Eritrea Economy Facts

by ebizdir · Published January 30, 2023 · Updated February 22, 2023

Economical overview

Eritrea is one of the world’s poorest countries. Half a century of war or warlike conditions have left deep traces. In connection with the fighting, roads and other infrastructure were destroyed, farmland was destroyed and countless people were driven from their homes. The country’s authoritarian rule and unity against the outside world hamper this development.

Exact figures and statistics on the economy are often missing because the government does not allow any transparency. No national budget has ever been published, but it is clear that the domestic industry is small and exports are limited.

Countryaah.com: Major imports by Eritrea, covering a full list of top products imported by the country and trade value for each product category.

A large majority of the population lives from cultivation and livestock management to housing needs and is outside the formal economy. The country does not produce enough food to feed its own population. Deficiency always prevails; the years when the harvest fails the situation becomes acute.

The recovery after the war against Ethiopia in 1998–2000 (see Modern History) was hindered by the conflict remaining unsolved until June 2018, when peace was concluded. Since then, trade with the outside world has expanded, but it is still unclear what this means for the country’s economy and for the living conditions of the Eritreans. Defense spending is very high and the supply of, above all, trained labor is limited.

Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including ERI which represents the country of Eritrea. Check findjobdescriptions to learn more about Eritrea.

State control

Plans for the sale of state-owned companies that were presented after independence in 1993 have mainly meant that a few people in the governing elite have taken personal control of some businesses. The governing clique is basically synonymous with the government and the state has control over all social functions, including the economy. High ranking militaries own companies in the construction sector and IT technology, among other things, and are assumed to have access to free labor (see Current policy).

The political instability in the region makes it slow to attract investors. An exception is the mining sector, where several foreign companies are active. Gold mining on a larger scale began in 2011 (see Natural Resources, Energy and the Environment). The Eritrean State is entitled to 40 percent of the revenue.

The conflict with Ethiopia halted a previously important source of income: trade via the ports of Assab and Massawa. In both cities, economic free zones were opened in 2009 and efforts have been initiated to upgrade the ports. However, competition is fierce in the region and little indicates that business has started on any large scale in the zones. Following the peace agreement 2018, coastal Ethiopia showed interest in using the Eritrean ports, but so far the neighboring country’s trade is mainly via Djibouti.

“Tax” from abroad seritans

An important source of income is money that Eritreans abroad send to their relatives. Eritrea also requires overseas Eritreans to pay “tax”, something unique in Africa. The expatriates are expected to transfer 2 percent of their income to Eritrea. Many pay, out of genuine loyalty or fear of causing distress to relatives in the home country. The money from abroad is expected to amount to around one third of GDP, but the figure is uncertain. The government is also trying to raise money through festivals, concerts and other cultural events abroad.

The dependence on aid and loans is great. But at the same time, the government is careful to assert the country’s independence and, over time, has become increasingly suspicious of the world’s intentions. Since 2005, it has been difficult for foreign countries to assist Eritrea with supplies, despite the urgent needs. The United States, which was previously the largest donor of aid, was ordered to give up completely. Some support is received from the World Bank, the EU and individual countries in Europe and the Middle East.

Small foreign trade

Eritrea traded mainly with Ethiopia before the 1998-2000 war. Subsequently, exports almost collapsed, partly because of a lack of goods to sell abroad. The trade deficit has long been large, as imports far exceed exports.

The mining is expected to eventually be able to provide a much needed supplement of foreign currency. The renovation of the port of Massawa is also expected to contribute to increased trade. Massawa has also been given an international airport, which enables the export of fresh fish catches.

Sales abroad consist mainly of copper, gold, hides and skins, cotton and vegetables. Imports are dominated by food, oil, machinery and other industrial goods. The largest exporting countries are China, India and Canada. Imports are mainly purchased from the United Arab Emirates, China, Saudi Arabia and Italy.

Eritrea is a member of the Comesa regional common market, but the trade exchange with the region is very small.