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Eritrea Investment Guides

Introduction

Eritrea became an independent State in May 1991 and the Eritrean population confirmed its support for independence in an internationally supervised referendum held in April 1993. This was followed by the recognition of the new State by many countries and its subsequent membership in regional and international organizations as an independent State.


The 30 years of devastating and protracted war and years of recurrent drought before Eritrea achieved independence left the economy in shambles, with much of its infrastructure and the productive base destroyed. Further exacerbating the situation was the failure of colonial regimes to check adverse developmental trends and gross socio-economic mismanagement.

The Government of Eritrea is now faced with the immense challenge of reconstruction. It has to rehabilitate and transform the war-devastated socio-economic system while at the same time laying sound foundations for its further development. The Government of Eritrea is currently engaged in a continuous effort to set up and strengthen appropriate institutions to implement integrated economic development policies based on principles of the market economy.

Eritrea has adopted a market economy in which the private sector will play a leading role in economic development. Efficiency, competitiveness, decentralization and balanced growth are to be the guiding economic principles. It is, therefore, top on the Government’s agenda to encourage and assist the private sector in assuming this role. The emphasis will be on encouraging and motivating both domestic and foreign private investors so that the private sector can contribute directly in the reconstruction efforts of the country. To that end, the Government will play a leading role in creating an atmosphere conducive to the development of the private sector as well as the overall economy. The Government of Eritrea is creating an enabling environment by promulgating new investment and other pertinent laws as well as by formulating appropriate fiscal and monetary policies. The Government has also passed a liberal investment law to encourage the participation of foreign and local capital in the reconstruction and further development of the economy.

This Guide is intended to present brief background information on Eritrea with emphasis on its economy and to serve as a guide for prospective investors.

The country

Land
Eritrea, located in the Horn of Africa, is bounded on the northeast and east by the Red Sea, on the southeast by Djibouti, on the south by Ethiopia and on the west and northwest by Sudan.

Its Red Sea coastline extends for about 670 miles (1,000 kilometres) from Ras Kasar at its northern border with Sudan, to Dar Aiwa, a point south of the port of Assab on the southern Red Sea entrance of Bab al Mandab. The total area of Eritrea is about 124,000 square kilometres and includes the Dahlak Archipelago, a group of around 365 islands lying off the coast of the port town of Massawa with a total area of 1,452 square kilometres. Dahlak Khebir is the largest island of the Archipelago.

Eritrea is divided into 10 provinces: Akele Guzai, Asmara, Barka, Denkel, Gash-Setit, Hamasien, Sahel, Semhar, Senhit and Seraye. It can be roughly classified into three regions: the lowlands, the midlands (or the escarpment) and the highlands. While a temperate climate prevails over the central highland plateau, the western lowlands are hot and humid, and the eastern lowlands are hot and arid.

From the Denkel Depression situated at 400 feet below sea level in the Great Rift Valley, it is possible to climb to 8,000 feet above sea level in an aerial distance of only 35 miles. This varied topography accounts for Eritrea’s diverse climatic conditions. The country is scarred by deep valleys and canyons within which are areas highly favourable for agricultural development.

People
Eritrea has a population of about 4 million, more than 1 million of whom live abroad, mainly owing to the political crisis that prevailed in the country for the past several decades.

The original inhabitants of present-day Eritrea were the Baza (commonly referred to as the Kunama) and the Nara. They presently inhabit the area between the Gash and Setit rivers in western Eritrea as a result of pressures first from an invading Hamitic tribe from the northern Nile basin of the Sudan and later from Semitic peoples migrating from southern Arabia around 800-700 B.C. These last two groups intermingled with the original inhabitants to make up most of the population of present-day Eritrea.

At present, the nine distinct nationalities or ethnic groupings in Eritrea are as follows: Afar, Baza, Beja, Bilen, Nara, Rashaida, Saho, Tigre and Tigrinya. Moslems and Christians (primarily Orthodox, but also Catholic and Protestant) make up the overwhelming majority of the Eritrean population, while a small percentage observes traditional African religious beliefs.

Eritreans are engaged predominantly in agricultural and pastoral activities. About 20 per cent of the population live in the cities and towns.

History
Prior to the Italian colonization of Eritrea at the close of the last century, the country had for centuries been under the domination of various powers, principally the Turks and the Egyptians. In the last century it was colonized and administered by the Italians (1889-1941) and the British (1941-1952). Eritrea was subsequently federated with Ethiopia (1952-1962) and was finally incorporated as a province of Ethiopia. The annexation of Eritrea by Ethiopia led to an armed struggle for liberation that began in September 1961 and lasted for nearly 30 years, until Eritrea was finally liberated in 1991. At present, Eritrea is administered by the Government of the State of Eritrea, which is comprised of separate legislative, executive and judiciary bodies.

A bright vista drawing on hard-won independence, prevailing peace and stability, strong national unity, an accelerating process of democratization and harmonious and cooperative external relations, is opening up. A concerted effort is underway to transform the war ravaged, backward economy into a modern one characterized by self-sustaining growth.

Economy

Eritrea is well positioned to access regional and global markets because of its strategic location on an important international shipping route as well as its more than 1,000 kilometres of coastline and two deep-water ports. Eritrea boasts a varied climate and topography and is endowed with the natural resources necessary for the development of agriculture, fisheries, industry and mining. It also possesses highly motivated, industrious and disciplined human capital with strong aspirations for and dedication to development.

There are, however, critical constraints to development. The physical, social as well as institutional infrastructure of the country has been negatively affected by the war and the policies of the colonial regimes. Human capital development is low and the technological base is backward.

Natural resources

The agricultural potential of Eritrea is far more promising than was claimed by the country’s colonizers. Particularly promising for agricultural development are the western and eastern lowlands and the escarpment, which, with proper conservation and utilization of water resources, can be exploited for intensive and extensive cultivation of a variety of staple and cash crops. Eritrea is also endowed with high-quality breeds of cattle and sheep that are expected to flourish once again.

After two decades of war and recurrent drought, Eritrea’s formerly abundant fauna appears to be recovering. Among its wildlife at large, antelopes, gazelles, monkeys, hyenas and rabbits and other rodents are already making a comeback. The scattered presence of wild hogs, ostriches, leopards, elephants, wild donkeys and rhinoceros over the past decades suggests that a positive reversal is occurring in the recovering forest areas of the country.

Eritrea’s once rich flora is similarly recovering owing to strictly enforced conservation measures taken by the Government. The country’s flora includes acacias, baobabs, pine trees, eucalyptus, olive trees, dumpalm trees and many types of shrubs and grasses. Some of them, the dumpalm tree and the sisal plant, for example, are of significant economic value.

Eritrea is endowed with sizeable quantities of a variety of mineral deposits. Preliminary exploration carried out in the past several decades has revealed that there are commercially significant mineral deposits including the following precious metals, such as gold and silver; metallic minerals, such as copper, zinc, lead and iron ore; industrial minerals, such as potash, sulphur, gypsum, feldspar, silica-sand; and resources for the construction industry, such as granite, marble, slate and limestone. Moreover, the geological formation of Eritrea is similar to that of countries of the Middle East, and exploration has indicated that there are gas and oil deposits in the Red Sea area.

Eritrea’s coastline, with its close to 100,000 square kilometres of sea area, holds great potential. The exploitation of its marine resources could include the development of fisheries, water desalination plants and the tourist industry. Furthermore, Eritrea’ s strategic location in the Red Sea area puts the country in an advantageous position vis-à-vis international trade.

Human resources

The people of Eritrea can be characterized by two highly appreciated features, industriousness and steadfastness, both of which are expected to play a role in the speedy reconstruction and further development of the country’s economy. The country’s well-trained and experienced work force and its pool of skilled managerial and technical personnel satisfy the necessary pre-conditions for its take-off and subsequent sustained economic growth.

Human resource development being fundamental to the overall economic development of the war-torn economy, the educational and human resources policy of Eritrea gives priority to the upgrading of academic and technical educational standards. Concerned Government bodies have launched a variety of educational and human resources development programmes with the ultimate goal of sharpening and broadening further the dynamism, innovativeness, diligence and dexterity of the country’s workforce.

Industry and mining

The output of Eritrea’s manufacturing industry consists primarily of basic consumer goods produced in both privately and publicly owned small- to medium-scale enterprises that are located predominantly in Asmara. The majority are import-substituting establishments presently under rehabilitation. Industrial exports are at present limited to leather products, textiles and salt. It is expected that the manufacturing industry will exploit the country’s valuable human resources and contribute dynamically to Eritrea’s economic development by strengthening its backward and forward linkages with the agricultural and the construction sectors as well as diversifying exports and increasing the country’s export earnings.

Mining activity in Eritrea currently consists mainly of small-scale quarrying of construction materials and of silica for glass bottle manufacture.

Infrastructure

Land transport
The country has a network of roads that are currently under renovation and repair. Asphalted all-weather roads connect the capital city Asmara with one of the principal Eritrean ports, Massawa, and several other provincial towns. In addition, there are hundreds of kilometres of all-weather dirt roads linking administrative and trade centres as well as seasonal roads connecting various parts of the country.

Sea transport and port facilities
Eritrea has two ports, Assab and Massawa. Both ports are located on the sea lane that connects Europe with the Persian Gulf and the countries bordering the Indian and Pacific oceans. Massawa serves Eritrea and northern Ethiopia, while Assab serves Eritrea and central and southern Ethiopia. The ports provide essential pilotage, tugging, cargo handling and storage services. Radio communication from port to calling vessels and vice versa, international telephone communications, telex and fax facilities as well as maritime and clearing agencies which adequately meet the needs of importers and exporters are available at both ports.

Air transport
Eritrea has two international airports, Asmara International Airport and Assab International Airport, which can handle jet cargo and passenger, planes, and a number of small airports or airstrips used by smaller planes. Asmara has recently become one of the busiest airports in the region.

Telecommunications
The Eritrean telephone system connects almost all cities and towns in the country. A newly installed satellite communications network has made possible direct telephone dialling with the rest of the world. International telephone service was started in May 1992 with 30 channels and increased as of October 1992 to 60 channels, with routes via AT&T and British Telecom. As of now, all incoming traffic is automatic, while outgoing calls, with the exception of Ethiopia, are operator assisted. Facsimile service is available. The link between Eritrea and Ethiopia is via satellite through 8 channels.

Telephone exchange service within the city of Asmara is automatic, as it is in Assab and Massawa. Other towns are served by manual switchboards with the help of operators. Digital exchange systems have recently been installed and are operational in Adi Ugri, Asmara and Decamere and are expected to be operational in the very near future. Asmara and Massawa are linked by microwave, and automatic dialling between the two cities is possible.

Banking and insurance services
The central bank of Eritrea is the National Bank of Eritrea. It has a sister bank, the Commercial Bank of Eritrea with a dozen branches throughout the country. It is the main retail bank and has established international correspondents.

Investors may receive local loans in accordance with the regulations of the National Bank of Eritrea for investments or expansions. Prior approval from the National Bank is needed for loans from external sources.

Investors may, in accordance with the regulations of the National Bank, open and operate foreign exchange accounts abroad and in Eritrea. Foreign exchange in the accounts of investors may be used to make the necessary procurements for operation of their investment projects. The Bank grants foreign exchange allocations to all investors and investment projects. Currently, appropriate steps are being taken to restructure and restrengthen the two institutions in view of the vital role they are expected to play in economic development. In addition, a housing bank has been established.

Insurance services are provided by the National Insurance Corporation of Eritrea. The Corporation has full-fledged insurance facilities and is capable of providing all insurance services required by prospective investors. The Corporation’s services include fire, motor, marine, workmen’s compensation, public liability, burglary, life, money, fidelity guarantee, plate glass, goods in transit, bond, aviation, personal accident, engineering, investment and trade credit insurance.

Economic policy

The Government’s economic policy for each sector, described below, has been developed in view of the goals of developing an efficient, outward-looking, private sector-led market economy and a modern, irrigation-based commercial agricultural sector, an outward-oriented, strong manufacturing sector and a highly efficient, multifaceted service sector.

Agriculture
The agricultural sector is vital as a basis of economic development and in order to make possible the repatriation and resettlement of displaced persons. The Government has identified the following objectives:

  • To rehabilitate the agricultural land rendered barren and uncultivable;
  • To provide the farming population with oxen, agricultural implements, seeds and other essential materials;
  • To expand the building of dams and irrigation canals as well as to exploit subterranean waters in order to reduce water shortages and to use effectively the limited water resources of the country in a manner that does not entail ecological imbalance and damage;
  • To stem erosion and undertake afforestation;
  • To preserve and maintain sustainable livestock and wildlife;
  • To expand the cultivation of cash crops as a source of foreign exchange, not, however, at the expense of food crops;
  • To expand agricultural ventures that employ modem machinery, techniques and technology so as to supplement and reinforce the traditional agricultural activities carried out by the majority of the population.

Fisheries

The resources of the country’s clear, unpolluted sea and the variety of fish species being immense, their exploitation for domestic consumption as well as for export is one of the priorities of the Government’s economic policy.

Industry
As Eritrea’s once relatively robust industrial base was shaken in the course of years of colonial destructive policy and practice, its industrial policy has been elaborated with the following goals:

  • To rehabilitate the light industries of the country in order to meet, primarily, internal demand;
  • To build an export-oriented, strong manufacturing sector.

Mineral resources
The exploitation of mineral resources has been recognized to be essential for putting the economy on a strong footing. Accordingly, policy is geared to do the following:

  • To resume and further expand the so far interrupted mineral extraction activities;
  • To intensify and/or start exploratory and exploitative works with respect to other occurrences;
  • To expand and explore additional sources of energy.

Services
The development of Eritrea’s service industry will also be given priority by the Government. Eritrea’ s coastline and over 300 islands of various size are believed to be favourable for the development of tourism and port services. Eritrea’s location is ideal for access to global and regional markets. The country’s ideal location is expected to be a contributing factor for the attraction of foreign businesses wishing to access various markets.

Emphasis is to be given to the expansion and modernization of the transportation and communications facilities of Eritrea. Thus, in order to make possible the rapid movement of people and goods it has been agreed, as a matter of priority, to repair and properly maintain the ruined road networks and build new ones and to introduce new air and maritime transportation networks and to develop the ports, Assab and Massawa.

The Government, committed in its economic policy to the development of the country as a strong service centre at the regional and international levels, will also encourage the following:

  • The gradual development of a diversified financial system that includes banking, insurance and financial intermediation and the entry of the private sector into these activities;
  • The establishment of strong and sustainable construction industry and real estate activities;
  • The establishment of highly developed general consultancy providing business, legal, market, engineering, architectural and research services.

Trade policy
The Government of Eritrea has decided to give the expansion of trade prominence in the development effort in order to remove constraints that might otherwise be imposed by the limitations of the domestic market. Expecting that Eritrea’s unutilized resources in agriculture, fisheries and mines will be able to support expansion in external trade, the Government is enacting a series of policy measures designed to accomplish the following:

  • To foster liberal internal and external trade regimes with limited interventions that would not contradict the tenets of free trade. This will mean, among other things, liberalizing and simplifying the licensing regime and reducing and eliminating tariff and non-tariff barriers;
  • To foster export and export-based industries and services by providing preferential financing, assistance in international market penetration and strong promotional support to aid exports, and support mechanisms for quality and standards control;
  • To encourage participation in regional bilateral and multilateral trade and economic cooperation. Similarly, it will seek access to preferential trade agreements and zones;
  • To assist and encourage the private sector to play a leading role in both domestic and external markets. The role of the public sector will be limited to regulatory functions, selected price stabilization measures, and the import or export of critical commodities and supplies required in several sectors;
  • To help build the institutional capacity that would make Eritrea a trading country;
  • To encourage and support participation of Eritreans living abroad in trading activities.
Last Updated on Sunday 13th December 2009

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