Investment climate of Eritrea

Economy

Eritrea’s gross domestic product growth (GDP) growth was estimated at around 9% in the 2011-12 period when compared to the estimated growth of 2.2% in 2010. Growth is projected at 2.2% in 2016, 0.3% in 2015, from 1.7% in 2014 and 1.3% in 2013, reflecting challenges in the business and investment environment, and a poor global economic environment. The budget deficit declined slightly to 10.3% of GDP in Financial Year 2015/16 from 10.7% in 2014/15, and this trend will continue to 9.9% in 2016/17 as a result of increasing revenue from mining projects, access to more grant resources, and a reduction in unproductive expenditures. The GDP is heavily based on services (59.2%), with a very small manufacturing sector contributing 6% and agriculture, hunting, forestry and fisheries contributing 17.2% of GDP. Inflation remained at 12.5% in 2015 mainly because of food-supply shocks and high foreign exchange demand. Foodcrop production in 2015 was only about 50% of its 2014 level. Lower international food and oil prices in 2015 and 2016 should contain 2015/16 inflation below 12.5%.The key driver for growth is the gold mining sector and the high gold price for gold.

The current account balance turned from large deficits into surplus in 2011 though the trade balance is still negative but narrowing and is expected to reach less than 4% of GDP in 2012.

Why invest in Eritrea?

The Eritrea Investment Center, a department functioning under the Ministry of Trade and Industry is a one-stop shop for promoting and facilitating investments in Eritrea. The center is committed to support and encourage investment through facilitating them.

Political

Eritrea is a young nation-state that attained independence in 1993. The initial years of independence were marked by impressive progress in rehabilitating basic economic and social infrastructure, improving social indicators, macroeconomic stability and economic growth. Tensions with Ethiopia remain high as both have troops positioned alongside the border. Eritrea’s government has remained in a state of heightened mobilization and border security remains priority. The tension with Ethiopia has remained a major impediment to the government’s development efforts as a number of possible national socio-economic initiatives and resources remain tied up.

Population

Eritrea has an estimated population of 6.7 million as of 2015. Population has doubled over the past 30 years, with an accelerating growth rate estimated at close to 3.2% p.a. during 2005–2010. Poverty is still widespread in the country where 65% of the population lives in rural areas and 80% depend on rain-fed subsistence agriculture for their livelihoods. An estimated 46% of the population were estimated to be undernourished in 2002, and 40% of children were found to be underweight for their age. Around 37% of women have a low body mass index.

Urbanisation

According to World Bank 35% of the population live in urban areas with average urbanization annual rate of change of 5.11% for the period from 2010 to 2015.

Doing business in Eritrea

The highlights of World Bank score of doing business in Eritrea are summarised as follows;

Topics	World Bank 2017 Rank	World Bank 2016 Rank	Change in Rank
Overall	189	189
Starting a Business	186	185	-1
Dealing with Construction Permits	187	186	-1
Getting Electricity	141	145	4
Registering Property	178	178
Getting Credit	185	185
Protecting Minority Investors	165	166	1
Paying Taxes	147	144	-3
Trading across Borders	189	189
Enforcing Contracts	121	121	-1
Resolving Insolvency	169	169

The government is the in process of creating conducive environment for doing business.

Credit Rating

Not rated.

Remittances

The Foreign Financial Special Investment (FFSI) makes allowances for remittance of net profits and has guarantees against nationalization or confiscation, except for public purposes and with due process of law. Foreign exchange for investment remittances is coordinated by individual contracts unique to each investment.

Arbitration

Eritrea’s legal system is a civil law system borrowed from Ethiopia’s adaptation of the Napoleonic Code. There is Commercial Code of Eritrea and Provisional Civil Code of Eritrea (1993). Eritrea’s legal and regulatory frameworks are underdeveloped and judges sometimes inexperienced. Judicial cases can take an inordinate amount of time to conclude. Civil courts are open and operate slowly, but generally under rule of law without government interference.

Key development challenges

Improve the health in the rural households;
Addressing declining in private sector activity;
Addressing malnutrition among women and children;
Recurrent drought;
High unemployment among the youth;
Limited human capital and
Large military expenditure.

Corruption index

Eritrea is number 164 least corrupt nation out of 175 countries and scored 18 points out of 100 according to the 2016 Corruption Perceptions Index reported by Transparency International.

Security

Security tension is quite high and visitors are advised against travelling to the border areas of Ethiopia, Sudan and Djibouti.

Unemployment and skilled labour

According to CIA World Factbook total unemployment Rate was 8.6% in 2013.

Attitude to Foreign Direct Investment

In its Five Year Indicative Development Plan 2014-2018, the government encourages foreign direct investment and has enacted competitive fiscal regulations and packages to ensure a fair return for risk while maximizing the benefits to the host country but lacks supporting policies to create conducive business environment.

Restrictions on Foreign investment

The Foreign Financed Special Investments (FFSI) Proclamation permits foreign investment, but specifically limits FDI in financial services, domestic wholesale trade, domestic retail trade, and commission agencies, as these sectors are seen more promising for domestic investment.

Intellectual Property (IP) Rights.

IPR is enforced through Eritrea’s Commercial Code and Provisional Civil Code of 1993. Trademarks, patents, and copyrights are available through a procedure involving a public advertisement in the local press. The legal structure for enforcement is extremely weak to non-existent. Law enforcement actions are still lacking. Eritrea joined WIPO in 1997.

Natural Resources

Gold, potash, zinc, copper, salt, possibly oil and natural gas and fish

Investment Climate in Eritrea has been summarized to include the following

Development partners of Eritrea

Exports of Eritrea

International Trade Agreements with Eritrea

Investment Authority of Eritrea

Investment Guarantees in Eritrea

Investment incentives in Eritrea

Investment opportunities in Eritrea

Natural Resources of Eritrea

Trading Partners with Eritrea