International Trade in Eritrea

News Related to International Trade in Eritrea

Business outline for Eritrea

Economic Overview

The economic situation has strongly deteriorated since 2002 due to the severe chronic droughts (two thirds of the population are affected by these) a decrease in remittances, autarchic monetary policy led by the government, the heavy costs of military spending and persisting tension with Ethiopia. After contracting in 2008 (-9.8%) and resuming growth in 2009 (3.6%), the economy was only growing slowly in 2010 (1.8%) and the future outlook is hardly more optimistic.

The government's economic strategy consists in managing macroeconomic imbalances by controlling and regulating prices until the security situation permits a transition towards market economy. This policy has lead to a currency shortage and a drop in the private sector activity. The scale of the public debt as a proportion of the GDP is also worrisome, although Eritrea remains up to date with the reimbursement of its debt. With its limited natural resources, the country depends on remittances coming from its diaspora, as well as on international aid and must deal with the challenges of reconstruction. The government's priorities are ensuring security (especially food security), develop the human resources and physical infrastructures in order to improve its insertion in international trade, namely concerning exports, as well as promote the influx of foreign investment.

Eritrea is a poor country devastated by the independence war and by the conflict with Ethiopia. Its slow growth and high inflation rate (20% in 2010) has lead to deterioration of life conditions, in a population which includes a great number of refugees and emigrants (1.5 million persons). Illiteracy and unemployment affect a great proportion of the population.

FDI in Figures

No official data on FDI is available from the country's Central bank. After its return to political stability, Eritrea has started to attract foreign investment during the last few years. Many American and European companies are considering investing in some sectors such as tourism, cement, mining and off-shore oil drilling. In order to attract new investment, the government has created the Eritrea Free Zone Authority in Massawa. The perspectives of an economic growth have improved thanks to the progress accomplished by the creation of a mining joint venture in Bisha (deposits of gold and copper). The feasibility study of Bisha has shown that the project is financially viable and gold extraction is expected to start on 2010.
There are numerous factors impeding investment: corruption, foreign currency control, legal insecurity, arbitrariness of the judicial system, unskilled labor and a disrepair characteristic of a country which has just undergone a period of war.

The main investing countries are the USA, Canada, Italy and Malaysia.

Foreign Trade Overview

After the end of the war with Ethiopia in 2002, the government has tightened its grip on the economy and is openly using the military for developmental purposes. Customs duties are relatively low. However, the State strictly controls the foreign exchange reserves, reducing trade freedom.

Eritrea is essentially an importing nation, agriculture exports (mainly coffee, cotton, leather) depend on the amount of rainfall and outdated irrigation systems; this has created a tremendous trade deficit during the past years, which has been constantly depening and should worsen still in the coming years.

The main trading partners of the country are the United States, the European Union and Sudan.