Before the 1880s, Eritrea was part of Ethiopia. It was the advent of colonial rule that created a historic divide between them. Global developments after the second World War and diplomatic efforts by Emperor Haileselassie helped the reunion of the two countries in 1952 through federation. However, the federation was abolished in 1962 and subsequent internal power struggles ignited the Eritrean liberation movement. In a war that spanned for 30 years, Eritrea finally became an independent state in 1991.

The two countries established formidable relations since then. That close relationship, however, was short lived, because of a bloody two-year war between the two countries brokeout in 1998. 

With the coming of a new leadership in Ethiopia, the two countries have now started a new chapter after two decades of a no-peace no-war situation. Eritrea, whose economic growth has been highly constrained because of the hostilities with Ethiopia over the past 20 years and UN sanctions, is now one of the least developed countries in the world. Even though it is difficult to access up to date data, estimates by the World Bank shows that over 60Pct of Eritreans live in poverty. The government’s isolationist policy, which has highly discouraged the private sector, has contributed for its deteriorating economy. EBR Staff Writers visited the state of Eritrea last month to compile this report. 

Since 2010, Daniel Sebhat, a father of five, has planned to construct a house for his family in Asmara, the capital of Eritrea. Although he managed to get money from loved ones living abroad, the 47-year old was banned from building the house he dreamt by the Eritrean government. “We are not even allowed to refurbish old houses, let alone build new ones,” a frustrated Daniel told EBR. “We live in a country where we are not allowed to reinvest our money.”

Home to an estimated five million people, Eritrea, once referred to by Human Rights Watch as the ‘African North Korea’, is among the few countries in the world where people are deprived of the rights to build a shelter. 

Such unfortunate realities have deteriorated the confidence of Eritreans, who were known for their entrepreneurial skills before the war between Ethiopia and Eritrea started in 1998. “Even though I had enough money in my bank account to start investing in the transport sector, I am not allowed to withdraw more than 5,000 nakfa (USD333) from my account,’ explains Daniel. “It is only in Eritrea that people are forced to live from paycheck to paycheck, even when we are capable of changing our lives. People are living in despair.”  

He is not the only one disappointed by the government’s bizarre policy. Gone are the days when Asmara, which used to house industries and factories, used to be an economically vibrant city. In contrast to the early and mid-1990s, pioneer factories such as Asmara Brewery and Red Sea Bottling, now work way below their capacity.  

As Eritrea remains under a strict command economy, with government policies crowding out private investment, businesses have suffered the most. “The government shut down my shop several times because I was suspected of not depositing money at the bank. I don’t have a right to decide on my own cash,” says a retailer who sells food stuffs in Keren City. “As a result, I dropped my plans of buying stock for my shop, just to deposit the money [in the bank] and make the government happy.”

The calamity is not restricted to the retail sector. Except for the mineral sub-sector,  which remains relatively vibrant, other economic activities are lifeless. While some link the economic catastrophe to the government’s isolationist and strict self-reliance policies, others attribute it to the sanctions placed by the United Nations. 

Deteriorating Economy 

Although economic developments in Eritrea are notoriously hard to track because of the dearth of official data, trends show that its economy had been performing poorly over the past decade, while the majority of East African countries registered better economic achievements. 

Neither the Central Statistical Office of Eritrea nor other ministries have released any official reports on the the economy for over a decade. The Demographic and Health Survey is the only public report released in 2013 by the Office so far. “Although we conduct studies on different activities of the economy, we are not allowed to release any information. Almost all reports, except for the Demographic and Health Survey, are authorized only for internal use,” an official working at the Statistics Office informed EBR. Despite the non-disclosure policy of the government, estimates produced by international organizations show that the economy has been floundering. 

Eritrea’s economy grew by an estimated 3.7Pct over the last two years, on average, after shrinking for the two previous consecutive years by one percent, according to the African Development Bank (AfDB). While the revival of the economy is credited to the growth in the mining sub-sector, the negative growth rate registered by the agricultural sector, which accounts for almost one-fifth of Eritrea’s GDP and is a source of income for more than 60Pct of the population, is the primary factor for the sluggish economic trajectory.  “It would be wrong to conclude that the agriculture sector is underperforming without the availability of fully fledged research. However, it is evident that it won’t improve while being isolated from the world,” stressed an official working at the Eritrean Ministry of Agriculture (EMoA).  

Weak rural infrastructure, coupled with low technological usage and yield enhancing inputs, are the main causes of agriculture inefficiency, in addition to inadequate irrigation systems, insufficient post-harvest storage facilities, inefficient land management, and a lack of skills and extension services to support farmers. 

No significant infrastructure developments have been made over the past decade, except for the construction of micro irrigation dams in a few areas, with the help of development partners, according to officials of the EMoA. “Technology transfer is not possible as the nation is isolated from the world,” the official at EMoA told EBR. “As a result, farmers are not able to improve their yields.” 

These realities have pushed the nation to become dependent on imports to fulfill its food demand. In fact, Eritrea produces only 80Pct of its total food needs in a good year, and no more than 50Pct in unfortunate years, according to the Food & Agriculture Organization (FAO). 

Sorghum, which is mainly used to make injera, a spongy flat bread which is a staple food item in Ethiopia and Eritrea, is one of the most consumed crops. It costs around 30 nakfa (ETB55) a kilogram, whereas teff, another crop used to make injera especially in Ethiopia, costs as much as 70 nakfa (ETB128.80). The country’s demand for sorghum is largely satisfied by local production and partly by imports from Sudan; teff is largely imported through contraband from Ethiopia. 

Before the 1998 war between Ethiopia and Eritrea, the latter was one of the major markets for teff traders. Though formal relations between the two have not resumed since then, the contraband market is still strong. “Despite its expensiveness, we get Ethiopian white teff via Sudan,” a truck driver who transports crops in and out of Eritrea told EBR. Other crops, spices, and packed foods are also available through the contraband market, including red pepper (berbere). 

Eritrea, which has trade relations with no more than seven countries in the world, imported USD336 million worth of goods in 2016, according to the Observatory of Economic Complexity (OEC), a website that provides trade information of more than 150 countries. Wheat flour (USD24.3 million), raw sugar (USD22.9 million), electricity generating sets (USD17.3 million), cars (USD12.2 million) and rubber tires (USD11.8 million) were the top items imported during the year. The import bill was financed by its exports, which have been growing by two percent annually and reached USD371million in 2016, as the OEC’s data shows.

Eritrea’s exports, which solely depend on mining products, showed significant growth over the past five years, mainly driven by increases in the production and exports of mineral ores and metals from the Bisha mine and gold from the Zara facility. Although copper ore  is Eritrea’s biggest export item with a value of USD154 million in 2016, the country also ships gold, precious metal ore, zinc ore, and precious stones  worth USD68 million, USD38 million, and USD4.8 million, respectively, to China, the United Arab Emirates, India, Serbia and Canada  

Despite the improvement of its exports, Eritrea is still less competitive in the global arena. In addition to sanctions placed by the United Nations Security Council, the exchange rate regime also hampers its economic growth as well as exports because Nakfa is overvalued The official exchange rate was 15.075 nakfa to the dollar in August 2018 while a dollar is exchanged for 27.34 birr in Ethiopia. 

The overvalued currency has had an impact on the lives of ordinary people, including Robel Belay, a soldier who makes a net salary of 805 nakfa (USD53.4). “I am only allowed to use 200 nakfa(USD13.30). The rest is given to my family even though I want to use it for my personal consumption,” he said. 

This is an experience shared by many young Eritreans. “I don’t have hope that my life will improve,” says Robel. “I’ve repeatedly pled to be relieved of my national service, but to no avail.”

Eritrea’s national service proclamation states that mandatory national service, which also involves secondary school students of both sexes, should not be beyond 18 months, with the exception of war time. However that limit had never been respected by Isaias Afwerki’s government, pushing Eritrean youth see themselves as having two options: national service, or migration.

Students see the education system in the country as a trap that will lead them into the government’s hands, where they will be forced to do things contrary to their interests. Senait Tesfamichael, 20, whose name changed to protect her identity, quit school in grade nine not to join the army. Living in Keren, Eritrea’s second largest city, with an estimated population of about 100,000, she is not sure how long she can avoid the program. “I don’t have a clearance certificate, which means I am not allowed to access food rations, register to open a business, buy a SIM card, acquire a driving license, or open a bank account. If I join the army, I know I will stay there forever, like my cousins, brothers and sisters,” she said.

Eritrea was once labelled by the United Nations Commission on Human Rights as the last place in the world where anyone would want to serve in the military, but the government has another justification for military service. Eritrean Minister of Information, Yemane Gebreab, was once quoted as saying, “Eritreans are not fleeing the country because of indefinite national service in the military. Rather they are fleeing for economic reasons and Europe is making it easy for them by granting political asylum.” The European Union agreed with Yemane’s sentiments and pledged 20 million euros to Eritrea in a long term support to eradicate poverty in 2015.

A hostile relation with Ethiopia was the major reason for indefinite military service, according to government officials. But now as the two countries are restoring peace, there is high hope among the youth that national service will become limited. In fact, there are some signs from the government as well, which has made attempts to create more jobs in sectors other than the military, according to a regional official EBR spoke to.

Effects of ‘No War No Peace’ Situation

If there are two countries in Africa with extremely close ties in almost all social aspects, they are Ethiopia and Eritrea. The people are bound by blood and ancestral roots, and by common traditions, legends and history. They share culture, way of life, language and religion. Their ties came loose after Italy snapped Eritrea from Ethiopia in the last quarter of the 19th century. Britain, after expelling Italy in 1941, ruled Eritrea for almost a decade. That political sting by foreign powers seeded present-day Eritrean nationalism, even though it would be wrong to link the secession of Eritrea with colonial rule. 

Although Eritrea and Ethiopia federated because of a UN decision in 1952, incidents under both the monarchical and military regimes in Ethiopia played a major role in the quest for Eritrean liberation. The annulment of the 1952 federation prompted Eritreans to start guerrilla movements against the imperial regime of Haileselassie I. They continued their struggle and founded the Eritrean People’s Liberation Front (EPLF) in the early 1970s. After 30 years of war, the rebells were finally able to secede Eritrea in 1991.

Its initial years of independence showed significant progress in recovering and developing economic and social infrastructure. Construction of apartments, water infrastructures, health facilities and industries were heavily undertaken. 

The country improved social indicators, macroeconomic stability and achieved one of Africa’s biggest economic growths growing at an average annual rate of 10.9Pct from 1993 to 1997, according to the World Bank. That success was short-lived because of the war with Ethiopia (1998 - 2000).

Although the war was caused by multifaceted and interrelated factors, the real reasons continue to be the subject of debate among academics, diplomats and politicians. While some link the war with age-old political tension between the Tigray People Liberation Front (TPLF) and EPLF, others attribute it to economic factors, including the introduction of the Nakfa as the Eritrean currency. Bahiru Zewde (Prof.), a renowned historian, once said, “The reason for the war was the test of Eritrea’s independence [on Ethiopia].” But the conflicting parties attribute their shared border as the bone of contention. 

Prior to the war, Ethiopia was the destination of 60Pct of Eritrea’s exports, which were worth ETB147 million, ETB261.8 million and ETB275 million, in 1995, 1996 and 1997 respectively. Eritrea’s imports for the same years were 260, 273.4, and 218.2 million Birr, whereas its re-exports were worth 94.57, 69 and 19.8 million Birr, correspondingly, according to the World Bank. 

The decline in these figures was not accidental, but were rather due to Ethiopia’s protectionist measures, claiming that Eritrea was allegedly depleting its resources through the latter’s State Building Projects. This is believed by some to be one of the basic causes of the war.

Later on, tensions between the two countries were further aggravated by armed clashes in the town of Badme, on the border, which soon escalated into a full scale war. Although casualty figures are contested, the total number of deaths on both sides is estimated to be around 154,000, of which 135,000 were Ethiopian and the rest were Eritreans (both governments claim half of the total casualties). It also resulted in the displacement of over a million people, 100,000 refugees and both sides expelling over 100,000 people. Both countries incurred costs of hundreds millions of dollars because of the war. 

Since the end of the war, except for short conflicts between the two armies, a “no war no peace” situation prevailed for nearly  two decades. At the same time, Eritrea’s economy, which was poorly diversified and hugely dependent on mining, was severely affected, because of the government’s inward looking strategies among other factors. The government, which focused on the provision of basic services, failed to recompense the country’s low agricultural productivity. 

In addition, Eritrea’s two ports, Massawa and Assab, were left idle when Ethiopia resorted to the port of Djibouti for its international trade. Coupled with United Nations sanctions that included travel bans and asset freezes for government and military leaders, the country experienced a steeper economic downturn. Ethiopia worked tirelessly for these economic sanctions. Isaias was suspected of helping Somali insurgents 

Dawn of a Bright Future? 

Now that a new leadership under Prime Minister Abiy Ahmed, who pledges to honor the Algiers agreement, is in power in Ethiopia, hopes are high that the two countries relation started to normalise and economic activities in Erirea are expected to improve. The gesture to normalize relations was welcomed by Eritrean government. It was then followed by visits by both heads of government to the other country, as well as a resumption of air transport, and an agreement to resume trade. 

The positive sentiment was also shared by both countries’ citizens. “We are optimistic that our livelihoods will greatly improve after Ethiopia and Eritrea made peace,” an employee of Massawa Port for more than 20 years told EBR. “I remember how busy Massawa used to be with ships carrying Ethiopians goods. But after the war, we became poor, as the port has been almost idle since the war.”  

But experts still see some flaws in the normalization process. “As many agree, the main cause of the disagreement between the two countries is beyond borders, and of course beyond the Algiers agreement,” argues Mekonnen Fisseha, associate professor of law at Mekelle University. “Simply accepting the Algiers agreement will not make the normalization process easy. A lasting solution depends on how the deal can bring peace, stability and development to the war affected areas. The normalization process is about economic integration, advancing common interests and free economic zone.” 

Alemayehu Geda (PhD), professor of macroeconomics at the Addis Ababa University, also has concerns. “It is a good thing that the countries are normalizing their relations, but the peace deal should be implemented in a way that can make both parties winners,” he said.“International laws on regional integration must be taken into account. Eritrea might be pushed to amend its policies to match Ethiopia’s growth policy.” 


6th Year . Aug 16  - Sep 15 2018 . No.65


 

 

Ethiopian Business Review

Donec sed odio dui. Maecenas faucibus mollis interdum. Aenean eu leo quam. Pellentesque ornare sem lacinia quam venenatis vestibulum. Maecenas faucibus mollis interdum. Donec id elit non mi porta gravida at eget metus. Donec sed odio dui. Lorem ipsum dolor sit amet, consectetur adipiscing elit.

Leave a comment

Make sure you enter the (*) required information where indicated.Basic HTML code is allowed.

Tweets


46,380 KM The length of railway line stretched across Africa currently, according to the African Economic Outlook… https://t.co/srz0VAQqLQ

"The West is watching all this being nearby in one of the naval bases. This will make Ethiopia strategically vulner… https://t.co/gtqevsVIHI
Follow EBR News on Twitter

Most Popular

  • 1
  • 2
Prev Next

The White-Box of Ethiopian Agriculture

The agricultural sector remains our Achilles heel, nonetheless, we remain convinced that agricultural-based development remains the only source of hope ...

Read more

For Whoever Has, to Him Shall be Given …

As the Ethiopian government seeks to transform the economy into one that’s rooted in manufacturing, the simplicity for local investors to access finance...

Read more

Gallery

http://www.ethiopianbusinessreview.net/modules/mod_image_show_gk4/cache/web_component.EBR65.intervi_A_1gk-is-247.jpg

Ethiopia, Eritrea Should Reunite

Tamrat Layne, 63, was Prime Minister of the Transitional Government of Ethiopia, serving from June 1991 to October 1995. He became a member of the Ethiopian Peoples’ Revolutionary Party (EPRP) Read more

http://www.ethiopianbusinessreview.net/modules/mod_image_show_gk4/cache/web_component.EBR64.art_1gk-is-247.jpg

At The Helm of the National Theatre Nebiyou Baye D

The government recently appointed Nebiyou Baye as the new director of the National Theatre of Ethiopia. Although he worked in films as an actor and writer on top of lecturing Read more

http://www.ethiopianbusinessreview.net/modules/mod_image_show_gk4/cache/web_component.EBR63.sport_1gk-is-247.jpg

The Sacking Hiring of Coaches In the Ethiopian Pre

It is common to see the firing and appointment of many coaches in the Ethiopian Premier League, in which 16 clubs are participating currently. Even in the 2017/18 season, 12 Read more

http://www.ethiopianbusinessreview.net/modules/mod_image_show_gk4/cache/web_component.EBR65.focus_1gk-is-247.jpg

The Irony Behind Wheat Scarcity

Why Ethiopia imports huge amounts of wheat while endowed with vast suitable land for farming  In recent years, wheat shortages have been getting more and more severe in urban areas like Read more

http://www.ethiopianbusinessreview.net/modules/mod_image_show_gk4/cache/web_component.EBR64.Feature_B_1gk-is-247.jpg

The Riddles of Urban Safety Net

For a long time, rural poverty has been a big concern in Ethiopia. Compared to rural standards, the urban population, which was estimated at over 20 million last year, might Read more

http://www.ethiopianbusinessreview.net/modules/mod_image_show_gk4/cache/web_component.EBR62.socity_1gk-is-247.jpg

Standing on the Front Lines of History

The national Archives Strive to Safeguard Treasures, Make History Approachable Much has been made of the looting of treasures from African countries. Recently, the argument over the ownership of relics taken Read more

http://www.ethiopianbusinessreview.net/modules/mod_image_show_gk4/cache/web_component.EBR7.gal7gk-is-247.jpg

“Mavericks at Work: Why the Most Original Minds in

Mavericks at Work explores some of the most successful, innovative businesses in the US, presenting the reader with the goals, strategies and methods that have made companies powerhouses in their Read more

http://www.ethiopianbusinessreview.net/modules/mod_image_show_gk4/cache/web_component.EBR7.gal8gk-is-247.jpg

What Africa Can Learn from East Asia’s Development

While the rest of the world obsesses over Europe’s economic travails, America’s political paralysis, and the growth slowdown in China and other emerging markets, there remains a region – Sub-Saharan Read more

http://www.ethiopianbusinessreview.net/modules/mod_image_show_gk4/cache/web_component.EBR7.gal9gk-is-247.jpg

Violent Lotteries

Since the National Lottery Administration began its operation by issuing the first lottery named Regular lottery on September 8, 1961, it has introduced and sold a variety of lotteries to Read more

Visitors Counter

553196
TodayToday2451
YesterdayYesterday4163
This_WeekThis_Week12463
This_MonthThis_Month58469
All_DaysAll_Days553196