro Detroit and most of Michigan. Its headquarters are located in Jackson, Michigan. The company has operated since 1890....
entered into an exploration agreement with Eritrea for exploration in the Dismin Block in northeastern Eritrea. Due to high operating costs, the country’s sole oil refinery, at Assab
Assab
Assab is a port city in the Southern Red Sea Region of Eritrea on the west coast of the Red Sea. In 1989, it had a population of 39,600. Assab possesses an oil refinery, which was shut down in 1997 for economic reasons...
, was closed
in 1997. It had a crude refining capacity of 18000 oilbbl/d. The construction industry is growing, as projects range from the construction and expansion of power plants; road, airport, and dam construction; upgrading sea ports; and the construction of schools and hospitals.
In 2005, industry had a 26.3% share of the GDP; services were the largest sector with a 65% participation in the economy; agriculture was least economically important sector (with only an 8.7% share in the GDP), but was by far the largest employer (80% of the total labor force). Recent industries include food processing, beverages, clothing and textiles, salt, cement, and commercial ship repair.
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 ArabiaSaudi Arabia
The Kingdom of Saudi Arabia , commonly known in British English as Saudi Arabia and in Arabic as as-Sa‘ūdiyyah , is the largest state in Western Asia by land area, constituting the bulk of the Arabian Peninsula, and the second-largest in the Arab World...
, Kuwait
Kuwait
The State of Kuwait is a sovereign Arab state situated in the north-east of the Arabian Peninsula in Western Asia. It is bordered by Saudi Arabia to the south at Khafji, and Iraq to the north at Basra. It lies on the north-western shore of the Persian Gulf. The name Kuwait is derived from the...
, and Abu Dhabi
Abu Dhabi
Abu Dhabi , literally Father of Gazelle, is the capital and the second largest city of the United Arab Emirates in terms of population and the largest of the seven member emirates of the United Arab Emirates. Abu Dhabi lies on a T-shaped island jutting into the Persian Gulf from the central western...
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.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 OrganizationWorld Tourism Organization
The World Tourism Organization , based in Madrid, Spain, is a United Nations agency dealing with questions relating to tourism. It compiles the World Tourism rankings. The World Tourism Organization is a significant global body, concerned with the collection and collation of statistical information...
, international tourism receipts in 2002 were only US$73 million (compared with US$730 million for Tanzania).
Banking and Finance
According to the International Monetary FundInternational Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
, 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.
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, unemploymentUnemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
is reported to be high. Mean wages were $0.36 per manhour in 2009.
National service
Eritrea makes extensive use of compulsory labour through "national service". After a 6-month period of military training, persons may work on government projects or with private enterprises, with the private company paying a charge to the government but the worker only receiving standard national service wages.See the decision of the United Kingdom Asylum and Immigration Tribunal
Asylum and Immigration Tribunal
The Asylum and Immigration Tribunal was a tribunal constituted in the United Kingdom with jurisdiction to hear appeals from many immigration and asylum decisions...
inMA (CG).
Currency, exchange rate, and inflation
The official currency is the Eritrean nakfaEritrean nakfa
The nakfa is the currency of Eritrea. It is divided into 100 cents. The currency was introduced in 1997 to replace the Ethiopian birr at par, and it was named after the town of Nakfa.For an earlier currency of Eritrea, see tallero....
(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.
Inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
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.
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.Foreign economic relations
ChinaChina
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
, South Korea
South Korea
The Republic of Korea , , is a sovereign state in East Asia, located on the southern portion of the Korean Peninsula. It is neighbored by the People's Republic of China to the west, Japan to the east, North Korea to the north, and the East China Sea and Republic of China to the south...
, Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
, South Africa
South Africa
The Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans...
, and Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
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.
In 2002 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. In 2002 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. In 2002 imports worth US$533 million far exceeded exports at US$52 million.
Asmara
Asmara
Asmara is the capital city and largest settlement in Eritrea, home to a population of around 579,000 people...
’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.
In 1997 external debt totaled US$75.5 million. By 2001, that figure had grown to US$409.6 million. A 2005 US House hearing on the horn of Africa described that "nearly 80 percent" Eritreans of receiving food aid.
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
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
.
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. Despite claims of self-reliance, Eritrea has been one of the highest recipients of food aid in the world. In 2006, Eritrea was the fifth most food aid recipient in the world, taking in 272,042 metric tons of food according to UN's World Food Programme
World Food Programme
The World Food Programme is the food aid branch of the United Nations, and the world's largest humanitarian organization addressing hunger worldwide. WFP provides food, on average, to 90 million people per year, 58 million of whom are children...
(WFP). However per capita, Eritrea was arguably the most food aid dependent nation.